MULTICARE MEDICAL CENTER, ET AL, Respondents, v. THE DEPARTMENT OF SOCIAL AND HEALTH SERVICES, ET AL, Petitioners.
No. 56223-7
Supreme Court of Washington
April 26, 1990
Reconsideration denied June 6, 1990.
114 Wn.2d 572
DURHAM, J.
CALLOW, C.J., and UTTER, BRACHTENBACH, DOLLIVER, DORE, ANDERSEN, DURHAM, and GUY, JJ., concur.
Reconsideration denied June 6, 1990.
Bennett & Bigelow, David A. Bennett, and Sanford E. Pitler, for respondents.
DURHAM, J.—The present case tests the legality of the Department of Social and Health Services’ (DSHS) variable ratable reductions to MI–GAU reimbursement payments to participating hospitals. The trial court invalidated the program and held that DSHS was not purchasing MI–GAU hospital care as authorized by
DSHS is an administrative agency of the State of Washington charged with the administration of two state-funded medical care services programs:1 the medical care services program, General Assistance Unemployable (GAU), and the limited casualty program, Medically Indigent (MI). GAU is governed by
In the present case, the six plaintiff hospitals2 (Hospitals) have provided both MI and GAU inpatient hospital care. The dispute concerns reductions in the reimbursement payments by DSHS for that inpatient care.
shall purchase hospital care by contract or by all inclusive day rate, or at a reasonable cost based on a ratio of charges to cost.
In the present case, DSHS contends that it purchased MI–GAU inpatient hospital care pursuant to a series of unilateral contracts, the terms of which are set forth in a document entitled “Core Provider Agreement” (Agreement).3 According to DSHS, the Agreement is a standard contract required by
The Agreement provides that “[r]eimbursement for covered services will be made according to the Schedule of Maximum Allowances, the drug formulary and other applicable payment levels or schedules. This must be accepted as sole and complete remuneration for services covered under the program” and “[a] provider shall bill usual and customary charges or according to instructions issued” by DSHS. The Agreement does not specify the reimbursement rates which are to be paid to the hospitals for the MI–GAU care. Rather, applicable payment levels for hospitals are established by DSHS pursuant to regulation.
From 1981, when DSHS first began using the Agreement, until July 1, 1982, DSHS paid for hospital inpatient care for both MI–GAU and Title XIX patients in an identical manner by determining reimbursable costs according to Medicare cost reimbursement methods pursuant to
Between July 1, 1982 and February 15, 1983, pursuant to
Between February 15, 1983 and June 30, 1983, DSHS did not pay hospitals in an identical manner for MI–GAU and Title XIX care. In response to a financial shortfall, DSHS
DSHS‘s goal in establishing the variable ratable reduction was to require those hospitals best able to absorb losses to do so whenever DSHS concluded that it was without adequate funds. Accordingly, the variable ratable reduction formula adopted in 1983 grouped hospitals according to their base of full charge paying patients. The hospitals with the smallest base of full-charge paying patients had their MI–GAU reimbursement payments reduced by a smaller percentage of their total rate-setting revenue than the other hospitals.
Between July 1, 1983 and March 31, 1984, DSHS paid for MI–GAU care at the same rate as Title XIX care. No variable ratable reduction was imposed; rather, DSHS paid a hospital‘s full OE/TRSR ratio.
Between April 1, 1984 and April 30, 1985, DSHS did not pay hospitals in an identical manner for MI–GAU and Title XIX care. Although DSHS made no reductions in Title XIX payments to hospitals, DSHS reduced MI–GAU payments by a variable ratable reduction varying from 2.7 percent to 22.9 percent depending upon the particular hospital‘s percentage of revenue from full charge paying patients.7
Between May 1, 1985 and June 30, 1985, DSHS increased the variable ratable reductions.8 Accordingly, DSHS reduced reimbursemеnt payments for MI–GAU care by a variable ratable reduction varying from 40 percent to 60 percent depending upon the hospital‘s revenue from full charge paying patients. No reductions, however, were made for Title XIX payments.
Beginning July 1, 1985, DSHS based the variable ratable reductions on the amount of revenue a hospital received from MMBC. Between July 1, 1985 and September 30, 1985, although DSHS made no reductions in Title XIX payments, DSHS reduced DRG–based payments for MI–GAU patients by a variable ratable reduction of between 2.7 percent and 23.4 percent depending upon the particular hospital‘s percentage of MMBC revenue.9
In sum, under the 1983 regulation, there was a 5-tiered variable with an overall average 18.7 percent reduction and the hospitals were classified according to their percentage of full-charge paying patients. In 1985, the regulation was modified to create a 3-tiered variable with an overall average 38 percent reduction with hospitals classified according to their percentage of non-full-charge paying patients (the converse of the 1983 regulation).
On November 5, 1985, DSHS held a public hearing which addressed the adoption of the amendments to
In October 1985, when
A bench trial was held November 2 and 3, 1988 in Thurston County Superior Court. On January 26, 1989, the trial court filed its written opinion, ruling that
In addition, the trial court concluded that the reimbursement rate for MI–GAU hospital care was not contracted for, but was unilaterally set by DSHS. Thus, the court determined that DSHS was obligated to purchase hospital care by either an “all inclusive day rate” or by a rate which constituted payment of “reasonable cost based on a ratio of charges to cost.” The court concluded that DSHS did neither.
On April 13, 1989, in support of its decision, the trial court entered extensive findings and conclusions.13 The court then entered an order which required DSHS to pay the Hospitals “an amount determined as reasonable cost based on the ratio of charges to cost without ratable reduction or other reduction” and that DSHS be prohibited from
On April 21, 1989, DSHS filed a motion for reconsideration, which was denied on June 8, 1989. On June 23, 1989, pursuant to RAP 2.3(b)(2), DSHS filed a motion for discretionary review seeking review of the findings of fact, conclusions of law and order entered April 13, 1989 and the order denying defendant‘s motion for reconsideration entered June 8, 1989. On July 21, 1989, this court granted DSHS‘s motion.
Although the sequence of events leading to this dispute are somewhat complicated, the issues presented on appeal are not complex. This case presents three questions. First, did DSHS purchase MI–GAU hospital care by contract pursuant to
I
CONTRACT ANALYSIS
Under
The trial court correctly determined that there was no bilateral contract.14 DSHS contends, however, that a unilateral contract arose from the parties’ conduct. This raises
In deciding if
The meaning to be afforded the term “contract“, however, is more complicated. We begin by looking to see if the Legislature has defined the particular term. Where, as here, the Legislature has not done so, we follow the general rule of statutory interpretation that an undefined term is afforded its common law meaning. Cowles Pub‘g Co. v. State Patrol, 109 Wn.2d 712, 720, 748 P.2d 597 (1988) (citing Hearst Corp. v. Hoppe, 90 Wn.2d 123, 580 P.2d 246 (1978)); In re Brazier Forest Prods., Inc., 106 Wn.2d 588, 595, 724 P.2d 970 (1986).16
The term “contract” is a well established legal term which, under common law, includes unilateral contracts. In Washington, the term “contract” has long been recognized to include both bilateral and unilateral contracts. In Cook v. Johnson, 37 Wn.2d 19, 221 P.2d 525 (1950), the court stated that “[t]he law recognizes, as a matter of classification, two kinds of contracts—bilateral and unilateral.” Cook, at 23. See also Browning v. Johnson, 70 Wn.2d 145, 422 P.2d 314, 430 P.2d 591 (1967); Saletic v. Stamnes, 51 Wn.2d 696, 321 P.2d 547 (1958); Higgins v. Egbert, 28 Wn.2d 313, 182 P.2d 58 (1947). Thus, it appears that
We then turn to the facts of this case to determine if a unilateral contract exists between the parties. A unilateral contract consists of a promise on the part of the offeror and performance of the requisite terms by the offeree. Higgins
the offer or promise of the one party does not become binding or enforcible until there is performance by the othеr party, whereas, [in a bilateral contract], it is not performance which makes the contract binding, but rather the giving of a promise by the one party for the promise of the other.
Higgins v. Egbert, supra at 317–18.18 In other words, under a unilateral contract, an offer cannot be accepted by promising to perform; rather, the offeree must accept, if at all, by performance, and the contract then becomes executed. Cook, at 23. The Hospitals claim that no unilateral contract ever formed between themselves and DSHS due to a lack of consideration and the absence of mutual intent.19 These issues will be discussed separately.
Consideration
In a unilateral contract, consideration consists of the offeree performing the requisite terms of the offer. Browning v. Johnson, 70 Wn.2d at 148–49; Higgins v. Egbert, 28 Wn.2d at 317. As a general rule, however, an offeree‘s performance of a preexisting legal obligatiоn is not valid
In the present case, in order to perform the contract, a hospital must: (1) become a certified provider, (2) provide a covered service to a MI–GAU recipient, and (3) charge DSHS for the service provided in accordance with applicable billing instructions. Although the Hospitals have performed these services, they claim that there is no consideration to support a unilateral contract because they are under a preexisting legal duty to provide emergency hospital care. The Hospitals essentially make two claims: (1) they are legally obligated to treat Medicaid, Medicare, and MI patients; and (2) Washington case law requires hospitals to provide emergency medical care. We find both arguments to be without merit.
The Hospitals have no duty, created or imposed by statute or regulation, to provide MI–GAU hospital care. Although the Hospitals cite to federal authority requiring them to provide emergency medical care,22 the Hospitals’
Similarly, the Hospitals’ reliance upon St. Luke‘s Hosp. v. Stevens Cy., 181 Wash. 360, 42 P.2d 1109 (1935), for the asserted proposition that “hospitals have ‘no choice’ but to treat a patient in an emergency condition“, as evidence of their preexisting duty, is untenable. St. Luke‘s Hospital simply held that pursuant to statute,23 counties were required to reimburse hospitals at a discounted rate for providing for indigents who “fall sick” within the county.
Simply stated, the Hospitals have no preexisting legal duty to treat eligible MI–GAU patients. Accordingly, we reject their claim of no consideration.
Mutual Intent
The Hospitals also claim that DSHS has not met its burden of establishing a contract because there wаs no mutual intent to set reimbursement rates for MI–GAU care pursuant to unilateral contract. This argument, however, misunderstands the nature of mutual assent in the context of a unilateral contract.24
To determine the mutual intentions of contracting parties, we follow the objective manifestation theory of contracts. Everett v. Estate of Sumstad, 95 Wn.2d 853, 855,
Turning to the facts at hand, we conclude that, by providing the MI–GAU care, the Hospitals agreed to the payment rates which are included within the Core Provider Agreement. The Hospitals were under no obligation to accept the terms of the contract. Upon voluntary performance of those terms, however, the only reasonable intent which can be imputed to their acts is that they assented to the terms of the contract, including the payment rates. The Hospitals are not entitled to perform the contract and then argue that there was no mutual intention that the contract establish the payment rates. Such a result would be a legal absurdity. DSHS‘s offer would no longer be certain or controlled by the Department; rather, under the Hospitals’ theory, a hospital could accept the terms of the contract and then argue for a better contract. That is a result we refuse to sanction. Having voluntarily performed the necessary services, the Hospitals accepted the terms of the contract and cannot now argue that they did not intend for
In sum, we find that the proper interpretation of the term “contract” as used in
II
VALIDITY OF WAC 388-87-070
We next address the Hospitals’ challenge to the validity of
To determine the validity of a challenged regulation,26 we begin with the presumption that administrative rules and regulations adopted and enacted by an agency pursuant to statutory authority are valid if they are reasonably consistent with the statute being implemented.27 State v. Ford, 110 Wn.2d 827, 831, 755 P.2d 806 (1988).28
First, it appears that
We also note that deference to the agency interpretation of the statute is appropriate when the agency is charged with the responsibility for administering the statute. Green River Comm‘ty College Dist. 10 v. Higher Educ. Personnel Bd., 107 Wn.2d 427, 438, 730 P.2d 653 (1986); Moses v.
Finally, additional support can be inferrеd from the absence of action to correct any conflict between the statute and the regulation. The Legislature was well aware of
The appropriations in this section are subject to the following conditions and limitations:
. . . .
(3) The department [DSHS] shall continue variable ratable reductions for the medically indigent and general assistance—unemployable programs in effect November 1, 1988.
Laws of 1989, 1st Ex. Sess., ch. 19, § 213(3).
In sum, the Hospitals have not established, with compelling evidence, that
III
ARBITRARY AND CAPRICIOUS
The Hospitals next argue that DSHS acted arbitrarily and capriciously in administering
Although the trial court noted that it was unnecessary to reach this issue, it nonetheless agreed with the Hospitals and found DSHS‘s administration of
Rules of statutory construction apply to the interpretation of administrative rules and regulations. State v. Burke, 92 Wn.2d 474, 478, 598 P.2d 395 (1979). Accordingly, when faced with an unambiguous regulation, the court may not speculate as to the intent of the regulation or add words to the regulation. Vita Food Prods., Inc. v. State, 91 Wn.2d 132, 134, 587 P.2d 535 (1978). See also Allen v. Employment Sec. Dep‘t, 83 Wn.2d 145, 148, 516 P.2d 1032 (1973). Our task is not to question the wisdom of a particular regulation; rather, our review is limited to determining what the regulation requires.
In the present case, the plain language of
For dates of admission beginning October 1, 1985, [MI–GAU payments] are reduced . . . Hospitals are grouped according to the percentage of total rate setting revenue comprising medical assistance, medicare, bad debt, charity, and other contractual adjustments and rates are reduced according to the following table.
IV
CONCLUSION
In conclusion, we hold that
CALLOW, C.J., and DOLLIVER, DORE, ANDERSEN, SMITH, and GUY, JJ., concur.
UTTER, J. (dissenting)—I dissent. The findings of fact made by the trial court establish that the hospitals did not agree to DSHS’ reimbursement formula. In order to create a contract without the benefit of favorable factual findings, the majority makes an offer from an enrollment form, consideration from legally obligated treatment of hоspital patients, and a meeting of the minds from express disagreement. It then fails to acknowledge its own statement that this “offer” did not specify reimbursement rates. By so doing it enables the majority to create a “contract” which includes a term neither party contemplated at the time.
If DSHS feels that policy considerations require an expansion of its authority, it may ask the Legislature to
The majority‘s use of unilateral contract theory to limit the ability of hospitals to challenge the administration of a benefits program is unprecedented and unsound. Unilateral contracts have hitherto forced promisors to pay those whо perform an offer‘s terms. See generally Petit, Modern Unilateral Contracts, 63 B.U.L. Rev. 551, 552 (1983). The majority‘s ruling requires nothing from DSHS, the promisor under the majority‘s theory, but uses a supposed promise of DSHS to inhibit the hospitals’ ability to challenge the administration of a program reimbursing it for its treatment of the poor. The holding creates precedent which can effectively insulate administrative agencies administering benefits programs in disregard of statutory limitations from recipients’ challenges.
The majority‘s unilateral contract includes no language referring to variable rate reduction. The majority incorrectly states that the “Core Provider Agreement” (Agreement) includes payment rates. Majority, at 587. But “[t]he Agreement does not specify the reimbursement rates“. (Italics mine.) Majority, at 576. Nor does it mention variable rate reduction, thе methodology at issue here.
Trial court findings not challenged on appeal compel the conclusion that this document did not “offer” variable rate reduction. The majority says its decision to consider a novel theory raised for the first time on the motion for reconsideration justifies ignoring the trial court‘s findings of fact. Majority, at 581 n.14. The majority cites no case law to support this remarkable decision. Because the findings of fact show conclusively that the Agreement did not include variable rate reduction, they are highly relevant to the question of whether a contract was formed as to variable rate reduction. After all, DSHS argued that this Agreement was the offer forming the basis of the unilateral contract.
When
Neither DSHS nor the hospitals thought the Agreement offered variable rate reductions when it was signed. Clerk‘s Papers, at 312. Indeed, DSHS’ cover letter to the Agreement explicitly stated that the Agreement “does not include requirements beyond those by which providers are already bound.” Clerk‘s Papers, at 234. In 1981, when this Agreement was circulated, providers were not bound to accept variable rate reduction. DSHS did not use variable rate reduction until 1983. Majority, at 576–77.
The trial court‘s conclusion that this Agreement was actually a “method of enrollment for program participation, and really nothing morе“, is absolutely correct. Report of Proceedings, at 39 (June 8, 1989). The majority magically creates an offer of variable rate reduction from an enrollment form signed before variable rate reduction was introduced and before the MI–GAU program existed in its current form.
Performance of the terms of an offer can establish a unilateral contract, but it cannot change the offer‘s terms. The majority recognizes that this signed enrollment form did not create a bilateral contract. Majority, at 581. The majority‘s conclusion that no bilateral contract existed cannot be based on lack of consent to its terms. It was signed. The Agreement does not create a bilateral contract because its
Any contract, even a unilateral one, requires a meeting of the minds as to essential terms. See Estate of Bogley v. United States, 514 F.2d 1027, 1038 (Ct. Cl. 1975) (unilateral promise accepted by performance creates a unilateral contract because there was a meeting of the minds as to essential terms); Coleman v. Holecek, 542 F.2d 532, 535 (10th Cir. 1976) (unread signed form does not form basis of unilateral contract because there was no meeting of the minds); Watson v. Idaho Falls Consol. Hosps., Inc., 111 Idaho 44, 720 P.2d 632 (1986) (employment manual can create a unilateral contract when employee‘s work indicates intention to accept promises in the employment manual). In a unilateral contract, the promise is unilateral, but the intention to contract remains bilateral. See Farley v. Clark Equip. Co., 484 S.W.2d 142, 147–48 (Tex. Civ. App. 1972) (perfоrmance does not create a unilateral contract because there was no mutual intention to contract). One party simply indicates the intention to contract by performance rather than by making a promise. See Restatement (Second) of Contracts § 18 (1979) (assent manifested by conduct or words); see generally Petit, Modern Unilateral Contracts, 63 B.U.L. Rev. 551, 552 (1983).
The intent to contract is a factual question. Weimerskirch v. Leander, 52 Wn. App. 807, 813, 764 P.2d 663 (1988). The party arguing for a contract‘s existence must establish the intent to contract. Johnson v. Nasi, 50 Wn.2d 87, 91, 309 P.2d 380 (1957). Because Washington uses an objective theory of contract, DSHS in this case must show that the reasonable meaning of DSHS’ and the hospitals’ words and actions indicates an intention to contract for variable rate reduction. See Everett v. Estate of Sumstad, 95 Wn.2d 853, 855, 631 P.2d 366 (1981).
The reasonable meaning of DSHS’ actions is that it never intended to seek an agreement about variable rate reduction. Rather, DSHS thought that it had the statutory authority to impose this reimbursement method upon hospitals and did so by regulation. See majority, at 577–79. DSHS did not rely upon its contractual authority under
DSHS’ actions since the Agreement shows even more forcefully that it did not intend to bind itself by this “offer“. DSHS changed its method of reimbursement repeatedly in the years since the Agreement was signed. It did not violate a contract thereby, because the Agreement involved no promise which would bind DSHS to pay according to any particular formula. An offer not manifesting an intention to be bound is not an offer and cannot form the basis of a contract. See Panto v. Moore Business Forms, Inc., 130 N.H. 730, 735, 547 A.2d 260 (1988) (classic unilateral contract includes offeror‘s promise to be bound); Chasan v. Village Dist. of Eastman, 128 N.H. 807, 815, 523 A.2d 16 (1986) (writing not using the word “offer” or otherwise manifesting intention to be bound cannot be the basis of a unilateral contract); Chauvin v. Bohn, 411 So. 2d 442, 445 (La. 1982) (offer must declare party‘s intention to be bound); Augustus v. John Williams & Assocs., Inc., 92 N.M. 437, 440, 589 P.2d 1028, 1031 (1979) (accepted offer omitting an essential term shows no intent to be bound and
This “contract” not only lacks any objective indication that either party intended to make an agreement about the matter at issue here, it lacks consideration as well. The majority argues that the treatment of indigent patients constitutes consideration for DSHS’ “promise” to pay according to variable rate reduction. See majority, at 586. The majority recognizes that performance of a preexisting legal obligation is not valid consideration, but argues incorrectly that the hospitals have no statutory obligation to treat “MI–GAU patients.” Majority, at 585–86.
The terms of the federal Emergency Medical Treatment and Active Labor Act doom the majority‘s attempt to exempt these unfortunate “MI–GAU patients” from its protections. The act requires emergency medical treatment of “any individual (whether or not eligible for benefits under [medicare])“.
Neither the majority nor DSHS cite a single page in the record supporting the notion that the hospitals exceeded the requirements of the federal law in order to take advantage of variable rate reduction. Absent some support in the record, the State cannot meet its burden of proving consideration, an essential element to any contract.
Moreover, DSHS did not bargain for this “consideration“. See Huberdeau v. Desmarais, 79 Wn.2d 432, 440, 486 P.2d 1074 (1971) (“consideration will . . . render a promise enforceable if it was ‘something bargained fоr‘“). DSHS did not offer variable rate reduction as an inducement to treatment of the indigent; indeed, it is a disincentive. Nor does
CONCLUSION
The trial court correctly concluded that the hospitals did not agree to variable rate reduction. Because DSHS cannot require variable rate reduction absent a contract, the regulations establishing variable rate reduction are invalid. I would affirm the trial court‘s decision striking the regulation.
BRACHTENBACH, J., concurs with UTTER, J.
Reconsideration denied September 5, 1990.