Opinion
DOCKET NO. A-3726-13T2
05-20-2016
IN RE MEDICAID INPATIENT HOSPITAL REIMBURSEMENT RATE APPEALS FOR 2009-2012, Petitioners-Appellants, v. DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES, Respondent-Respondent.
James A. Robertson and Paul L. Croce argued the cause for appellants (McElroy, Deutsch, Mulvaney & Carpenter, LLP, attorneys; Mr. Robertson, of counsel and on the briefs; Mr. Croce, John Kaveney and Cecylia K. Hahn, on the briefs). Jennifer Simons, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ms. Simons, on the brief).
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION Before Judges Yannotti, St. John and Vernoia. On appeal from the Department of Human Services, Division of Medical Assistance and Health Services. James A. Robertson and Paul L. Croce argued the cause for appellants (McElroy, Deutsch, Mulvaney & Carpenter, LLP, attorneys; Mr. Robertson, of counsel and on the briefs; Mr. Croce, John Kaveney and Cecylia K. Hahn, on the briefs). Jennifer Simons, Deputy Attorney General, argued the cause for respondent (John J. Hoffman, Acting Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Ms. Simons, on the brief). PER CURIAM
Petitioners, seventeen New Jersey hospitals (Hospitals), appeal from the final administrative determinations by the Division of Medical Assistance and Health Services (the Division) denying the appeals of their Medicaid inpatient reimbursement rates. Our examination of the record satisfies us that the Division's final decisions were properly premised on facts in the record and are consonant with relevant statutory provisions. Accordingly, we affirm.
The following hospitals are petitioners herein: (1) AtlantiCare Regional Medical Center; (2) Atlantic Health System — Morristown; (3) Atlantic Health System — Overlook; (4) Chilton Hospital; (5) East Orange General Medical Center; (6) Englewood Hospital; (7) Hackensack University Medical Center; (8) Meridian Health System — Jersey Shore; (9) Meridian Health System — Ocean; (10) Meridian Health System — Riverview; (11) Mountainside Hospital; (12) Palisades Medical Center; (13) Raritan Bay Medical Center; (14) Robert Wood Johnson University Hospital; (15) JFK Medical Center; (16) Somerset Medical Center; and (17) St. Mary's Hospital.
I.
The record discloses the following facts and procedural history leading to the administrative determinations under review. In January of each year, the Division issues the Medicaid rates for the upcoming rate year to each hospital in New Jersey. If a hospital seeks an adjustment to this rate, it must submit a rate appeal request within twenty days of receipt of the rate. N.J.A.C. 10:52-14.17(c)(1). A hospital shall then "identify its rate appeal issues and submit supporting documentation" within eighty days of receipt of the rate. N.J.A.C. 10:52-14.17(c)(2).
The Hospitals timely submitted appeal letters and supporting documentation to the Division outlining alleged calculation errors and other challenges to the rates. The Hospitals challenged: (1) Critical Service Add-On Calculation; (2) Outlier Issue; (3) Calculation of DRG Weights; (4) Base Rate Calculations; (5) Illegality of Budget Neutrality Recasting of Rates; (6) Indirect Medical Education Adjustment; (7) Critical Access Add-On Calculation; (8) Base Rate Adjustment for Final Cost to Charge Ratio or CCR (Budget Neutrality); (9) Low Cost Outliers; (10) Liver Transplant DRG Rate; (11) Base Rate Inflation Factor; and (12) Analysis of the Division's Calculation Methodology. Hackensack University Medical Center (Hackensack) also raised a constitutional takings claim for the rate year 2012.
The Division issued decision letters on June 29, 2012 (responding to all Hospitals' 2009 rate appeals), July 9, 2012 (responding to Hackensack's 2010 and 2011 rate appeals), and August 3, 2012 (responding to Hackensack's 2012 rate appeal) denying the Hospitals' appeals.
Hackensack is the only hospital to appeal its rates for 2010, 2011, and 2012. All other hospitals challenged the rates for 2009.
The Hospitals filed requests for hearings before the Office of Administrative Law (OAL) pursuant to N.J.A.C. 10:52-14.17(e). The matter was assigned to an Administrative Law Judge (ALJ) who requested that the Hospitals submit a statement outlining the issues on appeal. The Hospitals submitted a letter stating:
After reviewing the denial letters, the [Hospitals] will be pursuing a single issue of a constitutional nature, i.e., an as-applied constitutional challenge to each Hospital's 2009 Medicaid rates for failure to provide adequate compensation for the State's taking of the Hospitals' property, including their facilities, equipment, staff and services, for public use.In response, the Division asserted that the ALJ lacked jurisdiction to hear the issue, and that the Hospitals' taking challenge was without merit.
The ALJ's Decision
The parties filed cross-motions for summary decision, and on December 23, 2013, the ALJ issued an initial decision granting the Division's motion for summary decision and denying the Hospitals' motion.
The initial decision first noted that N.J.A.C. 10:52-14.17 explicitly provides that the ALJ reviews "the reasonableness of the Division's reason for denying the requested rate adjustment based on the documentation that was presented to the Division" and that "[a]dditional evidence and documentation shall not be considered." She found it was undisputed that only Hackensack, and only for the 2012 year, had argued in its initial appeal to the Division that its Medicaid reimbursement was an unconstitutional taking. Thus, except for Hackensack's 2012 rate year, the taking claims were barred by N.J.A.C. 10:52-14.17(e).
The ALJ rejected the Hospitals' argument that the Uniform Administrative Procedure Rules (UAPR), N.J.A.C. 1:1-1.1 to — 21.6, gave the OAL independent jurisdiction over the constitutional claims. She found that the OAL did not have the authority to develop a factual record because the Hospitals had not made an as-applied constitutional challenge. Critical to the ALJ's analysis was the regulation limiting the scope of its fact-finding to the issues raised in the documentation presented to the Division. The ALJ rejected the argument that the OAL was not bound by N.J.A.C. 10:52-14.17, and concluded the Division had exclusive authority to determine "whether a case is contested" and the scope of the contested case. The ALJ determined the Hospitals' argument that the constitutional claim did not ripen until after the expiration of the appeal deadline because the data was not available, was not supported by fact or law. The Hospitals' "entirely new and distinct" takings claim raised before the OAL was wholly distinct from the twelve issues raised before the Division, all of which related to the methodology of the calculations. The ALJ found that allowing the Hospitals to amend their petitions would violate N.J.A.C. 10:52-14.17(e) and a remand to the Division was inappropriate because the takings claim was not timely raised in accordance with the regulation.
The ALJ concluded that the Hospitals were challenging the validity of N.J.S.A. 26:2H-18.64, not its application. Moreover, the ALJ determined that although the Hospitals claimed that their challenge was to the statue "as-applied," their challenge was actually to the facial validity of the statute. The ALJ noted the "critical fact" that the statute is administered by the Department of Health, which was not a party to the hearing. She pointed out that the "very argument [had] been rejected by the Appellate Division." (citing In re Amendments to N.J.A.C. 10:52 by the N.J. Dep't of Human Servs., Div. of Med. Assistance and Health Servs., No. A-6649-04 (App. Div. Apr. 26, 2007).
The statute provides that "[n]o hospital shall deny any admission or appropriate service to a patient on the basis of that patient's ability to pay or source of payment." Further, any violation results in a civil penalty. If provided at a so-called disproportionate share hospital, and eligible for subsidy payments, such care is called "charity care." N.J.S.A. 26:2H-18.52. The Department of Health administers charity care programs concerning care for the uninsured. See N.J.A.C. 8:33F-1.2.
Although this opinion is unreported and not cited as precedent, Rule 1:36-3, it is useful for the limited purpose of presenting relevant but general background and history. See Pressler & Verniero, Current N.J. Court Rules, comment 2 on R. 1:36-3 (2016).
Finally, the ALJ determined that although Hackensack was the only Hospital to raise a takings claim in its original appeal, the Division's denial of the appeal was reasonable. Hackensack's argument was based on the marginal loss formula used under the prior regulations. The ALJ found it reasonable to deny the appeal because Hackensack had framed its argument according to that formula. Therefore, the ALJ granted the Division's motion for summary decision and denied the Hospitals' motions.
Division Director's Decision
On March 14, 2014, the Division Director upheld the ALJ's initial decision, adopting the findings, conclusions, and recommended decision in its entirety. The Director held that N.J.A.C. 10:52-14.17(e) provided the procedure for an appeal and the OAL did not have independent authority to hear new claims. The Director also found that the Hospitals' claim constituted a facial challenge to N.J.S.A. 26:2H-18.64, thus the OAL was not the proper forum to hear it. Lastly, the denial of Hackensack's appeal was reasonable. The Director concluded "[t]o allow the [Hospitals] to raise a constitutional taking issue for the first time at the OAL would render the Division's role meaningless and deprive the agency of its authority to address issues concerning the very programs it administers." The Director found no basis to permit the Hospitals to amend their claims. The Director concluded,
I agree with the ALJ that OAL is not the proper forum for a facial constitutional challenge. The Hospitals' constitutional claims amount to a facial challenge to the charity care statute, which is administered by the Department of Health, not [the Division]. Each of the Hospitals' certifications and exhibits are basically identical as the Hospitals are challenging the overall reimbursement system which requires hospitals to serve all patients under the charity care statute.With regard to the denial of Hackensack's appeal, the Director concluded,
Finally, I also agree that the Division's denial of Hackensack University Medical Center's appeals was proper. Although Hackensack challenged its DRG rate through the appeal process for the new rate methodology under N.J.A.C. 10:52-14.17, the hospital erroneously framed its constitutional challenge under the marginal loss appeal process for the previous rate
methodology under N.J.A.C. 10:52-9.1. I agree that the Division is not obligated to make the proper argument on behalf of a hospital. Thus, dismissal of Hackensack's claim was appropriate.The Hospitals' appeal from the Director's decision.
II.
We begin by recognizing that our review of "an agency's determination is limited in scope." Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1, 9 (2009) (citation omitted). Our inquiry is limited to:
(1) whether the agency's action violates express or implied legislative policies, that is, did the agency follow the law; (2) whether the record contains substantial evidence to support the findings on which the agency based its action; and (3) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors.
[In re Proposed Quest Acad. Charter Sch. of Montclair Founders Grp., 216 N.J. 370, 385-86 (2013) (citing Mazza v. Bd. of Trs., 143 N.J. 22, 25 (1995)).]
"Without a 'clear showing' that it is arbitrary, capricious, or unreasonable, or that it lacks fair support in the record, an administrative agency's final quasi-judicial decision should be sustained, regardless of whether a reviewing court would have reached a different conclusion in the first instance." Circus Liquors, supra, 199 N.J. at 9 (citation omitted).
Although we are not bound by an agency's legal conclusions, we nonetheless generally defer to the agency's interpretation of its own regulations and authorizing statutes. Utley v. Bd. of Review, 194 N.J. 534, 551 (2008). "'An agency's interpretation of its own rule is owed considerable deference because the agency that drafted and promulgated the rule should know the meaning of that rule.'" N.J. Healthcare Coal. v. N.J. Dep't of Banking & Ins., 440 N.J. Super. 129, 135 (App. Div.) (quoting In re Freshwater Wetlands Gen. Permit No. 16, 379 N.J. Super. 331, 341-42 (App. Div. 2005)), certif. denied, 222 N.J. 17 (2015).
The Hospitals contend that their takings claims should have been considered on the merits, and the application of N.J.A.C. 10:52-14.17 in such a "draconian, absolute and rigid manner" was arbitrary, capricious, and unreasonable. Further, they argue the OAL is its own separate legal entity with jurisdiction to hear the takings claims and the duty to develop a record for appeal. In the alternative, the Hospitals assert that they should have been permitted to amend the claims consistent with the UAPR, because the data to raise the claims was not available until after the Division's deadline to appeal the annual rates. The Hospitals argue N.J.A.C. 1:1-3.2(b) is applicable and required consideration of their takings claims. It provides:
When the [OAL] acquires jurisdiction over a matter that arises from a State agency's rejection of a party's application, and at the hearing the party offers proofs that were not previously considered by the agency, the judge may either allow the party to amend the application to add new contentions, claims or defenses or, if considerations of expediency and efficiency so require, the judge shall order the matter returned to the State agency. If the matter is returned to the agency and thereafter transmitted for hearing, the agency's response to any new contentions, claims or defenses shall be attached to the transmittal form required by N.J.A.C. 1:1-8.2.
However, the jurisdiction of the OAL is governed by N.J.A.C. 1:1-3.2(a):
The [OAL] shall acquire jurisdiction over a matter only after it has been determined to be contested by an agency head and has been filed with the [OAL] or as otherwise authorized by law, except as provided by N.J.A.C. 1:1-17. The [OAL] shall not receive, hear or consider any pleadings, motion papers, or documents of any kind relating to any matter until it has acquired jurisdiction over the matter, except as provided by N.J.A.C. 1:1-17.
N.J.A.C. 1:1-17 involves the consolidation of cases and is not relevant to the disposition of the pending matters.
With the exception of Hackensack, the Hospitals' takings claims were not the subject of their initial appeals, which were premised on the Hospitals' challenges to the Division's Medicaid reimbursement rates on twelve discrete grounds. The Hospitals did not assert the takings claims until after the Division issued its denial letters, but they contend that the OAL should have permitted them to amend their appeals of the Division's denials to include the takings claims. Under N.J.A.C. 1:1-3.2(b), the OAL has jurisdiction "over a matter that arises from a State agency's rejection of a party's application" and may "allow the party to amend the application to add new contentions," however, the takings claims do not "arise from" the original denial, are entirely distinct, and were not considered or addressed by the Division in the initial appeals or denial letters. Therefore, it was not arbitrary, capricious, and unreasonable for the Division to uphold the ALJ's decision.
Although Hackensack's 2012 unlawful takings claim was a facial constitutional challenge, and therefore not properly before the OAL, the Division's decision denying the claim was reasonable in that Hackensack raised the claim pursuant to an outdated regulation, and as determined by the ALJ, the Division analyzed the claim under the same regulation.
Hackensack argued the Division's "'Marginal Loss' formula excludes from the cost component [Hackensack's] costs associated with the provision of Charity Care" and by doing so, "the Division's actions constitute a fundamental error which improperly skews the marginal loss calculation to the detriment of [Hackensack] in violation of the Takings Clause of the United States and the State Constitutions." The Division responded, stating that "[a]s noted by the hospitals, the Division promulgated and adopted new regulations in 2009." The Division explained that "[t]hese regulations were adopted when the Division implemented a new diagnosis related group rate setting methodology." It argued "although the 2012 Hackensack denial letter referenced a regulation that does not exist, the Division only mentioned the term 'marginal loss' because that is how Hackensack framed its appeal issue."
In denying the request for rate relief, the Division concluded that Hackensack "[had] not demonstrated that it will incur a marginal loss in providing care to Medicaid inpatients under its rates from 2012." The Director concluded that since Hackensack raised its takings claim predicated on the outdated marginal loss formula, the Division's denial on that same basis was appropriate and not unreasonable.
It should be noted that issues relating to the cost and payment data used in the marginal loss calculations were settled by us in In re Hospitals' Petitions for Adjustment of Rates for Reimbursement of In-Patient Services to Medicaid Beneficiaries (Hospitals' Petitions), 383 N.J. Super. 219 (App. Div.), certif. denied, 187 N.J. 82 (2006).
On appeal, the Hospitals contend that the Division's refusal to consider the Hospitals' takings claim on its merits was arbitrary and capricious. Next, they argue that N.J.S.A. 26:2H-18.64 amounts to an unconstitutional taking of their property without just compensation because their Medicaid receipts and charity care subsidy payments are substantially less than their charity care costs. Lastly, the Hospitals request that this court direct the State to allocate sufficient funds to make the Hospitals "whole."
Both the United States Constitution and the New Jersey Constitution protect against government takings of private property "without just compensation." U.S. Const. amend. V; N.J. Const. art. I, ¶ 20.
We affirm the Division's refusal to consider the Hospitals' takings claims for the 2009 rate year and Hackensack's claims for 2010 and 2011, as well as the Division's rejection of Hackensack's claim for 2012, substantially for the reasons stated by the ALJ and the Director in their respective decisions.
The Hospitals ask this court to address, in the first instance, their constitutional challenge to N.J.S.A. 26:2H-18.64. However, we do not have jurisdiction to consider this argument. Rule 2:2-3(a) provides that a party may appeal to this court as of right from final judgments of the trial court, or from final decisions or actions of any state administrative agency or officer. Here, the Director did not make any decision on the Hospitals' takings claims nor were these claims asserted in a trial court. Thus, the claims do not fall within this court's appellate jurisdiction under Rule 2:2-3(a).
Further, the Hospitals' argument is not appropriate for the exercise of our original jurisdiction. Rule 2:10-5 states that an appellate court "may exercise such original jurisdiction as is necessary to complete determination of any matter on review." Here, the "matters" before the court are the Director's decisions that the Division lacked jurisdiction to consider the takings claim. Likewise, an appellate court should not exercise its original jurisdiction when fact-finding is required. See Price v. Himeji, LLC, 214 N.J. 263, 294-95 (2013). Here, the Hospitals' takings claims cannot be resolved without fact-finding better suited for a trial court.
We further note that "[a]dministrative agencies have [the] power to pass on constitutional issues only where relevant and necessary to the resolution of a question concededly within their jurisdiction." Christian Bros. Inst. of N.J. v. N. N.J. Interscholastic League, 86 N.J. 409, 416 (1981) (citing Hunterdon Cent. High Sch. Bd. of Ed. v. Hunterdon Cent. High Sch. Teachers' Ass'n, 174 N.J. Super. 468, 474-75 (App. Div. 1980), aff'd o.b., 86 N.J. 43 (1981)).
The Division has jurisdiction to consider challenges to the Medicaid reimbursement rates, based on a computational error or other such reason. The Division does not, however, have authority to determine the constitutionality of the statutory requirement that the Hospitals provide Charity Care and the related subsidies appropriated by the legislature.
Furthermore, the Division does not have authority to grant relief to address the alleged constitutional violations. The Division cannot relieve the hospitals of their statutory obligation to provide care to all persons regardless of their ability to pay, and it cannot provide the hospitals with Charity Care subsidies greater than those appropriated by the Legislature. See In re Deborah Heart & Lung Ctr., 417 N.J. Super. 25, 30-31 (App. Div. 2010).
We therefore conclude that the Director correctly determined that the Division does not have jurisdiction to address the constitutional claims presented by the Hospitals in their administrative appeals.
We reach a similar result regarding the due process argument. The due process provisions of the Federal and New Jersey Constitutions are not violated by legislative classification as long as it is rationally based on any conceivable state of facts which would afford a reasonable ground for the distinction drawn. Wash. Nat'l Ins. Co. v. Bd. of Rev., 1 N.J. 545, 552 (1949). Where, as here, the statute does not implicate a fundamental right, substantive due process will not be violated as long as the statute reasonably relates to a legislative purpose and is not arbitrary or discriminatory. Greenberg v. Kimmelman, 99 N.J. 552, 563 (1985).
Our opinion does not foreclose the Hospitals' constitutional challenges from being developed and conclusively adjudicated in another forum.
Affirmed. I hereby certify that the foregoing is a true copy of the original on file in my office.
CLERK OF THE APPELLATE DIVISION