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Monmouth Medical Center v. State

Decided: June 18, 1979.


On certification to the Superior Court, Appellate Division, whose opinion is reported at 158 N.J. Super. 241 (1978).

For affirmance -- Chief Justice Hughes and Justices Mountain, Sullivan, Pashman, Clifford and Handler. For reversal -- Justice Schreiber. The opinion of the court was delivered by Pashman, J. Schreiber, J., dissenting.


[80 NJ Page 301] The primary issue presented in this case is whether a State may, consistent with the Federal Medicaid Act, 42 U.S.C. § 1396 et seq., and its accompanying regulations, 42 C.F.R. § 430 et seq. (1978), deny reimbursement to a hospital for medically necessary services rendered to an eligible patient who can be adequately treated in a less intensive care facility but who, through no fault of the

hospital, cannot be suitably placed. Specifically, we must determine the validity, as applied to the facts of this case, of a State regulation which denies recompense to a hospital for inpatient services provided to a Medicaid recipient awaiting placement in a skilled nursing home or intermediate care facility. We are further asked to consider whether the review process utilized by the Division of Medical Assistance and Health Services (Division) in order to determine the merits of a hospital's objections concerning denials of reimbursement comports with the requirements of procedural due process.

For the reasons given below, we conclude that the hearing procedure survives constitutional scrutiny, but that nonetheless the challenged reimbursement regulation is inconsistent with the Federal Act and hence invalid under the Supremacy Clause of the United States Constitution. U.S. Const., Art. 6.

Medicaid is a program whose principal aim is that of "enabling each State, as far as practicable under the conditions in such State, to furnish * * * medical assistance [to] individuals whose income and resources are insufficient to meet the costs of necessary medical services * * *." 42 U.S.C. § 1396. In order to achieve this goal, a complex cost-sharing mechanism has been constructed providing for partial federal funding of medical services rendered to the indigent.*fn1

The Medicaid Act represents an exercise in what has been termed "cooperative federalism." Note, "State Restrictions on Medicaid Coverage of Medically Necessary Services," 78 Colum. L. Rev. 1491, 1491 (1978). The program is primarily administered by the State, subject to federal guidelines and constraints. Each participating State is required to

adopt a plan, which must be approved by the Secretary of the Department of Health, Education & Welfare (HEW), covering in detail the services to be rendered. 42 U.S.C. §§ 1396, 1396a(a). The plan must provide for five general categories of medical assistance and may include others.*fn2 42 U.S.C. 1396a(a)(13)(B). Reimbursement must be provided for "the reasonable cost of inpatient hospital services," id. § 1396a(a)(13)(D), and "skilled nursing facility and intermediate care facility services * * * on a reasonable cost related basis * * *." Id. § 1396a(a)(13)(E).

Plaintiff Monmouth Medical Center (Monmouth), a nonprofit hospital situated in Long Branch, has contracted with the State to be a provider of medical services to eligible recipients pursuant to the State Medicaid Program. N.J.S.A. 30:4D-1 et seq. Under this agreement Monmouth is obligated to provide medically necessary inpatient services to the "categorically needy." This group consists of

[42 U.S.C. § 1396a(a)(10)(A)]*fn3

In return, Monmouth is entitled to reimbursement by the State for certain expenses incurred in treating these patients.

The present controversy originated when Prudential Insurance Company of America, an underwriter of the State's program,*fn4 denied in part three reimbursement claims submitted by Monmouth.*fn5 Pursuant to N.J.S.A. 30:4D-7(f) and N.J.A.C. 10:49-1.16, Monmouth requested a "fair hearing" before the Division to challenge the validity of Prudential's actions. On August 13, 1976 a consolidated proceeding was held before a Division Hearing Officer.

The first reimbursement claim involved services rendered to one Luther Townsend, a 55-year-old male who was hospitalized from April 7 to May 28, 1975 due to a fractured hip. Dr. James Gardam, Prudential's representative, testified that as of April 23, 1975 the medical charts indicated that Mr. Townsend was convalescing satisfactorily. Although Prudential agreed that Townsend's condition necessitated physiotherapy and thus skilled nursing services, it contended that after May 8, 1975 there was no medical need for hospitalization. Prudential therefore denied reimbursement for services rendered after May 8 on the basis that less intensive -- and less expensive -- care was feasible.

Dr. James Kirby, Chairman of the Monmouth Medical Center Utilization Review Committee, agreed with Dr. Gardam that Townsend could have been adequately treated in a lesser care facility after May 8. He asserted, however, that Monmouth had been unable to place Mr. Townsend in a suitable

institution and that the hospital would have been negligent had it merely released the patient to fend for himself.

Mrs. Cunningham, the Coordinator of Social Services at Monmouth, testified that beginning April 9, 1975 attempts were made to place Mr. Townsend in a nursing home or intermediate care facility. The hospital canvassed all such facilities in Monmouth and Ocean Counties on a daily basis. It was not until May 28 that a bed became available and therefore Townsend was not discharged until that date. Mrs. Cunningham further explained that the hospital did not contact institutions in other counties because it was already aware that they had no available space.

The second case involved Madeline Papikas, a 47-year-old female admitted on April 9, 1974 due to kidney and liver failures. The seriousness of her condition necessitated a lengthy hospital stay. As of September 1, 1974, however, her medical chart revealed that she was sufficiently stabilized for transfer to a lesser care facility. Nevertheless, due to an unfortunate morass of bureaucratic red tape, Monmouth was unable to obtain a Medicaid number for Mrs. Papikas despite diligent efforts on its part.*fn6 Without such a number, no nursing home would accept her as a patient. By the time a number was finally procured, December 5, 1974, nursing home care was no longer necessary. Accordingly, Monmouth's Social Services Unit obtained an apartment for Mrs. Papikas and on December 10, 1974 she was discharged.

Both sides agreed that Mrs. Papikas needed medical attention even after September 1 -- the date after which Prudential refused to reimburse Monmouth -- but that nursing home care would have been adequate. They further stipulated

that it would have been negligent for Monmouth to have merely released her at that time.

The final case was that of James Rempkowski who was hospitalized from November 23, 1975 through March 9, 1976 due to a cardiac arrest and resultant brain damage. Although a lengthy period of hospitalization was required, the parties agreed that as of January 13, 1976 intensive care was no longer medically necessary. It was also agreed, however, that skilled nursing home facilities were mandated and that discharge of the patient -- as opposed to transfer to a nursing home -- would have amounted to negligence on the hospital's part.

Mrs. Cunningham testified that the failure to transfer Rempkowski was due to difficulties encountered in obtaining a Medicaid number for the patient. Although a Supplemental Security Income application was filled out on December 4, 1975, and despite hospital attempts to expedite matters, Rempkowski's Medicaid number was not received until February 19, 1976. At that time, his name had already been placed on nursing home waiting lists. Not until March 8, 1976 was Monmouth notified, by the Bayview Convalescent Center, that a bed was available. Mr. Rempkowski was transferred the following day.

By report dated October 28, 1976, the hearing examiner recommended in all three cases that the hospital be fully reimbursed for the period denied by Prudential. In each case he found that Monmouth had acted in good faith and that "special circumstances" had prevented the discharge or transfer of the patient.

The Director of the Division, relying upon sections 202 and 202.9 of the Hospital Services Manual, see N.J.A.C. 10:52-1.2(b), 10:52-1.3(a)(18), modified the Hearing Officer's ...

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