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In re 1977 Rate Appeal of Monmouth Medical Center

Decided: May 20, 1982.

IN RE 1977 RATE APPEAL OF MONMOUTH MEDICAL CENTER. IN RE 1979 RATE APPEAL FOR MILLVILLE GENERAL HOSPITAL. IN RE 1978 RATE APPEAL FOR MILLVILLE GENERAL HOSPITAL. IN RE 1977 RATE APPEAL FOR MILLVILLE GENERAL HOSPITAL. IN RE 1976 RATE APPEAL OF SADDLEBROOK GENERAL HOSPITAL. IN RE 1978 RATE APPEAL FOR PASSAIC GENERAL HOSPITAL. IN RE 1975 RATE APPEAL OF PASSAIC GENERAL HOSPITAL. IN RE 1976 RATE APPEAL FOR MILLVILLE GENERAL HOSPITAL. IN RE 1979 HOSPITAL RATE APPEAL OF MONMOUTH MEDICAL CENTER. IN RE 1977 RATE APPEAL OF PASSAIC GENERAL HOSPITAL


On appeal from final decision of the Commissioner of the New Jersey Department of Health.

Matthews, Pressler and Petrella. The opinion of the court was delivered by Matthews, P.J.A.D.

Matthews

These appeals, brought on behalf of four hospitals, challenge final determinations by the Commissioners of Health and Insurance (Commissioners) setting the per diem hospital payment rate at which each hospital may be reimbursed by Blue Cross and Medicaid for services rendered to their subscribers.

The administrative decisions were made pursuant to the Health Care Facilities Act, N.J.S.A. 26:2H-1 et seq. That act declared the public policy of this State to be

In accordance with this policy and pursuant to powers granted under the act, the Commissioners each year promulgate, with the approval of the Health Administration Board, Standard Hospital Accounting and Rate Evaluation (SHARE) Guidelines outlining the procedures by which hospital payment rates are to be determined.*fn1 N.J.S.A. 26:2H-5. Though the guidelines differ in some respects from year to year, they basically establish a consistent method of rate review and determination.

Preliminarily the guidelines require each hospital to submit an itemized proposed budget in the fall preceding the budget year.

The submission must include the previous year's anticipated and actual costs as well as the anticipated costs for the coming year. Based upon these projections, the hospital requests a specified rate.

The submitted budget is next reviewed by rate analysts in the Department of Health. In an effort to determine the reasonableness of the hospital's projections and requested rate, a two-step analysis begins. First, a budget base is determined by comparing the previous, or base, year's cost figures with those of similar or "peer group" hospitals. If any of the previous year's costs exceed the cost of the median in the peer grouping by a certain percentile, the excess (called the "base period challenge") is deducted from the base year costs. This budget base is then adjusted to account for various differences projected for the coming year, such as inflation, volume and other economic factors. The hospital's budgeted expenditures which exceed this adjusted base are excluded from the calculation of the new rate,*fn2 unless the hospital can demonstrate a sound basis for their inclusion. In this regard the hospital may submit additional information in support of its requested rate to the analysts at a detailed review meeting. At the conclusion of this analysis, the hospital receives an administrative payment rate. See In re 1976 Hosp. Reimbursement Kessler Mem. Hosp., 78 N.J. 564, 568 (1979).

Once notified of this rate, the hospital may request an administrative hearing before a Department of Health hearing officer, at which time it may present further evidence on the reasonableness of its disallowed costs. The hearing officer's recommendations are then reviewed by the Commissioners, who determine the final administrative rate.

On these appeals four hospitals challenge the final administrative rate established by the Commissioners. Millville General Hospital (Millville) contests determinations made for the budget

years 1976, 1977, 1978 and 1979; Monmouth Medical Center (Monmouth) contests determinations for 1977 and 1979; Passaic General Hospital (Passaic) contests determinations for 1975, 1977 and 1978, and Saddle Brook General Hospital (Saddle Brook) contests a determination for 1976. Though each hospital, except Saddle Brook, challenges unique factual determinations made by the Commissioners, they all contest the basic fairness of the rate-setting procedures on a number of common grounds. For this reason we have chosen to consolidate these appeals and treat all of the issues in one opinion. We treat the unique issues first.

I

Millville General Hospital*fn3

Millville maintains that the Commissioners' acceptance of various base period challenges was not supported by substantial credible evidence. As previously explained, the amount by which a hospital's budgeted expenditures exceed the level determined by the analysts to be reasonable is presumed unreasonable and excluded from the calculation of the per diem rate. The amount thus excluded, the "base period challenge," may be reinstated if the hospital can demonstrate that the excess cost is justified and hence reasonable. Such justification, however, must be evaluated in light of the express objectives of the act. A strong showing of necessity based upon unique circumstances

is required to overcome the public's interest in cost-efficient health care.

The Commissioners determined that Millville had not met its burden of justification with respect to seven base-period challenges. More specifically, Millville contested challenges to its anesthesiology, acute care and intensive care centers in 1976, and challenges to its radiology (physicians), emergency room (physicians), intensive care, acute care and anesthesiology centers in 1978. In each case the Commissioners found that the amounts challenged had been properly calculated pursuant to the SHARE guidelines and that the hospital had failed to demonstrate the reasonableness of its budgeted amount. Giving due regard to the Commissioners' expertise, we find sufficient credible evidence present in the record as a whole to support these findings. Close v. Kordulak Bros., 44 N.J. 589, 599 (1965). R. 2:11-3(e)(1)(D).

We do note, however, that the challenge to the anesthesiology cost center in 1978 was the result of the misclassification of a budget item. The Commissioners nonetheless affirmed the challenge, partly on the basis of the SHARE guidelines, which precluded such substitutions, and partly due to the hospital's failure to present evidence with respect to the effect of that reclassification. The refusal of a hearing officer to accept figures submitted by a hospital to correct an earlier mistake is unreasonable. The slavish compliance with departmental guidelines might well render a decision arbitrary. In any event, Millville received a duplication credit in 1978 which would necessarily be offset by the removal of this challenge. For this reason, we sustain the exclusion of the challenged costs.

Millville further asserts that the exclusion of Martland Medical Center and Raritan Valley Hospital from its peer grouping in 1976 and 1977 precluded an adequate and fair comparison and increased the challenges to its budget. These exclusions were justified by the Commissioners on three grounds: (1) ...


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