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In re 1982 Final Reconciliation Adjustment for Jersey Shore Medical Center

Decided: March 18, 1986.


On appeal from Final Decision of the New Jersey Hospital Rate Setting Commission.

Antell, Shebell and Matthews. The opinion of the court was delivered by Shebell, J.A.D.


This appeal by Jersey Shore Medical Center involves a challenge to the final reconciliation methodology utilized by the New Jersey Department of Health in recalculating the hospital's rates for the year 1982.

On January 26, 1982, the Commissioner of Health issued a proposed schedule of rates for Jersey Shore for the 1982 rate year. The hospital rejected these rates and pursuant to N.J.A.C. 8:31B-3.51(a)(2), submitted exceptions for appeal and review by the Hospital Rate Setting Commission (hereinafter "HRSC"). The HRSC approved several of the hospital's proposed adjustments, including a $1,447,214 increase to the direct patient care costs. These approvals were set forth in the HRSC's Final Decision and Rate Order dated August 8, 1984.

During the interim, the Department being in receipt of the hospital's actual 1982 experience began to conduct a final reconciliation of Jersey Shore's 1982 rates, pursuant to N.J.A.C. 8:31B-3.71. The methodology utilized in this process had been

previously approved for 1982 by the HRSC at a September 21, 1983, hearing. In June of 1984, the Department notified Jersey Shore of its final reconciliation adjustment for 1982, noting an overcollection of $2,770,635 including interest. In the direct patient care area, this resulted in the reduction of the previously-approved adjustment of $1,447,214 to $723,472. Jersey Shore objected to the Department's final reconciliation methodology and the resulting figures. After hearings on September 26, 1984 and November 7, 1984, the HRSC voted to accept the Department's recommendations and withheld the "overcollection" from the reimbursement funds payable to the hospital.

Final reconciliation is the process by which a hospital's actual experience in net revenue collection for a fiscal year is compared to the allowable net revenue of the preliminary cost base. It is the recalculation of rates in light of the inflationary factor for the year, the hospital's actual case mix and other adjustments. N.J.A.C. 8:31B-3.73. Because of the prospective nature of the rate-setting system, reconciliation is necessary to insure that the hospital's net revenue collection aligns with the HRSC-approved schedule of rates, thereby complying with the cost containment mandate of the Act. N.J.A.C. 8:31B-3.71(a); N.J.A.C. 8:31B-3.73(a); see In re Monmouth Med. Center Rate Appeal, 185 N.J. Super. 20, 35-36 (1982).

Certain automatic adjustments, such as the economic factor and HRSC-ordered changes, are made by the Department. N.J.A.C. 8:31B-3.72(a). Hospitals are required to submit reports of their actual experiences. The Department then computes any difference between the actual net revenue and allowable net revenue with interest and accordingly adjusts the hospital's schedule of rates for the next year. N.J.A.C. 8:31B-3.75(b)3 and 4. If the hospital's actual revenue exceeds allowable amounts, an "overcollection" is registered and is subtracted from the next year's rates. If hospital revenues are below the appropriate amounts, the "undercollection" is included as an addition to the upcoming rate schedule.

Jersey Shore first entered the new rate reimbursement system in 1982. The Department utilized the hospital's 1979 fiscal year as its cost base. The hospital showed efficiencies and was rewarded with incentives. Jersey Shore has historically been a low-cost hospital, but in recent years has experienced significant problems in the areas of personnel, services and physical plant. The hospital therefore aggressively pursued recruitment, quality improvement and construction of additional space.

Although the revised order under review reflected the adjustment in base year (1979) dollars, the document stated that the change was being made to the hospital's preliminary cost base. This misstatement to a large extent appears to have precipitated the instant appeal.

The Department's 1982 final reconciliation methodology was approved by the HRSC on September 21, 1983. It was basically the same methodology employed for the rate year 1980, for which a case study was published and distributed to hospitals.

Jersey Shore objects to the methodology by which the final 1982 direct care amounts were determined, claiming that it did not receive the full benefit of the previously-approved $1.4 million adjustment because that figure was screened against the statewide standard at the time of reconciliation. It maintains it was not made aware that this rescreening would be done and relied to its detriment on receiving the full amount. It points to the language of the Rate Order, which made the adjustment directly to the PCB, and argues that the meaning of this terminology was that the approved increases were to be directly added to the reimbursement schedule without any rescreening.

The Commission concedes it was not technically correct in its language in the 1984 Rate Order, but asserts that the actual intention of the HRSC in approving the 1982 rates for Jersey Shore is what should control.

Our function on appeal is to determine "whether the findings made could have been reached on ...

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