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In re 1983 Final Reconciliation Adjustments of Greenville Hospital

Decided: January 20, 1987.

IN THE MATTER OF 1983 FINAL RECONCILIATION ADJUSTMENTS OF GREENVILLE HOSPITAL, GREATER FREEHOLD AREA HOSPITAL, MERCER MEDICAL CENTER, MONMOUTH MEDICAL CENTER, PASSAIC GENERAL HOSPITAL, WEST JERSEY HEALTH SYSTEM AND ZURBURG MEMORIAL HOSPITAL


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

O'Brien and Landau. The opinion of the court was delivered by Landau, J.s.c. (temporarily assigned).

Landau

[214 NJSuper Page 608] This is an appeal pursuant to R. 2:2-3(a)(2) by the Division of Rate Counsel of the Public Advocate (Advocate) from the approval in December 1985 by the New Jersey Hospital Rate Setting Commission (Commission) of certain "final reconciliation adjustments" for 1983 affecting 7 hospitals, made as part of a comprehensive statutory and regulatory scheme developed, "in order to provide for the protection and promotion of the health of the inhabitants of the State, promote the financial

solvency of hospitals and similar health care facilities and contain the rising cost of health care services. . . ." (N.J.S.A. 26:2H-1)

The Advocate has asserted that "the Commission's decision to approve the 1983 Final Reconciliation Adjustment is unlawful because the Commission failed to proceed upon an evidential foundation and did not reveal the grounds for its decision." In addition, the Advocate suggests that it is entitled to explore the causes of the schedule of rates variances including variations between projected and actual patient volume and case-mix. The Advocate also argues that if this aspect of the final reconciliation adjustment procedure is viewed as automatic, the Commission's duty to implement the "necessary and appropriate" aspect of the volume and case-mix (N.J.S.A. 26:2H-18.1b) is not fulfilled. We disagree and affirm.

The current process involved in implementing these statutory objectives was recently summarized by our Supreme Court:

Stated simply, the Amendment establishes a three-step system for the setting of hospital rates. First, the Commissioner of Health proposes for each hospital a preliminary cost base*fn1 -- that proportion of its expenses that the Commissioner determines deserves to be covered by the hospital's charges to its patients. N.J.S.A. 26:2H-2(k). The preliminary cost base is annually increased by an economic factor to account for inflation. N.J.S.A. 26:2H-18.1(b). Then, the Commissioner of Health proposes for each hospital a "certified revenue base"*fn2

-- an amount determined by the Commissioner that must be reimbursed to the hospital. N.J.S.A. 26:2H-2(1). Finally the hospital's rates are approved by the Commission, based on the hospital's certified revenue base figure. N.J.S.A. 26:2H-4.1(b). The preliminary cost base, the certified revenue base, and the schedule of rates are determined in accordance with regulations adopted by the Commissioner of Health with the approval of the Health Care Administrative Board. N.J.S.A. 26:2H-2(k), -18(b). However, they must ultimately be approved by the Commission. N.J.S.A. 26:2H-4.1(b).

The disincentives and incentives in the area of direct patient care cost are not arrived at by an analysis of the costs of particular items or services. Rather, the incentives and disincentives are determined by comparing a particular hospital's historic or base year costs for each separate Diagnosis Related Group (DRG)*fn3 to the standard by peer group for each DRG. See N.J.A.C. 8:31B-3.23. The regulations are designed to establish a prospective rate of reimbursement related to the measure of hospital resources consumed for each particular illness and identified as a price per case by DRG. N.J.A.C. 8:31B-5.1.

Riverside General v. N.J. Hosp. Rate Setting Comm., 98 N.J. 458, 463 (1985).

At the end of the rate year, hospitals are required to report data on their actual patient volume and case mix as well as the amount of revenue collected during the rate year, for use in final reconciliation. (N.J.A.C. 8:31B-3.73(a)) Final ...


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