Furman, Brody and Long. The opinion of the court was delivered by Long, J.A.D.
[227 NJSuper Page 559] On December 12, 1985, Congress enacted the Balanced Budget and Emergency Deficit Control Act, 2 U.S.C.A. § 901 et seq. (Gramm-Rudman) which requires reduction in federal program payments if the federal budget deficit exceeds targeted amounts. Effective March 1, 1986, Medicare payments to New
Jersey hospitals were reduced by 1% under 2 U.S.C.A. § 906(d). On February 28, 1986, the New Jersey Department of Health (DOH) presented to the Hospital Rate Setting Commission (HRSC), a public body authorized to set hospital rates (N.J.S.A. 26:2H-4.1) four alternative methods of addressing the Gramm-Rudman reduction:
(1) Reallocate to other payers the 1% reduction to the extent that it is less than or equal to the hospital's uncompensated care attributable to Medicare.
(2) Determine that the reduction applies proportionately across all payments and reallocate only the uncompensated care portion of the 1% reduction by use of hospital-specific uncompensated care percentages. Using this approach a hospital with 7% uncompensated care would have 7% of the reduction reallocated to other payers.
(3) Determine that the uncompensated care portion of the 1% reduction is an amount between that produced by option (1) and option (2).
(4) Define the 1% reduction as a Medicare withholding and implement the withholding methodology which was previously approved by the Commission.
The HRSC notified "all interested and affected parties" and the chief financial officers of all New Jersey hospitals of the policy alternatives presented by the DOH and requested comments by April 11, 1986. The DOH received comments from approximately 26 hospitals before the announced deadline and accepted further comments up to December 1986. Among the comments was that of the New Jersey Hospital Association (NJHA) which argued that the Gramm-Rudman reduction should be allocated to other payors.
On December 19, 1986, the HRSC convened to review the DOH proposals. The DOH recommended Option 2 -- that the reduction be applied proportionally across all Medicare payments and that only the uncompensated care portion of the 1% reduction (based on hospital specific uncompensated care percentages) be reallocated to non-Medicare payors. In other words, under Option 2 a hospital with 7% uncompensated care (the state-wide average) would receive 7% of the 1% Gramm-Rudman reduction from other payors and would be required to absorb the difference. The DOH also recommended that a hospital experiencing hardship as a result of the allocation
should be allowed to appeal. Commenting on the DOH's recommendation, the Chairman of the HRSC observed that:
[t]he department's recommendation is based upon its characterization of the Gramm-Rudman legislation as having overreaching powers that outweigh the hospital's reference to Chapter 83's [ N.J.S.A. 26:2H-1 et seq. ] guarantee of full financial elements. Therefore, the department contends that it would be inappropriate to simply pass along the shortfall to other payors.
After hearing comments from various industry representatives, raising numerous issues and requests for further examination of the financial effects of the various allocation options, the transcript of the HRSC's meeting reflects that the following took place:
MR. PAYNE: Then, we would, at this point, be prepared to take a motion.
I will move that we accept the recommendation of the department which relates only to the uncompensated care portion of the one percent of hospitals' specifically uncompensated care percentages.
Is there a second to the motion?
MS. POWERS: I will second the motion.
In terms of how it is to be reallocated, whether it is an across the board or whether it is hospital specific uncompensated care.
MS. DICKSON: The hospital's specific --
MS. POWERS: Your recommendation is hospital specific so that would be part and parcel ...