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In re Zurbrugg Memorial Hospitaal's 1995 Medicaid Rates

February 22, 2002

IN RE ZURBRUGG MEMORIAL HOSPITAL'S 1995 MEDICAID RATES
IN RE HACKETTSTOWN COMMUNITY HOSPITAL 1995 MEDICAID RATES
IN RE ST. FRANCIS HOSPITAL (JERSEY CITY) 1995 MEDICAID RATES
IN RE ST. MARY HOSPITAL (HOBOKEN) 1995 MEDICAID RATES
IN RE ST. FRANCIS HOSPITAL (TRENTON) 1995 MEDICAID RATES
IN RE UNITED HEALTHCARE SYSTEM 1995 MEDICAID RATES
IN RE UMDNJ-UNIVERSITY HOSPITAL 1995 MEDICAID RATES
IN RE MOUNTAINSIDE HOSPITAL 1995 MEDICAID RATES
IN RE ST. MARY'S HOSPITAL (PASSAIC) 1995 MEDICAID RATES
IN RE PALISADES GENERAL HOSPITAL 1995 MEDICAID RATES



On appeal from the Department of Human Services, Division of Medical Assistance and Health Services.

Before Judges Skillman, Wallace, Jr. and Carchman.

The opinion of the court was delivered by: Carchman, J.A.D.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

OPINION CORRECTED 03/18/02

Submitted September 17, 2001

Appellants Zurbrugg Memorial Hospital, Hackettstown Community Hospital, St. Francis Hospital (Jersey City), St. Mary Hospital (Hoboken), St. Francis Hospital (Trenton), United Healthcare System, UMDNJ-University Hospital, Mountainside Hospital, St. Mary's Hospital (Passaic) and Palisades General Hospital (collectively "hospitals" or "appellants") appeal from the final decisions of the Acting Director of the Department of Human Services, Division of Medical Assistance and Health Services (Division) affirming the denial by the Division of the hospitals' rate appeals seeking reimbursement of their 1995 Medicaid inpatient hospital costs.*fn1 The Division determined, in each instance, that appellants failed to provide any or sufficient information or supporting documentation to warrant a substantive review of their reimbursement claims pursuant to N.J.A.C. 10:52-9.1(b)(1)(I). Relying on its interpretation of N.J.A.C. 10:52-9.1, the Division concluded that absent compliance with the regulation's submission requirements, it would not conduct a substantive review of the hospitals' rate appeals.

We now reverse and conclude that the Division's refusal to substantively review the rate appeals was arbitrary and unreasonable and represented an improper implementation of the regulatory process. We add that while the burden remains on an appellant to demonstrate entitlement to the regulatory relief requested and submit documentation necessary to support an appeal, an administrative agency cannot rely on imprecise and broad regulatory language as an excuse for abdicating its obligation to review and consider such appeals.

I.

Before addressing the merits of these appeals, we present a summary of the regulatory process as it existed at the times relevant to the appeals.*fn2

In 1982, the Division assumed responsibility for setting rates for Medicaid services, including inpatient hospital services, and adopted new rules via emergency adoption to implement its Medicaid reimbursement system. See 25 N.J.R. 1582 (April 5, 1993); N.J.A.C. 10:52-1.1 to -9.1. The summary statement to the emergency rule adoption noted that the Division's reimbursement system was largely based on the Department of Health (DOH) regulations that had previously governed Medicaid reimbursement rates. The summary statement was intended to highlight those areas in which the Division's rules differed from the rules utilized by DOH in administering the Medicaid program as well as the Division's appeal process. Specifically, the Division noted that:

Subchapter 9 provides for rate review and appeal. This subchapter provides the process for filing an appeal with the Division of Medical Assistance and Health Services. This procedure is new to the Division. Formerly hospitals who wished to appeal the rates under the Chapter 83 under the payer system [sic] could do so with DOH. Now, hospitals will file their rate appeals with the Division. Under these proposed rules, the appeal must be filed within a specified time period, that is, 20 days after publication of the rates by the Department of Human Services. The rule also specifies the types of information and the data that the hospital may be required to submit to support their appeal.

[(emphasis added).]

The Division's rate appeal process was amended by rules adopted in February 1995, which were effective for the 1995 rate year. See 27 N.J.R. 908 (March 6, 1995). N.J.A.C. 10:52- 9.1(b)(1) requires a hospital seeking a rate review to submit a written request with the Division "within twenty calendar days after publication of the rates by the Department of Human Services." In addition, a hospital challenging its rates has to "identify its rate review issues and submit supporting documentation in writing to the Division within 80 calendar days after publication of the rates by [the Department]." N.J.A.C. 10:52-9.1(b)(1)(i). This latter requirement was adopted as part of the 1995 rule amendment, and was not in the prior rule. 27 N.J.R. 35, 38 (January 3, 1995).

The regulations identify what the Division has characterized as the three "core-issues" and provide:

The Division will not approve an increase in a hospital's rates unless [1] the hospital demonstrates that it would sustain a marginal loss in providing inpatient services to Medicaid recipients at the rates under appeal even if it were an economically and efficiently operated hospital. Any hospital seeking a rate increase [2] must demonstrate the cost it must incur in providing services to Medicaid recipients and [3] the extent to which it has taken all reasonable steps to contain or reduce the costs of providing inpatient ...


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