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: Wallace, Jr., J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
OPINION CORRECTED 03/22/02
Submitted: September 17, 2001
Appellants, Atlantic City Medical Center, Chilton Memorial Hospital, Elizabeth General Medical Center, Hackettstown Community Hospital, Hospital Center at Orange, Palisades General Hospital, St. Francis Hospital (Jersey City), St. Francis Medical Center (Trenton), St. Mary Hospital (Hoboken), St. Mary's Hospital (Passaic), St. Peter's Medical Center, United Hospitals Medical Center, University of Medicine and Dentistry of New Jersey-University Hospital, and Zurbrugg Memorial Hospital (collectively hospitals or appellants)*fn2 appealed separately to the Department of Human Services, Division of Medical Assistance and Health Services (the Division), alleging the Division improperly calculated the amount of the respective hospitals' Medicaid inpatient rate effective January 31, 1997. The Division denied the appeals on August 15, 1997, asserting that the appeals contained issues that were not calculation errors within the intent of N.J.A.C. 10:52-9.1(a), but rather objections to the Division's interpretation of its regulations which required timely rate appeals in accordance with N.J.A.C. 10:52-9.1(b). Further, to the extent mechanical computation errors were identified, the Division claimed the errors were either insubstantial, or it disagreed with the hospitals' assertions. Appellants' requests to transfer their appeals to the Office of Administrative Law (OAL) for administrative hearings were denied, as were their motions to expand the record on appeal.
In this appeal, appellants argue the Division: (1) arbitrarily decided that the appeals must be brought as rate appeals requiring appellants to prove that they suffered a marginal loss in providing services to Medicaid patients; (2) arbitrarily refused to correct certain calculation errors; (3) committed errors of a substantial nature in calculating appellants' Medicaid rate schedules; and (4) arbitrarily refused to transfer the appeals to the OAL for administrative hearings where a full record could be created for appellate review. The group hospitals also assert that the Division arbitrarily failed to make findings of fact and to provide reasons for its decisions. We remand for further proceedings.
Pursuant to the Medicaid Program*fn3, 42 U.S.C.A. §1396 et seq., the federal government is authorized to provide financial support to a state that provides medical assistance to qualified persons. If a state elects to participate in the program, the state must comply with federal laws and regulations. See Elizabeth Blackwell Health Ctr. for Women v. Knoll, 61 F.3d 170, 172 (3rd Cir. 1995), cert. denied, 516 U.S. 1093, 116 S. Ct. 816, 133 L. Ed. 2d 760 (1996).
The Division is the agency responsible for administering the New Jersey Medicaid Program. N.J.S.A. 30:4D-4. The Division is authorized to issue regulations and administrative orders to effectuate the Medicaid Program. N.J.S.A. 30:4D-5, -7. Under the present regulatory scheme, the Division establishes an individual rate schedule at least once a year for each hospital participating in the Medicaid Program. N.J.A.C. 10:52-5.1 to 5.17. If a hospital disputes its rate schedule, it may file an appeal with the Division. N.J.A.C. 10:52-9.1. The appeal may involve a claim that the Division made calculation errors, or that the rates failed to provide adequate compensation for the hospital's costs in providing for Medicaid recipients. N.J.A.C. 10:52-9.1(a),(b). If the rate appeal is for a calculation error, the hospital must file its appeal "within 15 working days of receipt of the Proposed Schedule of Rates." N.J.A.C. 10:52-9.1(a). If the rate appeal is for inadequate compensation for the care of Medicaid recipients, the appeal must be filed within twenty days after publication of the rates, and the documentation supporting the appeal must be filed within an additional sixty-day period. N.J.A.C. 10:52-9.1(b). For a successful appeal regarding inadequate compensation, the hospital must demonstrate 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." N.J.A.C. 10:52-9.1(b)(2).
Upon receipt of a hospital appeal, the Division reviews the hospital's submission and issues a written decision. If the hospital disagrees with the Division's decision, it may request a hearing before an Administrative Law Judge (ALJ). If the matter is submitted to an ALJ, the Director of the Division will then adopt, modify or reject the decision of the ALJ. Any further appeal is to the Appellate Division of the New Jersey Superior Court. N.J.A.C. 10:52-9.1(d).
With this background we turn to the particulars of this appeal. In January 1997, the Division issued rate schedules to all New Jersey hospitals participating in the Medicaid program. In February 1997, appellants applied to the Division for correction of their January 1997 Medicaid rates. Appellants objected to the manner in which the Division calculated their Medicaid rates, and to specific calculations of the DRG's*fn4 that the Division relied upon in establishing each hospital's Medicaid rate.
The Division rejected each appeal for substantially the same reasons. Specifically, the Division explained:
To demonstrate a calculation error, a hospital must submit information as to exactly how the Division made an error in the mechanical computation of the rates.
Your letter contained issues that are not calculation errors but rather objections in the [Division's] interpretation of its regulations. Requests for rate relief from the Division interpretation of the regulations must be pursued in a ...