On appeal from the Department of Health and Senior Services.
The opinion of the court was delivered by: Alvarez, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lisa, Reisner and Alvarez.
Hackensack University Medical Center (Hackensack Medical) appeals from two final administrative actions by the Commissioner of New Jersey's Department of Health and Senior Services (Department of Health), reallocating certain charity care subsidies to intervenor St. Mary's Hospital (St. Mary's). The reallocation of funds was necessitated by the closure of the facility for which they were originally designated, the Passaic Beth Israel Regional Medical Center (Beth Israel). Hackensack Medical challenges the Department's decision for a portion of the state fiscal year (fiscal year) 2007 and the entire fiscal year 2008. We consolidated the appeals and affirm.
Charity Care Subsidy Program
The Department of Health is responsible for the implementation of State policies regarding hospital and related health care services. N.J.S.A. 26:2H-1. This includes the charity care subsidy program designed to give financial aid, on a yearly basis, to hospitals that provide disproportionate services to indigent patients. See N.J.S.A. 26:2H-18.59i. The charity care subsidy consists of state and federal Medicaid funds. N.J.S.A. 26:2H-18.58(a).
When a hospital receiving a charity care subsidy closes, the unpaid installments allocated to that facility for the remaining fiscal years are frozen. N.J.A.C. 10:52-13.7(a). The unpaid funds are then reallocated to "hospitals that are serving or are expected to serve the patients who would have gone to the closed hospital." Ibid. The methodology for reallocation is found in N.J.A.C. 10:52-13.7.
The standard formula for reallocation, contained in N.J.A.C. 10:52-13.7(b), (c), and (d), requires the Department of Health to perform a zip code analysis to calculate the number of patients that nearby hospitals still in operation have historically drawn from the geographic area formerly served by the closed hospital. A hospital must meet three requirements to be eligible to receive a portion of the closed hospital's allocation. N.J.A.C. 10:52-13.7(b)(1), (2), and (3).
First, the hospital must have received a charity care subsidy allocation during the fiscal year in which the closed hospital ceased operations. N.J.A.C. 10:52-13.7(b)(1). Second, the hospital must draw its patients from the same zip code areas served by the closed hospital. N.J.A.C. 10:52-13.7(b)(2). The Department of Health determines the market area served by the closed hospital based on the most recent complete calendar year data that it maintains. Ibid. Third, the hospital must demonstrate that it has a market share of twenty-five percent or more of admissions from the market area served by the closed hospital. N.J.A.C. 10:52-13.7(b)(3). The funds are reallocated among eligible hospitals based on each eligible hospital's share of the admissions. N.J.A.C. 10:52-13.7(c) and (d).
This dispute centers upon the Department of Health's election to use the alternative formula for reallocation, contained in N.J.A.C. 10:52-13.7(f), in distributing Beth Israel's remaining funds for fiscal year 2007 and its entire allocation for fiscal year 2008. That alternative method, which requires the agreement of the Department of Health and the Commissioner of Human Services when implemented, takes into consideration the following factors:
1. Maintenance of continued timely access to hospital-based services for persons eligible to participate in the New Jersey Hospital Care Payment Assistance Program and/or persons receiving services in the Hospital Relief Subsidy Fund categories; or
2. Continued operation in the same or adjoining municipality as the closed hospital of an acute care hospital, eligible to receive Disproportionate Share payments, belonging to the same system as the closed hospital ...