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In re Meridian Health System -Jersey Shore Medical Center's State Fiscal Year 2009 Charity Care Allocation

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION


February 25, 2010

IN THE MATTER OF THE MERIDIAN HEALTH SYSTEM -OCEAN MEDICAL CENTER'S STATE FISCAL YEAR 2009 CHARITY CARE ALLOCATION.
IN THE MATTER OF THE MERIDIAN HEALTH SYSTEM -JERSEY SHORE MEDICAL CENTER'S STATE FISCAL YEAR 2009 CHARITY CARE ALLOCATION.
IN THE MATTER OF THE MERIDIAN HEALTH SYSTEM -RIVERVIEW MEDICAL CENTER'S STATE FISCAL YEAR 2009 CHARITY CARE ALLOCATION.

On appeal from the Department of Health and Senior Services.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued January 26, 2010

Before Judges Skillman, Gilroy and Simonelli.

This is a consolidated appeal by three hospitals, Ocean Medical Center, Jersey Shore Medical Center and Riverview Medical Center, all members of the Meridian Health System, from final decisions of the Commissioner of Health and Senior Services denying their appeals of the Department of Health and Senior Services' (DHSS) determinations of their allocations of the legislative appropriation for charity care subsidies for the 2009 fiscal year (July 1, 2008 to June 30, 2009).

The Health Care Cost Reduction Act (HCCRA), N.J.S.A. 26:2H-18.50 to -18.69, authorizes charity care subsidies to hospitals that serve a significant number of indigent patients and are designated by the Commissioner as disproportionate share hospitals (DSHs). N.J.S.A. 26:2H-18.51(c).*fn1 In University of Medicine & Dentistry of New Jersey v. Grant, 343 N.J. Super. 162, 165-66 (App. Div. 2001), we outlined how this legislative subsidy program operates:

The DHSS uses a standard statutory formula to determine the amount of the subsidy an eligible hospital may receive.

N.J.S.A. 26:2H-18.59e. Eligible hospitals, however, do not necessarily receive a full "reimbursement" covering all of their actual charity care expenses; rather, a hospital receives only its proportionate share of the total subsidy funded by the Legislature for that year. Ibid. . . .

The statutory distribution formula requires a determination of how much charity care an eligible hospital has provided, valued not at its usual and customary charges but rather on the amount Medicaid would pay for such services ("documented charity care"). N.J.S.A. 26:2H-18.59e(a)(1). To this end, hospitals seeking charity care subsidies are "required to submit all claims for charity care cost reimbursement . . . to the department in a manner and time frame specified by the Commissioner of Health and Senior Services. . . ." N.J.S.A. 26:2H-18.59(b)(3).

See also Nw. Covenant Med. Ctr. v. Fishman, 167 N.J. 123, 128-29 (2001).

The determination of a hospital's charity care subsidy begins at the hospital level with an identification of patients who are eligible for charity care. N.J.A.C. 10:52-11.5. Because the charity care subsidy program is a payer of last resort, a hospital is obligated to verify that a patient is ineligible for coverage from third parties, such as Medicare and Medicaid, before qualifying him or her for charity care.

N.J.S.A. 26:2H-18.58b; N.J.A.C. 10:52-11.5. Thereafter, hospitals submit their charity care claims electronically to the DHSS's fiscal agent, UNISYS, in accordance with N.J.A.C. 10:52-12.2.

A hospital's aggregate charity care claim is subject to adjustments that may arise in a variety of ways. N.J.A.C. 10:52-11.15. For example, negative adjustments may be made as a result of annual and periodic audits by DHSS to account for "third-party payer payments [which] were not reflected," or erroneous determinations regarding patient eligibility.

N.J.A.C. 10:52-11.15(d); N.J.A.C. 10:52-11.1, -11.2. A hospital may also voluntarily report "void" claims to UNISYS, to account for claims which were previously submitted but later determined to be ineligible. N.J.A.C. 10:52-12.2(c)(9)(iii).

The HCCRA contains a formula by which each eligible hospital's allocated share of the legislative appropriation for charity care subsidies is determined. However, the Legislature has frequently included modifications of the HCCRA formula in the Annual Appropriations Act, including the FY09 Appropriations Act involved in this appeal, which appropriated $605,000,000 to fund charity care subsidies in that fiscal year. L. 2008, c. 35 at 91-92.

The formula applicable to the allocation of the FY09 appropriation for charity care subsidies is quite complicated, and there is no need to set forth the details of that formula in this opinion. We only note that the Legislature directed the DHSS to utilize "source data . . . from calendar year 2007" (CY07) regarding eligible charitable care claims in determining each hospital's allocated share of the appropriation. L. 2008, c. 35 at 91.

On August 1, 2008, the DHSS announced its charity care subsidy determinations for FY09. Appellants were three of approximately eighty hospitals to receive subsidies, with $415,197 allocated to Ocean; $5,224,202 to Jersey Shore; and $500,534 to Riverview.

Appellants all filed administrative appeals to the Commissioner from the DHSS's determinations of their charity care subsidies for FY09. Appellants claimed that DHSS erred in basing its calculations on adjusted charity care totals, which were derived by deducting ineligible and "voided" claims for services rendered prior to CY07 from their respective "gross" charity care figures for CY07. Appellants argued that this methodology violated the requirements of the Appropriations Act, because (1) the Act limited DHSS to source data from CY07 and the voided claims related to services rendered before 2007, and (2) the Act required DHSS to use gross charity care revenues rather than adjusted charity care revenues. In addition, Riverview challenged the DHSS's denial as untimely of a charity care claim for $44,168, submitted under patient account number 02300271189.

The Commissioner issued comprehensive written decisions in all three administrative appeals, which rejected appellants' arguments and upheld the DHSS's initial determinations of their allocated shares of the legislative appropriation for charity care subsidies in FY09.

In their appeal to this court from the Commissioner's decisions, appellants present the following arguments:

POINT I:

THE DEPARTMENT'S USE OF "ADJUSTED" REVENUE IN ITS CALCULATION OF THE RELATIVE CHARITY CARE PERCENTAGE ("RCCP") FOR APPELLANT HOSPITALS IS ARBITRARY, UNREASONABLE AND CAPRICIOUS BECAUSE IT CONTRAVENES THE PLAIN LANGUAGE SET FORTH IN P.L. 2008, C. 35 AND IN N.J.S.A. 26:2H-18.59IB(1); IT IS THEREFORE UNLAWFUL.

POINT II:

THE DEPARTMENT'S USE OF VOIDED CHARITY CARE ACCOUNTS FROM YEARS PRIOR TO CALENDAR YEAR 2007 IN ITS CALCULATION OF CHARITY CARE SUBSIDY FUND PAYMENTS FOR APPELLANT HOSPITALS IS ARBITRARY, UNREASONABLE AND CAPRICIOUS BECAUSE IT CONTRAVENES THE PLAIN LANGUAGE SET FORTH IN P.L. 2008, C. 35; IT IS THEREFORE UNLAWFUL.

POINT III:

THE DEPARTMENT'S ACQUIESCENCE IN THE FAILURE OF MANY HOSPITALS TO REPORT VOIDED CHARITY CARE CLAIMS WAS AN ARBITRARY AND UNREASONABLE ABUSE OF ITS AUTHORITY AND THEREFORE RESULTED IN CHARITY CARE SUBSIDY CALCULATIONS THAT WERE ISSUED IN VIOLATION OF LAW.

POINT IV:

THE PROCESS BY WHICH THE DEPARTMENT CALCULATED CHARITY CARE SUBSIDIES CONSTITUTED DE FACTO AND UNLAWFUL RULE-MAKING IN VIOLATION OF THE ADMINISTRATIVE PROCEDURE[S] ACT, N.J.S.A. 52:14B-1, ET SEQ.

POINT V:

THE DEPARTMENT'S DENIAL OF CLAIMS FOR PATIENT ACCOUNT 02300271189 LEADS TO AN ABSURD RESULT IN CONTRAVENTION OF THE LEGISLATIVE INTENT, IS UNREASONABLE AND THEREFORE MUST BE REVERSED.

We reject these arguments and affirm the Commissioner's decisions substantially for the reasons set forth in those decisions. We add the following supplemental comments.

Although we conclude that it was within the DHSS's broad authority for administration of the HCCRA to deduct improperly submitted claims for charity care ("void claims") in determining a hospital's "gross revenue for charity care patients" under N.J.S.A. 26:2H-18.59i(b)(1), and to include this deduction for claims that had been submitted in a prior year but were reported to be improper in CY07 ("prior year void claims"), we are troubled by evidence that some other hospitals are failing to report, or underreporting, their void claims. We disagree with the Commissioner's view that the alleged failure of other hospitals to properly report their void claims is "not germane" to the determination of appellants' allocations of their shares of the legislative appropriation for charity care subsidies. The deduction of "void claims" is part of the calculation of each hospital's "relative charity care percentage" (RCCP). Based on its RCCP, a hospital is assigned to one of three tiers, which determines the percentage of documented charity care for which a hospital receives reimbursement under the HCCRA. Consequently, the underreporting of "void claims" could result in a hospital being placed on a higher tier, ahead of another hospital that has fully reported its void claims, thus resulting in the fully-reporting hospital receiving a lesser charity care subsidy than it would have received if all hospitals had fully reported their void claims. Therefore, we agree with appellants' contention that the alleged underreporting of void claims by other hospitals could distort allocations of the appropriation for charity care subsidies. However, as the Commissioner's decisions indicate, it is not possible on this record to determine the magnitude of this underreporting of void claims, or the effect, if any, it may have had upon appellants' FY09 charity care subsidies. For this reason, we conclude that the Commissioner did not abuse her discretion in upholding the DHSS's determination of those subsidies and affirm her decisions. Nevertheless, we believe that the problem of alleged underreporting of void claims, and its effect upon the determinations of hospitals' charity care subsidies, deserves more attention than it apparently has received up to this point. Accordingly, we direct the Commissioner to review this issue in connection with the allocation of the appropriation for charity care subsidies in future years.

Affirmed.


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