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In the Matter of Deborah

December 3, 2010

IN THE MATTER OF DEBORAH HEART AND LUNG CENTER SFY 2009 CHARITY CARE SUBSIDY ALLOCATION.


On appeal from the Department of Health and Senior Services.

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

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

APPROVED FOR PUBLICATION

Argued November 3, 2010 - Decided

Before Judges Skillman, Parrillo and Espinosa.

The opinion of the court was delivered by SKILLMAN, P.J.A.D.

This appeal is before us on a motion by appellant Deborah Heart and Lung Center challenging the respondent Department of Health and Senior Services' implementation of a section of the 2011 Appropriations Act that requires the 2011 fiscal year charity care subsidy payable to any hospital that received its full 2010 fiscal year charity care subsidy to be reduced by an amount equal to the reduction in the 2010 subsidy paid to other hospitals.

The charity care subsidy program appropriates funds to the Health Care Subsidy Fund, from which the Department of Health and Senior Services makes distributions to hospitals that provide care to patients free of charge. N.J.S.A. 26:2H-18.58 to -18.69; see generally Univ. of Med. & Dentistry v. Grant, 343 N.J. Super. 162, 165-66 (App. Div. 2001). The program does not provide full funding for such care. Rather, the Legislature sets the amount of money appropriated for the entire program in the Annual Appropriations Act and, at least in recent years, also provides directions to the Department regarding the determination of the subsidy paid to each hospital.

Hospitals providing charity care are ranked according to their ratio of free care to total revenue, which is called the relative charity care percentage (RCCP), and hospitals that have higher RCCPs receive a greater percentage of the cost of their actual charity care than hospitals with smaller RCCPs. Hospitals are required to seek reimbursement from other sources, such as Medicaid, for charity care services. Any such reimbursement is deducted in determining the amount of a hospital's charity care subsidy. N.J.S.A. 26:2H-18.58b; N.J.A.C. 10:52-11.5. In some cases, a determination of a patient's qualification for reimbursement from another source is delayed, which requires care that was counted towards the charity care subsidy in one year to be deducted in determining the subsidy for a subsequent year. Such deductions are commonly referred to as "voids."

In the Annual Appropriations Act for State Fiscal Year (SFY) 2009,*fn1 the Legislature directed the Department to use data from calendar year 2007 in determining hospitals' charity care subsidies. L. 2008, c. 35; Assembly Bill 2800 at 91, lines 20-21. The Legislature directed the Department to establish a three-tiered system under which hospitals would be grouped by their RCCP rankings. Ibid. Under this system, there was a significant difference in the percentage of a hospital's charity care that was subsidized by appropriations from the Health Care Subsidy Fund depending upon whether the hospital was determined to fall within tier one, two or three.

The Department placed Deborah into the second tier for SFY 2009. As a result, Deborah received a substantially lower charity care subsidy in SFY 2009 than it would have received if it had been placed in the first tier.

After the Department rejected Deborah's objections to its placement in the second tier, Deborah filed this appeal challenging its placement and the Department's determination of its 2009 charity care subsidy based on this placement. However, before the appeal was argued, the parties entered into a settlement agreement under which Deborah agreed to dismiss the appeal and the Department agreed to accelerate payment of Deborah's 2010 charity care subsidy. To effectuate this settlement, on December 31, 2009, the Department paid Deborah $2.5 million, which represented most of Deborah's 2010 charity care subsidy that otherwise would have been paid in monthly installments from February through June 2010. The parties memorialized this settlement by filing a stipulation of dismissal of this appeal, which is discussed later in the opinion. The Department subsequently paid Deborah its January 2010 monthly installment of $511,825, leaving only $59,125 of Deborah's 2010 charity care subsidy unpaid as of the end of January.

On February 11, 2010, the Governor issued Executive Order 14, which ordered the Director of the Division of Budget and Accounting "to identify and place into reserve items of appropriation pursuant to N.J.S.A. 52:27B-26 in an amount sufficient to ensure that the State budget is in balance." One action taken by the Director to comply with this order was to withhold distribution of $25.2 million, or 4.29%, of the 2010 charity care subsidy paid to hospitals. This reduction was allocated proportionately to hospitals depending upon the amount of their subsidies. However, Deborah, which as a result of the settlement had already received its entire 2010 charity care subsidy, except for $59,125, before issuance of Executive Order 14, was excluded from this reduction.

The legislative action that precipitated the motion now before the court was the inclusion in the 2011 Appropriations ...


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