Affiliated Hospitals Center, Inc. v. Rate Setting Commission

389 N.E.2d 744, 7 Mass. App. Ct. 563, 1979 Mass. App. LEXIS 1187
CourtMassachusetts Appeals Court
DecidedMay 16, 1979
StatusPublished
Cited by7 cases

This text of 389 N.E.2d 744 (Affiliated Hospitals Center, Inc. v. Rate Setting Commission) is published on Counsel Stack Legal Research, covering Massachusetts Appeals Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Affiliated Hospitals Center, Inc. v. Rate Setting Commission, 389 N.E.2d 744, 7 Mass. App. Ct. 563, 1979 Mass. App. LEXIS 1187 (Mass. Ct. App. 1979).

Opinion

Greaney, J.

Affiliated Hospitals Center, Inc. (Affiliated), appeals from a judgment entered in the Superior Court denying further injunctive and declaratory relief pursuant to G. L. c. 231A, § 5. In its complaint, Affiliated asserts that a certain hospital charge control regulation1 promulgated by the Rate Setting Commission (Commission) under G. L. c. 6A, § 37, inserted by St. 1976, c. 409, § 4, violates both the provisions of that statute and a previous judgment entered in a prior action between the parties.2 We find that the regulation was valid and, as a result, affirm the present judgment.

We summarize the facts necessary to an understanding of the issues, drawing our summary from the undisputed findings of fact made by the judge.

Affiliated is a Massachusetts nonprofit hospital corporation licensed by the Department of Public Health un[565]*565der G. L. c. Ill, § 51. Located in Boston, it operates three divisions which are treated separately for purposes of budget review and charge control by the Commission under the regulation in issue: the Peter Bent Brigham Hospital Division, the Robert B. Brigham Hospital Division, and the Boston Hospital for Women Division. Seventy-three per cent of Affiliated’s patients have their hospital services paid for on a cost reimbursement basis3 by the following third parties: the United States Department of Health, Education and Welfare, (Medicare Program);4 the Commonwealth of Massachusetts, (Medicaid Program5); Blue Cross of Massachusetts; the Harvard Community Health Plan; and the National Institutes of Health. The remaining 27% of Affiliated’s patients either pay their own bills or have their hospital charges covered by commercial insurance companies.6 Patients in this latter group are Affiliated’s sole source of reimbursement for charges in excess of costs, and generate the income used to cover the hospitals’ bad debts and free care not ordinarily included in third-party contracts.7

Since 1975, among its other responsibilities, the Commission has been required under certain statutory mandates, to review hospital costs, charges, and budgets, and to promulgate regulations necessary to accomplish such [566]*566review.8 The Commission reviews a hospital’s costs, charges, and budget for a particular fiscal year, which, in the case of private hospitals, such as those conducted by Affiliated, runs from October first of one year to September thirtieth of the next. At issue in this case is the Commission’s methodology in its regulation 14 CHSR 11 in reviewing Affiliated’s costs and charges for fiscal year (FY) 1978.9 This regulation permits the Commission to approve a hospital’s proposed charge modifications and FY 1978 proposed budget only if its ratio of total patient care costs to total patient care charges for FY 1978 is not lower than 95% or the historic ratio which the hospital had when St. 1975, c. 424, regulating hospital rates first went into effect.10 Affiliated’s objections center on the definition and methodology by which the Commission establishes a hospital’s "total patient care costs” and the consequent cost-to-charge ratio. "Total patient care costs” under St. 1976, c. 409, § 5, are designated as "total patient care cost as defined for purposes of Title XVIII... of the federal Social Security Act (42 U.S.C. 1395 et seq. [1976] [Medicare]).”11 This definition was found by the [567]*567judge to pipe the Commission in to some extent with Medicare’s system for paying hospital costs. Medicare reimburses hospitals at tentative rates during the year for all actual patient costs falling within certain categories, so long as the costs are found to be reasonable according to Medicare regulations.12 These interim payments are then adjusted retroactively at the end of the accounting period.13 The Medicare audit which becomes the basis for the final rate settlement for Medicare charges for a given fiscal year takes place six months to one year after the close of the fiscal year. Thus, at the time of the Commission’s review of FY 1978 hospital budgets, no hospital’s allowed costs under Medicare for FY 1977 or FY 1978 had yet been determined. Only a hospital’s FY 1976 Medicare allowed costs as finally audited were available to the Commission.

By a complicated system of calculations (discussed in detail later in this opinion) the Commission employed the Medicare allowed costs for FY 1976 as a key statistic along with various projections and indices to arrive at "total patient care costs” for FY 1978. Although Affiliated had not received notification from the Commission at the time of the trial as to the approval or disapproval of its FY 1978 budget, it had completed the forms required by 14 CHSR 11 (using two year old base figures). In addition, Affiliated had also calculated its budget as if the Commission’s prior regulation, 14 CHSR 9 were still in effect (using one year old base figures).14 Thus Affiliated [568]*568claimed that the maximum “total patient care costs” for the Peter Bent Brigham Hospital Division for FY 1978 using 14 CHSR 11 calculations were $57,819,287, while its estimated actual costs (which initially would have been allowed under 14 CHSR 9) were $59,690,000. Affiliated claimed that the Commission’s change in methodology from 14 CHSR 9 to 14 CHSR 11 caused it to lose $1,870,713.

After finding these facts and considering the relevant statutes and regulations, the judge concluded that the regulations contained in 14 CHSR established a prospective rate setting system which did not violate the judgment in Affiliated I; that the provisions of 14 CHSR which govern the definition of “total patient care cost” and the calculation of the FY 1978 cost-to-charge ratio were a reasonable administrative interpretation of the underlying statute; and that 14 CHSR 11 did not violate the statutory directives that put the Commission to rate setting in this area. We agree, and proceed to a detailed analysis of the statute and regulations in the context of the claims raised by the parties.

1. Mootness. The Commission first contends that the case is moot because 14 CHSR 11 (1977) has been superseded for FY 1979 by an entirely different regulation, as required by St. 1976, c. 409, § 5.15 However, the Commission concedes that its new regulation continues to use a base year two years before the budget year as its starting point in the rate setting formula, and that certain actual costs incurred by the hospital will still go unrecognized under the new calculations as they did in the past. Further, Affiliated’s complaint, boiled down to basics, [569]*569amounts to a claim that utilization of a two year old base as the beginning point for an analysis of “budget year” calculations amounts to retroactive rate setting, and that the Commission is still failing to recognize in its formulations all the costs for which Medicare should reimburse Affiliated. Thus, although the statutory scheme has changed for review of FY 1979 budgets, and the challenged regulation is no longer in effect, the underlying dispute between the parties is very much alive.16

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Bluebook (online)
389 N.E.2d 744, 7 Mass. App. Ct. 563, 1979 Mass. App. LEXIS 1187, Counsel Stack Legal Research, https://law.counselstack.com/opinion/affiliated-hospitals-center-inc-v-rate-setting-commission-massappct-1979.