IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE
FILED FOR PUBLICATION December 7, 1998 Filed: December 7, 1998 Cecil W. Crowson Appellate Court Clerk BAPTIST HOSPITAL; EAST ) TENNESSEE CHILDREN'S ) HOSPITAL; ERLANGER MEDICAL ) CENTER; FORT SANDERS ) REGIONAL MEDICAL CENTER; ) Tennessee Claims Commission HOLSTON VALLEY HOSPITAL AND ) MEDICAL CENTER; JOHNSON CITY ) MEDICAL CENTER HOSPITAL; ) LE BONHEUR CHILDREN'S MEDICAL ) CENTER; MAURY REGIONAL ) HOSPITAL; METHODIST HOSPITALS ) OF MEMPHIS; REGIONAL MEDICAL ) CENTER OF MEMPHIS; SAINT ) MARY'S MEDICAL CENTER; AND ) Hon. W. R. Baker, Commissioner VANDERBILT UNIVERSITY MEDICAL ) CENTER, ) ) PLAINTIFFS/APPELLANTS, ) ) v. ) ) TENNESSEE DEPARTMENT OF ) HEALTH, AND TENNESSEE ) No. 01S01-9711-BC-00249 DEPARTMENT OF FINANCE ) AND ADMINISTRATION, ) ) DEFENDANTS/APPELLEES. )
FOR CLAIMANT/APPELLANT: FOR RESPONDENT/APPELLEE:
William B. Hubbard John Knox Walkup Nashville Attorney General and Reporter
Sanford E. Pitler Sue A. Sheldon Elizabeth A. McFall Assistant Attorney General Seattle, Washington Nashville
OPINION
AFFIRMED AS MODIFIED HOLDER, J. OPINION
We granted this appeal to determine whether the Tennessee claims
commission has subject matter jurisdiction over the plaintiffs’ challenge to certain
Medicaid reimbursements paid to them by the State. Upon review, we hold that
the Tennessee claims commission lacks subject matter jurisdiction over this
case. Because the plaintiffs’ challenge is based upon an assertion that a state
Medicaid regulation is invalid under federal law, the Tennessee Department of
Health was the agency with subject matter jurisdiction over this case pursuant to
Tenn. Code Ann. § 4-5-223 of the Uniform Administrative Procedures Act
("UAPA").
BACKGROUND
The State entered into “Medical Assistance Participation Agreements
(Medicaid - Title XIX Program) for Inpatient and Outpatient Hospital Services”
(“provider agreements”) with the plaintiffs ("hospitals") for the provision of health
care services to Medicaid recipients. Those hospitals participating in the
Medicaid program were reimbursed under a prospective payment methodology
established in rules of the Department of Health. Hospitals were reimbursed
under this system from October 1, 1983, to December 31, 1993.1
Under the prospective payment methodology, each hospital was paid a
per diem rate for Medicaid patients. There were two primary components to the
per diem rate, an “operating component” and a “pass-through component.” Each
1 On January 1, 1994, Tennessee instituted the TennCare program, which made substantial changes in the provision of health care services to Medicaid recipients. Under TennCare, health care providers are no longer reimbursed under the prospective payment methodology at issue in this case; providers are now paid by managed care organizations rather than by the State. The plaintiffs’ claims in this case are limited to the period prior to the implementation of the TennCare program.
2 hospital’s operating and pass-through components were calculated based upon
financial data contained in the hospital’s annual “cost report” filed with the State.
Effective July 1, 1989, the Department of Health implemented Tenn. Comp.
R. & Regs. ch. 1200-13-5-.08 which provided, in pertinent part, that after a
Medicaid patient had been a hospital inpatient for twenty (20) days, the hospital’s
per diem rate would be reduced for each subsequent day (over 20) by reducing
the “operating component” to 60%; this rule did not affect the pass-through
component of the hospital’s per diem rate.
In 1990, Congress passed legislation prohibiting states from imposing day
and dollar limits on Medicaid reimbursement for health care provided to infants
and children by hospitals serving a disproportionate share of low-income patients
with special needs. 42 U.S.C. § 1396(a)(s)(2), (3) ("OBRA '90"). The effective
date of this legislation was July 1, 1991.
On August 8, 1995, the hospitals filed a complaint with the claims
commission alleging breach of contract. The complaint alleged that the State
breached the “reimbursement methodology clause”2 of the provider agreements.
The hospitals argued that the “conflict clause”3 found in the provider agreements
caused OBRA '90 to amend the reimbursement methodology clause. The
hospitals argued that the reduced payment provided for under Rule 1200-13-5-
.08 for inpatient stays longer than twenty days breached the provider
agreements by placing day and dollar limitations on services rendered to
Medicaid-covered infants and children in violation of OBRA ‘90. The hospitals
alleged that they are entitled to additional Medicaid reimbursement as a result.
2 The reimbursement methodology clause provided that “this facility: . . . [a]grees to use the sam e me thod of re imbu rsem ent for T itle XIX that is used fo r Title XV III, Medica re.”
3 The c onflict claus e provide d: “If any part o f this agree men t is found to be in con flict with any F ede ral or S tate la ws o r regu lation s hav ing eq ual w eight of law , or if an y part is place d in conflict by am endm ent of su ch laws , this agree men t is so am ended .”
3 The State filed a motion to dismiss arguing, in pertinent part, that the
claims commission lacked subject matter jurisdiction. The State contended that
the hospitals’ claim was a challenge to the validity of a state Medicaid regulation
and was not a breach of contract action. The State argued that only the
Department of Health may adjudicate cases challenging the validity of a state
Medicaid regulation.
The claims commission denied the State's motion to dismiss. The claims
commission concluded that the hospitals' claim was for breach of contract and
that the claims commission had subject matter jurisdiction over all breach of
contract actions against the State. The State sought an interlocutory appeal,
which was granted. The Court of Appeals reversed the claims commission
holding that the provider agreements did not create a contractual obligation on
the State. The appellate court therefore held that the claims commission lacked
jurisdiction and dismissed the case.
ANALYSIS
The hospitals argue that this Medicaid reimbursement challenge is merely
a breach of contract action. The claims commission generally has exclusive
subject matter jurisdiction over all monetary claims against the State. Tenn.
Code Ann. § 9-8-307. Accordingly, the hospitals argue that the claims
commission had subject matter jurisdiction in the case now before us. We
disagree.
Federal law mandates that states designate a single state agency for
administration of state Medicaid plans. 42 U.S.C. § 1396(a)(5). The Tennessee
Department of Health was designated as the single state agency in charge of
4 administering the Medicaid program during the period at issue in this case.4
Tenn. Code Ann. §§ 71-5-101 et seq.
We have reviewed the hospitals' complaint and the entire record on
appeal.
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IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE
FILED FOR PUBLICATION December 7, 1998 Filed: December 7, 1998 Cecil W. Crowson Appellate Court Clerk BAPTIST HOSPITAL; EAST ) TENNESSEE CHILDREN'S ) HOSPITAL; ERLANGER MEDICAL ) CENTER; FORT SANDERS ) REGIONAL MEDICAL CENTER; ) Tennessee Claims Commission HOLSTON VALLEY HOSPITAL AND ) MEDICAL CENTER; JOHNSON CITY ) MEDICAL CENTER HOSPITAL; ) LE BONHEUR CHILDREN'S MEDICAL ) CENTER; MAURY REGIONAL ) HOSPITAL; METHODIST HOSPITALS ) OF MEMPHIS; REGIONAL MEDICAL ) CENTER OF MEMPHIS; SAINT ) MARY'S MEDICAL CENTER; AND ) Hon. W. R. Baker, Commissioner VANDERBILT UNIVERSITY MEDICAL ) CENTER, ) ) PLAINTIFFS/APPELLANTS, ) ) v. ) ) TENNESSEE DEPARTMENT OF ) HEALTH, AND TENNESSEE ) No. 01S01-9711-BC-00249 DEPARTMENT OF FINANCE ) AND ADMINISTRATION, ) ) DEFENDANTS/APPELLEES. )
FOR CLAIMANT/APPELLANT: FOR RESPONDENT/APPELLEE:
William B. Hubbard John Knox Walkup Nashville Attorney General and Reporter
Sanford E. Pitler Sue A. Sheldon Elizabeth A. McFall Assistant Attorney General Seattle, Washington Nashville
OPINION
AFFIRMED AS MODIFIED HOLDER, J. OPINION
We granted this appeal to determine whether the Tennessee claims
commission has subject matter jurisdiction over the plaintiffs’ challenge to certain
Medicaid reimbursements paid to them by the State. Upon review, we hold that
the Tennessee claims commission lacks subject matter jurisdiction over this
case. Because the plaintiffs’ challenge is based upon an assertion that a state
Medicaid regulation is invalid under federal law, the Tennessee Department of
Health was the agency with subject matter jurisdiction over this case pursuant to
Tenn. Code Ann. § 4-5-223 of the Uniform Administrative Procedures Act
("UAPA").
BACKGROUND
The State entered into “Medical Assistance Participation Agreements
(Medicaid - Title XIX Program) for Inpatient and Outpatient Hospital Services”
(“provider agreements”) with the plaintiffs ("hospitals") for the provision of health
care services to Medicaid recipients. Those hospitals participating in the
Medicaid program were reimbursed under a prospective payment methodology
established in rules of the Department of Health. Hospitals were reimbursed
under this system from October 1, 1983, to December 31, 1993.1
Under the prospective payment methodology, each hospital was paid a
per diem rate for Medicaid patients. There were two primary components to the
per diem rate, an “operating component” and a “pass-through component.” Each
1 On January 1, 1994, Tennessee instituted the TennCare program, which made substantial changes in the provision of health care services to Medicaid recipients. Under TennCare, health care providers are no longer reimbursed under the prospective payment methodology at issue in this case; providers are now paid by managed care organizations rather than by the State. The plaintiffs’ claims in this case are limited to the period prior to the implementation of the TennCare program.
2 hospital’s operating and pass-through components were calculated based upon
financial data contained in the hospital’s annual “cost report” filed with the State.
Effective July 1, 1989, the Department of Health implemented Tenn. Comp.
R. & Regs. ch. 1200-13-5-.08 which provided, in pertinent part, that after a
Medicaid patient had been a hospital inpatient for twenty (20) days, the hospital’s
per diem rate would be reduced for each subsequent day (over 20) by reducing
the “operating component” to 60%; this rule did not affect the pass-through
component of the hospital’s per diem rate.
In 1990, Congress passed legislation prohibiting states from imposing day
and dollar limits on Medicaid reimbursement for health care provided to infants
and children by hospitals serving a disproportionate share of low-income patients
with special needs. 42 U.S.C. § 1396(a)(s)(2), (3) ("OBRA '90"). The effective
date of this legislation was July 1, 1991.
On August 8, 1995, the hospitals filed a complaint with the claims
commission alleging breach of contract. The complaint alleged that the State
breached the “reimbursement methodology clause”2 of the provider agreements.
The hospitals argued that the “conflict clause”3 found in the provider agreements
caused OBRA '90 to amend the reimbursement methodology clause. The
hospitals argued that the reduced payment provided for under Rule 1200-13-5-
.08 for inpatient stays longer than twenty days breached the provider
agreements by placing day and dollar limitations on services rendered to
Medicaid-covered infants and children in violation of OBRA ‘90. The hospitals
alleged that they are entitled to additional Medicaid reimbursement as a result.
2 The reimbursement methodology clause provided that “this facility: . . . [a]grees to use the sam e me thod of re imbu rsem ent for T itle XIX that is used fo r Title XV III, Medica re.”
3 The c onflict claus e provide d: “If any part o f this agree men t is found to be in con flict with any F ede ral or S tate la ws o r regu lation s hav ing eq ual w eight of law , or if an y part is place d in conflict by am endm ent of su ch laws , this agree men t is so am ended .”
3 The State filed a motion to dismiss arguing, in pertinent part, that the
claims commission lacked subject matter jurisdiction. The State contended that
the hospitals’ claim was a challenge to the validity of a state Medicaid regulation
and was not a breach of contract action. The State argued that only the
Department of Health may adjudicate cases challenging the validity of a state
Medicaid regulation.
The claims commission denied the State's motion to dismiss. The claims
commission concluded that the hospitals' claim was for breach of contract and
that the claims commission had subject matter jurisdiction over all breach of
contract actions against the State. The State sought an interlocutory appeal,
which was granted. The Court of Appeals reversed the claims commission
holding that the provider agreements did not create a contractual obligation on
the State. The appellate court therefore held that the claims commission lacked
jurisdiction and dismissed the case.
ANALYSIS
The hospitals argue that this Medicaid reimbursement challenge is merely
a breach of contract action. The claims commission generally has exclusive
subject matter jurisdiction over all monetary claims against the State. Tenn.
Code Ann. § 9-8-307. Accordingly, the hospitals argue that the claims
commission had subject matter jurisdiction in the case now before us. We
disagree.
Federal law mandates that states designate a single state agency for
administration of state Medicaid plans. 42 U.S.C. § 1396(a)(5). The Tennessee
Department of Health was designated as the single state agency in charge of
4 administering the Medicaid program during the period at issue in this case.4
Tenn. Code Ann. §§ 71-5-101 et seq.
We have reviewed the hospitals' complaint and the entire record on
appeal. The hospitals' case is premised upon the contention that Tenn. Comp.
R. & Regs. ch. 1200-13-5-.08 is invalid because the rule violates OBRA '90.
Accordingly, the hospitals' claim is properly classified as a challenge to the
validity of Rule 1200-13-5-.08.
Claims challenging the validity of or applicability of a statute, rule, or order
must be brought pursuant to the UAPA. See Tenn. Code Ann. § 4-5-223(a)
(“Any affected person may petition an agency for a declaratory order as to the
validity or applicability of a statute, rule or order within the primary jurisdiction of
the agency”) (emphasis added). The Department of Health is an “agency” under
the UAPA. Rule 1200-13-5-.08 is a Department of Health rule. Moreover, the
Department of Health was the single state agency in charge of administering the
Medicaid program during the period in question. Accordingly, the hospitals'
challenge to the validity of Rule 1200-13-5-.08 should have been brought before
the Department of Health pursuant to the UAPA.
CONCLUSION
The hospitals' claim was based upon the invalidation of a state Medicaid
regulation. We hold that the claims commission lacks subject matter jurisdiction
to rule upon the validity of a state Medicaid regulation. Pursuant to the
authorities cited above, the Department of Health was the agency with subject
matter jurisdiction over the hospitals’ claim.
4 As of January 1995, the Department of Finance & Administration was substituted for the Dep artm ent o f He alth a s the single state agen cy.
5 The decision of the appellate court is affirmed as modified, and the
hospitals' complaint is dismissed. Costs of this appeal shall be taxed against the
plaintiff hospitals, for which execution may issue if necessary.
JANICE M. HOLDER, JUSTICE
Panel:
Anderson, C.J. Birch and Barker, JJ.
Drowota, J., Not Participating