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decided: August 26, 1975.


Original jurisdiction in case of Metropolitan Hospital on behalf of themselves and all others similarly situated v. Department of Public Welfare, Commonwealth of Pennsylvania, and Don Jose Stovall, Director of Public Welfare, Commonwealth of Pennsylvania.


Pace Reich, with him Judith Eichen, and Modell, Pincus, Hahn & Reich, for plaintiffs.

Norman J. Watkins, Deputy Attorney General, with him Lawrence Silver, Deputy Attorney General, and Robert P. Kane, Attorney General, for defendants.

President Judge Bowman and Judges Crumlish, Jr., Kramer, Wilkinson, Jr., Mencer, Rogers and Blatt. Opinion by Judge Crumlish, Jr. Dissenting Opinion by Judge Kramer.

Author: Crumlish

[ 21 Pa. Commw. Page 118]

Metropolitan Hospital, on behalf of itself and all others similarly situated (Plaintiff) instituted a three count complaint in equity challenging the establishment and operation of the Utilization Review Committee (Committee) of the Department of Public Welfare (Defendant). This Committee, required by federal law,*fn1 has as

[ 21 Pa. Commw. Page 119]

    its purpose the monitoring of Medicare and Medicaid disbursements to providers of inpatient hospital care and attempts to insure that only reasonable costs of medically necessary medical procedures are subsidized with state and federal funds.

Plaintiff alleges that: 1) the establishment of the Committee and its operation violates its existing contract with Defendant; 2) failure to promulgate rules, regulations and standards by Defendant makes Plaintiff's compliance impossible, and thus, deprives Plaintiff of property without due process of law; and 3) failure to provide Plaintiff further review for a period in excess of one year is violative of the parties' contract and the Constitutions of both the United States and of this Commonwealth. Plaintiff now prays that this Court compel Defendant to retroactively restore all disallowed payments.*fn2

Defendants have lodged preliminary objections to the complaint in equity. They are:

1. This Court lacks equity jurisdiction over the cause in that Plaintiffs have not exhausted adequate and available statutorily imposed administrative remedies.

2. The cause of action is not properly maintainable as a class action.

We must decide the validity of these objections.

Initially, we will examine the exhaustion of statutory remedies objection. Key to this inquiry is Section 9421.54 of the Department of Public Welfare Medical Assistance Manual which provides:

[ 21 Pa. Commw. Page 120]

"The Department's decision to deny payment or to seek reimbursement of payment for services from the hospital or to bar the hospital from participation may be appealed upon request of the hospital administrator to the Department. (Administrative Agency Law 1945, June 4, P.L. 1388.)

"The request for the appeal must be initiated within 30 days from the date of the Department's disapproval letter; it is sent to the Director of the Division of Utilization Review, Bureau of Medical Assistance, P.O. Box 2675, Harrisburg, Pennsylvania 17120.

"In such an event, an informal pre-hearing conference is first held with the Department's Office of Legal Counsel. If the hospital and Department do not agree at this preliminary conference, a hearing examiner is then appointed by the Department and a formal, administrative hearing is scheduled.

"Pending decision on the appeal, MA payments to the hospital for such cases will be withheld; further adjustments on a case that has been paid and adjusted previously will not be made until such time as the case is adjudicated."

We understand this administrative procedure to mean that the fiscal intermediary submits every claim for payment to the Committee, whereupon the hospital is given a notice of each disallowed claim. If the hospital submits a timely request for appeal, a prehearing conference is convened. Following this conference, if no agreement has been reached concerning payment of the disallowed claim, a formal departmental hearing is held and an adjudication entered from which appeal may be taken to our Court within thirty days.

[ 21 Pa. Commw. Page 121]

Defendant, as proponent of the objection, asserts that the instant case is much the same as Lillian v Commonwealth of Pennsylvania, 11 Pa. Commonwealth Ct. 90, 311 A.2d 368 (1973), wherein we followed our Supreme Court's decision in Rochester & Pittsburgh Coal Co. v. Page 121} Indiana Board of Assessment & Revision of Taxes, 438 Pa. 506, 266 A.2d 78 (1970). In Lillian, we enunciated the standard to be applied prior to proceeding in equity for actions involving taxing authorities. "'In a positive sense, what is required to confer jurisdiction on an equity court is the existence of a substantial question of constitutionality (and not a mere allegation) and the absence of an adequate statutory remedy.'" (Emphasis in original.) Lillian, supra, at 92, 311 A.2d at 369.

It is readily apparent that the standard to gain entrance into equity in a taxing matter is a much stricter one than would be applied in other areas. A review of the case law cited in, and leading to Rochester, clearly shows that this more difficult standard, where a substantial constitutional claim must be present, is the result of the historical uniqueness of the tax area of the law. Precise legal procedures have always been established where a taxing statute was in effect and the administrative bodies administering these statutes developed vast expertise with respect to these procedures. Therefore, the need for equity was, indeed, a limited one, and thus the enunciation of a rule making access to it difficult.

Our research informs us that this strict standard is not applied in all administrative cases where equity is called upon. To the contrary, tax cases are the sole area in which the litigant must show both a substantial constitutional question and an inadequate remedy at law. The question before us, therefore, is solely one of the adequacy of the statutory remedy.

Plaintiff contends in its brief that during the two and one-half years preceding this action, it has filed more than 800 appeals pursuant to Section 9421.54 and that during this time only one informal hearing was scheduled at which 13 to 15 appeals were reviewed. It is advanced that such a delay effectively emasculates any semblance of effectiveness which this statutory remedy would seem to provide.

[ 21 Pa. Commw. Page 122]

Such a contention in proper context may well be a valid one, for clearly, the remedy and its exercise have not been pressed diligently by Defendant. But, are we presently in a position to accept Plaintiff's argument? For purposes of preliminary objections, we must treat as true all well and clearly pleaded facts. Commonwealth ex rel. Powell v. Aytch, 10 Pa. Commonwealth Ct. 218, 309 A.2d 734 (1973). Reviewing Plaintiff's complaint, we find neither an averment that there is no adequate remedy at law, nor a specific averment relating to the 800 appeals pressed by Plaintiff. However, averments numbers eleven and sixteen, although not expressing the lack of hearings in exact numbers, do complain that hearings on these claims were denied.*fn3 The complaint also avers that the lack of specific guidelines and rules makes compliance with the program impossible. This, too, goes to the inadequacy of the statutory remedy. A total review of the complaint leads us to conclude, notwithstanding Defendant's protestations, that Plaintiff has properly pleaded a cause in equity, and accepting as true its averments, has shown the ineffectiveness of the provided statutory remedy. As such, we find no merit to the contention that Plaintiff cannot proceed in equity before exhausting its legal remedies, for it is axiomatic that a party litigant need not pursue to exhaustion ineffective legal remedies.

Defendant next asserts that this action is not properly maintained as a class action. Paragraphs five and sixteen of Plaintiff's amended complaint state:

"5. Plaintiff brings this action on behalf of themselves and the Class consisting of all other hospitals in the Commonwealth of Pennsylvania who entered into the

[ 21 Pa. Commw. Page 123]

    aforementioned standard contract, . . . with the DEPARTMENT OF PUBLIC WELFARE to provide inpatient hospital care for eligible persons in accordance with the Public Welfare Code, Act 21 of June 13, 1967, P.L. 31, Article IV from the period January, 1971 to the present.

"16. Plaintiff brings this action on behalf of themselves and the Class consisting of all other hospitals in the Commonwealth of Pennsylvania who entered into the aforementioned standard contract, . . . with the DEPARTMENT OF PUBLIC WELFARE to provide in-patient hospital care for eligible persons in accordance with the Public Welfare Code, Act 21 of June 13, 1967, P.L. 31, Article IV from the period January, 1971 to the present, and who, after having received notice of denial of claims by the DEPARTMENT OF PUBLIC WELFARE requested administrative review of such denial and a hearing in connection therewith, which hearings have never been held."

Plaintiff further avers that 1) the potential class contains approximately 260 members; 2) potential class members have entered into the same contract (In Patient Hospital Care Agreement); 3) Defendant has applied the same review procedure to each class member; 4) Defendant has used the same notices of claim denial for each class member; and 5) Defendant has unreasonably delayed each class member in review of claim disallowances.

Pa. R.C.P. 2230(a) states:

"If persons constituting a class are so numerous as to make it impracticable to join all as parties, any one or more of them who will adequately represent the interest of all may sue or be sued on behalf of all, but the judgment entered in such action shall not impose personal liability upon anyone not a party thereto." (Emphasis added.)

[ 21 Pa. Commw. Page 124]

There is a great deal of case law interpreting Fed. R. Civ. P. 23*fn4 (the federal rule providing for maintenance of class actions), but Pennsylvania courts have had little opportunity to give meaning to Rule 2230(a). The most recent expression of the law of class actions in Pennsylvania surfaced in our Supreme Court's decision in McMonagle v. Allstate Insurance Company, Pa. , 331 A.2d 467 (1975),*fn5 where the following principles were enunciated:

1 -- Rule 2230 does not encompass the notion of the so-called true, hybrid and spurious class actions found in the original Federal Rule 23.

2 -- Pennsylvania courts are not bound by cases decided under the federal rule, although such cases may be followed if persuasive.

3 -- The class representative must be a member of the class he or she seeks to represent.

But, there are other appellate decisions casting light on the proper guidelines in determining the propriety of the class. In Buchanan v. Brentwood Federal Savings and Loan, Pa. , 320 A.2d 117 (1974), the Supreme Court, in remanding to the lower court, suggested these criteria as to similarity of class members:

4. The class members must be so numerous as to make it impracticable to join all as parties.

5. The representative must adequately represent the interest of all class members.

To date, these are the only general substantive constraints

[ 21 Pa. Commw. Page 125]

    laid upon Rule 2230 by our Supreme Court.*fn6 Perhaps Judge Spaeth's dissenting language in McMonagle, when that case was before the Superior Court, which language was adopted by the Supreme Court, explains the lack of precise standards for the rule. "We are not bound by [the criteria that have in the past been applied by the federal courts]. Our rule is more general and thus less restrictive than the Federal rule. . . The experience with class actions in the Federal courts has been difficult. Hopefully, we may benefit from it, and do better." (Emphasis added.) McMonagle, supra, at , 331 A.2d at 471.

Defendant asserts that there should be a tripartite test for Rule 2230, to wit, 1) necessity for numerosity (which is included in the Rule and the caselaw); 2)

[ 21 Pa. Commw. Page 126]

    necessity for common questions of law and fact between class members (which is a requirement under the Federal Rule), and 3) a commonality of interest between the representative and members of the class as to insure adequate representation (which is a consolidation of two expressions recited by the Supreme Court and the express language of the Rule). Of these, the first and the third do bear of the Pennsylvania Rule, but the second, common question of law and fact, is a uniquely federal requirement, and we can find no sound reason for imposing such a requirement on Rule 2230. With these considerations in mind, we turn to the instant case.

Defendant, in support of its objection, first argues that the numerosity requirement has not been met by an averment that "more than 260" are the number in the class. Defendant admits there can be no hard, fast rule with respect to numerosity but cites to us Minersville Coal Co. v. Anthracite Export Ass'n, 55 F.R.D. 426 (M.D.Pa. 1971) for the proposition that at least one federal district considers 330 plaintiffs not so numerous that joinder of all members is impracticable. We cannot

[ 21 Pa. Commw. Page 127]

    accept a pure citation of numbers in such a determination, and as our Courts have said, federal decisions can be persuasive, but are in no way dispositive. To us, the approximation of 260 hospitals as Plaintiff in this class action, where claim is made for funds disallowed by Defendant, presents a sufficiently grave imposition on court resources, and an unnecessary drain on disparate private litigants' energies, to justify our saying that this proposed class is sufficiently numerous.*fn7

Next, we must determine whether this Plaintiff has a sufficient commonality of interest to justify a conclusion of adequacy of representation of remaining potential class members.*fn8 The commonality of interest making Plaintiff a proper representative asserted by Plaintiff is that all class members enjoy similar contractual arrangements with Defendant and that all are subject to the same claim review procedure, that all are notified similarly of disallowance of claims, and all have been unreasonably delayed in the processing of reimbursement claims. Defendant counters by arguing that each potential Plaintiff, of necessity, will have different and individual questions and issues upon which a court must rule. Plaintiff has asked the Court to order Defendants to pay for all disallowed claims for inpatient hospital services from January 1971 upon the assertion that due process has been denied in the process of the claims. Assuming arguendo, that we would at some future date reach those merits and

[ 21 Pa. Commw. Page 128]

    find that this named Plaintiff had been denied due process in the claim procedure, the unanswered question would be whether "all others," asserted to be similarly situated, were denied payment on similar grounds. The inquiry of whether federal and state requirements of medical necessity could, and most probably would be different for each claim of each class member. This, in itself, is sufficient to sustain Defendant's preliminary objection to the class action posture of this case.


And Now, this 26th day of August, 1975, the preliminary objection of defendant with respect to the propriety of Plaintiff's class action is hereby sustained and the cause in equity is dismissed without prejudice. Leave is granted Plaintiff to pursue the action individually. Defendant's preliminary objection with respect to the exhaustion of statutory remedies is dismissed.


Preliminary objections sustained. Complaint dismissed.

Dissenting Opinion by Judge Kramer:

I respectfully dissent. The majority opinion accurately and assiduously sets forth the applicable law, and, therefore, I adopt that entire opinion, except for the last three sentences. My review of this record leads me to conclude that the complaint properly sets forth a justiciable class action.

I would overrule the preliminary objections, permit the defendants to file an answer and, thereafter, allow the parties to proceed to trial. This would not only resolve a morass of bureaucratic dilatoriness, thereby benefiting the hospitals, their indigent patients and the Department of Public Welfare, but also would alleviate a multiplicity of lawsuits.

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