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DELAWARE VALLEY CONVALESCENT CENTER v. FRANK S. BEAL (03/20/80)

SUPREME COURT OF PENNSYLVANIA


decided: March 20, 1980.

DELAWARE VALLEY CONVALESCENT CENTER, INC., D/B/A MEDICENTER -- BRISTOL, APPELLANT,
v.
FRANK S. BEAL, SECRETARY OF THE PENNSYLVANIA DEPARTMENT OF PUBLIC WELFARE, AND THE PENNSYLVANIA DEPARTMENT OF PUBLIC WELFARE

No. 145 January Term, 1978, Appeal from the Order of the Commonwealth Court at No. 558 C.D. 1977, dismissing Petition for Review.

COUNSEL

Shirley D. Weisman, Collingdale, for appellant.

Robert B. Hoffman, Deputy Atty. Gen., for appellees.

Eagen, C. J., and O'Brien, Roberts, Nix, Larsen, Flaherty and Kauffman, JJ.

Author: Roberts

[ 488 Pa. Page 293]

OPINION OF THE COURT

Appellant, a licensed "skilled nursing facility" participating in the medical assistance program established by Title

[ 488 Pa. Page 294]

XIX of the Social Security Act*fn1 and Article IV of the Public Welfare Code,*fn2 challenges a "reimbursement ceiling" of the Pennsylvania Department of Public Welfare. Without first directly petitioning the Department, appellant filed a "Petition for Review" in the Commonwealth Court, claiming that the ceiling contravenes federal law by basing a facility's entitlement to reimbursement on the availability of funds, and not on a "reasonable cost related basis." 42 U.S.C. § 1396a(a)(13)(E).*fn3 On the Department's preliminary objections, the Commonwealth Court dismissed the petition because appellant "has failed to exhaust an adequate administrative review process which must be resorted to as a prerequisite to obtaining judicial review." 34 Pa. Commw. 177, 181, 382 A.2d 1290, 1292 (1978). We affirm.

Under the exhaustion requirement, "a party must pursue the administrative remedies he has against an agency before challenging its action in court." Department of Environmental Resources v. Bethlehem Steel Corp., 469 Pa. 578, 594 n.28, 367 A.2d 222, 230 n.28 (1976). Accord, McKart v. United States, 395 U.S. 185, 193, 89 S.Ct. 1657, 1662, 23 L.Ed.2d 194 (1969); Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51, 58 S.Ct. 459, 463, 82 L.Ed. 638 (1938). See B. Schwartz, Administrative Law § 172 (1976); L. Jaffe, Judicial Control of Administrative Action 497-98 (1965). Appellant accepts the soundness of the requirement of exhaustion, but claims the requirement has no application here. According to appellant, this case presents an issue which is

[ 488 Pa. Page 295]

"strictly legal" and not in any respect dependent upon resolution of facts. On this "strictly legal" question, appellant maintains that the ceiling is not reasonably cost-related and thus in "clear violation" of federal law. Appellant maintains this "clear violation" can and should immediately be corrected. Finally, appellant asserts that it would engage in an "exercise in futility" were it to seek administrative relief because, in appellant's view, departmental review can adjust reimbursements only if the adjusted sum is below the departmental ceiling.

Appellant's justifications in support of its attempt to circumvent departmental remedies are unpersuasive. Appellant has failed to demonstrate that the reimbursement ceiling, as applied to appellant, will provide funds which are not reasonably cost-related. For example, there is nothing on this record which demonstrates that appellant's actual costs exceed the departmental ceiling. It might also be true that, because of non-allowable costs or inefficiencies, reimbursement at the departmental ceiling is entirely appropriate. As the Department points out, States are given latitude to determine what amount is

"adequate to reimburse in full such actual allowable costs of a facility that is economically and efficiently operated."

42 C.F.R. § 450.30(a)(iv)(A). Thus, until it has been established, rather than presumed, that appellant's actual, legitimate costs exceed the departmental ceiling, appellant poses only a conjectural, speculative claim.

Had appellant pursued departmental remedies, the critical factual issue appellant now presumes could have been properly considered and adjudicated. By departmental regulation, a skilled nursing facility which believes it has been aggrieved by the Department's reimbursement "may request within 30 days after notification by the Department, an informal or formal hearing under the Administrative Agency Law, Act of June 4, 1945, P.L. 1388."*fn4 Nothing on this

[ 488 Pa. Page 296]

    record would indicate that the departmental hearing would not afford appellant a full opportunity to establish its actual, legitimate costs and any claimed failure to reimburse properly. See Administrative Agency Law, §§ 31-36 ("adjudication procedure"); see also 2 Pa.C.S. §§ 501-508.*fn5

The appropriateness of adhering to the exhaustion requirement where, as here, both a proper record as well as an administrative determination are lacking is clearly manifest. It has been observed that:

"Premature interruption of the administrative process is no more justified than premature interruption of the trial process by interlocutory appeals. The agency, as the

[ 488 Pa. Page 297]

    tribunal of first instance, should be permitted to develop the factual background upon which decisions should be based. Like the trial court, the agency should be given the first chance to exercise discretion and apply its expertness. In addition, judicial efficiency requires the courts to stay their hand while the party may still vindicate his rights in the administrative process. If he is required to pursue further agency remedies, the courts may never have to intervene."

Schwartz, supra at § 172 p. 498. There is simply no occasion here to create an exception to the requirement of exhaustion in order to permit "[p]remature interruption of the administrative process." The order of the Commonwealth Court may not be disturbed.*fn6

Order affirmed.


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