or not states are procedurally required to submit assurances on interim rates, the rates themselves must conform to the federal standard.
I begin with the language of the statute. Although I have not uncovered any case that so construes this new reimbursement standard, it could be interpreted to mean that the only cost increases that must be reimbursed are those increases over which hospitals have no control ("that must be incurred . . ."), for example, those resulting from inflation. I do not see the need to read the statute so narrowly, but I recognize that the use of the clause "costs which must be incurred by efficiently and economically operated facilities" suggests a primary concern for operating costs. It stretches the language of the statute to contend that the costs of constructing a new patient wing or of purchasing new CAT-scan equipment are costs that must be incurred by an efficiently and economically operated hospital.
The statutory standard itself thus suggests that Pennsylvania's exemption of special capital costs at final audit is more than the federal law would require.
The nature and purpose of interim rates show that it is neither arbitrary nor capricious for DPW to wait until final audit to recognize special capital costs and to consider the needs of exceptional hospitals. Interim rates are designed to approximate final rates. In the interest of prompt payment and minimization of paperwork requirements, DPW has historically based its interim rates on the rates established by Blue Cross. It is with the same interests in mind that DPW has streamlined the interim rate cap. Determining which hospitals are exceptional hospitals requires a comparison of all hospitals in the state to ascertain which ones serve a "disproportionate" number of low income patients. It is not unreasonable for DPW to determine that this comparison is more readily done at the time of final audit. Likewise, including the special capital cost exemption in the interim rate calculation would require an audit of each hospital's costs before each interim payment to determine if the hospital's capital costs qualified for the exemption. It would defeat the purpose of interim payments to encumber the process with cost audits and statewide comparisons of Medicaid hospital utilization.
My determination that these plaintiffs have not shown a reasonable probability of success in this litigation is buttressed by the decisions of other courts that have reached the same conclusion in cases involving similar and ever more burdensome cost containment provisions. See, e.g., Mississippi Hospital Association, Inc. v. Heckler, 701 F.2d 511 (5th Cir.1983) (ceiling on operating cost reimbursement set at 80th percentile based on comparison of each hospital's operating costs); Coalition of Michigan Nursing Homes, Inc. v. Dempsey, 537 F. Supp. 451 (E.D.Mich.1982) (reduction in allowable "profit factor" permitted for long term care facilities that keep their costs below 80th percentile ceiling); Hempstead General Hospital v. Whalen, 474 F. Supp. 398 (E.D.N.Y.1979), aff'd, 622 F.2d 573 (2d Cir.1980) (reimbursement on capital cost component limited to net depreciated value of a preowned facility rather than purchase price).
There is no dispute that these hospitals will recover at final audit the balance of any underpayment made through the use of the capped interim rates. Their loss is short-term and certainly not irreparable. Financial loss alone does not rise to the level of irreparable injury that merits injunctive relief. See cases cited supra at 1011. There are a number of avenues through which these plaintiffs can remedy any cash-flow shortage pending final audit. After final audit the hospitals may administratively appeal DPW's application of the rate ceilings.
Plaintiffs' complaint asserts that because of the hardship caused by DPW's regulations, they may be forced to take actions to
make up for the revenue shortfall -- actions which will have a direct impact on the access and quality of patient care. Specifically, Plaintiffs are seriously considering: employee layoffs and work hour cutbacks; borrowing of working capital (leading to increased costs in the form of interest expense); reduction in Medicaid-intensive outpatient services; restricting hours or total closure of emergency room.
Plaintiffs' Complaint, filed 3/31/83, Docket Entry No. 1, para. 54. Plaintiffs have not presented any evidence that the quality of patient care has decreased because of resort to such cutbacks and reductions. Indeed, there was no evidence that such drastic cutbacks and reductions have been made. I do not mean to minimize the financial difficulties that Pennsylvania's new Medicaid regulations have imposed on these particular hospitals, but I am not convinced that the harm is irreparable.
CONCLUSIONS OF LAW
1. The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331.
2. The plaintiffs have not shown a reasonable probability of success on the merits on either the issue of the effective date of Pennsylvania's Medicaid rate caps or the propriety under federal law of the interim rates after application of the cap.
3. The plaintiffs have not shown that they will be irreparably harmed pendente lite in the absence of a preliminary injunction in their favor.
4. Plaintiffs' motion for a preliminary injunction will be denied.