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WILMAC CORP. v. HECKLER

April 8, 1986

WILMAC CORPORATION, d/b/a HEATHERBANK REHABILITATION and NURSING CENTER
v.
MARGARET M. HECKLER, Secretary of the United States Department of Health and Human Services; and WALTER W. COHEN, Secretary of the Pennsylvania Department of Public Welfare



The opinion of the court was delivered by: TROUTMAN

 TROUTMAN, S.J.

 This case comes before the Court on cross-motions for summary judgment. There are no material facts in dispute. The Court is required to decide only legal issues concerning the propriety of certain regulations promulgated by the Pennsylvania Department of Welfare and approved by the Secretary of Health and Human Services.

 Plaintiff Wilmac, a proprietor of nursing homes, wants to expand Heatherbank, a skilled nursing facility which provides long-term and intermediate care, as well as rehabilitation services, by adding ninety (90) new intermediate care beds to Heatherbank's existing one hundred eighty (180) beds.

 In order to clarify the issues, it will be helpful to set forth the statutory and regulatory background of this dispute before proceeding to a discussion of the parties' contentions.

 I. Federal Statute and Regulations

 Under the Medicaid statute, Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq., a state that chooses to participate in the Medicaid program is empowered to develop its own plan for doing so, subject to regulations promulgated by the Department of Health and Human Services. The state plan must be approved by the Health Care Financing Agency (HCFA), through which Medicaid is administered, to assure compliance with the federal regulations.

 At its inception, the Medicaid statute was not specific in its regulation of allowable costs and reimbursement rates, but in 1972, Title XIX was amended to require payment by the states to providers of skilled nursing and intermediate care on a reasonable costs-related basis, as determined in accordance with methods and standards developed on the basis of cost finding methods approved and verified by the Secretary of Health and Human Services. (Social Security Amendments of 1972, Pub.L. No. 92-603, § 249(a) 86 Stat. 1329).

 However, in 1980, Congress retreated from a specific reimbursement formula once again when it passed the Boren Amendment, 42 U.S.C. § 1396a(a)(13)(A). The newest statutory standard requires that the state find and make assurances to the Secretary of Health and Human Services that rates of reimbursement are

 
reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable state and Federal laws, regulations and quality and safety standards. Id.

 To implement the Boren Amendment, HHS published final regulations in December, 1983, requiring states to specify methods and standards used to set reimbursement rates and to certify to HCFA annually that its payments to nursing homes satisfy the literal terms of the statute, i.e., that they are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities. See, 42 C.F.R. § 447.250 -- 447.280. A state is also required to make such a certification whenever it makes a significant change in its payment methods and standards. In addition to the assurances that are to accompany significant state plan changes, HHS also requires that related information consisting of estimated average payment rates and the estimated effect of rate changes on availability of services, type of care furnished and extent of provider participation be furnished.

 II. State Regulations

 The Commonwealth of Pennsylvania has always been a Medicaid participating state providing skilled nursing and intermediate care facility services to the categorically and medically needy. The Department of Public Welfare (DPW) is the administering agency for the state plan. Methods and standards for determining state plan reimbursement rates for skilled nursing and intermediate care facility services are found in the Manual for Skilled Nursing and Intermediate Care Facilities, initially approved by HCFA in 1978.


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