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LANCASTER GENERAL HOSPITAL v. COMMONWEALTH PENNSYLVANIA (01/20/88)

decided: January 20, 1988.

LANCASTER GENERAL HOSPITAL, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, RESPONDENT



Appeal from the order of the Department of Public Welfare in Appeal Of: Lancaster General Hospital, Nos. 37-84-012 and 37-85-004.

COUNSEL

Steven J. Holsinger, with him, Christopher W. Mattson, Barley, Snyder, Cooper & Barber, for petitioner.

Diane J. Bartels, Assistant Counsel, for respondent.

Judges MacPhail, Doyle, and Senior Judge Narick, sitting as a panel of three. Opinion by Senior Judge Narick.

Author: Narick

[ 112 Pa. Commw. Page 606]

Lancaster General Hospital (LGH) has appealed from an order of the Office of Hearings and Appeals (OHA), Department of Public Welfare (DPW) which denied LGH's request for a retroactive recalculation of its diagnosis-related group (DRG)*fn1 rate for the period July 1, 1984 through January 1, 1985. For the reasons set forth herein, we reverse and remand.

In recent years DPW has revised its regulations regarding reimbursement to hospitals of health care costs for the needy. In response to certain federal laws enacted by Congress in 1981,*fn2 DPW began revising its hospital reimbursement system and in 1984, DPW adopted a prospective payment system based upon DRGs. The prospective payment system or DRG rate system was to become effective July 1, 1984.

[ 112 Pa. Commw. Page 607]

Certain costs were to be reimbursed outside of the prospective payment system; and one of these costs was for direct care services provided by a hospital-based or a provider-based physician (a physician salaried by a hospital).*fn3 Under the new regulations hospitals are required to submit cost reports.*fn4 DPW would determine from these cost reports the appropriate reimbursement permitted.

In the case at bar, LGH is contesting DPW's calculation of its DRG rate for the fiscal year 1984-1985, the first year in which the DRG rate became effective. It is undisputed that during the period in question, LGH had a contract with Lancaster Radiology Associates (LRA), an independent contractor, to provide radiology services; and therefore LRA is not a provider-based physician. It is also undisputed that LGH erronerously included its costs incurred with respect to LRA under its provider-based physician costs. LGH's radiology costs should have been included with those costs eligible for reimbursement under the DRG rate and not as a cost reimbursable as a provider-based physician. If LGH had correctly reported its LRA costs, it would have received a higher DRG rate. LGH and DPW both agree that DPW correctly calculated LGH's DRG rate based upon the information provided by LGH. However, because LGH made an error in its cost report with regard to its LRA costs, DPW's calculation is also incorrect.*fn5

A hearing was held before an attorney examiner on November 6, 1985. The attorney examiner denied

[ 112 Pa. Commw. Page 608]

LGH's request for relief and his decision was adopted in its entirety by OHA. ...


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