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PRESBYTERIAN-UNIVERSITY PENNSYLVANIA MEDICAL CENTER v. COMMONWEALTH PENNSYLVANIA (01/30/89)

decided : January 30, 1989.

PRESBYTERIAN-UNIVERSITY OF PENNSYLVANIA MEDICAL CENTER, PETITIONER
v.
COMMONWEALTH OF PENNSYLVANIA, DEPARTMENT OF PUBLIC WELFARE, RESPONDENT



PETITION FOR REVIEW

COUNSEL

Mark H. Gallant, Esq., Jeffrey B. Schwartz, Esq., Gerald Gornish, Esq., Philadelphia, Pa., for PETITIONER

John Kane, CHIEF COUNSEL, Cynthia White Williams, Esq., ASST. COUNSEL, Harrisburg, Pa., for RESPONDENT

Before: Honorable Joseph T. Doyle, Judge, Honorable Doris A. Smith, Judge, Honorable Jacob Kalish, Senior Judge

Author: Kalish

Opinion BY SENIOR JUDGE KALISH

Presbyterian-University of Pennsylvania Medical Center (Presbyterian) petitions for review from an order of the Department of Public Welfare (DPW), which denied Presbyterian's appeal from the prospective payment rates established by DPW.

DPW issued prospective payment rates pursuant to a new payment system for in-patient hospital services furnished to medical assistance recipients. Presbyterian appealed the payment rates established by DPW. DPW's Office of Hearings and Appeals denied relief, and Presbyterian now appeals to this court. DPW's examiner found that the prospective systems*fn1 of reimbursement, set by DPW and based on the Diagnosis Related Group (DRG), are substantially price-fixing systems. Further, a hospital's actual costs incurred in caring for medical assistance patients covered by DRG rates have no bearing on the payment the hospital will receive for that care. The examiner recognized that the change from a cost-based reimbursement to prospective payment was a fundamental restructuring of the payment system.*fn2 In addition, the examiner's findings noted that Presbyterian is an efficiently and economically operated hospital, and the prospective payment rate set by DPW resulted in the hospital being paid approximately $1,086,871 less than its costs. The examiner found that Presbyterian provides $3,000,000 a year in free care, and experiences a bad debt situation. The examiner concluded that the prospective payment rate was not reasonable and adequate, and that DPW made numerous errors in calculation of the rate. The examiner's recommendations were not adopted by the Office of Hearings and Appeals, which approved DPW's rate schedule.

Presbyterian contends that DPW, in fixing the prospective rate, failed to take into account the fact that the hospital served a disproportionate number of low-income patients with special needs. Presbyterian asserts that this is a violation of section 443.1(1) of the Public Welfare Code, Act of June 13, 1967, P.L. 31, as amended, 62 P.S. § 443.1(1), which provides for the payment of reasonable costs of in-patient hospital care.

Our scope of review is limited to determining whether the adjudication is supported by substantial evidence, whether the petitioner's constitutional rights have been violated and whether an error of law has been committed. Estate of McGovern v. State Employees' Retirement Board, 512 Pa. 377, 517 A.2d 532 (1986).

Pursuant to section 1163.52 of the Medical Assistance Manual, 55 Pa. Code § 163.52, which deals with the prospective payment methodology, DPW bases payment for in-patient hospital services on the classification of in-patient hospital discharges in the DRG classification. Hospitals are classified into specific groups. DPW first determines each hospital's concept score based on each of the four following concepts:

(1) teaching status

(2) medical assistance ...


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