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Lukes v. Dep't of Public Welfare

June 3, 2009


The opinion of the court was delivered by: Senior Judge Kelley

Argued: October 14, 2008



Denis Lukes (Lukes) and West Penn Allegheny Health System (WPAHS) (collectively, Petitioners) petition for review of an order of the order of the Chief Administrative Law Judge (CALJ) of the Department of Public Welfare's (DPW) Bureau of Hearings and Appeals (Bureau), which denied Petitioners' exceptions from a DPW decision denying Petitioners' request for information under what was commonly referred to as the Right-to-Know Law (Law)*fn1. We reverse.


Lukes is the Vice President of Finance of WPAHS, which is a non- profit healthcare provider comprised of six hospitals located in western Pennsylvania. On April 4, 2007, Petitioners submitted a written right-to-know request with DPW. The right-to-know request sought the production of Provider Agreements between the University of Pittsburgh Medical Center Health Plan, Inc. (Health Plan) and hospitals affiliated with the University of Pittsburgh Medical Center (UPMC)*fn2 entered into for the purpose of administering a DPW Medicaid managed care program known as the HealthChoices Program. DPW denied the request. Petitioners filed exceptions with the Bureau and requested a hearing. The Health Plan intervened. An evidentiary hearing was held before the Bureau, with the Bureau's CALJ presiding.


Based upon the testimony and evidence presented at the hearing, the CALJ made the following relevant findings. The Health Plan, which is a separate corporation from UPMC, is a managed care organization (MCO) and operates a Medicaid Health Maintenance Organization (HMO) separately incorporated as UPMC for You, Inc.. The Health Plan is not an agency of the Commonwealth. The right-to-know request was sufficiently specific to enable the agency to ascertain which records were being requested; the documents requested exist and are in the possession of the Health Plan.

DPW is an agency of the Commonwealth and the single state agency responsible for administering the Commonwealth's Medical Assistance (also referred to as Medicaid) program. The Medical Assistance program is a cooperative federal-state program through which various healthcare services are provided to those who qualify. The HealthChoices Program is the Commonwealth's managed care program for Medical Assistance recipients. DPW administers the HealthChoices Program through a series of HealthChoices Agreements with Medicaid MCOs and/or Medicaid HMOs. Pursuant to these contracts, the Health Plan agrees to pay the providers negotiated rates for medical services rendered to Medicaid MCO/HMO recipients.

On July 1, 2006, DPW entered into a HealthChoices Agreement with the Health Plan to participate as a Medicaid MCO. DPW agreed to make payments to the Health Plan using per member month rates. The Health Plan, in turn, administers benefits to Medicaid enrollees. The Health Plan agreed to enroll Medical Assistance recipients as members and to provide medically necessary services to those members. The Health Plan had separate Provider Agreements with different hospitals to provide those services to Medicaid recipients; ten of these hospitals are subject to Petitioners' right-to-know request. The Health Plan entered into contracts with only two of the six WPAHS hospitals.

The HealthChoices Agreement between DPW and the Health Plan states that "the relationship between DPW and the Contractor is that of independent contracting parties. The Contractors, its employees, services, agents, and representatives shall not be considered and shall not hold themselves out as the employees, servants, agents or representatives of the Department or the Commonwealth of Pennsylvania." Reproduced Record (R.R.) at 488a. The HealthChoices Agreement does not require the Health Plan to enter into contracts with any particular healthcare providers or require the Health Plan to pay any particular rates to its healthcare providers.

Pursuant to the HealthChoices Agreement, DPW pays the Health Plan a periodic capitation payment for each Medical Assistance recipient enrolled as a member of the Health Plan, whether or not the recipient actually received services during the period covered by the fee. The capitation payments are paid to the Health Plan to manage and pay for medical services and products for Medicaid enrollees. The payments made by DPW to the Health Plan are public funds. If the Health Plan was able to control costs within the level of the capitation revenue, then it would earn a profit; if not, the Health Plan would suffer a loss. The Health Plan used money it received from DPW to pay UPMC provider hospitals. The Health Plan operates its Medicaid MCO through the receipt of public and private funds, which are commingled in one account. DPW does not require segregation of capitation payments from other funding sources. Once the funds are commingled, it is impossible to determine what sources of funds paid for what expenses and/or services under the HealthChoices Agreement with DPW.

The Health Plan's Provider Agreements contain specific payment rates as well as confidentiality provisions forbidding the release of information contained therein. UPMC and the Health Plan require all employees to sign confidentiality agreements forbidding disclosure of confidential information to outside parties. The rates paid by Medicaid HMO/MCOs to providers affect the capitation payments DPW would make to the Medicaid HMO/MCOs in future years. Higher rates paid by Medicaid HMO/MCOs to its provider hospitals correlates into higher capitation payments made by DPW to Medicaid HMO/MCOs. Higher rates paid by Medicaid HMO/MCOs to its provider hospitals would increase the cost of the Medicaid program to DPW and the taxpayers of Pennsylvania.

Pursuant to the HealthChoices Agreement, DPW has the right to demand to see copies of the Provider Agreements. The Agreement also imposes a records retention policy upon the Health Plan. DPW can require the Health Plan to make available to DPW all subcontracts within five (5) days of a request. DPW has never possessed or requested the Provider Agreements between the Health Plan and their provider hospitals.


Based upon these findings, the CALJ determined that Lukes is the sole appellant; Lukes never established Pennsylvania residency and is therefore not eligible to seek public records under the Law. The CALJ further determined that the Provider Agreements are not public records because they are not "maintained" by DPW as required by the Law and because the Health Plan was not acting as an agent of DPW by paying its hospital providers for services rendered to Medicaid recipients; the Health Plan did not use public funds to pay its Medicaid service providers. Assuming the Provider Agreements are public records, the CALJ determined that the Provider Agreements contain information protected under Pennsylvania's Uniform Trade Secrets Act (Trade Secrets Act)*fn3 and are protected from disclosure under the Law.

By final order dated December 6, 2007, the CALJ affirmed DPW's denial of the right-to-know request and denied the exceptions. Petitioners then filed the instant appeal.*fn4 UPMC, the Health Plan, and UPMC For You, Inc. (collectively, Intervenors) have intervened.


On appeal, Petitioners have raised the following questions for our review:

1. Whether Petitioners have standing to seek public records under the Law.

2. Whether an agency must have immediate, physical possession of a record in order to be required to produce it under the Law.

3. Whether an agency and a private entity must have a formal agency relationship in order for documents in the private entity's possession to be deemed public records under the Law.

4. Whether an agency can transform public funds into private funds by transmitting them to a private entity for disbursement.

5. Whether contracts between a Medicaid MCO and hospitals with which it contracts regarding the use of public funds can be withheld based on an assertion that they may contain protectable trade secrets.


1. ...

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