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Northwestern Youth Services, Inc. v. Commonwealth of Pennsylvania Dep't of Public Welfare

July 23, 2010

NORTHWESTERN YOUTH SERVICES, INC., ADELPHOI VILLAGE, APPALACHIAN YOUTH SERVICES, INC., HERMITAGE HOUSE YOUTH SERVICES, INC., PYRAMID HEALTHCARE, INC. AND TABOR CHILDREN'S SERVICES, PETITIONERS
v.
COMMONWEALTH OF PENNSYLVANIA DEPARTMENT OF PUBLIC WELFARE AND OFFICE OF CHILDREN, YOUTH AND FAMILIES, DEPARTMENT OF PUBLIC WELFARE, RESPONDENTS



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

Argued: May 18, 2010

BEFORE: HONORABLE ROBERT SIMPSON, Judge, HONORABLE PATRICIA A. McCULLOUGH, Judge, HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge.

OPINION

Northwestern Youth Services, Inc., Adelphoi Village, Appalachian Youth Services, Inc., Hermitage House Youth Services, Inc., Pyramid Healthcare, Inc., and Tabor Children's Services (collectively, Providers) have filed a Motion for Summary Relief (Motion) seeking to invalidate administrative bulletins issued by the Commonwealth of Pennsylvania, Department of Public Welfare and the Department of Public Welfare, Office of Children, Youth and Families (together, the Department) on the ground that the bulletins are unpromulgated regulations. For the reasons that follow, we grant Providers' Motion.*fn1

The Department supervises and provides funding to county children and youth agencies (County Agencies), which offer their services to the public either directly or through contracts with licensed, private agencies. Providers here are private agencies that provide out-of-home residential placement services pursuant to such contracts. Through 2007, County Agencies would submit annual needs-based budgets to the Department for review in accordance with statutory and regulatory payment standards. The Department would allocate state and federal funds to County Agencies consistent with approved needs-based budgets pursuant to Article VII of the Public Welfare Code,*fn2 62 P.S. §§701-709.3.

Beginning in 2008, the Department enacted a series of statewide administrative bulletins that imposed new cost-reporting requirements on County Agencies and providers and set maximum reimbursement limits for out-of-home residential placement services. Specifically, the Department adopted Bulletin No. 3170-08-01 (Bulletin 08-01), effective July 1, 2008, which mandated that County Agencies and providers submit detailed cost data to the Department relating to their residential services contracts. Bulletin 08-01 required that providers use the requisite forms to identify categories of costs within federal and state regulations and to calculate appropriate per diem rates under federal regulations for children placed in foster care. The Department then reviewed all per diems to verify that they complied with state and federal regulations and determined the allowable levels of reimbursement for services purchased by County Agencies.

The Department subsequently adopted Bulletin No. 3170-09-01 (Bulletin 09-01), effective July 1, 2009, to replace and expand the terms of Bulletin 08-01. Bulletin 09-01 required that providers use the requisite forms to submit funding requests to the Department, which would then inform the providers of the maximum amount of state and federal participation in the requested contract rates. If the providers failed to comply with Bulletin 09-01, County Agencies were required to fund the entire amount of the contracted services.

On July 16, 2009, Providers filed a Petition for Review (Petition) in this court's original jurisdiction, seeking, among other things, a declaration that the administrative bulletins are unpromulgated regulations and requesting that the Department be enjoined from mandating compliance with the bulletins. Shortly thereafter, on August 25, 2009, the Department adopted a third bulletin governing reimbursement for out-of-home residential placement services, Bulletin No. 3170-09-02 (Bulletin 09-02), which is the only bulletin at issue here.*fn3 On August 28, 2009, the Department filed preliminary objections to Providers' Petition.

Prior to this court's decision on the preliminary objections,*fn4 Providers filed the instant Motion on November 16, 2009. In their Motion, Providers assert that Bulletin 09-02 is an unpromulgated regulation because it attempts to impose statewide mandates that did not exist prior to the Bulletin's adoption. For example, Bulletin 09-02 now requires providers to complete various prescribed forms and submit detailed cost information to the Department for review and approval before entering into contracts with County Agencies. Providers also claim that Bulletin 09-02 sets upper contract payment limits per provider/per service and imposes financial penalties for failure to comply. Providers claim that these newly imposed mandates interfere with their contract negotiations with County Agencies and conflict with Article VII of the Public Welfare Code.

In its response, filed on December 14, 2009, the Department counters that Bulletin 09-02 is within the scope of its statutory and regulatory authority. The Department asserts that Bulletin 09-02 merely implements the audit and reimbursement procedures already set forth in the Department's existing regulations. The Department relies primarily on 55 Pa. Code §3170.84(a) (emphasis added), which states:

(a) The maximum level of reimbursement in which the Department will participate when services are provided on a unit of service basis shall be the lesser of:

(1) That established by regulation, directive, or memorandum published by the Department.

(2) That charged another government agency which purchases the same service from the provider agency.

(3) That charged the general public as evidenced by a schedule of charges officially ...


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