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Armstrong County Memorial Hospital v. Department of Public Welfare

Commonwealth Court of Pennsylvania

January 8, 2014

Armstrong County Memorial Hospital, Petitioner
Department of Public Welfare, Respondent

Argued: December 9, 2013




Armstrong County Memorial Hospital (Hospital) appeals from the April 1, 2013, order of the Department of Public Welfare (DPW), Bureau of Hearings and Appeals (BHA), which adopted an Administrative Law Judge's (ALJ) recommendation to deny Hospital's appeal of DPW's implementation of a new All Patient Refined-Diagnosis Related Group (APR-DRG) payment system. We affirm.

Medicaid is a cooperative state-federal program through which the federal government provides funds to the states to assist the poor, elderly, and disabled in receiving medical assistance (MA). 42 U.S.C. §1396. The states establish "eligible groups, types and range of service, payment levels for services, and administrative and operating procedures" and pay for services directly to the individuals or entities furnishing the services. 42 C.F.R. §430.0. In Pennsylvania, DPW delivers Medicaid benefits through two payment systems: (1) fee-for-service (FFS), where the care is paid for on a claim-by-claim basis; and (2) managed care (MC), where a contracting organization is paid on a monthly, fixed-fee basis per enrollee. Armstrong County Memorial Hospital v. Department of Public Welfare, 67 A.3d 160, 163 (Pa. Cmwlth. 2013).

Under the APR-DRG payment system, DPW groups a compensable MA discharge into an appropriate category, which has a relative weight assigned to it. DPW multiplies this weight by the hospital's MA FFS inpatient APR-DRG base rate to determine the reimbursement amount for the MA provided.

In anticipation of the Act of July 9, 2010, P.L. 336 (Act 49), which amended section 443.1(1.1) of the Public Welfare Code (Code), Act of June 13, 1967, P.L. 31, as amended, added by Section 5 of the Act of July 31, 1968, P.L. 904, 62 P.S. §443.1(1.1), DPW modified its calculation of a hospital's base rate (base-rate methodology) so that instead of using a hospital's individual costs to determine a hospital's base rate, as was done before July 9, 2010, DPW first determines a statewide-average base rate that represents the statewide average cost-per-discharge multiplied by 90 percent.[1] DPW then adjusts the statewide-average base rate to account for regional labor costs, teaching status, average capital costs, and MA patient levels to determine each hospital's base rate. See section 443.1(1.1)(ii) of the Code, 62 P.S. §443.1(1.1)(ii). Using the new base-rate methodology, DPW set Hospital's base rate at $6, 521.49, effective July 1, 2010.[2]

Hospital appealed to the BHA, and on September 26, 2012, the ALJ held a hearing. Hospital presented the testimony of Diane Emminger, Vice President of Information Services at Hospital. Emminger testified that Armstrong County has an aging, decreasing population, a higher percentage of MA beneficiaries than the state average, and a lower per-capita income than the state average. (N.T. at 18; see also Ex. A1.) Emminger also stated that a shortage of primary care physicians (PCPs) exists in Armstrong County. (N.T. at 22-23.) Emminger noted that, in light of the economic and demographic conditions in Armstrong County, Hospital faces serious difficulties in hiring new staff and struggles to maintain and upgrade its clinical equipment. (Id. at 24.) Emminger testified that Hospital's problems are compounded by its location in a HealthChoices area, in which MC is mandated for MA beneficiaries. (Id. at 29.) Emminger concluded that Hospital's inadequate base rate adversely impacts MA beneficiaries' access to services. The ALJ found that "Emminger provided credible testimony regarding her analysis of MA rate calculations and the effect on MA managed care organization reimbursement." (ALJ's Findings of Fact, No. 14.)

DPW presented the testimony of Leesa Allen, Chief of Staff for the Office of MA Programs at DPW, and Cassandra Ly, a medical economist for DPW. Allen is responsible for obtaining federal funding at Hospital. Allen testified about the available MA programs and the new base-rate methodology. (N.T. at 94-97). Allen recalled that DPW published the proposed changes to the base-rate methodology and received no comments and that DPW's State plan amendments received the Center for Medicare and Medicaid Services' (CMS) approval. The ALJ found Allen's testimony "credible as it related to the implementation of Act 49 and administration of the MA Program." (ALJ's Findings of Fact, No. 12.)

Ly outlined the base-rate methodology and described the MA dependency adjustment (dependency adjustment), which the base-rate methodology uses to consider MA patient levels.[3] The ALJ found Ly's testimony "credible as it related to her involvement with inpatient hospital rates for the [FFS] Program, disproportionate share payments, and supplemental payments." (ALJ's Findings of Fact, No. 13.)

On March 21, 2013, the ALJ recommended that Hospital's appeal be denied. On April 1, 2013, DPW adopted the ALJ's recommendation in its entirety. Hospital now appeals to this court.[4]

Hospital argues that DPW did not calculate the base rate in accordance with section 443.1(1.1)(ii)(B) of the Code, 62 P.S. §443.1(1.1)(ii)(B), because DPW did not consider Hospital's location in a HealthChoices area in its base-rate methodology. We disagree.

Section 443.1(1.1) of the Code, 62 P.S. §443.1(1.1), addresses, inter alia, payment methods and standards by which DPW calculates payments to acute-care hospitals for ...

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