Petition — New Jersey v. Monmouth Medical Center
Supreme Court brief1979
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IN THE
Supreme Court of the Unitenl|Stahts *
Ocroser Term, 1979 MICHABL ROBAK, JR., BLERK
No 79-430
STATE OF NEW JERSEY; ANN KLEIN, Commissioner
of the Department of Human Services of the State of
New Jersey; and THOMAS M. RUSSO, Director of the
Division of Medical Assistance and Health Services of
the State of New Jersey,
Petitioners,
VS.
MONMOUTH MEDICAL CENTER, a non-profit
corporation of the State of New Jersey,
Respondent.
PETITION FOR WRIT OF CERTIORARI TO THE
SUPREME COURT OF NEW JERSEY
JoHN J. DEGNAN,
Attorney General of New Jersey,
Attorney for Petitioners, State of New
Jersey; Ann Klein, Commissioner of
the Department of Human Services
of the State of New Jersey; and
Thomas M. Russo, Director of the
Division of Medical Assistance and
Health Services of the State of New
Jersey,
State House Annex,
Trenton, New Jersey 08625.
STEPHEN SKILLMAN,
Assistance Attorney General,
Of Counsel.
AnpreEA M. SrtxowlTz,
Deputy Attorney General,
On the Petition.
Adams Press Corp., 5 Commerce Street, Newark, N. J. 07102—(201) 623-8611
TABLE OF CONTENTS
Opinions BeLow
JURISDICTION
QUESTIONS PRESENTED
Statutes AND ReGuLATIONS INVOLVED
STATEMENT OF THE CASE
Reasons For GRANTING THE Writ—The holding of the
Court below that Title XIX of the Social Security
Act prohibits a State’s denial of inpatient hos-
pital coverage in its medical assistance program
for any necessary care provided by a hospital
raises substantial questions of significance to
Medicaid programs throughout the country and
poses a conflict with the rulings of this Court
and lower federal courts as well as interpreta-
tions of the scope of State discretion under Title
XIX adopted by the Secretary of HEW which
can only be resolved by an authoritative ruling by
this Court
A. Certiorari should be granted to resolve the sig-
nificant question expressly left open in Beal v.
Doe as to State discretion under Title XIX to
limit coverage for medically necessary services
in mandated categories of health care ................
11
ii TABLE OF CONTENTS
PAGE
B. The Court’s review of the issue of State dis-
cretion under Title XIX to determine whether
a service is medically necessary and to deny
coverage for necessary medical treatment with-
in mandated coverage areas is imperative in
order to resolve the conflicting interpretations
of the statute by Federal and State judiciary
and HEW . 21
CoNCLUSION 24
APPENDIX:
A—Opinion of the Supreme Court of New Jer-
sey la
B—Opinion of the Superior Court of New Jer-
sey, Appellate Division 23a
C—Determination of the Director of the Divi-
sion of Medical Assistance and Health
Services 40a
D—Recommended Findings of Fact and Con-
clusions of Law of the Hearing Officer for
the Division of Medical Assistance and
Health Services ...... 43a
Cases Cited
Beal v. Doe, 482 U.S. 438 (1977) ..................-- 11, 14, 15, 21-23
Commonwealth of Pennsylvania Department of Pub-
lic Welfare v. Temple University, 21 Pa. Commw.
Ct. 162, 343 A.2d 701 (Commw. Ct. 1975)... 12, 21
Doe v. Minnesota Department of Public Welfare,
257 N.W. 2d 816 (Minn. 1977) 22
3 TABLE OF CONTENTS lil
PAGE
G. B. v. Lackner, 80 Cal. App. 3d 64, 145 Cal. Rptr.
555 (1978) 22
Geduldig v. Aiello, 417 U.S. 484 (1974) -.0.20.. 18
Jefferson v. Hackney, 406 U.S. 535 (1972) 2.22. 18
Lavine v. Milne, 424 U.S. 577 (1976) -
New York Dept. of Soe. Services v. Dublino, 413 U.S.
405 (1973) .
Preterm, Ine. v. Dukakis, 591 F.2d 121 (1st Cir.)
cert. denied —— U.S. (1979) 19, 21, 22
Quern v. Mandley, 436 U.S. 725 (1978) ................ 3, 18, 18, 19
Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367
(1969) ... ennians 13
Right to Choose v. Byrne, 165 N.J. Super. 443, 398
A.2d 587 (Chan. Div. 1979) ....... a : 22
Roe v. Casey, 464 F. Supp. 487 (E.D. Pa. 1978) ...... 22
Rosado v. Wyman, 397 U.S. 397 (1970) 23
Rush v. Parham, 440 F. Supp. 383 (N.D. Ga. 1977)
app. pending sub. nom. Rush v. Poythress, No.
77-2743 (5th Cir.) 22
Virginia Hospital Association v. Kenley, 427 F.
Supp. 781 (B.D. Va. 1977) ...... 12, 16, 17, 21
Zharaz v. Quern, 596 F.2d 196 (7th Cir. 1979) 000... 21, 22
United States Constitution Cited
Fourteenth Amendment ..................----------- me 9)
lv TABLE OF CONTENTS
PAGE
Statutes Cited
ed SRA. GOT GE OR, scnscisntensissinenuniaputalesbactictemsadeaatils 8
Social Security Act:
TOO. ITI, a vessisssnissnsieenesperiicnasnbieieaiaataaaai lama ia 2
Mec. BOURM ARR) ncsncniseianoe 2
Social Security Amendments of 1965, Pub. L. 89-97,
79 Stat. 286:
Social Security Amendments of 1972, Pub. L. 92-
603, 86 Stat. 1329:
28 U.S.C.:
See. IMRT) W.ccncdecccnadiaaeaee 2
OO. BRON GD no acivniscinescpacndannsenncia eee 2
42 US.C.:
5500. GBECO) ....ninisssorsiinsisssscninitaaiaaieaa ee ene 18
p00. TOUR, 00 G0, wna eee 8
00. SIDS mua 2, 3, 10, 18, 15, 17, 19, 20, 22
ee. 1SDG, oh WOU.. .ncsccconcaienicndae eee 6,8
Secs. 190Galad ROO qo cwssisasiaadaeeee 6
See. IBGalap ERC) ceceiiscsiceicscnnticeencianeennains 15
See. LODGED cnscsiensnthasaaa eee 2, 4, 10
Sec. 1396a(a) (17)
TABLE OF CONTENTS Vv
PAGE
42 U.S.C.:
Se I racharesicgscaberdanecegnineniciinsnieatsspneteibidcdientsens 16
I I aaa tala aca tates a cea: 15
eS ERI ne A Re 15
a 19
Regulations Cited
42 C.F.R.:
ee I es ce 3, 4, 10, 12, 17
Sec. 449.10(a) (5) (1) ceececccecsssccecessssssesssssessssssssssesnssese 22
N.J.A.C. 10:52-1.2(8) (18) esccscsscccsec _ 5-9
TP MORES) ihe G
N.J.A.C. 10:52-1.2(b) (1) TR RR 7-9
Other Authority Cited
Note, State Restrictions on Medicaid Coverage of
Medically Necessary Services, 78 Colum. L. Rev.
I sail ec ienlnaisaicdestliintiiemenhaeaie 18
IN THE
Supreme Court of the United States
OcroserR Term, 1979
No.
»™s
>
STATE OF NEW JERSEY; ANN KLEIN, Commissioner
of the Department of Human Services of the State of
New Jersey; and THOMAS M. RUSSO, Director of the
Division of Medical Assistance and Health Services of
the State of New Jersey, ss
Petitioners,
VS.
MONMOUTH MEDICAL CENTER, a non-profit
corporation of the State of New Jersey,
Respondent.
>
PETITION FOR WRIT OF CERTIORARI TO THE
SUPREME COURT OF NEW JERSEY
Petitioners pray that a writ of certiorari issue to review
the judgment and opinion of the Supreme Court of New
Jersey entered in this proceeding on June 18, 1979.
Opinions Below
The opinion of the Supreme Court of New Jersey, en-
tered on June 18, 1979, is reported at 80 N.J. 299, 403 A.
2d 487 (1979) and is appended to this petition as Appen-
dix A. The opinion of the Superior Court of New Jersey,
Appellate Division, was entered on March 27, 1978 and is
reported at 158 N.J. Super. 241, 385 A.2d 1244 (App. Div.
1978).* It appears as Appendix B to this petition. The
determination of the Director of the Division of Medical
Assistance and Health Services, dated February 8, 1977,
is unreported. It appears as Appendix C to this petition.
The recommended findings of fact and conclusions of law
of the hearing officer for the Division of Medical Assist-
ance and Ilealth Services, dated October 28, 1976, is un-
reported. It appears as Appendix D to this petition.
Jurisdiction
The judgment of the Supreme Court of New Jersey de-
clares invalid State Medicaid regulations on the ground
that they violate mandatory provisions of the Federal
Social Security Act and implementing regulations promul-
gated by the Secretary of the Department of Health, Edu-
action and Welfare. Jurisdiction to reviiw the judgment
below by writ of certiorari is conferred upon the Court by
28 U.S.C. §$§1257(3) and 2101(e).
Questions Presented
1. Do Sections 1901 and 1902(a)(13)(D) of Title XIX
of the Social Security Act, 42 U.S.C. §§1396 and 1396(a)
(13)(D), or regulations of the Department of Health,
* According to New Jersey practice, the opinions of appellate
courts in the State are self-executing and no separate judgment
is rendered after the rendering of an opinion. Accordingly, the
opinions set forth in Appendices A and B are the final judgments
cf the Courts below.
3
Education and Welfare adopted thereunder, mandate that
a State which participates in the federal Medicaid pro-
gram must extend medical assistance for inpatient hospi-
tal services provided to patients awaiting transfer to
lesser care facilities who are no longer in need of acute
level care?
2. Does this Court’s decision in Quern v. Mandley, 436
U.S. 725 (1978), preclude an interpretation of 42 U.S.C.
§1396, a general purpose clause, as imposing a mandatory
funding requirement of all medically necessary services
upon a State participating in the Medicaid program?
3. Where a State upon approval by the Secretary of
ILEW has imposed a limitation upon reimbursement of
inpatient hospital services based upon critical budgetary
constraints, and where a challenger of the limitation fails
to proffer any evidence of its adverse impact upon the
inpatient Medicaid hospital population, can there be a find-
ing that the inpatient hospital service coverage does not
“reasonably achieve its purpose” within the intendment of
42 C.F.R. §440.230(b) ?
Statutes and Regulations Involved
42 U.S.C. $1396 AutTHoRIzATION oF APPROPRIATIONS
“For the purpose of enabling each State, as far as
practicable under the conditions in such State, to
furnish (1) medical assistance on behalf of families
with dependent children and of aged, blind, or dis-
abled individuals, whose income and resources are
insufficient to meet the costs of necessary medical
services, and (2) rehabilitation and other services
to help such families and individuals attain or re-
tain capability for independence or self-care, there
is hereby authorized to be appropriated for each
4
fiseal year a sum sufficient to carry out the pur-
poses of this subchapter. The sums made available
under this section shall be used for making pay-
ments to States which have submitted, and had ap-
proved by the Secretary of Health, Education and
Welfare, State plans for medical assistance.”
5
(b) Each service must be sufficient in amount,
duration, and scope to reasonably achieve its
purpose.
(c)(1) The medicaid agency may not deny or re-
duce the amount, duration, or scope of a re-
quired service under §§440.210 and 440.220 to
an otherwise eligible recipient solely because
2 U.S.C. §1396a(a)(138)(D) Stare Pians ror MepicaL of the diagnosis, type of illness, or condition.
AssIsTANCE—CONTENTS
“A State plan for medical assistance must N.J.A.C. 10:52-1.2(a)(18) Coverep Inpatient Hosprran
2 g 2 SERVICES
(13) provide Inpatient hospital services rendered after the day
* * * it is medically necessary, except [sic] when special
(D) for payment of the reasonable cost of in-
patient hospital services provided under the
plan, as determined in accordance with meth-
ods and standards, consistent with section
1320a-1 of this title, which shall be developed
by the State and reviewed and approved by
the Secretary and (after notice of approval
by the Secretary) included in the plan, except
that the reasonable cost of any such services
as determined under such methods and stand-
ards shall not exceed the amount which would
be determined under section 1395x(v) of this
title as the reasonable cost of such services
for purposes of subchapter XVIII of this chap-
ter.”
42 C.F.R. §440.230(b) Surricrency or Amount, Dura-
TION, AND ScoPp
(a) The plan must specify the amount and dura-
tion of each service that it provides.
circumstances prevent the discharge or transfer of
the patient.
Note: The Contractors may reimburse a hospital
up to 12 ce! ‘ar days following the period estab-
lished medic: y necessary if special circumstances
(social necessity) prevent the discharge or transfer
of the patient to his/her home or sheltered board-
ing home and the hospital has taken effective ac-
tion to stimulate placement of the patient.
Effective action is defined as telephone notification
tu the County Welfare Board, Division of Youth
and Family Service District Office or other re-
sponsible officials within one working day of the
time that the stay has been determined to be no
longer medically necessary. This telephone con-
tact must be then confirmed in writing.
A copy of the written notification must be submitted
with all claims for which reimbursement is claimed
for special circumstances (social necessity).
N.J.A.C. 10:52-1.2(b) :
Payment for special circumstances (social neces-
sity) is specifically precluded for:
(1) Patients awaiting placement in a Skilled Nurs-
ing Facility or Intermediate Care Facility.
(2) Patients for whom a claim has been denied for
lack of medical necessity.
(3) Patients who are not eligible recipients as of
the date of admission.
Statement of the Case
This case came before the Supreme Court of New Jer-
sey upon certification to the Superior Court of New Jer-
sey, Appellate Division, after the Appellate Division ad-
judged the limitation upon inpatient hospital services’
reimbursement set forth in N.J.A.C. 10:52-1.2(a)(18) and
N.J.A.C. 10:52-1.2(b) violative of the objectives of Title
XIX of the Social Security Act and regulations of the
federal Department of Health, Education and Welfare
(hereafter HEW). The Supreme Court of New Jersey
affirmed the judgment of the Superior Court, Appellate
Division. Petitioners herein are the State agency and
officers responsible for supervising the administration of
the federal medical assistance (hereafter Medicaid) pro-
gram in New Jersey.
The State of New Jersey is a participant in the fed-
erally funded Medicaid program established by Title XTX
of the Social Sceurity Act, 42 U.S.C. §§1396 et seq. As
such the State has through the Department of Human
Services formulated a State plan which, in accordance
with 42 U.S.C. §§1396a(a) (1)-(40), generally establishes
7
criteria for eligibility and the medical services for which
Medicaid reimbursement will be made available. Among
the categories of health care for which the State pro-
vides Medicaid reimbursement are inpatient hospital serv-
ices. Provisions of the State plan, approved by the Sec-
retary of Health, Education and Welfare and promulgated
in the New Jersey Administrative Code, thus establish
coverage of all inpatient hospital services without day
limitation save for elective cosmetic surgery, diet therapy
for exogenous obesity and inpatient hospital services pro-
vided where a need for that level of acute care is no
longer required. This limitation upon coverage expressly
extends to inpatient hospital services provided to a patient
who is awaiting transfer from the hospital to his home
or to a lesser care facility, such as a nursing home.
N.J.A.C. 10:52-1.2(a)(18) and N.J.A.C. 10:52-1.2(b) (1).
It has been estimated that if the State’s medical as-
sistance program were to be expanded to cover these
extended periods of hospitalization, and if federal match-
ing funds were forthcoming, approximately $1°.9 million
in additional State appropriations would be required.*
* The $18.9 million figure was based upon a survey of Medicaid
hospital providers conducted by the Division of Medical Assistance
and Health Services in March, 1978 and use of the average per
diem rate paid by the Division that fiscal year. The total State
payments for Medicaid benefits for FY1978 was $272,370,400.
A lesser amount would be required if HEW were to approve either
of two State plan modifications submitted in May 1977 and again
following the issuance of the Supreme Court of New Jersey’s opinion
in this matter: (1) conversion of underutilized hospital beds to
nursing home beds with Medicaid payments at the appropriate
nursing home level; or (2) payment to hospitals for services pro-
vided to patients awaiting nursing home placement at the appro-
priate nursing home rate. To date that approval has not been forth-
coming.
8
This case arises from an appeal by respondent, Mon-
mouth Medical Center, a provider of inpatient hospital
services under New Jersey’s Medicaid program, N.J.S.A.
30:4D-1 et seq., from a decision by the Director of the
New Jersey Division of Medical Assistance and Health
Services which denied in part its claims for reimburse-
ment for services provided to three Medicaid recipients
whe awaiting placement in the community or lesser care
facilities (App. B).* At the hearing conducted be-
fore the Division of Medical Assistance and Health Serv-
ices and in its appeal from the Director’s decision to the
Superior Court of New Jersey, Appellate Division, the
respondent challenged the regulations upon which the
denial was based, N.J.A.C. 10:52-1.2(a) (18) and N.J.A.C.
10:52-1.2(b) (1), as inconsistent with federal law. In spe-
cific the hospital argued that under federal decisional law,
interpreting Title XVIII of the Social Security Act, 42
U.S.C. §§1392 et seq. (Medicare) as well as Title XIX of
that same act, 42 U.S.C. §§1396 ef seq. (Medicaid), reim-
bursement of inpatient services provided by a hospital
was mandated even where lesser care placement would
be appropriate so long as: 1) the services provided were
reasonable and necessary for the well being of the pa-
tient; and 2) diligent efforts for placement were made.
In defense of its actions the State argued that Title XIX
*A total of 44 days was involved in the challenged denial of
reimbursement: 1) a twenty (20) day period from May 8, 1975
through May 28, 1975 in which nursing home placement was sought
for Luther Townsend; 2) a five (5) day period from December
5, 1974 through December 10, 1974 in which the hospital staff sought
end finally obtained an apartment for Madeline Papikas; and 3)
a nineteen (19) day period in which the hospital sought nursing
home placement for James Rempkowski. Contrary to the conclu-
sion of the Court below denial of the claim for Ms. Papikas was un-
related to the hospital’s delay in securing nursing home placement.
9
of the Social Security Act granted it discretion to limit
coverage for a category of necessary services in order to
discourage over-utilization of hospital services and to in-
sure the continued fiscal solvency of the program. In the
absence of any showing by the hospital that the Medicaid
population would be severely hampered in obtaining nec-
essary inpatient hospital services as a result of this policy,
the State contended the objectives of Title XIX were
satisfied.
The Appellate Division, in an opinion issued on March
27, 1978 (App. B), rejected the State’s arguments,
concluding that reimbursement in the instances presented
was appropriate since the services provided were “med-
ically necessary.””*
Thereafter, the State filed a petition for certification to
the Supreme Court of New Jersey seeking review of the
decision mandating payment of the three claims; certifi-
cation was granted on July 11, 1978. 77 N.J. 506, 391
A2d 519 (1978). In a decision rendered on June 18, 1979,
the Court, with one Justice dissenting, ruled that the lim-
itation upon coverage embodied in N.J.A.C. 10:52-1.2(a)
(18) and N.J.A.C. 10:52-1.2(b)(1) was invalid under the
Supremacy Clause of the United States Constitution in
that hospitals were unreasonably denied reimbursement
for medically necessary care provided to “unavoidably re-
tained” patients (App. A at 16a). As an alternative
ground for decision the Court concluded, despite the ab-
sence of any proffer of statistical evidence by respondent
* The Court rejected however the hospital’s additional contention
that the provision of a pre-denial hearing to Medicaid recipients
in these cases was constitutionally mandated by the due process
clause of the Fourteenth Amendment to the United States Consti-
tution (App. B at 37a to 39). ‘This ruling was later affirmed by the
Supreme Court of New Jersey (App. A at 18a).
10
as to the percentage of the Medicaid population whose
need for inpatient hospital services was not being met by
reason of the coverage limitation, that it was “clear that
reimbursement will be denied for a large number of med-
ically needy indigents” (App. A at 16a). Based upon
its interpretation of 42 C.F.R. §440.250(b), the Court ruled
that the challenged hospital coverage limitation thus re-
sulted in an unreasonable denial of hospital services to
the Medicaid population as a whole (App. A at 16a).
In his dissenting opinion Justice Schreiber concluded
that neither 42 U.S.C. 1396a(a)(13)(D) nor interpretive
regulations promulgated by the Secretary of Health, Edu-
cation and Welfare “requires the State to pay a hospital
for inpatient hospital care when these services are no
longer needed” (App. A at 20a). Additionally, he noted
the Act’s express deference in 42 U.S.C. $1396 to a State’s
fiscal constraints in establishing its Medical assistance pro-
gram. Based upon this interpretation of governing fed-
eral law, the fact of HEW approval of the State plan
and the undisputed and significant increase in State ex-
penditures which would be required for extended cover-
age, Justice Schreiber concluded that the challenged lim-
itation of inpatient hospital services was a reasonable one
and consistent with federal law.
11
REASONS FOR GRANTING THE WRIT
The holding of the Court below that Title XIX of
the Social Security Act prohibits a State’s denial of in-
patient hospital coverage in its medical assistance pro-
gram for any necessary care provided by a hospital
raises substantial questions of significance to Medicaid
programs throughout the country and poses a conflict
with the rulings of this Court and lower federal courts
as well as interpretations of the scope of State discretion
under Title XIX adopted by the Secretary of HEW
which can only be resolved by an authoritative ruling
by this Court.
This petition presents several related questions of sub-
stantial national importance regarding the scope of State
discretion to fashion medical assistance programs in ac-
cordance with prevailing fiscal conditions within the State.
More specifically, this matter requires consideration of the
extent of State statutory obligation under federal law to
fund necessary inpatient hospital services made available
to Medicaid recipients. In that all States which have es-
tablished medical assistance programs pursuant to Title
XIX are obligated to provide coverage for inpatient hos-
pital services, the decision below, which interprets the
Social Security Act to require a medical assistance pro-
gram far broader in coverage than that envisioned by
Congress, necessarily will have profound implications for
Medicaid programs throughout the country.
Additionally, this matter raises the precise issues left
unresolved in Beal v. Doe, 432 U.S. 438, 444 (1977), namely
the “serious statutory questions ... presented if a State
Medicaid plan excluded necessary medical treatment from
its coverage ...”. As resolved by the Court below, no-
tably without any review of the extensive legislative his-
12
tory of Title XIX of the Social Security Act and without
the participation of the federal Department of Health,
Education and Welfare, Title XIX must now be construed
as requiring reimbursement of all inpatient hospital serv-
ices provided to individuals who are in need of medical
care and who cannot be removed from a hospital. In so
concluding, the Court necessarily mandates coverage not
only for individuals such as those herein who were await-
ing placement in apartments or in lesser care facilities,
but also those persons whose need for hospital care would
extend beyond a durational limit established by a Medi-
caid program. See, e.g. Virginia Hospital Association v.
Kenley, 427 F. Supp. 781 (E.D. Va. 1977): Commonwealth
of Pennsylvania Department of Public Welfare v. Tem-
ple University, 21 Pa. Commw. Ct. 162, 343 A.2d 701
(Commw. Ct. 1975). Clearly hospitals treating patients
whose need for acute level care exceeds the durational
limit for reimbursement are faced with the same dilemma
which confronted Monmouth Medical Center herein:
namely the prospect of no reimbursement for “necessary
care [which] has been rendered to an unavoidably retained
patient.” (App. A at 14a).
This conclusion however is in direct conflict with the
regulations, interpretative statements, and legal position
of the federal Department of Health, Education and Wel-
fare which is responsible for the administration of the
Title XIX programs. See, e.g. 42 C.F.R. § 440.230(b),
Virginia Hospital Association y. Kenley, supra, at 785-
786 and HEW Field Staff Information and Instruction
Series: FY76-62 at p. 7 (January 21, 1976) quoted in Aen-
ley at p. 786. Moreover, the Court’s invalidation of the
State’s limitation wholly abrogates the action by the See-
retary of HEW in approving New Jersey’s State plan
limitation. In light of the clear lack of any procedural
mechanism for the State to have compelled HEW’s par-
|
13
ticipation in the appeal and the absence of any in-depth
analysis by the Court below of the statutory language of
Title XIX or its legislative history, and more significantly,
any factual evidence proffered by the challenger of the
limitation to rebut the necessary presumption of the rea-
sonableness of the limitation, the Court’s action below flies
in the face of repeated concerns expressed by the Court
that the judiciary be mindful that “the construction of a
statute by those charged with its execution should be fol-
lowed unless there are compelling indications that it is
wrong...” New York Dept. of Soc. Services vy. Dublino,
413 U.S. 405, 421 (1973), quoting Red Lion Broadcasting
Co. v. F.C.C., 395 U.S. 367, 381 (1969).
In concluding that these very costly services must be
reimbursed by the State, the Court below further ignored
established principles governing construction of the Social
Security Act. It is evident from the Court’s decision in
Quern v. Mandley, 436 U.S. 725 (1978) that language ap-
pearing in general purposes clauses of various chap-
ters of the Social Security Act can only be construed as
defining the parameters of the program for which federal
funding will be made available, and not mandatory eligi-
bility conditions imposed upon participating States. It
necessarily would follow therefore in construing the ap-
propriations section of Title XIX, 42 U.S.C. § 1396, that
its reference to the appropriation of federally funding for
“necessary medical services” can only reasonably be in-
terpreted as establishing the types of services for which
federal funding would be available. Contrary to these
principles however the Court below has viewed the § 1396
language as establishing an absolute coverage require-
ment. By further defining the phrase as mandating pay-
ment even for care provided at a level which is no longer
appropriate, the Court has rendered the Congressional
14
delegation of discretion to the State utterly without mean-
ing.
Review by this Court is thus appropriate since the deci-
sion entered below presents very serious conflicts with
prior decisions of this Court as well as lower Court
decisions addressing the issue of the range of State dis-
cretion in establishing the parameters of public assistance
programs. Moreover, the decision which construes the
Social Security Act to require a medical assistance pro-
gram far broader than that intended by Congress promises
to undermine substantially the necessary flexibility a
State must have to fashion such assistance programs in
accordance with medical and fiseal priorities. Resolution
of these questions is therefore vital in order to insure the
uniform administration of State medical assistance pro-
grams in accordance with Congressional objectives as well
as to reaffirm principles established in previous decisions
of the Court.
A.
Certiorari should be granied to resolve the significant
question expressly left open in Beal v. Doe as to state dis-
cretion under Title XIX to limit coverage for medically
necessary services in mandated categories of health care.
This petition raises what has become an increasingly
frequent issue before the Court and other federal and
state courts: ascertainment of the proper interplay be-
tween federal mandate and State prerogative in a public
assistance program developed and funded through co-
operative federalism. The specific issue presented—State
discretion to deny reimbursement for inpatient hospital
services provided to individuals requiring a lesser level
of medical care—poses the question, expressly left un-
15
resolved in Beal v, Doe as to State discretion to exclude
non-elective medical treatment from coverage. The court
below responding to the question in the negative, has held
that irrespective of the appropriate level of care required
by a Medicaid patient, where diligent hospital efforts
have failed to effect placement in a lesser care facility,
the State is required to assume the full costs of main-
taining these patients at a hospital level of care. In
concluding that the State cannot limit inpatient hospital
Medicaid coverage based upon the appropriateness of the
level of placement, the court below has misconstrued gov-
erning federal Medicaid coverage provisions, ignored the
interpretation of these provisions advanced by the fed-
eral agency which administers the Medicaid program and
utterly usurped the prerogative of States to fashion a
medical assistance program in accordance with reason-
ably perceived needs of the Medicaid population. Be-
cause the court has proceeded in such utter disregard of
federal judicial precedents and federal administrative
interpretation and because the matter resolved will have
profound implications as to the flexibility of State Medi-
caid programs’ development of priorities’ in mandatory
coverage areas, review by this Court is imperative.
In choosing to afford to certain groups of its needy
citizens the benefits provided under the federally-assisted
and State administered medical assistance program, New
Jersey has agreed to reimburse providers of inpatient
hospital services, for the “payment of part or all of the
costs” of these services, 42 U.S.C. § 1396d(a) (emphasis
supplied). See also 42 U.S.C. § 1396d(a)(1), 42 U.S.C.
§ 1396a(a)(13)(B). As is evident from the limiting lan-
guage of 42 U.S.C. § 1396d(a) and the reference in 42
U.S.C. § 1396 to the State’s provision of “medical assist-
ance” “as far as practicable under the conditions in such
16
State,” Concress clearly was not mandating comprehen-
Sive coverage of this category of care.
The limited federal goals are further apparent from
the legislative history of the program. As originally en-
acted Title XIX would have required participating states
to move toward, and eventually to furnish, “eomprehen-
sive care and services to substantially all individuals who
[met] the plan’s eligibility standard with respect to in-
come «ad resources” by July 1, 1975. 42 U.S.C. § 1396b
(e), as enacted by Social Security Amendments of 1965,
Title XTX, § 1903(e), Pub. L. 89-97, 79 Stat. 286, 350. Ree-
ognizing the significant and increasing burden of Medicaid
costs upon State finances, Congress, in 1972, enacted a
number of amendments to Title XIX for the express pur-
pose of affording states fiscal relief and additional admin-
istrative latitude. Included in these amendments was a
provision which repealed section 1903(e). Social Security
Amendments of 1972, Pub. L. 92-603, Title II § 230, 86 Stat.
1329 (1972). For similar reasons, Congress repealed sec-
tion 1902(d), which barred State reduction of approved
expenditures from one year to the next. By enacting and
then repealing these sections, Congress made clear that
Title XIX in its current form does not require compre-
hensive coverage even of mandatory services. Further,
these legislative actions confirmed that diminishment of
the fiscal burden of a State Medicaid program is a valid
motive for reducing such coverage.
It is apparent thus from both the legislative history
and language of Title XIX that federal law does not man-
date the State’s reimbursement of all reasonably neces-
sary inpatient hospital services. Rather, as H.E.W. and
the federal district court in Virginia H ospital Association
v. Kenley, supra, at 785 concluded a State docs have the
discretion to define what mandatory services are “med-
etka eei er eieteniio’
17
ically necessary” and to limit coverage accordingly. The
sole limitation upon State discretion expressed in Title
XIX is the requirement that the State plan “include rea-
sonable standards . . . for determining the extent of med-
ical assistance under the plan which . . . are consistent
with the objectives” of Title XIX. 42 U.S.C. § 1396a
(a)(17). Since Title XTX expressly recognizes as a legiti-
mate concern the fiscal limitations of each State (see 42
U.S.C. § 1896) and noteably fails to define any minimal
level of required coverage, the Secretary of HEW has
interpreted the reasonableness standard to leave largely
to State discretion the formulation of plans for adequate
coverage. A State plan therefore can limit the amount
and/or duration of coverage so long as services provided
are “sufficient in amount, duration and scope to reasonably
achieve its purpose.” 42 C.F.R. §440.230(b). As further in-
terpretated by the Secretary in the Virginia Hospital As-
sociation v. Kenley litigation, inpatient hospital coverage
can be limited so as to bar the payment of medical assist-
ance for medically necessary hospital services in individual
cases so long as the limitation does not threaten the ability
of the Medicaid population as a whole to obtain hospital
care.*
* Although the Court below concludes that New Jersey’s limita-
tion failed to satify this requirement, that conclusion was reached
trom an absolutely barren factual record. The Court does not dis-
pute respondent’s failure to produce any evidence demonstrating an
inordinate denial of impatient hospital services effected by the re-
gulation. Rather the Court makes the absolutely unwarranted and
radical suggestion that irrespective of the showing by the State of
a strong fiscal and policy interest in utilizing monies saved from
the limitation for the provision of optional service coverage in other
areas, it was the State’s and not the respondent’s burden to demon-
strate why this presumptively reasonable action did not constitute
(Footnote continued on following page;
18
The correctness of Petitioners’, HEW’s and the Ken-
ley court’s reading of Title XTX as not requiring cover-
age of all non-elective medical services falling within man-
dated categories of care is further substantiated by the
Court’s ruling in Quern v. Mandley, supra. Therein the
Court considered whether the definition of “emergency
aid to needy families with children” set forth in 42 U.S.C.
§ 606(e) imposed mandatory conditions of eligibility for
every State Emergency Assistance program. Concluding
to the contrary, the Court noted that a literal implemen-
tation of public welfare programs as broadly defined in
the general purposes clauses of the various Social Security
Act chapters “would create . . . entirely open-ended pro-
gram[s], not susceptible of meaningful fiscal or progrsm-
(Footnote continued from preceding page)
an unwarranted limitation of inpatient hospital services in g>neral.
Clearly, the imposition of such a burden of proof upon the State
flies in the face of repeated pronouncements by this Court as to a
challenger’s obligation to rebut the presumption of validity of State
action and to establish entitlement under a public assistance pro-
gram. See, eg., Lavine v. Milne, 424 U.S. 577 (1976). Beyond
this and notwithstanding the absence of any statistical evidence in
the record as to the percentage of the Medicaid inpatient hospital
population affected by the State’s policy and noteably without cita-
tion of any facts, the Court concludes that “[g]iven the widespread
unavailability of skilled care beds, it is clear that reimbursement will
be denied for a large number of medically needy indigents.” (App. A
at 16a). Thus, the Court’s determination as to the unreasonableness of
the State limitation of coverage is unsupported by any evidence what-
soever. Moreover, the Court’s ruling accords insufficient deference
to the strong State interest in fashioning its medical assistance pro-
gram to the best of its ability and to the extent of limited available
funds. See Geduldig v. Aiello, 417 U.S. 484, 494-496 (1974) ; Jeffer-
son Vv. Hackney, 406 U.S. 535, 551 (1972). See generally Note,
State Restrictions on Medicaid Coverage of M edically Necessary
Services, 78 Colum. L. Rev. 1491 (1978).
19
matic control by the states.” Id. at 746. A more reason-
able Congressional objective the Court opined was the
establishment through these provisions of permissible lim-
its of federal spending, rather than the definition of man-
datory coverage areas for participating States. Jd. at 745.
Consistent with these principles of construction the Court
interpreted the language of 42 U.S.C. § 1397, the appro-
priations section for Title XX Social Services programs,
whose declared purpose was to “encourag[e] each state,
as far as practicable under the conditions in that State
to furnish services directed at the goal of ... achieving
or maintaining economic self-support to prevent, reduce
or eliminate dependency,” (emphasis supplied) as an ex-
pression of Congressional intent to delegate to the States
ultimate decision-making authority in establishing prior-
ities within the constraints of federal funding limitations.
Id. at 745.
Similarly, the lone appearance of the term “necessary
medical services” in the almost identically worded appro-
priation section for the federal Medicaid statute (42 U.S.C.
§ 1396) cannot be viewed as imposing a mandatory re-
quirement of coverage. As with the appropriation sec-
tions of Title XX and the Emergency Assistance defini-
tion, the use of the term “necessary medical services”
simply specifies the type of services for which federal
matching funds will be available. It does not, as has been
decided below, establish the minimum limits of a partici-
pating State’s mandatory service coverage. In accord,
see Preterm, Inc. v. Dukakis, 591 F.2d 121, 124 (1st Cir.),
cert. denied —— U.S. —— (1979).
Furthermore, even if States were found to have an ob-
ligation to fund all medically necessary services, there is
the additional significant question of what is meant by
20
the term “necessary medical services.” This issue is also
squarely presented by the present case. Here, hospital
level care was not medically required for the individuals
involved; only medical services which could be provided
at a lesser level of care at a nursing home or in the com-
munity were necessitated. Notwithstanding this fact, the
Court below concluded that such eare provided by the re-
spondent constituted necessary medical services within the
meaning of 42 U.S.C. §1396.
The elaborate policy arguments which the Court below
constructs in an utter vacuum of analysis of the statutory
language or legislative history of Title XIX only confirms
the appropriateness of review by this Court. As has been
previously shown, the decision entered below is incon-
sistent with the opinions of the Court, the express lan-
guage and legislative history of applicable provisions of
Title XIX of the Social Security Act as well as the in-
terpretations of those provisions espoused by the federal
agency responsible for supervising participating States’
administration of the Medicaid program. Moreover, the
Supreme Court of New Jersey’s decision will effect a
severe limitation upon the State’s ability to pick and
choose what services it deems essential for the Medicaid
population. And finally, if the decision below is permit-
ted to stand, and in the absence of any Federal approval
of a lesser standard of payment, additional State Medi-
caid appropriations of almost $19,000,000 would be re-
quired in order to avoid staggering reductions in Medi-
caid services throughout the State. In view of these
significant factors and the public importance of the issue
presented, review by this Court is imperative.
21
The Court’s review of the issue of State discretion under
Title XIX to determine whether a service is medically
necessary and to deny coverage for necessary medical
treatment within mandated coverage areas is imperative
in order to resolve the conflicting interpretations of the
statute by Federal and State judiciary and HEW.
The significance of the issue presented herein is appar-
ent not only from this Court’s comments in Beal v. Doe
but from repeated and conflicting resolutions of the ques-
tion emanating from State and Federal Courts. Thus, in
Virginia Hospital Association vy. Kenley, supra, in which
the HEW Secretary was joined as a party, the Federal
District Court for the Eastern District of Virginia adopted
HEW’s interpretation of Title XIX requirements and
concluded that a State Medicaid program could exclude
coverage for medically necessary inpatient hospital serv-
ices (therein beyond a twenty-one (21) day limit) for a
significant percentage (8%) of the Medicaid population.
Similarly, in Commonwealth of Pennsylvania Dept. of
Public Welfare v. Temple Unwersity, supra, the Court
concluded that in the absence of any evidence to the con-
trary, a sixty (60) day limitation upon inpatient hospital
service coverage was of sufficient duration to reasonably
achieve the purpose of providing inpatient hospital care.
The United States Court of Appeals for the First Cir-
cuit in Preterm, Inc. v. Dukakis, supra, presented an
equally broad approach to the question of State discre-
tion in its rejection of the lower Court’s conclusions that
a participating State must fund all medically necessary
services within the mandated categories as determined by
a physician. Jd. at 124, 125, 131, and 134. This interpre-
tation was expressly adopted by the United States Court
of Appeals for the Seventh Cireuit in Zbaraz v. Quern,
22
996 F.2d 196, 198 (7th Cir. 1979) in the context, as in
Preterm, of a challenge to a Medicaid abortion limitation.
Contrary conclusions also have been reached by both
federal and state courts. Thus, in Roe vy. Casey, 464 F.
Supp. 487, 500-502 (E.D. Pa. 1978) and Right to Choose
v. Byrne, 165 N.J. Super. 443, 398 A.2d o87, 592 (Chan.
Div. 1979), both involving challenges to Medicaid abor-
tion funding restrictions, the courts interpreted 42 U.S.C.
§ 1396 and 42 C.FLR. § 449.10(a)(5)(1) as mandating
State funding of all necessary medical services, Indeed,
the Roe v. Casey court concluded, relying squarely upon
Beal v. Doe, that State discretion in establishing the para-
meters of a medical assistance program extended only so
far as to allow exclusion or limitation of unnecessarv med-
ical services. Id. at 501. Again, in Rush vy. Parham, 440
F. Supp. 383 (N.D. Ga. 1977) app. pending sub nom.
Rush v. Poythress, No. 77-2743 (5th Cir.), the Court in
invalidating a ban on reimbursement for transsexual sur-
gery, similarly relied upon the Beal decision in econclud-
ing that “Medicaid coverage is not optional or discretion-
ary for necessary medical treatment of eligible recipients.”
Id. at 389. See also G. B. v. Lackner, 80 Cal. App. 3d 64,
145 Cal. Rptr. 555 (1978); Doe v. Minnesota Department
of Public Welfare, 257 N.W. 2d 816 (Minn. 1977). Of
particular note in the Rush v. Parham decision is the fact
that the Court rejected the position of HEW, a defend-
ant in the action, that the State limitation comported with
federal requirements of sufficiency and reasonableness.*
* Unlike the decisions noted above, in which State limitations of
Medicaid coverage have been invalidated, the action taken by the
Court below will require the expenditure of significant State and
federal monies. Of further significance is the fact that the Court
below has determined an issue of national importance and invalidated
(Footnote continued on following page)
23
It is apparent therefore that since the issuance of the
Beal decision, over two years ago, State and federal courts
throughout the country have repeatedly grappled with the
significant question left open by that decision: the extent
of State discretion to deny Medicaid coverage for med-
ically necessary services. The many conflicting opinions
rendered by these courts and particularly those in which
HEW approved State plan amendments have been in-
validated, has created great confusion nationally as to
the terms of States’ participation in the Medicaid pro-
gram. The time is ripe therefore for the Court’s con-
sideration and determination of this question. A writ of
certiorari should thus issue in order that the Court can
resolve the question of State prerogative to define areas
of coverage in a State Medicaid program for “medically
necessary” services.
(Footnote continued from preceding page)
action taken bv the federal agency responsible for administra-
tion of the Medicaid program without benefit of any input by that
agency. Certainly, a more complete development of the legal issue
before this Court during which the views of HEW would be pre-
sented is desireable and would best protect the public interest. See
Rosado v. Wyman, 397 U.S. 397, 406-407 (1970).
24
CONCLUSION
For the abovestated reasons, it is respectfully sub-
mitted that this petition for a writ of certiorari to the
Supreme Court of New Jersey should be granted.
Respectfully submitted,
Joun J. Deanan,
Attorney General of New Jersey,
Attorney for Petitioners, State of New
Jersey; Ann Klein, Commissioner of
the Department of Human Services
of the State of New Jersey; and
Thomas M. Russo, Director of the
Division of Medical Assistance and
Health Services of the State of
New Jersey
APPENDIX A
Opinion of the Supreme Court of New Jersey
{Filed—June 18, 1979)
SuprREME Court oF NEw JERSEY
A-129/180 SepremBer TERM 1978
ss
a
MonmoutH MepicaL CENTER, a non-profit corporation of
the State of New Jersey,
Respondent-Cross-Appellant,
v.
State oF New Jersey; ANN Kuern, Commissioner of In-
stitutions and Agencies of the State of New Jersey;
GerALpD J. Remuy, Director of the Division of Medical
Assistance and Health Services of the State of New
Jersey,
Appellants-Cross-Respondents.
i.
———
Argued February 21, 1979—Decided June 18, 1979
On certification to the Superior Court, Appellate Divi-
sion, whose opinion is reported at 158 N.J. Super.
241 (1978).
[la]
2a
Appendix A
Ms. Andrea M. Silkowitz, Deputy Attorney General,
argued the cause for appellants (Mr. John J. Deg-
nan, Attorney General of New Jersey, attorney;
Mr, Stephen Skillman, Assistant Attorney General,
of counsel).
Mr. Frank R. Ciesla argued the cause for respondent
(Messrs. Giordano, Halleran and Crahay, attorneys;
Mr. Ciesla and Mr. Phil H. Leone, on the briefs),
The opinion of the Court was delivered by
PasHMAN, J.
The primary issue presented in this case is whether a
State may, consistent with the Federal Medicaid Act, 42
U.S.C. $1396 et seq., and its accompanying regulations, 42
C.F.R. §480 et seq. (1978), deny reimbursement to a hos-
pital for medically necessary services rendered to an eli-
gible patient who can be adequately treated in a less inten-
sive care facility but who, through no fault of the hospi-
tal, cannot be suitably placed. Specifically, we must deter-
mine the validity, as applied to the facts of this ease, of
a State regulation which denies recompense to a hospital
for inpatient services provided to a Medicaid recipient
awaiting placement in a skilled nursing home or intermedi-
ate care facility. We are further asked to consider whether
the review process utilized by the Division of Medical
Assistance and Health Services (Division) in order to de-
termine the merits of a hospital’s objections concerning
denials of reimbursement comports with the requirements
of procedural due process.
For the reasons given below, we conclude that the hear-
ing procedure survives constitutional serutiny, but that
nonetheless the challenged reimbursement regulation is
3a
Appendia A
inconsistent with the Federal Act and hence invalid under
the Supremacy Clause of the United States Constitution.
U. S. Const., Art. 6.
Medicaid is a program whose principal aim is that of
“enabling each State, as far as practicable under the con-
ditions in such State, to furnish * * * medical assistance
[to] individuals whose income and resources are insuffi-
cient to meet the costs of necessary medical services * * *.”
42 U.S.C. $1896. In order to achieve this goal, a complex
cost-sharing mechanism has been constructed providing for
partial federal funding of medical services rendered to the
indigent.
The Medicaid Act represents an exercise in what has
been termed “cooperative federalism.” Note, “State Re-
strictions on Medicaid Coverage of Medically Necessary
Services,” 78 Colum.L.Rev. 1491, 1491 (1978). The pro-
gram is primarily administered by the State, subject to
federal guidelines and constraints. Each participating
State is required to adopt a plan, which must be approved
by the Seeretary of the Department of Health, Mducation
& Welfare (IHEW), covering in detail the services to be
rendered. 42 U.S.C. §$1396, 1896a(a). The plan must pro-
vide for five general categories of medical assistance and
may include others? 42 U.S.C. $1396a(a)(13)(B). Rein-
1 The percentage of Medicaid expenses defrayed by the federal gov-
ernment ranges from 50% to 83%%. See 42 U.S.C. §§1396b;
1396d(b) ; 1301(a)(8)(B). New Jersey’s federal share amounts to
50%.
2’The mandatory coverage areas are: (1) inpatient hospital serv-
ices; (2) outpatient hospital services; (3) other laboratory and
(Footnote continued on following page)
4a
Appendix A
bursement must be provided for “the reasonable cost of
inpatient cost of inpatient hospital services,” id. §1396a
(a) (13)(D), and “skilled nursing facility and intermediate
care facility services * * * on a reasonable cost related
basis * * *.” Jd. §1396a(a) (13) (BE).
Plaintiff Monmouth Medical Center (Monmouth), a non-
profit hospital situated in Long Branch, has contracted
with the State to be a provider of medical services to eli-
gible recipients pursuant to the State Medicaid Program.
N.J.S.A. 30:4D-1 et seq. Under this agreement Monmouth
is obligated to provide medically necessary inpatient ser-
vices to the “categorically needy.” This group consists of
... all individuals receiving aid or assistance under
any plan of the State approved under subchapter I
[Old Age Assistance], X [Aid to the Blind], XIV
[Aid to the Disabled], or XVI [Supplemental Se-
curity Income], or part A of subchapter IV [Aid
to Families with Dependent Children] of this chap-
ter, or with respect to whom supplemental security
income benefits are being paid under subchapter
(Footnote continued from preceding page)
X-ray services; (4) skilled nursing facilities, early and periodic
screening, and diagnosis and family planning services; and (5) phy-
sicians services. 42 U.S.C. §1396d (a) (1-5). Optional coverage cate-
gories include: (1) home health care services; (2) private duty
nursing services; (3) clinical services; (4) dental services; (5)
physical therapy; and (6) intermediate care facility services. 42
U.S.C. §1396d(a) (7)-(11), (15).
5a
Appendix A
XVI of this chapter [.] [42 U.S.C. §1396a(a) (10)
(A)]°
In return, Monmouth is entitled to reimbursement by the
State for certain expenses incurred in treating these
patients.
The present controversy originated when Prudential In-
surance Company of America, an underwriter of the State’s
program,‘ denied in part three reimbursement claims sub-
mitted by Monmouth.® Pursuant to N.J.S.A. 30 :4D-7 (f)
and N.J.A.C. 10:49-1.16, Monmouth requested a “fair hear-
ing” before the Division to challenge the validity of Pru-
dential’s actions. On August 13, 1976 a consolidated pro-
ceeding was held before a Division Hearing Officer.
The first reimbursement claim involved services ren-
dered to one Luther Townsend, a 55-year-old male who
was hospitalized from April 7 to May 28, 1975 due to a
fractured hip. Dr. James Gardam, Prudential’s repre-
3 State plans must provide for the rendition of medical assistance
to this group. Optional coverage may be extended to the “medically
needy”—those who do not qualify for public assistance yet lack
sufficient “income and resources to meet the costs of necessary med-
ical and remedial care and services. * * *” 42 U.S.C. §1396a (a) (10)
(C). New Jersey has chosen to give Medicaid relief only to the
“categorically needy.”
4 Statutory authorization for such “fiscal intermediaries” is found
in N.J.S.A. 30:4D-8. Rules governing their selection appear at
N.J.S.A. 30:4D-9 through -11.
5 A fourth claim was also denied, but it is not involved in this
appeal and hence will not be discussed.
6a
Appendix A
sentative, testified that as of April 23, 1975 the medical
charts indicated that Mr. Townsend was convaleseing sat-
isfactorily, Although Prudential agreed that Townsend’s
condition necessitated physiotherapy and thus skilled nurs-
ing services, it contended that after May 8, 1975 there
was no medical need for hospitalization. Prudential
therefore denied reimbursement for services rendered af-
ter May 8 on the basis that less intensive—and less ex-
pensive—care was feasible.
Dr. James Kirby, Chairman of the Monmouth Medical
Center Utilization Review Committee, agreed with Dr.
Gardam that Townsend could have been adequately
treated in a lesser care facility after May 8. He asserted,
however, that Monmouth had been unable to place Mr.
Townsend in a suitable institution and that the hospital
would have been negligent had it merely released the pa-
tient to fend for himself.
Mrs. Cunningham, the Coordinator of Social Services
at Monmouth, testified that beginning April 9, 1975 at-
tempts were made to place Mr. Townsend in a nursing
home or intermediate care facility. The hospital can-
vassed all such facilities in Monmouth and Ocean Coun-
ties on a daily basis. It was not until May 28 that a bed
became available and therefore Townsend was not. dis-
charged until that date. Mrs. Cunningham further ex-
plained that the hospital did not contact institutions in
other counties because it was already aware that they
had no available space.
The second case involved Madeline Papikas, a 47-year-
old female admitted on April 9, 1974 due to kidney and
liver failures. The seriousness of her condition necessi-
tated a lengthy hospital stay. As of September 1, 1974,
WBtiatisi ste o
Ta
Appendia A
however, her medical chart revealed that she was _ suffi-
ciently stabilized for transfer to a lesser care facility.
Nevertheless, due to an unfortunate morass of bureau-
cratic red tape, Monmouth was unable to obtain a Medi-
caid number for Mrs. Papikas despite diligent efforts on
its part. Without such a number, no nursing home would
accept her as a patient. By the time a number was fin-
ally procured, December 5, 1974, nursing home care was
no longer necessary. Accordingly, Monmouth’s Social
Services Unit obtained an apartment for Mrs. Papikas and
on December 10, 1974 she was discharged.
Both sides agreed that Mrs. Papikas needed medical
attention even after September 1—the date after which
Prudential refused to reimburse Monmouth—but that nurs-
ing home care would have been adequate. They further
stipulated that it would have been negligent for Monmouth
to have merely released her at that time.
The final case was that of James Rempkowski who was
hospitalized from November 23, 1975 through March 9,
1976 due to a cardiac arrest and resultant brain damage.
Although a lengthy period of hospitalization was required,
the parties agreed that as of January 13, 1976 intensive
care was no longer medically necessary. It was also
agreed, however, that skilled nursing home facilities were
mandated and that discharge of the patient—as opposed
to transfer to a nursing home—would have amounted to
negligence on the hospital’s part.
® The record reveals that local, state and federal agencies were all
approached in an effort to expedite matters. Apparently the diffi-
culty arose because the agencies could not obtain an address for Mrs.
Papikas, her landlord having rented out her room after she was ad-
mitted to the hospital.
8a
Appendix A
Mrs. Cunningham testified that the failure to transfer
Rempkowski was due to difficulties encountered in obtain-
ing a Medicaid number for the patient. Although a Sup-
plemental Security Income application was filled out on
December 4, 1975, and despite hospital attempts to ex-
pedite matters, Rempkowski’s Medicaid number was not
received until February 19, 1976. At that time, his name
had already been placed on nursing home waiting lists.
Not until March 8, 1976 was Monmouth notified, by the
Bayview Convalescent Center, that a bed was available.
Mr. Rempkowski was transferred the following day.
By report dated October 28, 1976, the hearing examiner
recommended in all three cases that the hospital be fully
reimbursed for the period denied by Prudential. In each
case he found that Monmouth had acted in good faith and
that “special circumstances” had prevented the discharge
or transfer of the patient.
The Director of the Division, relying upon sections 202
and 202.9 of the Hospital Services Manual, see N.J.A.C.
10:52-1.2(b), 10:52-1.3(a)(18), modified the Hearing Offi-
cer’s determinations. Those sections provide in part:
202. Non-Coverep Inpatient Hosprrar SERVICES
Benefits are not payable for any services rendered
or items dispensed or furnished in connection with:
202.9 Services Rendered After Day Medically Ne-
cessary
Inpatient hospital services rendered after the day it
is medically necessary, except when special circum-
stances prevent the discharge or transfer of the
patient.
9a
Appendix A
Note: The Contractors may reimburse a hosptal up
to 12 calendar days following the period established
as being medically necessary if special circumstances
(social necessity) prevent the discharge or transfer
of the patient to his/her home or sheltered board-
ing home and the hospital has taken effective action
to stimulate placement of the patient.
Payment for Special Circumstances (Social Neces-
sity) is specifically precluded for:
a. Patients awaiting placement in a Skilled Nurs-
ing Faculty or Intermediate Care Facility.
b. Patients for whom a claim has been denied for
lack of medical necessity.
e. Patients who were not eligible recipients of the
date of admission. (emphasis supplied)
Pursuant to the above regulation, the Director denied re-
imbursement for services rendered during periods in
which a patient was retained due to unavailability of beds
in lesser care facilities. He concluded, however, that “spe-
cial circumstances” did exist for periods during which dis-
charge was not forthcoming because of agency delay re-
garding the furnishing of patients with Medicaid numbers.
Hence, reimbursement was allowed for such circumstances.
Accordingly, the Director made the following rulings.
With regard to Luther Townsend, he denied payment for
the entire period in question. The Hearing Officer’s recom-
mendation as to Madeline Papikas was modified so as to
10a
Appendix A
provide payment only up to and including December 5,
14—the day on whieh Medicaid eligibility had been es-
tablished.’ Reimbursement with respect. to Rempkowski
was limited to services rendered before February 20, 1976,
the date on whieh his Medicaid number arrived. The Di-
rector thus devood the hospital's claim for reimbursement
in all three cases for services rendered while the patients
Were “awaiting nursing home placement.”
On March 8, 1977 Monmouth filed with the Appellate
Division an appeal from those portions of the Director's
decision which denied reimbursement. Named as defend:
ants were the State, Commissioner Ann Klein, and Di-
reetor Gerald J. Reilly (since replaced by Acting Direetor
Thomas A, Russo), Monmouth also challenged the ade-
quacy of the review procedure,
The Appellate Division, ina unanimous opinion by Judge
Matthews, reversed the Director's determination. Mon-
mouth Medical Center vy. State, 158 Nal, Super, 241 (App.
Div. 1978). Tt held that the Director had impermissibly
conditioned reimbursement upon the type of facility in
Which eare was provided rather than upon the necessity
for the services rendered, Jd. at 247, The appellate judges
ruled that by foreclosing the Director's diseretion to grant
reimbursement where placement in a lesser facility was
not possible, the regulation conflicted with the Federal
Act. 7d. at 249, 254. Accordingly, the court ordered that
Monmouth be reimbursed in full for all services provided
to the three patients. Finally, the Appellate Division re-
* The Appellate Division stated that reimbursement was rejected
beginning September 1, 1975, Monmouth Medical Center v. State,
IS8 N.J. Super. 241, 246 (App.Div. 1978). In this respect it was
mistaken.
oa
PE tins DY iS 2
lla
Appendia A
jected Monmouth’s claim that a hearing was required be-
fore reimbursement could be denied, instead holding that
a post-denial fair hearing was constitutionally adequate,
On July 11, 1978 we granted the State's petition for
certification, 77 Nd. 506 (1978), Monmouth, pursuant to
R. 233-4, filed a cross-appeal as of right with respeet to
the issue of procedural due process. We now aflirm,
The parties’ contentions with respect to the alleged con-
fet between the State regulation and the Federal Medicaid
Act may be briefly summarized, Monmouth notes that the
goal of the Act, set forth in its preamble, is to furnish
medical assistance to those who eannot afford the costs of
“necessary” medical treatment, See 42 ULS.CLA, 1896. The
hospital further emphasizes that 42° CLRUR. $440.280(b)
(1978) requires State plans to provide services “sufficient
in amount, duration and = seope to reasonably achieve
[their] purpose,” and thus in its view mandates that the
State reimburse hospitals for any services rendered which
are “reasonable and necessary for a particular patient's
health.” Therefore, it argues, where an eligibile patient
ean neither be released nor placed in a suitable lesser care
facility, the hospital must continue to treat him and is en-
titled to reimbursement therefor,
The State, on the other hand, denies that it must. re-
imburse hospitals for all expenses required in’ treating
an individual patient. Rather, it contends that as long
as the needs of the Medicaid population as a whole are
reasonably met, states are given great flexibility in tailor-
ing their plans to suit their particular financial eapabil-
ities. The State emphasizes that the preamble, cited by
12a
Appendix A
Monmouth, requires the provision of assistance only inso-
far as is practicable under the conditions extant in the
particular state. Moreover, it asserts that 42 C.F.R.
$440.230(b) (1978), also relied upon by the hospital, man-
dates only that limitations upon the scope and during of
services be reasonable as measured by Medicaid patients
as a group. The instant regulation is defended as sav-
ing the State substantial monetary sums and discouraging
misutilization of hospital facilities.
Courts in other jurisdictions have divided upon the is-
sue of whether a state must provide reimbursement for
all medically necessary inpatient services provided each
individual patient. Compare Rush v. Parham, 440 F.Supp.
383 (N.D. Ga. 1977) with Virginia Hospital Ass’n v. Ken-
ley, 427 F.Supp. 781 (E.D. Va. 1977). We, however, find
it unnecessary to join that particular fray inasmuch as
we conclude that the State regulation here as issue is un-
reasonable and hence invalid even under the State’s in-
terpretation of federal requirements.
In order to assess the validity of the regulation, it is
necessary to understand certain aspects of the State sys-
tem of Medicaid reimbursement. Hospitals contract with
the State to provide medical services to the indigent.
Under this agreement, hospitals which have provided
such services to Medicaid eligible patients may file for
reimbursement from the State. Reimbursement is at a
flat per diem rate irrespective of the level of care ren-
dered or the actual costs incurred The State also re-
imburses skilled nursing homes and intermediate care
facilities for reasonable expenditures made with respect
to Medicaid recipients. Inasmuch as such facilities ren-
der less intensive services than do hospitals, however,
their per diem reimbursement rate is considerably lower.
OWN 6B 0 Ale
13a
Appendix A
Due to the significant gap between hospital reimburse-
ment rates and those received by less intensive care cen-
ters, the State has a substantial interest in encouraging
use of the least expensive care facility medically prac-
ticable. Consequently, it has designed its reimbursement
system so as to provide contracting hospitals with a strong
disincentive to retaining Medicaid patients beyond the time
when such intensive care is medically necessary.
We do not quarrel with the State’s goal. Saving tax
dollars and preventing misutilization of facilities are com-
mendable aims. The instant regulation, however, paints
with too broad a brush. It denies reimbursement not
only to those hospitals which fail to use due diligence in
placing patients in lesser care facilities, but also to those
who, through no fault of their own, cannot find an open-
ing in a suitable facility. In the latter case the hospital
is penalized not because of its own laxity but, rather,
solely because of circumstances beyond its control. See
Commonwealth Dept. of Pub. Welfare v. Temple U., 343
A.2d 701 (Pa. Cmwlth. 1975).°
We do not dispute the propriety of requiring the hos-
pital to bear the burden of clearly demonstrating that it
took all reasonable steps possible to place its patient.
Nevertheless, in order not to transcend the Federal Act,
the Division must exercise discretion so as to allow re-
8In this respect we note that the Director does allow reimburse-
ment when the reason why the patient could not be placed was the
fault of a social welfare agency. Other courts have deemed such
situations to be analogous to that where external conditions—such
as lack of beds—prevented placement. See St. Christopher’s Hosp.
for Children v. Commonwealth, Dept. of Pub. Welf., 372 A.2d 504
(Pa. Cmwlth. 1977).
l4a
Appendix A
imbursement where medically necessary care has been
rendered to an unavoidably retained patient.
We realize that our holding does result in the State
and federal governmer’» being required to pay for the
overutilization—as opposed to misutilization—of facilities.
That is, the State will have to provide reimbursement at
a higher rate for patients who are being retained in more
intensive care centers than is medically necessary. The
federal government will, in turn, be compelled to increase
the amount which it expends in recompensing the State
for half of its Medicaid expenses.® Although this consid-
eration is not to be taken lightly, we conclude that for
several reasons it is not controlling here.
First, we note that the obvious equitable solution would
be to reimburse hospitals in such circumstances at a rate
commensurate with that of the lesser care facility which
could provide the needed services. Indeed, at oral argu-
ment the State admitted that it had requested HEW ap-
proval for such a repayment scheme. Inasmuch as states
are permitted to reimburse participating hospitals at the
reasonable—as opposed to the actual—cost of services
rendered, we see no reason why the proposed plan cannot
be implemented. See, e.g., 42 U.S.C. §1396a(a) (13) (D);
42 C.F.R. 447.261(a) (1978); Massachusetts Gen’l Hosp. v.
Weiner, 569 F.2d 1156 (1st Cir. 1978).
® Our dissenting colleague intimates that the Secretary of HEW
might decide not to reimburse the State for its share of expenses in-
curred in implementing this decision. Even assuming that HEW
can refuse payment for expenses found to be mandated by the fed-
eral act, we were informed at oral argument that the regional office
of HEW has already agreed to pay its half of any required costs.
Thus, the burden of complying with this opinion will be equally
shared by State and federal governments.
nn
15a
Appendix A
Further, the main obstacle to placing Medicaid patients
is the critical statewide shortage of Medicaid-available
beds in skilled care facilities. The State, however, is not
powerless to alleviate that condition. It can both facili-
tate the construction of new health centers—as well as
the expansion of existing institutions—and may encourage
such facilities to make a greater number of spaces avail-
able to Medicaid recipients.*° The State’s failure to re-
medy the nursing home shortage cannot now be used to
justify penalizing hospitals which exercise due diligence
in placing their patients.
In addition to the above considerations, we cannot ig-
nore the real impact upon the public of denying reimburse-
ment. To the extent that a hospital is not recompensed
for services rendered, it will have to absorb the costs
itself." This in turn will compel the hospital to pass on
these unreimbursed costs to the non-indigent persons who
utilize its facilities. Thus, the costs of providing for the
indigent will be borne solely by those unfortunate enough
to require hospital care, rather than being spread among
State and national taxpayers. In our opinion, it is more
just and equitable to spread the costs.
°'We note that our Appellate Division has recently held that the
Commissioner of Health may, as a condition of licensure, require
Medicaid-eligible health care facilities to allocate a “reasonable num-
ber” of beds to the care of indigents. New Jersey Ass’n of Health
Care Facilities v. Finley, N.J. Super. (App.Div. 1979).
Tt is true that the hospital may attempt to recoup such expen-
ditures from the indigents to whom the services were provided.
However, inasmuch as such people are, by definition, poor, the hos-
pital is unlikely to recover any considerable amounts.
16a
Appendia A
Finally, even absent the considerations explicated above,
we are not convinced that the regulation at issue ade-
quately provides for the needs of the Medicaid population
as a whole. Given the widespread unavailability of skilled
eare beds, it is clear that reimbursement will be denied
for a large number of medically needy indigents. Thus,
this case is distinguishable from Virginia Hosp. Ass’n v.
Kenley, supra, which upheld a 21-day limitation upon re-
imbursement for inpatient services provided to a parti-
cular Medicaid recipient. There the court explicitly found
that the time period allowed was sufficient to fully meet
the needs of 92% of all hospitalized Medicaid eligible
patients. 427 F.Supp. at 786. Here, no such showing
was made. Hence, the Kenley case, even assuming its
validity, is of little applicability.
For the foregoing reasons, we conclude that under the
circumstances presented the regulation at issue is unrea-
sonable. Therefore, it is in clear conflict with federal
requirements and invalid under the Supremacy Clause of
the United States Constitution.
II
Having concluded that hospitals which have diligently
endeavored but, through no fault of their own, are unable
to place their patients in less intensive medical care fa-
cilities are entitled to reimbursement, the question remains
whether Monmouth is so entitled. That is, we must de-
cide whether Monmouth exercised the requisite diligence
in attempting to place the three patients.
Our task in this regard is made difficult by the meager-
ness of the record. Except as relating to the case of
17a
Appendix A
Luther Townsend, the evidence presented at the hearing
was scanty and the hearing officer’s findings phrased pri-
marily in conclusory terms such as “good faith” and “spe-
cial circumstances.” Moreover, the Director, because he
believed that payments were proscribed by the regulation,
did not pass judgment upon the sufficiency of the hospital’s
efforts. Ordinarily, the appropriate action in such a case
would be to remand the matter to the Division so that
it could render its assessment and hold additional hear-
ings, if necessary. However, due to the already long period
of time that has elapsed since the hearing was conducted
as well as the relatively small sums involved, we will de-
cide the issues at the present juncture.
We conclude that the hospital is entitled to be fully
reimbursed. In light of the known shortage of available
beds and the evidence presented, the hearing officer’s con-
clusion that the hospital acted in good faith and that spe-
cial circumstances were present is not unreasonable.
We wish to emphasize that this limited finding should
not be taken as setting any standard to which hospitals
may in the future comply and be per se entitled to reim-
bursement. Rather, it merely represents the limitations
of appellate review. Thus, the Director is free to apply
his expertise to future cases and may specify in detail
the precise steps which a hospital must take in placing
patients. Such regulations, if reasonable, represent a valid
attempt to prevent unnecessary overutilization.
18a
Appendix A
Ti
Monmouth’s contention that it is constitutionally en-
titled to a hearing prior to denial of reimbursment is re-
jected substantially for the reasons expressed by the Ap-
pellate Division. Monmouth Medica Center v. State, supra,
lo8 N.J. Super, at 254-256. At oral argument it appeared
that the gravamen of the hospital’s complaint was not
truly the necessity for a pre-denial hearing, but rather the
allegedly inordinate delay involved in obtaining post-denial
review, ‘This issue cannot be resolved on the basis of the
record before us. We note, however, that hospitals have
both a constitutional right and a statutory right under
NwJLS.A. 30:4D-7(f) to a fair hearing within a reasonable
time,
lor the foregoing reasons, Monmouth is entitled to re-
imbursement for those periods denied by the Director.
The judgment of the Appellate Division is affirmed.
SCHREIBER, J., dissenting.
New Jersey’s receipt of federal funds to assist it in pro-
viding medical services and care for eligible persons in
hospitals and nursing home facilities depends upon the
existence of a state plan which must satisfy the federal
requirements and be approved by the Secretary of Health,
Kducation and Welfare (IEW). New Jersey’s plan does
satisfy those requirements and has been approved by the
Secretary.
19a
Appendix A
The federal Medicaid statute states that federal funds
will be available to assist states in furnishing medical
assistance for for certain eligible persons. The act pro-
vides that
[flor the purpose of enabling each State, as far as
practicable under the conditions in such State, to
furnish (1) medical assistance * * * and (2) re-
habilitation and other services * * *, there is hereby
authorized to be appropriated for each fiscal year
a sum sufficient to carry out the purposes of this
subchapter. The sums made available under this
section shall be used for making payments to States
which have submitted, and had approved by the
Secretary of Health, Education and Welfare, State
plans for medical assistance. (42 U.S.C.A. § 1396;
emphasis supplied)
[t is important to recognize that in the first instance fund-
ing for services may be fixed by the state to the extent it
deems practicable. This has been construed to mean, iter
alia, financially feasible. As one commentator recently
stated:
Thus, while section 1396 establishes that one of
Medicaid’s objectives is to provide necessary medi-
cal services, it also reflects a congressional intent
that each state have the freedom to tailor programs
that are responsive to the fiscal conditions prevalent
* in that state. [Note, “State Restrictions on Medi-
eaid Coverage of Medically Necessary Services,” 78
Colum. L. Rev. 1491, 1499 (1978) |
The New Jersey Medical Assistance and Health Services
Act, N.J.S.A. 30:4D-1 et seq., was enacted to enable the
20a
Appendix A
State to obtain the benefits provided by the federal law.
The Division of Medical Assistance and Health Services
in the Department of Institutions and Agencies has been
charged with implementing and administering a program
of medical assistance to do whatever is “necessary to se-
cure for the State of New Jersey the maximum Federal
participation that is available with respect to a program
of medical assistance, consistent with fiscal responsibility
and within the limits of funds available for any fiscal year
eee.” N.JS.A. 30:4D-7 (emphasis supplied). Authoriza-
iton was granted to promulgate rules and regulations to
carry out that intent, N.J.S.A. 30:4D-7, as well as to
provide the Secretary of HISW with the State’s plan
N.J.S.A. 30:4D-7(a).
’
There is nothing in the federal law, including HlW
regulations, which requires the State to pay a hospital for
inpatient hospital care when those services are no jonger
needed. The federal act specifies the required content of a
state medical assistance plan, including the “payment of
the reasonable cost of inpatient services, provided under
the plan * * *.” 42 U.S.C.A. § 1396a(a)(13)(D). The Seere-
tary’s regulations in turn require that the amount and
duration of each medical and remedial service provided be
sufficient “to reasonably achieve its purpose.” 42 C.F.R.,
§ 440.230(b) (1978). This regulation does not require
‘ that the plan must include payment for inpatient hospital
care when it is no longer needed.
Superimposed upon the eare requirements are the fiscal
restraints which a state may observe. Thus, a state plan
which limited inpatient hospital eare to a 21-day maximum
period because of fiscal considerations has heen upheld.
Virginia Hospital Ass'n v. Kenley, 427 F. Supp. 781 (.D.
Va. 1977). The State is not required to pay for all rea-
21a
Appendix A
sonably necessary inpatient hospital services, but may
limit coverage because of financial conditions. See District
of Columbia Podiary Soc’y yv. District of Columbia, 407
I’, Supp. 1259, 1263-1264 (D.D.C. 1975) (recognizing that
fiscal considerations play a legitimate role in a state’s de-
termination of what medical services to provide).
Here, the State’s reason for not reimbursing hospitals
for inpatient care for those who no longer need that care
is a financial one. In an affidavit filed in these proceed-
ings the Commissioner estimated that compliance with
the majority’s decision would increase the yearly ex-
penditures by more than $37,000,000. The State might
expect a reimbursement from the federal government of
approximately 50% of that amount, provided that the
Secretary of HEW finds the Court’s modification of the
current program acceptable.’
Although the State has proposed to amend its plan so
that hospitals which may be forced to keep patients be-
cause of the unavailability of nursing home facilities may
be reimbursed at the lower rate paid to nursing homes,
this amendment has not been approved by the Secretary
of HlsW. Such approval would appear to be necessary
since the proposed scheme will result in a change in the
“method and standards” for reimbursement of hospitals
for inpatient services. See 42 C.F.R. § 447.261(a) (1978).
See Hospital Ass’n of New York State, Inc. v. Toia, 73
F.R.D. 565, 567 (S.D.N.Y. 1976), vacated on other grounds
1 At the oral argument the Deputy Attorney General stated that the
regional office of HE'W, not the Secretary, had indicated that if pay-
ment were ordered in this proceeding the federal government would
share in this cost. The Secretary was not a party in these pro-
ceedings.
22a
Appendix A
435 F. Supp. 819 (S.D.N.Y. 1977), aff'd 577 F.2d 790 (2d
Cir. 1978).
Authority to decide whether any modification of the
State’s plan is appropriate, particularly when the change
may have a substantial fiscal impact, has been delegated
by Congress and the State Legislature to others. The
plan as approved by the Secretary of HEW and imple-
mented by the Commissioner of the Department of In-
stitutions and Agencies was within their respective dele-
gated authority, See Note, supra, 78 Colum. L. Rev. at
1506, eriticizing the Appellate Division decision in this
case. As stated by the United States Supreme Court:
{W]e must be mindful that “the construction of
a statute by those charged with its execution should
be followed unless there are compelling indications
that it is wrong * * *.” [New York Dept. of Soc.
Services v. Dublino, 413 U.S. 405, 421, 93 S. Ct.
2507, , 37 L. Ed. 2d 688, 699 (1973), quoting
Red Lion Broadcasting Co. v. F.C.C., 395 U.S. 367,
381, 89 $8. Ct. 1794, , 23 L. Ed. 2d 371, 384
(1969) ]
I would reverse and enter judgment for the State.
23a
APPENDIX B
Opinion of the Superior Court of New Jersey,
Appellate Division
(Filed—March 27, 1978)
Superior Court or New Jersey
APPELLATE Division
A-2312-76
-_——_— »™
_
Monmovutu Mepican Center, a non-profit corporation
of the State of New Jersey,
Appellant,
Vv.
State or New Jersey; ANN Kuxin, Commissioner of In-
stitutions and Agencies of the State of New Jersey;
GeraLp J. Remy, Director of the Division of Medical
Assistance and Health Services of the State of New
Jersey,
Respondents.
?
Argued December 14, 1977—Decided March 27, 1978
Before Judges Matthews, Crane and Antell.
On appeal from the Division of Medical Assistance and
Health Services.
24a
Appendix B
Mr. Frank R. Ciesla argued the cause for appellant
(Messrs. Giordano, Halleran & Crahay, attorneys).
Ms. Andrea M. Silkowitz, Deputy Attorney General,
argued the cause for respondents (Mr. William F. Hyland,
Attorney General of New Jersey, attorney; Mr. Stephen
Skillman, Assistant Attorney General, of counsel).
The opinion of the court was delivered by
MatruHews, P.J.A.D.
Monmouth Medical Center (claimant) a provider of in-
patient hospital services under the New Jersey Medical
Assistance and Health Services Program (Medicaid), N.J.
S.A. 30:4D-1 et seq., appeals from a final decision of the
Director of the Division of Medical Assistance and Health
Services modifying in part the decision of the program
fiscal intermediary, Prudential Insurance Company of
America (Prudential), to deny in part the payment of
claims submitted by claimant for services provided to three
Medicaid recipients, Luther Townsend, James Remkowski
and Madeline B. Papikas. (A fourth recipient’s claim is
not challenged on this appeal).
Monmouth Medical Center is a non-profit hospital lo-
cated in Long Branch, Monmouth County. It entered
into an agreement with the former Department of Insti-
tutions and Agencies to provide medically necessary in-
patient services to persons deemed eligible to receive bene-
fits under the Medicaid program, and agreed to “abide
by the rules and regulations” of the program. N.J.A.C.
10:52-1.1(1) (iv). The controversy before us arises because
of the Director’s insistence that under the agreement claim-
ant is bound by the express provisions of N.J.A.C. 10:52-
1.2(a)(18) (Note), (b)(1), which literally preclude reim-
208
Appendiz B
bursement for inpatient hospital services provided while a
patient awaits placement in a skilled nursing facility or in-
termediate care facility.
Originally, Prudential, as agent of the Department of
Institutions and Agencies for the purposes of reviewing
claims submitted by providers under the Medicaid Pro-
gram, denied coverage for portions of the periods during
which the named individuals were patients and receiving
care at the Monmouth Medical Center. In each instance,
claimant requested a fair hearing before the Division.
Thereafter, a full hearing on each case was held before
a hearing officer who recommended the claimant be reim-
bursed for the payment periods which had been denied
by Prudential. The Director rejected the hearing officer’s
recommendation in the Townsend case and denied pay-
ment for the period in question, and he modified the hear-
ing officer’s recommendations in the Papikas and Remp-
kowski cases, allowing payments for part of the disputed
periods.
The following constitute brief summaries of the basic
facts surrounding the hospitalization of the three patients
whose cases precipitated these proceedings.
Luther Townsend, a medicaid recipient with a history
of aleoholism and chronic epilepsy, was hospitalized from
April 7, 1975 to May 28, 1975 with a broken hip. Surgery
was performed on April 15, 1975. Sometime after April
9,.1975 claimant’s Social Services worker began a search
for a nursing home that would accept a patient with Mr.
Townsend’s disabilities and whose only souree of funds
was Medicaid. On May 28, 1975 a bed was finally found
in a home in Cliffwood Beach, Monmouth County. It is
undisputed that there was no hesitation or delay on the
26a
Appendiz B
part of the attending physician, or the Social Services
Department in placing Mr. Townsend in any nursing home
that would accept him. However, Prudential and the Di-
rector determined that further inpatient hospital stay was
not medically necessary beyond May 8, 1975. In addition,
it was the Director’s decision that, since §202.9 of the
Hospital Serviees Manual (N.J.A.C. 10:52-1.2(a) 18 Note,
(b)1), provides that payment for special circumstances
is specifically precluded for patients awaiting placement
in a skilled nursing facility or intermediate care facility,
the denial of payments to Mr. Townsend was justified,
even though through no fault of his own or that of his
provider he was not able to be discharged until May 29,
1975. It is conceded by the Division that Mr. Townsend
required medical attention beyond May 8, 1975 but that
such attention should have been given in a lesser eare
facility. In reinstating Prudential’s decision, the Diree-
tor denied claimant reimbursement for 19 days at a cost
of $2,827.39.
In the ease of Madeline Papikas, hospital services were
rendered from June 1, 1974 to December 10, 1974. The
Director determined that her inpatient hospital stay was
not medically necessary beyond September 1, 1974. Ae-
cordingly, 99 days of hospitalization were rejected. Mrs.
Papikas’ case involved a series of bureaueratie delays by
government agencies in approving her medicaid coverage
which made it initially impossible to place her in a lower
level care facility. By the time the delays were resolved
on December 5, 1974, the patient had reeovered to the
point where she could be released. It is eoneeded that
Mrs. Papikas required medical attention and that Mon-
mouth Medical Center was the only facility then available
to render the needed care,
27a
Appendia B
The period of time involved in the case of James Remp-
kowski extended from November 238, 1975 to Mareh 9,
1976. The patient required intensive medical care from
November 11, to January 13. The Utilization Review
Committee in essence agreed with Prodential’s determina-
tion that there was a decrease in the medical necessity
for acute bed care at that time. However, as in the
Papikas case, there were again eligibility problems. [ligi-
bility was cleared on February 19, 1976, and the patient's
Medicaid number was received on February 21, 1976.
The patient was discharged and admitted to Bayview Con-
valescent Center on Mareh 9, 1976, as he had already
been placed on the waiting list. Prudential denied pay-
ment for January 138, 1976 to Mareh 9, 1976. The Diree-
tor again modified the hearing offieer’s recommendation
and allowed payment up to and ineluding February 19,
1976, as the effeetive date of eligibility, However, he
determined that no payment be made beyond the above
date beeause Regulation 202.9, referred to above, pre-
cluded payment for patients awaiting nursing home place-
ment,
In each ease the Director found that medieal necessity
is based on where needed eare is obtained and not on
whether the eare is in fact necessary for the well-being
of the patient.
It is undisputed that it would have been negligent for
claimant to have discharged any of these patients to any-
thing but a skilled nursing care facility on the respective
dates that hospital care was no longer required.
28a
Appendix B
I
Title XIX of the Social Security Act, 42 U.S.C. §1396
et seq., establishes a Medical Assistance Program under
which participating states may provide federally funded
medical assistance to needy persons. Title XIX estab-
lishes two groups of needy persons: (1) the “categorically”
needy, which includes needy persons with dependent chil-
dren, and the aged, blind, and disabled, 42 U.S.C. §1396a
(a)(10)(A), and (2) the “medically” needy, which includes
persons financially ineligible for AFDC or SSI benefits,
42 U.S.C. §1396a(a)(10)(C). Participating states are not
required to extend medicaid coverage to the “medically”
needy, and New Jersey has chosen not to do so (N.J.S.A.
30:4D-3(f)). The federal statute requires participating
states to provide qualified individuals with financial as-
sistance in five general categories of medical treatment
(including inpatient hospital services). 42 U.S.C.
§) 1396a(a)(13)(B), 1396a(a) (1)-(5).
Although Title XTX does not require states to provide
funding for all medical treatment falling within the five
categories, it does require that state Medicaid plans es-
tablish “reasonable standards * * * for determining * * *
the extent of medical assistance under the plan which * * *
are consistent with the objectives of [Title XIX].” 42
U.S.C. §1396a(a) (17). Beal v. Doe, U.S. ——, 97 S.Ct.
2366, 2369; 53 L.Ed. 2d 464, 470 (1977).
Sections 202 and 202.9 of the Hospital Services Manual,
derived from N.J.A.C. 10:52-1.2(a) (18) Note, (b)(1) state:
202. Non-Covered Inpatient Services
Benefits are not payable for any serviees rendered
or items dispensed or furnished in connection with:
29a
Appendix B
202.9. Services Rendered After Day Medically Ne-
cessary
Inpatient hospital services rendered after the day
it is medically necessary, except when special cir-
cumstances prevent the discharge or transfer of the
patient.
Note: The Contractors may reimburse a hospital
up to 12 calendar days following the period estab-
lished medically necessary if special circumstances
(social necessity) prevent the discharge or transfer
of the patient to his/her home or sheltered board-
ing home and the hospital has taken effective action
to stimulate placement of the patient.
Effective action is defined as telephone notification
to the County Welfare Board, Division of Youth
and Family Service District Office or other respon-
sible officials within one working day of the time
that the stay has been determined to be no longer
medically necessary. This telephone contact must
be then confirmed in writing.
A copy of the written notification must be sub-
mitted with all claims for which reimbursement is
claimed for special circumstances (social necessity).
Payment for special circumstances (social necessity)
is specifically precluded for:
(a) Patients awaiting placement in a Skilled Nurs-
ing Facility or Intermediate Care Facility.
(b) Patients for whom a claim has been denied for
lack of medical necessity.
30a
Appendix B
(c) Patients who were not eligible recipients as of
the date of admission.
It is this regulation which claimant contends violates
}*ederal Medicaid Law and Regulations if it is read liter-
ally so as to foreclose the exercise of discretion in its
application.
The language of Title XIX confers broad discretion on
the State to adopt standards for determining the extent
of medical assistance, requiring only that such standards
be “reasonable” and “consistent with the objectives of the
Act.” Beal v. Doe, above, 53 L. Ed. at 472. Participation
by this State in the program was authorized by the enact-
ment of the New Jersey Medical Assistance and Health
Services Act, N.J.S.A. 30:4D-1 et seq. “The stated pur-
pose of the Act was to provide medical assistance, insofar
as practicable, on behalf of persons whose resources were
determined to be inadequate to enable them to secure
quality medical care at their own expense, and to enable
the State, within the limits of funds available for any
fiscal year for such purposes, to obtain all benefits for
medical assistance provided by the Social Security Act.
N.J.S.A. 30:4D-2.” N.J. Federation of Physicians & Den-
tists v. Klein, 144 N.J. Super. 467, 470 (App Div. 1976).
There is no doubt therefore that the Department has the
power to adopt reasonable rules and regulations which are
necessary to carry out its functions under N.J.S.A. 30:4D-7
and its federal counterpart, 42 U.S.C. §1396 et seq. In re
Fair Hearing, 138 N.J. Super. 417, 422 (App. Div. 1976).
There is no dispute here with respect to the patients’
eligibility for Medicaid assistance, the services rendered,
or the amount of each claim. The only dispute is whether
Regulation 202.9, as construed by the Director, is in viola-
21 eae
3la
Appendiz B
tion of federal requirements that call for reimbursement
of all reasonably necessary inpatient hospital services.
A state plan must provide for “payment of the reason-
able cost of inpatient hospital services provided under the
plan” 42 U.S.C. §1396a(a)(13)(D). Inpatient hospital ser-
vices are those “services ordinarily furnished by the hos-
pital for the care and treatment of inpatients provided
under the direction of a physician * * *.” 42 C.F.R. $249.
10(a)(1)(6) (i). The State Plan must:
[S]pecify the amount and/or duration of each item
of medical and remedial care and services that will
be provided to the categorically needy and to the
medically needy, if the plan includes this latter
group. Such items must be sufficient in amount,
duration and scope to reasonably achieve their pur-
pose with respect to the required services * * *. The
state may not arbitrarily deny or reduce the
amount, duration or scope of such services to an
otherwise eligible individual solely because of the
diagnosis, type of illness or condition. Appropri-
ate limits may be placed on services based on such
criteria as medical necessity of those contained in
utilization or medical review procedures. 42 C.F.R.
§249.10(a) (5) (i).
The test under the regulation is one of reasonableness:
does the State Plan provide services sufficient to “reason-
ably achieve their purpose?” Virginia Hospital Ass’n v.
Kenley, 427 F. Supp. 781, 785 (J&.D. Va. 1977).
In Commonwealth Dept. of Public Welfare v. Temple
U. etc., 21 Pa. Comwlth 162, 343 A.2d 701 (1975), the
issue was raised as to whether it was an abuse of admin-
32a
Appendix B
istrative discretion to deny reimbursement to hospitals
which have diligently put forth every effort to locate,
without success, an appropriate lesser care facility or a
competent relative to accept the patient. In finding that
discretion should be exercised, the Commonwealth Court
noted:
* * * In misutilization cases such as this where a
patient may no longer be in need of continued acute
hospital eare but does need some lower level care,
we believe that it would be an abuse of administra-
tive discretion to deny reimbursement to hospitals
which have diligently put forth every effort to lo-
cate, without success, an appropriate lesser care
facility or a competent relative for the patient. Jn
such circumstances there is still a medical necessity
for the hospital services. To hold otherwise would
be to read penalty provisions into the regulations
where the culpability of the hospital for the par-
ticular misutilization involved cannot be established.
*** (Emphasis added) (3438 A.2d at 704).
See also, Department of Public Welfare v. Frankford Hos-
pital, 26 Pa. Comwlth 484, 364 A.2d 957 (1976); St. Chris-
topher’s Hospital v. Commonwealth, —— Pa. Comwlth.
—, 372 A.2d 504 (1977). In Temple, the court was
dealing with a regulation which permitted the exercise
of some administrative discretion based on medical neces-
sity (Pa. Manual §9421.532b.), whereas here the regula-
tion under review, read literally, seems to preclude reim-
bursement for any period that a patient is awaiting place-
ment to a lesser care facility. We note, however, that
our regulation is silent as to reimbursement during a
period of the unavailability of a lesser care facility. The
33a
Appendix B
federal statute, 42 U.S.C. 1896, ef seg. does not mention
the eligibility of inpatient services for those awaiting
placement; payments are allowed, we note, for care in
nursing facilities. 42 U.S.C. 1396a(a) (13) (BE).
The Director advises us that the policy inherent in a
literal interpretation of the regulation questioned here is
not to provide a penalty but to discourage “overutiliza-
tion” of hospital services, and is rationally related to this
State’s legitimate interest of maintaining the fiscal sol-
vency of the program.
The Director, relying on judicial approval of statutory
limitation on inpatient hospital coverage in Virginia Hos-
pital Ass’n. v. Kenley, 427 F. Supp. 781 (E.D. Va. 1977),
and Commonwealth, Dept. of Public Welfare v. Temple
U. etc., 21 Pa. Comwlth 162, 343 A.2d 701 (1975), argues
that this state properly precludes the reimbursement sought
by claimant here. We cannot accept that argument. We
disagree with the Virginia case in which the court gave
a highly literal construction to the phrase “under the plan”
as used in 42 U.S.C. §$1396a(a)(13)(D). The phrase should
not be read alone but in the context of the option granted
to the several states to provide coverage to “medically
needy” as well as “categorically needy.” See 45 C.F.R.
§248.10(a). And while the Pennsylvania case does sane-
tion the 60-day limitation to patient hospital care for the
categorically needy as provided by the Commonwealth
statute, that case also, as noted heretofore, directed reim-
bursement to the hospital for care of a patient awaiting
placement to a lesser care facility.
The Director also contends that because claimant, by
becoming a provider of Medicaid services, has voluntarily
agreed to be bound by the regulations promulgated by
34a
Appendix B
him, absent a showing of “coercion, duress, impossibility
of performance of, or total absence of statutory authority
for this condition of participation,” we are without power
to alter the terms of that agreement, citing Briarcliff
Haven, Inc. v. Department of Hum. Res. Ga., 403 F. Supp.
1355 (N.D. Ga. 1975). The difficulty with this argument
is that it presupposes that the Director’s construction of
the questioned regulation accords with the statutory pur-
pose expressed by Congress. In addition, we find the
Briarcliff case to be inapposite since it dealt with maxi-
mum reimbursement ceilings established by the Georgia
Department of Human Resources for payment for nurs-
ing home services.
Unlike the Virginia, Georgia, and Pennsylvania regu-
lations referred to in Kenley, Briarcliff Manor, and Tem-
ple, above, however, New Jersey fixes no maximum limit
to hospital service which is found to be medically neces-
sary for a qualified patient. The record here establishes
that in all three cases under review it was found to be
medically necessary to retain the patients under hospital
care because no available lesser care facility could be
found. That conclusion is not undermined by the fact,
undisputed by the Director, that New Jersey is presently
experiencing a critical Medicaid nursing home bed short-
age, since the primary object of our program is adequate
patient care which is found to be medically necessary.
The federal concept of medical necessity is found most
clearly defined in those cases dealing with Medicare leg-
islation. 42 U.S.C. §1395, et seg. Those cases uniformly
hold that an individual who is eligible for extended care
coverage does not lose coverage under the act during a
period that he is forced to remain in a gencral hospital
for treatment for the sole reason that there is no available
wats sens thet
(WORE ABT MOAD 05 bar e te
entateacwnl taba 40
Natit
35a
Appendix B
extended care facility available to take him. In Hayner
v. Weinberger, 382 F. Supp. 762 (E.D. N.Y. 1974), the
patient was denied benefits under §1395y(a)(9) of the
Act because she remained in a hospital when only an ex-
tended care facility was required; however, no such facil-
ity was available, and it was conceded that the patient,
an 83 year old woman with terminal cancer, could not
be discharged except to an extended care facility. The
court, in reversing the denial of benefits by the Secretary
of Health, Education and Welfare, concluded on the the-
ory of “impossibility of performance” and on the facts
of the case:
In determining whether to grant reimbursement
in this ease we begin with the axiom that “[t]he
congressional policy underlying the federal social
security legislation requires the courts to interpret
the Act liberally, and any doubts should be resolved
in favor of coverage.” * * * The Act should be con-
strued to effectuate its overriding purpose even if
the words used leave room for a contrary interpre-
tation. * * * By providing under 42 U.S.C.A. § 1395f
(a)(2)(C) for coverage of treatment in extended
eare facilities, it seems to us that Congress intended
to provide needed treatment to patients who other-
wise would be compelled to remain in a general hos-
pital. * * * It would be anomalous to say that Con-
gress intended to leave a gap in coverage for a pa-
tient who is lying on her back in a general hospital
and who, through no fault of her own, could not
immediately obtain extended care treatment else-
where and at the same time provide such coverage
if she could have obtained such treatment in an-
other facility. We believe that such a denial of
36a
Appendiz B
coverage would not only be harsh and unjust but
also would not comport with the spirit of the Act.
(Citations omitted; emphasis added), (382 F. Supp.
at 765).
See also, Hultzman v. Weinberger, 495 F. 2d 1276 (3 Cir.
1974); Torphy v. Weinberger, 384 F. Supp. 1117 (E.D.
Wis. 1974).
The Director’s argument that the Medicare cases are
not applicable in the Medicaid context raises a distinction
without any real difference. The Medicare legislation,
like the Medicaid legislation, seeks to encourage the effi-
cient and economical use of medical facilities. Both have
as their goal the availability of services medically neces-
sary for patients eligible under the respective acts. The
controlling factor is not where the service or treatment
is performed but whether it is medically necessary. Under
this factor there can be no “misutilization” if no lesser
eare facility is available.
There is nothing in the record here which would sup-
port the conclusion that the services rendered to the three
patients involved were not medically reasonable and nec-
essary. What evidence there is points to the contrary.
And, as noted, the hearing officer concluded that the serv-
ices were needed in each of the eases.
Accordingly, we conclude that the Director erroneously
interpreted the applicable regulation (Hospital Services
Manual §{§ 202.9 Note; N.J.A.C. 10:52-1.2(a)) 18 Note,
(b)(1)) so as to exclude any exercise of discretion in cir-
cumstances such as those presented by the cases of the
three patients in question. Such discretion should be
exercised when the provider (who has the burden) can
demonstrate the medical necessity for the treatment or
nvr catatonia ndeaaaaandlll
37a
Appendix B
services prov ided to the patient, the need for a release
of the patient “only to a lesser care facility, the efforts
made by it to place the patient in such facility, Ys the
unavailability of the required facility.
ss
II
Claimant also argues that due process mandates a pre-
determination hearing be held before any medicaid reci-
pient, such as each whose case is involved here, is eut off
from the receipt of benefits. The Director contends that
claimant has no standing to raise this issue. We disagree.
Claimant, as a Medicaid provider, is a party directly
affected by the non-reimbursement of the benefits in ques-
tion. N.J.S.A. 30:4D-7(f) specifically provides “that either
the recipient or the provider shall be afforded the oppor-
tunity for a fair hearing within a reasonable time on any
valid complaint.” Furthermore, N.J.A.C. 10:49-1.13 re-
quires that “all providers of service or covered persons
will be given the opportunity for a fair hearing concern-
ing grievances arising from the claims payment process.”
The plaintiff’s rights in the process are to be considered
in conjunction with the recipients: It is the provider that
is injured when reimbursement is denied, not the recipient.
See, e.g., Rosado v. Wyman, 397 U.S. 397 (1970); Single-
ton v. Wulff, 428 U.S. 106 (1976); Massachusetts General
Hospital v. Sargent, 397 F. Supp. 1056, 1059 (D. Mass.
1975) ; Nat. U. of Hosp. € Health Care Emp. etc. v. Carey,
d97 F.2d 278, 280-281 (2d Cir. 1977). In Goldberg v. Kelly,
397 U.S. 254 (1970), the court established the test to de-
termine when a predetermination hearing must be held
prior to the effectiveness of an administrative order. “The
extent to which procedural due process must be afforded
38a
Appendix B
the recipient is influenced by the extent to which he ‘may
be condemned to suffer grievous loss,’ * * * and depends
upon whether the recipient’s interest in avoiding that loss
outweighs the governmental interest in summary adjudi-
cation.” (397 U.S. at 262-263).
Goldberg involved the termination of welfare benefits
without a predetermination hearing. The court concluded
that when welfare is discontinued, only a predetermination
evidentiary hearing provides the recipient with procedural
due process since “termination of aid pending resolution
of a controversy over eligibility may deprive an eligible
recipient of the very means by which to live while he
waits.* * * His need to concentrate upon finding the
means for daily subsistence, in turn, adversely affects
his ability to seek redress from the welfare bureaucracy.”
(397 U.S. at 264).
The decision whether a predetermination hearing is ne-
cessary depends on the balancing factors peculiar to the
litigation. The post-determination here involved would
not leave recipients “destitute,” unlike the situation present-
ed in Goldberg. A denial of an inpatient hospital claim
and subsequent proceedings by the hospital against the
recipient will not result in a total loss of subsistence
or a further loss of medical benefits.
Providers, such as claimant, are aware of rules and
regulations set forth by the plan, which they are required
to follow. They are not completely without notice as
to the services that may be offered. Claimant was en-
titled to and received a fair hearing as to termination
of benefits followed by an appeal. Accordingly, the right
to be heard “at a meaningful time and in a meaningful
manner,” Armstrong v. Manzo, 380 U.S. 545 (1965) is
ee ee ea
ee ee
39a
Appendix B
satisfied by the provision for a post-denial hearing on
behalf of the recipient where he seeks to challenge the
determination. Compare Mercy General Hospital v. Wein-
berger, 410 F. Supp. 344 (E.D. Mich. 1975).
The determinations of the Director of the Division of
Medical Assistance and Health Services, insofar as it de-
nies reimbursement to claimant for the waiting periods
mentioned herein, are reversed.
40a
APPENDIX C
Determination of the Director of the Division of Medical
Assistance and Health Services
Stare or New JERSEY
Department of Institutions and Agencies
Division of Medical Assistance and Health Services
Administrative Offices
324 East State Street
Trenton, New Jersey 08625
Telephone
Area Code 609
Address Reply to:
Post Office Box 2486
Trenton, New Jersey 08625
Farr Heartna Decision
MonmoutH MepicaL CENTER
Re: LutHer TownsenpD
Mapve.uineE B. Paprikas
JAMES REMPKOWSKI
Wuson Lopez
Director’s DEcIsIon
The Director, Division of Medical Assistance and Health
Services, has reviewed the entire record in this matter,
including the Hearing Officer’s Report and exceptions
thereto, and makes the following determination:
LutTHER TowNsEND
The regulation (202.9 in the Hospital Manual) cited
by the Hearing Officer authorizing payment when
ee Oe ee ene
on mene Na a. mele 1B he a
Di PE ts asin PN te BN a i ies ese «Milena A lah Mtn. wht
4la
Appendiz C
special circumstances (social necessity) prevent dis-
charge or transfer of the patient specifically pre-
cludes payment for patients awaiting placement in
a Skilled Nursing Facility or Intermediate Care
Facility (also referred to as nursing homes). In
addition, said regulation is binding on the Division
as well as the contractors. Therefore, the Director
hereby reverses the Hearing Officer’s recommenda-
tion and denies payment for the period in question.
Mapeuine B. PaprKas
After conducting his review in this case, the Direc-
tor finds that the main problem was the difficulty
the patient experienced in obtaining her Supple-
mental Security Income (SSI) checks from Social
Security.
As the Hearing Officer indicated on page 6, para-
graph 1, of his report, Monmouth Medical Center
experienced difficulty in obtaining a Medicaid num-
ber or convincing the local Social Security office to
release the SSI checks. Said checks were not avail-
able to the patient until December 5, 1974 (tran-
script, page 42; Line 22, 23). The patient was sub-
sequently discharged on December 10, 1974.
Therefore, in view of the above, the Director hereby
modifies the Hearing Officer’s recommendation to al-
low payment up to and including December 5, 1974,
which was the date eligibility was clearly estab-
lished.
JAMES REPKOWSKI
The Director hereby modifies the Hearing Officer’s
recommendation to allow payment up to and includ-
42a
Appendix C
ing February 19, 1976, which was the effective date
of eligibility for this patient. The facts of this case
are similar to the Papikas case, as Monmouth Medi-
eal Center experienced delays in obtaining an eligi-
bility determination from the various social agencies
involved.
However, no payment can be made beyond this date
because Regulation 202.9, referred to above, pre-
cludes payment for patients awaiting nursing home
placement.
Wutson Lopez
The Director hereby affirms the Hearing Officer’s
recommendation to deny payment.
This decision constitutes final agency action.
Errective Date: February 8, 1977
Gerald J. Reilly, Director
Division of Medical Assistance
and Health Services
acetic canta. We SRL ee eas
43a
APPENDIX D
Recommended Findings of Fact and Conclusions of Law
of the Hearing Officer for the Division of Medical Assistance
and Health Services
Stare oF New JERSEY
Department of Institutions and Agencies
Division of Medical Assistance and Health Services
Administrative Offices
324 Kast State Street
Trenton, New Jersey 08625
Telephone
Area Code 609
Address Reply to:
Post Office Box 2486
Trenton, New Jersey 08625
StaTE oF NEw JERSEY
DEPARTMENT OF INSTITUTIONS AND AGENCIES
Farr Heartne Decision: MonmMoutHy MepicaLt CENTER
Re: Luraer Townsend, HSP #1320-004770-01
MavELINE Paprikas, HSP #1320-536005-01
JAMES Rempxkowsk1, HSP #1520-900116-01
Witson Lopez, HSP #1660-008115-24
On August 13, 1976 a Fair Hearing was held at the offices
of the Division of Medical Assistance and Health Services,
324 East State Street, Trenton, New Jersey.
The hearing was held before Gregory Danese, Esquire,
Hearing Officer, Division of Medical Assistance and Health
Services.
44a
Appendix D
Appearing on behalf of the Division of Medical Assist-
ance and Health Services were:
James E.D. Gardam, M.D., Medical Director
Governmental Health Programs Department
The Prudential Insurance Company of America
Teri Rainear, Assistant Supervisor
Claims Approver
The Prudential Insurance Company of America
Appearing on behalf of the Monmouth Medical Center
were:
Frank R. Ciesla, Jr., Esquire
Attorney for Monmouth Medical Center
James C. Kirby, M.D.
Chairman, Utilization Review Committee
Vincent G. Raine, Assistance Controller
Monmouth Medical Center
Floreine Cunningham
Coordinator of Social Services
Monmouth Medical Center
This request for hearing was filed by Vincent G. Raine
on behalf of Monmouth Medical Center, hereinafter re-
ferred to as the appellant, and concerns the denial of pay-
ment for inpatient hospital services rendered to the above
Medicaid recipients. The Prudential Insurance Company
of America, the intermediary for the Division of Medical
Assistance and Health Services, reviewed the claims and
determined that the care rendered or portion of the care
rendered was not medically required in an inpatient hos-
pital setting; therefore, payment was denied.
te lr te Pela RA Li Be CE ae =
45a
Appendix D
A verbatim transcript of the hearing was taken by Alvin
A. Nerline, Certified Shorthand Reporter. The Hearing
Officer and Mr. Ciesla agreed that the Shorthand Reporter
and the Hearing Officer’s transcript copy would be pro-
vided at the expense of the appellant.
The following documentation was submitted by the ap-
pellant:
A-1 Pretrial Hearing Brief
A-2 Letter from Paul Seavuzzo concerning persons
awaiting Medicaid beds in skilled nursing facilities
A-3 General Admission Consent of Wilson Lopez
A-4 Letter from Arthur Penn of the Public Advocate’s
Office concerning a nursing home bed shortage
A-5 United States General Accounting Office Report
+ B-164031(3)
Although A-4 and A-5 were submitted after the hearing,
the Hearing Officer considered this in’ »rmation since cop-
ies were provided to Doctor Gardam and the material
did not deal with the issue of medical necessity.
Lutuer Townsenp, HSP +#1320-004770-01
Luther Townsend was hospitalized from April 7, 1975 to
May 28, 1975. Prudential denied payment for the period
from May 8, 1975 to May 28, 1975 (copies of records
submitted indicate denial was from May 9, 1975 to May
28, 1975). The denial was based upon Section 202.9 of
the Hospital Services Manual, since it was determined by
Prudential that the patient after May 8, 1975 did not med-
ically require acute hospital care; that the care the pa-
46a
Appendix D
tient did require could have been provided in a skilled
nursing facility.
The following is a summary of the information presented
in testimony by James E. D. Gardam, M.D. (Testimony
by Dr. Gardam begins on page 10 of the transcript).
The patient, a 55 year old male with a history of aleohol-
ism and chronic epilepsy, was admitted to the Monmouth
Medical Center Emergency Room with a broken hip on
April 7, 1975.
Surgery was performed on the hip eight days after ad-
mission due to the fact that the patient had symptoms
suggestive of the DT’s and a history of convulsions. The
admission and delay in surgery were justified.
Three days after the operation, the patient went to physio-
therapy and experienced problems in weight bearing.
There was a possible shift in the prosthesis and the pa-
tient was placed back on bed rest and limited physio-
therapy. It was the recommendation of the attending
physician that the patient be off his leg for at least an-
other four months.
The hospital records indicate that on April 29, 1975, so-
cial services was notified to prepare the patient for nurs-
ing home placement. <A further review of the records
indicate that the medical requirements of the patient after
May 8, 1975 did not require an acute hospital setting, fhat
such care could have been provided in a lesser care facil-
ity and, therefore, payment was denied for the period from
May 8, 1975 to May 28, 1975.
In response to a question from Mr. Ciesla, Dr. Gardam
stated that during the period of denial the patient required
care in a lesser care facility with services of physiotherapy
and skilled nursing observation. (p. 15)
a2 Dain
47a
Appendix D
The following is a summary of the information preserted
in testimony by James C. Kirby, M.D., Chairman, Utiliza-
tion Review Committee. (Testimony by Dr. Kirby be-
gins on page 16 of the transcript)
Dr. Kirby agreed with the description of the patient pro-
vided by Dr. Gardam. He also agreed that from May 8,
1975 to May 28, 1975, the patient required care which
could have been provided in a facility having a lesser in-
tensity of services. However, Monmouth Medical Center
was not able to place the patient in a skilled or Interme-
diate Care Facility until May 28, 1975.
In response to a question from Mr. Ciesla, Dr. Kirby
stated that the only place the patient could have been
discharged to was the street. It was Dr. Kirby’s opin-
ion that if a patient requires skilled nursing care, it would
be negligence on the part of the institution to discharge
a patient to a non-skilled environment. Dr. Kirby fur-
ther added that to discharge someone in Mr. Townserid’s
condition to a non-skilled environment would, in his opin-
ion, constitute negligence.
The following is a summary of the information presented
in testimony by Mrs. Floreine Cunningham, Coordinator
of Social Services on April 9, 1975.
Nursing Homes and Intermediate Care Facilities in Mon-
mouth and Ocean Counties were canvassed for available
beds. The first available bed was at an Intermediate Care
Facility on May 28, 1975. Monmouth Medical Center does
not contact nursing homes north of Monmouth County,
since there is a lack of beds in such counties and Mon-
mouth County nursing homes are already full of patients
from New York and northern New Jersey.
48a
Appendix D
In response to a question from the Hearing Officer, Mrs.
Cunningham stated that there are approximately twenty-
nine to thirty nursing homes which are canvassed daily.
Mr. Ciesla introduced a letter from Mr. Paul Seavuzzo,
Local Administrator, Monmouth Local Medical Assistance,
which indicated the Medicaid backlog in Monmouth and
Ocean Counties from October, 1975 through June, 1976.
Mr. Ciesla requested that administrative notice of the let-
ter be taken.
CONCLUSION AND RECOMMENDATION
Both sides agree that from May 8, 1975 to May 28, 1975,
the period for which payment was denied, the patient re-
quired care in a Skilled Nursing Facility and could not
be discharged to care for himself. The Hearing Officer
also finds that the Monmouth Medical Center attempted
to place the patient in a Skilled Nursing Facility and was
not able to place the patient until May 28, 1976, when the
patient was placed in an Intermediate Care Facility.
The issue to be determined is whether or not Monmouth
Medical Center should be denied payment for the care
rendered to Mr. Townsend for the period from May 8,
1975 to May 28, 1975.
The denial was based upon Sections 202 and 202.9 of the
Hospital Services Manual which are derived from Title
10 of the New Jersey Administrative Code and provide:
202. Non-Coversp Inpatient Hosprrau Services
Benefits are not payable for any services rendered or
items dispensed or furnished in connection with:
sale cE Teenie NP Cisse es Sas a Oe Ae AE nae
Bee nis BG 0 RICE a Sh a tne
De are PORE
¢
¢
‘
4
3
49a
Appendix D
202.9 Services Rendered After Day Medically Necessary
Inpatient hospital services rendered after the day it is
medically necessary, except when special circumstances
prevent the discharge or transfer of the patient.
Note: The Contractors may reimburse a hospital up to
12 calendar days following the period established as béing
medically necessary if special circumstances (social neces-
sity) prevent the discharge or transfer of the patient to
his/her home or sheltered boarding home and the hospital
has taken effective action to stimulate placement of the
patient.
Effective action is defined as telephone notification to the
County Welfare Board, Division of Youth & Family Serv-
ices District Office or other responsible officials within one
working day of the time that the stay has been determined
to be no longer medically necessary. This telephone con-
tact must be then confirmed in writing.
A copy of the written notification must be submitted with
all claims for which reimbursement is claimed for special
circumstances (social necessity).
Payment for Special Circumstances (Social Necessity) is
specifically procluded for:
a. Patients awaiting placement in a Skilled Nursing
Facility or Intermediate Care Facility.
b. Patients for whom a claim has been denied for lack
of medical necessity.
ce. Patients who were not eligible recipients as of the
date of admission.
50a
Appendix D
The Hearing Office finds that the facts in the present case
constitute special circumstances and recommends that Mon-
mouth Medical Center be paid for the period denied.
The special circumstances are:
1. The fact that after May 8, 1975 the patient required
care in a Skilled Nursing Facility, and could not be
released to care for himself.
The hospital made good faith efforts to locate a
Skilled Nursing Facility; however, there were no
openings in the Monmouth-Ocean County area.
bo
.
The patient was placed in an Intermediate Care
Facility on May 28, 1975.
The Hearing Officer finds that the “Norr” in Section 202.9
of the Hospital Service Manual is directed to the con-
tractor. Therefore, the provision precluding social neces-
sity payments for patients awaiting placement in a Skilled
Nursing Facility or Intermediate Care Facility does not
apply to the Hearing Officer.
Mapeuine B. Paprikas, HSP #1320-536005-01
From testimony presented by both parties, Madeline Papi-
kas was hospitalized from April 9, 1974 to December 5,
1975. Prudential denied payment for a period of 99 days.
Mr. Raines’ letter of August 13, 1975 to Gerald J. Reilly,
Director, indicates that the dates of service are from June
1, 1974 to December 10, 1974 with Prudential denying the
period from September 1, 1974 to December 10, 1974, a
period of 99 days.
The denial was based upon Section 202.9 of the Hospital
Services Manual, since it was determined by Prudential
dla
Appendix D
that the patient did not medically require acute hospital
-eare for the period denied; that the care the patient did
A la Sa hse eet) Sie ee
FO ge a ee ee eee
ante
i
require could have been provided in a lesser care facility.
Dr. Gardam presented testimony beginning on page 33
of the transcript, which described the patient as a 47 year
old female, admitted with cirrhosis of the liver and whose
initial course in the hospital was chronic liver and kidney
failure. The patient improved to a point where she could
have been transferred to a Skilled Nursing Facility or
Intermediate Care Facility; however, she could not be
discharged to a non-skilled environment. In response to
a question from Mr. Ciesla, Dr. Gardam stated that the
patient required care in a Skilled Nursing Facility or
Intermediate Care Facility for a certain period.
Dr. Kirby referred to his testimony given concerning the
Townsend claim, that to discharge a person in Mrs. Papi-
kas’ condition to a non-skilled environment would con-
stitute negligence on the part of the hospital.
Mrs. Cunningham testified, beginning on page 39 of the
transcript, to the difficulties Monmouth Medical Center en-
countered with the Social Security Administration, the
Local Welfare Director, and the Monmouth County Wel-
fare Board, in obtaining a Medicaid number for the pa-
tient. When Mrs. Papikas was approved for SSI bene-
fits, the local Social Security office would not release her
checks, since she had no home address. (This point was
clarified in Dr. Kirby’s July 10, 1975 letter to Dr. Brewer,
A-6). Mrs. Papikas had no home address because she was
in the Monmouth Medical Center and the apartment she
rented prior to hospitalization was rented out to another
tenant by her landlord. After appealing to the New York
Regional Social Security Office, the funds were released to
Mrs. Papikas who was then discharged to an apartment
social services had found for her.
52a
Appendix D
CoNCLUSION AND RECOMMENDATION
The denial was based upon Sections 202 and 202.9 of the
Hospital Services Manual as previously set forth.
Based upon testimony from Dr. Gardam and Dr. Kirby,
the Hearing Officer finds that the patient required skilled
nursing care for part of the period of denial. It was
never brought out at the hearing which portion of the
denial period the patient required skilled nursing care,
and for which portion of the period she could not be dis-
charged, because Social Security would not release her
checks.
The Hearing Officer finds that the Monmouth Medical Cen-
ter attempted to obtain assistance for this patient through
the Local Welfare Director, Local Welfare Board, and
Social Security Administration for the purpose of placing
the patient in a nursing facility, and then for the pur-
pose of discharging the patient to an apartment. The
Monmouth Medical Center could not place the patient in
a nursing home or discharge her to an apartment due to
the actions of these three governmental agencies. The
patient could not be discharged to an apartment found for
her, because the Social Security Office would not release
Mrs. Papikas’ checks without a home address. Once the
Social Security checks were released, the patient was
immediately placed in an apartment.
The Hearing Officer finds that the facts in the present case
ecnstitute special circumstances and recommends that
Monmouth Medical Center be paid for the period denied.
So at
53a
Appendix D
JAMES Rempkowsk!, HSP #1520-900116-01
James Rempkowski was hospitalized from November 23,
1975 to March 9, 1976. Prudential denied payment for
the period from January 13, 1976 to March 9, 1976. The
denial was based upon Section 202.9 of the Hospital Serv-
ices Manual, since it was determined by Prudential that
inpatient hospital care was not medically required.
The following information was presented in testimony by
Dr. Gardam beginning on page 48 of the transcript:
The patient apparently had been drinking, had vomited
and had breathed in some of the material producing a
cardiac arrest. He was resuscitated, but suffered brain
and kidney damage. The patient remained in the hospital
for 107 days. Intensive medical care was requirea for
the period from November 23, 1975 to January 13, 1976.
Prudential carefully reviewed the claim to allow for every
possible payment, since the patient required kidney dialy-
sis.
The Utilization Review Committee in response to corre-
spondence from Prudential agreed that the patient became
a disposition problem on or about January 13th; that
there was a decrease in the medical necessity for acute
bed care at that time.
The institution experienced problems with the patient’s
eligibility. Prudential was not able to determine when
the patient’s problem was referred to Social Services. At
the time of the patient’s admission, there was clear-cut
evidence of no insurance. Dr. Gardam felt that efforts
should have been made to initiate coverage on the date
of admission or the next working day. The Social Serv-
d4a
Appendix D
ice notes indicate the patient was referred on December
2nd or 4th. Application for Supplemental Security In-
come was made on December 12th.
It was Dr. Gardam’s position that Monmouth Medical
Center should have made attempts to determine eligibility
at the time of admission.
Dr. Gardam agreed that the patient required care in a
skilled nursing home facility from January 13th on.
Mr. Ciesla then referred to the testimony of Dr. Kirby
that Monmouth Medical Center would be negligent to dis-
charge a patient requiring skilled nursing care to a non-
skilled environment.
The following information was presented in testimony by
Mrs. Cunningham beginning on page 52 of the transcript:
Mr. Rempkowski was admitted on 11/23/75 to the Inten-
sive Care Unit. On 12/2/75 he was referred to Social
Services. On 12/4/75 a representative from Social Se-
curity took an SSI application. The patient was referred
to the Rehabilitation Commission on 12/30/75 to see if
they would cover part of the stay. This request was
turned down. On 1/21/76 the Social Security Office was
called to expedite the case. The Local Welfare Director
was contacted. On 1/27/76 attempts were made to con-
tact the patient’s sister and on 1/29/76 the Monmouth
County Welfare Board verified that the patient had lived
in Keansburg. On 2/17/76 the Social Security Office in-
formed Social Services that the case was referred to Mon-
mouth County Welfare Board for a Medicaid number ;
that the application was approved, but there was no num-
ber. On the same date the Medicaid office was called and
they said a number would be assigned as soon as possible.
A et Et Ae an TR ne 8 a!
50a
Appendiz D
On February 19th, the hospital received the number and
the patient was discharged to Bayview Convalescent Cen-
ter on March 9, 1976. As previously stated, a Medicaid
recipient cannot be placed in a nursing home without a
Medicaid number.
ConcLUSION AND RECOMMENDATION
The denial was based upon Sections 202 and 202.9 of the
Hospital Services Manual as previously set forth.
Based upon testimony by Dr. Gardam and a review of
the medical documents submitted, the Hearing Officer finds
that the patient required skilled nursing care for the
period denied. The Hearing Officer also finds that upon
admission to the hospital, the patient was placed in the
Intensive Care Unit and unable to communicate. He was
referred to Social Services on December 2, 1975.
The Hearing Officer finds that during the period from
December 2, 1975 until the patient’s discharge to Bayview
Convalescent Center on March 9, 1976, the appellant made
many attempts through the appropriate governmental
agencies, as set forth in the record, to have the patient
approved for Medicaid. The delay in approval was not
the fault of the appellant. Once the patient was approved
for Medicaid, he was placed in the Bayview Convalescent
Center.
The Hearing Officer finds that the facts in the present
ease constitute special circumstances and recommends that
Monmouth Medical Center be paid for the period denied.
a
aii i. oleae
56a
Appendix D
Wuson Lopez, HSP #1660-008115-24
Wilson Lopez was hospitalized from July 23, 1975 to July
29, 1975. Prudential denied payment for a period of five
days. The denial was based upon Section 201.15 of the
Hospital Services Manual, services in connection with a
dental condition; that such services could have been per-
formed on an outpatient basis, since there was no medical
necessity for inpatient hospital care.
Dr. Gardam had some critical comments concerning the
records kept on this patient. Testimony begins on page
54 of the transcript.
The patient was a 16 year old Puerto Rican male. The
preoperative diagnosis was “Rampent Dental Caries in an
emotionally disturbed”.
The records are specifie concerning the number of fillings,
since this is the basis for reimbursement. However, the
records are vague in describing which specifie teeth were
involved and how each tooth was treated. There is no
mention of the degree of emotional disturbance.
The records do not indicate medical necessity for the ad-
mission. The patient is described as a young, disagree-
able male admitted for elective denial surgery; however,
this is not medical justification for admission to the hos-
pital.
Dr. Gardam testified that there is no evidence of medical
necessity for admission. A physical examination of the
patient indicated he was well developed, well nourished
and attending school.
Dr. Gardam was informed that prior authorization was
granted, and although prior authorization is an adminis-
!
—_ ee een
IR AAA ne
57a
Appendix D
trative procedure that states there is medical necessity for
an admission, the carrier still reviews such admission to
determine medical necessity. In the present case the rec-
ords do not indicate any consultation or approval by the
local Medicaid office.
The records in this case do not indicate a need for the
patient to be admitted and have the dental work performed
under a general anesthesia.
Mr. Ciesla introduced into evidence the following forms:
Consent for Admission to the hospital; Consent to opera-
tion and medical services; and a release from responsi-
bility for personal property (A-3).
The following information was presented in testimony by
Dr. Kirby, beginning on page 64 of the transcript:
The Utilization Review Committee reviewed the patient’s
record and diseussed it with the physician and dentist
involved. Although the degree of emotional instability was
not documented, having the patient’s dental work per-
formed in the hospital under general anesthesia seemed a
justifiable thing.
It is a common practice that emotionally disturbed chil-
dren and adults be worked on under general anesthesia.
Dr. Kirby agreed with Dr. Gardam that there was no defi-
nite statement concerning the degree of the patient’s emo-
tional illness.
In response to a question from Mr. Ciesla, Dr. Gardam
stated that it is acceptable medical practice to use a gen-
eral anesthesia in the case of an emotionally disturbed
person.
58a’
Appendix D
ConcLusIon AND RECOMMENDATION
The Hearing Officer finds that the patient was admitted to
Monmouth Medical Center for treatment of rampent den-
tal caries. During his stay at the hospital, extensive den-
tal work was performed on his teeth as set forth in the
hospital records and described by Dr. Gardam on pages
06 and 57 of the transcript. Although the patient is de-
scribed as emotionally disturbed, there is no indication or
explanation of the degree of emotional disturbance other
than he was a young, disagreeable male. Other evidence
indicated the patient was in good physical condition.
Mr. Raine’s letter of April 12, 1976 to Mr. Reilly (E-1)
states that arrangements for the admission of the patient
to Monmouth Medical Center was made by the Division of
Youth and Family Services and the “Division of Medi-
caid.” However, there is no evidence in the transcript or
records submitted to show the involvement of the Division
of Medical Assistance and Health Services.
Other than the consent forms, which according to Mr.
Ciesla were signed by a social worker from the Division
of Youth and Family Services, the appellant produced no
evidence to indicate the degree of involvement by the
Division of Youth and Family Services in having the
patient admitted.
The appellant did not introduce any evidence to prove
there was prior authorization for the dental services pro-
vided to the patient.
The Hearing Officer finds that Wilson Lopez did not medi-
cally require inpatient hospital care for the period denied
and that such patient was not admitted pursuant to Sec-
tion 201.15 of the Hospital Services Manual. The Hearing
<i As eS ae oe ee 48
59a
Appendix D
Officer recommends that the decision of Prudential to deny
payment be upheld.
October 28, 1976
Gregory Danese, Hearing Officer
Division of Medical Assistance and
Health Services New Jersey
Department of Institutions and
Agencies
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.