# Petition for Writ of Certiorari — Casey v. West Virginia University Hospitals, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0884%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1990 - **Citation:** 496 U.S. 936 ## Text 2 (999 * IN THE SUPREME COURT OF THE j UNITED STATES a October Term, 1989 ROBERT CASEY, Governor of Pennsylvania, et al., Petitioners ae WEST VIRGINIA UNIVERSITY HOSPITALS, INC., Respondent PETITION FOR CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT ERNEST D. PREATE, JR. Attorney General] BY: JOHN G. KNORR, III Chief Deputy Attorney General Counsel of Record JEROME T. FOERSTER Deputy Attorney General Office of Attorney General 15th Fl., Strawberry Square Harrisburg, PA 17120 (717) 783-1471 QUESTION PRESENTED Whether a Medicaid provider has a private federal cause of action under 42 U.S.C. § 1983 to enforce the Medicaid Act against a State? emma LIST OF PARTIES The petitioners are Robert Casey, the Governor of Pennsylvania; John White, the Secretary of the Pennsyl- vania Department of Public Welfare; and David S. Feinberg, the Director of the Office of Medical Assistance within that Department. The respondent is West Virginia University Hospitals, Inc., a non-profit West Virginia corporation. QUESTION PRESENTED............2.4-. DEG OF PARTIES... 2. cess cccccvces TABLE OF AUTHORITIES............. OPINIONS BELOW... . cc ccccccccsvces STATEMENT OF JURISDICTION........ STATUTORY PROVISIONS te): er STATEMENT OF THE CASE............ REASONS FOR GRANTING py) a} & ee THIS CASE PRESENTS AN _ IMPORTANT QUESTION OF FEDERAL LAW IDENTICAL TO THAT WHICH THE COURT HAS AGREED TO REVIEW IN BALILES V, VIRGINIA HOSPITAL ASSOCIATION CONCLUSION... cc cvccccccccvcsccces - ili - CASES PAGE(s) Baliles v. Virginia Hospital Association, No. 88-2043 (cert. granted, October 22, EES Aw CA Oe hk 6 eau bbe code 15, 16 Harris v. McRae, 448 U.S. 297 CRMs ered re eb aRnce dawe ear 5 Middlesex County Sewage O.B. 2B TRPORe seek ensstusasess 17 Missiasinoi B ita) Ansociati vy. Heckler, 701 F.2d 511 (5th 4, ee} oe eee eee 16 UNITED STATES CONSTITUTION Eleventh Amendment............. 1l Fourteenth Amendment........... 10 STATUTES SB U.6.6. B BORds sv vcvcascsunen ha, &6 26 URE. BD RReae 00 0s sku cuecke 2 42 U.8.€. © O0OGs ccsccscsscsases as Be 6 42 0.8.6. 3 BRRORIE soci onccien a, 6, 10 - iV « STATUTES PAGE(S) 42 U.S.C. § 1396a(a)(13)(A).... 6, 16 42 U.S.C. § 1396a(a)(37)....... 6, i0 ey 2 ee i: Pere ee 3, 5, ll, 15 REGULATIONS G2 C.F .R. BH OE7. ZSSCES) « 2 cca vce. 10, 17 OPINIONS BELOW The opinion of the Court of Appeals is reported at 885 F.2d 11 and is reprinted in the appendix at p. le. The opinion of the District Court on the merits is reported at 701 F.Supp. 496 and is reprinted in the Appendix at p. 120a. The opinion of the District Court on costs is not reported, but is reprinted in the Appendix at p. 277a. STATEMENT OF JURISDICTION The judgment of the Court of Appeals was filed on September 5, 1989, Pet. App. 287a, and the respondent timely petitioned for rehearing. The Court of Appeals denied rehearing on October 5, 1989, Pet. App. 290a, and this petition is being filed within 90 Gays thereafter. The Court has jurisdiction pursuant to 28 B.8.€. § 1254(1). STATUTORY PROVISIONS INVOLVED Rs 42 U.S.C. § 1983 provides in relevant part: Every person who, under color of any statute, ordi- nance, regulation, custom, or usage, of any State... subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress. 2. Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seg., known as the Medicaid Act, provides in relevant part, et 42 ¥0.8.€. § 1396a(a), as follows: A State plan for medical assistance must--... (13) provide-- (A) for payment ... of the hospital “os services provided under the plan through the use of rates (determined in accordance with methods and_ standards developed by the State and which, in the case of hospitals, take into account the situation of hospitals which serve a disproportionate number of low income patients with special needs...) which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and econom- ically operated facilities ‘ and to assure that indi- viduals eligible for medical assistance have reasonable access eee to impatient hospital services. tien STATEMENT OF THE CASE Ei This action challenges Pennsylvania's administration of the Medical Assistance or “Medicaid” program authorized by Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. The respondent, a hospital, attacks the adequacy of the payment rates Pennsyl- vania has established for its services, and attacks other aspects of the program as well. The courts below held that the respondent could maintain this action under 42 U.S.C. § 1983, and the petitioners ask the Court to review that holding. a. Medicaid is an exercise in "cooperative federalism,” Harris v. McRae, 448 U.S. 297, 308 (1980), in which the state and federal governments work together to provide, "as far as praticable under the conditions in each state,” medical assistance to poor people. 42 U.S.C. § 1396. To receive the federal financial assistance made available by the act, a state must submit to the Secretary of Health and Human Services, and have approved by him, a “state plan,” ibid, the contents of which are prescribed by 42 U.S.C. § 1396a(a). Regarding hospital services, the act requires that the state plan "“must...provide...for payment...through the use of rates...which the state finds, and make assurance satisfactory to the Secretary, are reasonabie and adequate to meet the costs which must be incurred by efficiently and economically operated facilities.” 42 U.S.C. § 1396a (a)(13)(A). These payment rates must also take into account the situation of hospitals serving disproportionate numbers of poor patients. Ibid. b. Pennsylvania pays for Medicaid hospital services by using “prospective” payment rates, that is, rates that are set in advance. Pet. App. 145a. For in-state hospitals, these rates are set by assigning hospitals to one of seven groups, using 4 number of variables designed to measure each hospital's teaching status, Medicaid volume, environmental characteristics and costs. Pet. App. 146a-147a. For each group, a group payment rate is then calculated, based upon the average costs of the hospitals within that group. Pet. App. 148a-152a. Both of these steps--the assignment of hospitals to groups’ and the calculation of group payment rates--are vastly more complex than can ofa be described here. The information needed to perform them comes from the cost reports submitted by the in-state hospitals, which in turn contains the data on 750,000 Medicaid cases over a two-year period. C.A. App. 494a.? For out-of-state hospitals, Pennsylvania has no such cost reports. C.A. App. 488a. Moreover, the services provided to Pennsylvania Medicaid recipients by out-of-state hospitals are miniscule from the point of view of both Pennsylvania and the hospitals. Most out-of-state hospitals treat fewer than ten Pennsylvania Medicaid patients in the course of a year. Pet. App. 180a. The respondent is by far the largest l-c.A. App.” refers to the Appendix filed in this case in the Court of Appeals. out-of-state provider, Pet. App. 17Sa- 180a, but even so, Pennsylvania Medicaid patients account for only 5% of respon- dent's inpatient admissions. Pet. App. 135a. Pennsylvania therefore decided that, instead of attempting to ‘assign each out-of-state hospital to one of the seven payment groups, it would pay all out-of-state hospitals the average payment rate for in-state hospitals. Pet. App. 164a. | In addition to these payment rates, which cover operating costs, Pennsylvania distinguishes between in-state and out-of-state hospitals in paying for capital costs, which are calculated differently for in-state and out-of-state hospitals, Pet. App. 17la- 174a; and in making “direct medical education” payments to teaching hospi- tals, which are available to in-state Le but not out-of-state hospitals. Pet. App. 175a-178a. The cumulative <— effective of these policies on the respondent is that Pennsylvania reimburses it for 54% of its costs, as opposed to 95% for the average in-state hospital. Pet. App. 182a. The respondent claimed that these policies violated the governing 6 ee 2 eet anda BP Lee statute, see 42 U.S.C. § 1396a(a) (13)(A), and the Fourteenth Amendment's equal protection clause. It claimed also that Pennsylvania's administrative appeal system did not permit it adequately to challenge these policies, in violation of the governing statute and regulations. See 42 o.§.¢. § 1396a(a)(37); 42 C.F.R. § 447.253(c). 2. The District Court held that this action, insofar as it presented claims arising under the Social Security Act and its regulations, ay was authorized by 42 U.S.C. § 1983. Pet. App. 194a-197a. On the merits, the District Court held that Pennsylvania's reimbursement scheme for out-of-state hospitals violated both the governing Statutory provisions, Pet. App. 197a- 230a, and the equal protection clause, Pet. App. 231a-242a; and that the state's administrative appeal system violated the federal statute and regulations. Pet. App. 242a-255a. Finally, the District Court held that the respondent's relief would run, not from the date of judgment, but from the Gate the action had been commenced, and rejected the petitioners' Eleventh Amendment arguments’ to the contrary. 2There was no question that’ the respondent's constitutional claim was authorized by Section 1983. Pet. App. 196a-197a. = ah: A sh mma ON ae. AE OF Ng eA NON A Fe Aa a Pet. App. 255a-27a. The District Court issued a declaratory and injunctive order accordingly. Pet. App. 273a-276a. Subsequently, the District Court held that the respondents’ were entitled to recover expert witness expenses as part of their costs, without regard to the $30 per day limit estab- lished by 28 U.S.C. § 1921. Pet. App. 277a-286a. The Court of Appeals affirmed in part and reversed in part. The Court of Appeals affirmed the District Court's holding that Section 1983 authorized the respondent to pursue its statutory claims, Pet. App. 24a-24, and affirmed likewise the holding that Pennsylvania's reimbursement scheme for out-of-state hospitals violates the federal statute. Pet. App. 48a-90a. The Court of Appeals expressed “serious reservations” about the District Court's slide holding that this scheme likewise violates the equal protection clause, but found it unnecessary to reach this issue. Pet. app. 90a, n. As to Pennsylvania's administra- tive appeals system, the Court of Appeals reversed the District Court and held that it did comply with federal law. Pet App. 9la-98a. In light of this disposition, and its issuance of relief only from the day of judgment, the Court of Appeals did not need to consider the Eleventh Amendment issue raised by the District Court's issuance of _ relief retroactive to the day the complaint was filed. Pet. App. 98a, n. Finally, the Court of Appeals reversed the District Court on the issue of expert witness fees, and held that the $30 per day limit of 28 U.S.C. § 1921 applied. Pet. App. 99a-llé6a. oiSia The Court of Appeals denied the respondent's petition for rehearing. Pet. App. 290a-291a. aiie REASONS FOR GRANTING THE WRIT THIS CASE PRESENTS AN IMPORTANT QUESTION OF FEDERAL LAW IDENTICAL TO THAT WHICH THE COURT HAS AGREED TO REVIEW IN BALILES V, VIRGINIA HOSPITAL ASSOCIATION, This case presents the same question which the Court will be considering in Baliles Vv. Virginia Hospital Association, No. 88-2043 (cert. granted, October 22, 1989): whether a Medicaid provider may enforce the statute against a State by a private action under 42 U.S.C. § 1983. There is therefore no need to belabor the importance of this question, and we discuss it only summarily.> As Virginia pointed out in its petition for certiorari in Baliles, the 3The Court may wish to defer action on this petition until Baliles is decided. == decision of the Fourth Circuit in Baliles, and of the Third Circuit in this case, effectively converts’~ the Medicaid program into an_ entitlement program, not for poor people, but for hospitals and other health care providers. These decisions also subvert Congress’ desire, as expressed in the so-called “Boren Amendment" to the Medicaid statute, 4 to free the states from excessive and stifling federal oversight of their reimbursement schemes. E.g., Mississippi Hospital Association v. Heckler, 701 F.2d 511, 523° €Stm. Cie. 2963). Congress in the Boren Amendment intended to reduce federal oversight in this area, but’ the 4the “Boren Amendment" was Section 2173(a) of the Omnibus’ Budget recon- Ciliation Act of 1981, 95 Stat. 808, now codified at 42 U.S.C. § 1396a(a)(13)(A) and reproduced in relevant part at p. 3- 4, infra. wife effect of the decision below is simply to shift this oversight from the federal bureaucracy to the federal courts. Furthermore, the federal Medicaid regulations expressly require the States to maintain their own appeals systems for providers. 42 C.F.R. § 447. 2539(c). The Court of Appeals, by tacking on to these systems a private right of action under section 1983, has made it possible for hospitals, or their associations, to launch multiple attacks in multiple fora on State reimbursement schemes. It is unlikely that this is what Congress had in mind when it designed the Medicaid program. - Middlesex County Sewage Authority v. National Sea cClammers Association, 453 U.S. 13 (1981). wie CONCLUSION For the foregoing reasons, the Court should grant the petition for the writ of certiorari and, upon review, the decision of the Court of Appeals should be vacated or reversed. Respectfully submitted, ERNEST D. PREATE, JR. Attorney General BY: JOHN G. KNORR, lII Chief Deputy Attorney General Chief, Litigation Section JEROME T. FOERSTER Deputy Attorney General Office of Attorney General 15th Fl., Strawberry Square Harrisburg, PA 17120 (717))783-1471 -]8- Page Opinion of the Court ee ee la Opinion of the District ee, I so 5 sg cab i6.@ 0.0 0 8's 8000 120a Order of the District oe A 2 Sy rr ee 273a Opinion of the District a Lk EE eae 277a Order of the District ee EA ao ee eee 285a Judgment of the Court ee Rs oc os 0 60 0 66 0 0 0-0 0's 0 0 8s 287a Order of the Court of ABSOSGLS CEGROSC LNG) ccc ccc eee eese 290a Filed: September 5, 1989 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT NO. 89-5165 WEST VIRGINIA UNIVERSITY HOSPITALS, INC. Vv. ROBERT CASEY, Governor, Commonwealth of Pennsylvania; JOHN WHITE, Secretary, Department of Public Welfare; DAVID S. FEINBERG, Director, Office of Medical Assistance; THE DEPARTMENT OF PUBLIC WELFARE, Appellants Appeal from the United States District Court for the Middle District of Pennsylvania D.C. Docket No. Civil 86-0955 Argued May 22, 1989 BECKER, STAPLETON, and ROSENN, Circuit Judges Opinion Filed September 5, 1989 Before: -la- ERNEST D. PREATE, JR., Attorney General JEROME T. FOERSTER, Deputy Attorney General (Argued) CALVIN R. KOONS, Senior Deputy Attorney General JOHN G. KNORR, III, Chief Deputy Attorney Genera] Chief, Litigation Section Office of Attorney General Litigation Section 15th Floor, Strawberry Square Harrisburg, PA 17120 Attorneys for Appellants ROBERT T. ADAMS, ESQ. (Argued) JULIA KREBS-MARKRICH, ESQ. THOMAS J. STALLINGS, ESQ. McGuire, Woods, Battle & Boothe One James Center Richmond, VA 23219 JACK M. STOVER, ESQ. Shearer, Mette, Evans & Woodside 1801 North Front Street P. 0. Box 729 Harrisburg, PA 17108-0729 Attorneys for Appellees -2a- OPINION OF THE COURT ROSENN, J., Circuit Judge. This interesting and complex appeal arises from the cross-fire currently trapping many hospitals across our nation between rising operating costs, on the one hand, and federal legislation aimed at the sharp containment of health delivery costs, on the other. The plaintiff, West Virginia University Hospitals, Inc. (WVUH or the Hospital), brought this action against certain Pennsylvania state officials under the Civil Rights Act, 42 U.S.C. § 1983, alleging that the Pennsylvania program for providing medicaid reimburse- ment to an out-of-state hospital such as WVUH violated federal medicaid standards encompassed by Title XIX of the federal -3a- Social Security Act and violated the equal protection clause of the fourteenth amendment to the United States Constitution. WVUH also claimed that Pennsylvania's administrative appeals system was legally inadequate. The Hospital sought injunctive and declaratory relief invalidating the out-of-state aspects of the State's hospital reimbursement program. After a bench trial before the United States District Court for the Middle District of Pennsylvania, the district court, in a thoughtful = and painstaking opinion published at 701 F.Supp. 496 (M.D.Pa. 1988), granted WVUH's request for relief on all counts. District Judge Rambo concluded that Pennsylvania's reimbursement program as applied to WVUH violated both -4a- federal statutory law and the _ equal protection clause of the Constitution, and held that the state's administrative appeal system was legally inadequate. She ordered Pennsylvania to revise its reimbursement methodology for WVUH and to formulate an adequate and = mean- ingful medicaid administrative appeals system for the Hospital. Additionally, the court held that the State must permit WVUH to avail itself of the new appeals system to challenge its reimbursements from the date the Hospital commenced this action, rather than from the date of judgment. Finally, in an unpublished memorandum and order also issued the day of judgment, the district court awarded attorneys fees to the plaintiff pursuant -5Sa- to 42 U.S.C. § 1988 in the amount of $500,000, of which $104,133 was attributable to expert witness fees and costs. Pennsylvania appeals, chal- lenging the decision on the merits, the scope of relief, and the award of expert witness’ fees. We affirm in part and reverse in part. -6a- I. FACTS A. The parties The plaintiff WVUH is a university-affiliated teaching hospital located six miles south of the border between West Virginia and Pennsylvania. As a ‘tertiary care” hospital, WVUH provides a complex level of hospital and medical services not generally found in community hospitals. WVUH is the closest source of tertiary care for many residents in the Pennsylvania counties of Fayette and Greene, and _ provides service as well to residents of the Pennsylvania county of Washington. Historically, the Hospital has provided Significant numbers of Pennsylvania medicaid patients with hospital care. -J7a- For the years 1984 to 1987, WVUH gave inpatient hospital care to more Pennsyl- vania medicaid patients than did over one-half of the hospitals located in Pennsylvania. Five percent of ail WVUH inpatient admissions are attributable to Pennsylvania medicaid recipients, while overall medicaid patients at WVUH constitute twenty-three percent of all admissions. WVUH is by far the largest out-of-state provider of medical services to Pennsylvania medicaid recipients. The defendants in this action are Pennsylvania Governor Robert Casey, John F. White, the Secretary of Pennsylvania's Department of Public Welfare (DPW), and David Feinberg, the DPW official responsible for developing the Pennsylvania hospital reimbursement program at issue in this case. Although technically incorrect, for simplicity's sake this opinion may occasionally use the words “Pennsylvania” or “the State" when referring to the defendants. B. The federal medicaid act. In 1965 Congress enacted Title XIX of the Social Security Act (known as Medicaid or The Medicaid Act) to provide medical assistance to needy persons. 42 U.S.C. § 1396 et seg. The purpose of the act was to provide a nationwide program of medical assistance for low income families and individuals. Medicaid became the primary source of health care coverage for the poor in America. The program is jointly financed with federal and state funds "and is basically administered by each state within certain broad requirements -9a- and guidelines.” House Subcomm. on Health and the Environment, Data on the Medicaid Program: Eligibility, Services, Expenditures Fiscal Years 1967-77, H.R. Rep. No. 10, 95th Cong., ist Sess. 1. The federal unit currently responsible for overseeing the medicaid program is the Health Care Financing Administration (HCFA). Federal law requires that one state agency must be designated as the Single state agency responsible for the administration of the program. The state determines the scope of the services offered and generally determines the eligibility level for the programs. Id. at 1-2. Thus, the Act implemented a federal-state joint venture in which participating states receive federal medicaid funds in return for administer- -10a- ing a medicaid program developed by the state within the parameters established by federal law and regulations. Before 1980, Title XIX required states to pay hospitals the “reasonable cost" of rendering inpatient hospital services to medicaid recipients. This requirement translated into ae retro- spective form of reimbursement based on the actual costs incurred by the hospitals in providing medicaid services. In 1981, however, Congress, hoping to contain escalating medicaid costs, enacted as part of the 1981 Omnibus Budget Reconciliation Act (OBRA), P.L. 97-35, a new standard of hospital reimbursement. The OBRA replaced the “reasonable cost” standard with’ the current standard of “reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities.” 42 U.&.C.A. § 1396(a)(13)(A) (West Supp. 1989). The 1981 OBRA_- also reduced federal oversight of states' reim- bursement methodologies. Pursuant to Section 1396a(a)(13)(A), the HCFA will approve a state reimbursement plan based on the state's satisfactory “assurances” that the plan is in compliance with federal requirements. These require- ments are reflected both in the statute itself and in its implementing regula- tions published by the HCFA in interim form in 1981 and in final form in 1983. 42 C.F.R. §§ 447.250-447.280. C. The Pennsylvania Medicaid program: operating cost, direct medical education cost, and capital cost reimbursement. In Pennsylvania, DPW is_- the state agency responsible for admin- istering medicaid. The medicaid program developed by DPW for the state is called the “Medicaid Assistance Program” or "MAP." Consistent with the 1981 federal policy change with respect to hospital reimbursement, Pennsylvania developed a “prospective payment system” (PPS) for reimbursement of hospitals to contain escalating costs associated with medicaid services. This system, effec- tive beginning fiscal year 1984-1985, replaced the retrospective method of reimbursement with a prospective method. Under this system, each hospital admis- sion is classified according to the patient’s illness diagnosis into 1 of 447 categories known as Diagnostic Related Groups (DRGs). 53 Fed. Reg. 38, 576-89 (1988). A hospital is reimbursed in accordance with the flat fee fixed for the applicable category-- regardless of the number of services used or the patient's length of = stay. The DRG system, being prospective in nature, will sometimes undercompensate for a given service and will sometimes overcompensate. The expectation, however, is that in the aggregate an efficiently operated hospital will receive an appropriate amount to reimburse it for medicaid services. Unquestionably, Pennsylvania's PPS treats in-state hospitals differently than out-of-state hospitals. Rate calcu- lation for in-state hospitals depends on the type of hospital seeking reimburse- ment and the average cost for that type of hospital. Under the PPS, all partici- pating in-state hospitals, approximately 233 in number, are assigned to one of an DM fi seven groups. Grouping for in-state hospitals takes into account four concepts: teaching’ status, medicaid volume, environmental characteristics, and hospital costs. These four concepts are measured by a total of thirteen variables, including such things as the number of resident and intern programs, total number of patients, area wage index, and so on. The actual grouping of in-state hospitals is accomplished by a computer program. After classifying the in-state hospitals, Pennsylvania then determines a group average cost per case, which is based on actual allowable costs’ and adjusted for inflation and budget neutrality. The hospitals in Group 1 have the highest group rate, and those in Group 7 have the lowest. To determine the amount. of reimbursement to in-state hospitals under the PPS, Pennsylvania multiplies the relative value of the DRG by the hospital’s group average cost per case. The higher the group rate, the higher the payment for a given DRG. Thus, Pennsylvania pays a Group 1 hospital more to treat a given DRG than it pays to Group 2, 3, 4, 5, 6 or 7 hospital to treat that DRG. Out-of-state hospitals, on the other hand, receive quite different treatment under the PPS. Unlike in-state hospitals, out-of-state hospitals are not grouped according to the concepts of hospital costs, teaching status, medicaid volume, and environment. Instead they are treated on the basis of one factor only: their geographical location outside Pennsylvania. Moreover, -l6a- aS ee ae the group rate assigned to out-of-state hospitals is not based on the average allowable costs of that group based on historical data, but rather on the average of payments made to in-state hospital providers. To reimburse inpatient operating costs of out-of- state hospitals, Pennsylvania multiplies the relative value of the DRG assigned to the patient's illness by the Pennsyl- vania statewide average cost per case or pays the hospitals actual charges for treating that illness, whichever is lower. Aside from operating cost reimbursement under the PPS, the MAP provides in-state hospitals additional hospital reimbursement on the basis of two other considerations: direct medical ee a education costs (DME) and capital costs. Again, out-of-state hospitals are treated Gifferently with respect to these two bases of medicaid reimbursement. In-state hospitals receive an amount, in addition to their operating cost reimbursements, to reimburse them for the direct medical education (DME) costs (if any) associated with their medicaid service. For the years 1984 to 1986, Pennsylvania reimbursed in-state hospitals for the MAP share of their DME costs on an actual basis subject to certain limitations. Beginning fiscal year 1986-1987, Pennsylvania limits reimbursement to in-state hospitals for DME costs to 1.9 percent over the amount paid the hospital for DME costs’ the previous year, or the hospital's allow- able DME costs, whichever is lower. -18a- In contrast, Pennsylvania decided as a matter of policy not to pay out-of-state hospitals for DME costs associated with medicaid. Thus, teaching hospitals such as WVUH receive no DME cost reimbursement from Pennsylvania when they treat Pennsylvania medicaid patients. Finally, in addition to reimbursement of inpatient operating costs under the PPS and in addition to payments for DME costs, Pennsylvania reimburses in-state hospitals for their allowable capital costs. For the period July 1, 1984, through June 30, 1986, reimbursement of in-state hospitals’ capital costs was based on actual capital costs’ incurred. After that date, Pennsylvania initiated a prospec- tive payment system for reimbursement of in-state hospitals’ capital costs, to be -19a- phased in between July 1, 1986, and June 30, 1992. During that period, Pennsyl- vania would pay in-state hospitals for their actual capital costs on a decreas- ing percentage basis. After July 1992, the state will reimburse in-state hospitals at the same flat for their capital costs. Out-of-state hospitals are reimbursed for their capital costs the same manner. The Pennsyly medicaid prospective payment system never reimbursed out-of-state hospi using actual allowable costs of capi l, all rate not in ania has tals tal. Pennsylvania pays out-of-state hospitals an “add-on” for capital reimbursement that represents the average cap ital costs” of all Pennsylvania hospitals. That “add-on” bears no relationship to the actual capital costs of out-of-s tate hospitals. Moreover, although the MAP gave in-state hospitals approximately ten years to adjust to ae flat rate payment for capital costs, out-of-state hospitals were allowed no phase-in period to adjust to 4 prospective payment system for such costs. D. The MAP appeals system. Pursuant to federal regulation, the state medicaid agency must provide hospitals with a system by which to appeal. In Pennsylvania the administra- tive agency division that adjudicates the appeals is the DPW's Office of Hearings and Appeals’ (OHA). The OHA hearing officer recommends a decision to the Director of OHA, who either adopts or rejects the recommendation. Both parties have the right to request recon- sideration from the Secretary of DPw. Outside of the administrative appeals process, review of the decision of the Director of OHA or the Secretary of DPW may be sought through the - judicial system of the Commonwealth of Pennsylvania. II. THE DISTRICT COURT'S DECISION WVUH initiated this action on July 16, 1986. After a six-day bench trial in May 1988, the district court concluded that in all aspects--operating costs, DME costs, and capital costs-- Pennsylvania's reimbursement program fell considerably short of the require- ments of Title XIX and violated federal law. Moreover, the court concluded that Pennsylvania's classification of hospitals, affording different treatment to hospitals depending on their location inside or outside the state, violated WVUH's rights under the equal protection Clause of the United States Constitution. Finally, the court declared Pennsyl- vania's administrative appeal system invalid because it allowed a hospital to challenge only the application of the state's methodology, rather than the methodology itself. The court ordered Pennsylvania to revise its medicaid reimbursement program and administrative appeals system as they applied to WVUH and to allow the Hospital to employ the revised appeal system to challenge reimbursements from the date the action was commenced. Pursuant to 42 U.S.C. § 1988, the Gistrict court awarded attorneys fees, which included expert witness fees, to WVUH as the prevailing party. The defendants appeal. III. WVUH's RIGHT TO CHALLENGE THE REIMBURSEMENT PROGRAM Before assessing the validity of Pennsylvania's medicaid reimbursement program, we first address the prelim- inary question whether WVUH has a cause of action entitling it to challenge the program. The threshold issue in this case is whether WVUH can assert a cause of action against the defendant state officials under 42 U.S.C. § 1983 for alleged violation of the federal medicaid statute. Section 1983 provides in relevant part that: Every person who, under color of any state statute, ordinance, regulation, cus- tom, or usage, of any State ov...the District of Colum- bia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdic- tion thereof to the depri- vation of any rights, privi- leges, or immunities secured -24a- by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress. 42 U.S.C. § 1983. Pennsylvania argues that a hospital cannot state a valid claim under’ section 1983 for alleged violation of the medicaid statute with respect to hospital reimbursement. This court has not previously had the opportunity to rule on this question of law. Section 1983 provides a remedy for deprivation under color of state law of "any rights...secured by the Consti- tution and laws.” 42 U.S.C. § 1983 (emphasis added). Interpreting this language in Maine v. Thiboutot, 448 U.S. 1 (1980), the Supreme Court held that the phrase “and laws” does not implicitly ~~ ?Sa— refer only to equal rights laws (making only equal rights violations actionable under section 1983), but rather refers generally to all federal statutory law. The plain language of section 1983, together with its legislative history and the Court's past treatment of the provision, compels the conclusion that causes of action under section 19823 are not limited to claims hased on constitutional or equal rights violations. 448 U.S. at 6-8. Thiboutot, however, does not Stand for the broad proposition. that section 1983 provides a cause of action for any violation of any federal law. As subsequent cases explain, a cause of action under 1983 exists for violation of a federal law if two requirements are met. First, the federal law must create private rights enforceable under section -26a- 1983. Pennhurst State Schoo] and Hospital v,. Halderman, 451 U.S. 1 (1981). In Pennhurst the Court held that a section 1983 action did not lie for alleged violation of the Develop- mentally Disabled Assistance and Bill of Rights Act because that Act conferred no substantive rights but merely consti- tuted a congressional declaration of policy. Id. at 18-27. With respect to the existence of the private rights requirement, valid federal regulations as well as federal statutes may create rights enforceable under section 1983. Wright v. City of Roanoke Redevelopment and Housing Authority, 479 U.S. 418, 431-32 (1987)(HUD regulations defining statutory term “rent” as including a “reasonable amount” for utilities grants tenants rights enforceable under section 1983); Alexander v. Polk, 750 F.2d 250, 259 (3d Cis. 1984) (WIC regulation creates enforceable right to notice of fair hearing). Second, and stated negatively, the federal law must not reflect a congressional intent to foreclose private enforcement. Middlesex Cty. Sewerage Auth, v, National Sea Clammers Ass‘n., 453 U.S. 1 (1981). In §ea Clammers the Court held that a cause of action for violation of two federal environmental Statutes did not lie because the comprehensive remedial schemes provided in those statutes reflect a congressional intent to fore- close a private remedy under section 1983. Jd. at 21. The burden of proving @ congressional intent to foreclose a section 1983 remedy, however, lies with the state actor, and that burden is not easily satisfied. Once it is determined that a federal provision creates. an enforceable right, a cause of action exists under section 1983 for violation of that provision “unless the state actor demonstrates by express provision or other specific evidence from the statute itself that Congress intended to foreclose such private enforcement.” Wright, 479 U.S. at 423. A court deciding the issue may not "lightly conclude’'” that Congress intended such foreclosure. Id. at 423-24 (quoting Smith v,. Robinson, 468 U.S. 992, 1012 (1984)? lwVUH in its supplemental brief urges us to apply the test articulated in Cort v,. Ash, 422 U.S. 66 (1975), for determining whether a statute implies a (FOOTNOTE CONTINUED ON NEXT PAGE) -29a- ’ sid (FOOTNOTE CONTINUED) private right of action. The Hospital should be happy that we refuse its request and instead apply the _ tradi- tional, and, coincidentally for it, more favorable analysis to determine private enforceability under § 1983. Whether a federal statute is enforceable ' under § 1983 and whether the statute creates an implied right’ of action involve separate inquiries. See, e.g., Middlesex Cty. Sewerage Auth. v National Sea Clammer ae eee ose. 1, 19 (1981). For the sake of clarity, we briefly explain the difference between a § 1983 private right of action analysis and the general implied right of action analysis of Cort v. Ash. When a statute does not explicitly supply a private right of action, two occasionally intersecting avenues may be explored for a possible private right of enforcement. First, an implied private’ right of action to enforce the statute may exist directly under the statute in avcordance with the four-factor analysis of Cort v. Ash. To establish an implied right of action under Cort v. Ash, the plaintiff must satisfy the first requirement--that the statute creates a federal right in favor of the plaintiff. The plaintiff must then satisfy the three remaining Cort v, Ash requirements relating to the existence of a remedy--that Congress intended to create a remedy, that the (FOOTNOTE CONTINUED ON NEXT PAGE) -30a- (FOOTNOTE CONTINUED) remedy is consistent with the legislative scheme, and that the cause of action is not traditionally relegated to state law. In sum, under Cort v, Ash the plaintiff bears the burden of estab- lishing not only the existence of a right, but also the existence of an intended private remedy. In appropriate cases, the second avenue for private enforcement of a federal statute is § 1983. In determining whether a private right of action exists under § 1983, only two inquiries are relevant: one, whether the statute alleged to have been violated creates a federal right in favor of the plaintiff, and the other, whether Congress has foreclosed the remedy of private enforcement. The § 1983 analysis intersects with’ the Court v. Ash analysis insofar as the plaintiff under both analyses must establish the creation of a federal right. With respect to the existence of a remedy, however, the contrast between the two analyses is stark. Under Cort v. Ash the plaintiff must establish that Congress intended the _ remedy. Under § 1983 analysis, on the other hand, once a federal right is established, the existence of a remedy is presumed because § 1983 itself provides’ the authorization for private enforcement. The burden is on the defendant’ to establish that Congress intended to foreclose private enforcement. -3la- Undertaking the analysis, then, the first question is whether the Medicaid Act, Title XIX of the federal Social Security Act, 42 U.S.C.A. §§ 1396 through 1396s (West 1983 & Supp. 1989), creates private rights in favor of hospitals participating in a_e state's medicaid program. Following the example set by the Court in Pennhurst, we seek the answer to this question in the language, purpose, and legislative history of the statute alleged to have been violated. Generally, the Medicaid Act consists of numerous sections and subsections that together form a cooperative mosaic through which the federal government reimburses a portion of the payments made by participating states to hospitals and other providers -32a- furnishing care to eligible needy persons. States participating in the program are charged with administering the medicaid plan and distributing the state and federal funds. Participation in the program is voluntary, but once a state chooses to participate it is obligated to devise a medicaid plan that complies with the federal statutory and regulatory conditions of funding. See Pennhurst, 451 U.S. at 11 (state partici- pation in federal-state cooperative program to treat developmentally disabled carries obligation to comply with federal law). Section 1396a of the medicaid act enumerates the various federal requirements of state medicaid plans. In particular, subsection 1396(a)(13)(A) imposes federal requirements on states’ -33a- reimbursement to hospitals and other entities providing care to medicaid patients. It is this subsection that WVUH charges the defendants’ violated, and it is to this subsection, therefore, that we turn to ascertain whether it created substantive private rights enforceable under section 1983 in favor of hospitals offering care to medicaid patients. We begin with the statutory language. Section 1396a(a)(13)(A) stipu- lates, in pertinent part, that oa State plan for medical assistance must--... (13) provide-- (A) for payment...of the hospital...services provided under the plan through the use of rates (determined in accor- dance with methods and standards -34a- developed by the State and which, in the case of hospitals, take into account the situation of hospitals which serve. a disproportionate number of low income patients with special needs...) which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities... 42 U.S.C.A. § 1396a(a)(West Supp. 1989) (emphasis added). The language of this subsection is “cast in the imperative,” see Alexander v. Polk, 750 F.2d at 259, mandating the state to maintain at least some sort of standard (the nature of which is better left for the merits discussion) in its hospital reimbursement -35a- OS aaa ee plan. The language succinctly sets forth a congressional command, which is wholly uncharacteristic of a mere suggestion or “nudge,” Pennhurst, 451 U.S. at 19 (quoting Rosado v. Wyman, 397 U.S. 397, 413 (1970)), in the direction of providing appropriate reimbursement of hospitals treating medicaid patients. The construction of this subsection treating hospital reimburse- ment is parallel to the construction of the other forty-nine provisions imposing federal requirements on state medicaid programs. All provisions are prefaced by the language that “[a] State plan for medical assistance must...." There can be no mistaking that the stipulations of section 1396a(a) clearly constitute conditions that a state must meet to participate in the joint program. -36a- In this respect, the statutory language of section 1396a(a) differs from the language examined in Pennhurst. In that case, the Court held that the "bill of rights” provision of the Developmentally Disabled Assistance and Bill of Rights Act, 42 U.S.C. § 6010, did not create in favor of the mentally retarded any substantive rights to “appropriate treatment” in the “least restrictive environment.” The Court compared the “bill of rights" provision with other sections of the act = and observed that "“[nJoticeably absent from § 6010 is any language suggesting that § 6010 is a ‘condition’ for the receipt of federal funding under the _ Act,” making section 6010 stand "in sharp contrast" to the other sections that manifestly were conditions. 451 U.S. at 13. The Court's concern in Pennhurst that a state might not realize that its -37a- Oe ethan a> ee a ee participation in a federal-state program is subject to federal conditions is relieved here by the express and imperative language of the Medicaid Act. Defendants assert, however, that the purpose of the medicaid program weighs against finding that section 1396a(a) (13) (A) affords substantive rights to hospitals offering care to medicaid patients. They argue that imposing federal requirements with respect to hospital reimbursement does not equate with granting substantive rights in favor of hospitals to legally enforce reimbursement. The Medicaid Act help states to fund a public assistance medical program for the financially needy, and therefore, defendants conclude any benefit conferred on hospitals is purely incidental. The beneficiaries of the act, argue defendants, are the needy -38a- persons assisted by medicaid, nct the providers from whom the state buys medical services. We recognize, of course, that the primary purpose of medicaid is to achieve the praiseworthy social objective of granting health care coverage to those who cannot afford it. It does not necessarily follow, however, that Title XIX grants substantive rights only to medicaid patients. Although the _ broad purpose of the Medicaid Act as a whole is to help the poor attain medical care, the specific purpose of section 1396a (13)(A) is to assure state compliance with some federal standard of hospital reimbursement. The section sets up a plan for the adequate and reasonable reimbursement of hospitals which serve medicaid patients, and thus the hospitals are the section's "bene- ficiaries.” Their interests and the ee Ne ee interests of medicaid patients are bonded by a common goal, the delivery of adequate health care by the hospitals to state medicaid patients and the enjoyment of such care by the patients. The interests of both are intertwined and hospitals have a concrete stake in reimbursement in accordance with the federal statute and regulations. Other courts have allowed health providers to challenge state medicaid plans as violative of Title XIX because they considered the interests of health providers and of medicaid patients to be “parallel.” See, e4.q,., Coos Bay Care Center v, Oregon, Dep't, of Human Resources, 803 F.2d 1060, 1063 (9th Cir. 1986)(private health care facility's challenge of medicaid program states a claim under section 1983), cert. granted, 481 U.S. 1036, vacated as moot, 108 S&.Ct. 52 (1987); Nebraska Health Care Ass'n. v. Dunning, 778 F.2d 1291, 1296 (8th Cir. 1985) (long-term medical care facilities may maintain section 1983 action challenging medicaid plan). Although we approve of these cases, their reasoning may sometimes suggest that they are concerned with a sort of representative standing rather than the creation of federal rights in favor of the health providers. we prefer to ground our decision more explicitly and precisely on our conciusion that Title XIX affords enforceable rights to hospitals serving medicaid patients. In this respect, we join with the Fourth Circuit, which recently arrived at the same conclusion after full analysis of the issue, see owl i fie Virginia Hosp. Ass'n, v. Baliles, 868 F.2d 653, 657-61 (4th Cir. 1989), petition for cert, filed (June 15, 1989), and the Tenth Circuit, which adopted the Fourth Circuit's reasoning and result in a like case. See Amisub. Inc, v. Colorado Dep't, of Social Services, No. 88-2482, slip op. at 10 (10th Cir. July 11, 1989), Cf. Silver v, Baggiano, 804 F.2d 1211, 1217 (llth Cir. 1986) (expressly reserving question whether Social Security Act creates a right enforceable by a health provider under section 1983). Furthermore, once it is determined that WVUH has a private enforceable right under section 1983, we have no doubt as to its standing to bring this action. See Amisub, slip op. at ll. -~42a- The legislative history of section 1396a(13) (A) buttresses our conclusion that WVUH has a private right to enforce the federal hospital reim- bursement standard. In the Joint Explanatory Statement of the Committee of Conference commenting on the 1981 OBRA as enacted, Congress expressed its concern that state reimbursement methodologies adequately compensate hospitals for their care of medicaid patients. The report states: “the conferees intend that State hospital reimbursement policies should meet the costs that must be incurred by efficiently-administered hospitals in providing covered care and services to medicaid eligible as well as the costs required to provide care in conformity with State and Federal requirements.” H.R. Conf. Rep. No. 208, 97th Cong., lst Sess., 962 reprinted in 1981 U.S. Code Cong. & Admin. News 1010, 1324. The Same report also emphasizes the conclu- sion in the Title XIX amendment of a provision “providing that the States, in developing their payment rates, take into account the Situation of hospitals... which serve a dispropor- tionate number of low income patients. ld. We believe that Congress's concern with appropriate hospital reimbursement implies an intent to supply hospitals with an indispensable right to enforce state compliance with federal standards that, whether strictly or loosely, govern state reimbursement methodologies. Who else is more aggrieved by the absence -44a- of an adequate or reasonable hospital reimbursement rate than a disadvantaged hospital and who has a more compelling interest to press for a correction? We therefore conclude that the beneficiaries of section 1396(a) are the hospitals that serve medicaid patients and that they have an enforceable private right. Having determined that Title XIX supplies WVUH with private rights enforceable under section 1983, we next inquire whether the medicaid statute reflects a congressional intent to foreclose private enforcement. In accordance with the law as we described it above, WVUH has a remedy under section 1983 to enforce its rights under Title XIX unless defendants demonstrate that Congress intended to preclude private enforcement of that federal law. -45a- Pennsylvania argues that Title XIX reflects a congressional intent to foreclose private enforcement of hospitals' rights because the _ statute requires the Department of Public Welfare to provide hospitals with an administrative remedy and because all state medicaid plans are subject’ to review of the Secretary of Health and Human Services and disapproval of a plan may result in suspension or reduction of federal payments. We believe, however, that Pennsylvania fails to carry its burden of proving that these remedial devices are "sufficiently compre- hensive...to demonstrate congressional intent to preclude the remedy of suits under § 1983.°'”" Wright v,. City of Roanoke Redevelopment & House Auth., 479 U.S. 418, 424 (1987) (quoting Sea Clammers, 453 U.S. at 20). Title XIX gives no indication that the cut-off of -46a- funds to the federal agency is intended to supplant a section 1983 remedy. As the Supreme Court has’'~ recently held, "the existence of a state administrative remedy does not ordinarily foreclose resort to § 1983.” Wright, 479 U.S. at 427-28 (citing Patsy v. Board of Regents of Florida, 457 U.S. 496, 516 (1982)). Moreover, we fail to perceive how the cut-off of funds in futuro to the state agency effectively reimburses a hospital for services rendered to the _ state's medicaid patients in the past. We therefore conclude that WVUH states a valid claim under’ section 1983 for enforcement of its rights under the Social Security Act .7 2We note that exhaustion of state administrative remedies is not a pre- requisite to an action under § 1983. Robinson v. Block, 869 F.2d 202, 207 n.5 (3d Cir. 1989). -47a- oo te) ee he ke ae IV. THE VALIDITY OF PENNSYLVANIA'S HOSPITAL REIMBURSEMENT PROGRAM We now arrive at the heart of this case--whether Pennsylvania's plan for reimbursing out-of-state hospitals for their inpatient services to Pennsyl- vania medicaid recipients complies with federal statutory and regulatory law. The answer requires a close examination of Title XIX, its objectives, its legis- lative history, and its implementing regulations. Section 1396a(a)(13)(A) provides in relevant part as follows: A State plan for medical assistance must-- ...provide-- ,iekOe payment...of the hospital... services provided under the plan through the use of rates (determined in accord- ance with methods and standards developed by the State and which, in the case of hospitals, take into account the _ situation of hospitals which serve a dispro- portionate number of low income -48a- patients with special needs...) which the State finds, and makes assurances satisfactory to the Secretary, are reasonable _ and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and Federal laws, regulations, and quality and safety standards and to assure that individuals eligible for medical assistance have reasonable access (taking into account geographic location and reasonable travel time) to inpatient hospital services of adequate quality; and such State makes further assurances, satisfactory to the Secretary, for the filing of uniform cost reports by each hospital...and periodic audits by the State of such reports.... 42 U.S.C.A. § 1396a (West Supp. 1989). This section, as we read it, authorizes states to develop their own medicaid reimbursement standards and methodologies for payment of hospital services, but subjects those standards and method- ologies to three general federal requirements. -49a- The first requirements, deriving from the parenthetical modifying “rates,” mandates that a state's reimbursement rates take into account the situations of those hospitals service a dispropor- tionate number of low income patients. The second end third requirements, found in the phrase following that parenthet- ical, require a state to find that its rates are reasonable and adequate to meet the necessary costs of an efficiently operated hospital and_ to assure medicaid patients of reasonable access to inpatient hospital care. The first requirement we term the "“dispropor- tionate share” requirement, the second, the “reasonable and adequate” require- ment, and the third, the “reasonable access” requirement. The federal regu- lations implementing section 1396a(a)(13) (A), 42 C.F .R. §§ 447.250- 447.280, reiterate these statutory demands. -50a- Our assessment of compliance with these three requirements is informed by the goals and purposes of the medicaid statute as reflected in its structure and legislative history. Section 1396a(a)(13)(A) was enacted as part of the 1981 Omnibus Budget Recon- Ciliation Act, 95 Stat. 357, (OBRA) in an effort to contain the spiraling costs of inpatient hospital services and to reduce potentially stifling and expensive federal oversight of state methodologies. See Colorado Health Care Ass'n, v, Colorado Dep't. of Social Services, 842 F.2d 1158, 1165 (10th Git « 1988) (discussing purposes of the Boren Amendment); Wisconsin Hosp. Ass'n. v, Reivitz, 733 F.2d 1226, 1228 (7th Cir. 1984) (same). As explained in the House report accompanying an earlier version -Sla- of the statute, Congress’ intended by section 1396a(a)(13)(A) to free states from the previous "reasonable cost* criterion and to encourage them to develop prospective reimbursement systems that would foster hospital efficiency and reduce medicaid costs. see H.R. Rep. No. 158, 97th Cong. lst Sess. 292. States were toc be allowed "greater latitude” and "greater f lexibi ty" in designing their programs. See id. at 293; S.Rep. No. 139, 97th Cong., Ist Sess 478, reprinted in 1981 U.S. Code Condq. & Admin. News 396, 744. rhe states' discretion in devising new reimbursement standards and methodologies, however, was limited by the Congress's concern that medicaid recipients have reasonable access’ to medical services’ and that hospitals -52a- treating a disproportionate share of poor people receive adequate support from medicaid. Thus, a state's reim- bursement rates may not be so low as to compel the closing of a dangerous number of hospitals or of a single medically important hospital, and thus compel medicaid recipients to travel an unreasonable distance to obtain medical care. See H.R. Rep. No. 158, 97th Cong., lst Sess. 294 (expressing concern that rates not be so low as to dis- courage hospitals from treating medicaid patients). Moreover, because hospitals treating a large volume of medicaid patients are at the same time of Singular importance to the health care of the poor and often already financially distressed, states must take into account - | = these hospitals' special circumstances in setting reimbursement rates. See id. at 294-296 (discussing special needs and high social value of hospitals serving disproportionate number of poor people); H.R. Conf. Rep. No. 208, 97th Cong., lst Sess. 962, reprinted in 1981 U.S. Code Cong. & Admin. News 1010, 1324 ("The conferees recognize that public hospitals and teaching hospitals which serve a large Medicaid and low income population are particularly dependent on Medicaid reimbursement, and are concerned that a State take into account the special Situation that exists in these institu- tions in developing their rates.") We believe that this’ scheme also contemplates a deferential st +ndard of review by the courts in assessing compliance with the “reasonable and -54a- adequate” requirement of section 1396a(a)(13)(A). Applying 4 higher standard would run counter to the congressional intent that states be afforded considerable freedom in pursuing ways of limiting medicaid costs and encouraging efficiency. On the other hand, neither state budgetary restrains nor chauvinistic policies designed to curb access to out-of-state hospitals” can excuse a failure to 3at oral argument before us_ the following colloguy occurred between the court and counsel for the State: MR. FOERSTER: And the assump- tion was made that we had no evidence to the contrary, and still haven’t, that the experi- ence out-of-state as a whole is any different from the experi- ence in state: that these hospitals would have about the same amount of medicaid utiliza- tion as does the average in-state hospital. (FOOTNOTE CONTINUED ON NEXT PAGE) ea __ conform to the federal “reasonable and adequate standard,” Wisconsin Hosp, Ass'n., supra at 1235. In evaluating whether Pennsylvania's rates are “reasonable and adequate” to meet the costs of an efficiently operated hospital, we will not engage in an independent assessment of what rates we believe would be reasonable and adequate. Rather, we will only inquire whether the state's determination was arbitrary and Capricious. See Mississippi Hospital Ass'n, v., Hechler, 701 F.2d 511, 516 (5th Cir. 1983). (FOOTNOTE CONTINUED) THE COURT: If that’s true, then why shouldn't West Virginia Hospital be factored in on the same basis as the Pennsylvania hospitals? MR. FOERSTER: Again I could only go back to what I answered before, the considerations that keep the money in-state, the treatment’ in-state, the marketing too. -56a- At the same time, however, we believe that compliance with the remaining two federal requirements-- reasonable access and disproportionate share--is subject to our plenary review. The legislative history manifests Congress's strong concern that these requirements be ifivariably and fully satisfied. We will not presume to declare how the State must satisfy these requirements, but neither will we defer to the State's judgment that the requirements have indeed been met. With these standards of review in mind, we begin our evaluation of Pennsylvania's reimbursement program. we question first whether Pennsylvania’‘s reimbursement program as it applies to WVUH fulfills the dispro- portionate share requirement. See 42 C.F.R. § 447.253(b)(1)(1i) (A) (1988). -57a- The district court found that WVUH serves a disproportionate number of low income patients. Although only five percent of WVUH‘s admiss’ons are Pennsylvania Medicaid recipients, some thirty-eight percent of all WVUH admissions are low income persons. * The district court appropriately taking a broad view of the issue, looked at WVUH's treatment of all low income patients, not just Pennsylvania medicaid patients, and found that the Hospital had established itself as a dispropor- tionate share provider. 4The district court found as a fact that in both fiscal years 1984-1985 and 1985-1986, WVUH treated in excess of 800 Pennsylvania medicaid patients. In fiscal year 1986-1987, it treated approximately 730 Pennsylvania medicaid patients. WVUH provided more care to Pennsylvania medicaid residents than over one-half of the in-state hospitals for fiscal years ending June 10, 1986, and fiscal year ending June 30, 1987. -58a- Pennsylvania, in its reimburse- ment system for in-state hospitals, accounts for disproportionate share through its grouping methodology’ for reimbursing operating costs. Under Pennsylvania's in-state plan, medicaid volume is one of the four concepts that determine a hospital's assignment to one of seven hospital groups. ns high medicaid volume may boost a hospital to a higher group’ rating, allowing the hospital to command a4 higher reimbursement rate per DRG. The methodology thus uses high medicaid volume as a proxy for disproportionate share of low income patients. In contrast, when Pennsylvania sets its reimbursement rates for out-of-state hospitals, it does not consider those hospitals’ shares of low income admissions. Rather, ponnerivenie reimburses all out-of-state hospitals on -59a- the basis of the average payment it makes to in-state hospitals. Significantly, Pennsylvania chose this method without first undertaking any studies examining the effects of its methodology on out-of- state low income providers. The State stipulated in the pretrial memorandum of undisputed facts that Pennsylvania did no empirical studies with respect to out-of-state payments and did not look at individual cost data for out-of-state hospitals. Moreover, the State stipulated that "{tJhe out-of-state reimbursement methodology does not contain any provision with which to identify out-of-state hospitals serving a@ disproportionate share of low income patients and by which to reimburse those -60a- hospitals any more than other out-of- state hospitals are reimbursed.” Appellee'’s Addendum of statutes, regulations, and stipulation of undisputed facts ¥ 133. At oral argument, the State asserted that it accounted for dispro- portionate share of low-income providers when it determined the relative value of the DRG payment on the basis of in-state cost data. We fail to see, however, how this method fulfills the federal requirement. Pennsylvania assigned all out-of-state hospitals the average in-statement payment rate, with no provision for increasing that rate on the basis of disproportionate share and no determination that the payment in itself would account for the needs of disproportionate share of low-income providers. we see nothing in the development or implementation of the -6la- State’s out-of-state reimbursement plan that demonstrates compliance with the federal mandate that rates account for disproportionate share. We therefore conclude that Pennsylvania's operating costs reimbursement system is’ invalid insofar as it fails to account for out-of-state hospitals’ disproportionate share of low income admissions. The second requirement of state medicaid plans is that their rates assure medicaid recipients of reasonable access to quality hospital care, taking into account geographic location = and reasonable travel time. See 42 C.F.R. § 447.253(b)(1)(ii)(C)(1988)” Throughout 5942 C.F.R. § 431.52(b) requires that a state plan must provide that the State will furnish medicaid to: "(1) A recipient who is a recipient of the State while the recipient is in another (FOOTNOTE CONTINUED ON NEXT PAGE) -62a- the district court's opinion and the oral argument before us there ran an undercurrent of concern that inadequate reimbursement will encourage WVUH to close its doors to medicaid patients, leaving a considerable number of Pennsyl- vania residents without reasonable access to hospital care. At oral argument, defense counsel affirmed that without access to WVUH, some Pennsylvania medicaid patients would have to travel seventy miles or more to obtain tertiary hospital care. Moreover, the district (FOOTNOTE CONTINUED) State, to the same extent that medicaid is furnished to residents in the State," when the recipient meets certain prescribed conditions Or ad © & | is general practice for recipients in a particular locality to use medical resources in another State.” -63a- court found, and Pennsylvania does not contest, that WVUH's withdrawal from the Pennsylvania medicaid plan would "jeopardize some Pennsylvania medicaid recipients’ access to needed health care services." 701 F.Supp. at 509 (finding of fact # 181). The record establishes that the closing of WVUH to Pennsylvania medicaid patients would deprive some of those patients of reasonable access to needed health care. It is not, however, so clearly established that Pennsylvania's reimbursement system will result in the Hopital's withdrawal from the Pennsyl- vania medicaid plan, although there is a probability that it will withdraw because of the large number of Pennsylvania medicaid patients it treats and _ the substantial disparity in reimbursement between Pennsylvania medicaid recipients ~64a- in Pennsylvania and those treated at WVUH. The district court found that inadequate medicaid reimbursement will have “substantial financial consequences for the Hospital and will jeopardize its continued ability to care for MAP patients.” 701 F.Supp. at 509 (finding of fact # 180). The court also found that although on the average an in-state hospital is reimbursed for approximately ninety-five percent of its costs. in treating a Pennsylvania medicaid recipient, WVUH recoups only about fifty-four percent of its costs in treating a Pennsylvania medicaid patient. In view of these facts, one can reasonably anticipate that WVUH will not continue indefinitely to treat Pennsylvania medicaid patients under the State's present reimbursement mechanism. -65a-_ Nevertheless, the present record is somewhat incomplete on the point. There 18S no evidence that the Hospital has stopped treating medicaid patients, and the president of WVUH testified that WVUH has not yet seriously considered quitting the Pennsylvania medicaid plan. App. at 141la. We are therefore unprepared on this record to invalidate Pennsylvania's overall reimbursement plan as it applies to WVUH on the basis of nonfulfillment of the reasonable access’ requirement. Such a holding, we believe, would require remand to the district court for finding of the relevant facts. As explained infra, however, a remand will not be necessary in light of our conclusion with respect to compliance with the third federal requirement as well as our conclusion concerning the first federal requirement, supra at 30. The third requirement imposed by section 1396a(a)(13)(A) is that the state must find that its rates are "reasonable and adequate" to meet the costs of an efficiently operated 6 Whereas the substantive hospital. dimensions of the first two requirements could be fairly drawn from the statute end its legislative history, discerning congressional intent with respect to the substantive element of the _ reasonable and adequate requirement is a more daunting project. 6The defendants have not asserted that WVUH is not an “efficiently and economically operated” facility. -67a- The states, we need hardly reiterate, enjoy broad discretion in devising their hospital reimbursement plans. The changes instituted by 1981 OBRA contemplated state experimentation with medicaid methodologies and certainly contemplated reduction in the outlay of medicaid funds. Importantly, the 1981 OBRA definitely contemplated that states would implement prospective payment systems that would not be based on actual costs. In promulgating regulations implementing section 1396a(a)(13) (A), the HCFA expressly refused to set a federal standard prescribing “reasonable and adequate” rates. It did observe, however, that "the term is not a precise number, but rather a rate which falls within a range of what could be considered reasonable -68a- and adequate.” See 48 Fed.Reg. 56,046, 56,049 (Dec.' 19, 1983). See also of Social Services, 842 F.2d 1158, 1167 (10th cer, 1988) ("Reasonableness has been characterized as a zone, not a pinpoint.")(citing Reivitz, 733 F.2d at 1233). It follows from the departure f rom a cost-driven reimbursement standard that a state's plan does not violate the substantive provision of the reasonable and adequate requirement Simply because it fails to reimburse one efficiently operated hospital its actual costs. What matters, rather, as_ the State vigorously argues, is whether the reimbursement rates to out-of-state hospitals in the aggregate are arbitrary and capricous. Although Congress and the HCFA consciously declined to impose clearcut federal standards and requirements (with the exception of the reasonable access and disproportionate share requirements), the legislative history reflects congres- Sional concerns that in turn may suggest some guidance as to what may constitute nonarbitrary reimbursement rates. The congressional reports concerning section 1396a(a)(13)(A) reflect a great sensi- tivity to the special needs of teaching and tertiary care hospitals. The House report accompanying an initial version of the statutes states: The Committee intends States to recognize that facilities that provide teaching services Or other specialized tetiary care services that may have operating costs which exceed those of a community hospital. The Committee is concerned that the reimbursement methods estab- lished by the States recognize the need to provide a full range of both primary care and tertiary _ Sia. H.R. 294. report echoes the concern for teaching care services to Medicaid beneficiaries and take into account the differences in operating costs of the various types of facilities needed to provide this broad scope of services.... Thus, while the Committee recognizes that in this time of economic constraint and reductions in Federal funds for Medicaid, States must _ be given the flexibility necessary to improve the Medicaid reim- bursement mechanism, the Commit- tee does not want such policies to result in arbitrary and unduly low reimbursement levels for hospital services. Rep. No. 158, 97th Cong., lst Sess. The subsequent House conference hospitals: The conferees recognize that public hospitals and teaching hospitals which serve a_ large medicaid and low income population are particularly dependent on Medicaid reimburse- ment, and are concerned that’ a State take into account’ the special situation that exists in these institutions in developing their rates. -7la- H.R. Conf. Rep. No. 208, 97th Cong., lst Sess. 962, reprinted in U.S. Code Cong. & Admin. News 1010, 1324. Teaching hospitals, the district court found and the defendants do not contest, incur greater costs than nonteaching hospitals in delivering the Same service. 701 F.Supp. at 515. The court found that the bulk of a teaching hospital's direct medical education (DME) costs is made up of residents’ salaries. And, the court’ continued, residents spend about seventy-five percent of their time administering patient Care. Thus, the court concluded, reimbursement of DMW costs is in large part a reimbursement for patient care. Id. -72a- Pennsylvania's reimbursement methodology for in-state hospitals provides for increased payments to teaching hospitals. The reimbursement system for operating costs identifies teaching status as one of the four concepts relevant to grouping in-state hospitals. Teaching status may therefore increase a hospital's reimbursement per DRG. Moreover, above and beyond the cperating costs reimbursement, the Pennsylvania program reimburses in-state teaching hospitals for the medicaid share of DME costs that the hospitals incur. Pennsylvania recognizes that a teaching hospital will not be adequately reimbursed for the costs associated with its teaching function if it is reimbursed -73a- at a rate deriving from the average indirect costs of teaching and non- teaching hospitals. 701 F.Supp. at 908. Moreover, Pennsylvania acknowledges that the failure of a payer to compensate for DME costs will necessarily shift those costs to another payer, and the failure of all payers to compensate for DME costs will eventually cause serious financial problems for the teaching hospital. Nevertheless, Pennsylvania provides no DME cost reimbursement to out-of-state hospitals. Pennsylvania’s justification is that it chose, as a matter of policy, not to reimburse the medicaid share of DME costs incurred by out-of-state hospitals in treating Pennsylvania medicaid patients because the state did not want to underwrite the medical education of residents and interns (even -74a- if some of them will be Pennsylvanian doctors) ” at out-of-state hospitals. Pennsylvania's theory is "[nJothing in any law or regulation requires WVUH to be a teaching hospital." Thus, Pennsyl- vania presumes that rates would not be arbitrary even if they were to force WVUH to abandon its teaching role. It is true that Congress did not specifically codify its manifest concern that medicaid rates be adequate to assure the continued existence of teaching hospitals. On the basis of only the statutory and regulatory language, there is therefore some merit to the proposition that rates fulfill the 7TThe district court observed that some 7% of WVUH residents practice in Pennsylvania. Moreover, as the district court observed, some of the residents in Pennsylvania teaching hospitals’ will practice out of _ state, yet Pennsyl- vania's program helps’ finance their training. -75a- "reasonable and adequate" requirement, even if they do not reimburse DME costs, as long as they’ reimburse operating costs. Although it seems to strike a discordant note with the national agenda of the federal medicaid program, perhaps such state chauvinism as is Gisplayed by Pennsylvania here might be tolerated under certain circumstances. On the other hand, we must give some content to the notion of nonarbitrary rates, and we therefore turn again to the legislative history. That legislative history Suggests that Congress intended teaching hospitals in general, not Just those within state borders, to be adequately Supported by medicaid plans. See supra at 35. We hestitate, however, at this point to hold that Pennsylvania's refusal -76a- to reimburse out-of-state hospitals’ DME costs is arbitrary and capricious and in violation of the reasonable and adequate requirement of section 1396a(a) (13) (A). We remain fully cognizant of the states’ freedom to experiment with their reimbursement systems, and do not want unnecessarily to restrict it. Instead, withholding judgment on this aspect of the plan individually, we examine the plan as a whole. Under Pennsylvania's plan, WVUH receives reimbursement for operating costs at the average rate of payment for all in-state hospitals (or based on the Hospital's actual charges, whichever is lower), notwithstanding WVUH's character as a teaching hospital that provides tertiary care and serves 4a dispropor- tionate number of low income patients. Moreover, simply because WVUH is not an in-state hospital, it receives absolutely -77a- no DME cost' reimbursement. Finally, unlike in-state hospitals, WVUH's is reimbursed for its capital costs on the basis of a rate that bears no relation- ship to its actual costs. Pennsylvania reimburses its in-state hospitals on the basis of a ten year phase-in plan that pays in-state hospitals for their actual Capital costs on a decreasing percentage basis. After the ten years, a uniform flat rate will apply. Contrast that System with the out-of-state reimburse- ment. Capital cost reimbursement’ to out-of-state hospitals consists of an "add-on" that represents’ the average Capital costs of all in-state hospitals, with no adjustment for out-of-state hospitals’ actual costs. And out-of- State hospitals do not enjoy the benefit of a ten-year phase-in to adjust to the flat payment rate. WVUH is particularly -78a- distressed by the capital cost reimburse- ment system because it recently opened a replacement facility which greatly increased its capital costs. As we note above, the district court found that this dual reimbursement system resulted in in-state hospitals on the average receiving approximately ninety-five percent of their costs in treating a Pennsylvania medicaid recipient, but WVUH is reimbursed only about fifty-four percent. Now, even if we were to conclude that it is not per se arbitrary and capricious to reimburse out-of-state hospitals on the basis of a flat in-state hospital average, or to reimburse out-of-state hospitals on 4 different (and presumably, here, lower) scale for capital costs, or not to reimburse them their DME costs at all, there still seems to be something seriously wrong with this reimbursement ~-79a- be eed > SO eee ee eee system. Can the zone of reasonableness possibly be so large as to encompass percentages of cost reimbursement for Pennsylvania medicaid recipients ranging from fifty-four to ninety-five? The HCFA, in declining to define certain Statutory terms, stated that “the State's methods and Standards, implicitly act as the State's definition of an efficiently and economically operated facility.” 48 Fed. Reg. 56,046, 56,049 (Dec. 19, 1983). To some extent, the same is true of the term "reasonable and adequate." Pennsylvania, by virtue of the federal statute and regulations, holds its in-state program out as reasonably and adequately reimbursing efficiently operated hospitals. At the same time, however, Pennsylvania impliedly makes the same assertion with respect to its fifty-four percent reim- bursement of medicaid costs incurred by -80a- an out-of-state tertiary hospital. Our role is to determine whether Pennsyl- vania can nonarbitrarily make that assertion. In the face of such great disparity in its reimbursement rates between its in-state hospitals and WVUH, Pennsylvania must show a rational basis for its medicaid reimbursement program. As other courts have explained, a “state must articulate a ‘rational connection between the facts found and the choice made. ‘"™ Colorado Health Care Ass‘n., 842 F.2d at 1167 (quoting Baltimore Gas & Elec, Co, v. Natural Resources Defense Council, Inc., 462 U.S. 87, 105 (1983). Pennsylvania, we conclude, wholly fails to offer such a rational basis. Pennsylvania's preference of its own hospitals does not justify undercompensating out-of-state hospitals -~Bla- that are serving Pennsylvania patients under a federal program. The State is not merely exercising discretion in how to spend its own money; medicaid funds derive in large part from the federal government. Nothing in Title XIX remotely suggests that a state may use federal funds to give its own hospitals preferential treatment and, at the same time, disadvantage out-of-state hospitals. In establishing the new federal standards for hospital reimburse- ment rates in section 1396a(13)(A), OBRA's legislative history notes. that although the Committee recognized that the current economic constraints’ and need for reductions in federal funds for medicaid requires that states be given the flexibility necessary to improve the -82a- medicaid reimbursement mechanism, "the Committee does not want such policies to result in arbitrary and unduly § low reimbursement levels for hospital services.” H.R. Rep. No. 158, 97th Cong., lst Sess. 293-94 (1981). Nothing in Section 1396(a) speaks in terms of a dichotomy in rate reimbursement built on state boundary lines; it nowhere suggests that state boundary lines act as points of demarcation in reimbursement for the delivery of health care. Under’ the federal regulations, supra at n.6, state boundary lines, except for administra- tive responsibility, bear an insignifi- cant role, if any, with respect to the actual delivery of health care in a program designed on a national level to aid the poor in a highly mobile society. Moreover, Pennsylvania's excuse of administrative burden does not, in this case, provide a rational basis for WVUH's grossly diminished reimbursement rates. Pennsylvania argues’~ that it would be too time and resource consuming to account for the characteristics and costs of out-of-state hospitals, and that deriving flat rates f rom the universe of in-state hospitals and applying them to out-of-state hospitals provides a reasonable solution. Although this argument may become valid at some point, it is not valid in this case. WVUH undisputedly is the largest out-of- state provider of health care to Pennsyl- vania medicaid patients. It serves more of these Pennsylvania patients than over half of the Pennsylvania hospitals. Although we do not suggest that audits _ QBAasa, and calculations be made for all out-of- state hospitals, the retrieval and evaluation of relevant information from WVUH, and other significant out-of state providers,° would not pose any particular administrative burden. It is simply irrational and arbitrary, not too mention patently unfair, to refuse to do so when the result is a system that varies so widly in its reimbursement rates for hospitals whose “[mJjedical services are needed.” 42 Cs sRe § 431.52(b), to serve Pennsylvanians. We therefore conclude that the Pennsylvania medicaid program as it applies to WVUH is violative of federal 8The district court found that Pennsylvania could audit 75-100 more hospitals each year without increasing its audit staff. -85a- law because it fails to meet the reason- able and adequate requirement of section 1396a(13) (A). We neither hold nor_ suggest that Pennsylvania must apply precisely the same methodology to WVUH and other out-of-state hospitals as it does for its in-state hospitals if there is a rational basis for a departure. The methodology applied, however, must _ be rational, mot arbitrary or whimsical. Nor do we suggest that Pennsylvania is precluded from formulating an acceptable reimbursement system to out-of-state hospitals without empirical evidence concerning their historical costs of operation so long as its’ reimbursement rates fall within the range of "rates reasonable and adequate to meet’ the costs which must be incurred by efficiently and economically operated facilities.” -66a- Finally, although not necessary to the outcome of the case given the preceding discussion, we hold that in addition to the substantive provisions Pennsylvania violated the procedural requirements of Title XIX. The three federal provisions discussed above contain both 3 procedural and A substantive dimension. The procedural dimension is explicit in the federal regulations implementing section 1396a(13)(A). These federal regulations condition HCFA approval of a new state plan on the state's assurances that it has complied with the regulatory requirements. 42 C# a, § 447.253 (1988). One of these regulatory requirements is that the State make findings in support of its change in medicaid plan. Essentially, the State -87a- is required to find that its new plan complies with the three’ substantive requirements discussed above. Section 447.253(a) of the HCFA regulations provides: (b) Findings. Whenever the Medicaid agency makes a change in its methods and _ standards, but not less often than annually, the agency must make the follow- ing findings: (1) Payment rates. (i) The Medicaid agency pays for in- patient hospital services and long-term care facility services through the use of rates that are reasonable and adequate to meet the costs that must _ be incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards. (ii) With respect to inpatient hospital services -- (A) The methods and standards used to determine payment rates taken into account the situation of hospitals which serve a disproportionate number of low income patients’ with special needs: [and] znaenr t -88a- (C) The payment rates are adequate to assure that recip- ients have reasonable access, taking into account geographic location and reasonable travel time, to inpatient hospital services of adequate quality. 42 C.F.R. § 447.253(b) (1988). In structuring its out-of-state reimbursement program, Pennsylvania admits to gathering no information with respect to these hospitals' actual costs. No empirical analysis was conducted to measure the effects of the reimbursement program on _ out-of-state hospitals. Pennsylvania did not even identify its large out-of-state providers. Federal law is not satisfied if a state merely makes conceptual policy decisions. A policy predicated upon provincialism and _ self-interest, not upon findings of reasonableness and adequacy, is unacceptable. We hold that the federal regulations unambiguously require the State to make findings, and in so doing they do not distinguish between out-of-state and in-state hospitals. In failing to make these requisite findings, Pennsylvania violated federal law.” 9The district court held that Pennsylvania's out-of-state reimburse- ment program violated not only Title XIX, but also the equal = protection rights of WVUH guaranteed by the fourteenth amendment. Although we have serious reservations concerning this treatment of the equal protection rights issue by the district court, we dispose of this case on statutory grounds and therefore see no need to reach the constitutional issue. -90a- Vv. THE VALIDITY OF THE ADMINISTRA- TIVE APPEALS SYSTEM Our last inquiry with respect to Pennsylvania's medicaid program is whether the district court correctly concluded that the program's administrative appeals system is legally inadequate. For our answer, we must again look to section 1396a and its implementing regulations to ascertain whether Pennsylvania comports with federal law. Title XIX requires states participating in the medicaid program to institute an appeals procedure by which providers may challenge their payment rates. 42 U.8.C. § 1396(a)(37) (West Supp. 1989); 42 C.F.R. § 447.253(c). The federal regulation states: Provider appeals. The Medicaid agency must provide an appeals Or exception procedure that allows individual providers an opportunity to submit additional evidence and receive prompt administrative review, with respect to such issues as_ the agency determines appropriate, of payment rates. 42 C.F.R. § 447.253(c). It is undisputed that, at least at the hearing level, Pennsylvania's appeals procedure allows providers to challenge their payment rates on the grounds of the application of the state's reimbursement methodology; it does not allow providers to challenge the validity of the methodology itself. See 701 F.Supp. at 510 (finding of fact #197). The district court, after review of the federal regulation and the reievant legislative history, held that this procedure was insufficient. -92a- Our review of the federal law, however, leads us to conclude otherwise. On September 30, 1981, the HCFA published interim final regulations. 46 Fed.Reg. 47964-47973. Because “individual facil- ity rates will not receive Federal review under the revised regulations,” the HCFA required in one of its regula- tions that states participating in the medicaid program develop an appeals procedure by which individual facilities could request review and adjustment of their rates. The requlation stated: The agency must provide an appeals procedure that allows individual providers an opportu- nity to submit additional evidence and request prompt administrative review of payment rates. Fed.Reg. p. 47972. The HCFA noted, how- ever, that it was open to suggestions on -93a- how best to guarantee review of payment rates and it invited comments on its provider appeals regulation. Some two years later, the HCFA reviewed the comments it received and promulgated the final regulation quoted above. In its accompanying commentary, the HCFA rejected suggestions that it establish minimum criteria defining the scope of review of payment rates. The agency wrote: We also believe that establishing minimum criteria for appeals and penalty clauses for frivolous appeals in the regulation would be contrary to the statutory intent allowing States greater flexibility in developing more cost effective reimbursement systems. More- over, the States, not the Federal government, are in the best position to determine the administrative process that would best meet their needs and be most compatible with their reimbursement system. However, -94a- States are free to establish reasonable criteria for appeals to limit the issues on appeal that may be appropriate or to adopt other procedures to prevent frivolous appeals. 48 Fed. Reg. 56046, 56052 (Dec. 19, 1983). Consistent with the hands-off philosophy reflected in this commentary, the HCFA rewrote the appeals regulation to require an appeals procedure for payment rates “with respect to such issues as the agency determines appropriate.” 42 C.F.R. § 447.253(c). We believe that this permissive language giving the agency greater authority to select the issues’. for determination permits the state agency to reject review of challenges to the validity of its methodology in its administrative appeals system. In the Situation of a uniform rate, which describes Pennsylvania's reimbursement -95a- en - We re cer - —d a of out-of-state hospitals, such a limited appeals system may not seem the best approach. See Mary Washington Hosp., Inc. v. Fisher, 635 F.Supp. 891, 903 (E.D. Va. 1984)(observing that “the more general the rate-setting system is, the stronger the need for some appropriate method of accommodating particular Situations that the general rules do not adequately address."). However, we conclude that the language of the federal regulation, in keeping with the federal policy to contain health costs and give states great flexibility in the admin- ‘istering of medicaid reserves to the judgment of the states the decision whether to allow challenges to the validity of the methodology at the administrative level. -96a- By so holding, we do not mean to imply with the language licenses the states to virtually eliminate all appeals by choosing to deem no issues appro- priate for appeal. Implicit in the regulation is, we believe, a requirement that at least correct calculation of the payment rate is a mandatory issue for appeal. In this respect, it is significant that the HCFA rejected a suggestion that the appeals process cequirement be waived in states adopting uniform statewide reimbursement rates. 48 Fed. Reg. 56052. By requiring an appeals procedure even in that Situation, the regulation appears’ to contemplate that at least some issue is appealable, and the logical conclusion is that the essential and dominant appealable issue is rate calculation. Pennsylvania allows appeals by providers pursuant to 1 Pa. Code §§ 35.1-35.251. = | ll Canonsburg Gen. Hosp, v. Department of Health, 422 A.2d 141 (1980). Appeals raising the incorrect calculation of the rate may be appealed from a hearing officer's determination to the Director of OHA or the Secretary of the Department and then to the Commonwealth Court. See Commw. 1986); Grand Oak Nursing Home v,., Commonwealth, 541 A.2d 800, 802 (Pa. Commw. 1986). We conclude that the federal regulation requires no more of the State's appeals procedure than Pennsyl- vania offers. We reverse therefore the district court's judgment invalidating Pennsylvania's appeals system. ?° 10%n light of our disposition with respect to the administrative appeals procedure, we have no cause to consider (FOOTNOTE CONTINUED ON NEXT PAGE) -98a- VI. EXPERT WITNESS FEES UNDER 42 U.S.C. § 1988 After its decision on the merits, the district court in an exercise of its discretion under 42 U.S.C. § 1988++ (FOOTNOTE CONTINUED) the eleventh amendment issue raised in the district court and pursued. on appeal. The district court's judgment ordering Pennsylvania to revise its appeals procedure and to apply it to WVUH for reimbursement claims dating from the commencement of this action raised serious eleventh amendment concerns about whether this remedy was retroactive relief unavailable against the state in federal court. Because we uphold the appeals system and issue only prospective relief from the date of judgment, the eleventh amendment is not implicated by our decision. 11 Section 1988 provides in pertinent part: In any action or proceeding to enforce a provision of [section 1983), the court, in its discre- tion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs. 42 U.S.C.A. § 1988 (West 1981). -99a- awarded attorneys fees to WVUH as the prevailing party in a_e section 1983 action. Following the parties’ joint proposal on the amount of fees, the court awarded the Hospital $500,000. Of this amount $350,000 was allocated to attorneys fees, $45,867 to disburse- ments, and $104,133 to expert witness fees. The defendants unsuccessfully contested the award of expert witness fees before the district court, arguing that such fees are statutorily limited to thirty dollars a day by 28 U.S.C. § 1821(b). On appeal the defendants do not challenge an award of expert witness fees in general, but they do renew their argument that the amount of expert witness fees improperly exceeded the statutory maximum. -100a- The defendants’ argument rests on the Supreme Court's decision in word Fitti ; - + Sib} Inc., 482 U.S. 437 (1987). In Crawford Fitting the Court held that a federal court taxing expert witness fees as costs under Fed.R.Civ.P. 54(d) could not exceed the statutory maximum of thirty dollars a day contained in 28 U.S.C. § 1821(b). The statutory framework underlying that decision is as follows. Rule 54(d) provides that costs shall be taxed against the losing party unless the court otherwise directs. The modern day codification of the 1853 Fee Act, 28 U.S.C. § 1920, in turn enumerates the various costs that may be - assessed against a party, and these costs include “(flees and disbursements for printing and witnesses.” Another statute, 28 U.S.C. § 1821(b), sets the amount of -l10la- compensation to be paid witnesses at thirty dollars a day.?? The petitioners in Crawford Fitting argued that federal courts had Giscretion under Rule 54(d) to award costs above and beyond those listed in section 1920 and in excess of the amount l2Section 1821 provides in rele- vant part: (a)(1) Except as otherwise provided by law, a witness in attendance at any court of the United States...shall be paid the fees and allowances provided by this section. x naueR ® (b) A witness shall be paid an attendance fee of $30 per day for each day'’s attendance. Me witness shall also be paid the attendance fee for the time necessarily occupied in going to and returning from the place of attendance at the beginning and end of such attendance or at any time during such attendance.... 28 U.S.C.A. § 1821 (West Supp. 1989). -102a- provided in section 1821. The Court rejected petitioners’ contention, concluding that their view of Rule 54(d) as authorizing courts to decide what is taxable as a cost would render section 1920 superfluous. 437 U.S. at 441. Thus, because section 1920 listed witness fees as a taxable cost, and because section 1821(b) authorized witness compensation of only thirty dollars a day, the Court held that expert witness fees taxed as costs against the losing party under Rule 54(d) could not exceed section 1821(b)'‘s Statutory cap. 437 U.S. at 445. The defendants ask us to apply Crawford Fitting to except witness fees awarded as party of an attorneys fees under 48 U.S.C. § 1988. They assert that the broad ruling of Crawford Fitting precludes awarding of expert witness fees in excess of thirty dollars a day, even though those fees are assessed as party of an attorneys fee under the fee-shifting statute of section 1988 rather than as ae_erun-of-the-mill cost taxed as of course in favor of the prevailing party under Rule 54(d). The Hospital, on the other hand, argues that Crawford Fitting's reach does not extend to section 1988, and that expert witness fees assessed under that section are not subject to a statutory cap. Section 1988 is a_- statutory exception to the general American Rule Gisallowing shifting of attorneys fees. Applicable in civil rights cases, the statute states that a court may award to the prevailing party "a reasonable attorney's fee as part of the costs.” In construing section 1988, courts developed -104a- the general principle that incidental expenses incurred by the attorney, and not usually absorbed as overhead but rather charged to the client, may be included as part of an “attorney's fee” under section 1988. See Bartell, Taxa- tion of Costs and Awards of Expenses in Foneral Covnrt, 1] wee Fae 552 597-94 ; (gathering cases). Depending on the law of the ireuit, the “expenses” allowable as part of an attorneys fee have sometimes included expert witness fees. See Ramos Lamm 712 F.2d 546, 559 (10th Cir. 19R2)(expert witness fees reimburseable under Section 1988 if “reasonably neces- sary” to case); Heiar v. Crawford County, 746 F.2d 1190, 1203 (7th Cir. 1984) (expenses of litigation “distinct from either statutory costs or the costs of the lawyer's time reflected in his hourly billing rates,” including expert -105a- witness fees, are part of attorneys fee under section 1988). But see Wheeler v, Durham City Bod. of Educ., 585 F.2d 618, 624 (4th Cir. 1978) (fees of expert witnesses "are traditionally not regarded as attorney's fees, “however essential their services to the successful prepa- ration and trial of a complex case). In Our own circuit, we have followed the rule, not limited to civil rights cases | but certainly applicable in a Section 1988 case, that a district court has the equitable discretion to award expert witness fees in excess of the sectior 1821 statutory amount if “the expert's testimony is indispensable to determi- nation of the case. See Robexzts v. S.S, Kyriakoula D. Lemos, 651 F.2d 201 20€ (3d Cir. 1981); see slso Rank v. Baelshy 590 F. Supp. 787, 801 (M.D. Pa 1984 -106a- (expert witness fees allowable as part of attorneys fee under section 1988 in excess of thirty dollars a day). The Hospital and the defendants stipulated that WVUH's experts were indispensable to the case, and the district court independently expressed its heavy reliance on their testimony. Under the rule in this circuit, WVUH normally would be entitled to expert witness fees in excess of the statutory maximum. The issue before us, however, is whether Crawford Fitting repudiates the previous law with respect to enhanced awards of expert witness fees under section 1988. The Hospital argues, and the Gistrict court agreed, that Crawford Fitting does not apply to fees awarded under section 1988. The argument has much merit. Justice Blackmun, concurring -107a- in Crawford Fitting, and Justices Marshall and Brennan, dissenting, all emphasized that the Court in that case did not reach the question whether a court may award excess expert witness fees under section 1988, 482 U.S. at 445 (Blackmun, J., concurring); id. at 446 n.l1 (Marshall, J., dissenting). More- over, the policy underlying section 1988, that of making the prevailing party whole, would suggest that the rule of cost taxation embodied in Crawford Fitting should not apply in the context of attorneys fee shifting in Civil rights actions. In his strong concur- rence in International Woodworkers v, Champion Int'l. Corp., 790 F.2d 1174, 1181-1193 (5th Cir. 1986), aff'd sub nom. Crawford Fitting Co, v, J.T, Gibbons, Inc., 482 U.S. 437 (1987). Judge Rubin makes the forceful argument -108a- that based on the legislative history of the Civil Rights Attorney's Fees Awards Act of 1976, Congress intended to treat expert witness’ fees like all other litigation expenses and include them as part of the attorneys fee awardable under section 1988. Indeed, a number of courts examining the question raised here have concluded the Crawford Fitting does not limit expert witness fee award junder section 1988 to the rate set in section 1821(b).2° 13See Sapanajin v. Gunter, 827 F.2d 463, 465 (8th Cir. 1988)(holding that because expert witness fee award was not made as a taxation of costs under section 1821 but as an expense under section 1988, the cap on fees set out in Crawford Fitting does not apply); (FOOTNOTE CONTINUED ON NEXT PAGE) -109a- On the other hand, the broad language of Crawford Fitting strongly suggests that we reach the opposite conclusion. Although on its’ facts a Rule 54(d) case, the substance and reasoning in Crawford Fitting seems to dictate that, even in the case of a fee shifting statute such as section 1988, a (FOOTNOTE CONTINUED) Black Grievance Comm, v., Philadelphia 0 a 690 F.Supp. 1393, 14023 (E.D.Pa. 1988)(same); Hillburn v, Comm'r of Conn. Dep't of Income Maintenance, 683 F.Supp. 23, 27 (D.Conn. 1987), aff'd 847 F.2d 835 (2a Cat. 1988) (same) ; United States v,. Yonkers Bd. of Educ., vi wan FP 326, 330 (S.D.N.Y. 1987), (same); cf. Mathis v Spears, 857 F.2d 749, 758-59 (Fed. Cir. 1988) (post Crawford case holding section 182) inapplicable to award of expert witness expenses under fee-shifting statute pertaining to patents); Freeman v, Package Machinery Co., 865 F.2d 1331, 1346-47 (lst Gans 1988) (although not reaching issue, strongly suggesting it would not “elongate” Crawford Fitting to apply in context of express fee shifting statute). -11]10a- court may not award fees in excess of the statutory maximum of thirty dollars a day unless the fee shifting statute expressly makes such an allowance. The Court wrote that it “will not lightly infer that Congress has repealed §§ 1920 and 1821, either through Rule 54(d) or any other provision not referring explicitly to witness fees.” 482 U.S. at 445. Moreover, the Court plainly expressed its disfavor for “"(Lajny argument that a federal court is empowered to exceed the limitations explicitly set out in sections 1920 and 1821 without plain evidence of congressional intent to supersede that section.” Jd. at 445. We believe that the recent decision of the Court in Missouri v, Jenkins, 47 U.S.L.W. 4735 (1989), in no way alters the ruling of the Court in Crawford. Unlikely Crawford, which dealt with witness fees statutorily fixed by Congress as part of the costs, the Court in Jenkins dealt with a comparatively new phenomenon in the legal world, the enhancement of attorney's fees by including tthe’ fees for services of paralegals and law clerks. Their fees, however, are not regulated by statute as are witness fees. In fact, Missouri, against whom the fees were taxed, conceded “that compensation for the cost of these personnel should be included in the fee award.” Jd. at 4738. Missouri's argument was that section 1988 did not authorize billing paralegals at market rates, but only at their cost to the attorneys hiring them; charging market rates produced a windfall for the attorney. oii 2ae We acknowledge that in this age of sophisticated litigation, in which expert witnesses play an increasingly important role, thirty dollars per day is an insignificant sum. However, we believe that we are constrained by the language of Crawford to abandon our previous rule and to limit expert witness fees to thirty dollars a day. Congress has chosen to legislate in this area and unless the statute under which expert witness fees are awarded expressly repeals the limits of section 1920 and 1821(b), we must defer to legislative fiat. In so holding, we join with the other circuits interpreting Crawford Fitting that have arrived at the same conclusion with respect to fee-shifting statutes similar to section 1988. Denny v, Westfield State College, 58 U.S.L.W. 2077 (lst Cir. 1989)(holding in a Title VII sex discrimination case that absent some reasonably explicit indication of Congressional intent that witness fees be shifted without regard to the thirty dollars per day cap, the Crawford rule must prevail). See Glenn v. Genera] Motors Corp., 841 F.2d 1567, 1575 (llth Cir.), cert.denied, 109 S.Ct. 278 (1988) (holding section 1821 applicable to fee-shifting provision of Equal Pay Act because “the broad language in Crawford Fitting does not permit a distinction based upon whether or not the award is made under a fee-shifting statute”); Leroy v,. City of Houston, 831 F.2d 576, 584 (Sth Cir. 1987), cert. denied, 108 S.Ct. 1735 (1988), (holding section 1821 applicable to fee-shifting provision of Voting Rights Act); cf. Gilbert v. City of Little Rock, 867 F.2d 1062, 1062-63 (6th Cir. 1989), petition for cert. filed (May 20, 1989)(en banc)(affirming by an equally divided court the order of -ll4a- the district court awarding expert witness fees as expenses under section 1988 at the statutory rate of thirty dollars a day); (Boring v. Kozakiewicz, 833 F.2d 468, 474 (3d Cir. 1974), cert. denied, 108 S.Ct. 1298 (1988), (stating in dicta that under Crawford Fitting "{a] prevailing party in a civil rights case is not entitled to taz such fees as costs"); see also Central Delaware Branch of NAACP v, City of Dover, 123 F.R.D. 85, 94-95 (D.Del. 1988) (awarding expert witness fees under section 1988 at statutory rate of thirty dollars a day). We thus conclude that, under Crawford Fitting, section 1988 as presently drafted does not authorize expert fee awards in excess of the statutory cap of thirty dollars per day provided in section 1821(d). We therefore vacate the district court's judgment awarding attorneys fees insofar as it awards WVUH expert witness fees in excess of thirty dollars per day. -ll6a- VII. CONCLUSION We conclude that WVUH can assert a cause of action against the defendants under 42 U.S.C. § 1983 for violation of the federal medicaid statute and that statute does not reflect a congressional intent to foreclose private enforcement. Although states possess broad discretion in devising their hospital reimbursement plans under the medicaid statute, we hold that overall the Pennsylvania medicaid program as it applies to WVUH violates federal law because it fails to meet the disproportionate share and the reasonable and adequate requirements of section 1396a(a)(13)A and the procedural provisions of Title XIX. -117a- As for Pennsylvania's adminis- trative appeals system, we conclude that it sufficiently satisfies Title XIX and the implementing federal regulation. Finally, the district court's award of expert fees in excess of thirty dollars per Gay exceeded federal statutory provisions. Accordingly, the judgment of the district court declaring the Common- wealth of Pennsylvania's medicaid prospective system as it applies to WVUH in violation of federal law will be affirmed as well as its order directing the defendants to formulate a method- Ology within ninety days from the day of judgment for its medicaid prospective payment system for WVUH consistent with and inconformity with federal law. Reimbursement to WVUH under a prospec- tive payment system that conforms to -118a- federal law will commence with the date of the district court's initial judgment in this matter. The judgment of the district court declaring Pennsylvania's administrative appeals system as it applies to WVUH in violation of federal law will be reversed. The judgment of the district court with respect to attorney's fees will be vacated insofar as it grants expert witness fees in excess of thirty dollars per day. Two-thirds of WVUH's costs on appeal will be taxed against the appellants. A True Copy: Teste: Clerk of the United States Court of Appeals for the Third Circuit IN THE UNITED STATE DISTRICT COURT FOR THE MIDDLED DISTRICT OF PENNSYLVANIA WEST VIRGINIA ; UNIVERSITY : CIVIL NO. 86- HOSPITALS, INC., : 0955 Plaintiff (Judge Rambo) ROBERT CASEY, : ET AL., Defendants MEMORANDUM Background West Virginia University Hospitals, Inc. (WVUH or the Hospital) commenced this action against the Commonwealth of Pennsylvania's Depart- ment of Public Welfare and individuals on July 26, 1986. Pursuant to stipu- lation, the Department of Public Welfare was dismissed as a defendant on February 25, 1987. WVUH brought this action under 42 U.S.C. section 1983 alleging Pennsyl- vania’'s medicaid reimbursement program -120a- for out-of-state hospitals violates federal payment standards and violates the equal protection clause of the fourteenth amendment of the United States Constitution. Plaintiff further alleges Pennsylvania's administrative appeals system for out-of-state hospitals is legally inadequate. The Hospital seeks injunctive and declaratory relief regarding its past treatment under Pennsylvania's reim- bursement program and administrative appeals system. The trial in this action took place before the court on May 2, 3, 4, 5, 6, and 16, 1988. The parties have been given an opportunity to present arguments and proposed findings of fact and conclusions of law. The opinion of the court follows. Findings of Fact In accordance with Federal Rule of Civil Procedure 52(a) the court finds the following facts. I. The Parties Rs WVUH is a non-stock, non- profit corporation organized under the laws of West Virginia. Plaintiff's Pretrial Memorandum Undisputed Facts No. l. (Hereinafter referred tc as "Facts.”) r Defendant Robert P. Casey is the Governor of the Commonwealth of Pennsylvania. Facts 2. Be The Secretary of the Department of Public Welfare (the Secretary) of Pennsylvania was Walter W. Cohen at the time this action was filed. The Secretary is now John F. White, Jr. Facts 3. -122a- 4. The Secretary reports’ to the Governor of Pennsylvania. The Secretary is responsible for imple- menting, administering and operating the medicaid program in Pennsylvania. The medicaid program in Pennsylvania is Called the “Medicaid Assistance Program” (MAP). Facts 4. -F Since November, 1987, David S. Feinberg has been Acting Director of the proposed Office of Hospital and Outpatient Programs in the Department of Public Welfare (the Department or DPW). From 1979 to November, 1987, Feinberg was the Director of the Bureau of Policy and Program Development. Facts 5. 6. Feinberg was responsible for the dGevelopment of Pennsylvania's medicaid program's prospective payment system. Facts 6. -l123a- Il. The Hospital - WVUH is located six miles south of the border between the State of West Virginia and the Commonwealth of Pennsylvania. Facts 10 mh 8. The primary service area the Hospital includes the West Virginia counties of Monongalia Marion, Harrison, Taylor, Doddridge and Prest and the Pennsylvania counties f Fayette and Greene. Facts ll. 9 senera Penns 3 ) residents constitute approximatel * of all WVUH inpatient admiss S Testimony of Katherine Douglass, : ] ) = c +c » = Transcript at 163, lines 6, 15-1 lcitations to “Transcript” refer to the trial transcript. Because some trial testimony was transcribed on an expedited basis during trial, citations to that testimony will be, for example, "May 4, 5, and 6, i988 Transcript.” Deposition testimony will be cited Similarly, j1.@., "December 28, 1986 Vertrees Deposition.” -l124a- 10. In 1985, 2,500 inpatient admissions to WVUH were attributable to Pennsylvania residents. 860 of the admissions were Pennsylvania medicaid recipients. Testimony of Katherine Douglass, Transcript at 163, lines 15-20. i Approximately 204,000 people lived in Fayette and Greene Counties in the mid-1980's. By the late 1980s, the population in Fayette and Greene Counties is projected to grow to 209,000 people. Testimony of Katherine Douglass, Transcript at 158, lines 20-25. ce 1,200 persons from Fayette County received inpatient care at WVUH in 1985; 1,100 persons from Greene County received inpatient care. Testimony of Katherine Douglass, Transcript at 163, lines 21-25; 164, lines 1-7. 13. The Hospital also serves patients from Washington County, Pennsylvania. In calendar year 1985 the Hospital had 102 Pennsylvania medicaid admissions from Washington County, Pennsylvania. Facts 14. Services Provided 14. A “tertiary care” hospital is a hospital that provides a level of hospital and medical services that is inherently more complex and that is generally not provided in small or community hospitals. Testimony of Bernard Westfall, Transcript at 33, lines 2-25; 34, lines 1-25; 35 lines 1-15. 15. WVUH is the closest source of tertiary care services to many indi- viduals living in Greene and Fayette Counties. Testimony of Katherine Douglass, Transcript at 159, lines ll- 25; 160-161; 162, lines 1-24. ~126a- 16. Some Pennsylvania medicaid recipients who reside in Fayette, Greene and parts of Washington Counties, and who must use the Hospital for complex or specialized medical services, otherwise must travel 20 to 70 additional miles to Pittsburgh, Pennsylvania, the next closest city (to the Hospital) in which such services are offered. Facts 16. 17. Specialized or complex inpatient services available at the Hospital which are not available in the Pennsylvania hospitals in Fayette, Greene, and Washington Counties include cardiac catheterization, angiography, open heart surgery, high risk obstetrics, neonatal intensive care, kidney transplant lithotripsy. Testimony of Katherine Douglass, Transcript at 159, lines 16-25; 160, lines 1-25; 161, lines 1-25; 162, lines -~127a- 1-25; 163, lines 1-25; 164, lines 1-25; 165, lines 1-25; 166 lines 1-3. Facts 18. WVUH is a Level I trauma center equipped to deal with head and spine injuries as well as cardiac and other emergencies. It is the only Level I trauma center in the service area of WVUH. The next closest Level I trauma center is located in Pittsburgh Testi- mony of Katherine Douglass, Transcript at 160, lines 11-25; 161, lines 1-5. 19. WVUH provides an extensive prenatal referral system for high risk neonates and, as part of that system, provides high risk prenatal services to hospitals in the service area, including Greene County Memorial Hospital located in Greene County, Pennsylvania. Testi- mony of Katherine Douglass, Transcript at 161, lines 6-25; 162, lines 1-24. -128a- 20. WVUH also provides special- ized outpatient services to Pennsylvania residents. These services include pedi- atric cardiology, pediatric neurology, neurosurgery, and other highly technical types of care. Testimony of Katherine Douglass, Transcript at 165, lines 16-22. 21. The outpatient services identified in the paragraph above are not available at hospitals located in Fayette and Greene Counties. If patients did not use WVUH for such services, the next closest hospital would be located in Pittsburgh. Testimony of Katherine Douglass, Transcript at 165, lines 23-25; 166, lines 1-3. aes WVUH also provides Pennsylvania residents with routine hospital care such as routine obstetrics, normal newborn care and tonsillectomies. Defendants’ Exhibit 76. -129a- as- The types of routine cases seen at WVUH are similar to the routine types of cases seen at most university teaching hospitals. Testimony f James Vertrees, Transcript at , lines 6-14. 24. WVUH has approximately the same Case Mix Index (CMI) as university teaching hospitals located Pennsylvania and other Similarly Situated hospitals. Plaintiff's Exhibit 66. WVUH 15 8 University Affiliated Teaching Hospital aa The Hospital 1 ; er- sity affiliated teaching hospitai: the West Virginia University uses the WY) Hospital to train health professional Facts 39. 26. WVUH iS a major academic medical center, one of only 121 = 4such centers in the country. Testimony of -130a- Gerard Anderson, Transcript at 392, lines 1-12. as 1,300 persons completed their physician and dentist residency training programs at tha Hospital between 1960 and 1984. Facts 40. 28. Approximately 7% of the 1,664 total living alumni of the West Virginia University School of Medicine's four-year medical program live in Pennsylvania. Facts 47. 29. MAP recognizes that the provision of graduate medical education programs improves the quality of care at A hospital. Testimony of Gerard Anderson, Transcript at 320, lines 12-23. Plaintiff‘s Exhibit 8. WVUH's Medicaid vo] 30. Historically, WVUH has provided significant numbers of Pennsylvania medicaid recipients with hospital care. -l3la- 31. In calendar Hospital treated 610 medicaid admissions’ on basis. Facts 22. cy 2 In calender Hospital treated 692 medicaid admissions on basis. Facts 23. ae In calendar Hospital treated 783 medicaid admissions’- on basis. Facts 24. 34. In calendar Hospital treated 828 medicaid admissions’ on basis. Facts 25. 33. In calendar Hospital treated 853 medicaid admissions- on basis. Facts 26. -132a- year 1981, the Pennsylvania an inpatient year 1982, the Pennsylvania an inpatient year 1983, the Pennsylvania an inpatient year 1984, the Pennsylvania inpatiant an year 1985, the Pennsylvania an inpatient 36. In calendar year 1986, the Hospital treated 840 Pennsylvania medicaid admissions’ on an inpatient basis. Facts 27. Be In calendar year 1987, the Hospital treated 552 Pennsylvania medicaid admissions from the period January 1 through September 30, 1987. Facts 28. 38. The number of patients identified in paragraphs 31 through 37 above does not include the number of Pennsylvania medicaid recipients who utilized the outpatient services of the Hospital. Facts 29. 39. The annual number of outpatient visits at the Hospital attributable to Pennsylvania medicaid recipients ranges from 7,000 to 7,500. Facts 30. -133a- 40. Pennsylvania medicaid recipients residing in Fayette, Greene, and Washington Counties have "freedom of choice” in selecting their medical care providers. This means absent’ special rules, (none of which are applicable to this case), Pennsylvania recipients of medicaid may use the services of any hospital they choose. Testimony of David Feinberg, May 4, 5, and 6, i988 Transcript at 124, lines 22-25; 125, lines 1-25; 126, lines 1-25; 127, lines 1-21. ei. Some Pennsylvania resl- dents, including Pennsylvania medicaid recipients, living in the counties of Fayette, Greene, and Washington desire and require access to the Hospital's services and facilities. Facts 32. -134a- 42. In fiscal years 1984-85, 1985-86 and 1986-87, WVUH provided inpa- tient hospital care to more Pennsylvania medicaid patients than over one-half of the hospitals located in Pennsylvania. Testimony of Thomas Manak, Transcript at 252, lines 8-25, 252, lines 1-7. Plaintiff's Exhibit 5l(a). 43. Five percent of all WVUH inpatiant admissions are attributable to Pennsylvania medicaid recipients. Testi- mony of Stephen Pickett, Transcript at 170, lines 12-13; 175, lines 18-20. 44. In addition to serving Pennsylvania recipients, the Hospital served the following mumbers of West Virginia medicaid admissions on an inpatient basis: July 1, 1982 - June 30, 1983 2.049 July 1, 1983 - June 30, 1984 2.261 -~135a- July 1, 1984 - December 31, 1984 1.181 Calendar Year 1985 2.319 Calendar Year 1986 1.848 January 1, 1987 - October 31, 1987 1.618 45. Twenty-three percent of all WVUH inpatient admissions are recipients of medicaid. Testimony of Stephen Pickett, Transcript at 170, lines 8-9. 46. Seventeen percent of all WVUH inpatient admissions are West Virginia medicaid recipients. Testimony of Stephen Pickett, Transcript at 170, lines 12, 13. WVUH's Incorporation History 47. In 1982 the West Virginia Board of Regents commissioned a study to determine how to resolve deficiencies -136a- cited by the national accreditation board for hospitals. The West Virginia Board of Regents was advised that given the structural problems of the existing facility, it was more prudent to replace the facility than to renovate it. Testi- mony of Bernard Westfall, Transcript at 49, lines 22-25; 50, lines 1-25; S5l, lines 1-25; 52, lines 1-19. 48. The West Virginia legis- lature concurred. See § 18-11C-2(c) of the Code of West Virginia. 49. The entity that the legis- lature created to operate the facility is WVUH. Testimony of Bernard Wastfall, Transcript at 59, lines 18-20. 50. WVUH and its predecessor entity, West Virginia University Hospital, are the same. They are both creatures of the West Virginia legis- lature and subject to its control. The legislature simply changed the form of -137a- the hospital organization. Testimony o [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0884%3A1. Public record. Not legal advice.