JEWISH MEMORIAL HOSPITAL & others [Note 1] vs. COMMONWEALTH & others. [Note 2]

WILKINS, J. The plaintiff hospitals appeal from a declaratory judgment entered on May 1, 1992, in the Superior Court, following the filing of cross-motions for partial summary judgment. That judgment upheld the lawfulness of certain regulations of the Department of Public Welfare (department) and the lawfulness of the department's 1990 request for proposals for the development of specialized facilities. We transferred the case from the Appeals Court on our own motion.

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The judgment upheld 106 Code Mass. Regs. Sections 435.401 to 435.411 (1991), inclusive, against a claim that they violated the requirements of G. L. c. 6A, Section 32 (1992 ed.), the requirements of G. L. c. 118E, Section 4 (1992 ed.), and Federal standards for Medicaid reimbursement. Those regulations are a portion of the department's regulations governing participation in the Massachusetts Medicaid program by chronic disease, rehabilitation, and Department of Public Health hospitals and units within other facilities that perform chronic disease or rehabilitation services. [Note 3] The plaintiffs rightly complain that the judgment fails to address their contentions that other, later numbered, sections of the department's regulations on the same general subject are unlawful. The complaint cited such regulations and alleged violations of law that necessarily concerned those regulations. We shall remand the case for consideration of the plaintiffs' challenges not disposed of by the declaratory judgment.

The judge rejected the plaintiffs' challenges to the department's plan to seek the development of specialized facilities to provide care for persons who have conditions that do not require hospitalization but do require services not generally available in a nursing home. In the summer of 1990, the department issued a request for proposals (RFP) for the development of such specialized facilities. In November, 1990, the department awarded contracts to twenty bidders, three of whom are plaintiff hospitals in this case. The plaintiffs challenge the department's procedure for the creation and operation of such facilities, arguing, among other things, that the RFP violates Federal requirements for Medicaid programs and that the RFP, and the regulations together, violate rights protected by the Fourteenth Amendment to the United States Constitution.

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The declaratory judgment did not dispose of the entire case, and, strictly speaking, absent a direction from the judge, the judgment was not an appealable final judgment. See Mass. R. Civ. P. 54 (b), 365 Mass. 820 (1974). We shall, however, deal with the plaintiffs' objections to the judgment that was entered. [Note 4]

1. The regulations. We consider first the plaintiffs' challenges to the lawfulness of certain aspects of 106 Code Mass. Regs. Section 435.401 - 435.410. We address in order the plaintiffs' arguments that certain regulations violate (a) G. L. c. 6A, Section 32, (b) G. L. c. 118E, Section 4, and (c) Federal Medicaid reimbursement standards.

(a) The plaintiffs advance four arguments challenging regulations as violative of G. L. c. 6A, Section 32. First, the plaintiffs claim that the department improperly reserved to itself in Section 435.409 (A) the right to review the medical necessity of the placement of a patient in a chronic disease hospital. Section 435.409 (A) provides that "[t]he following level-of-care criteria will be used by the Department or its agent to determine the medical necessity and appropriateness of placement in chronic disease . . . hospitals." It is claimed that this preadmission screening provision is contrary to a provision in Section 32, added by St. 1988, c. 270, Section 1, concerning rates of reimbursement for administratively necessary days. The provision in Section 32 states that "[d]eterminations as to the medical necessity of patient care shall only be made by physician members of each hospital's utilization review committee, and may only be subject to review by [authorized peer review organizations]." An administratively necessary day is a day in which a Medicaid recipient who is a hospital inpatient could

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properly be treated in a facility providing a lower level of care but no such facility is reasonably available. See New England Memorial Hosp. v. Rate Setting Comm'n, 394 Mass. 296, 298 (1985). The plaintiffs make no reasoned argument in support of their claim that a regulation concerning only preadmission screening (Section 435.409) is unlawful because of statutory language concerning determinations as to the medical necessity of inpatient care. We reject this challenge to Section 435.409 (A). [Note 5]

Second, plaintiffs challenge 106 Code Mass. Regs. Sections 435.409 and 435.410, both of which concern the level of care that a patient must require to be considered an appropriate chronic disease hospital placement. The claim is that other language added to G. L. c. 6A, Section 32, by St. 1988, c. 270, Section 1, forbids the department from becoming involved in medical determinations in the way that it is claimed that Sections 435.409 and 435.410 allow. That language states that "[d]eterminations of the medical necessity of care provided to patients by non-acute hospitals shall not be subject to any substantive standards other than generally accepted medical practice." We see no conflict. The challenged regulations concern the question whether a placement in a chronic disease hospital is appropriate for reimbursement purposes. The statutory language concerns the determination of the medical necessity for care in such a hospital. The regulation and statute relate to different subjects. It is no doubt true that the availability of reimbursement and the level of any available reimbursement might indirectly affect medical judgments as to what care to provide to a patient. We do not, however, read the statutory language as barring the department from having control over the appropriateness for reimbursement purposes of hospital admissions for which public funds are expended. See 42 U.S.C. Section 1396a (a) (30) (A) (Supp. III 1991) (department has an obligation, among other things, to "provide such methods and procedures relating to the utilization

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of, and the payment for, care and services . . . as may be necessary to safeguard against unnecessary utilization of such care and services").

A somewhat similar argument was rejected in Norfolk County Hosp. v. Commonwealth, 25 Mass. App. Ct. 586, 592 (1988), in which the court held that prior, similar regulations, defining an appropriate placement in a chronic disease hospital, did not violate the prohibition in G. L. c. 118E, Section 4, against the department formulating "medical standards and criteria." Chapter 270 of the Acts of 1988 was enacted approximately six months after the Appeals Court opinion in the Norfolk County Hosp. case. If the Legislature had intended to bar the department from promulgating criteria concerning the appropriateness for reimbursement purposes of a placement in a chronic disease hospital, it should have been, and, we think, would have been, more specific.

Third, the plaintiffs argue that the department's regulations do not comply with the mandate of G. L. c. 6A, Section 32, that the administratively necessary day rate "shall only apply to patients for whom medically necessary care is usually provided to public assistance recipients admitted to nonhospital facilities within a twenty-five mile radius of the domicile of any individual recipient or his family." The regulations which specify when administratively necessary days are reimbursable are 106 Code Mass. Regs. Sections 435.413 and 435.414 (1991), and are beyond the scope of the declaratory judgment. The department was not obliged to deal with this subject in its definition of administratively necessary days in Section 435.402 (A).

Fourth and finally, the plaintiffs argue that the department has failed to conform its regulations to the rights of appeal established in G. L. c. 6A, Section 32, as amended by St. 1988, c. 270, Section 1, concerning a determination that administratively necessary day rates shall apply to a patient. The plaintiffs point to Section 435.409 (B) as failing to meet the statutory standard. That section, however, provides an appeal mechanism concerning preadmission screening decisions and does not involve determinations as to administratively necessary day

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rates. That regulation is the only one within the scope of the declaratory judgment that the plaintiffs challenge on the ground that it fails to provide proper appellate procedures. [Note 6]

(b) The plaintiffs also argue that aspects of the regulations violate G. L. c. 118E, Section 4, because they contain "medical standards and criteria" which Section 4 states the department may not formulate. [Note 7] This is an up-to-date reiteration of the claims made unsuccessfully by the plaintiffs in Norfolk County Hosp. v. Commonwealth, supra at 591-592, and noted earlier in this opinion. The prohibition in Section 4 against the department's formulating medical standards and criteria bars the department from regulating the nature and degree of medical services that shall be provided to a patient. It does not, however, bar the department from determining for reimbursement purposes the medical necessity and appropriateness of a placement in a chronic disease hospital using criteria such as the adult appropriateness evaluation protocol referred to in Section 435.409.

(c) The plaintiffs are wrong in asserting that 106 Code Mass. Regs. Section 435.409 (A) violates Federal utilization review requirements. They have misunderstood the operation of the challenged regulation. An independent physician, not the department, has the final say on the preadmission placement decision. 106 Code Mass. Regs. Section 435.401 (B). Although a hospital must have a utilization review plan that meets Federal

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requirements (42 U.S.C. Section 1395x [k] [1988]) in order to qualify for Medicaid reimbursement (42 U.S.C. Section 1396b [i] [4] [1988]), Section 435.409 (A) in no way impedes the plaintiffs from doing so. Moreover, there is no Federal prohibition against the establishment of State procedures that supplement Federal utilization review requirements. Preadmission screening, which is the subject of Section 435.409 (A), is a process separate from that addressed by the Federal requirements and does not concern utilization review by its terms. [Note 8]

2. Requests for proposals. The plaintiffs advance various objections to the department's request for proposals (RFP) for the furnishing of care to Medicaid recipients who do not need to be hospitalized in an acute care hospital, but need services not generally available in a nursing home. No contract had been negotiated at the time that summary judgment was ordered. The plaintiffs have not shown that the department's RFP is unlawful.

The department had statutory authority to make agreements of the type contemplated with chronic disease and rehabilitative hospitals such as the plaintiffs. See G. L. c. 118E, Section 4, and G. L. c. 118E, Section 2 (g) (1992 ed.), defining "provider." The prohibition of St. 1992, c. 133, Section 2, line-item 4402-4200, against the department's selectively contracting for chronic hospital services before July 1, 1993, is not shown to be violated, was enacted after the judgment was entered in this case, and implicitly recognizes the department's authority generally to enter into such contracts.

The RFP provides that hospital reimbursement will be at negotiated rates. The Commonwealth's Medicaid plan, then in effect, did not permit reimbursement at negotiated rates. Federal law requires that rates of reimbursement be in accordance with a Federally approved State plan. 42 C.F.R. Section 447.253 (i) (1992). See Quincy City Hosp. v. Rate Setting Comm'n, 406 Mass. 431, 433 (1990) (State choosing to participate

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in Medicaid "must submit to [Federal agency] a `State plan' for medical assistance that comports with Federal statutory and regulatory requirements"). The defendants grant that the State plan would have to be amended in order to implement the RFP program. The judgment entered on remand should acknowledge this circumstance (adjusted, if necessary, to current circumstances). The obligation to amend the State plan need not be satisfied before any contracts at negotiated rates are executed. See 42 C.F.R. Sections 430.20 (b) and 447.256 (c) (1992).

The plaintiffs' argument is premature that public notice is required before the department may contract at negotiated rates pursuant to the RFP. See 42 C.F.R. Section 447.205 (1992). Moreover, it is doubtful that the plaintiffs, who already know of the circumstances, have any basis for complaint. See California Ass'n of Bioanalysts v. Rank, 577 F. Supp. 1342, 1349-1350 (C.D. Cal. 1983). The underlying issue as to whether public notice is required is whether reimbursement at a negotiated rate is a "significant proposed change" in the department's "methods and standards for setting payment rates for services." 42 C.F.R. 447.205 (a). The addition of a new method of payment seems to be a change in the method of setting payment rates for services. Whether the change is significant may depend on facts not before us, such as the impact on Medicaid expenditures. The fact that the RFP would affect only about 260 Medicaid recipients suggests that the change may not be significant in its general impact. See Missouri Dep't of Social Servs. v. Sullivan, 957 F.2d 542, 545 (8th Cir. 1992). [Note 9]

The plaintiffs probably have no standing to challenge the RFP program on the ground that it violates Federal law governing

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Medicaid patients' freedom of choice. [Note 10] In any event, the RFP opens up a new option for such patients and in no way restricts their choices of facilities. The record does not support the claim that the RFP violates the requirement of 42 U.S.C. Section 1396a (a) (10) (1988 & Supp. III 1991), and implementing regulations (42 C.F.R. Sections 440.230 and 440.240 [1992]), concerning equality in the amount, duration, and scope of each service provided the categorically needy group and the covered medically needy group.

3. Although we affirm the provisions of the judgment entered, the case is remanded for consideration of such issues in the complaint that were not decided by the declaratory judgment. Circumstances may have changed so that certain issues are no longer important or are perhaps even moot. In the judge's discretion, the complaint may be amended to present current issues, but the judge may conclude that a new action based on a new record would better present any such issues. The declaratory judgment shall be supplemented and amended to be consistent with this opinion and to resolve any undecided issues as to which there is an actual controversy. [Note 11]

So ordered.