YOUVILLE HOSPITAL & others [Note 1] vs. COMMONWEALTH & others. [Note 2]

WILKINS, J. In this action which was commenced in August, 1981, the defendants appeal from a judgment, entered on March 18, 1992, in the Superior Court upon the granting of a motion for summary judgment of the plaintiff hospitals, which are licensed to provide chronic disease and rehabilitation services. The judgment ordered the defendants to comply with various declarations that purported to set forth rights and obligations arising from the enactment of St. 1988, c. 270, Section 1, which amended G. L. c. 6A, Section 32, by adding four paragraphs. The judgment also stated that, in the circumstances, the various declarations govern the parties' rights and duties as to this action for periods prior to the enactment of St. 1988, c. 270. The plaintiff hospitals had exercised the option granted to them by St. 1988, c. 270, Section 1, 4th para., to apply the provisions of Section 1 "to settle disputes which were filed in court on or before" June 1, 1988, between a non-acute hospital and the Rate Setting Commission (commission) or the Department of Public Welfare (department) "concerning the determination of administratively necessary days and rates." [Note 3] We transferred this case from the Appeals Court on our own motion.

We conclude that a judgment declaring the rights and obligations of the parties should be entered concerning the consequences

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of the enactment of St. 1988, c. 270, but that there is no justification for entering an injunction that the defendants comply with declarations of the sort entered in this case. Two of the declarations concern an issue that in considerable measure we decided in Jewish Memorial Hosp. v. Commonwealth, ante 133 (1993), contrary to the position of the hospitals and contrary to the substance of the declarations set forth in the judgment in this case. Id. [Note 4] A declaration of the rights of the parties, consistent with what we decided in the Jewish Memorial Hosp. case, shall be entered, directed to those specific regulations, considered in the Jewish Memorial Hosp. case, that the plaintiffs claim violate the command of St. 1988, c. 270, Section 1, concerning determinations of the medical necessity of patient care and the review of such determinations. As to any continuing challenges to regulations not considered in the Jewish Memorial Hosp. case, they may be considered on remand.

Declarations in the judgment also set forth the obligations of some or all the defendants on the assumption that, as to the plaintiff hospitals, the commission had established rates for administratively necessary days for public assistance patients. See Jewish Memorial Hosp. v. Commonwealth, supra at 135-136, for a definition of such days. The commission has done so literally, but it has not done so in any practical sense that the plaintiffs may complain about. The commission's administratively necessary day rates for the plaintiff hospitals

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have no practical meaning because, pursuant to the State Medicaid plan, they are supplemented by other payments that provide the hospitals with rates of payment that are the same as those that would be applicable if the commission had not established administratively necessary day rates. [Note 5] For this reason, mandates in St. 1988, c. 270, Section 1, concerning such rates, their operation and application, and exemptions from them, do not apply to the plaintiff hospitals. [Note 6] The paragraphs of the judgment setting forth the obligation of one or more of the defendants concerning administratively necessary days concern no actual controversy between any plaintiff and any defendant, and declaratory relief on that subject as to this period is not appropriate.

There remains for our consideration only the effect of that paragraph of the judgment which states that, because the plaintiff hospitals have elected, pursuant to St. 1988, c. 270, "to apply the provisions of section 1 of that act to settle this action, the foregoing declarations also govern the rights and duties of the parties with respect to the periods before enactment of chapter 270 which are in issue in this action." We have just indicated that "the foregoing declarations" are either legally wrong or inappropriately entered. Thus the declaration of law just quoted has no independent significance. [Note 7]

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The judgment must be vacated and the case remanded for further consideration. Because the parties disagree about the effect of the settlement language of St. 1988, c. 270, Section 1, and because that issue is important to the case, we shall consider aspects of the settlement provision.

Whatever St. 1988, c. 270, Section 1, may require with respect to the disposition of this action, once a hospital has elected the option to have Section 1 applied to settle the dispute in this case, the resulting settlement may be implemented and the right to Federal reimbursement for State expenditures may be established only when the payment method has been seasonably included in the State plan and approved. See 42 U.S.C. Section 1396b (1988); 42 C.F.R. Section 447.253 (i) (1992); Quincy City Hosp. v. Rate Setting Comm'n, 406 Mass. 431, 433 (1990); New England Memorial Hosp. v. Rate Setting Comm'n, 394 Mass. 296, 298 (1985). Moreover, the commission in implementing Medicaid regulations, and particularly in establishing or changing rates of reimbursement, must follow the requirements and objectives of the State plan and of Federal Medicaid statutes and regulations. See St. 1989, c. 653, Section 9, amending G. L. c. 6A, Section 32. The commission and the department must follow the requirements of Federal law for the availability of Federal financial reimbursement over a State statutory direction that is inconsistent with such Federal requirements, unless the State legislation explicitly directs otherwise. See Haley v. Commissioner of Pub. Welfare, 394 Mass. 466, 472 (1985). Thus, if the settlement prescribed by St. 1988, c. 270, Section 1, in this case provides for the payment of funds as to which Federal reimbursement will not be permitted, the settlement may not be implemented as to any such proposed payment.

It is not apparent that the motion judge considered the relationship between the settlement provisions of Section 1, as he viewed them, and the requirements of Federal law concerning reimbursement of the State for payments for Medicaid services. When there is a substantial question whether the Commonwealth would be proceeding properly according to

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Federal Medicaid requirements for reimbursement, a judge normally should not order the Commonwealth to implement a program or practice that should be, but is not, part of the State's federally approved State Medicaid plan. Rather, if the judge rules that the program or practice does comply with Federal reimbursement requirements, the judge should consider the advisability of directing the Commonwealth to propose amendments to the State plan. In this way, if the Health Care Finance Agency approves the amendment to the plan, Federal reimbursement will be protected. [Note 8]

It appears that the type of amendments to a State plan which St. 1988, c. 270, Section 1, would require cannot be effective earlier than the first day of the quarter in which the change is embodied in a plan amendment. 42 C.F.R. Sections 430.20 (b), 447.256 (c) (1992). In this case, the judge ordered retroactive implementation of the rate standards of St. 1988, c. 270, Section 1, beyond the date in 1990 (July 1), as of which those rate standards were effectively made part of the State plan. If some or all of the provisions of Section 1 must be included in the State plan to assure Federal reimbursement with respect to settlement payments to the plaintiff hospitals, implementation of such provisions as part of any settlement of this case would not be appropriate absent a retroactive amendment of the State plan. [Note 9]

We decline to decide whether and to what extent the settlement option is retroactive. The provision in Section 1 is ambiguous. We cannot tell from the record what difficulties, apart from obtaining Federal reimbursement, would exist if one were to attempt to apply the settlement provision of Section 1 back to the initiation of this action. An answer to this question

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might be some guide in construing the Legislature's intention in enacting the settlement provision. To the extent that Federal reimbursement is barred with respect to any possible application of the hospitals' elections of the settlement option to the period prior to the effective date of St. 1988, c. 270, it will not be necessary to decide the State law question whether the settlement option applies to periods prior to that effective date. [Note 10]

We do agree with the plaintiff hospitals that, when on July 24, 1990, each exercised its option under Section 1, whatever the scope of that option, it was an option to elect a definite, prescribed solution and not, as the defendants argue, an option to negotiate a settlement that could include some or all of the provisions of Section 1.

The preliminary injunction entered in this case shall continue in effect, subject to such modification in the Superior Court as a judge deems appropriate. The judgment is vacated and the case is remanded for further consideration in light of this opinion.

So ordered.