OUR LADY OF LOURDES HOSPITAL â€" BURLINGTON VS. DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES(DIVISION OF MEDICAL ASSISTANCE AND HEALTH SERVICES) ( 2017 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-2919-15T2
OUR LADY OF LOURDES HOSPITAL
– BURLINGTON,
Petitioner-Appellant,
v.
DIVISION OF MEDICAL
ASSISTANCE AND HEALTH
SERVICES,
Respondent-Respondent.
________________________________________________________
Argued October 3, 2017 - Decided October 25, 2017
Before Judges Yannotti, Carroll and Mawla.
On appeal from the Division of Medical
Assistance and Health Services, Docket No. HMA
4005-2006.
James A. Robertson argued the cause for
appellant (McElroy, Deutsch, Mulvaney &
Carpenter, LLP, attorneys; Mr. Robertson, of
counsel and on the briefs; Paul L. Croce and
Marissa Koblitz Kingman, on the briefs).
Jacqueline R. D'Alessandro, Deputy Attorney
General, argued the cause for respondent
(Christopher S. Porrino, Attorney General,
attorney; Melissa H. Raksa, Assistant Attorney
General, of counsel; Ms. D'Alessandro and
Jennifer Simons, Deputy Attorneys General, on
the brief).
PER CURIAM
Our Lady of Lourdes Hospital – Burlington (the Hospital)
appeals from a final decision of the Director, Division of Medical
Assistance and Health Services (Division), which denied the
Hospital's application to recalculate its 1995 Medicaid
reimbursement rates for inpatient services.1 We affirm.
I.
Medicaid is a federally-established, state-run program,
Estate of F.K. v. Div. of Med. Assistance & Health Servs., 374
N.J. Super. 126, 133–34 (App. Div.), certif. denied, 184 N.J. 209(2005), "designed to provide medical assistance," at public
expense, "to individuals 'whose income and resources are
insufficient to meet the cost of necessary medical services,'"
N.M. v. Div. of Med. Assistance & Health Servs., 405 N.J. Super.
353, 359 (App. Div.) (quoting 42 U.S.C.A. § 1396), certif. denied,
199 N.J. 517 (2009).
1
We note that in October 2016, the court consolidated this appeal
with Atlanticare Regional Medical Center v. Division of Medical
Assistance & Health Services, No. A-0364-15. We have determined
that the appeals should be addressed in separate opinions.
Therefore, we vacate the order consolidating the appeals.
2 A-2919-15T2
A state's participation in Medicaid is voluntary, but
participating states must comply with the federal Medicaid
statutes and any regulations promulgated by the United States
Department of Health and Human Services implementing the statute.
Mistrick v. Div. of Med. Assistance & Health Servs., 154 N.J. 158,
166 (1998). In addition, states must adopt and adhere to a plan
that establishes the scope of the program and sets forth reasonable
standards for its administration, including a "scheme for
reimbursing health care providers for the medical services
provided to needy individuals." Wilder v. Va. Hosp. Ass'n, 496
U.S. 498, 502, 110 S. Ct. 2510, 2513, 110 L. Ed. 2d 455, 462
(1990). Federal approval of the plan permits states to receive
matching federal funds for applicable medical services reimbursed
through the program. 42 U.S.C.A. § 1396(b).
New Jersey participates in the Medicaid program pursuant to
the New Jersey Medical Assistance and Health Services Act, N.J.S.A.
30:4D-1 to -19.5, which assigns the responsibility for
administering our state program to the Division. N.J.S.A. 30:4D-
7. The Hospital is an acute care facility that participates and
receives reimbursement for its provision of services covered under
the program.
In accordance with New Jersey's federally-approved state
plan, those reimbursements are calculated based upon standard
3 A-2919-15T2
rates for each Diagnosis Related Group, In re Hosps.' Petitions
for Adjustment of Rates for Reimbursement of Inpatient Servs. to
Medicaid Beneficiaries, 383 N.J. Super. 219, 232 (App. Div.),
certif. denied, 187 N.J. 82 (2006), that is, each class of patients
defined by shared characteristics related to diagnosis, procedure,
and other relevant factors, N.J.A.C. 10:52-1.2. In addition,
federal regulations require that those rates be set such that
payments made under the state's Medicaid program do not exceed
upper payment limits established for Medicare, a separate
federally-administered program. 42 C.F.R. § 447.253(b)(2) (2017);
42 C.F.R. § 447.272(b) to (c) (2017).
In 1993, the Division promulgated regulations that set forth
the calculation methodology at issue here. 25 N.J.R. 2560(a) (May
10, 1993). Among other things, the regulations provide for the
application of an "economic factor" to account for inflation in
setting reimbursement rates:
The economic factor calculated by the
Department of Health is the measure of the
change in prices of goods and services used
by New Jersey hospitals. After the 1993 rate
year, the economic factor will be the factor
recognized under the TEFRA target limitations.
[Id. at 2568.]
4 A-2919-15T2
The regulation was codified at N.J.A.C. 10:52-5.17(a). The rule
was later re-codified without change, effective December 21, 1999,
at N.J.A.C. 10:52-5.13.2
The term "TEFRA target limitations" in N.J.A.C. 10:52-5.17(a)
refers to the Tax Equity and Fiscal Responsibility Act of 1982
(TEFRA), Pub. L. No. 97-248, § 101, 96 Stat. 324, 331-36 (codified
at 42 U.S.C.A. § 1395ww, but since amended). As an incentive to
contain costs, TEFRA imposes "target" limits on the rate of
increase in allowable costs for inpatient services a facility may
recover through reimbursement. Episcopal Hosp. v. Shalala, 994
F.2d 879, 881 (D.C. Cir. 1993), cert. denied, 510 U.S. 1071, 114
S. Ct. 876, 127 L. Ed. 2d 73 (1994).
When the Division adopted N.J.A.C. 10:52-5.17(a), the TEFRA
provision outlining the legislation's "target amount[s]" stated:
(A) . . . [T]he term "target amount" means,
with respect to a hospital for a particular
12-month cost reporting period--
(i) in the case of the first such reporting
period for which this subsection is in effect,
the allowable operating costs of inpatient
hospital services (as defined in subsection
(a)(4)) recognized under this title for such
hospital for the preceding 12-month cost
reporting period, and
2
In this opinion, we refer to the regulation as N.J.A.C. 10:52-
5.17(a), because that was the regulation in effect when this
dispute began.
5 A-2919-15T2
(ii) in the case of a later reporting period,
the target amount for the preceding 12-month
cost reporting period, increased by the
applicable percentage increase under
subparagraph (B) for that particular cost
reporting period.
(B) . . . .
(ii) . . . [T]he "applicable percentage
increase" for 12-month cost reporting periods
beginning during--
(I) fiscal year 1986, is 0.5 percent,
(II) fiscal year 1987, is 1.15 percent,
(III) fiscal year 1988, is the market
basket percentage increase minus 2.0
percentage points, and
(IV) subsequent fiscal years is the
market basket percentage increase.
(iii) For purposes of this subparagraph, the
term "market basket percentage increase"
means, with respect to cost reporting periods
and discharges occurring in a fiscal year, the
percentage, estimated by the Secretary before
the beginning of the period or fiscal year,
by which the cost of the mix of goods and
services (including personnel costs but
excluding nonoperating costs) comprising
routine, ancillary, and special care unit
inpatient hospital services, based on an index
of appropriately weighted indicators of
changes in wages and prices which are
representative of the mix of goods and
services included in such inpatient hospital
services, for the period or fiscal year will
exceed the cost of such mix of goods and
services for the preceding 12-month cost
reporting period or fiscal year.
[42 U.S.C.A. § 1395ww(b)(3) (1992).]
6 A-2919-15T2
Shortly after the Division adopted N.J.A.C. 10:52-5.17(a), TEFRA
was amended to provide an updated schedule of inflationary
increases, which changed the increase that would have been
applicable for the 1995 rate year from the market basket percentage
to a reduced rate based on that percentage:
[T]he "applicable percentage increase" for 12-
month cost reporting periods beginning during—
(I) fiscal year 1986, is 0.5 percent,
(II) fiscal year 1987, is 1.15 percent,
(III) fiscal year 1988, is the market
basket percentage increase minus 2.0
percentage points,
(IV) a subsequent fiscal year ending on
or before September 30, 1993, is the
market basket percentage increase,
(V) fiscal years 1994 through 1997, is
the market basket percentage increase
minus the applicable reduction (as
defined in clause (v)(II)), or in the
case of a hospital for a fiscal year for
which the hospital's update adjustment
percentage (as defined in clause (v)(I))
is at least 10 percent, the market basket
percentage increase, and
(VI) subsequent fiscal years, is the
market basket percentage increase.
[Omnibus Budget Reconciliation Act of 1993,
Pub. L. No. 103-66, § 13502(a)(1), 107 Stat.
312, 577 (codified at 42 U.S.C.A.
§ 1395ww(b)(3)(B)(ii), but since amended).]
The legislation further provided:
7 A-2919-15T2
For purposes of clause (ii)(V)—
(I) a hospital's "update adjustment
percentage" for a fiscal year is the
percentage by which the hospital's
allowable operating costs of inpatient
hospital services recognized under this
title for the cost reporting period
beginning in fiscal year 1990 exceeds the
hospital's target amount (as determined
under subparagraph (A)) for such cost
reporting period, increased for each
fiscal year (beginning with fiscal year
1994) by the sum of any of the hospital's
applicable reductions under subclause
(V) for previous fiscal years; and
(II) the "applicable reduction" with
respect to a hospital for a fiscal year
is the lesser of 1 percentage point or
the percentage point difference between
10 percent and the hospital's update
adjustment percentage for the fiscal
year.
[Id. § 13502(a)(2), 107 Stat. at 577-78
(codified at 42 U.S.C.A. § 1395ww(b)(3)
(B)(v)).]
Moreover, as an incentive for hospitals to maintain efficiency,
TEFRA authorized supplementary bonus payments to hospitals whose
costs remained within these limits or, as the case may be,
penalties for those hospitals whose costs exceeded these limits.
Episcopal Hosp., supra, 994 F.2d at 881.
II.
On March 3, 1995, the Division provided the Hospital a
schedule of its Medicaid reimbursement rates for the 1995 calendar
8 A-2919-15T2
year.3 The Hospital responded on March 22, 1995. It claimed the
Division made thirteen errors in the calculation of its rates.
One of the claimed errors pertained to the Division's
interpretation and application of N.J.A.C. 10:52-5.17(a), the
economic factor regulation. The Hospital stated:
The regulations require the Division to use
the TEFRA update factor to adjust costs from
year to year after 1993. The regulations do
not include any provision for incorporating
adjustments to the TEFRA update factor in the
payment rates. The TEFRA update factors for
1994 and 1995 have each been understated by
[one percent]. This error understates the
Hospital's preliminary cost base.
In March 1996, the Division advised the Hospital that only
one of the alleged errors, the error regarding the House Staff
Medicaid amounts, was a proper calculation error challenge, and
the other issues raised pertained to the Division's interpretation
of its regulations. In May 1996, the Hospital asked the Division
to further explain its decision.
In October 1996, the Division informed the Hospital that the
one calculation error had no impact on its rates and it considered
the matter closed. The Hospital filed an administrative appeal,
which the Division dismissed. In re Zurbrugg Mem'l Hosp.'s 1995
Medicaid Rates, 349 N.J. Super. 27, 32–33 (App. Div. 2002). We
3
At the time, the Hospital was known as Zurbrugg Memorial
Hospital.
9 A-2919-15T2
reversed the Division's determination and remanded the matter to
the Division for further proceedings. Id. at 29–30.
On March 8, 2006, the Division issued a decision again denying
the Hospital's request for an adjustment of its rates. The Hospital
then filed a request for an administrative hearing, and in May
2006, the Division transferred the matter to the Office of
Administrative Law (OAL) for an initial decision as a contested
case.
The OAL placed the case on the inactive list pending a
decision by this court on an appeal challenging amendments to
certain regulations pertaining to Medicaid reimbursements. We
upheld the regulations. In re Adoption of Amendments to N.J.A.C.
10:52, No. A-6649-04 (App. Div. April 26, 2007), certif. denied,
192 N.J. 296 (2007). Thereafter, the OAL reactivated the case.
In June 2009, the Division filed a motion for partial summary
decision on the Hospital's claim regarding N.J.A.C. 10:52-5.17(a).
While that motion was pending, the Hospital filed two discovery
motions. The first motion sought leave to communicate with R.S.,
who previously had been employed by the Division and the Division's
financial intermediary.4 The Hospital wanted to speak with R.S.
about the Division's interpretation and application of the
4
We use initials to preserve R.S.'s privacy.
10 A-2919-15T2
regulation. The Hospital also sought to compel the Division to
produce certain documents it had withheld as privileged.
On July 5, 2011, the Administrative Law Judge (ALJ) denied
the Division's motion for partial summary decision, finding that
there were genuine issues of material fact pertaining to the
calculation of the hospital's rates. Even so, the ALJ decided that
the term "economic factor" in N.J.S.A. 10:52-5.17(a) refers to the
"applicable percentage increase" under TEFRA rather than the TEFRA
"market basket percentage increase." The ALJ also decided that the
economic factor adjustment does not include the incentive bonus
payments that are available under TEFRA.
On October 4, 2011, the ALJ ordered the Division to produce
the withheld documents for in camera review. The ALJ also ordered
the Division to provide a specific explanation as to why each
withheld document was either privileged or otherwise not subject
to discovery. The Division thereafter submitted the documents and
explanations to the ALJ.
In November 2011, the Hospital filed another motion, this
time seeking permission to depose R.S. In August 2012, the ALJ
denied that motion, and the Director later denied the Hospital's
application for administrative review of the ALJ's interlocutory
decision. In September 2012, the Hospital voluntarily withdrew its
claims regarding twelve of the alleged calculation errors, leaving
11 A-2919-15T2
only the Hospital's claim regarding the Division's decision on the
economic factor adjustment.
In October 2012, the Hospital filed a motion for summary
decision and in December 2012, the Division cross-moved seeking
the same relief. After hearing oral argument on the motions, the
ALJ issued an initial decision dated November 25, 2015, denying
the Hospital's motion and granting the Division's cross-motion in
its entirety. The ALJ found that there were no genuine issues of
material fact, and the Division was entitled to summary decision
as a matter of law. The ALJ also found that there was no need for
further discovery and denied the Hospital's discovery motions as
moot.
The ALJ again found that the term "economic factor" in
N.J.A.C. 10:52-5.17(a) refers to the "applicable percentage
increase" under TEFRA, not the TEFRA "market basket percentage
increase." The ALJ also rejected the Hospital's claim that the
Division was required to apply the version of TEFRA that was in
effect when the regulation was adopted in May 1993. In addition,
the ALJ again rejected the Hospital's contention that incentive
bonus payments available under TEFRA should be included in
calculating the Hospital's rates.
12 A-2919-15T2
The Director issued a final decision on February 18, 2016.
The Director adopted the initial decision of the ALJ. This appeal
followed.
III.
On appeal, the Hospital first argues that the Division erred
in its interpretation of N.J.A.C. 10:52-5.17(a). As noted
previously, the regulation states that an "economic factor" will
be applied to the hospital's rates to account for inflation, and
the economic factor "will be the factor recognized under TEFRA
target limitations." Ibid.We note that the scope of our review of an administrative
agency's decision is limited. Circus Liquors, Inc. v. Governing
Body of Middletown Twp., 199 N.J. 1, 9 (2009) (citation omitted).
Our inquiry is limited to the following:
(1) whether the agency's action violates
express or implied legislative policies, that
is, did the agency follow the law; (2) whether
the record contains substantial evidence to
support the findings on which the agency based
its action; and (3) whether in applying the
legislative policies to the facts, the agency
clearly erred in reaching a conclusion that
could not reasonably have been made on a
showing of the relevant factors.
[In re Proposed Quest Acad. Charter Sch. of
Montclair Founders Grp., 216 N.J. 370, 385-86
(2013) (citing Mazza v. Bd. of Trs., 143 N.J.
22, 25 (1995)).]
13 A-2919-15T2
Although we are not bound by an agency's legal conclusions,
we generally defer to the agency's interpretation of its own
regulations and enabling statutes. Utley v. Bd. of Review, 194
N.J. 534, 551 (2008). We give considerable deference to the
agency's interpretation of its own rules "because the agency that
drafted and promulgated the rule should know [its] meaning[.]"
N.J. Healthcare Coal. v. N.J. Dep't of Banking & Ins., 440 N.J.
Super. 129, 135 (App. Div.) (quoting In re Freshwater Wetlands
Gen. Permit No. 16, 379 N.J. Super. 331, 341–42 (App. Div. 2005)),
certif. denied, 222 N.J. 17 (2015).
The Hospital argues that the phrase "the factor recognized
under the TEFRA target limitations" in N.J.A.C. 10:52-5.17(a)
refers to the TEFRA "market basket percentage increase," not the
TEFRA "applicable percentage increase." The Hospital notes that
the regulation defines the economic factor as "the measure of the
change in prices of goods and services used by New Jersey
Hospitals." Ibid. The Hospital asserts that the only "factor" that
represents the change in prices of goods and services under TEFRA
is the "market basket percentage increase."
The principles governing the interpretation of statutes apply
to the construction of rules and regulations. Krupp v. Bd. of
Educ. of Union Cty. Reg'l High Sch. Dist. No. 1, 278 N.J. Super.
31, 38 (App. Div. 1994), certif. denied, 140 N.J. 277 (1995). The
14 A-2919-15T2
primary goal is to interpret a statute in accordance with the
Legislature's intent, and "the best indicator of that intent is
the statutory language." DiProspero v. Penn, 183 N.J. 477, 492
(2005) (citing Frugis v. Bracigliano, 177 N.J. 250, 280 (2003)).
The court must interpret the words in the enactment in accordance
with "their ordinary meaning and significance." Ibid. (citing Lane
v. Holderman, 23 N.J. 304, 313 (1957)).
If the statute is clear and unambiguous, the court's role is
"to construe and apply the statute as enacted." Ibid. (quoting In
re Closing of Jamesburg High Sch., 83 N.J. 540, 548 (1980)).
However, if there is any ambiguity in the statutory language that
leads to more than one plausible interpretation, the court may
consider extrinsic evidence, including the legislative history.
Id. at 492–93 (citing Cherry Hill Manor Assocs. v. Faugno, 182
N.J. 64, 75 (2004)).
We are not persuaded by the Hospital's argument that the
phrase "the factor recognized under the TEFRA target limitations"
in N.J.A.C. 10:52-5.17(a) means the TEFRA "market basket
percentage increase." Such a construction is not compelled by the
plain language of the regulation. The Division did not refer to
the "market basket percentage increase" in the regulation. As the
Division notes, if it had intended that the economic factor would
15 A-2919-15T2
be the "market basket percentage increase," the regulation would
have said so.
Rather, the regulation defines "economic factor" to mean "the
factor recognized under the TEFRA target limitations." As the
Division found, TEFRA does not use the term "target limitations,"
but it does use the term "target amount," which is defined in 42
U.S.C.A. § 1395ww(b)(3) to mean allowable operating costs of
inpatient hospital services for a twelve month period, increased
by the "applicable percentage increase" under subparagraph (B) of
that statute.
The Division noted that under TEFRA, the "applicable
percentage increase is essentially a limit on the rate of increase
in the target amount. The Division reasonably determined that the
term "applicable percentage increase" is consistent with the
concept of "target limitations" in the regulation. Therefore, the
Division properly found that "TEFRA target limitations" referred
to in N.J.A.C. 10:52-5.17(a) is the "applicable percentage
increase" under TEFRA.
The Division's response to comments submitted when the
regulation was proposed support the Division's interpretation. The
Division indicated that it intended to utilize the TEFRA allowable
increase for the economic factor adjustments provided in the
regulation. The Division noted that the TEFRA allowable increase
16 A-2919-15T2
had in recent years been "based on the national hospital market
basket rate of inflation." See 25 N.J.R., supra, at 2561.
As the Division found here, this statement was consistent
with the version of TEFRA that was in effect when the regulation
was adopted. Indeed, TEFRA had provided that in some fiscal years
(1986 and 1987) the "applicable percentage increases" were
specified percentages, not the "market basket percentage
increase." Therefore, the Division's comment recognized that while
the TEFRA allowable increase might be the "market basket percentage
increase," this might not always be the case.
The Division's interpretation is also consistent with the
State's need to comply with the federal requirement that its
aggregate Medicaid payments will not exceed those for Medicare.
Interpreting the term "economic factor" in N.J.A.C. 10:52-5.17(a),
the TEFRA "applicable percentage increase" allows the Division to
provide the federal agency administering Medicaid the necessary
assurance that it will not exceed the upper payment limits. As the
Division noted, the federal agency allows states to base their
assurances upon the use of the TEFRA limits.
We are therefore convinced that the Division's interpretation
of the term "economic factor" in N.J.A.C. 10:52-5.17(a) is
consistent with the language of the regulation, the Division's
intent as reflected in the comments provided when the regulation
17 A-2919-15T2
was adopted, and the purpose of the regulation. We reject the
Hospital's contention that the phrase "TEFRA target limitations"
was a specific reference to the TEFRA "market basket percentage
increase."
IV.
The Hospital argues that if the Division correctly
interpreted the term "TEFRA target limitations" in N.J.S.A. 10:52-
5.17(a) to mean the "applicable percentage increase" under TEFRA,
the Division erred by finding that the regulation incorporated
future amendments to TEFRA. The Hospital argues that under the
version of TEFRA that was in effect when the regulation was
adopted, the "applicable percentage increase" was the TEFRA
"market basket percentage increase." The Hospital argues that the
Division could not apply changes to the definition of "applicable
percentage increase" enacted by Congress after the regulation was
adopted.
In support of this argument, the Hospital relies upon the
principles of statutory construction enunciated in In re
Commitment of Edward S., 118 N.J. 118 (1990). In that case, the
Court stated:
The general rule is that when a statute
incorporates another by specifically
referring to it by title or section number,
only the precise terms of the incorporated
statute as it then exists become part of the
18 A-2919-15T2
incorporating statute; absent language to the
contrary, subsequent amendments to the
incorporated statute have no effect on the
incorporating statute. Indeed, even repeal of
the incorporated statute does not ordinarily
affect the incorporating statute. The latter
remains in force just as it would if the
referenced words had been written directly
into it. On the other hand, if a statute,
instead of incorporating the terms of another
statute, incorporates a general body of law,
the rule is that subsequent changes in that
body of law do become part of the
incorporating statute.
[Id. at 132-33 (citing N. Singer, 2A
Sutherland Statutory Construction, § 51.07;
51.08 (Sands 4th ed. 1984 & Supp. 1989)).]
See also Hassett v. Welch, 303 U.S. 303, 314, 58 S. Ct. 559, 564,
82 L. Ed. 858, 866-67 (1938) (noting that when a statute adopts
the provisions of another statute, the adoption incorporates the
statute as it existed at that time and does not include subsequent
amendments to the adopted statute, unless a contrary intent is
indicated). The Hospital's reliance upon the general rule of
construction in Commitment of Edward S. and Hassett is misplaced.
Here, the Division referred to TEFRA when it adopted N.J.A.C.
10:52-5.17(a), but there is no indication that it intended to
incorporate the provisions of TEFRA which existed at that time.
The Division found that the phrase "the factor recognized under
the TEFRA target limitations" in N.J.A.C. 10:52-5.17(a) was
intended to mean the "target limitations" as determined in
19 A-2919-15T2
accordance with the version of TEFRA that is in effect for the
year in which the rates are set. It was not intended to incorporate
the specific provisions of TEFRA as they existed at the time the
rule was adopted.
As the Division notes, the language of N.J.A.C. 10:52-5.17(a)
is forward looking. The regulation states that "the economic factor
will be the factor recognized under the TEFRA target limitations."
Ibid. (emphasis added). The language of the regulation supports
the Division's view that the TEFRA target update factor must be
the inflation factor that is in existence at the time it sets the
rates.
Moreover, as noted previously, a state participating in the
Medicaid program may use the TEFRA target limitations to provide
the federal government with assurance that the state will comply
with Medicare's upper payment limits. Interpreting the term "TEFRA
target limitations" to incorporated amendments to TEFRA enacted
after the rule's adoption, allows the State to provide the federal
Medicaid agency with assurance that it will comply with the upper-
payment limits.
The Hospital also argues that the Division's interpretation
of the regulation is in conflict with N.J.A.C. 1:30-2.2(c), which
provides:
20 A-2919-15T2
[a]ny agency incorporating any section of a
source by reference shall adopt and file as a
rule appropriate language indicating:
1. What is incorporated including either:
i. The specific date or issue of the
section of the source incorporated;
or
ii. A statement indicating whether
the section incorporated includes
future supplements and amendments.
2. Where and how a copy of the section
may be obtained.
As the ALJ and Director noted in their respective decisions,
the regulation at issue here does not incorporate any specifically
designated sections of TEFRA. The regulation only incorporates a
concept used in TEFRA, specifically, the TEFRA rate of increase.
Therefore, the Division's interpretation of the regulation does
not contravene N.J.A.C. 1:30-2.2(c).
V.
The Hospital further argues that the Division erred by finding
that it is not entitled to an incentive bonus payment under TEFRA.
According to the Hospital, the reference in the regulation to
"TEFRA target limits" is a general reference to TEFRA, which
incorporates the entire TEFRA statutory scheme, including
incentive bonus payments for "efficient" hospitals provided for
in that legislation. We find no merit in this argument.
21 A-2919-15T2
As the ALJ and Director noted in their respective decisions,
there is nothing in the rule, which suggests the Division intended
to incorporate the entire TEFRA statutory scheme into its Medicaid
ratemaking process. Indeed, incentive or bonus payments are not
mentioned in N.J.A.C. 10:52-5.17(a), in the comments provided when
the rule was proposed in 1993, or in the Division's responses to
those comments.
Here, the Division found that the intent at the time the rule
was adopted was to use the TEFRA target limitation, specifically,
the TEFRA "applicable percentage increase," as an inflationary
adjustment for determining Medicaid reimbursement rates. Under the
rule, the economic factor is the TEFRA "applicable percentage
increase," and it does not include the TEFRA incentive bonus
payments.
The Hospital argues that the Division's interpretation of the
regulation is inconsistent with the policies and goals of TEFRA.
The Hospital contends that rather than rewarding efficiency, the
Division "punished" efficient hospitals by providing them with a
lesser increase in their rates than other less efficient hospitals
received. The Hospital therefore argues that the Division's
interpretation of the regulation is arbitrary, capricious, and
unreasonable.
22 A-2919-15T2
We are convinced that these arguments are without sufficient
merit to warrant discussion. R. 2:11-3(e)(1)(E). We conclude the
Division did not err by finding that N.J.A.C. 10:52-5.17(a) did
not incorporate the entire TEFRA statutory scheme, including the
incentive bonus payments provided for in TEFRA.
VI.
In addition, the Hospital argues that by interpreting the
regulation to incorporate amendments to TEFRA that were not enacted
until after N.J.A.C. 10:52-5.17(a) was promulgated, the Division
improperly engaged in retroactive rulemaking. The Hospital
contends the Division failed to afford the Hospital and other
regulated entities notice of its proposed interpretation of the
rule, and did not provide them with an opportunity to comment, as
required by the Administrative Procedure Act (APA), N.J.S.A.
52:14B-1 to -15. The Hospital contends that because the agency did
not comply with the APA's rulemaking procedures, it was denied due
process.
The APA defines an "administrative rule" as an "agency
statement of general applicability and continuing effect that
implements or interprets law or policy, or describes the
organization, procedure or practice requirements of any agency."
N.J.S.A. 52:14B-2(e). When an administrative agency action meets
that definition, "its validity requires compliance with the
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specific procedures of the APA that control the promulgation of
rules." Airwork Serv. Div., Div. of Pac. Airmotive Corp. v. Dir.,
Div. of Taxation, 97 N.J. 290, 300 (1984), cert. denied, 471 U.S.
1127, 105 S. Ct. 2662, 86 L. Ed. 2d 278 (1985).
Whether an agency must undertake formal rulemaking depends
on the extent to which the agency's action
(1) is intended to have wide coverage
encompassing a large segment of the regulated
or general public, rather than an individual
or a narrow select group; (2) is intended to
be applied generally and uniformly to all
similarly situated persons; (3) is designed
to operate only in future cases, that is,
prospectively; (4) prescribes a legal standard
or directive that is not otherwise expressly
provided by or clearly and obviously inferable
from the enabling statutory authorization; (5)
reflects an administrative policy that (i) was
not previously expressed in any official and
explicit agency determination, adjudication
or rule, or (ii) constitutes a material and
significant change from a clear, past agency
position on the identical subject matter; and
(6) reflects a decision on administrative
regulatory policy in the nature of the
interpretation of law or general policy.
[Metromedia, Inc. v. Dir., Div. of Taxation,
97 N.J. 313, 331-32 (1984).]
Formal rulemaking may be required if the factors favoring
rulemaking predominate. Id. at 331.
Although the Division's interpretation applies to a broad
segment of the regulated population, and it is intended to apply
to all similarly-situated hospitals, the interpretation was not
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intended to operate only in future cases. Furthermore, the Division
interpreted the regulation, which has been in effect since 1993.
As we have determined, the Division's interpretation is consistent
with the language of the rule. It was not inconsistent with any
previously-announced interpretation of policy. In addition, the
Division's interpretation of the rule was not a material or
significant change of past agency policy.
Therefore, the Division's interpretation of N.J.A.C. 10:52-
5.17(a) does not constitute "rulemaking" under the APA. The
Division was not required to engage in the APA's rulemaking
procedures before implementing and applying its interpretation to
the Hospital.
VII.
The Hospital further argues that the Division abused its
discretion by summarily deciding its administrative appeal without
permitting the Hospital to complete discovery. The argument is
entirely without merit.
Generally, a motion for summary judgment should not be granted
if the opposing party has not been afforded a reasonable
opportunity for discovery. Wilson v. Amerada Hess Corp., 168 N.J.
236, 253-54 (2001). However, to warrant denial of a motion for
summary judgment on this basis, the party opposing the motion must
demonstrate "with some degree of particularity the likelihood that
25 A-2919-15T2
[the] discovery will supply the missing elements" of its case and
therefore influence the outcome of the litigation. Wellington v.
Estate of Wellington, 359 N.J. Super. 484, 496 (App. Div.) (quoting
Auster v. Kinoian, 153 N.J. Super. 52, 56 (App. Div. 1977)),
certif. denied, 177 N.J. 493 (2003). Furthermore, a decision
whether to grant a motion to compel discovery is reviewable only
for an abuse of discretion. Pomerantz Paper Corp. v. New Cmty.
Corp., 207 N.J. 344, 371 (2011).
The Hospital contends that it had good cause to communicate
with R.S. and compel his deposition. According to the Hospital,
R.S. had "intimate knowledge" regarding the Division's intended
definition of N.J.A.C. 10:52-5.17(a) and its application in
setting the Hospital's reimbursement rates.
Based on certain handwritten notes and calculations, the
Hospital asserts that R.S. may have personally calculated an
incentive payment included in the Hospital's 1990 cost report. The
Hospital asserts that this was the only evidence created at the
time the regulation was promulgated.
According to the Hospital, R.S.'s knowledge as to why the
incentive payment was included in the 1990 report is "crucial to
this dispute." The Hospital also asserts that the ALJ should have
completed his in camera review of the records that the Division
26 A-2919-15T2
withheld, because if discoverable, these records would provide
some evidence regarding the Division's intent.
We are convinced, however, that the Division did not abuse
its discretion by finding that summary decision was appropriate
and further discovery not warranted. Here, the Division made a
legal decision when it interpreted the meaning of the regulation,
based on its language, the regulatory history, and other legal
sources.
The Division was not required to allow the Hospital to
communicate with or depose R.S. before addressing that legal issue.
Whatever personal views R.S. may have as to the meaning of the
regulation, they are not binding upon the Division or its Director.
Furthermore, if R.S. prepared the Hospital's cost report for 1990
and included an incentive bonus payment, there is no evidence that
he did this in accordance with any specific announced policy of
the Division.
Moreover, summary decision was appropriate even though the
ALJ had not completed his in camera review of the documents that
the Division had withheld. The Hospital contends that the documents
are relevant because they relate to the Division's implementation
and interpretation of the regulation. However, as we have
determined, the Division's interpretation of the regulation was a
legal determination. We cannot assume that the records were
27 A-2919-15T2
discoverable, or that they had any specific bearing on the legal
issues resolved by the ALJ and the Director.
We note, however, that both the Division and the Hospital
sought summary decision on the issues raised in the administrative
appeal. Thus, the Hospital apparently believed the legal issues
presented could be resolved based on the existing record, without
the need for further discovery. The ALJ and the Director did not
err by finding that the record was sufficient to resolve the legal
questions presented.
Affirmed.
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