Rehab & Community Provider, Aplts v. DHS ( 2022 )

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IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
BAER, C.J., TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, BROBSON, JJ.
REHABILITATION AND COMMUNITY : No. 13 MAP 2021
PROVIDERS ASSOCIATION, AND :
WESTMORELAND COUNTY BLIND : Appeal from the Order of the
ASSOCIATION, AND ASSOCIATED : Commonwealth Court at No. 543
PRODUCTION SERVICES, INC., AND : MD 2019 dated February 3, 2021.
UNITED CEREBRAL PALSY OF CENTRAL :
PENNSYLVANIA, INC. AND SCOTT : ARGUED: March 8, 2022
HOWARD SCHWARTZ BY AND :
THROUGH KAREN NEWMAN AND LINDA :
S. SCHWARTZ, CO GUARDIANS, AND :
RYAN BRETT BY AND THROUGH HIS :
GUARDIAN FRANCIS BRETT, :
:
Appellants :
:
:
v. :
:
:
DEPARTMENT OF HUMAN SERVICES :
OFFICE OF DEVELOPMENTAL :
PROGRAMS, :
:
Appellee :
OPINION
JUSTICE MUNDY DECIDED: September 29, 2022
This is a direct appeal from a Commonwealth Court order dismissing a petition for
review for failure to exhaust administrative remedies. The underlying dispute involves the
adequacy of state funding for community participation support services, which are
designed to help individuals with autism or intellectual disabilities live independently. The
primary issue on appeal relates to the exhaustion requirement.
Medicaid is the nation’s primary health insurance program for low-income and
high-need Americans. Enacted in 1965 and set forth at Title XIX of the Social Security
Act, see 42 U.S.C. §§ 1396–1396w-6, Medicaid is jointly funded by the federal and state
governments. Although a state’s participation in Medicaid is optional, once a state elects
to participate it must comply with Title XIX and applicable regulations. See Alexander v.
Choate, 469 U.S. 287, 289 n.1 (1985) (citing Harris v. McRae, 448 U.S. 297, 301 (1980)).
Medicaid is administered at the federal level by the Centers for Medicare & Medicaid
Services (“CMS”), an agency of the United States Department of Health and Human
Services. In Pennsylvania, it is administered by the state Department of Human Services
(“DHS”) and is known as Medical Assistance.
For states that participate in Medicaid, the federal government requires coverage
for certain mandatory populations and services, but it also authorizes waiver programs,
or simply “waivers” for short, which give states flexibility to operate outside federal rules.
See Medicaid: An Overview at 1 (Congressional Research Service, updated Feb. 22,
2021), available at https://sgp.fas.org/crs/misc/R43357.pdf (last viewed June 21, 2022).
Waivers must be approved by the CMS. See generally Casey Ball Supports
Coordination, LLC v. DHS, 160 A.3d 278, 280 n.1 (Pa. Cmwlth. 2017).
One category of waivers, authorized by Section 1915(c) of the Social Security Act,
42 U.S.C. § 1396n, falls under the umbrella term Home and Community Based Services
(“HCBS”). These waivers allow states to meet the needs of eligible individuals receiving
long-term care supports and services in their home or community rather than in an
institutional setting such as an intermediate care facility.1
1HCBS waivers reflect “a major shift in thinking in the field of developmental disabilities.
Emphasis is now on people living in their own homes, controlling their own lives and being
an integral part of their home community.” Intermediate Care Facilities for Individuals
with Intellectual Disabilities (United States Centers for Medicare & Medicaid Services
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Within DHS, the Office of Developmental Programs (“DHS/ODP”), the appellee
herein, is responsible to fund and supervise the provision of services associated with
HCBS waivers, most notably for present purposes, community participation support
(“CPS”) services. CPS services are “intended to . . . support community life secondary
to employment as a primary goal.” Individual Support Plan Manual for Individuals
Receiving Targeted Support Services, Consolidated or P/FDS Waiver Services or Who
Reside in an ICF/ID, at 59 (DHS/ODP Feb. 23, 2018).
In Pennsylvania, CPS services are provided pursuant to three HCBS waivers: the
Consolidated Waiver, the Person/Family Directed Support Waiver, and the Community
Living Waiver. See DHS Long-Term Care Handbook § 489.4 (Nov. 1, 2018).2 The CPS
services themselves are supplied by vendors, or providers, who in turn are reimbursed
by DHS/ODP pursuant to rates developed and published by DHS.
In March 2019, DHS issued ODP Announcement 19-024, indicating it intended to
change the rate structure for CPS services provided under the HCBS waivers. Whereas
CPS services had previously been divided into 54 distinct types, the new payment
scheme instead listed 15 types,3 and for each type it included a reimbursement rate based
on a 15-minute unit of service, a method known as a “fee schedule.” Announcement 19-
024 invited interested parties to submit comments on the proposed fee schedule.
2021), available at https://www.cms.gov/Medicare/Provider-Enrollment-and-
Certification/CertificationandComplianc/ICFIID (last viewed June 21, 2022).
2 DHS/ODP works with individuals who have a diagnosis of autism or an intellectual or
developmental disability to provide needed supports and services for both the individual
and family members, and the waivers are designed to help such persons live more
independently in their homes and communities. See id.
3 The types of CPS service are distinguished by the practitioner-to-recipient ratio, whether
the service is provided in the community or in a facility, and whether the service is
considered “enhanced” – for example, “CPS Facility 1:7 to 1:10,” “CPS Community 2:1,”
“CPS Community 2:1 Enhanced,” etc. See Announcement 19-024, at 4-5.
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After the comment period, DHS issued ODP Announcement 19-061 on May 24,
2019, explaining it received comments from more than 3,000 interested persons and
organizations. As a result, it adjusted its prior assumptions concerning full-time versus
part-time staff use, staff wages, and training costs, and it increased the fee-schedule rates
for three of the 15 types of CPS services. The following day, DHS published its Final
Notice of Fee Schedule Rates for CPS Services (the “Final Notice”) in the Pennsylvania
Bulletin, incorporating the changes reflected in Announcement 19-061. See 49 Pa. Bull.
2685 (May 25, 2019). The Final Notice explained that the fee schedule was developed
in accordance with 55 Pa. Code Chapter 51 (relating to the “Office of Developmental
Programs Home and Community-Based Services”) using a market-based approach,4 and
it expressed DHS’s expectation that CPS services would be funded “at a level sufficient
to ensure access and encourage provider participation, while at the same time ensuring
cost effectiveness and fiscal accountability.” Id.That view of the matter apparently did not garner universal public agreement
because on November 13, 2019, Rehabilitation and Community Providers Association
(the “Association”), Westmoreland County Blind Association, United Cerebral Palsy of
Central Pennsylvania, Associated Production Services (“APS”), Scott Howard Schwartz,
and Ryan Brett filed a first amended petition for review in the nature of a complaint/equity
action for declaratory and injunctive relief (the “Petition”), challenging the legality of the
4 The provisions of Chapter 51 were issued under Sections 201(2), 403(b), and 403.1 of
the Human Services Code, Act of June 13, 1967, P.L. 31, No. 21 (set forth at 62 P.S.
§§ 101-1503). See 62 P.S. §§ 201(2), 403(b), 403.1. Section 403.1 was added by the
Act of June 30, 2011, P.L. 89, No. 22 (“Act 22”). DHS has since rescinded Chapter 51
and replaced it with Chapter 6100. See ODP Announcement 19-129, at 2 (Oct. 4, 2019).
DHS was previously known as the Department of Public Welfare, and the Human
Services Code was known as the Public Welfare Code. See Act of Sept. 24, 2014, P.L.
2458, No. 132; 62 P.S. § 103 (changing the department’s name); Act of Dec. 28, 2015,
P.L. 500, No. 92, § 1 (changing the code’s name).
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new fee schedule and alleging the new reimbursement rates were too low to sustain the
provision of CPS services to eligible recipients. The Petition, which was directed to the
Commonwealth Court’s original jurisdiction, named DHS/ODP as the sole respondent. In
terms of parties, the Petition explained that the Association is an advocacy organization
representing over 350 members who provide services relating to mental health, drug and
alcohol dependency, developmental disabilities, physical disabilities, child brain injuries,
and the like; Westmoreland County Blind Association and United Cerebral Palsy of
Central Pennsylvania are service providers and members of the Association; APS is a
high-tech contract packager staffed by 500 developmentally disabled adults and is a
member of the Association; and Schwartz and Brett are developmentally-disabled adults
who receive CPS services through APS.
In the Petition, the current appellants (hereinafter, “Petitioners”) averred the Final
Notice amounted to an unpromulgated regulation as it created a binding norm and failed
to comply with the Commonwealth Documents Law,5 the Regulatory Review Act,6 and
the Commonwealth Attorneys Act.7 They also alleged it was not submitted to CMS for
approval and incorporation into the HCBS waivers prior to the July 1, 2019, effective date.
Additionally, they stated the Final Notice’s fee schedule did not reflect reasonable costs
relating to CPS service delivery sufficient to ensure access, encourage provider
participation, and promote provider choice as required by federal law and the federally-
5Act of July 31, 1968, P.L. 769, No. 240. Part of this law has been consolidated, see 45
Pa.C.S. §§ 501-907, and part remains unconsolidated. See 45 P.S. §§ 1102-1602. See
generally Mercury Trucking, Inc. v. Pa. Pub. Util. Comm’n, 55 A.3d 1056, 1072 n.6 (Pa.
2012) (discussing the consolidation of Pennsylvania’s statutory law).
6Act of June 25, 1982, P.L. 633, No. 181, reenacted and amended by Act of June 30,
1989, P.L. 73, No. 19 (as amended 71 P.S. §§ 745.1-745.14).
7 Act of Oct. 15, 1980, P.L, 950, No. 164 (as amended 71 P.S. §§ 732-101 – 732-506).
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approved HCBS waivers. Thus, Petitioners sought a declaration, per the Declaratory
Judgments Act,8 that the Final Notice was an unpromulgated regulation inconsistent with
the federally approved payment methodologies, as well as an injunction prohibiting
DHS/ODP from implementing the new rates and directing the agency to establish rates
sufficient to meet reasonable provider costs. The following day, Petitioners moved for
partial summary judgment in the form of an order declaring the Final Notice to be an
unpromulgated regulation.
DHS/ODP filed an answer asking the court to deny Petitioners’ request for partial
summary judgment. It also filed preliminary objections asserting: (a) Westmoreland
County Blind Association, United Cerebral Palsy of Central Pennsylvania, and APS (the
“Provider Petitioners”) failed to exhaust their administrative remedies; (b) similar claims
were then pending in an administrative appeal initiated by APS before DHS’s Bureau of
Hearings Appeals (the “BHA”);9 (c) Schwartz and Brett (the “Individual Petitioners”) and
the Association lacked standing; (d) Petitioners generally lacked standing to seek relief
on behalf of other providers delivering services under the HCBS waivers; and (e)
Petitioners failed to state a claim on which relief could be granted because (i) the Final
Notice did not violate the Commonwealth Documents Law, the Regulatory Review Act,
the Commonwealth Attorneys Act, or any federal statute or regulation, (ii) Petitioners
lacked a privately-enforceable right to challenge DHS’s administration of a program
operating under a waiver granted by the federal government, and (iii) Petitioners did not
allege the elements necessary for injunctive relief.
8 Act of July 9, 1976, P.L. 586, No. 142, § 2 (as amended 42 Pa.C.S. §§ 7531–7541).
9See 67 Pa.C.S. §§ 1101-1106 (governing appeals to the BHA and requiring the BHA,
acting through DHS, to promulgate regulations establishing procedures for such appeals);
see also 55 Pa. Code Chapter 41 (relating to Medical Assistance provider appeal
procedures).
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Petitioners responded with their own set of preliminary objections in the form of a
motion to strike DHS/ODP’s preliminary objections on the grounds that they failed to
conform to the pleading requirements set forth in the rules of civil procedure, and they
lacked adequate specificity. See Pa.R.C.P. Nos. 1019(a), 1028(a)(2), (3).10
A three-judge panel of the Commonwealth Court addressed both sets of
preliminary objections in a memorandum decision. See Rehab. & Cmty. Providers Ass’n
v. DHS/ODP, 2021 WL 359444 (Pa. Cmwlth. Feb. 3, 2021) (“RCPA”). First, the court
overruled Petitioners’ preliminary objections, stating the adequate-factual-basis
requirement only applies to pleadings setting forth a cause of action or defense – i.e., a
complaint, a petition for review, or an answer with new matter – and not to preliminary
objections. The court also indicated DHS/ODP had sufficiently apprised Petitioners and
the court of the agency’s bases for objecting to the Petition. See id. at *4. Petitioners do
not presently challenge that aspect of the Commonwealth Court’s ruling.
Turning to DHS/ODP’s preliminary objections, the court agreed, with respect to the
first objection, the Provider Petitioners failed to exhaust their administrative remedies, as
required by case precedent, before seeking judicial review. See, e.g., Canonsburg Gen.
Hosp. v. Dep’t of Health, 422 A.2d 141, 144-45 (Pa. 1980). Initially, the court observed
the allegations in the Petition itself recognized the availability of an administrative avenue
for challenging the sufficiency of the reimbursement rates, namely, via an appeal to the
BHA. With that said, the court acknowledged a narrow exception to the exhaustion
requirement whereby a court may consider the merits of a claim for declaratory or
injunctive relief if a substantial constitutional question is raised and the administrative
remedy is inadequate. It clarified, however, that the exception only applies where the
10Meanwhile, Petitioners also moved for expedited consideration on the basis that they
were struggling to maintain their programs under the Final Notice’s new rates. That
motion was granted.
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plaintiff raises a facial constitutional challenge to the statute or regulation in question, as
opposed to its application in a particular case.
Here, the court concluded, the Provider Petitioners were attacking the fee schedule
in the Final Notice, which was produced by application of the legal authority cited in that
notice, i.e., 55 Pa. Code Chapter 51; hence, as they were challenging a specific
application of DHS’s administrative regulations, they were not advancing a facial
constitutional challenge.11 As well, the court found Petitioners failed to demonstrate the
administrative remedy was inadequate. The court explained an administrative remedy is
inadequate if (1) it does not allow for adjudication of the issue raised, or (2) pursuing such
a remedy would result in irreparable harm.
As to the first of these criteria, the court observed it was undisputed the Provider
Petitioners had the right to appeal the sufficiency of their reimbursement rates to the BHA,
and that one of them had already filed an action with the BHA challenging the legality of
the Final Notice and the new reimbursement rates. See RCPA, 2021 WL 359444 at *7
& n.5. The court also noted the BHA had authority to determine whether the Final Notice
was an unpromulgated regulation or otherwise violated state or federal law, and to provide
declaratory relief. See id. at *7 & n.6 (quoting, inter alia, 55 Pa. Code §§ 41.42(a), (b)
(superseded), 41.31(4) (superseded)). The court concluded the Provider Petitioners
could not “sidestep the exhaustion requirement simply by including a claim for declaratory
or injunctive relief in their Petition for Review.” Id. at *8.
As to the second criterion – that irreparable harm will result if the plaintiff is forced
to pursue an administrative appeal – the court acknowledged the Provider Petitioners’
11 The court rejected the concept, advanced by Petitioners, that they were mounting a
facial constitutional attack upon Act 22, see supra note 4, which they alleged was the real
source of DHS’s authority to issue the Final Notice. Petitioners claimed the enactment
embodied an unconstitutional delegation of legislative authority to DHS. This argument
is discussed below.
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contention that the delay associated with administrative hearings before the BHA would
result in their having to curtail or eliminate their CPS programs in light of the Final Notice’s
rates. Still, the court concluded, that type of harm did not render the administrative
remedy inadequate, and moreover, the Provider Petitioners could recover the allegedly
deficient funds via a successful agency appeal. Accordingly, the court sustained
DHS/ODP’s preliminary objection relating to the Provider Petitioners, which asserted they
failed to exhaust their administrative remedies. See id. at *8-*9.
Although that preliminary objection only pertained to the Provider Petitioners, and
not the Association or the Individual Petitioners, the court nonetheless ended its analysis
at that point, indicating it need not reach DHS/ODP’s other preliminary objections, and
dismissed the Petition as to all Petitioners. See id. at *9.
Petitioners appealed to this Court, questioning whether the Commonwealth Court
erred by dismissing the Petition on the basis that the Provider Petitioners failed to exhaust
administrative remedies. See generally 42 Pa.C.S. § 723(a) (giving this Court exclusive
appellate jurisdiction in matters originally commenced in the Commonwealth Court).
Conceptually, the issue includes two subsidiary questions, namely, were the Provider
Petitioners required to exhaust their administrative remedies before going to court (as the
Commonwealth Court held), and if so, was the Petition properly dismissed in its entirety
notwithstanding that the preliminary objection in question only pertained to the Provider
Petitioners and not the Association or the Individual Petitioners. In answering these
questions, we consider whether the lower court abused its discretion or committed an
error of law. See Machipongo Land & Coal Co. v. Dep’t of Envtl. Res., 648 A.2d 767, 769
(Pa. 1994), vacated in part on other grounds by Machipongo Land & Coal Co. v. Dep’t of
Envtl. Res., 676 A.2d 199 (Pa. 1996). As to any question of law, our review is de novo
and plenary. See Ladd v. Real Estate Comm’n, 230 A.3d 1096, 1103 (Pa. 2020).
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Petitioners argue the Commonwealth Court erred in finding the Provider
Petitioners were required to exhaust their administrative remedies before seeking judicial
review.12 They claim they fall within the exception to the exhaustion requirement for facial
or “frontal” constitutional attacks because they alleged in the Petition that the true source
of DHS’s authority to issue the Final Notice was the Human Services Code as amended
by Act 22, and Act 22 represented an improper delegation of legislative power to DHS,
contrary to Article II, Section 1 of the state charter. See PA. CONST. art. II, § 1 (vesting
the legislative power of Pennsylvania in the General Assembly).13
Our review of the Petition reveals that Petitioners’ constitutional averment, which
was only mentioned in a single paragraph out of 112 total, was collateral to their primary
legal theory. Petitioners primarily alleged the Final Notice was invalid because it failed to
comply with Pennsylvania administrative law and the rates themselves did not reflect
costs actually incurred by efficiently- and economically-run providers during fiscal year
2019-2020, thus violating federal and state law such as the Mental Health and Intellectual
Disability Act of 1966,14 which obligates DHS/ODP to subsidize intellectual disability
services. See Petition ¶ 46 (citing 50 P.S. § 4201).
12 The opening and reply briefs for the appellants are filed on behalf of all Petitioners.
13 The nondelegation rule is a “natural corollary,” based on the separation-of-powers
doctrine, to the constitutional grant of legislative power to the General Assembly. W.
Phila. Achievement Charter Elementary Sch. v. Sch. Dist. of Phila., 132 A.3d 957, 963
(Pa. 2016). The rule requires the General Assembly to make the “basic policy choices”
involved in all legislation, although that body may delegate to other entities the authority
to execute and administer the law. See Pennsylvanians Against Gambling Expansion
Fund, Inc. v. Commonwealth, 877 A.2d 383, 417 (Pa. 2005) (quoting Blackwell v. State
Ethics Comm’n, 567 A.2d 630, 636-37 (Pa. 1989)). Thus, the law “must contain some
‘intelligible principle to which the person or body authorized to act is directed to conform.’”
Protz v. WCAB (Derry Area Sch. Dist.), 161 A.3d 827, 834 (Pa. 2017) (quoting J.W.
Hampton, Jr., & Co. v. United States, 276 U.S. 394, 409 (1928)) (brackets omitted).
14 Act of Oct. 20, 1966, P.L. 96, Special Sess. No. 3 (as amended 50 P.S. §§ 4101-4704).
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The Petition describes how the Final Notice came into being by making the
following narrative-style averments: before 2009, DHS/ODP discharged its duties under
the Mental Health and Intellectual Disability Act of 1966 by funding and supervising county
programs providing residential services, vocational services, and day program services;
eventually, however, DHS/ODP centralized these programs at the state level instead of
working through county agencies; ultimately, in 2011 the Legislature passed Act 22 as
emergency financial legislation which amended the Human Services Code; the
amendments authorized DHS/ODP to establish or revise provider payment rates, fee
schedules, reimbursement models, or payment methodologies for particular services; in
relation to expenditures for fiscal year 2011-2012, the amendments also specified that
any such actions needed to ensure that DHS/ODP’s expenditures maintained budget
neutrality could be accomplished via regulations promulgated pursuant to Section
204(1)(iv) of the Commonwealth Documents Law, and those regulations would be exempt
from Section 205 of that law, Section 204(b) of the Commonwealth Attorneys Act, and the
Regulatory Review Act;15 based on this authorization, DHS/ODP promulgated the
15The statutory provision setting forth this exemption, which was added to the Human
Services Code by Act 22, provides, in relevant part:
(a) The department is authorized to establish rules, regulations, procedures
and standards consistent with law as to the administration of programs
providing assistance, including regulations promulgated under subsection
(d), that do any of the following: . . . (4) Establish or revise provider payment
rates or fee schedules, reimbursement models or payment methodologies
for particular services. . . .
* * *
(c) Notwithstanding any other provision of law, the department shall take
any action specified in subsection (a) as may be necessary to ensure that
expenditures for State fiscal year 2011-2012 for assistance programs
administered by the department do not exceed the aggregate amount
appropriated for such programs by the act of June 30, 2011 (P.L. 633, No.
1A), known as the General Appropriation Act of 2011. The department shall
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provisions of 55 Pa. Code Chapter 51 without submitting them to the Independent
Regulatory Review Commission (“IRRC”) in accordance with the Regulatory Review Act;
and finally, eight years later, relying on Chapter 51 as the operative legal authority,
DHS/ODP published the Final Notice as described above. See Petition ¶¶ 46-58.
Within this narrative section, Petitioners quote the text of Act 22. See id. ¶ 51.
They also assert that legislative power is limited to the General Assembly, and an
agency’s authority must be conferred by clear and unmistakable legislative language.
See id. ¶ 52. They describe the normal process by which regulations (as contrasted with
mere policy statements) are promulgated, and they allege the Final Notice constitutes an
unpromulgated regulation. Thus, they express that one of the main legal issues in this
case is whether the Final Notice is saved by the special delegation of authority in Act 22
relieving DHS/ODP of the need to comply with Pennsylvania administrative agency law.
See id. ¶¶ 59-66. In support of their position that it is not, Petitioners note: (1) the
seek such waivers or Federal approvals as may be necessary to ensure
that actions taken pursuant to this section comply with applicable Federal
law. . . .
(d) For purposes of implementing subsection (c), and notwithstanding any
other provision of law, . . . the secretary shall promulgate regulations
pursuant to section 204(1)(iv) of the act of July 31, 1968 (P.L. 769, No. 240)
[45 P.S. § 1204], referred to as the “Commonwealth Documents Law,”
which shall be exempt from the following: (1) Section 205 of the
“Commonwealth Documents Law.” [45 P.S. § 1205] (2) Section 204(b) of
the act of October 15, 1980 (P.L. 950, No. 164), known as the
“Commonwealth Attorneys Act.” [71 P.S. § 732-204] (3) The act of June
25, 1982 (P.L. 633, No. 181), known as the “Regulatory Review Act.” [71
P.S. §§ 745.1-745.14]
(e) The regulations promulgated under subsection (d) may be retroactive to
July 1, 2011, and shall be promulgated no later than June 30, 2012.
62 P.S. § 403.1.
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delegation of authority to DHS lacks legislative standards beyond budget neutrality and,
as such, violates the non-delegation rule, see id. ¶ 67; (2) the delegation of authority to
DHS is limited to fiscal year 2011-2012, and hence, it cannot properly be interpreted as
authorizing DHS/ODP to set rates for the 2019-2020 fiscal year, see id. ¶¶ 68-73; and (3)
the Final Notice represents an attempt to alter policy goals concerning the types of service
to be provided under the HCBS waivers rather than a good-faith attempt to comply with
the budget-neutrality standard embedded in Act 22, see id. ¶ 74. In this latter regard,
Petitioners circle back to their original contention that the Final Notice should have been
issued in compliance with the Regulatory Review Act. Because it was not, they maintain,
it constitutes “an unpromulgated regulation and must be struck.” Id.16
As we read the Petition, its central averments are that the Final Notice is an
unpromulgated regulation and its provisions are inconsistent with legal mandates
requiring adequate funding for the services involved. Petitioners concede the “operational
legal authority” for the relevant portions of the Final Notice is stated to be 55 Pa. Code
Chapter 51. See id. ¶ 58. As Chapter 51 was, in turn, promulgated pursuant to Act 22,
they attempt to undercut such authority by claiming Act 22 only applied to a different fiscal
year, it did not authorize a change in how the types of services to be funded should be
prioritized, and in any event, it violates the non-delegation rule because its only legislative
standard is budget neutrality. See Brief for Appellants at 27.
This is not the kind of facial attack on the enabling statute’s constitutionality which
is generally required to bypass statutory remedies. See Beattie v. Allegheny Cty., 907
A.2d 519, 523 (Pa. 2006); Commonwealth ex rel. Nicholas v. PLRB, 681 A.2d 157, 161
16Beyond this, Petitioners include allegations suggesting the Final Notice (including the
process by which it was issued) is inconsistent with federal law and the federally-
approved HCBS waivers, including the waivers’ requirement that rates be sufficient to
ensure access to services and promote provider choice. See id. ¶¶ 75-102.
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(Pa. 1996); Borough of Green Tree v. Bd. of Prop. Assessments, Appeals & Review of
Allegheny Cty., 328 A.2d 819, 825 (Pa. 1974) (plurality); see also Kowenhoven v.
Allegheny Cty., 901 A.2d 1003, 1010 (Pa. 2006) (explaining the exception “correlates
more closely with a facial challenge to the constitutional validity” of the enabling statute
“than with a claim addressing the manner in which the enactment is administered”).
Instead, it is a single, somewhat ancillary, averment in a 112-paragraph petition which, at
its core, challenges the legal adequacy of the new fee schedule – in other words, the
legality of the manner in which Act 22 has presently been applied. It thus fits comfortably
within the description of a “mere allegation” of unconstitutionality which our cases have
deemed insufficient to invoke equity jurisdiction. See Rochester & Pittsburgh Coal Co. v.
Bd. of Assessment & Revision of Taxes of Indiana Cty., 266 A.2d 78, 79 (Pa. 1970)
(explaining that a “mere allegation” of unconstitutionality is insufficient to escape the
administrative-exhaustion rule).
This understanding of the Petition is reinforced by the relief requested: a
declaration that the Final Notice is “an unpromulgated regulation” which is “inconsistent
with the federally approved payment methodology,” together with “an injunction enjoining
DHS/ODP from its implementation and requiring DHS/ODP to implement a new or
different system which is in compliance with state and federal law and establishes rates
sufficient to meet reasonable provider costs.” Petition ¶¶ 107, 112. The Petition does
not seek a declaration that Act 22 is unconstitutional or, for that matter, that any other
facet of DHS’s enabling legislation, i.e., the Human Services Code, is unconstitutional.
This case is similar to Delaware Valley Convalescent Center v. Beal, 412 A.2d 514 (Pa.
1980), in which a skilled nursing facility sought to challenge a Medical Assistance
reimbursement ceiling established by DHS, on the basis that it was not reasonably cost
related and thus a clear violation of federal law, without first invoking the administrative
[J-3-2022] - 14
appeal process within DHS. See id. at 515. Noting the policy basis of the exhaustion
requirement, including that the agency should be allowed to develop the factual
background and apply its expertise before the courts get involved,17 this Court referred to
the need for factual development at the administrative level to determine whether the
reimbursement rate was inadequate. See id. at 516. The Court found no reason to create
an exception to the exhaustion requirement, see id. at 516, and there is likewise no reason
to do so here.
Furthermore, the exhaustion rule applies unless Petitioners also demonstrate their
statutory remedy is inadequate. See Nichols, 681 A.2d at 161 (citing Shenango Valley
Osteopathic Hosp. v. Dep’t of Health, 451 A.2d 434, 438 (Pa. 1982)); cf. Kowenhoven,
901 A.2d at 1010 (suggesting whether exhaustion is required depends largely on whether
the legal remedy afforded can be a viable avenue for relief). Here, the Provider
Petitioners had an administrative avenue to challenge the new fee schedule in
accordance with 55 Pa. Code Chapter 41, see 55 Pa. Code § 51.157 (superseded by 55
Pa. Code § 6100.41), and they have failed to show they cannot obtain the relief they
asked for in the Petition through those proceedings. In fact, the Commonwealth Court
observed it was undisputed that at least one of the Provider Petitioners had already filed
an administrative appeal with the BHA challenging the new reimbursement rates, and that
that appeal was pending when the court ruled on DHS/ODP’s preliminary objections. See
RCPA, 2021 WL 359444, at *7. The court continued by highlighting that the BHA has
authority to determine whether the Final Notice is an unpromulgated regulation or
otherwise violates state or federal laws, see id. at *7 (citing Millcreek Manor v. DPW, 796
17 “The premature interruption of the administrative process restricts the agency’s
opportunity to develop an adequate factual record, limits the agency in the exercise of its
expertise and impedes the development of a cohesive body of law in that area.”
Shenango Valley Osteopathic Hosp. v. Dep’t of Health, 451 A.2d 434, 438 (Pa. 1982)
(citing McKart v. United States, 395 U.S. 185, 193-94 (1969)).
[J-3-2022] - 15
A.2d 1020, 1025 (Pa. Cmwlth. 2002) (recognizing administrative agencies may rule on
the validity of their own guidelines and policy statements, including whether they
constitute an unpromulgated regulation)), and that, under DHS’s regulations, a Medical
Assistance provider may seek declaratory relief in an appeal before the BHA. See id.(citing 55 Pa. Code § 41.42(a), (b); 55 Pa. Code § 41.31(4); 1 Pa. Code § 35.19).
Petitioners do not challenge these aspects of the Commonwealth Court’s ruling.18
Instead, they observe an inadequate administrative remedy does not qualify as one that
has to be exhausted, and the adequacy of their administrative remedy should not have
been assumed absent factual development. Thus, they argue the Commonwealth Court
should not have sustained DHS/ODP’s preliminary objection because there were factual
issues that needed to be resolved first. See Brief for Appellants at 36 & n.9 (citing, inter
alia, Feingold v. Bell of Pa., 383 A.2d 791, 794 (Pa. 1978)).
A court considering a preliminary objection may take evidence and create a factual
record, see Pa.R.C.P. 1028(c)(2), but it need not do so if it has sufficient information to
rule on the objection. See Wimble v. Parx Casino & Greenwood Gaming & Entm’t, 40
A.3d 174, 179 (Pa. Super. 2012); Leahy v. Pa. Liquor Control Bd., 551 A.2d 1153, 1156
(Pa. Cmwlth. 1988). Petitioners do not spell out exactly what the factual issue before the
Commonwealth Court was, beyond generally suggesting factual development was
needed to ascertain whether the administrative remedy was adequate. Still, it appears
their argument relates to the time required for the BHA to rule, as they quote a portion of
the Petition alleging BHA appeals take at least two years which, they assert, “is too late
to maintain program participation.” Brief for Appellants at 36-37 (quoting Petition ¶ 15).
It is true an administrative remedy is considered inadequate if the plaintiff makes
a clear showing that it would suffer irreparable injury during pursuit of that remedy. See
18 Petitioners acknowledged in their Petition that they “have the right to appeal the
sufficiency of their rates to the [BHA].” Petition ¶ 15.
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Nicholas, 681 A.2d at 161. However, where an administrative process exists to resolve
a dispute, as it does here, a court of equity is not justified in exercising jurisdiction solely
on the basis that it may reach a more expeditious resolution. See Fastuca v. L.W. Molnar
& Assocs., 10 A.3d 1230, 1246 (Pa. 2011) (quoting Mercy Hosp. of Pittsburgh v. Pa.
Human Relations Comm’n, 451 A.2d 1357, 1359 (Pa. 1982)). If the Provider Petitioners
prevail in their claim and recover the allegedly deficient funds, any monetary shortfall they
experience will be temporary. This does not constitute the type of irreparable injury that
may excuse a party from the exhaustion rule. Accord Riley v. Boxa, 542 N.W.2d 519,
522 (Iowa 1996) (“Ordinarily, monetary losses caused by either administrative proceeding
expenses or the deprivation of earnings are insufficient to constitute irreparable injury of
substantial dimension.”). It follows, then, that even if a factual issue remained concerning
how long the Provider Petitioners would have to wait for a BHA determination, that issue
was immaterial to DHS/ODP’s preliminary objection that the Provider Petitioners failed to
exhaust their remedies. The Commonwealth Court thus acted within its discretion in
ruling on the preliminary objection without first obtaining an evidentiary record.
In light of the above, we will affirm the Commonwealth Court’s ruling to the extent
it sustained the first preliminary objection forwarded by DHS/ODP. As explained, that
objection only pertained to the Provider Petitioners, a limitation the Commonwealth Court
acknowledged in its decision. See RCPA, 2021 WL 359444, at *5. The court, however,
dismissed the Petition as to all Petitioners. See id. at *9. It unfortunately did not provide
any explanation for why it dismissed the Petition as to the Association and the Individual
Petitioners, who were not the subject of DHS/ODP’s first preliminary objection – which,
again, was the only preliminary objection on which the court ruled.
We believe the Commonwealth Court should have the opportunity, in the first
instance, to pass fully upon the remaining preliminary objections and, if any material facts
[J-3-2022] - 17
are at issue in relation to them, to “establish a record adequate for its determination and
. . . appellate review.” Commonwealth by Creamer v. Monumental Props., Inc., 329 A.2d
812, 828 (Pa. 1974). This course of action will also allow us to benefit from the
Commonwealth Court’s analysis should the matter again be appealed to us. Cf.
Lawrence on behalf of Lawrence v. Chater, 516 U.S. 163, 167 (1996) (per curiam)
(explaining, in the context of the Court’s discretionary docket, that an order granting,
vacating, and remanding to the lower court for further proceedings conserves the
Supreme Court’s resources, highlights an issue the lower court did not fully consider, and
assists the Supreme Court “by procuring the benefit of the lower court’s insight before we
rule on the merits”), quoted with approval in Tribune-Review Publ’g Co. v. DCED, 859
A.2d 1261, 1266-67 (Pa. 2004).19
Accordingly, for the reasons set forth above, the Commonwealth Court’s order is
affirmed insofar as it sustained the preliminary objection asserting that the Provider
Petitioners failed to exhaust their administrative remedies and dismissed the Petition as
to those parties. The order is vacated in all other respects, and the matter is remanded
for further proceedings consistent with this opinion.
19 Where this Court has determined that a threshold issue did not impede merits review,
it has sometimes proceeded, in the interests of judicial economy, to undertake a merits
disposition rather than remanding. See, e.g., Parsowith v. Dep’t of Revenue, 723 A.2d
659, 663 (Pa. 1999). Here, however, there are preliminary objections which are still
pending, and hence, it is as yet unclear whether merits review is appropriate. Further,
and as noted, there may be factual issues surrounding threshold issues such as standing.
Compare, e.g., Brief for Appellee at 26 (arguing the Individual Petitioners’ alleged harm
stemming from their inability to receive services from their providers is too remote to
constitute an “immediate” interest for standing purposes), with Reply Brief for Appellants
at 7 (contending the Individual Petitioners have standing as they will certainly “lose their
services” due to the Final Notice’s allegedly inadequate rates). See generally Citizens
Against Gambling Subsidies v. Pa. Gaming Control Bd., 916 A.2d 624, 627 (Pa. 2007)
(recognizing that matters of standing may involve factual questions). For all of these
reasons, we find it most prudent at this juncture to remand for further proceedings.
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Chief Justice Baer and Justices Todd, Donohue, Wecht and Brobson join the opinion.
Justice Dougherty files a concurring opinion.
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