IN THE MATTER OF INSPIRA MEDICAL CENTER, ETC. (NEW JERSEY DEPARTMENT OF HEALTH)

NOT FOR PUBLICATION WITHOUT THE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-1577-19
IN THE MATTER OF
INSPIRA MEDICAL CENTER
- VINELAND'S SFY 2020
SUPPLEMENTAL GRADUATE
MEDICAL EDUCATION
ALLOCATION APPEAL
____________________________
Argued April 27, 2021 – Decided June 9, 2021
Before Judges Fisher, Gilson, and Gummer.
On appeal from the New Jersey Department of Health.
Paul L. Croce argued the cause for appellant Inspira
Medical Center (Greenbaum, Rowe, Smith & Davis,
LLP, attorneys; Paul L. Croce, of counsel and on the
briefs).
Jacqueline R. D'Alessandro, Deputy Attorney General,
argued the cause for respondent New Jersey
Department of Health (Gurbir S. Grewal, Attorney
General, attorney; Melissa H. Raksa, Assistant
Attorney General, of counsel; Jacqueline R.
D'Alessandro, on the brief).
PER CURIAM
This appeal concerns a dispute over the calculation and allocation of a
subsidy given by the State to qualifying hospitals. Inspira Medical Center -
Vineland (Inspira) appeals from a November 4, 2019 final agency decision by
the Department of Health (Department), which denied Inspira's appeal of the
Graduate Medical Education Supplemental (GME-S) subsidy for fiscal year
2020. Inspira contends that it would have qualified for part of that subsidy had
the Department accepted and used a revised cost report from Inspira. Inspira
also argues that the Department failed to engage with it to ensure that accurate
information was used and contends, as well, that its administrative due process
rights were violated.
The Department rejected Inspira's administrative appeal, reasoning that it
was required to use the hospital cost reports submitted and audited by January
31, 2019, to calculate the GME-S subsidy for fiscal year 2020. Inspira did not
inform the Department that its cost report was inaccurate until April 2019. We
hold that the Department's interpretation of its responsibilities for calculating
and allocating the GME-S subsidy was reasonable and consistent with the 2020
Appropriations Act, L. 2019, c. 150. Discerning nothing arbitrary, capricious,
or unreasonable in the Department's decision, we affirm.
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I.
The New Jersey Legislature supports eligible hospitals with subsidies and
annually appropriates monies in the State Fiscal Year (SFY) Appropriations Act.
N.J.S.A. 26:2H-18.57(a). The subsidies available to hospitals include, among
others, the Charity Care subsidy, the Graduate Medical Education (GME)
subsidy, and the GME-S subsidy.
The Charity Care subsidy provides money for indigent patient care.
N.J.S.A. 26:2H-18.60(b). The GME subsidy provides financial support to offset
some of the costs that hospitals incur in providing graduate medical education.
N.J.A.C. 10:52-8.6. In August 2018, the Legislature created GME-S as an
additional subsidy to support teaching hospitals that have a large percentage of
Medicaid patients. L. 2018, c. 116; N.J.S.A. 26:2H-18.57(a). 1
An acute care hospital is eligible for a GME-S subsidy if it has a Relative
Medicaid Percentage (RMP) that is in the top third of all acute care hospitals
with a residency program. N.J.S.A. 26:2H-18.57(a). The RMP measures the
percentage of patients with government-subsidized healthcare. The RMP ratio
is calculated using audited acute care hospital (ACH) cost reports. ACH cost
reports are submitted to the Department on an annual basis. N.J.A.C. 8:31B-
1
GME-S is also known as "Safety Net GME." N.J.S.A. 26:2H-18.57(a).
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3.3(a); N.J.A.C. 8:31B-4.6. The Department uses the cost reports for a variety
of calculations, including determining the hospital's rate of reimbursement for
services and eligibility for subsidies. N.J.A.C. 8:31B-4.1.
This appeal involves the GME-S subsidy for SFY 2020. In the 2020
Appropriations Act, the Legislature appropriated $24 million for the GME-S
subsidy. L. 2019, c. 150, at 82, ll. 11-13. The Appropriations Act directed the
Department to identify the top fourteen acute care teaching hospitals in the State
by using data in hospitals' cost reports. N.J.S.A. 26:2H-18.57(a); L. 2019, c.
150, at 81, l. 56, to 82, l. 11. Specifically, the Appropriations Act provides:
Supplemental Graduate Medical Education Subsidy
(GME-S) . . . shall be available to hospitals that meet
the following eligibility criteria: (a) an eligible hospital
has a Relative Medicaid Percentage (RMP) that is
among the top fourteen acute care hospitals with a
residency program; (b) the RMP is a ratio calculated
using the 2017 Audited Acute Care Hospital (ACH)
Cost Reports; (c) the RMP numerator equals a
hospital's gross revenue from patient care for Medicaid
and Medicaid HMO payers as reported on Forms E5
and E6, Line 1, Column D & Column H; (d) the RMP
denominator equals a hospital's gross revenue from
patient care as reported on Form E4, Line 1, Column E;
(e) for instances where hospitals that have a single
Medicaid identification number submit a separate ACH
Cost Report for each individually licensed hospital, the
ACH Cost Report data for those hospitals shall be
consolidated to the single Medicaid identification
number; (f) the GME-S Subsidy shall be calculated
using the same methodology as the GME Subsidy is
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calculated in this act, except the total amount of the
GME-S Subsidy payments shall not exceed
$24,000,000.
[Ibid.]
In June 2018, Inspira submitted its 2017 ACH cost report to the
Department. Nine months later, in March 2019, Inspira discovered that it had
underreported its Medicaid revenue by approximately $23 million in its 2017
ACH cost report. In April 2019, Inspira sent an email to the Department
notifying it of the error and asking for instructions on how to resubmit its 2017
ACH cost report. An employee of the Department responded in an email,
stating: "As you [k]now, [the] 2017 audit was closed[,] and the amounts were
used for different calculations." later that month, Inspira sent two additional
emails to the Department inquiring about submitting a revised 2017 ACH cost
report. The Department did not respond to either email.
On July 3, 2019, the Department issued the SFY 2020 GME-S subsidy
allocation announcement. Inspira did not receive a GME-S subsidy. The
allocated $24 million was distributed to fourteen other hospitals.
On July 17, 2019, Inspira filed a notice of intent to appeal the SFY 2020
GME-S subsidy allocation. Shortly thereafter, on July 24, 2019, Inspira
submitted a corrected 2017 ACH cost report. Approximately one week later,
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Inspira filed its formal appeal, contending that the Department should have
permitted Inspira to submit corrected cost data. Specifically, Inspira argued that
had the Department accepted its revised 2017 ACH cost report, Inspira would
have been eligible for a GME-S subsidy of just over $1.8 million.
In September 2019, the Department conducted a review of Inspira's
appeal. On November 4, 2019, the Department denied Inspira's appeal in a final
agency determination. In its decision, the Department explained that the
Legislature had instructed it to allocate the GME-S subsidy using the 2017 ACH
cost reports. The Department pointed out that the Legislature in connection with
how the Department was to allocate the Charity Care subsidy had defined the
term "2017 audited [ACH] Cost Report" as the cost report submitted "according
to the [Department's] due date of June 30, 2018, as submitted by December 31,
2018 by each acute care hospital and audited by January 31, 2019." L. 2019, c.
150, at 79, ll. 23-27.
The Department also determined that Inspira was not deprived of its
administrative due process rights. The Department pointed out that it had not
closed the cost database for the 2017 audited ACH cost reports. It explained
that it had allowed Inspira to amend its cost report for purposes other than the
GME-S subsidy. In determining the GME-S subsidy, however, the Department
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had to use the 2017 ACH cost reports that were audited as of January 31, 2019.
Consequently, the Department reasoned that it had complied with the
Appropriations Act and Inspira was not deprived of any administrative due
process rights. Inspira now appeals from the Department's final agency
determination.
II.
In its appeal to us, Inspira makes three related arguments. First, it
contends that the Department acted arbitrarily, capriciously, and unreasonably
in using Inspira's cost report as audited by January 31, 2019. Second, Inspira
argues that the Department was unreasonable in refusing to engage with Inspira
to allow it to correct its cost report. Finally, Inspira contends that the
Department deprived it of its administrative due process rights by no t sending
notice of the Department's intent to close the aggregate current cost database for
2017. We are not persuaded by any of these arguments, and we affirm the
Department's final decision issued on November 4, 2019.
A.
An appellate court's review of an administrative agency's final decision is
limited. Commc'ns Workers of Am., AFL-CIO v. N.J. Civ. Serv. Comm'n, 234
N.J. 483, 515 (2018). An agency's decision will not be reversed unless "(1) it
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was arbitrary, capricious, or unreasonable; (2) it violated express or implied
legislative policies; (3) it offended the State or Federal Constitution; or (4) the
findings on which it was based were not supported by substantial, credible
evidence in the record." Univ. Cottage Club of Princeton N.J. Corp. v. N.J.
Dep't of Env't Prot., 191 N.J. 38, 48 (2007) (citing In re Taylor, 158 N.J. 644,
656 (1999)). Moreover, courts generally "afford substantial deference to an
agency's interpretation of a statute that it is charged with enforcing." Ibid.(citing R & R Mktg., L.L.C. v. Brown-Forman Corp., 158 N.J. 170, 175 (1999)).
An appellate court, however, is not "bound by the agency's interpretation of a
statute or its determination of a strictly legal issue." Ibid. (quoting In re Taylor,
158 N.J. at 658).
"'[A] strong presumption of reasonableness' attends an agency's exercise
of its statutorily delegated duties, which 'is even stronger when the agency has
delegated discretion to determine the technical and special procedures to
accomplish its task.'" Caporusso v. N.J. Dep't of Health & Senior Servs., 434
N.J. Super. 88, 103 (App. Div. 2014) (alteration in original) (quoting In re Holy
Name Hosp., 301 N.J. Super. 282, 295 (App. Div. 1997)). "As long as the
agency decision is contemplated under its enabling legislation, the action must
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be accorded a presumption of validity and regularity." A.M.S. ex rel. A.D.S. v.
Bd. of Educ., 409 N.J. Super. 149, 159 (App. Div. 2009) (citation omitted).
B.
Inspira contends that the Legislature did not define "2017 audited [ACH]
Cost Report" as it related to the GME-S subsidy. Accordingly, Inspira argues
that the Department should have allowed it to revise its cost report and
recalculate the GME-S subsidy.
For SFY 2020, the Legislature provided the Department with instructions
for calculating various subsidies. L. 2019, c. 150. The Legislature first
discussed the Charity Care subsidy. In that section, the Legislature instructed
the Department to allocate Charity Care subsidy funds using the "2017 audited
[ACH] Cost Report." Id. at 79, ll. 15-27. The Legislature then defined "2017
audited [ACH] Cost Report" as the cost report submitted "according to the
[Department's] due date of June 30, 2018, as submitted by December 31, 2018
by each acute care hospital and audited by January 31, 2019." Ibid. Thereafter,
in the same act, the Legislature directed the Department to use the "2017
[a]udited Acute Care Hospital (ACH) Cost Reports" in calculating and
allocating the GME-S subsidy. Id. at 82, ll. 1-4.
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The Department reasoned that because eligibility for both the Charity Care
and GME-S subsidies were set forth in the 2020 Appropriations Act, it was
consistent with well-established statutory construction to apply the definition
used by the Legislature for "2017 audited [ACH] Cost Reports" to the GME-S
subsidy. We agree.
"The overriding goal of all statutory interpretation 'is to determine as best
we can the intent of the Legislature, and to give effect to that intent.'" State v.
S.B., 230 N.J. 62, 67 (2017) (quoting State v. Robinson, 217 N.J. 594, 604
(2014)). "To determine the Legislature's intent, we look to the statute's language
and give those terms their plain and ordinary meaning." State v. J.V., 242 N.J.
432, 442 (2020) (citing DiProspero v. Penn, 183 N.J. 477, 492 (2005)).
In the SFY 2020 Appropriations Act, the Legislature used the term "2017
audited [ACH] Cost Reports" several times. It is completely reasonable to
interpret the Appropriations Act to use that term consistently. Accordingly,
when the Legislature first defined "2017 audited [ACH] Cost Reports" in the
Charity Care subsidy section, L. 2019, c. 150, at 79, ll. 23-27, it is consistent
with the plain language of the statute to thereafter apply the same definition to
"2017 audited [ACH] Cost Report" in the GME-S subsidy section. Com.
Bancorp, Inc. v. InterArch, Inc., 417 N.J. Super. 329, 336–37 (App. Div. 2010)
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(alteration in original) (quoting Simpkins v. Saiani, 356 N.J. Super. 26, 32-33
(App. Div. 2002)) (explaining where Legislature "clearly and explicitly defined
a term," courts assume it was "with the intent that [the] definition be applied to
that term throughout the statute"); Nebinger v. Md. Cas. Co., 312 N.J. Super.
400, 406 (App. Div. 1998) (noting "[w]hen the Legislature has specifically
defined a term, that definition governs").
Indeed, under Inspira's interpretation, the statute would effectively have
no due date for the report that was going to be used to calculate the SFY 2020
GME-S subsidy. Accordingly, hospitals could submit revised cost reports at any
time and the Department would have to recalculate GME-S subsidies, then
revoke and revise the allocations made to eligible hospitals. That interpretation
does not make sense. The Department needs timely cost reports to properly
calculate healthcare subsidies. 37 N.J.R. 2165(a) (June 20, 2005) (noting
hospitals' failure "to submit cost reports on a timely basis creates problems for
auditing and the proper calculation of [healthcare] subsidies"); see also N.J.A.C.
8:31B-3.16(c)(1) (outlining civil monetary penalty for hospital's failure to
promptly submit ACH cost report).
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C.
Inspira also argues that the Department ignored its cost-reporting
regulations because it did not engage with and allow Inspira to correct its cost
report. The Department has promulgated cost-reporting regulations under its
authority granted in the Health Care Facilities Planning Act (HC Act), N.J.S.A.
26:2H-1 to -26. As already noted, hospitals submit cost reports to the
Department and the Department uses those reports for various purposes.
N.J.A.C. 8:31B-4.1. The cost-reporting rules establish standardized procedures
so that hospitals submit reports to the Department using the same accounting
principles. Ibid. The eligibility and allocation criteria for the GME-S subsidy
are set forth in N.J.S.A. 26:2H-18.57(a). Accordingly, the rules governing cost
reporting are separate and distinct from the rules governing eligibility for
hospital subsidies.
Inspira has not identified any regulations with which the Department did
not comply in calculating and allocating the GME-S subsidy for SFY 2020. Nor
has Inspira identified any instances when the Department did not "turn square
corners" in dealing with Inspira. W.V. Pangborne & Co. v. N.J. Dep't of Transp.,
116 N.J. 543, 561 (1989). It is perfectly reasonable and consistent with its
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statutory authority for the Department to have a defined timeline for hospitals
to submit audited ACH cost reports.
D.
Finally, Inspira argues that the Department violated its administrative due
process rights by failing to issue a notice of intent to close the aggregate cost
database for 2017. The Department contends that in July 2019 it had not closed
the database for 2017 and, therefore, it had not issued a notice.
Hospitals are required to submit annual ACH cost reports. N.J.A.C.
8:31B-3.3(a); N.J.A.C. 8:31B-4.6. The information contained in those reports
are used by the Department to determine a hospital's cost basis, including rates
of reimbursement. N.J.A.C. 10:52-6.1; N.J.A.C. 10:52-14.1 to -14.17
(describing rate setting methodology). The Department is required to issue a
notice of intent before closing the aggregate cost database. N.J.A.C. 8:31B-
3.16(a). In its final agency decision, the Department explained it had not closed
the 2017 cost report database and it entered Inspira's revised cost report in the
database.
The Department also explained, however, that by the time Inspira gave
notice of the error in its 2017 audited ACH cost report in April 2019, that report
was not open for revision in connection with the calculation and allocation of
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the SFY 2020 GME-S subsidy. As already explained, the Legislature had
directed the Department to use the 2017 audited ACH cost report as of January
31, 2019, to calculate the SFY 2020 GME-S subsidy.
In summary, we agree with the Department's interpretation of the 2020
Appropriations Act. We discern nothing arbitrary, capricious, or unreasonable
in the Department's denial of Inspira's administrative appeal.
Affirmed.
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