Englewood Hosp. & Med. Ctr. v. State

317 A.3d 967

478 N.J.Super. 626

ENGLEWOOD HOSPITAL & MEDICAL CENTER, Hudson Hospital Opco, LLC, d/b/a Christ Hospital, LJKG Opco, LLC, d/b/a Bayonne Medical Center, HUMC Opco, LLC, d/b/a Hoboken University Medical Center, Capital Health Regional Medical Center, Capital Health Medical Center – Hopewell, Cooper University Hospital, Hackensack Meridian Health Pascak Valley Medical Center, JFK Medical Center, Our Lady of Lourdes Medical Center, Lourdes Medical Center of Burlington County, St. Francis Medical Center, Hackensack Meridian Health – Mountainside Medical Center, and Prime Healthcare Services – St. Mary’s Passaic, LLC, d/b/a St. Mary’s General Hospital, Plaintiffs-Appellants,

v.The STATE of New Jersey, the State of New Jersey Department of Human Services, Sarah Adelman in her capacity as Commissioner of the Department of Human Services, State of New Jersey Department of Human Services, Division of Medical Assistance and Health Services, Meghan Davey, in Her Capacity as Director of the Division of Medical Assistance and Health Services, State of New Jersey Department of Health, and Dr. Kaitlan Baston, in her capacity as Commissioner of the Department of Health, Defendants-Respondents.

DOCKET NO. A-2767-21

Superior Court of New Jersey, Appellate Division.

Argued October 31, 2023

Decided June 27, 2024

On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket Nos. L-1434-17 and L-1397-18.

John Zen Jackson, Iselin, argued the cause for appellants (Greenbaum, Rowe, Smith & Davis, LLP, attorneys; James A. Robertson IV, John Zen Jackson, Andrew F. McBride, Robert B. Hille, and Paul L. Croce, Roseland, on the briefs).

Jacqueline D’Alessandro, Deputy Attorney General, argued the cause for respondents (Matthew J. Platkin, Attorney General, attorney; Melissa H. Raksa, Assistant Attorney General, of counsel; Jacqueline D’Alessandro and Elizabeth Tingley, Deputy Attorney General, on the brief).

Before Judges Rose, Smith and Perez Friscia.

₆₃₃The opinion of the court was delivered by

SMITH, J.A.D.

After cross-motions for summary judgment, plaintiffs appeal from the trial court’s order granting defendants’ motion for summary judgment on certain taking claims and dismissing certain plaintiffs’ remaining takings claims on ripeness grounds for failure to exhaust administrative remedies.

Plaintiffs, a group of hospitals licensed to do business in New Jersey and governed by the Health Care Cost Reduction Act, N.J.S.A. 26:2H-18.50 to -69, contend that N.J.S.A. 26:2H-18.64 (charity care), the State’s Medicaid Plan, and corresponding regulations compel plaintiffs to use medicine, equipment, and services they control to provide patient care regardless of ability to pay, and without an adequate subsidy to make up the financial shortfall.₆₃₄ Plaintiffs argue that this scheme represents an unconstitutional taking. Plaintiffs also claim the trial court erred when it dismissed certain plaintiffs’ claims for a lack of ripeness due to their failure to exhaust administrative remedies.¹

Considering the arguments and governing legal principles, we affirm the trial court’s order dismissing all of the constitutional taking claims, but we do so for slightly different reasons.

I.

A.

A brief overview of Medicaid, the Health Care Cost Reduction Act, and related charity care provisions is warranted. The Medicaid program, established in 1965 by Title XIX of the Social Security Act, is a joint federal-state program designed to provide medical care for indigent, disabled, and elderly persons. 42 U.S.C.A. § 1396; United Hosps. Med. Ctr. v. State, 349 N.J. Super. 1, 4, 793 A.2d 1 (App. Div. 2002). If a state chooses to join the Medicaid program, it "must operate its program in compliance with the federal statute and regulations," United Hosps., 349 N.J. Super. at 4, 793 A.2d 1 (citing Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980)), and must submit a Medicaid State Plan, describing the methods and standards for reimbursement to providers, for federal approval, 42 U.S.C.A. § 1396(a)(13); N.J.S.A. 30:4D-7.

In 1968, our State Legislature elected to participate in the Medicaid program when it passed the Meydical Assistance and Health Services Act (N.J.S.A. 30:4D-1 to - 19) for patients whose "resources are determined to be inadequate to secure necessary medical care at their own expense." Bergen Pines County Hosp. v. N.J. Dep’t of Human Servs., 96 N.J. 456, 465, 476 A.2d 784 (1984). ₆₃₅AS per the Act, the Medicaid program is administered by the Division of Medical Assistance and Health Services (the Division). See United Hosps., 349 N.J. Super. at 5, 793 A.2d 1.²

In 1992, as part of the Health Care Cost Reduction Act, N.J.S.A 26:2H-18.50 to -69, the Legislature enacted N.J.S.A. 26:2H-18.64, which provides in part, "[n]o hospital shall deny any admission or appropriate service to a patient on the basis of that patient’s ability to pay or source of payment." Such care is referred to as charity care.³ To qualify for charity care, individuals must have no health coverage, private or government sponsored (including Medicaid), and meet the income and asset eligibility requirements. N.JAC. 10:52-11.8. A hospital which violates the statute is subject to a fine of $10,000 per violation.⁴ See N.J.S.A 26:2H-18.64.

The Legislature recognized that disproportionate share hospitals (DSH)⁵ bear a greater burden to sustain the interests of the Health Care Cost Reduction Act and established a Health Care Subsidy Fund (HCSF), N.J.S.A. 26:2H-18.58, to distribute subsidies to qualifying facilities. Each year, the Legislature appropriates funds to the HCSF via the annual Appropriations Act. The State of New Jersey Department of Health (DOH) then allocates subsidies for the current state fiscal year according to the statutory formula contained in N.J.S.A 26:2H-18.59i—accounting for any ₆₃₆instructions or modifications contained in the current year’s Appropriations Act. N.J.S.A 26:2H-18.55.

In Univ. of Med. & Dentistry v. Grant, we explained the subsidy program’s operation in detail:

The statutory distribution formula requires a determination of how much charity care an eligible hospital has provided, valued not at its usual and customary charges but rather on theamount Medicaid would pay for such services ("documented charity care").

….

Therefore, the initial value must be converted or "priced" to the Medicaid value to determine ultimately the "documented charity care" for each eligible hospital.

….

To this basic figure, other calculations are applied to determine eligibility for, and amount of, any subsidy. The "profitability factor" reduces the hospital’s "documented charity care" if the hospital’s operating margin is above the statewide median. Also considered is the "payer mix factor," determined by how much of the hospital revenues come from private payers. A hospital with a factor equal to or less than the statewide target would not receive a charity care subsidy.

[343 N.J Super. 162, 165-68, 778 A.2d 473 (App. Div. 2001) (internal citations omitted).]

The Legislature’s health care subsidy is not designed to be a full "reimbursement" covering a hospital’s actual charity care expenses, but instead to provide each hospital with its "proportionate share of the total subsidy funded by the Legislature for that year." Id. at 165, 778 A.2d 473. Hospitals may challenge their assigned share of the HCSF in two ways. They may challenge the amount of their designated HCSF subsidy by filing an administrative appeal with the DOH. N.J.A.C. 10:52-13.4(f)(1)-(2). They may also seek an adjustment of the Medicaid rate issued each year by the Division. N.J.A.C. 10:52-14.17(c)(1).

B.

Against this backdrop, we review our unpublished opinions in In re Medicaid Inpatient Hosp. Reimbursement Rate Appeals (In re Medicaid), No. A-3726-13, 2016 WL 2931510 (App. Div. May 20, 2016) and IMO Englewood Med. Ctr.’s SFY 2014 Charity Care Subsidy Appeal (IMO Englewood), No. A-1555-13, 2016 WL 2962692 (App. Div. May 20, 2016), which are directly related to the ₆₃₇matter before us.⁶ In each case, the plaintiff hospitals raised taking claims as part of their rate challenges, and in each case final administrative decisions were issued dismissing the taking claims on jurisdictional grounds.

In In re Medicaid, plaintiff hospitals appealed to the Division disputing their assigned Medicaid rates pursuant to N.J.A.C. 10:52-14.17. (slip op. at 2-3). After the Division denied the appeals, plaintiffs sought an administrative hearing to make an as-applied constitutional challenge to each [h]ospital’s 2009 Medicaid rates. Id. at 4. They argued the State failed to provide adequate compensation for its taking of [h]ospital property, "including … facilities, equipment, staff and services, for public use." Ibid. In its final administrative decision, the Director of the Division concluded that an administrative hearing was not the proper venue for the hospitals’ "facial challenge to the charity care statute … administered by the [DOH] not [the Division]." Ibid. We affirmed, concluding the hospitals’ takings claims were not foreclosed, and could "be developed and … adjudicated in another forum" Id. at 17.

In IMO Englewood, eight hospitals filed administrative appeals challenging the New Jersey Health Care Cost Reduction Act, including N.J.S.A. 26:2H-18.64. (slip op. at 3). The plaintiffs projected losses for fiscal year 2015, alleging the losses were due to their statutory obligation to provide low or no-cost care to eligible persons. Id. at 5-6. The plaintiffs claimed this statutory obligation, combined with the alleged inadequate subsidies, constituted unconstitutional takings of their property without just compensation. Id. at 6. The Commissioner of the DOH concluded it lacked jurisdiction to consider the hospitals’ constitutional claims. Ibid. ₆₃₈We affirmed. Id. at 3. Noting the plaintiff hospitals received some subsidies in the disputed years, we declined to exercise...