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Athol Memorial Hospital v. Commissioner of the Division of Medical Assistance8/6/2002
Suffolk.
April 1, 2002
Division of Medical Assistance. Massachusetts Medical Assistance Program. Hospital, Medicaid reimbursement. Administrative Law, Exhaustion of remedies.
The plaintiffs, acute-care hospitals, seek payment from the division of medical assistance for inpatient services provided to Medicaid recipients between Marchá1, 1994, and Juneá10, 1999, pursuant to their respective provider contracts with the division. In conducting review of the services, the division denied reimbursement on the ground that the services were not "medically necessary." On Februaryá5, 1999, we decided Massachusetts Eye &áEar Infirmary v. Commissioner of the Div. of Med. Assistance, 428 Mass. 805 (1999), which held that the division could not deny, pursuant to its claims review regulations, all reimbursement for treatment that was medically appropriate but performed in the wrong setting without clearly defining the terms on which such denial could be based. See id. at 814-817. The hospitals then brought these contract actions, claiming that the division's denial of reimbursement under "invalid" regulations constituted a breach of its agreement to compensate the hospitals for inpatient services provided to Medicaid patients. The cases were consolidated, then bifurcated, and the issue of liability was tried jury waived on stipulated facts. A judge in the Superior Court ordered judgment for the division because the hospitals had failed to exhaust their administrative remedies and could not, therefore, recover under their contracts. We granted the plaintiffs' application for direct appellate review, and now affirm the judgment.
1. Background.
We summarize the salient stipulated facts. The hospitals provided inpatient services to Medicaid recipients between Marchá1, 1994, and Juneá10, 1999, pursuant to standardized provider agreements with the division. The agreements state that the division would "reimburse the [hospitals] . . . for all reimbursable services and goods actually and properly delivered to eligible recipients and properly billed to the ivision." Payment rates for services are "established by contract between the providerá.á.á. and the division" and are "subject to all applicable TitleáXIX statutory and regulatory requirements." G.áL. c.á118G, §á11. Each contract required the parties to comply with all applicable State and Federal statutes, rules, and regulations governing Medicaid.
At all relevant times, the division's regulations stated that the hospitals would only be reimbursed for services that were "medically necessary." 130áCode Mass. Regs. §á450.204 (1998). Broadly stated, a service is "medically necessary" if it satisfies two requirements. It must be medically appropriate, and there must not be a more conservative or less costly suitable treatment. See 130áCode Mass. Regs. §á450.204(A). The division does not dispute that the services provided were medically appropriate, i.e., clinically necessary, in each case. This appeal concerns only claims for services that were provided on an inpatient basis, but denied because the division concluded that a more conservative or less costly alternative existed, i.e., they should have been provided on an outpatient basis. 130 Code Mass. Regs. §á450.204(A)(2).
The Massachusetts peer review organization (MassPRO) was appointed to review services to determine whether they met the criteria for medical necessity. See 130áCode Mass. Regs. §á450.206 (1999). If MassPRO found that services rendered were medically appropriate but could have been provided on a conservative or less costly (outpatient) basis, then it found that they were not medically necessary, and the hospitals would be d
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