St. James Community Hospital v. Department of Social & Rehabilitation Services

No. 14460

I N THE SUPREME COURT OF THE STATE OF MONTANA

S T . JAMES COMMUNITY H O S P I T A L ,
I N C . , A MONTANA CORPORATION,

P l a i n t i f f and A p p e l l a n t ,

DEPARTMENT OF S O C I A L AND R E H A B I L I T A T I O N
S E R V I C E S O F THE STATE O F MONTANA,

D e f e n d a n t and R e s p o n d e n t .

Appeal from: D i s t r i c t C o u r t of t h e F i r s t J u d i c i a l D i s t r i c t ,
H o n o r a b l e W. W. L e s s l e y , Judge p r e s i d i n g .

C o u n s e l of R e c o r d :

For A p p e l l a n t :

S m i t h Law F i r m , H e l e n a , Montana
C h a d w i c k S m i t h argued, H e l e n a , M o n t a n a
C o r e t t e , Smith & Dean, B u t t e , Montana

F o r Respondent :

L e a p h a r t Law F i r m , H e l e n a , Montana
W. W i l l i a m L e a p h a r t a r g u e d , H e l e n a , M o n t a n a

Submitted: February 8 , 1 9 7 9

Decided: - A 2 3 1979
BY
Filed: MAY 2 3 1979

am&,, Cler
Mr. Justice Daniel J. Shea delivered the Opinion of the
Court.

St. James Community Hospital appeals from an order of

the Lewis and Clark County District Court granting summary
judgment to the Department of Social and Rehabilitation
Services (SRS) in an action for declaratory judgment. The
hospital brought suit for a judicial determination that by
enacting House Bill 269 (the 1975-1977 legislative appropriations

bill), the Montana Legislature intended that Montana hospitals
participating in the federal Medicaid program be reimbursed

on the basis of their "full and adequate costs" rather than
their "reasonable costs" as defined in the federal Medicaid
regulations.
The controversy stems from the same contractual relation-
ship recently discussed by this Court in Montana Children's

Home et al. v. Dept. of SRS (1979), Mont . , 592
P.2d 481, 36 St.Rep. 507.

Beginning in 1967, SRS contracted with several Montana
hospitals to provide inpatient hospital services to eligible
Medicaid recipients. The standard contract between SRS and
the hospitals provided that SRS would reimburse the hospitals

on the basis of "reasonable costs", which were to be determined
at the end of each fiscal year by Blue Cross of Montana, in
compliance with federal guidelines. In the interim, however,
SRS would reimburse the hospitals on the basis of their "standard
charges" to the cash-paying general public with appropriate

adjustments between the two standards to be made at the end
of the fiscal year. If the federally defined "reasonable..
costsWwere found to be less than "full and adequate costs", the
hospitals could negotiate with SRS for a supplemental allowance
bringing the total to "full and adequate costs". The funds
for this supplemental allowance were drawn from SRS's

general biennium legislative appropriation.
Before the commencement of the ensuing fiscal year, on
June 30, 1976, SRS terminated its standard contract with the
hospitals and the parties contemporaneously executed an
"interim agreement". By this agreement SRS was to pay the

hospitals less than their standard charges and the hospitals
agreed to continue providing services to Medicaid patients,

without being held to "accord and satisfaction". The

interim agreement further provided that if the Legislative
Interim Finance Committee ruled that the legislative intent
behind House Bill 269 (the 1975-1977 appropriations bill)
was to pay hospitals "full and adequate costs", then the
hospitals would be retroactively reimbursed on that basis.
On July 23, 1976, however, the Interim Finance Com-

mittee passed a motion that House Bill 269 was not appropriated
to provide funds for supplementation of the federal standard
of "reasonable costs". Nonetheless, St. James Community
Hospital continued to provide medical services to eligible
Medicaid patients. SRS refused to pay more than "reasonable

costs" for the medical services, and the hospital therefore
started the present lawsuit.
On January 21, 1977, St. James Community Hospital filed

a declaratory judgment action seeking a determination that
the 1975 Legislature intended the hospitals be paid "full
and adequate costs" throughout the entire 1975-1977 biennium,
rather than just half of the biennium. Upon cross-motions
for summary judgment, the District Court granted summary
judgment to SRS and held:

"House Bill No. 269, 1975, constituted
an appropriation to the General Fund from
which the Department of SRS can administer
the Medicaid program consistently with Title
 XIX of the Social Security Act . . . House
Bill 269 contains absolutely no expression
of legislative intent to pay participating
hospitals 'full and adequate' costs. Payment
of 'full and adequate' costs from 1967-1976
was a matter of contract between SRS and
the hospitals and said contracts are not
evidence of legislative intent."
The hospital presents four issues for our review
and we hold against the hospital on each issue. Two of
them can be disposed of summarily. The hospital contends
that _a legislative interim committee has no authority
to make a binding determination of legislative intent,
but we need not discuss this issue because both sides agree
that the committee has no such authority. The hospital also
contends that federal law, namely 42 U.S.C. §1396a, et
seq., and the appropriate regulations, do not prohibit
the reimbursement of hospitals beyond "reasonable costs"
as defined by federal law. That, however, would only
become a consideration if we determined that the hospital
was entitled to compensation beyond "reasonable costs"
under the remaining two issues. Since we do not so
determine, we do not reach the issue of whether federal
law prohibits reimbursement beyond the federally established
"reasonable costs" limitations.
The remaining issues are whether the 1975 Legislature
intended to appropriate funds for payment of full and adequate
costs to the hospitals through the end of the 1975-1977
biennium, and if not, whether SRS is bound nonetheless to
pay full and adequate costs under implied contractual and
equitable principles to avoid unjust enrichment of SRS.
St. James Community Hospital contends that, by enacting
House Bill 269, the Legislature intended providers of Medicaid
services in Montana be reimbursed for their "full and
adequate costs". The argument is that since full and adequate
costs were paid for the first year of the 1975-1977
biennium, the Legislature must have intended the same

for the second year.

The "full and adequate cost" reimbursements for
the first year of the biennium were made pursuant to
written contracts between SRS and the hospitals. When
SRS terminated its contract with the hospital on June
30, 1976, it thereby ended its contractual obligation to
pay full and adequate costs. Absent a contract, there is

nothing in the legislative appropriations bill which would
allow recovery of full and adequate costs.
House Bill 269 is a general appropriations bill.
It does not approve, direct or refer to a continuation of
supplemental payments. Nor can such legislative intent
be gathered from the circumstances surrounding the enact-
ment of House Bill 269. The circumstances to which the

hospital alludes--the contract and its terms--were not the
motivating influence behind adoption of the appropriations

bill. It would indeed be burdensome to hold that con-
tractors engaged by the State may not be terminated until

the end of the biennium unless specifically authorized by
the Legislature.
The hospital also claims that payment of less than

"full and adequate costs" will result in higher charges
to the cash-paying public and that the Legislature could
not have intended such an unreasonable or oppressive result.
As already stated, there is no indication that the Legi-
slature considered this contract in its biennium appropriation.
We note, moreover, that the "reasonable cost" limitation
under the federal statute and regulations is designed to
encourage "economy, efficiency and quality of care."
Johnson's Professional Nursing Home v. Weinberger (5th Cir.
19741, 490 F.2d 841, 843. See also, American Medical Association

v. Matthews (D.C. Ill. 1977), 429 F.Supp. 1179, 1199. It is
not for this Court to modify this general policy by adopting
a different standard than that intended by Congress.
The hospital further charges that SRS has taken
advantage of the hospitals by using their services from
July 1, 1976 through June 30, 1977 knowing full well the
hospitals would accept no less than full and adequate cost

reimbursement. It contends therefore that the situation

gives rise to an implied contract, obligating SRS to pay the
full value of the benefits received. An implied contract,
however, arises not from the consent of the parties, but
from principles of natural justice and equity, based on the
doctrine of unjust enrichment. Brown v. Thornton (1967), 150
Mont. 150, 432 P.2d 386. Here, the hospital initially consented

to the arrangement. The law will not imply a promise to pay
the value of services rendered and accepted if there is a
special agreement to pay a particular amount or in a particular
manner for the services rendered. 66 Am.Jur.2d Restitution
and Implied Contracts g 6 , 25. In the instant case, Medicaid
services were furnished after June 30, 1976 by reason of the
"interim agreement". This agreement contemplated that

whatever statement of legislative intent the standing committee
made, would determine the measure of payment for Medicaid
care after June 30, 1976. Even if this Court were to accept
the hospital's argument that the committee's adverse ruling
did not bind the hospitals and that the matter then had to
be litigated, the measure of reimbursement for Medicaid
services rendered after June 30, 1976 would depend on the

court's determination of legislative intent. The interim
agreement thus precludes recovery under a theory of quasi-

contract.

The judgment of the District Court is affirmed.

Jus

We Concur:

\
d e f Justice

Justices