Rehabilitation and Community Providers Ass’n v. Department of Human Services

Specificity in Pleading; Exhaustion of Administrative Remedies

Rehabilitation and Community Providers Ass’n v. Department of Human Services, 2021 WL 359444 (Pa. Cmwlth.) (unreported), original jurisdiction, appeal docket 13 MAP 2021

This original jurisdiction appeal arises from a petition for review filed by providers of community participation support (CPS) services to individuals with intellectual disabilities that receive reimbursement from DHS for their services and intellectually disabled individuals who receive CPS services (Petitioners). Petitioners seek both declaratory and injunctive relief to invalidate DHS’s new rate reimbursement system, adopted in May 2019, under which, they allege, the provider Petitioners will no longer receive the necessary funding to keep their CPS programs operational. Commonwealth Court summarized the relevant background as follows: 

CPS services are services for individuals with intellectual disabilities or autism that are funded under the Consolidated Waiver, the Person/Family Directed Supports Waiver, and the Community Living Waiver (together, Waivers). The Waivers are home- and community-based waivers approved by the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, pursuant to Section 1915(c) of the Social Security Act, 42 U.S.C. § 1396n(c). Through the Waivers, individuals who are eligible to receive services in an intermediate care facility may instead receive services in their homes and communities. The Waivers are designed to help individuals with intellectual disabilities and autism live more independently. DHS is responsible for administering the Waivers and setting rates for Waiver services, including CPS services.

On November 13, 2019, Petitioners filed the instant Petition for Review, alleging that on May 25, 2019, DHS published a Final Notice of Fee Schedule Rates for CPS Services (Final Notice) in the Pennsylvania Bulletin. Petitioners allege that the Final Notice instituted new reimbursement rates for Petitioners’ services that do not cover the actual costs of the services they provide. Specifically, Petitioners aver:

By publishing [the] Final Notice in the Pennsylvania Bulletin, DHS[ ] [has] instituted a new reimbursement system by which [CPS] services are to be provided to people with intellectual disabilities. The rates under this new system do not reflect the costs to provide [CPS] services. First quarter fiscal year [20]19-[20]20 actual costs incurred by efficient and economically run providers are between 106.87% and 153.98% of the rates set in the Final Notice. The difference between rates and actual costs is unsustainable.

….

[I]f declaratory and injunctive relief is not forthcoming, program beneficiaries will suffer irreparable harm because damage to the provider base will curtail essential services, especially in rural areas, and especially with respect to beneficiaries requiring the highest level of support. …

Pet. for Rev. ¶¶ 10, 12. On July 1, 2019, DHS implemented the new rate structure announced in the Final Notice. Id. ¶ 85.

According to Petitioners, DHS uses a reimbursement system called a “unit of service,” and one unit equals 15 minutes of a certain type of service. Id. ¶ 17. Each type of service has a corresponding code, called a “W code,” that is used for billing and reimbursement. Id. ¶ 18. The Final Notice reduced the number of W codes from 54 to 15. Id. ¶ 19. Each new W code provides a fixed reimbursement amount per unit of service. Id. ¶ 20. Petitioners allege that the new W codes fail to reflect the costs actually incurred by the providers. Id. ¶¶ 22-43.

With regard to DHS’s publishing of the Final Notice, Petitioners allege:

1. 1. 104. The … Final Notice is an unpromulgated regulation insomuch as it creates a binding norm and does not comply with the Commonwealth Documents Law, [Act of July 31, 1968, P.L. 769, as amended,] 45 P.S. §§ 1102-[1602, and 45 Pa. C.S. §§ 501-907]; the Regulatory Review [A]ct, [Act of June 25, 1982, P.L. 633, as amended,] 71 P.S. §§ 745.1[-745.15]; and the Commonwealth Attorneys Act, [Act of October, 15, 1980, P.L. 950, as amended,] 71 P.S. §§ 732[-]101[ to 732-506].

1. 1. 105. The rate structure methodology manifested in the … Final Notice was not submitted to [the United States Department of Health and Human Services, Centers for Medicare and Medicaid Services,] for approval and incorporation into the [Waivers] prior to the July 1, 2019 effective date.

1. 1. 106. The rate structure methodology manifested in the … Final Notice does not reflect costs that are reasonable, necessary, and related to the delivery of the service and sufficient to ensure access, encourage provider participation, and promote provider choice as required by federal law and the [Waivers].

Id. ¶¶ 104-06 (internal case citation omitted); see id. ¶¶ 109-11 (asserting the same averments).

Petitioners seek from this Court: (1) a declaration that DHS’s Final Notice is an unpromulgated regulation and inconsistent with federally approved payment methodologies; and (2) an injunction prohibiting DHS from implementing the new rate system and requiring DHS to establish rates that are sufficient to meet reasonable provider costs. Id. at 31-32.

Slip op. at 2-4. DHS filed Preliminary Objections asserting the following eight objections to the Petition for Review:

1. Petitioners Westmoreland County Blind Association, Associated Production Services, Inc., and United Cerebral Palsy of Central Pennsylvania have improperly invoked the original jurisdiction of this Court pursuant to 42 Pa.[ ]C.S. § 761 because they have failed to exhaust their administrative remedies.
2. Petitioner Associated Production Services is at the same time seeking to raise claims similar to those asserted in the Petition for Review before the Department of Human Services[,] Bureau of Hearing and Appeals [(BHA)], and has filed a Motion to File Request for Hearing Nunc Pro Tunc under 55 Pa. Code § 41.[31].
3. Petitioners Rehabilitation & Community Providers Association, Scott Howard Schwartz and Ryan Brett do not have standing to maintain this action.
4. Petitioners do not have standing to seek relief on behalf of any other provider of services delivered in the [Waivers].
5. Petitioners have failed to state a claim on which relief can be granted because the [Final Notice] does not violate the Commonwealth Documents Law, … the Regulatory Review Act, … or the Commonwealth Attorneys Act[ ] ….
6. Petitioners have failed to state a claim on which relief can be granted because the [Final Notice] does not violate [any] federal statute or regulation.
7. Petitioners have failed to state a claim on which relief can be granted because they do not have a privately enforceable right to challenge [DHS’s] administration of a program that operates under a waiver granted by the federal government.
8. Petitioners have failed to state a claim on which relief can be granted because they failed to allege the elements necessary for injunctive relief.

Slip op. at 6-7. Petitioners filed Preliminary Objections in the Form of a Motion to Strike DHS’s Preliminary Objections asserting that DHS’s Preliminary Objections lack specificity and fail to conform to the pleading requirements of the Pennsylvania Rules of Civil Procedure. Petitioners argued that they were not required to exhaust administrative remedies in this case because the Petition for Review raises a substantial constitutional question. While Petitioners’ acknowledged in the Petition for Review that there is an administrative remedy available in the right to appeal the sufficiency of their reimbursement rates via the BHA, Petitioners further argued that this action should be permitted because the BHA lacks jurisdiction to provide the relief sought. Additionally, Petitioners contended that it would take at least 2 years for the BHA to consider its administrative appeals, resulting in irreparable harm because Petitioners would be unable to remain operational as a result of the lack of funding.

While Commonwealth Court found DHS’s preliminary objections “undoubtedly succinct,” it concluded that “DHS’s Preliminary Objections are sufficiently specific to apprise both Petitioners and this Court of its bases for objecting to the Petition for Review, in compliance with Rule 1028(b).” Slip op. at 8. In so holding, the court reasoned that:

This is not a situation where a preliminary objection merely avers that a petition for review “fails to state a claim” without specifying why the petition is inadequate. Cf. Michael Facchiano Contracting, Inc. v. Pa. Tpk. Comm’n, 621 A.2d 1058, 1061 (Pa. Cmwlth. 1993) (“Pa.[ ]R.C.P. [No.] 1028(b) provides that preliminary objections must specifically set forth the basis for the objection, and that general averments merely alleging that the complaint ‘failed to state a claim’ are insufficient.”). Rather, each of DHS’s objections asserting a demurrer specifies why DHS believes the Petition for Review is legally insufficient to state a claim for relief. See DHS’s Prelim. Objs. ¶¶ 5-8. There is also no requirement in our Rules of Civil Procedure that preliminary objections must include citations to statutes or case law in the pleading itself. DHS properly filed a Brief in Support of its Preliminary Objections, wherein it addresses each of its bases for objecting to the Petition for Review and cites relevant law in support of those objections.

In any event, this Court has the discretion to overlook a procedural defect in a pleading that does not affect the parties’ rights.

[…]

Here, Petitioners do not allege that they are in any way prejudiced or unable to adequately respond to the objections asserted. In fact, Petitioners have thoroughly addressed each objection in their Brief in Opposition to DHS’s Preliminary Objections.

Slip op. at 8-9.

Addressing Petitioners’ argument that the substantial constitutional question exemption to the exhaustion of remedies requirement applies, the court emphasized that the Petition for Review seeks only a declaration that the “Final Notice [is] an unpromulgated regulation and inconsistent with the federally approved payment methodology” and an injunction prohibiting DHS from implementing the new rate system “and requiring [DHS] to implement a new or different system.” Slip op. at 11.  These allegations, the court concluded, “do not assert a ‘frontal constitutional attack’ on a statute or regulation, nor do they seek to have a statute or regulation declared unconstitutional,” explaining that:

The only reference to a constitutional issue in the Petition for Review is an allegation that “the purported delegation [of authority to DHS in Act 22] is a violation of Article II, Section 1 of the Pennsylvania Constitution, which vests the law-making power with the Legislature because it does not contain any legislative standards (except for ‘budget neutrality’) that constrain DHS and guide courts as to the legislative intent.” Pet. for Rev. ¶ 67. However, as Petitioners concede, Act 22 was not the stated legal authority for DHS’s issuance of the Final Notice. Id. ¶ 58 (“According to the Final Notice, the operative legal authority for issuing this notice is 55 Pa. Code Ch[apter] 51.”); see DHS’s Brief in Support of Prelim. Objs. at 25. Petitioners further allege that “if DHS[ ] had legal authority to issue the Final Notice, that authority must come from Act 22.” Id. ¶ 58. These averments do not amount to a “frontal constitutional attack” on Act 22 or the Final Notice as a whole; they merely challenge DHS’s “purported” application of Act 22 in this case, which does not satisfy the narrow exception to the exhaustion requirement. See Martel [v. Allegheny Cnty., 216 A.3d 1165, 1172 (Pa. Cmwlth. 2019), appeal denied, 222 A.3d 1128, 1176 (Pa. 2020).]; Keystone ReLeaf [LLC v. Pa. Dep’t of Health, 186 A.3d 505, 514 (Pa. Cmwlth. 2018) (en banc)].

Id. The court went on to sustain DHS’s objection for failure to exhaust an administrative remedy, reasoning that:

DHS avers that at least one Petitioner has filed an administrative action with the BHA challenging the legality of the Final Notice and the new reimbursement rates, which Petitioners do not dispute. See DHS’s Prelim. Objs. ¶ 2; DHS’s Br. in Support of Prelim. Objs. at 18-19; Pet’rs’ Br. in Opp’n to Prelim. Objs. at 27-29. DHS also alleges that in its appeal before the BHA, the provider raises the same issues as those asserted in this case. DHS’s Prelim. Objs. ¶ 2.

We agree with DHS that the BHA has authority to determine whether DHS’s new reimbursement methodology is an unpromulgated regulation or otherwise violates state and federal laws. See Millcreek Manor v. Dep’t of Pub. Welfare, 796 A.2d 1020, 1025 (Pa. Cmwlth. 2002) (recognizing that administrative agencies may rule on the validity of their own guidelines and statements of policy, including whether a guideline or policy is an unpromulgated regulation). Moreover, under DHS’s regulations, a medical assistance provider may request declaratory relief in an appeal before the BHA. See 55 Pa. Code § 41.42(a), (b); 55 Pa. Code § 41.31(4); 1 Pa. Code § 35.19.

In short, Petitioners cannot sidestep the exhaustion requirement simply by including a claim for declaratory or injunctive relief in their Petition for Review. See Dep’t of Gen. Servs. v. Frank Briscoe Co., 466 A.2d 1336, 1341 (Pa. 1983) (“[T]he declaratory judgment procedure may not be used to prejudge issues that are committed for initial resolution to an administrative forum, any more than it may be used as a substitute to establish in advance the merits of an appeal from that forum.”); Faldowski v. Eighty Four Mining Co., 725 A.2d 843, 846 (Pa. Cmwlth. 1998) (sustaining preliminary objection and dismissing a declaratory judgment action for failure to exhaust administrative remedies, because “[t]o hold otherwise would mean that … in most administrative cases, a declaratory judgment could be used to short-circuit the administrative process and have the law determined without the benefit of the administrative agency first reviewing the matter”).

Furthermore, this Court has applied the exhaustion requirement in other cases where medical assistance program providers have challenged the legality of DHS’s rate reimbursement methods.

Slip op. at 13-15 (footnotes omitted). Finally, Commonwealth Court rejected Petitioners’ argument that requiring them to exhaust their administrative remedies will result in irreparable harm, concluding that:

Petitioners cannot avoid the exhaustion requirement simply because they believe their administrative appeals will not be resolved in a timely manner. See Mercy Hosp. v. Pa. Hum. Rel. Comm’n, 451 A.2d 1357, 1359 (Pa. 1982) (recognizing that a more expeditious judicial resolution of a dispute “does not warrant [judicial] intrusion where there is a statutory process designed for its resolution”).

Furthermore, as discussed above, Petitioners can file an appeal with the BHA challenging the legality of the rate changes announced in the Final Notice. Petitioners also acknowledge that they “have the right to appeal the sufficiency of their [reimbursement] rates via the [BHA]” to attempt to recover the allegedly deficient funds. Pet. for Rev. ¶ 15; see Pet’rs’ Br. in Opp’n to Prelim. Objs. at 29 (stating that the relief requested in the BHA appeals is monetary damages). Therefore, we conclude that Petitioners have not clearly shown that the available administrative remedy is inadequate. See Eisenberg, 454 A.2d at 515.

Slip op. at 16. Accordingly, the court sustained DHS’s preliminary objection on the basis that Petitioners were required to exhaust their administrative remedies before filing this action and dismissed the Petition for Review.

During the pendency of Petitioners’ appeal to the Supreme Court, the Supreme Court issued its decision in Firearm Owners Against Crime v. Papenfuse, 261 A.3d 467 (Pa. Oct. 20, 2021). In that case, the Supreme addressed the availability of pre-enforcement relief under the Declaratory Judgments Act, noting that:  

This Court has also permitted plaintiffs to seek pre-enforcement relief when a law imposed unappealing options in cases that were not brought under the Declaratory Judgments Act. In Arsenal Coal, this Court held that the petitioners’ petition for pre-enforcement injunctive relief from the Department of Environmental Resources’ regulatory scheme presented a justiciable claim. Arsenal Coal, 477 A.2d at 1338, 1340. In reversing the Commonwealth Court’s decision that equitable relief was unavailable because the statutory administrative review provisions provided an adequate remedy, the Arsenal Coal Court concluded that the regulations had a direct and immediate impact on the petitioners, creating an exception to the general rule of exhaustion of administrative remedies. Id. at 1340. This Court further explained that if petitioners were unable to obtain pre-enforcement review, their alternative options were to refuse to comply with the regulations to test them, risking sanctions and the uncertainty of piecemeal litigation, or to comply with the regulations, which would be expensive. Id. In light of the inadequacy of these alternatives and the direct and immediate impact on the petitioners, this Court concluded the petitioners were entitled to pre-enforcement review. Id.

Firearm Owners Ass’n, 261 A.3d at n. 14. The Supreme Court thereafter issued an order directing the parties in this case to file supplemental briefing to address the impact of the Supreme Court’s decision in Firearm Owners Association.

For more information, contact Kevin McKeon or Dennis Whitaker.