No. 14460 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

ST. JAMES COMMUNITY HOSPITAL, 

INC., A MONTANA CORPORATION, 

Plaintiff and Appellant, 

DEPARTMENT OF SOCIAL AND REHABILITATION 

SERVICES OF THE STATE OF MONTANA, 

Defendant and Respondent. 

Appeal from: District Court of the First Judicial District, 

Honorable W. W. Lessley, Judge presiding. 

Counsel of Record: 

For Appellant: 

Smith Law Firm, Helena, Montana 

Chadwick Smith argued, Helena, Montana 

Corette, Smith & Dean, Butte, Montana 

For Respondent : 

Leaphart Law Firm, Helena, Montana 

W. William Leaphart argued, Helena, Montana 

Submitted: February 8, 1979 

Decided: -BAY 2 3 1979 

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 relationship 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 Committee 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 enactment 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 contractors 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 Legislature 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 g6, 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 quasicontract. 

The judgment of the District Court is affirmed. 

Jus 

We Concur: 

def Justice 

\ 

Justices