No. 12954 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1975 

MONTANA DEACONESS HOSPITAL et al., 

Plaintiffs and Respondents, 

DEPARTMENT OF SOCIAL AND REHABILITATION 

SERVICES OF THE STATE OF MONTANA, 

Defendant and Appellant. 

Appeal from: District Court of the First Judicial District, 

Honorable Peter G. Meloy, Judge presiding. 

Counsel of Record: 

For Appellant : 

Thomas H. Mahan argued, Helena, Montana 

For Respondents: 

Smith, Smith and Sewell, Helena, Montana 

Chadwick H. Smith argued, Helena, Montana 

Mulroney, Delaney and Dalby, Missoula, Montana 

Dexter L. Delaney appeared, Missoula, Montana 

Cure, Borer and John F. Lynch, Great Falls, Montana 

John F. Lynch appeared, Great Falls, Montana 

Church, Harris, Johnson and Williams, Great Falls, 

Montana 

Milton 0. Wordal appeared, Great Falls, Montana 

Submitted: June 13, 1975 

Decided: AOG 5 lm 

Filed : 5 m 
Mr.Justice Wesley Castles delivered the Opinion of the Court. 

Defendant-appellant, Department of Social and Rehabilitation Services of the state of Montana (hereinafter referred to as 

SRS), brings this appeal from a declaratory judgment rendered by 

the district court, Lewis and Clark County, in favor of plaintiffrespondents (hereinafter referred to as the hospitals), declaring 

the rights of the hospitals under a series of contracts entered 

into by the SRS and the numerous hospitals in Montana, which, as 

members of the class represented by the hospitals herein, provide 

services to the state of Montana under Title XIX of Public Law 

89-97 (Medicaid), and related state statutes. The district court 

ruled that the hospitals are entitled to standard hospital charges 

as full and adequate costs for patients' services performed under 

the terms of such contracts. 

The issues are: 

1) Whether the term "full and adequate costs" as used 

in the subject contracts, is synonymous with the term "standard 

charges" as imposed upon all patients in the hospitals, and thus 

whether SRS is liable. 

2) Whether SRS had authority to enter into the contracts 

in question, acting on behalf of the state of Montana. 

3) Whether the district court erred in denying the motion 

of SRS to join the United States as a party to this action. 

The subject contracts generally provide that the hospitals 

will accept reimbursement for inpatient services rendered to 

Medicaid patients on the basis of "reasonable costs." Payments 

were to be made on an interim basis according to the hospitals' 

standard charges, with a year-end retroactive adjustment computed 

using guidelines of the Department of Health, Education and Welfare 

of the United States (HEW), contained in a document entitled "Principles of Reimbursement for Provider Costs" under Title XVIII 
(Medicare), and other costs allowed under Title XIX, Public 

Law 89-97 (42 U.S.C., S 1396). 

In addition, the contracts provided for negotiation for 

a supplemental allowance over and above costs permitted under 

Title XVIII and Title XIX when it was shown that the reasonable 

cost formula did not provide the hospitals with "full and adequate 

costs." SRS has paid standard charges for the fiscal years commencing with the year ending 1968, and continuing to date as required, but has since demanded some refunds, claiming that such 

refunds are due as retroactive adjustments. Although an opinion 

from the attorney general of the state of Montana instructed 

immediate negotiations under the terms of the contracts, the SRS 

refused to negotiate; therefore this action was commenced by the 

hospitals asking the Court to determine the meaning of "full and 

adequate costs" as used in such contracts. 

SRS argues that it cannot negotiate a supplemental allowance without violating federal regulations and losing federal 

funds, and that the contracts are governed by federal regulations. 

The hospitals contend that such argument is not a defense 

because there is no provision in the contracts stating that the 

obligation of the SRS is conditioned upon the receipt of federal 

funds; and further, that there is no provision in federal law to 

prevent payment under the contracts by the state. SRS states in 

its brief that it is the fiscal agent of the United States, but 

it did not enter into the subject contracts as an agent of the 

United States. It contracted as a state agency, as is clearly 

shown by the contracts themselves. 

Following a conference by the district court and counsel 

of record on August 22, 1974, the district court entered an order 

finding the action involved these issues: 

1. What was meant by the term "full and adequate costs" 
as used in the exhibited contracts? 

2. Was the SRS bound to honor the conditions of its 

contracts to pay the hospitals for "full and adequate costs"? 

3. Did federal regulations prohibit payment by SRS of 

"full and adequate costs" to the hospitals, as contracted? 

In its order, the court further held that federal law 

did not prohibit the payment of "full and adequate costs" by 

SRS to the hospitals; that SRS had the legal authority to enter 

into the subject contracts for such payment; and that SRS is 

legally obligated under the terms of the contracts. 

Following argument on a motion for summary judgment presented by the hospitals and filed on October 29, 1974, the district 

court entered summary judgment for the hospitals and against SRS 

on November 14, 1974, adjudging that the term "full and adequate 

costs" is synonymous with the term "standard charges" as imposed 

upon - all patients in the hospitals, and that negotiations between 

the parties to determine the supplemental allowances under the 

contracts would be a perfunctory and useless procedure in that the 

total costs for which SRS is liable could not amount to more or 

less than each hospital's s-candard charges under any reasonable 

interpretation of the language of the contracts. The district 

court concluded the parties must settle their accounts under the 

terms of the contracts for all fiscal years beginning with the 

fiscal year ending June 30, 1968, through the fiscal year ending 

June 30, 1975, based upon each hospital's standard charges for 

patient services. 

Earlier in the proceedings, SRS moved to join the United 

States as a party defendant and the district court denied the 

motion, as shown in the minutes of the court at the time the motion 

for summary judgment was argued. 

As to the first issue, we shall not recite the background 
of dialogue which took place prior to entry into the contracts 

between the hospitals and SRS. However, this background was 

before the district court and the clear intent of the parties 

to the contracts was to provide full and adequate costs as represented 

by the standard charges. Actually, SRS does not really dispute 

this, because clearly that is what the contracts say. SRS is 

fearful that the ever present big-brother federal Department of 

Health, Education and Welfare threatens to cut off federal funds. 

The threat may be made, but, in law, the HEW cannot successfully 

show that reasonable costs, absent any other special considerations, under Titles XVIII and XIX of Public Law 89-97 (42 U.S.C. 

§ 1396) are not the same, in a nonprofit hospital structure, as 

standard charges. Be that as it may, the relationship between 

state and federal agencies is irrelevant so far as the contract 

meaning is concerned. 

The state agency, SRS, has legal authority to enter into 

the contracts. Sections 71-1515 and 71-1517, R.C.M. 1947. This 

bare statement seems redundant but, somehow, SRS seems to say 

that the federal government is the real party in interest and that 

SRS is really a "nobody" in the program. This is patently incorrect. The statutory authorization for the entire program as a 

state program is contained in Chapter 15, Title 71, R.C.M. 1947. 

Finally, appellant SRS raises as an issue that the United 

States should have been added as a party. No rules or cases are 

cited by SRS. The contracts involved are clearly between the 

hospitals and SRS. No third party requirement appears. 

We have examined the issues presented and find none 

meritorious. Accordingly, the judgment of the district court is 

affirmed.