### No. 12954 IN

### THE SUPREME COURT OF THE 

### STATE OF MONTANA 1975

MONTANA DEACONESS HOSPITAL etal., Plaintiffsand Respondents,

DEPARTMENT OF SOCIALAND 

### REHABILITATION SERVICES OF THE STATE OF MONTANA, Defendant and Appellant.

Appeal from: DistrictCourt of theFirstJudicialDistrict, Honorable PeterG. 

### Meloy, Judge presiding. Counsel of Record: For Appellant

### : Thomas H. 

### Mahan argued, Helena, Montana ForRespondents: 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, GreatFalls, Montana Church, Harris, Johnson and Williams, Great Falls,

Montana Milton0. Wordal appeared, GreatFalls, Montana

Submitted: June 13, 1975 Decided: 

# AOG5 

## lm Filed: 

## 5 mMr.Justice Wesley Castles delivered the Opinion of the Court. Defendant-appellant, Department of Social and Rehabilitation Services of the state of Montana (hereinafterreferred to as SRS), brings this appeal from a declaratory judgment renderedby 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 intoby 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 forpatients' servicesperformed under the terms of such contracts. The issues are: 1) Whether the term "fulland adequate costs" as used in the subject contracts, is synonymous with the term "standard charges" as imposed upon allpatients 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 "reasonablecosts." Payments

were to be made on an interimbasis 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 

### (42U.S.C., S 1396). In addition, the contractsprovided for negotiation for

a supplemental allowance over and above costspermitted under Title XVIII and TitleXIX when it was shown that the reasonable cost formuladid not provide the hospitals with "fulland adequate costs." SRShas paid standard charges for the fiscalyears 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 actionwas commenced by the hospitals asking the Court to determine themeaning 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 federalregulations. 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 contractsby 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 shownby the contracts themselves. Following a conferenceby the district court and counsel of record onAugust 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 federalregulations 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 thepayment of "fulland 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 amotion for summary judgmentpresented 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 synonymouswith 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 contractswould be a perfunctory and uselessprocedure in that the total costs forwhich SRS is liable could not amount tomore or less than each hospital's s-candardcharges 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 fiscalyears beginningwith the fiscalyear ending June 30, 1968, through the fiscalyear ending June 30, 1975,based upon each hospital's standard charges for patient services. Earlier in the proceedings, SRSmoved to join the United States as a party defendant and the district courtdenied the motion, as shown in theminutes of the court at the time themotion for summary judgmentwas argued. As to the first issue, we shall not recite the backgroundof 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 contractswas to provide full and adequate costs as represented by the standard charges. Actually, SRS does not really dispute this,because clearly that iswhat the contracts say. SRS is fearful that the ever present big-brother federalDepartmentof Health, Education and Welfare threatens to cut off federal funds. The threatmay 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 (42U.S.C. § 1396) are not the same, in a nonprofit hospital structure, as standard charges. Be that as itmay, 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 redundantbut, 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 stateprogram 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.