            IN THE COMMONWEALTH COURT OF PENNSYLVANIA


Armstrong County Memorial            :
Hospital and Monongahela             :
Valley Hospital, Inc.,               :
                       Petitioners   :
                                     :
           v.                        :            No. 438 M.D. 2012
                                     :            Argued: September 14, 2017
The Department of Public Welfare     :
of the Commonwealth of Pennsylvania, :
                        Respondent :


BEFORE: HONORABLE P. KEVIN BROBSON, Judge
        HONORABLE PATRICIA A. McCULLOUGH, Judge
        HONORABLE DAN PELLEGRINI, Senior Judge


OPINION NOT REPORTED

MEMORANDUM OPINION
BY JUDGE BROBSON                                  FILED: October 16, 2017

                                  I. INTRODUCTION
              Petitioners Armstrong County Memorial Hospital and Monongahela
Valley Hospital, Inc. (Hospitals) commenced this action against Respondent
Department of Public Welfare of the Commonwealth of Pennsylvania (Department)1
by filing a petition for review (Petition) addressed to this Court’s original
jurisdiction. By order dated August 16, 2012, this Court granted intervenor status to



       1
        The General Assembly redesignated the Department of Public Welfare as the Department
of Human Services. See Section 103 of the Human Services Code, Act of June 13, 1967, P.L. 31,
added by the Act of September 24, 2014, P.L. 2458, 62 P.S. § 103.
the Hospital and Healthsystem Association of Pennsylvania (HAP).2 Presently
before the Court for disposition are the parties’ cross-applications for summary
relief.3 For the reasons set forth below, we grant the Department’s and HAP’s joint
application for summary relief and deny Hospitals’ application for summary relief.
                                   II. BACKGROUND
              The material facts in this case do not appear to be in dispute. To begin,
we cite for background purposes Armstrong County Memorial Hospital v.
Department of Public Welfare, 67 A.3d 160 (Pa. Cmwlth. 2013) (Armstrong I), our
prior decision in this matter, disposing of the Department’s and HAP’s preliminary
objections to the Petition:
                     As this Court explained more thoroughly in
              Commonwealth v. TAP Pharmaceutical Products, Inc., 36
              A.3d 1112 (Pa. Cmwlth. 2011), [vacated and remanded,
              94 A.3d 364 (Pa. 2014), the Department] is the state
              agency that administers the Commonwealth’s Medicaid
              program. “Medicaid is a joint state-federal funded
              program for medical assistance in which the federal
              government approves a state plan [(State Plan)] for the
              funding of medical services for the needy and then
              subsidizes a significant portion of the financial obligations
              the state agreed to assume.” TAP, 36 A.3d at 1122. [The
              Department] delivers Medicaid benefits in Pennsylvania
              through two (2) payment systems—(1) “fee-for-service,”
              where the provider of the care is paid on a claim basis; and
              (2) “managed care,” where an intermediary managed care
              organization (MCO), under contract with [the
              Department], is paid on a monthly, fixed-fee basis per
              enrollee. Id. at 1123. Because under the managed care
              model Medicaid funds go directly to the MCO and not to
              the provider of the healthcare service, the MCO pays the

       2
         HAP is a statewide trade association for health care institutions. It represents
over 250 hospitals and health systems in Pennsylvania. Hospitals are members of HAP.
       3
          We will treat Hospitals’ application for summary judgment as an application for summary
relief pursuant to Rule 1532(b) of the Pennsylvania Rules of Appellate Procedure.

                                               2
              provider pursuant to the terms of an agreement between
              the MCO and the provider.
                     As alleged in the Petition, Hospitals have provider
              agreements with [the Department] to provide health care
              services to patients covered under the managed care
              portion of [the Department’s] Medicaid program.
              Consequently, Hospitals also have contracts with certain
              MCOs, through which Hospitals are paid for the services
              they provide to the managed care Medicaid recipients.
                     In their Petition, Hospitals challenge certain aspects
              of the implementation of the Act of July 9, 2010, P.L. 336
              (Act 49). Act 49 amended the [Human Services Code],
              Act of June 13, 1976, P.L. 31, as amended, 62 P.S. §§ 101-
              1503 (Code).[4] Relevant to this action are Section 443.1
              of the Code, 62 P.S. § 443.1, and Article VIII-G of the
              Code, 62 P.S. §§ 801-G [to] 816-G, as they apply to the
              managed care side of the [the Department’s] Medicaid
              program.
                     Section 443.1(1.1) of the Code, [added by the Act
              of July 31, 1968, P.L. 904, as amended, 62 P.S.
              § 443.1(1.1),] which was amended by Act 49 and also
              amended thereafter, addresses, inter alia, payment
              methods and standards by which [the Department] is to
              calculate payments to . . . hospitals for inpatient services
              provided on or after July 1, 2010, on a fee-for-service
              basis. One of those methods and standards is a
              requirement that [the Department] use the “All Patient
              Refined-Diagnosis Related Group,” or APR/DRG system,
              for purposes of classifying inpatient stays into diagnosis
              related groups, or DRGs. [The Department] then assigns
              base rates to each DRG, which are then used to arrive at
              the appropriate fee-for-service reimbursement rates for
              hospitals. By its own terms, the provisions of paragraph
              (1.1) only apply to the Commonwealth fiscal years in
              which [the Department] imposes an assessment authorized

       4
         The Code was formerly known as the Public Welfare Code. Section 1 of the Act of
December 28, 2015, P.L. 500, amended Section 101 of the Public Welfare Code, 62 P.S. § 101, to
change the short title of the act to the Human Services Code.



                                              3
              under new Article VIII-G of the Code, added by Act 49[,
              as amended], referred to as the Quality Care Assessment
              (Assessment). . . .[5]
                     With respect to managed care, Section 443.1(1.2) of
              the Code[, added by the Act of July 31, 1968, P.L. 904, as
              amended, 62 P.S. § 443.1(1.2),] includes certain
              provisions governing the rates that MCOs pay hospitals.
              As amended by Act 49, paragraph (1.2), like paragraph
              (1.1), applied to every fiscal year in which [the
              Department] imposed the Assessment. Paragraph (1.2),
              however, has since been amended by the Act of
              June 30, 2011, P.L. 89, limiting the application of
              paragraph (1.2) to only the Commonwealth’s fiscal year
              2010-2011.
Armstrong I, 67 A.3d at 162-64 (footnote omitted).
              Currently, Section 443.1(1.2) of the Code provides, in pertinent part:
              (1.2) Subject to section 813-G, for inpatient acute care
              hospital services provided under the physical health
              medical assistance managed care program during State
              fiscal year 2010-2011, the following shall apply:
                     (i) For inpatient hospital services provided
                     under a participation agreement between an
                     inpatient acute care hospital and a medical
                     assistance managed care organization in
                     effect as of June 30, 2010, the medical
                     assistance managed care organization shall
                     pay, and the hospital shall accept as payment
                     in full, amounts determined in accordance
                     with the payment terms and rate
                     methodology specified in the agreement and
                     in effect as of June 30, 2010, during the term
                     of that participation agreement. . . .
                     (ii) Nothing in subparagraph (i) shall prohibit
                     payment rates for inpatient acute care
                     hospital services provided under a
                     participation agreement to change from the

       5
          To date, the General Assembly has authorized the imposition of the Assessment on a
fiscal year basis for fiscal years 2010-2011 through 2017-2018. See Sections 803-G and 815-G of
the Code, added by the Act of July 9, 2010, P.L., 336, as amended, 62 P.S. §§ 803-G and 815-G.
                                              4
rates in effect as of June 30, 2010, if the
change in payment rates is authorized by the
terms of the participation agreement between
the inpatient acute care hospital and the
medical      assistance      managed       care
organization. . . .
....
(v) The [D]epartment shall make enhanced
capitation payments to medical assistance
managed care organizations exclusively for
the purpose of making supplemental
payments to hospitals in order to promote
continued access to quality care for medical
assistance recipients. Medical assistance
managed care organizations shall use the
enhanced capitation payments received
pursuant to this section solely for the purpose
of making supplemental payments to
hospitals and shall provide documentation to
the [D]epartment certifying that all funds
received in this manner are used in
accordance with this section.               The
supplemental payments to hospitals made
pursuant to this subsection are in lieu of
increased or additional payments for
inpatient acute care services from medical
assistance managed care organizations
resulting     from      the     [D]epartment’s
implementation of payments under paragraph
(1.1)(ii). Medical assistance managed care
organizations shall in no event be obligated
under this section to make supplemental or
other additional payments to hospitals that
exceed the enhanced capitation payments
made to the medical assistance managed care
organization under this section. Medical
assistance managed care organizations shall
not be required to advance the supplemental
payments to hospitals authorized by this
subsection and shall only make the
supplemental payments to hospitals once
medical      assistance      managed       care
                      5
      organizations have received the enhanced
      capitation payments from the [D]epartment.
      (vi) Nothing in this subsection shall prohibit
      an inpatient acute care hospital and a medical
      assistance managed care organization from
      executing a new participation agreement or
      amending       an    existing       participation
      agreement on or after July 1, 2010, in which
      they agree to payment terms that would result
      in payments that are different than the
      payments determined in accordance with
      subparagraphs (i), (ii), (iii) and (iv).
In Armstrong I, we also noted that:
Act 49 also amended the Code to authorize [the
Department] to impose the Assessment on covered
hospitals. Section 802-G of the Code, 62 P.S. § 802-G.
Each covered hospital’s assessment is calculated by
applying a fixed percentage to the hospital’s net inpatient
revenue. Section 803-G of the Code, 62 P.S. § 803-G.
Though the statutory language is somewhat convoluted,
the apparent purpose of the Assessment was to generate
funds that would be used to augment payments to hospitals
that provide services to medical assistance patients, either
by direct payment under the fee for service side of the
program or indirectly by enhanced capitation payments to
MCOs, which, in turn, would provide supplemental
payments to their contracted hospitals.           Sections
443.1(1.1)-(1.2), 802-G of the Code.
       The implementation of these augmented
reimbursement provisions is dependent on the authority of
[the Department] to impose the Assessment under both
state and federal law. Although Act 49 provided [the
Department] with the state authority to impose the
Assessment, it was necessary for [the Department] to also
secure approval of the Assessment as a permitted “health
care-related tax” from the Centers for Medicare and
Medicaid Services of the United States Department of
Health and Human Services (CMS). See 42 C.F.R.
Pt. 433, Subpt. B; Sections 443.1(1.1)(ii), 803-G(a),
807-G of the Code. (Pet. ¶ 18.)

                             6
Armstrong I, 67 A.3d at 165-66 (footnote omitted).
             In order to obtain approval of the Assessment from CMS, the
Department needed to obtain a waiver permitting it to implement the Assessment.
The Department also needed to obtain approval of certain amendments to the State
Plan, permitting it to alter the way in which it both reimbursed hospitals for Medicaid
services and made supplemental payments to hospitals under the fee-for-service
payment system.      Finally, the Department needed to obtain approval of an
amendment to its agreements with the MCOs (MCO Agreements) related to the
enhanced capitation payments that would be paid to the MCOs.
             On July 6, 2010, the Department and HAP entered into a letter of
agreement (July Letter Agreement), wherein HAP and the Department agreed to
work together “to achieve the necessary federal approvals” from CMS relative to
“the hospital fee-for-service, supplemental, and managed care enhanced payments
pursuant to [Act 49].” (App. to Hospitals’ Statement of Undisputed Material Facts
(SUMF) at 194.) The July Letter Agreement contained a very specific and detailed
formula regarding how the MCOs would be required to distribute the enhanced
capitation payments to hospitals. On that same date, the Department also sent a letter
to each of the MCOs in Pennsylvania, explaining the process by which the enhanced
capitation payments would be paid to the MCOs and then distributed to hospitals as
supplemental payments.
             The    Department     began       the    CMS-approval       process   in   the
summer of 2010. As part of this process, the Department sought to include in its
MCO Agreements a description of the formula that the MCOs would use to
distribute the enhanced capitation payments to hospitals through supplemental
payments—i.e.,     the   formula   identified        in   the   July   Letter   Agreement.


                                           7
In August 2010, CMS indicated, inter alia, that while it is acceptable for the
Department to demand that all of the revenue from the enhanced capitation payments
be distributed to hospitals through the supplemental payments, it is not acceptable
for the Department to dictate how the MCOs would distribute the revenue to
hospitals. Not believing that the statements of certain CMS officials represented
CMS’s official position on the matter, the Department continued to engage in
discussions with CMS over the next several months, seeking to obtain permission to
include language regarding how the MCOs would distribute the supplemental
payments to hospitals in the MCO Agreements.
                At the same time, the Department continued to work with HAP and the
Coalition of Medical Assistance Managed Care Organizations (MCO Coalition)6 to
implement Act 49. The involved individuals7 discussed what else could be done in
the event that CMS did not permit the Department to dictate how the MCOs would
distribute the enhanced capitation payments to hospitals. On August 20, 2010, Allen
Fisher (Fisher), the Director of the Financial Analysis Division in the Department’s
Bureau of Managed Care Operations, stated in an email: “It looks like the MCOs
and hospitals will have to negotiate the use of the [enhanced capitation payments].
We think we will try to organize this. We anticipate this will be difficult.” (App. to
Hospitals’ SUMF at 208.) The agenda from an August 26, 2010 Department
meeting indicated that Bussard and Nardone “should talk offline” about the feedback
that the Department had received from CMS. (App. to Hospitals’ SUMF at 206.)
On September 8, 2010, Bussard sent an email to Carolyn Scanlan (Scanlan), HAP’s

       6
           The MCO Coalition represents the interests of MCOs.
       7
        The main individuals involved with the implementation of Act 49 were Michael Nardone
(Nardone), the Department’s then-Acting Secretary, Izanne Leonard-Haak (Leonard-Haak), the
Department’s then-Acting Deputy Secretary for Medical Assistance Programs, Paula Bussard
(Bussard) of HAP, and Michael Rosenstein (Rosenstein) of the MCO Coalition.
                                               8
President, explaining potential alternatives in the event that CMS did not permit the
Department to direct how the MCOs distributed the enhanced capitation payments
to hospitals. In that email, Bussard indicated that an “[a]greement [c]ould be entered
into between the hospital community and the MCOs to pay consistent with the
provisions that [the Department] negotiated with the MCOs to secure support for
[the] passage of Act 49.” (App. to Hospitals’ SUMF at 373.)
               In late December 2010, CMS provided the Department with final
approval and instructions for the implementation of Act 49. Ultimately, CMS
approved the arrangement for supplemental payments to hospitals through the
imposition of the Assessment and the migration to the APR/DRG system, but it
precluded the Department from directing the MCOs regarding how to distribute the
enhanced capitation payments to hospitals because CMS determined that such a
scheme would violate 42 C.F.R. § 438.60.8 Nardone relayed CMS’s position to
Scanlan and Bussard in an email dated December 28, 2010. In that email, Nardone
stated: “To keep this moving, I think we need to get the approvals and move to Plan
B. I am disappointed they did not see this our way but we gave it our best shot. We
can still make this work.” (App. to Hospitals’ SUMF at 372.) In reply to Nardone’s
email, Scanlan indicated that obtaining the approvals and moving on to Plan B “was
the clear option given CMS’[s] position and the clear need to get the approvals of
the [S]tate [P]lan amendment and the waiver before the 90 day clock expires.” (App.

      8
          42 C.F.R. § 438.60 provides:
              The State agency must ensure that no payment is made to a network
      provider other than by the MCO, [the prepaid inpatient health plan (PIHP)], or [the
      prepaid ambulatory health plan (PAHP)] for services covered under the contract
      between the State and the MCO, PIHP, or PAHP, except when these payments are
      specifically required to be made by the State in Title XIX of the Act, in 42 CFR
      chapter IV, or when the State agency makes direct payments to network providers
      for graduate medical education costs approved under the State plan.
                                              9
to Hospitals’ SUMF at 371.) On that same date, Bussard also forwarded Nardone’s
email to other individuals at HAP, stating: “2 out of 3. We are going to have to go
to Plan B on MCOs.” (App. to Hospitals’ SUMF at 60.)
             By letter dated January 14, 2011, the Department and HAP amended
the July Letter Agreement (January Revised Letter Agreement) to remove the
language specifying the formula to be used by the MCOs to distribute the enhanced
capitation payments to hospitals. With respect to the MCOs, the January Revised
Letter Agreement read as follows:
             Managed Care Payments
             The following replaces the Managed Care Enhanced
             Payments section of the [July Letter Agreement].

             CMS will only permit [the Department] to require each
             MCO to demonstrate that it has utilized all of the funding
             to increase the payments to hospitals for inpatient acute
             care services in FY 2010-2011. [The Department] will
             include funding in its capitation payments to MCOs as
             planned, and [the Department] will require each MCO to
             demonstrate that it has utilized the full funding to increase
             the payments to hospitals for inpatient acute care services
             in FY 2010-2011.
(App. to Hospitals’ SUMF at 102.) On that same date, the Department added an
updated Appendix 14 to the MCO Agreements, which only requires that the MCOs
distribute all of the enhanced capitation payments received from the Department to
hospitals and that the MCOs provide documentation to the Department verifying the
same.9
             Shortly thereafter, HAP reached out to the MCO Coalition to begin
discussions about a possible agreement between HAP and the MCO Coalition
regarding the distribution of the enhanced capitation payments to hospitals. As a

      9
        CMS reviewed and approved the language contained in updated Appendix 14 by letter
dated February 25, 2011.
                                           10
starting point of discussion, HAP planned to use the distribution formula that it had
advocated for as part of the July Letter Agreement between HAP and the
Department. On February 11, 2011, HAP and the MCO Coalition entered into an
agreement (HAP/MCO Agreement), detailing the methodology that would be used
by the MCOs to distribute the enhanced capitation payments to hospitals through
supplemental payments. Implementation of the HAP/MCO Agreement required the
Department’s involvement because the HAP/MCO Agreement required HAP to
prepare a report using data supplied by the Department that identified
hospital-specific percentages for each plan. The Department provided HAP with
most of the data that it had requested, but the Department was reluctant to share more
because the MCOs view the terms of their agreements with hospitals as confidential.
             On July 2, 2012, Hospitals filed their Petition with this Court. In their
Petition, Hospitals set forth four causes of action and sought declaratory relief, a
permanent injunction, a writ of mandamus, and an award of attorneys’ fees and costs.
On August 17, 2012, the Department and HAP filed preliminary objections to the
Petition. By Opinion and Order dated May 20, 2013, this Court: (1) overruled the
Department’s preliminary objections; (2) sustained HAP’s preliminary objections in
the nature of a demurrer to Counts I, III, and IV of Hospitals’ Petition and dismissed
those counts; (3) overruled HAP’s remaining preliminary objections; and (4)
directed the Department and HAP to file an answer to Count II, the remaining claim
in the Petition. In Count II of the Petition, Hospitals allege that the Department
“violated the State Plan [a]mendment[s] as approved by CMS by implementing the
‘pass through’ payment scheme negotiated by HAP with the . . . MCOs.” (Pet. ¶ 58.)
As we stated in Armstrong I, in order to prove Count II and establish that the
Department “acted contrary to the CMS-approved State Plan amendments,”


                                         11
Hospitals must produce evidence that the Department directly or indirectly
“impose[d] on [the] MCOs the manner in which the MCOs were to distribute the
enhanced capitation payments MCOs receive from [the Department] to hospitals
under [Act 49].” Armstrong I, 67 A.3d at 175.
             The Department and HAP each filed answers to the Petition on
July 1, 2013. Subsequent thereto, the parties engaged in a period of discovery. On
June 1, 2017, at the conclusion of the discovery period, Hospitals filed an application
for summary relief, requesting summary relief only on their claim for declaratory
relief. On that same date, the Department and HAP filed a joint application for
summary relief.
                   III. STANDARD FOR SUMMARY RELIEF
             Pa. R.A.P. 1532(b) provides that “[a]t any time after the filing of a
petition for review in an appellate or original jurisdiction matter the court may on
application enter judgment if the right of the applicant thereto is clear.” “Summary
relief under Pa. R.A.P. 1532(b) is similar to the relief envisioned by the rules of civil
procedure governing summary judgment.” Brittain v. Beard, 974 A.2d 479, 484 (Pa.
2009). “‘An application for summary relief may be granted if a party’s right to
judgment is clear and no material issues of fact are in dispute.’” Jubelirer v. Rendell,
953 A.2d 514, 521 (Pa. 2008) (quoting Calloway v. Pa. Bd. of Prob. & Parole, 857
A.2d 218, 220 n.3 (Pa. Cmwlth. 2004)).
                                  IV. DISCUSSION
                  A. Hospitals’ Application for Summary Relief
             In their application for summary relief, Hospitals argue that the record
clearly demonstrates that the Department’s implementation of the enhanced
capitation payments to the MCOs and the MCOs’ use of those payments to make


                                           12
supplemental payments to hospitals is invalid and inconsistent with Act 49 and
Section 443.1(1.2)(v) of the Code, and, therefore, there is no genuine issue of
material fact and they are entitled to judgment as a matter of law.10                        More
specifically, Hospitals argue that the “pass-through” payment scheme implemented
by the Department for the distribution of the supplemental payments to the hospitals
as funded by the Assessment violated CMS’s rules and directives. Hospitals argue
further that the undisputed evidence establishes that the Department concocted “Plan
B,” which amounted to an “end-run” around CMS’s mandate that the Department
could not direct the method by which the MCOs distributed the enhanced capitation
payments to hospitals. Hospitals also argue that “[i]t was the Department that came
up with the idea of having HAP and the MCO Coalition agree to implement the Act
49 supplemental payment scheme if CMS did not approve it.” (Hospitals’ Br. at 29.)
Hospitals further argue that “the Department conceived of the scheme, directed that
it be carried out, and provided the information that HAP and the MCO Coalition
needed to make it work.” (Hospitals’ Br. at 32.)
               In support of their position, Hospitals direct this Court’s attention to,
inter alia: (1) email communications between the involved parties that reference a
“Plan B;” (2) Fisher’s August 20, 2010 email communication; and (3) Nardone’s

       10
          In their application for summary relief and throughout their brief and supplemental brief,
Hospitals seem to suggest that the “pass-through” payment scheme agreed to by HAP and the
MCO Coalition and implemented by the Department violated federal law and the regulations
governing Medicaid managed care because it used historical data and was not actuarially sound.
We will not consider this argument, as the only remaining claim before the Court is Count II of
the Petition and the issue relative to Count II is whether the Department directly or indirectly
“impose[d] on [the] MCOs the manner in which the MCOs were to distribute the enhanced
capitation payments MCOs receive from [the Department] to hospitals under [Act 49].”
Armstrong I, 67 A.3d at 175.



                                                13
indication that he “should talk offline” with Bussard.11 Hospitals argue that this
evidence establishes that “the Department implemented the pass through scheme
indirectly through HAP and the MCO Coalition[] and never told CMS about it.”
(Hospitals’ Br. at 32.) Hospitals are essentially “reading” their desired version of
events into the evidence and are asking this Court to do the same. Hospitals are
asking this Court to believe their narrative of the events that transpired after CMS
informed the Department that it could not direct the manner in which the MCOs
distributed the enhanced capitation payments to hospitals. This we cannot do.
Hospitals’ narrative of events is based on unreasonable inferences that are not
supported by the evidence adduced during discovery. Hospitals have not directed
this Court to a single piece of evidence that could establish that the Department
violated CMS’s directive. Hospitals have not identified any evidence establishing
that: (1) the Department directly or indirectly influenced HAP or the MCO Coalition
to adopt its methodology regarding the MCOs’ distribution of the enhanced
capitation payments to hospitals; (2) the Department directed or required HAP and
the MCO Coalition to adopt its methodology regarding the MCOs’ distribution of

       11
           In their supplemental brief, Hospitals direct this Court’s attention to: (1) a July 24, 2010
email communication to Nardone from Patricia Brady at Sellers Dorsey, a company that the
Department contracted with to provide certain professional and consulting services in connection
with the implementation of Act 49; and (2) two sets of handwritten notes from a conversation with
Charles Miller (Miller), an attorney providing legal advice to the Department. The email
communication and notes reference Miller’s concerns regarding the use of “pass through”
language and historical data. Hospitals argue that these documents “reveal that Plan B actually
was concocted before Act 49 was finally enacted into law” and “that the Department received legal
advice that Act 49’s scheme would not pass muster with CMS and saw Plan B as a way to hide the
scheme from CMS.” (Hospitals’ Supp. Br. at 3 (emphasis in original).) To the extent that Hospitals
cite this evidence to establish that the “pass-through” payment scheme agreed to by HAP and the
MCO Coalition and implemented by the Department violated federal law and the regulations
governing Medicaid managed care, we decline to consider it for the reasons set forth in footnote
10. Alternatively, to the extent that Hospitals cite this evidence to establish that the Department
violated CMS’s directive, we rely on our analysis set forth in Section IV.A of this opinion.
                                                 14
the enhanced capitation payments to hospitals; (3) the Department directed or
required HAP and the MCO Coalition to enter into the HAP/MCO Agreement; or
(4) HAP or the MCO Coalition presented the HAP/MCO Agreement to the
Department for review and/or approval before it was executed. Hospitals have also
not identified any evidence that the reference to “Plan B” was anything other than a
generic recognition of a need for an alternative plan or that the Department
improperly devised “Plan B” and/or required HAP and the MCO Coalition to
implement a specific “Plan B.”
            The fact that the HAP/MCO Agreement contains the same and/or
similar methodology as the July Letter Agreement is irrelevant. As representatives
of hospitals and MCOs, HAP and the MCO Coalition were free to enter into any
agreement that they believed to be in the best interests of hospitals and the MCOs.
There is no evidence that CMS prohibited the use of the methodology set forth in
the July Letter Agreement or the involvement of HAP or the MCO Coalition in the
process. The Department’s statement that it would try to organize a negotiation
between the MCOs and hospitals—i.e., Fisher’s August 20, 2010 email
communication—does not establish anything other than the Department was trying
to get HAP and the MCO Coalition to work together on an alternative for the
distribution of the enhanced capitation payments to hospitals.           Moreover,
communications between the Department, HAP, and the MCO Coalition after CMS
informed the Department that it is not acceptable for the Department to dictate how
the MCOs would distribute the revenue to hospitals—officially in December 2010
with the final approval for the implementation of Act 49 and unofficially in
August 2010—were not improper. Even though the Department was not permitted
to direct the manner in which the enhanced capitation payments would be distributed


                                        15
to hospitals, the Department was permitted to continue communications with HAP
and the MCO Coalition, as the Department remained responsible for the
implementation of Act 49 and communications with these entities as the
representatives of hospitals and the MCOs was necessary. Similarly, the fact that
the Department provided data to HAP so that HAP and the MCO Coalition could
proceed with the HAP/MCO Agreement does not prove anything more than the
Department continued with its implementation of Act 49 as it was required to do.
            In sum, Hospitals’ application for summary relief is based on
unreasonable inferences drawn from the evidence produced during discovery.
Because Hospitals have not presented any evidence to establish that the Department
directed the manner in which the MCOs were required to distribute the enhanced
capitation payments to the hospitals in violation of CMS’s directive, we must deny
Hospitals’ application for summary relief.
   B. The Department’s and HAP’s Joint Application for Summary Relief
            In their joint application for summary relief, the Department and HAP
argue that “[t]he undisputed deposition testimony and evidence produced in
discovery demonstrate that the Department was not improperly involved in
determining or imposing the methodology for the distribution of funds by MCOs to
hospitals.” (Department’s and HAP’s Application at ¶ 13.) More specifically, the
Department and HAP argue that Hospitals “have failed to adduce any evidence
demonstrating that the Department in any way ‘imposed’ the manner in which the
MCOs would distribute enhanced capitation payments to hospitals under Act 49”
and that, “[t]o the contrary, the evidence—and the depositions [of Bussard, Leonard-
Haak, Rosenstein, and Nardone] in particular—make clear that, following CMS’s
late December 2010 final decision that the Department could not be involved in


                                        16
determining how such payments would be made, the Department removed itself
from any role in making such a determination.” (Department’s and HAP’s Br. at
13-14.) In response, Hospitals argue that the Department’s and HAP’s reliance on
the self-serving testimony of their own witnesses—i.e., Bussard, Nardone, and
Leonard-Haak—is misplaced because such self-serving evidence, even if
uncontradicted, cannot provide a sufficient basis for the grant of summary relief
under the long-standing rule articulated in Borough of Nanty-Glo v. American Surety
Co. of New York, 163 A. 523 (Pa. 1932).12 Hospitals argue further that the testimony
of these witnesses is also insufficient to establish that there is no genuine issue of
material fact entitling the Department and HAP to summary relief.
               The Department’s and HAP’s joint application for summary relief is a
“put up or stand down” application. To be successful, the Department and HAP
need not affirmatively establish that the Department did not direct the MCOs
regarding how to distribute the enhanced capitation payments to hospitals. As
petitioners in this original jurisdiction matter, Hospitals bear the burden of proof at
trial. Consequently, the Department and HAP must only show that Hospitals cannot
establish through admissible evidence that the Department directly or indirectly
imposed upon the MCOs the manner by which they were to distribute the enhanced
capitation payments that they received from the Department to hospitals—i.e., that
Hospitals do not have sufficient evidence to prove their case.13 Even if we look at

       12
          “The Nanty-Glo rule means that: ‘Testimonial affidavits of the moving party or his
witnesses, not documentary, even if uncontradicted, will not afford sufficient basis for the entry of
summary judgment, since the credibility of the testimony is still a matter for the jury.’” Penn Ctr.
House, Inc. v. Hoffman, 553 A.2d 900, 903 (Pa. 1989) (quoting Goodrich-Amram 2d § 1035(b)).
       13
          To be successful in their joint application for summary relief, the Department and HAP
need not affirmatively establish that the Department did not direct the manner in which the MCOs



                                                17
the evidence in the light most favorable to Hospitals, there is a dearth of any evidence
supporting Hospitals’ claims in Count II of the Petition. Thus, for the same reasons
that we must deny Hospitals’ application for summary relief, we must grant the
Department’s and HAP’s joint application for summary relief.
                                    V. CONCLUSION
              Accordingly, Hospitals’ application for summary relief is denied, the
Department’s and HAP’s joint application for summary relief is granted, and the
Petition is dismissed with prejudice.




                                    P. KEVIN BROBSON, Judge




would distribute the enhanced capitation payments to hospitals. As stated above, the Department
and HAP need only establish that Hospitals have not set forth sufficient evidence to meet their
burden of proof at trial. For these reasons, the Nanty-Glo rule does not apply as the Department
and HAP are relying on the deposition testimony of Bussard, Nardone, and Leonard-Haak not as
direct evidence to prove that the Department did not violate CMS’s directive, but to further
establish that Hospitals have not put up sufficient evidence to establish their claims.
                                              18
          IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Armstrong County Memorial            :
Hospital and Monongahela             :
Valley Hospital, Inc.,               :
                       Petitioners   :
                                     :
           v.                        :     No. 438 M.D. 2012
                                     :
The Department of Public Welfare     :
of the Commonwealth of Pennsylvania, :
                        Respondent :




                                  ORDER


            AND NOW, this 16th day of October, 2017, the Application for
Summary Judgment filed by Petitioners Armstrong County Memorial Hospital and
Monongahela Valley Hospital, Inc. (Hospitals), which the Court shall treat as an
application for summary relief filed pursuant to Pa. R.A.P. 1532(b), is hereby
DENIED; the Joint Application for Summary Relief filed by the Department of
Public Welfare of the Commonwealth of Pennsylvania (now referred to as the
Department of Human Services) and the Hospital and Healthsystem Association of
Pennsylvania is hereby GRANTED; and Hospitals’ Petition for Review is hereby
DISMISSED with prejudice.




                              P. KEVIN BROBSON, Judge
