The New Jersey Supreme Court recently agreed to consider the constitutionality of New Jersey’s charity care program, which requires a hospital to provide services to all patients regardless of their ability to pay, prohibits the hospital from billing those patients, and does not provide at-cost reimbursement to the hospital. The question before the Court is whether the program amounts to an unconstitutional taking of the hospital’s property.
Facts of the Case
Plaintiffs, a group of hospitals licensed to do business in New Jersey and governed by the Health Care Cost Reduction Act, N.J.S.A. 26:2H-18.50 to -69, contend that N.J.S.A. 26:2H-18.64, the State’s Medicaid Plan, and corresponding regulations compel plaintiffs to use medicine, equipment, and services they control to provide patient care regardless of ability to pay, and without an adequate subsidy to make up the financial shortfall.
The challenged law, N.J.S.A. 26:2H-18.64, provides in part, “[n]o hospital shall deny any admission or appropriate service to a patient on the basis of that patient’s ability to pay or source of payment.” Such care is referred to as charity care. To qualify for charity care, individuals must have no health coverage, private or government sponsored (including Medicaid), and meet the income and asset eligibility requirements. A hospital which violates the statute is subject to a fine of $10,000 per violation.
Recognizing that disproportionate share hospitals (DSH) bear a greater burden to sustain the interests of the Health Care Cost Reduction Act, the New Jersey Legislature established a Health Care Subsidy Fund (HCSF), N.J.S.A. 26:2H- 18.58, to distribute subsidies to qualifying facilities. Each year, the Legislature appropriates funds to the HCSF via the annual Appropriations Act. The State of New Jersey Department of Health (DOH) then allocates subsidies for the current state fiscal year according to the statutory formula contained in N.J.S.A. 26:2H-18.59i—accounting for any instructions or modifications contained in the current year’s Appropriations Act. The Legislature’s health care subsidy is not designed to be a full “reimbursement” covering a hospital’s actual charity care expenses, but instead to provide each hospital with its “proportionate share of the total subsidy funded by the Legislature for that year.”
According to the Plaintiffs, this scheme represents an unconstitutional taking. The trial court disagreed, ruling no taking had occurred.
Appellate Division’s Decision
The Appellate Division affirmed, holding that there was no per se or regulatory taking.
With regard to a per se taking, the Appellate Division concluded that the charity care statute’s operation does not lead to physical invasion of the hospitals’ property. “Although plaintiffs contend that charity care as a whole has a negative economic impact on their investment interests, there is no evidence that the prohibition on turning away patients because of inability to pay unreasonably impairs the value of the premises,” the appeals court wrote. “Charity care restricts how hospitals use their property to provide medical services, not whether they do so. The property will be used as it was intended—to treat patients.”
The Appellate Division further found that there was no regulatory taking, rejecting the hospitals’ argument that the regulatory burden outweighs its public good. In reaching its decision, the appeals court emphasized that courts have repeatedly stated that the character of public health and healthcare regulations typically weighs against the conclusion that a law acts as a taking. It further concluded that c it is not reasonable for the hospitals to expect an at-cost reimbursement for the medical services the Legislature has required them to provide as a condition of doing business in the state.
Issues Before the NJ Supreme Court
The New Jersey Supreme Court granted certification on November 1, 2024. The justices have agreed to consider the following question:
Does New Jersey’s charity care program — which requires a hospital to provide services to all patients regardless of their ability to pay, prohibits the hospital from billing those patients, and does not provide at-cost reimbursement to the hospital — amount to an unconstitutional taking of the hospital’s property?
Oral arguments have not yet been scheduled. Please check back for updates.