Full opinion text
MEMORANDUM RAMBO, District Judge. Background West Virginia University Hospitals, Inc. (WVUH or the Hospital) commenced this action against the Commonwealth of Pennsylvania’s Department of Public Welfare and individuals on July 26, 1986. Pursuant to stipulation, the Department of Public Welfare was dismissed as a defendant on February 25, 1987. WVUH brought this action under 42 U.S.C. section 1988 alleging Pennsylvania’s medicaid reimbursement program for out-of-state hospitals violates federal payment standards and violates the equal protection clause of the fourteenth amendment of the United States Constitution. Plaintiff further alleges Pennsylvania’s administrative appeals system for out-of-state hospitals is legally inadequate. The Hospital seeks injunctive and declaratory relief regarding its past treatment under Pennsylvania’s reimbursement program and administrative appeals system. The trial in this action took place before the court on May 2, 3, 4, 5, 6, and 16, 1988. The parties have been given an opportunity to present arguments and proposed findings of fact and conclusions of law. The opinion of the court follows. Findings of Fact In accordance with Federal Rule of Civil Procedure 52(a) the court finds the following facts. I.The Parties 1. WVUH is a non-stock, non-profit corporation organized under the laws of West Virginia. Plaintiff’s Pretrial Memorandum Undisputed Facts No. 1. (Hereinafter referred to as “Facts.”) 2. Defendant Robert P. Casey is the Governor of the Commonwealth of Pennsylvania. Facts 2. 3. The Secretary of the Department of Public Welfare (the Secretary) of Pennsylvania was Walter C. Cohen at the time this action was filed. The Secretary is now John F. White, Jr. Facts 3. 4. The Secretary reports to the Governor of Pennsylvania. The Secretary is responsible for implementing, administering and operating the medicaid program in Pennsylvania. The medicaid program in Pennsylvania is called the “Medicaid Assistance Program” (MAP). Facts 4. 5. Since November, 1987, David S. Fein-berg has been Acting Director of the proposed Office of Hospital and Outpatient Programs in the Department of Public Welfare (the Department or DPW). From 1979 to November, 1987, Feinberg was the Director of the Bureau of Policy and Program Development. Facts 5. 6. Feinberg was responsible for the development of Pennsylvania’s medicaid program’s prospective payment system. Facts 6. II. The Hospital 7. WVUH is located six miles south of the border between the State of West Virginia and the Commonwealth of Pennsylvania. Facts 10. 8. The primary service area of the Hospital includes the West Virginia counties of Monongalia, Marion, Harrison, Taylor, Dod-dridge and Preston and the Pennsylvania counties of Fayette and Greene. Facts 11. 9. Generally, Pennsylvania residents constitute approximately 16% of all WVUH inpatient admissions. Testimony of Katherine Douglass, Transcript at 163, lines 6, 15-17. 10. In 1985, 2,500 inpatient admissions to WVUH were attributable to Pennsylvania residents. 860 of the admissions were Pennsylvania medicaid recipients. Testimony of Katherine Douglass, Transcript at 163, lines 15-20. 11. Approximately 204,000 people lived in Fayette and Greene counties in the mid-1980s. By the late 1980s, the population in Fayette and Greene counties is projected to grow to 209,000 people. Testimony of Katherine Douglass, Transcript at 158, lines 20-25. 12. 1,200 persons from Fayette County received inpatient care at WVUH in 1985; 1,100 persons from Greene County received inpatient care. Testimony of Katherine Douglass, Transcript at 163, lines 21-25; 164, lines 1-7. 13. The Hospital also serves patients from Washington County, Pennsylvania. In calendar year 1985 the Hospital had 102 Pennsylvania medicaid admissions from Washington County, Pennsylvania. Facts 14. Services Provided 14. A “tertiary care” hospital is a hospital that provides a level of hospital and medical services that is inherently more complex and that is generally not provided in small or community hospitals. Testimony of Bernard Westfall, Transcript at 33, lines 2-25; 34, lines 1-25; 35 lines 1-15. 15. WVUH is the closest source of tertiary care services to many individuals living in Greene and Fayette counties. Testimony of Katherine Douglass, Transcript at 159, lines 11-25; 160-161; 162, lines 1-24. 16. Some Pennsylvania medicaid recipients who reside in Fayette, Greene and parts of Washington counties, and who must use the Hospital for complex or specialized medical services, otherwise must travel 20 to 70 additional miles to Pittsburgh, Pennsylvania, the next closest city (to the Hospital) in which such services are offered. Facts 16. 17. Specialized or complex inpatient services available at the Hospital which are not available in the Pennsylvania hospitals in Fayette, Greene, and Washington counties include cardiac catheterization, angiog-raphy, open heart surgery, high risk obstetrics, neonatal intensive care, kidney transplant lithotripsy. Testimony of Katherine Douglass, Transcript at 159, lines 16-25; 160, lines 1-25; 161, lines 1-25; 162, lines 1-25; 163, lines 1-25; 164, lines 1-25; 165, lines 1-25; 166 lines 1-3. Facts 17. 18. WVUH is a Level I trauma center equipped to deal with head and spine injuries as well as cardiac and other emergencies. It is the only Level I trauma center in the service area of WVUH. The next closest Level I trauma center is located in Pittsburgh. Testimony of Katherine Douglass, Transcript at 160, lines 11-25; 161, lines 1-5. 19. WVUH provides an extensive prenatal referral system for high risk neonates and, as part of that system, provides high risk prenatal services to hospitals in the service area, including Greene County Memorial Hospital located in Greene County, Pennsylvania. Testimony of Katherine Douglass, Transcript at 161, lines 6-25; 162, lines 1-24. 20. WVUH also provides specialized outpatient services to Pennsylvania residents. These services include pediatric cardiology, pediatric neurology, neurosurgery, and other highly technical types of care. Testimony of Katherine Douglass, Transcript at 165, lines 16-22. 21. The outpatient services identified in the paragraph above are not available at hospitals located in Fayette and Greene counties. If patients did not use WVUH for such services, the next closest hospital would be located in Pittsburgh. Testimony of Katherine Douglass, Transcript at 165, lines 23-25; 166, lines 1-3. 22. WVUH also provides Pennsylvania residents with routine hospital care such as routine obstetrics, normal newborn care and tonsillectomies. Defendants’ Exhibit 76. 23. The types of routine cases seen at WVUH are similar to the routine types of cases seen at most university teaching hospitals. Testimony of James Vertrees, Transcript at 77, lines 8-14. 24. WVUH has approximately the same Case Mix Index (CMI) as university teaching hospitals located in Pennsylvania and other similarly situated hospitals. Plaintiffs Exhibit 66. WVUH is a University Affiliated Teaching Hospital 25. The Hospital is a university affiliated teaching hospital: the West Virginia University uses the Hospital to train health professionals. Facts 39. 26. WVUH is a major academic medical center, one of only 121 such centers in the country. Testimony of Gerard Anderson, Transcript at 392, lines 1-12. 27. 1,300 persons completed their physician and dentist residency training programs at the Hospital between 1960 and 1984. Facts 40. 28. Approximately 7% of the 1,664 total living alumni of the West Virginia University School of Medicine’s four-year medical program live in Pennsylvania. Facts 47. 29. MAP recognizes that the provision of graduate medical education programs improves the quality of care at a hospital. Testimony of Gerard Anderson, Transcript at 320, lines 12-23. Plaintiffs Exhibit 8. WVUH’s Medicaid Volume 30. Historically, WVUH has provided significant numbers of Pennsylvania medicaid recipients with hospital care. 31. In Calendar year 1981, the Hospital treated 610 Pennsylvania medicaid admissions on an inpatient basis. Facts 22. 32. In calendar year 1982, the Hospital treated 692 Pennsylvania medicaid admissions on an inpatient basis. Facts 23. 33. In calendar year 1983, the Hospital treated 783 Pennsylvania medicaid admissions on an inpatient basis. Facts 24. 34. In calendar year 1984, the Hospital treated 828 Pennsylvania medicaid admissions on an inpatient basis. Facts 25. 35. In calendar year 1985, the Hospital treated 853 Pennsylvania medicaid admissions on an inpatient basis. Facts 26. 36. In calendar year 1986, the Hospital treated 840 Pennsylvania medicaid admissions on an inpatient basis. Facts 27. 37. In calendar year 1987, the Hospital treated 552 Pennsylvania medicaid admissions from the period January 1 through September 30, 1987. Facts 28. 38. The number of patients identified in paragraphs 31 through 37 above does not include the number of Pennsylvania medicaid recipients who utilized the outpatient services of the Hospital. Facts 29. 39. The annual number of outpatient visits at the Hospital attributable to Pennsylvania medicaid recipients ranges from 7,000 to 7,500. Facts 30. 40. Pennsylvania medicaid recipients residing in Fayette, Greene, and Washington counties have “freedom of choice” in selecting their medical care providers. This means absent special rules, (none of which are applicable to this case), Pennsylvania recipients of medicaid may use the services of any hospital they choose. Testimony of David Feinberg, May 4, 5, and 6, 1988 Transcript at 124, lines 22-25; 125, lines 1-25; 126, lines 1-25; 127, lines 1-21. 41. Some Pennsylvania residents, including Pennsylvania medicaid recipients, living in the counties of Fayette, Greene, and Washington desire and require access to the Hospital’s services and facilities. Facts 32. 42. In fiscal years 1984-85,1985-86 and 1986-87, WVUH provided inpatient hospital care to more Pennsylvania medicaid patients than over one-half of the hospitals located in Pennsylvania. Testimony of Thomas Manak, Transcript at 251, lines 8-25, 252, lines 1-7. Plaintiff’s Exhibit 51(a). 43. Five percent of all WVUH inpatient admissions are attributable to Pennsylvania medicaid recipients. Testimony of Stephen Pickett, Transcript at 170, lines 12-13; 175, lines 18-20. 44. In addition to serving Pennsylvania recipients, the Hospital served the following numbers of West Virginia medicaid admissions on an inpatient basis: July 1, 1982 — June 30, 1983 2,049 July 1, 1983 — June 30, 1984 2,261 July 1, 1984 — December 31, 1984 1,181 Calendar Year 1985 2,319 Calendar Year 1986 1,848 January 1, 1987 — October 31, 1987 1,618 45. Twenty-three percent of all WVUH inpatient admissions are recipients of medicaid. Testimony of Stephen Pickett, Transcript at 170, lines 8-9. 46. Seventeen percent of all WVUH inpatient admissions are West Virginia medicaid recipients. Testimony of Stephen Pickett, Transcript at 170, lines 12, 13. WVUH’s Incorporation History 47. In 1982 the West Virginia Board of Regents commissioned a study to determine how to resolve deficiencies cited by the national accreditation board for hospitals. The West Virginia Board of Regents was advised that given the structural problems of the existing facility, it was more prudent to replace the facility than to renovate it. Testimony of Bernard Westfall, Transcript at 49, lines 22-25; 50, lines 1-25; 51, lines 1-25; 52, lines 1-19. 48. The West Virginia legislature concurred. See § 18-llC-2(c) of the Code of West Virginia. 49. The entity that the legislature created to operate the facility is WVUH. Testimony of Bernard Westfall, Transcript at 59, lines 18-20. 50. WVUH and its predecessor entity, West Virginia University Hospital, are the same. They are both creatures of the West Virginia legislature and subject to its control. The legislature simply changed the form of the hospital organization. Testimony of Bernard Westfall, Transcript at 142, lines 12-25. 51. The West Virginia legislature has never relinquished ownership of the Hospital’s assets and control. Plaintiff’s Exhibit 71. See § 18-11C-3 of the Code of West Virginia. 52. The change from West Virginia University Hospital to WVUH was a change in the form of organization, not a change of ownership or control. Testimony of Bernard Westfall, Transcript at 142, lines 12-25; 688, lines 3-13; 690, lines 5-25; 691, lines 1-7. The Provider Agreement With MAP 53. West Virginia University Hospital, the predecessor entity to WVUH, entered into an agreement with the Pennsylvania Medicaid Assistance Program. Defendants’ Exhibit 35. 54. The provider agreement, which was not dated, is self-perpetuating unless terminated. Defendants’ Exhibit 35. 55. The defendants have never terminated the provider agreement. Testimony of Donna Hoffmaster, Transcript at 482, lines 6-9. 56. MAP has reimbursed WVUH for inpatient services provided to Pennsylvania medicaid patients without interruption, except for one seven week interruption beginning in December, 1987. The reason for withholding payment was due to an alleged failure to report a change in ownership. Testimony of Amy Leopard, May 3, 1988 Transcript at 7, lines 3-25; 8, lines 1-25; 9, lines 1-25, 10, lines 1-13; Plaintiff’s Exhibit 67; letter dated December 2, 1987 from Virginia Antonoplos. 57. The payments were interrupted and withheld after MAP employees consulted with counsel for MAP. The interruption of payments was related to this litigation. Testimony of Amy Leopard, May 3, 1988 Transcript at 13, lines 9-21. 58. The defendants offered no evidence demonstrating a change in West Virginia University Hospital’s ownership. Defendants testified only that they were aware that WVUH uses a tax payer identification number for its short procedure unit (not related to inpatient care) that is different from some other numbers utilized by WVUH. Testimony of Donna Hoffmaster, Transcript at 477, lines 16-25; 478, lines 1-12. III. Pennsylvania Medicaid Program Reimbursement of In-State Hospitals The Nature of the Medicaid Program 59. Medicaid is a federal-state program that pays for medical services provided to the eligible poor in accordance with Title XIX of the Social Security Act and the applicable state and federal regulations. Facts 55, 57. 60. The state designs and administers the medicaid program within the broad parameters established by Title XIX of the Social Security Act, implementing federal regulations, and the applicable state laws and regulations. Facts 57. 61. Medicaid is a different program than Medicare. Medicare is a program of health insurance administered by the federal government. Facts 58. 62. The Commonwealth of Pennsylvania participates with the federal government in providing a medicaid program to eligible Pennsylvania residents. Facts 59. 63. As a part of its agreement with the federal government to participate in medicaid, the defendants submitted a state plan for medical assistance to the United States Secretary of Health and Human Services for approval. Facts 60. 64. Pennsylvania’s state plan for medical assistance has been approved by the United States Secretary of Health and Human Services, including the Pennsylvania state plan provisions that govern reimbursement of general acute care hospitals which provide health care services to Pennsylvania medicaid recipients. Facts 61. The Change From Retrospective “Reasonable Cost”Reimbursement to Prospective Reimbursement 65. Prior to 1981, the Social Security Act required states to pay hospitals the “reasonable cost” of rendering inpatient hospital services to medicaid recipients. Facts 62. 66. “Reasonable cost” was a term defined and used in the medicare program and adopted for use in the medicaid program. Facts 63. 67. As a general rule, the “reasonable cost” standard of reimbursement meant that states were required to reimburse hospitals their actual, allowable costs (capital costs and operating costs) of the care provided to medicaid recipients. Facts 64. 68. “Reasonable cost” reimbursement was a retrospective form of reimbursement, involving the payment of interim rates during the fiscal year with an end-of-year cost settlement once a hospital reported its claimed actual, allowable medicaid costs. A hospital’s reported costs were generally subject to audit. Facts 65. 69. On July 31, 1981, the United States Congress enacted the Omnibus Budget Reconciliation Act of 1981, Public Law 97-35 (OBRA), which changed the requirement that state medicaid programs reimburse hospitals the “reasonable” cost of providing services. Facts 66. 70. Effective for fiscal year 1984-1985, the Commonwealth of Pennsylvania replaced the reasonable cost system of reimbursement for acute care inpatient services in hospitals in the medicaid program. Facts 72. 71. In place of the reasonable cost standard Pennsylvania adopted a “prospective payment system” for acute care inpatient services in hospitals. Facts 73. 72. Under a prospective payment system of reimbursement a hospital is told in advance what its payment will be for specified services. Facts 74. 73. The Pennsylvania prospective payment system was designed, in part, to implement the OBRA standard and to contain the rising cost of health care. Facts 75. 74. One of the goals of Pennsylvania’s system of prospective payment is to provide hospitals with the incentive to become more efficient and economical by providing them a fixed amount of reimbursement for each case regardless of the provider’s actual costs of treating those cases. Facts 76. In-State Hospital Reimbursement of Operating Costs of Inpatient Care Under the MAP Prospective Payment System Grouping 75. Under Pennsylvania’s medicaid prospective payment system of reimbursement, all participating in-state hospitals were separated into seven groups, excluding children’s hospitals. Facts 78. 76. The purpose of the grouping system was to place hospitals with similar roles and potential for costs in the same group. December 28, 1988 Deposition of James Vertrees at 35, lines 4-13; 53, lines 11-21. Defendants’ Exhibit 2 at 2198. 77. The underlying assumption was that similar hospitals have similar costs and that reimbursement of the average cost of similarly situated hospitals would be an equitable means of payment. Testimony of Thomas Manak, Transcript at 213, lines 14-17. 78. Pennsylvania used a complex formula to identify the similarities among hospitals. Testimony of Thomas Manak, Transcript at 213, lines 18-19. 79. Pennsylvania’s groupings for instate hospitals take into account four concepts: each hospital’s teaching status, its medicaid volume, its environmental characteristics, and its hospital costs. Facts 80. 80. Teaching status, medicaid volume, environmental characteristics, and hospital costs are measured by a total of thirteen variables. Facts 81. 81. The variables consist of, inter alia, the number of interns and resident programs, medicaid volume, area wage index, and total patients seen at the hospital. Testimony of Thomas Manak, Transcript at 214, lines 15-17. 82. The actual grouping of in-state hospitals is done by computer program after inputting each in-state hospital’s data for the thirteen variables. Facts 82. 83. MAP has placed all in-state academic medical centers in Group I. Testimony of Kelly Grotzinger, Transcript at 60, lines 21-25; 602, lines 8-10. Group Average Cost Per Case 84. After all in-state hospitals were grouped into seven groups by the computer, Pennsylvania determined a group average cost per case. This group average cost per case is ultimately used to determine the prospective payment. Facts 83. 85. To ascertain the group average cost per case for each of the groups of in-state hospitals for fiscal years 84-85, 85-86 and 86-87, the defendants identified each hospital’s reported Pennsylvania medicaid reimbursable costs for the most recently completed fiscal year, subtracting certain costs specified in the state plan and applicable regulations. Facts 84. 86. The in-state hospital’s costs were then divided by the number of Pennsylvania medicaid cases on paid claims history for that in-state hospital for that year. Facts 85. 87. The resulting figure was that particular in-state hospital’s average cost per case for the fiscal year from which the cost information was derived. Facts 86. 88. The average cost per case for the hospital was then standardized by a hospital-specific case mix index. Facts 87. 89. The defendants then determined a rate of increase for each in-state hospital’s average cost per case by the particular in-state hospital’s average cost per case for the preceding fiscal year. Facts 88. 90. The defendants then adjusted the in-state hospital’s average cost per case by an inflation rate, if the rate of increase was greater than the rate of inflation for the preceding fiscal year. Facts 89. 91. If the rate of increase was equal to or less than the rate of inflation, then the average cost per case was increased by one-half of the difference between the rate of increase and the rate of inflation for the preceding fiscal year. Facts 90. 92. The defendants projected the instate hospital’s average cost per case to the end of the forthcoming year by multiplying the adjusted average cost per case by a projected inflation rate for the forthcoming fiscal year. Facts 91. 93. For each group of in-state hospitals the defendants added the projected average cost per case for each in-state hospital in a given group, and divided the total by the number of hospitals in that particular group. Facts 92. 94. The resulting figure was the group average cost per case which was then adjusted for budget neutrality. This number was the group rate. Facts 93. 95. A group rate was calculated for each of the seven groups. The hospitals in Group 1 have the highest group rate. The hospitals in Group 7 have the lowest group rate. Testimony of Thomas Manak, Transcript at 220, line 25; 221, lines 1-17; 225, lines 16-24. Defendants’ Exhibit 2 at 2198, 2199. The Payment Rate for a DRG 96. To determine how much to pay a hospital for treating a patient with a given illness, MAP multiplies the relative value of the Diagnostic Related Group (DRG) assigned to the patient’s illness by the hospital’s group average cost per case. Testimony of Thomas Manak, Transcript at 224, lines 20-22. 97. The higher the group average cost per case, i.e., the hospital’s group rate, the higher the payment for a given DRG. Thus, MAP pays a Group 1 hospital more to treat a given DRG than it pays a Group 2, 3, 4, 5, 6 or 7 hospital to treat the same DRG. Testimony of Thomas Manak, Transcript at 225, lines 16-25; 226 lines 1-3. 98. The payment amount for a given case may be adjusted for payments made by a third party payer, patient co-pay or resource obligations, or, if the case qualifies as a day or cost outlier. Facts 97. 99. Under Pennsylvania’s prospective payment system, hospitals are paid a set amount per inpatient case for the hospital’s operating costs based on the hospital’s group rate and the applicable DRG. Facts 98. 100. The DRG system of reimbursement creates “winners” and “losers.” A winner is a case where the DRG payment is greater than the actual cost of treating a particular patient. A loser is where costs are more than the DRG payment received. Testimony of Gerard Anderson, Transcript at 314, lines 11-15. 101. On aggregate, the expectation is that over a large number of cases, in-state hospitals will be paid an appropriate amount. Testimony of Gerard Anderson, Transcript at 314, lines 24-25. In-State Hospital Reimbursement of Direct Medical Education Costs 102. In addition to reimbursement of the inpatient operating costs for each inpatient case, MAP pays in-state hospitals an additional amount to reimburse them for their direct education medical costs, if any. Facts 101. 103. MAP reimburses in-state hospitals for their direct medical education (DME) costs in accordance with the federal medicare regulations and applicable state laws and regulations for such reimbursement. See Testimony of David Feinberg, May 4, 5, and 6, 1988 Transcript at 95, lines 3-8, 19-24; 96, lines 1-3. 104. In developing its payment system, MAP recognized that organized or planned educational activities enhance the quality of care in an institution. Plaintiff’s Exhibit 8. Testimony of Gerard Anderson, Transcript at 320, lines 12-23. 105. In developing its payment system, MAP stated it wanted to fairly reimburse the legitimate costs of DME. Plaintiff’s Exhibit 8. 106. The defendants concluded that reimbursement of DME costs satisfied the OBRA standard. Facts 145. 107. A hospital’s direct medical education costs are largely the salaries hospitals pay to residents in approved teaching programs. Testimony of Michael Maher, Transcript at 642, lines 16-23. 108. Residents spend approximately 75% of their time providing direct patient care. Testimony of Gerard Anderson, Transcript at 321, lines 17-21. 109. MAP reimburses in-state hospitals for the MAP share of their DME costs on a “pass through” basis subject to certain limitations. Testimony of Thomas Manak, Transcript at 227, lines 14-25; 228, lines 1-2. 110. MAP has a specific line on its medicaid cost report for hospitals to report their DME costs. Testimony of Michael Maher, Transcript at 648, lines 6-12. 111. MAP reimbursed in-state hospitals for the MAP share of their DME costs in 1984-1985 and 1985-1986 on an actual cost basis subject to certain limitations. See 55 Pa.Code § 1163.55. Defendants’ Exhibit 2. 112. For fiscal year 1986-1987 and thereafter, MAP limits reimbursement to in-state hospitals for DME costs to 1.95% over the amount paid to the hospital in the previous year for DME costs or the hospital’s allowable DME costs, whichever is less. See 55 Pa.Code 1163.55(d). Defendants’ Exhibit 4. 113. In actual practice, MAP requires hospitals to claim resident salaries as part of the hospitals’ cost of doing business. MAP does not give residents in approved training programs separate provider contracts. Testimony of Michael Maher, Transcript at 649, lines 19-25; 650, lines 1-18. 114. There is no provision of the Pennsylvania State Plan or other Pennsylvania rule that would permit interns and residents in approved teaching programs to bill MAP directly for their services instead of having hospitals claim their salaries as costs. Testimony of David Feinberg, May 4, 5 and 6, 1988 Transcript at 106, lines 23-25; 107, lines 1-5; 121, lines 1-16. In-State Hospital Reimbursement of Capital Costs 115. In addition to reimbursement of the inpatient operating costs for each inpatient case and in addition to any payments for direct medical education costs, MAP reimburses in-state hospitals for their allowable capital costs. Facts 103. 116. For the period July 1, 1984 through June 30, 1986 this reimbursement for capital costs was determined for each in-state hospital by ascertaining each hospital’s specific capital costs. Facts 104. 117. MAP then paid its share of the hospital’s actual allowable costs on a pass-through basis. Testimony of Thomas Ma-nak, Transcript at 227, lines 1-12. 118. For the period July 1, 1984 through June 30, 1986, the defendants found that the reimbursement of an instate hospital’s actual, allowable capital costs satisfied the OBRA standard. Facts 137. 119. After July 1, 1986, MAP initiated a prospective payment system for reimbursement of an in-state hospital’s capital costs. The system will be phased in between July 1, 1986 and June 30, 1992. During this period, MAP will pay in-state hospitals for their actual capital costs on a decreasing percentage basis. After July 1,1992, MAP will reimburse all in-state hospitals the same flat rate for their capital costs. Testimony of David Feinberg, May 4, 5 and 6, 1988 Transcript at 64, lines 6-24; 65, line 1. The Phase-in of the Prospective Payment System for In-State Hospitals 120. The defendants adopted a three year phase-in for Pennsylvania’s prospective payment system for reimbursement of each in-state hospital’s operating costs. The phase-in began in fiscal year 1984-1985. Facts 105. 121. The phase-in involved blending each in-state hospital’s group average cost per case with the in-state hospital’s hospital specific cost per case. Facts 106. 122. In fiscal year 1984-1985, an instate hospital’s prospective payment rate was a blend of 75% of the in-state hospital’s hospital-specific cost per case, after a budget neutrality adjustment, and 25% of the hospital’s group average cost per case, after a budget neutrality adjustment. Facts 107. 123. In fiscal year 1985-1986, an instate hospital’s prospective payment rate was calculated by adjusting the percentages from 75%/25% to 50%/50%. Facts 108. 124. In fiscal year 1986-1987, the prospective payment rate of an in-state hospital was determined by using only that instate hospital’s group average cost per case. Facts 109. IV. The Pennsylvania Medicaid Program: Reimbursement of Out-of-State Hospitals General 125. The Pennsylvania medicaid prospective payment system does not reimburse out-of-state hospitals the same way it reimburses in-state hospitals. Facts 117. Reimbursement for Operating Costs Grouping 126. Under the Pennsylvania prospective payment system all out-of-state hospitals are grouped together in one group — irrespective of the differences that might exist between the hospitals, such as teaching status, medicaid volume, environment, and hospital costs. Facts 118. 127. Out-of-state hospitals are grouped using one factor only: the hospitals are not located in Pennsylvania. Facts 119. 128. By grouping all out-of-state hospitals together Pennsylvania did not put out-of-state hospitals with the potential for similar costs together. December 28, 1987 Deposition of James Vertrees at 54, lines 13-18. 129. Defendants determined as early as September 6, 1983 that the Pennsylvania medicaid prospective payment system would classify all out-of-state hospitals into one group and reimburse them for operating costs using an average in-state rate based on the statewide average cost per case. Facts 120. 130. The drafters of the MAP prospective payment system were aware that placing all out-of-state hospitals together in a group and basing their payment on an average Pennsylvania statewide cost per case was potentially inequitable for a large university medical center because teaching hospitals have extremely high costs. December 28, 1987 Deposition of James Vertrees at 54, lines 13-22. Plaintiffs Exhibit 11. The Lack of a Factual Basis to Support the Payment Rate Used for WVUH 131. No empirical study was done with respect to out-of-state payments between the period September 6, 1983 and July 1, 1984 when the prospective system was implemented. Facts 122. 132. To reimburse inpatient operating costs of out-of-state hospitals, Pennsylvania multiplies the relative value of the DRG assigned to the patient’s illness by the out-of-state group rate (based on a Pennsylvania statewide average cost per case) or the hospital’s actual charges for treating that illness, whichever is lower. See 55 Pa.Code § 1163.65(c). 133. In developing the reimbursement methodology for out-of-state hospitals, defendants did not look at the individual cost data for out-of-state hospitals. Facts 125. 134. Unlike the situation concerning instate hospitals, the Pennsylvania medicaid payment rate for out-of-state hospitals has no relation to the actual costs incurred by the out-of-state hospitals in providing care to Pennsylvania medicaid recipients. Testimony of Thomas Manak, Transcript at 229, lines 4-5, 18-25; 230, lines 1-2. 135. The Pennsylvania medicaid payment rate is not sensitive to differences that may exist between out-of-state hospitals. Testimony of Thomas Manak, Transcript at 228, lines 20-24. 136. A small community hospital that is out-of-state will receive the same MAP payment for a given DRG that WVUH will receive. Facts 129. 137. MAP has no empirical analysis that validates the payment rates for out-of-state hospitals. Testimony of David Fein-berg, May 4, 5, and 6, 1988 Transcript at 111, lines 6-14, 24-25; 112, line 2. 138. MAP has no factual basis for concluding that its operating cost reimbursement to WVUH is adequate and reasonable. Testimony of Gerard Anderson, Transcript at 244, lines 8-25; 345, lines 1-3, 12-20. 139. MAP defends its payment rate for out-of-state hospitals on the grounds that it was administratively too burdensome to identify and validate the costs of out-of-state hospitals. December 15,1987 Deposition of David Feinberg at 28, lines 9-11. Testimony of David Feinberg May 4, 5, and 6, 1988 Transcript at 43, lines 4-21. 140. Few out-of-state hospitals see more than 20 MAP cases per year. Plaintiff’s Exhibit 56(A). Testimony of Thomas Manak, Transcript at 257, lines 11-24. 141. WVUH is the only out-of-state hospital that serves more than 160 MAP cases. Plaintiff’s Exhibit 56(A). 142. MAP did not identify its large out-of-state providers. Testimony of James Vertrees, Transcript at 550, lines 2-25; 551, lines 1-18. 143. MAP considered out-of-state reimbursement a minor, technical issue, not a substantive issue. Testimony of Robert Gallagher, Transcript at 607, lines 1-6. 144. MAP presently has the audit capacity to verify the costs of 75-100 out-of-state hospitals. Testimony of Robert Gallagher, Transcript at 607, lines 1-6. MAP Did Not Consider Whether Out-of-State Hospitals Treat a Disproportionate Share of Low Income Persons 145. It costs more to treat low income patients and hospitals that serve a large medicaid population are “particularly dependent” on medicaid reimbursement. 48 Fed.Reg. 56048 (December 19, 1988). 146. The Pennsylvania medicaid prospective payment methodology defines a low income patient as a patient who is a Pennsylvania medicaid recipient. Testimony of Gerard Anderson, Transcript at 359, lines 22-25; 360, lines 1-12. 147. MAP considers an in-state hospital that has an 18-20% medicaid volume serves a disproportionate number of low income patients. Testimony of David Feinberg, May 4, 5, and 6, 1988 Transcript at 109, lines 1-4. 148. The out-of-state reimbursement methodology does not contain any provision with which to identify out-of-state hospitals serving a disproportionate share of low income patients and by which to reimburse those hospitals any more than other out-of-state hospitals are reimbursed. Facts 133. 149. MAP does not take into account the high volume of medicaid patients at WVUH. Testimony of Gerard Anderson, Transcript at 424, lines 10-11. 150. Adequate medicaid reimbursement is essential for hospitals that have a high volume of medical assistance patients because their medicaid payment is significant in terms of their total revenue picture. December 28, 1988 Deposition of James Ver-trees at 34, lines 7-14. 151. MAP concluded that the flat average rate paid to out-of-state hospitals, if used in-state, would result in teaching hospitals not getting enough payment and smaller community hospitals getting more than they needed. MAP did not have a similar concern for out-of-state hospitals. Testimony of James Vertrees, Transcript at 561, lines 7-25; 562, lines 1-21. Reimbursement of Capital Costs for Out-of-State Hospitals 152. Under the Pennsylvania medicaid prospective payment system Pennsylvania does not reimburse WVUH or other out-of-state hospitals for their capital costs in the same manner as Pennsylvania reimburses in-state hospitals. Facts 125. 153. The Pennsylvania medicaid prospective payment system has never reimbursed out-of-state hospitals using their actual allowable costs of capital. Facts 139. 154. The Pennsylvania medicaid prospective payment system pays out-of-state hospitals an “add-on” for capital reimbursement that represents the average capital costs of all Pennsylvania hospitals. Facts 140. 155. The Pennsylvania “add-on” for capital costs to the reimbursement of out-of-state hospitals bears no relationship to the actual capital costs of those hospitals. Testimony of Thomas Manak, Transcript at 230, lines 7-15. 156. MAP gave in-state hospitals approximately 10 years to adjust to a flat rate payment for capital. Testimony of James Vertrees, May 6, 1988 Transcript at 78, lines 7-25; 79, line 1. 157. Out-of-state hospitals did not have a chance to adjust to a prospective payment for capital. Testimony of James Vertrees, May 6, 1988 Transcript at 79, lines 2-4. 158. Under the current Pennsylvania regulations that govern the medicaid prospective payment system, an out-of-state hospital that believes that the capital part of its payment is inadequate, cannot obtain more than the flat rate payment even if it can demonstrate that it has additional actual capital costs and that additional capital reimbursement is necessary to meet the costs of an efficiently and economically run institution. Deposition of David Feinberg at 164, lines 18-25. 159. Capital reimbursement is an important part of medicaid reimbursement because hospitals need to replace or expand their capital assets over time. Testimony of Gerard Anderson, Transcript at 364, lines 18-25; 365, lines 1-9. 160. WVUH’s hospital facility has exhausted its useful life. Testimony of James Vertrees, Transcript at 552, lines 18-22. 161. When WVUH opens its new facility, WVUH will have no opportunity to obtain relief from MAP, under existing regulations, to cover what it believes is the MAP share of the additional capital costs associated with the new construction. Testimony of David Feinberg, May 4, 5, and 6, 1988 Transcript at 129, lines 6-25; 130, lines 1-7. Reimbursement of Direct Medical Education Costs of Out-of-State Hospitals 162. Pennsylvania does not reimburse WVUH or any other out-of-state hospital for the costs of DME attributable to Pennsylvania medicaid recipients. Facts 146. 163. WVUH incurs DME costs because it is a teaching institution. Facts 147. 164. If the indirect costs of teaching hospitals were simply averaged with the costs of non-teaching hospitals, the former would not be adequately reimbursed for the extra costs empirically shown to be associated with their teaching function, as reflected in the issue paper dated October 12, 1984. Facts 151. 165. Based on Medicare results, the defendants acknowledge that a hospital with an intern and resident-per-bed ratio of 0.3 would be expected to have costs about 18% higher than otherwise similar hospitals with an intern and resident-per-bed ratio of 0.0, as reflected in the issue paper dated October 12, 1984. Facts 154. 166. Because it costs more for a teaching hospital to provide care, teaching hospitals would be adversely affected by receiving a uniform DRG payment. Testimony of Gerard Anderson, Transcript at 326, line 25; 327, lines 1-15. 167. As a general proposition, DME costs are legitimate and accepted costs of maintaining a medical school or a teaching hospital. Facts 156. 168. Failure of all payers to pay their share of DME costs would either jeopardize a teaching hospital’s teaching program or require that the costs be borne by another source. Facts 157. 169. The MAP papers governing “Teaching Hospitals” and “Direct Medical Education” (Plaintiffs Exhibits 6 and 8), do not contain any rationale or basis-in-fact for the MAP decision not to reimburse the DME costs of out-of-state hospitals. Testimony of Gerard Anderson, Transcript at 331, lines 15-19. 170. Although MAP could have asked for and verified the DME costs for large out-of-state providers, it chose not to. Testimony of James Vertrees, May 4, 5, and 6, 1988 Transcript at 550, lines 12-15. Testimony of Robert Gallagher, Transcript at 605, lines 1-7. 171. MAP stated that it would not pay for educating physicians out-of-state. Testimony of David Feinberg, May 4, 5, and 6, 1988 Transcript at 57, lines 19-24. 172. MAP had no actual data as to the number of physicians who train at WVUH but practice in Pennsylvania. Testimony of David Feinberg, May 4, 5, and 6, 1988 Transcript at 57, line 25; 58, lines 1-4. V. WVUH is the Largest Out-of-State Provider of Hospital Services to MAP Medicaid Recipients 173. The Hospital treated more Pennsylvania medicaid recipients than more than one half of the in-state hospitals for the period of July 1, 1985 through June 30, 1986. Facts 160. 174. WVUH provided more care to Pennsylvania medicaid residents than over one half of the in-state hospitals for fiscal year ending June 10, 1985 and fiscal year ending June 30, 1987. Plaintiffs Exhibit 51(A); Testimony of Thomas Manak, Transcript at 252, lines 3-7. 175. The Hospital treated more Pennsylvania medicaid recipients in fiscal year 1985-1986 than any other out-of-state hospital provider. Facts 161. 176. WVUH treated substantially more Pennsylvania medicaid recipients in fiscal year 1984-1985 and fiscal year 1986-1987 than any other out-of-state provider. Plaintiffs Exhibit 55. 177. In fiscal year 1985-1986, 163 out-of-state hospitals provided care to Pennsylvania medicaid recipients. Facts 162. 178. In both fiscal years 1984-1985 and 1985-1986, WVUH treated in excess of 800 Pennsylvania medicaid patient cases. In fiscal year 1986-1987, it treated approximately 780 Pennsylvania medicaid patient cases. The next largest out-of-state provider treated fewer than 160 Pennsylvania medicaid patients. Plaintiffs Exhibit 56. 179. For fiscal years 1984-1985, 1985-1986 and 1986-1987, most out-of-state hospital providers treated fewer than ten Pennsylvania medicaid cases. Plaintiffs Exhibit 56(A). Facts 170. VI. The Effect of MAP Payment to WVUH 180. Because WVUH treats so many MAP cases, inadequate MAP reimbursement will have substantial financial consequences for the Hospital and will jeopardize its continued ability to care for MAP patients. Testimony of Bernard Westfall, Transcript at 98, lines 2-22. December 28, 1987 Deposition of James Vertrees at 56, lines 4-8; 60, lines 5-22; 61, lines 1-15. 181. If WVUH withdraws from the Pennsylvania medicaid program, it will jeopardize some Pennsylvania medicaid recipients’ access to needed health care services. Testimony of Bernard Westfall, Transcript at 96, lines 14-25; 97, lines 1-18; 98, lines 2-19. 182. The defendants’ failure to reimburse the Hospital adequately will also curtail Pennsylvania medicaid recipients’ freedom of choice if WVUH is compelled to withdraw from the Pennsylvania medicaid program. 183. On average, MAP reimburses instate hospitals approximately 95% of the costs they incur in treating Pennsylvania medicaid recipients. In contrast, MAP reimburses WVUH for only approximately 54% of the costs it incurs in treating MAP patients. Testimony of Thomas Manak, Transcript at 663, lines 20-25; 664, lines 1-24. 184. MAP pays an in-state hospital $344.00 more to treat an average case than it pays WVUH to treat an average case. Testimony of Thomas Manak, Transcript at 244, lines 15-19. 185. MAP reimburses WVUH an increasingly lower proportion of WVUH’s costs of caring for a Pennsylvania medicaid recipient. Testimony of Thomas Manak, Transcript at 246, lines 14-21. Plaintiffs’ Exhibit 64. VII. The MAP Appeals System 186. Pursuant to requirements of federal regulation 42 C.F.R. section 446.253(c), the Pennsylvania medicaid agency must provide hospitals with a system by which to appeal. Facts 175. 187. The administrative agency division which adjudicates the appeals is the Department of Public Welfare’s Office of Hearings and Appeals (OHA). Testimony of David Feinberg, May 4, 5, and 6, 1988 Transcript at 87, lines 8-10. 188. OHA employs hearing officers, some of them attorneys, to hear appeals, take testimony, admit exhibits, make findings of fact, and determine whether the Pennsylvania Medicaid Agency properly applied its regulations. Defendants’ Exhibits 31, 32. 189. The hearing officer recommends a decision to the Director of OHA, who either adopts or rejects the recommendation. Defendants’ Exhibit 7. (General Rules of Administrative Practice); 1 Pa.Code, Part II; 55 Pa.Code § 1101. 190. Both parties to the administrative appeal, the Office of Medical Assistance and the provider, have the right to request reconsideration from the Secretary should the other party prevail. Id.; 1 Pa.Code §§ 33.61, 35.187(8) and 35.190. 191. Outside of the administrative appeals process, review of the decision of the Director of OHA or the Secretary of DPW may be sought from the judiciary of the Commonwealth of Pennsylvania. 192. The Commonwealth Court is the judicial body in Pennsylvania that is statutorily charged with the duty to review administrative decisions. 193. The administrative hearing officer in the Pennsylvania appeals system would provide no relief to an out-of-state hospital if the out-of-state hospital appealed on the grounds that it should be grouped as if it were an in-state hospital. Facts 177. 194. The administrative hearing officer in the Pennsylvania appeals system would provide no relief to an out-of-state hospital that appeals on the grounds that it should be reimbursed for the Pennsylvania medicaid share of its direct medical education costs. Facts 178. 195. The administrative hearing officer in the Pennsylvania appeals system would provide no relief for an out-of-state hospital that appeals on the grounds that it should be reimbursed as an in-state hospital for its specific capital costs. Facts 179. 196. The administrative hearing officer in the Pennsylvania appeals system would provide no relief for an out-of-state hospital seeking inclusion of its hospital specific costs during the phase-in of Pennsylvania’s prospective payment system as was the case for in-state hospitals. Facts 180. 197. If an out-of-state hospital were to appeal the adequacy of its rate and if the defendants had correctly applied the reimbursement methodology, i.e., the hospital were properly grouped with all other out-of-state hospitals, the hospital received the correct payment for the out-of-state group, and there were no error in the calculations, that out-of-state hospital would not prevail in an administrative appeal before an administrative hearing officer in the Pennsylvania appeals system. Facts 181. 198. No provision of law, including regulations, provides any authority or criteria that governs the Secretary of Public Welfare’s grant or denial of relief to a hospital upon the Secretary’s reconsideration of an adverse administrative appeals decision. Defendants’ Exhibits 2, 3, 4, 5, 15. VIII. MAP’s Findings and Assurances to the Health Care Financing Administration 199. None of the findings and assurances MAP submitted to the Secretary of Health and Human Services (HHS) concerning the Pennsylvania prospective payment system for inpatient care directly refers or is applicable to out-of-state hospitals. Defendants’ Exhibit 15. 200. Defendants made no assurances to HHS specifically related to the adequacy of MAP reimbursement to out-of-state hospitals. Testimony of Peter Goodman, Transcript at 525, lines 20-25. 201. The Health Care Financing Administration did not “look behind” MAP’s assurances concerning the adequacy of its reimbursement rates, including its payment rates to out-of-state hospitals, nor did it require Pennsylvania to set forth the Commonwealth’s specific findings concerning the adequacy of those rates. Testimony of Peter Goodman, Transcript at 531, line 25; 532, lines 1-7. Discussion Jurisdiction Defendants challenge plaintiff’s standing to bring this action. In Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975), the Supreme Court stated: In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues. This inquiry involves both constitutional limitations on federal court jurisdiction and prudential considerations on its exercise.... In its constitutional dimension, standing imports justicability: whether the plaintiff has made out a ‘case or controversy’ between himself and the defendant within the meaning of Art. Ill_ A federal court’s jurisdiction ... can be invoked only when the plaintiff himself has suffered ‘some threatened or actual injury resulting from the putatively illegal action. ...’ [The prudential considerations involve] limits on the class of persons who may invoke the court’s decisional and remedial powers. Id. at 498-99, 95 S.Ct. at 2204-05 (citations omitted). In order for a plaintiff to satisfy prudential considerations, he or she generally must be asserting his or her own legal rights and interests, not the rights or interests of third parties. Id. at 499, 95 S.Ct. at 2205. Furthermore, a plaintiff’s injury must be somewhat individualized. “[W]hen the asserted harm is a ‘generalized grievance’ shared in substantially equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise of jurisdiction.” Id. With regard to the constitutional requirements for standing, defendants’ only “argument” is as follows: “[Njothing requires plaintiff to participate in the program. It has no real injury and Article Ill’s requirements have not been met.” Defendants’ Post-Trial Memorandum at 62. To its credit, WVUH does not respond to this argument. With regard to the prudential considerations, defendants argue that plaintiff, as a provider of medical services, does not have interests within the zones protected by the sections of Title XIX on coverage and protection afforded recipients, neither are plaintiff’s interests within the zone protected by the section of Title XIX on payment for hospital services. The “zone-of-interests” test refers to “the question whether the interest sought to be protected by the complaint is arguably within the zone of interests to be protected or regulated by the statute or constitutional guarantee in question.” Association of Data Processing Service Orgs., Inc. v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 829-30, 25 L.Ed.2d 184 (1970). The primary beneficiaries of Title XIX are recipients of health care services. However, providers “can properly seek to enforce the reimbursement standards of the Medicaid statute both in their own right and as representatives of Medicaid recipients.” Wilmac Corp. v. Heckler, 633 F.Supp. 1000, 1006 (E.D.Pa.1986), vacated on other grounds, 811 F.2d 809 (3d Cir.1987). Because WVUH seeks to enforce the federal standards on reimbursement, it has standing to assert claims under Title XIX. See, e.g., Washington State Health Facilities Ass’n v. State of Washington Dept. of Social and Health Services, 698 F.2d 964 (9th Cir.1982) (providers successfully sought injunction to prevent state from enforcing a regulation which deviated from the federally approved state medicaid plan by altering the method of reimbursing nursing care facilities without receiving federal approval); Edgewater Nursing Center, Inc. v. Miller, 678 F.2d 716 (7th Cir.1982) (nursing home owners unsuccessfully challenged the validity of the cutoff date for determining the year of construction or latest acquisition in Illinois’ method of reimbursing capital costs); Troutman v. Cohen, 588 F.Supp. 590 (E.D.Pa.1984), aff'd without opinion, 755 F.2d 924 (3d Cir.1984) (providers unsuccessfully sought injunction against implementation of Pennsylvania’s reimbursement regulations). Defendants also contend the Hospital does not have a cause of action under 42 U.S.C. section 1983 to assert defendants’ violations of the Social Security Act. As plaintiff points out, defendants do not challenge the court’s jurisdiction to hear a challenge to the state’s compliance with federal law; the court has jurisdiction to hear such challenges pursuant to 28 U.S.C. section 1331. Rather, defendants raise a question as to whether the remedy of a section 1983 cause of action is available. 42 U.S.C. section 1983 provides in pertinent part: Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State or Territory or the District of Columbia, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress. In 1980, the Supreme Court, rejecting an argument that the phrase “and laws” should be read as limited to civil rights or equal protection laws, stated unequivocally: [T]he plain language of the statute [42 U.S.C. § 1983] undoubtedly embraces respondents’ claim that petitioner violated the Social Security Act. Even were the language ambiguous, however, any doubt as to its meaning has been resolved by our several cases suggesting, explicitly or implicitly, that the § 1983 remedy broadly encompasses violations of federal statutory as well as constitutional law. Rosado v. Wyman, 397 U.S. 397 [90 S.Ct. 1207, 25 L.Ed.2d 442] (1970), for example, ‘held that suits in federal court under § 1983 are proper to secure compliance with provisions of the Social Security Act on the part of participating States.’ Edelman v. Jordan, 415 U.S. 651, 675 [94 S.Ct. 1347, 1361-62, 39 L.Ed.2d 662] (1974). Maine v. Thiboutot, 448 U.S. 1, 4 [100 S.Ct. 2502, 2504, 65 L.Ed.2d 555] (1980). The Thiboutot Court also discussed the propriety of invoking pendent jurisdiction to decide the Title XIX challenges where constitutional challenges were raised as well. In those cases (cited at 6, 100 S.Ct. at 2505 in the Thiboutot opinion) “[section] 1983 was necessarily the exclusive statutory cause of action....” Id. at 6, 100 S.Ct. at 2505. In the case at bar, this court exercises federal question jurisdiction on plaintiffs Fourteenth Amendment challenge of equal protection and can invoke pendent jurisdiction if it so chooses. However, this court is satisfied a Social Security Act cause of action lies under section 1983 whether or not a constitutional challenge exists. The court finds it has jurisdiction to adjudicate this action. Compliance With Federal Law The central question in this action is whether defendants satisfy the federal law requirements set forth in 42 U.S.C. section 1396a(a)(13)(A) in reimbursing WVUH for inpatient hospital services provided to Pennsylvania medicaid recipients. Although the court’s standard of review of nonadjudicatory agency action is confined to a determination of whether the action is arbitrary or capricious, Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971); Colorado Health Care Ass’n v. Colorado Dept. of Social Services, 842 F.2d 1158 (10th Cir.1988), “[a] district court can, of course, decide whether federal law has been violated.” Mississippi Hosp. Ass’n. v. Heckler, 701 F.2d 511, 516 (5th Cir.1983). “So long as the specific requirements of the law are met, the Court must defer to the agency’s exercise of discretion unless it acts arbitrarily or capriciously.” Mary Washington Hosp., Inc. v. Fisher, 635 F.Supp. 891, 896 (E.D.Va.1985). The federal law at issue here, 42 U.S.C. section 1396a(a)(13)(A), known as the Boren Amendment, is part of the Omnibus Budget Reconciliation Act of 1981 (OBRA). Congress’ purposes in passing the Boren Amendment were two-fold: “first, that the states set their own reimbursement rates without stifling and expensive federal oversight of the methodology used; and, second that Medicaid expenses be reduced by allowing the states to develop payment systems which would encourage efficiency.” Colorado Health Care Ass’n, 842 F.2d at 1165. The Boren Amendment provides in pertinent part: A State plan for medical assistance must— ... provide— ... for payment ... of the hospital, skilled nursing facility, and intermediate care facility services provided under the plan through the use of rates (determined in accordance with methods and standards developed by the State) and which, in the case of hospitals, take into account the situation of hospitals which serve a disproportionate number of low income patients with special needs and provide, in the case of hospital patients receiving services at an inappropriate level of care ... which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and Federal laws, regulations, and quality and safety standards and to assure that individuals eligible for medical assistance have reasonable access (taking into account geographic location and reasonable travel time) to inpatient hospital services of adequate quality; and such State makes further assurances, satisfactory to the Secretary, for the filing of uniform cost reports by each hospital, skilled nursing facility, and intermediate care facility and periodic audits by the State of such reports; .... 42 U.S.C. § 1396a(a)(13)(A). The Health Care Financing Administration (HCFA) charged with the responsibility for administering the Medicare and Medicaid programs, published regulations implementing the Boren Amendment on September 30, 1981. 42 C.F.R. §§ 447.250-447.280. In pertinent part, the regulations require states which participate in the Medicaid program to make findings and submit assurances to HCFA {id. at § 447.253(a)(b)) that their inpatient hospital service payment rates “are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated facilities_” Id. at § 447.250(a). Furthermore, states must, in setting their reimbursement rates, “take into account the situation of hospitals which serve a disproportionate number of low income patients....” Id. at § 447.253(b)(l)(ii)(A). It is plaintiff’s contention the defendants have not complied with the Boren Amendment or its implementing regulations. WVUH is challenging the legality of Pennsylvania’s overall payment system, based upon statutory requirements and upon Pennsylvania’s own definition of what should be included in a reasonable rate. One part of the challenge involves the issue of the number and type of low income patients WVUH serves. Approximately thirty-eight percent (38%) of all WVUH admissions are low income persons. This figure includes charity patients, bad debts, and medicaid recipients. Approximately twenty-three percent (23%) of the 38% are medicaid recipients. Out of that 23%, seventeen percent (17%) are West Virginia medicaid recipients and five percent (5%) are Pennsylvania medicaid recipients. The court finds WVUH serves a disproportionate number of low income patients. The statute and implementing regulations are plain and clear in their requirement that states, when setting rates, take into consideration whether a hospital serves a “disproportionate number of low income patients with special needs.” Id. Thus, the law provides any reimbursement rate for WVUH must reflect that fact. When Pennsylvania set its DRG reimbursement rates for out-of-state hospitals, it did not consider whether a hospital served a disproportionate number of low income persons. It merely determined the average DRG reimbursement rate for instate hospitals and applied that figure across the board to out-of-state hospitals. As an out-of-state hospital, WVUH’s low income-patient-factor was not considered by DPW when it set the Hospital’s rate. WVUH contends Pennsylvania violated federal law because it did not consider the Hospital’s low-income-patient-factor. The defendants argue they are in compliance with federal law because according to their calculations WVUH does not serve a disproportionately high number of low income patients and therefore that factor did not have to be considered in setting the Hospital’s rate. The reason the defendants do not consider WVUH as a hospital with a high low-income-patient factor is because DPW