Children's Hospital v. Belshe
| Decision Date | 15 June 1999 |
| Docket Number | No. 98-15559,98-15559 |
| Citation | 188 F.3d 1090 |
| Parties | (9th Cir. 1999) CHILDREN'S HOSPITAL AND HEALTH CENTER, a Washington corporation; Plaintiff-Appellee, v. S. KIMBERLY BELSHE, Director, California Department of Health Services, Defendant-Appellant |
| Court | U.S. Court of Appeals — Ninth Circuit |
Asher Rubin, Deputy Attorney General, San Francisco, California, for the defendant-appellant.
Michael S. Sorgen, San Francisco, California, Dean L. Johnson, P.C., San Francisco, California, for the plaintiff-appellee.
Appeal from the United States District Court for the Northern District of California; Marilyn H. Patel, District Judge, Presiding. D.C. No. CV-95-01076-MHP.
Before: Joseph T. Sneed, David R. Thompson and William A. Fletcher, Circuit Judges.
Opinion by Judge Thompson; Dissent by Judge Sneed
OVERVIEW
Eighteen hospitals located outside of California ("the plaintiffs") brought suit against S. Kimberly Belshe ("Belshe"), Director of the California Department of Health Services ("CDHS"). The plaintiffs alleged that CDHS's method for reimbursing out-of-state hospitals that treat California's Medicaid ("Medi-Cal") patients violates the portion of the Social Security Act known as the Boren Amendment, 42 U.S.C.A. S 1396a(a)(13)(A) (West 1992). Belshe moved for summary judgment.
In its first summary judgment order, the district court held the Boren Amendment applies to out-of-state hospitals. Thereafter, in a second order, the district court held the CDHS was failing to meet the Boren Amendment's requirements in setting reimbursement rates for out-of-state hospitals that treat Medi-Cal patients. The court also held the CDHS is obligated to make additional payments to out-of-state hospitals treating Medi-Cal patients that serve a disproportionate share of lowincome individuals ("DSH payments"). The district court then certified its summary judgment orders for immediate appeal pursuant to 28 U.S.C. S 1292(b), and this appeal followed.
In this appeal, Belshe argues the plaintiffs' lawsuit is moot because the Boren Amendment was repealed during the pendency of the action, and in any event, the lawsuit is barred by the Eleventh Amendment. Alternatively, Belshe contends that the district court erred in holding that the Boren Amendment applies to out-of-state hospitals. We have jurisdiction under 28 U.S.C. S 1292(b), and we affirm.
Title XIX of the Social Security Act, 42 U.S.C.SS 1396 et seq. ("the Medicaid Act"), authorizes the payment of federal funds to states to defray expenses incurred in providing medical assistance to low-income individuals. See 42 U.S.C. S 1396; Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502 (1990). Unlike Medicare, which is administered nationally, the Medicaid Act is administered by the individual states that choose to participate in the program. If a state participates in the program, the state must comply with the requirements of the Medicaid Act and its implementing regulations. See 42 U.S.C. S 1396a; 42 C.F.R. SS 430 et seq.; Wilder, 496 U.S. at 502. All fifty states have chosen to participate.
States wishing to receive Medicaid funds must submit a state medical assistance plan to the Secretary of Health and Human Services ("Secretary"). This plan must detail the state's coverage and include the methodology it will use to reimburse institutional health care providers for the services they render to Medicaid recipients. See 42 U.S.C. S 1396a(a); 42 C.F.R. SS 430.10 - 430.18; Wilder, 496 U.S. at 502. The plan must be approved by the Health Care Financing Administration ("HCFA"), the federal agency responsible for administering the Medicaid program. See 42 C.F.R.SS 430.10, 430.12.
Prior to 1980, states were required to reimburse hospitals the "reasonable cost" of providing inpatient services, generally in the form of retrospective payments based on a hospital's actual costs for given services. See 42 U.S.C. S 1396a(a)(13) (1976); Folden v. Washington State Dep't of Social and Health Serv., 981 F.2d 1054, 1056 (9th Cir. 1992). Hoping to contain escalating medical costs, Congress enacted a new standard for hospital reimbursement as part of the 1981 Omnibus Reconciliation Act, Pub. L. No. 97-35 S 2173. This new standard, known as the Boren Amendment, required a state plan to
provide . . . for payment . . . of the hospital 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 . . . ) 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 . . . and periodic audits by the State of such reports . . . .
42 U.S.C.A. S 1396a(a)(13)(A) (West 1992).
The purpose of the Boren Amendment was "to give states greater flexibility in calculating reasonable costs and in containing the continuing escalation of those costs. " Folden, 981 F.2d at 1056. The Third Circuit in West Virginia University Hospital, Inc. v. Casey, 885 F.2d 11 (3d Cir. 1989), aff'd on other grounds, 499 U.S. 83 (1991), concluded that the Boren Amendment "authorizes states to develop their own medicaid reimbursement standards and methodologies for payment of hospital services, but subjects those standards and methodologies to three general federal requirements." Id. at 22. First, states must take into account hospitals serving a disproportionate share of low-income patients. Id. at 22-23. Second, states must make findings that the rates are "reasonable and adequate" to meet the necessary costs of an efficiently operated hospital. Id. And third, states must assure Medicaid patients reasonable access to inpatient hospital care. Id. As the Third Circuit noted in West Virginia University Hospital, these requirements are set forth in 42 C.F.R. SS 447.250447.280. Id.
The plaintiffs in this case, eighteen hospitals outside of California that provided services to Medi-Cal patients, filed suit on March 28, 1995 for declaratory and injunctive relief. They allege that Belshe, the Director of the CDHS, is violating the Boren Amendment by failing to make the Amendment's required findings for payments to out-of-state hospitals and by failing to make DSH payments to out-of-state hospitals serving a disproportionate share of low-income individuals.1 Belshe moved for summary judgment, arguing that the Boren Amendment does not apply to out-of-state hospitals. On January 9, 1997, the district court denied the motion, holding that the Amendment applies to out-of-state hospitals.
Soon after the district court issued its January 9, 1997 order, Congress amended the Medicaid Act to "eliminate the Boren Amendment and establish instead a notice and comment provision." Exeter Memorial Hosp. Ass'n v. Belshe, 145 F.3d 1106, 1108 (9th Cir. 1998) (). The new section became effective with respect to payments for services commencing October 1, 1997. See id. The new section continues to require that states take into account hospitals that serve a disproportionate number of low-income patients, but repeals the "findings" and "assurances" methodology enumerated in the Boren Amendment. Instead, the new section requires a "public process" for determining rates.2
After the Boren Amendment was repealed, the district court held in a second order on February 4, 1998, that the CDHS's method for reimbursing out-of-state hospitals did not satisfy the findings required by the Boren Amendment. In essence, the district court held that until the CDHS developed new rates for payment pursuant to the "public process " provisions of the Balanced Budget Act of 1997, the CDHS had to comply with the Boren Amendment. The court also held that the Amendment required the CDHS to make DSH payments to out-of-state hospitals. Concluding that its determinations about the applicability of the Boren Amendment to out-ofstate hospitals involved a "controlling question of law as to which there may be substantial ground for difference of opinion," the district court certified the question for interlocutory appeal, which appeal this court authorized pursuant to 28 U.S.C. S 1292(b). The district court then stayed the action pending our decision in this appeal.
Belshe contends this appeal should be dismissed and the district court's orders vacated because the repeal of the Boren Amendment renders any prospective relief moot. We disagree. A live controversy exists in this case, see Cook Inlet Treaty Tribes v. Shalala, 166 F.3d 986, 989 (9th Cir. 1999), and we can grant effective relief. Cf. Calderon v. Moore, 518 U.S. 149, 150 (1996) .
After the Boren Amendment was repealed, HCFA advised its regional offices and the states participating in the Medicaid program that compliance with the new public process requirements of 42 U.S.C.A. S 1396a(a)(13)(A) (West...
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