Children's Seashore House v. Waldman, 99-5024

Decision Date30 November 1999
Docket NumberNo. 99-5024,99-5024
Parties(3rd Cir. 1999) CHILDREN'S SEASHORE HOUSE, APPELLANT v. WILLIAM WALDMAN, COMMISSIONER OF THE NEW JERSEY DEPARTMENT OF HUMAN SERVICES; KAREN SQUARRELL, ACTING DIRECTOR, OF THE NEW JERSEY DEPARTMENT OF HUMAN SERVICES, DIVISION OF MEDICAL ASSISTANCE
CourtU.S. Court of Appeals — Third Circuit

On Appeal from the United States District Court for the District of New Jersey (D.C. Civ. No. 98-02377) District Judge: Honorable Anne E. Thompson

Mark H. Gallant (argued) Kimberly A. Bane Cozen and O'Connor The Atrium 1900 Market Street Philadelphia, PA 19103 Attorneys for Appellant

John J. Farmer, Jr. Attorney General of New Jersey Nancy Kaplen Assistant Attorney General Rhonda S. Berliner-Gold (argued) Mary A. Hurley Deputy Attorneys General R.J. Hughes Justice Complex P.O. Box 112 Trenton, N.J. 08625 Attorneys for Appellees

Before: Greenberg, Scirica, and Rendell, Circuit Judges

OPINION FOR THE COURT

Greenberg, Circuit Judge.

I. STATEMENT OF THE CASE

Appellant, Children's Seashore House ("CSH"), a Philadelphia hospital that until 1990 had been located in Atlantic City, New Jersey, provides acute medical rehabilitation care to seriously injured or ill pediatric patients. CSH brought this action in the district court on May 8, 1998, seeking declaratory and injunctive relief to compel the New Jersey Department of Human Services to make disproportionate share hospital ("DSH") adjustments on account of CSH's treatment of Medicaid enrollees from New Jersey. In particular, CSH sued the commissioner of the Department and the director of its Division of Medical Assistance ("New Jersey") under 42 U.S.C. § 1983 in their official capacities to challenge New Jersey's amendment to its Medicaid Plan effective September 20, 1996, which provides for the denial of DSH payments to hospitals located outside of New Jersey. CSH alleged that this policy violated CSH's rights under Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. ("Medicaid Act"), and the Equal Protection Clause of the Fourteenth Amendment. New Jersey asserts that it had made the DSH payments to out-of-state hospitals until July 1, 1993, but that thereafter while it was contemplating the amendment's adoption, it discontinued the payments. CSH contends, however, that New Jersey never made DSH payments to it after it moved to Philadelphia.

On September 25, 1998, New Jersey filed a motion to dismiss or in the alternative for summary judgment. On November 9, 1998, CSH filed a motion, which the district court referred to a magistrate Judge, to amend its complaint to assert a claim under the Commerce Clause. The district court then decided the case in an opinion dated December 7, 1998, in which it indicated that in its discretion it was determining the "matter as a motion to dismiss" which it granted. Of course, the district court therefore did not make a ruling on the motion for summary judgment, and neither the magistrate Judge nor the district court ever ruled on CSH's motion to amend. CSH then appealed.

II. STATUTORY FRAMEWORK

In order that this matter be understood, we set forth the statutory background of the case. Medicaid is a joint federal-state program that provides for the payment of medical services pursuant to the Medicaid Act to the poor, elderly, and disabled. See Rite Aid of Pa., Inc. v. Houstoun, 171 F.3d 842, 845 (3d Cir. 1999). To participate a state must submit a State Plan to the Secretary of Health and Human Services and obtain its approval of the plan detailing how the state will disburse Medicaid money. Id. at 846. A state may change its plan by obtaining approval of a State Plan Amendment. Id. The United States makes contributions to a state's program provided its plan is consistent with the applicable Medicaid Act provisions.

Beginning in 1981, Congress provided additional payments for disproportionate share hospitals, meaning hospitals serving a high percentage of indigent patients. The two provisions regarding DSH adjustments relevant to this case are 42 U.S.C. § 1396a(a)(13)(A) ("a-13") and 42 U.S.C. § 1396r-4 ("r-4"). A-13 provides for a public process through which a state determines and sets reimbursement rates, while r-4 outlines the specifications regarding DSH adjustments. As it now reads a-13 states in its entirety:

A State plan for medical assistance must --

(13) provide --

(A) for a public process for determination of rates of payment under the plan for hospital services, nursing facility services, and services of intermediate care facilities for the mentally retarded under which --

(i) proposed rates, the methodologies underlying the establishment of such rates, and justifications for the proposed rates are published,

(ii) providers, beneficiaries and their representatives, and other concerned State residents are given a reasonable opportunity for review and comment on the proposed rates, methodologies, and justifications,

(iii) final rates, the methodologies underlying the establishment of such rates, and justifications for such final rates are published, and

(iv) in the case of hospitals, such rates take into account (in a manner consistent with [r-4]) the situation of hospitals which serve a disproportionate number of low-income patients with special needs . . . .

42 U.S.C. § 1396a(a)(13)(A) (emphasis added).

When Congress adopted the current version of a-13 in the Balanced Budget Act of 1997 it repealed the following language, commonly known as the Boren Amendment, that stated:

A State plan for medical assistance must --

(13) provide --

(A) for payment (except where the State agency is subject to an order under section 1396m of this title) of the hospital services, nursing facility services, and services in an intermediate care facility for the mentally retarded provided under the plan through the use of rates . . . which, in the case 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. . . .

42 U.S.C. § 1396a(a)(13)(A) (West 1992) (repealed) (emphasis added).

Both the Boren Amendment and the 1997 amendment to a-13 are cross referenced with r-4. Thus, while r-4 continues to set the parameters for a state's provision of DSH adjustments, Congress in amending a-13 replaced the Boren Amendment's language requiring a state to pay "reasonable and adequate" rates with language mandating that a state provide a "public process" by which rates are determined in accordance with r-4. See Children's Hosp. and Health Ctr. v. Belshe, 188 F.3d 1090, 1094 (9th Cir. 1999).

A State Plan must provide for payment for covered services supplied by out-of-state hospitals to the state's own Medicaid program enrollees. See 42 U.S.C. § 1396a(a)(16); 42 C.F.R. § 431.52(b); West Virginia Univ. Hosps. Inc. v. Casey, 885 F.2d 11, 29 (3d Cir. 1989), aff'd on other grounds, 499 U.S. 83, 111 S.Ct. 1138 (1991). Moreover, it is clear that if Congress had not repealed the Boren Amendment in 1997, we would be bound to follow the holdings in West Virginia v. Casey that a state cannot set disproportionately low rates for out-of-state hospital services rendered -- including DSH adjustments-- for its Medicaid enrollees merely because the hospital is an out-of- state provider and that the out-of-state hospitals can enforce their rights to appropriate treatment. Id. at 17-22, 28-29; see also Wilder v. Virginia Hosp. Ass'n , 496 U.S. 498, 110 S.Ct. 2510 (1990). But inasmuch as we based West Virginia v. Casey on our Conclusion that Pennsylvania's denial of adjustments to out-of-state hospitals violated the "reasonable and adequate" requirement of a-13 as it then existed, see 885 F.2d at 29, we now must determine whether Congress's removal of the "reasonable and adequate" language from a-13 requires a different result than that we reached in West Virginia v. Casey. Inasmuch as we conclude that the repeal of the Boren Amendment does require a result different from that in West Virginia v. Casey so that CSH cannot prevail on its direct statutory claim, we must decide whether its equal protection claim should have survived New Jersey's motion to dismiss.

III. THE DISTRICT COURT OPINION

As we stated above, the district court dismissed CSH's complaint on New Jersey's motion to dismiss pursuant to Rule 12(b)(6).1 The court held that CSH lacks standing to bring its statutory claim because Congress intended to foreclose private enforcement of DSH adjustment payments when it repealed the Boren Amendment in 1997, and because r-4 itself did not confer standing on CSH. Applying the test the Supreme Court set forth in Blessing v. Freestone, 520 U.S. 329, 117 S.Ct. 1353 (1997), the court recognized that hospitals like CSH are the intended beneficiaries of r-4. The court reasoned, however, that while r-4 mandates that a state's Medicaid plan provide for an appropriate increase in Medicaid payments to DSHs based on specific rate adjustment procedures, unlike the Boren Amendment r-4 "does not mandate actual payment." Accordingly, the court held that r-4 "does not impose a binding obligation on New Jersey to actually afford CSH payment, such that CSH has a federal right to payment under § 1983." Moreover, the court found that Congress's repeal of the Boren Amendment supported this Conclusion as Congress eliminated the statutory provision mandating "reasonable and adequate" payment that had been regarded as conferring standing upon plaintiffs in the past. The court found its Conclusions buttressed by statements of congressional intent to eliminate causes of action for hospitals and nursing facilities...

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