Arkansas Medical Soc., Inc. v. Reynolds

• Decision Date: 10 September 1993
• Docket Number: Nos. 92-3146,93-2352,s. 92-3146
• Citation: 6 F.3d 519
• Parties: , Medicare&Medicaid Guide P 41,659 ARKANSAS MEDICAL SOCIETY, INC.; Independent Living Resource Center, Inc., Mainstream Living; Mahlon O. Maris, M.D.; Arkansas Disability Coalition; Arkansas Association of Home Health Agencies, Inc.; Phyllis Henry; Michael Finan, M.D.; Betty Parker, Mother and Guardian of Barbara Parker; Barbara Parker; Arkansas State Dental Association; Lester M. Stizes, III, D.D.S.; Arkansas Adapt; Arkansas Speech-Language-Hearing Association, Inc.; American Physical Therapy Association, Arkansas Chapter; Arkansas Chiropractic Association; Arkansas Podiatric Medical Association, Appellees, v. Jack REYNOLDS, Director, Department of Human Services, State of Arkansas, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 519

6 F.3d 519

42 Soc.Sec.Rep.Ser. 362, Medicare&Medicaid Guide P 41,659

ARKANSAS MEDICAL SOCIETY, INC.; Independent Living Resource Center, Inc., Mainstream Living; Mahlon O. Maris, M.D. Arkansas Disability Coalition; Arkansas Association of Home Health Agencies, Inc.; Phyllis Henry; Michael Finan, M.D. Betty Parker, Mother and Guardian of Barbara Parker Barbara Parker; Arkansas State Dental Association; Lester M. Stizes, III, D.D.S.; Arkansas Adapt; Arkansas Speech-Language-Hearing Association, Inc.; American Physical Therapy Association, Arkansas Chapter; Arkansas Chiropractic Association; Arkansas Podiatric Medical Association, Appellees, v. Jack REYNOLDS, Director, Department of Human Services, State of Arkansas, Appellant.

Nos. 92-3146, 93-2352.

United States Court of Appeals Eighth Circuit.

Submitted July 23, 1993.

Decided Sept. 10, 1993.

Debby Thetford Nye, Little Rock, AR, for appellant.

David L. Ivers, Little Rock, AR (Michael W. Mitchell, on brief), for appellees.

Before FAGG, Circuit Judge, PECK, ^* Senior Circuit Judge, and MAGILL, Circuit Judge.

MAGILL, Circuit Judge.

In this 42 U.S.C. Sec. 1983 action, we consider whether the Arkansas Department of Human Services violated 42 U.S.C. Sec. 1396a(a)(30)(A) by failing to consider whether proposed reimbursement rate reductions to Medicaid providers were consistent with efficiency, economy, and quality of care and whether the rate cuts would affect Medicaid recipients' access to health care services. Concluding that the agency's action did violate the Medicaid statute, we affirm the decision of the district court. ¹

I. BACKGROUND

Medicaid is a cooperative federal/state program through which the federal government grants funds to participating states to provide health care services to needy individuals. See 42 U.S.C. Sec. 1396; Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455 (1990). State participation in Medicaid is voluntary, but if states choose to participate, they must comply with the requirements outlined in the Medicaid statute. Wilder, 496 U.S. at 502, 110 S.Ct. at 2513. To qualify for federal funds, a state must submit a plan to the Secretary of Health and Human Services (HHS) which complies with fifty-eight subsections outlined in 42 U.S.C. Sec. 1396a(a). Id. The state plan must include a system of reimbursing costs incurred by health care providers in providing services to Medicaid recipients. Id.

On June 24, 1992, the Arkansas Department of Human Services (DHS) issued an emergency rule cutting reimbursement rates to noninstitutional ² Medicaid providers effective July 1, 1992. The rule mandated a 20% across the board cut in reimbursement rates in order to offset a $60 million shortfall in the state's Medicaid budget.

The plaintiffs/appellees in this case are three individual Medicaid providers, seven professional associations, two individual Medicaid recipients, and three disability associations who advocate the rights of Medicaid recipients. For ease of identification, they will be collectively called the Medicaid providers. The defendant/appellant in this action is the Director of DHS, the agency which administers Medicaid in Arkansas. The appellant will be referred to as DHS.

The Medicaid providers brought suit in the district court under 42 U.S.C. Sec. 1983 alleging that DHS had deprived them of federal rights by violating the Medicaid statute, specifically, 42 U.S.C. Sec. 1396a(a)(30)(A). This particular section of the Medicaid statute and its corresponding regulation at 42 C.F.R. Sec. 447.204 require states to ensure that Medicaid recipients have access to medical care that is at least equal to that of the general population. This feature of the Medicaid law is typically called the equal access provision. The Medicaid providers sought a preliminary and permanent injunction, declaratory judgment and other relief.

After a hearing on July 20, 1992, the district court issued a verbal order enjoining DHS from implementing the 20% reduction in reimbursement rates with respect to obstetrical and pediatric care, and speech, physical and occupational therapy for children, pending a trial on the merits. The cut in reimbursement rates to noninstitutional providers of other services remained in effect. The district court held a second hearing on August 18-19, 1992, regarding the other services, but declined to extend the injunction. On September 14, 1992, DHS appealed from the preliminary injunction in No. 92-3146.

The district court then held a final hearing from November 30 to December 3, 1992. At the final hearing, DHS announced that it had withdrawn its portion of the plan that attempted to apply the 20% reimbursement rate reduction in obstetrics and pediatrics. DHS asserted that the issue was now moot with respect to those two specialties.

The district court combined the evidence from all three hearings, and on April 20, 1993, the court issued its final order, 819 F.Supp. 816. First, the district court rejected DHS's contention that the matter was moot with respect to obstetrics and pediatrics. Second, the district court held that DHS's reimbursement rate scheme was set solely on the basis of budgetary considerations, and without regard to the requirements of the federal Medicaid statute. Therefore, the district court concluded, DHS's plan was invalid under federal law. Because immediate invalidation of the reimbursement rates would have potentially severe detrimental effects on DHS and Medicaid recipients, the district court allowed DHS 120 days to establish a plan conforming with federal law.

DHS now appeals from that final decision of the district court in No. 93-2352. Because it applies to all services including obstetrics and pediatrics, the April 20, 1993, order rendered moot the preliminary injunction issued July 20, 1992. This court consolidated the appeals and addresses all issues raised.

II. ANALYSIS

A. Section 1983 Enforceability

The Medicaid providers have fashioned this lawsuit as a 42 U.S.C. Sec. 1983 action. This well-known statute allows plaintiffs to sue officials acting under color of state law for alleged deprivations of "rights, privileges, or immunities secured by the Constitution and laws" of the United States. 42 U.S.C. Sec. 1983. As a threshold matter, we must determine whether this statute allows the Medicaid providers to sue in this particular situation.

Plaintiffs may use Sec. 1983 to enforce not only rights contained in the Constitution, but also rights that are defined by federal statutes. Maine v. Thiboutot, 448 U.S. 1, 6-8, 100 S.Ct. 2502, 2505-06, 65 L.Ed.2d 555 (1980). The question of what constitutes a "right," however, has been the subject of much judicial inquiry.

For example, in Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 101 S.Ct. 1531, 67 L.Ed.2d 694 (1981), the Court held that certain purported "rights" defined by Congress in the Developmentally Disabled Assistance and Bill of Rights Act, 42 U.S.C. Secs. 6000-6083, were not enforceable because they were not express conditions for the receipt of federal funds. The Court wrote that "if Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously." Pennhurst, 451 U.S. at 17, 101 S.Ct. at 1540. In the Developmentally Disabled Assistance Act, the terms used to articulate the "right" were too general and vague to provide specific notice to states as to what obligations were actually imposed. Id. at 24-25, 101 S.Ct. at 1543-44. Rather, Congress's language in the statute was more in the nature of a preference for certain types of treatment for developmentally disabled individuals. Id. at 19-20, 101 S.Ct. at 1540-41. Accordingly, the Supreme Court held that because the statute did not establish with sufficient specificity what kinds of services states were required to provide, the statute did not create an enforceable "right" on behalf of the recipients.

In Golden State Transit Corp. v. City of Los Angeles, 493 U.S. 103, 110 S.Ct. 444, 107 L.Ed.2d 420 (1989), the Supreme Court, incorporating ideas from Pennhurst and other cases from the 1980s, ³ established a framework for analyzing Sec. 1983 enforceability questions. The framework is really a two-step process. In step one, a court must decide whether the claim actually involves a violation of a federal right, as opposed to a violation of a federal law. Id. at 106, 110 S.Ct. at 448. For this first step, the plaintiff asserting the right has the burden. Id. Factors which bear on the resolution of this question include: (a) whether the statutory provision in question was intended to benefit the plaintiff; (b) whether the statute creates a binding obligation on the state government as opposed to merely expressing a congressional preference; and (c) whether the interest asserted by the plaintiff is sufficiently specific and definite as to be within the competence of the judiciary to enforce. Id.; see also Evelyn V. v. Kings County Hosp. Ctr., 819 F.Supp. 183, 192 (E.D.N.Y.1993). In the second step, the court must determine if Congress has foreclosed enforcement under Sec. 1983. Golden State, 493 U.S. at 106, 110 S.Ct. at 448. On this point, the defendant bears the burden and the inquiry focuses on whether Congress has provided a comprehensive and carefully tailored remedial scheme within the statute in question, so as to make enforcement under Sec. 1983 inconsistent. Id. at 106-07, 110 S.Ct. at 448-49; see also Evelyn V., 819 F.Supp. at 192.

In Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990), the Supreme Court had occasion to apply the Golden State analysis to the Medicaid statute. In Wilder, an association representing hospitals sued several Commonwealth of Virginia officials alleging violations of 42 U.S.C. Sec. 1983 because the Virginia Medicaid plan violated 42 U.S.C. Sec. 1396a(a)(13)(A) of the Medicaid statute. This provision, commonly known as the...