629 F.2d 817 (2nd Cir. 1980), 1234, Yaretsky v. Blum

Docket Nº:1234, Docket 80-7197.
Citation:629 F.2d 817
Party Name:William YARETSKY, Ralph Cuevas, and The Gray Panthers, New York Chapter, Plaintiffs-Appellees, and Mary Foley, Rae Wolper, Rose Shulman, Bessie Rossoff, Pauline Ashkenazy, Sadie Birenzweig, Martha Zahl, Edna Kolman, James Lundy, and Philomena Latona Lundy, on behalf of themselves and all others similarly situated, Plaintiffs-Intervenors-Appellants,
Case Date:August 25, 1980
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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629 F.2d 817 (2nd Cir. 1980)

William YARETSKY, Ralph Cuevas, and The Gray Panthers, New

York Chapter, Plaintiffs-Appellees,


Mary Foley, Rae Wolper, Rose Shulman, Bessie Rossoff,

Pauline Ashkenazy, Sadie Birenzweig, Martha Zahl, Edna

Kolman, James Lundy, and Philomena Latona Lundy, on behalf

of themselves and all others similarly situated,



Barbara BLUM, Individually and as Acting Commissioner of the

New York State Department of Social Services; Robert Whalen,

M. D., Individually and as Commissioner of the New York

State Department of Health, Defendants-Appellants.

No. 1234, Docket 80-7197.

United States Court of Appeals, Second Circuit

August 25, 1980

Argued June 11, 1980.

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[Copyrighted Material Omitted]

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John E. Kirklin, Director of Litigation Civil Appeals & Law Reform Unit, The Legal Aid Soc., New York City (David Goldfarb, The Legal Aid Soc., New York City, N. Y. and Charles Robert, Hempstead, N. Y., of counsel), for plaintiffs-appellees.

David R. Ferguson and Kenneth A. Thomas, Asst. Attys. Gen., New York City (Robert Abrams, Atty. Gen. of the State of New York, George D. Zuckerman, Asst. Sol. Gen., New York City, of counsel), for defendants-appellants.

Before LUMBARD and MANSFIELD, Circuit Judges, and MEHRTENS, District Judge. [*]

LUMBARD, Circuit Judge:

Plaintiffs, certified by the district court as that class of persons receiving New York State Medicaid assistance who are residents of nursing homes, were granted a permanent injunction by the District Court for the Southern District, Motley, J., enjoining state authorities and nursing homes from discharging or transferring patients to a different level of care without certain procedural safeguards intended to supplement residents' existing state statutory right to a hearing. 1 Also at issue is the district court's permanent injunction forbidding state officials from reversing a hearing officer decision favorable to a plaintiff class member without having considered the full transcript of the hearing, and the district court's refusal to order the Department of Health, Education and Welfare ("HEW") joined as a party. We affirm the permanent injunction with respect to the due process rights of patients subject to transfer, with some modification; we vacate the district court's injunction with regard to reversals of hearing officer determinations; and we affirm the district court with respect to its refusal to order joinder of HEW.

In the past two decades, government has taken responsibility for caring for the medical needs of the elderly. One result of this has been the creation of a system of nursing homes, owned and run by private individuals or charitable organizations, whose population is made up largely of elderly recipients of state and federal assistance. Nursing homes are classified into two types: skilled nursing facilities (SNF's), and health related facilities (HRF's). 2 The latter provide a lower level of care than the former.

Through HEW regulations, the federal government mandates a procedure called Utilization Review (UR), a kind of patient audit meant to insure that patients are not kept in SNF's longer than necessary, or in any facility when they no longer need medical attention or custodial care. The regulations provide that decisions on such matters are to be made by a Utilization Review Committee (URC), made up, in part, of physicians not financially interested in the affairs of the particular nursing home.

When a patient is transferred from one level of care to another, the State Medicaid authorities review his status and reduce or increase his benefits accordingly and the

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parties agree that reimbursement rates are "ordinarily" lower for HRF's than for SNF's. A decision to reduce or terminate a patient's Medicaid benefits triggers a federal right (under 42 U.S.C. § 1396a(a)(3) and 45 C.F.R. § 205.10) to a hearing, provided by the state. Plaintiffs claimed in this case that the bare right to such a hearing did not meet the requirements of due process in part because of inherent shortcomings and in part because of the manner in which the state has performed its duty to provide such hearings. In particular the district court found that patients were not given effective written notice of their hearing rights and were not given sufficient access to their medical files to enable them effectively to challenge the transfer decision.

In an earlier appeal, we affirmed, insofar as appealed from, a preliminary injunction granted by the district court ordering certain additional procedural due process safeguards with regard to nursing home transfers, prohibiting the state from delegating to nursing homes the responsibility for notifying patients of their hearing rights, and prohibiting the state from not disclosing to the patient medical information deemed harmful to a patient. Yaretsky v. Blum, 592 F.2d 65 (2d Cir. 1979).

Before the injunction was made permanent, the parties entered into a consent judgment which embodied most of the procedural safeguards sought by plaintiffs with respect to patient transfers. The consent judgment spelled out the right of the patient or his representative to receive timely notice of the intended transfer; guaranteed the opportunity to have access to all documents in his medical file; made the patient's voluntary permission a prerequisite to transfer; and required that the hearing officer consider a "psychosocial" evaluation of the effect of transfer on the patient.

The consent judgment left several issues of the law to be decided by the district court: (1) are due process protections required (a) when a patient is transferred from a lower to a higher level of care, whether the transfer is initiated by a URC or not, and (b) when a patient transfer to a lower level of care is not initiated by a URC; and (2) are state administrative agency decision-makers required by due process or state law to read a verbatim transcript of the hearing before reversing a hearing officer's determination favorable to a member of the plaintiff class?

The district court found that patients are entitled to due process when transferred from a lower level of care to a higher one, and when a transfer is initiated by someone other than a URC. We agree because we think such transfers involve state action affecting constitutionally protected property and liberty interests.

The Supreme Court has not defined the limits of state action, but it has supplied the following, somewhat sibylline formula: "the existence of 'state action' depends on 'whether there is a sufficiently close nexus between the State and challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself.' " Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 95 S.Ct. 449, 453, 42 L.Ed.2d 477 (1974), quoted in Schlein v. Milford Hospital, Inc., 561 F.2d 427, 428 (2d Cir. 1977). In Jackson, the inaction of a state regulatory commission in failing to veto a clause in a utility's tariff was found insufficient to be state action. In Schlein, the action of a private hospital in rejecting a physician's application for staff privileges was held not to be state action.

In the case at bar, however, the state takes a less passive role and responds to the "action" of the "regulated entity". When a nursing home moves a patient from an SNF to an HRF, or when a patient is moved by either the nursing home or a URC to an SNF from an HRF, the state Medicaid authorities adjust the patient's benefits. The state has, in essence, delegated a decision to increase or reduce a public assistance recipient's benefits to a "private" party; but such a delegation cannot prevent due process guarantees from attaching. In Yaretsky v. Blum, supra at 67, we held that the state cannot delegate its due process duty to notify patients of their rights to a hearing.

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Appellants argue that when a patient's private physician initiates a transfer of his patient from one level of care to another that cannot be said to be state action. This argument misses the mark, because we do not base our finding of state action on the character of the nursing home industry as a regulated industry, nor on the function of providing health care for the elderly as a non-delegable duty of the state. A private physician's decision to transfer his patient can have the same result as a nursing home's-an alteration in the patient's benefits. Since that is the nexus required by Jackson v. Metropolitan Edison, and since that exists equally despite the change in identity of the party initiating the transfer, no exception can be made for physician-initiated transfers.

Once it is determined that state action has occurred, the second level of analysis is the identification of a liberty or property interest affected by the state action. In O'Bannon v. Town Court Nursing Home, --- U.S. ----, 100 S.Ct. 2467, 65 L.Ed.2d 506 (1980), seven justices agreed that nursing home patients did not enjoy a due process right with respect to a decision by HEW to decertify a nursing home. But the O'Bannon majority also clearly recognized due process protection for Medicaid patients when the withdrawal of "direct benefits" under Medicaid programs was involved. --- U.S. at ----, 100 S.Ct. at 2475. These "direct benefits" were characterized by the court as those "essentially financial in character." Thus, in this case, when a patient is transferred from an SNF to an HRF, or from either an SNF or HRF to an adult home providing no medical care, or is simply discharged, a clear property right entitled to constitutional protection is affected. Where a patient is transferred to a higher level of...

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