816 F.2d 796 (1st Cir. 1987), 86-1109, Com. of Mass. v. Secretary of Health and Human Services

Docket Nº:86-1109, 86-1118.
Citation:816 F.2d 796
Case Date:March 31, 1987
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

Page 796

816 F.2d 796 (1st Cir. 1987)





Plaintiff, Appellee,



Nos. 86-1109, 86-1118.

United States Court of Appeals, First Circuit

March 31, 1987

Argued Oct. 8, 1986.

Page 797

[Copyrighted Material Omitted]

Page 798

Howard S. Scher, Dept. of Justice, with whom William Kanter, Dept. of Justice, Richard K. Willard, Asst. Atty. Gen., William F. Weld, U.S. Atty., and Mark H. Gallant, Acting Associate Gen. Counsel for Litigation, Dept. of Health and Human Services, were on brief, for appellant.

Thomas A. Barnico, Asst. Atty. Gen., with whom Francis X. Bellotti, Atty. Gen., was on brief, for appellee.

Jason W. Manne, Asst. Counsel, Dept. of Public Welfare, on brief for Com. of Pa., amicus curiae.

Before COFFIN, BREYER and TORRUELLA, Circuit Judges.

TORRUELLA, Circuit Judge.

This is an appeal from a district court judgment reversing a Medicaid disallowance decision of the Secretary of Health and Human Services. The appeal raises both a complex jurisdictional issue and a difficult question of statutory interpretation under the Medicaid Act. For the reasons that follow, we affirm the district court on the merits, yet vacate the monetary judgment assessed against the Secretary.

I. Introduction

The Medicaid program is a joint federal-state program. The states administer its day to day operation and the federal government pays part of the cost under an arrangement in which the Secretary "reimburses" the states in advance. If on audit the Secretary disallows certain expenditures as not covered by the Medicaid statute or regulations, the money paid in advance for those expenditures is withheld from subsequent advance reimbursements. The states' decisions about what services to provide, in interaction with the Secretary's disallowance decisions, determine in large part the nature and extent of the Medicaid program.

As authorized by the Medicaid Act, Massachusetts provides services to the mentally retarded in public institutions known as intermediate care facilities for the mentally retarded ("ICF/MR"). 42 U.S.C. Sec. 1396d. Massachusetts Department of Mental Health ("DMH") and Department of Education ("DOE") personnel work together to provide these services, using a transdisciplinary approach designed, at least in part, to help the ICF/MR residents achieve some degree of independence and self-care. The mental health staff performs work pursuant to Massachusetts mental health statutes and regulations, and the education staff carries out duties pursuant to Chapter 766 of the Massachusetts St.1972, which relates to "special education."

In two audits affecting the period July 1, 1978 through June 30, 1982, the Secretary took the position that all services provided by DOE personnel and contractors are per se "educational" and thus excluded from Medicaid coverage under the Secretary's regulation in 42 C.F.R. Sec. 441.13(b). The Secretary disallowed three service costs that are in dispute here:

1. Service delivery contracts with school committees and one regional vocational school to provide services required by Chapter 766 regulations that existing state staff could not provide,

2. Contracts to perform evaluation and monitoring functions required by Chapter 766, and

3. Salaries of DOE staff who work with ICF/MR residents in accordance with the goals of the "individual educational plans" required by Chapter 766.

Massachusetts appealed the disallowances to the Grant Appeals Board (GAB) of HHS. The GAB affirmed the disallowances, ruling that they result from the Secretary's interpretation of his own regulation, which is entitled to great deference. See Massachusetts Department of Public Welfare, Grant Appeals Board Decision No. 438 (May 31, 1983). On appeal, the District

Page 799

Court reversed, noting that the Secretary determines compliance with Medicaid regulations

by reference to state and federal education statutes and to the Commonwealth's method of administering the services in question, rather than to the nature of the services themselves. This approach errs on the side of administrative convenience at the expense of compliance with the Medicaid statute....

Commonwealth of Massachusetts v. Heckler, 616 F.Supp. 687, 694 (D.Mass.1985) (emphasis supplied). The District Court ruled that Massachusetts should be reimbursed, according to the Medicaid statutory formula, for all of the service costs listed above. The Secretary appealed.

II. Jurisdiction

We have recently had the opportunity to consider the jurisdiction of district courts over the Secretary's Medicaid disallowance decisions. See Commonwealth of Massachusetts v. Departmental Grant Appeals Board, 815 F.2d 778 (1987) ("Grant Appeals Board "). Grant Appeals Board held that the district court does not have jurisdiction to hear a Medicaid disallowance challenge that is wholly retrospective in nature, because such a challenge seeks "money damages." And under the general right of review provided by the Administrative Procedure Act, 5 U.S.C. Sec. 702, the district courts have jurisdiction to hear only suits "seeking relief other than money damages." See Grant Appeals Board, at 781-783; Wingate v. Harris, 501 F.Supp. 58, 62 (S.D.N.Y.1980).

The disallowance decision at issue in this case, unlike that at issue in Grant Appeals Board however, represents an ongoing policy that has significant prospective effect. The structure of the Medicaid program (in which the Secretary "reimburses" the states in advance) makes it inevitable that disallowance decisions concern money past due. Yet the Secretary uses these decisions to implement important policies governing ongoing programs. Grant Appeals Board concerned the unusual situation in which the disallowance decision had no significant prospective effect; the challenge only concerned the money allegedly past due.

Here, in contrast, the interpretation of the Medicaid Act announced in the disallowance decision affects far more than any money past due. The special education exclusion defines the respective roles of the Commonwealth and HHS in a continuing program. The Commonwealth's complaint challenging this statutory interpretation makes this prospective effect clear. Under the heading "Requests For Relief," the Commonwealth requested that the court do the following:

1. Enjoin the Secretary and the Administrator from failing or refusing to reimburse the Commonwealth or from recovering from the Commonwealth the federal share of expenditures for medical assistance to eligible residents of intermediate care facilities for the mentally retarded.

2. Set aside the Board's Decision No. 438.

3. Grant such declaratory and other relief as the Court deems just.

GAB Decision No. 438 consists of not only a refusal to pay money, but also a statement of law governing the ongoing relationship between the Commonwealth and HHS. The requested injunction is not specific to the retrospective, 1978-1982 reimbursement disallowed by the Secretary. Rather, it stretches into the future, as does the legal relationship between the parties. Prospective relief is important to the Commonwealth both because the ICF/MR program is still active and because the legal issues involved have ramifications that affect other aspects of the Medicaid program. What is at stake here is the scope of the Medicaid program, not just how many dollars Massachusetts should have received in any particular year.

A comparison of this decision with that in Grant Appeals Board reveals some of the contours of the Sec. 702 money damages exclusion. Where a grant-in-aid dispute concerns only money past due, and no statute specifically authorizes a suit in district court, the Tucker Act provides the only applicable waiver of sovereign immunity;

Page 800

the case must go to the Claims Court. See Grant Appeals Board, at 785. But, where a grant-in-aid dispute concerns a legal question that has a significant, prospective effect on the ongoing relationship between the federal agency and the affected state, the Administrative Procedure Act grants the district court jurisdiction to provide injunctive and declaratory relief. The district court may not, however, consider the claim for money past due. That claim is one for "money damages" governed by our decision in Grant Appeals Board, supra. While this prospective/retrospective distinction "admittedly elevates from over function," Kozera v. Spirito, 723 F.2d 1003, 1008 (1st Cir.1983), it nonetheless is required by the Administrative Procedure Act's exclusion of suits seeking money damages. See State of Minnesota by Noot v. Heckler, 718 F.2d 852, 858 (8th Cir.1983). 1

Accordingly, the district court below had jurisdiction to review the disallowance decision of the Grant Appeals Board and to grant declaratory and injunctive relief. The district court could not, however, order the Secretary to pay the money. On remand the district court should send the case back to the Secretary for action consistent with the Medicaid Act as interpreted in this decision. Should the Secretary persist in withholding reimbursement for reasons inconsistent with our decision, the Commonwealth's remedy would be a suit for money past due under the Tucker Act in the Claims Court. In that subsequent suit we assume that the Secretary would be collaterally estopped from raising issues decided here. See Wright, Law of Federal Courts 682 (1983) ("if an issue of fact or law was actually litigated and determined by a valid and final judgment, the determination is conclusive in a subsequent claim between the parties, whether on the same or a different claim").

III. The Merits

Deciding the merits of this case requires a close analysis of the Medicaid...

To continue reading