Illinois Health Care Ass'n v. Bradley, 91-3824

• Decision Date: 26 January 1993
• Docket Number: No. 91-3824,91-3824
• Citation: 983 F.2d 1460
• Parties: , 39 Soc.Sec.Rep.Ser. 710, Medicare & Medicaid Guide P 41,028 ILLINOIS HEALTH CARE ASSOCIATION and Heartland Manor Nursing Center, Incorporated, Plaintiffs-Appellees, v. Philip BRADLEY, in his official capacity as Director of the Illinois Department of Public Aid, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1460

983 F.2d 1460

61 USLW 2468, 39 Soc.Sec.Rep.Ser. 710,

Medicare & Medicaid Guide P 41,028

ILLINOIS HEALTH CARE ASSOCIATION and Heartland Manor Nursing

Center, Incorporated, Plaintiffs-Appellees, v. Philip BRADLEY, in his official capacity as Director of the

Illinois Department of Public Aid, Defendant-Appellant.

No. 91-3824.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 23, 1992.

Decided Jan. 26, 1993.

James J. Casey, Kathleen M. O'Laughlin, Larry Manson, Dorothy Ward, Keck, Mahin & Cate, and Bruce Stratton, Thomas J. Reed, and Rita M. Sayre, Chicago, IL, for plaintiffs-appellees.

James C. O'Connell, Asst. Atty. Gen., Roland W. Burris, Office of the Atty. Gen.; and David Adler, Office of the Atty. Gen., Welfare Litigation Div., Chicago, IL, for defendant-appellant.

Before BAUER, Chief Judge, EASTERBROOK, Circuit Judge, and WOOD, Jr., Senior Circuit Judge.

HARLINGTON WOOD, Jr., Senior Circuit Judge.

The Illinois Department of Public Aid appeals from a declaratory judgment which invalidated its Medicaid reimbursement plan for nursing homes. We affirm.

I. BACKGROUND

Money is rarely given without strings attached, and the Medicaid program is no exception. Under the Medicaid Act ("Act"), 42 U.S.C. § 1396 et seq., the federal government provides financial assistance to states so that the states may furnish medical services to needy individuals. Among the services which Medicaid funds is the provision of long-term care in nursing homes. To receive federal funding for this service and others, states must comply both with federal requirements imposed by the Act and with regulations promulgated by the Secretary of the United States Department of Health and Human Services ("Secretary"). See Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455 (1990); Illinois Council on Long Term Care v. Bradley, 957 F.2d 305, 306 (7th Cir.1992).

One of these federal requirements is that states submit to the Secretary, and have approved, a plan for medical assistance. The state plan is required to establish a scheme for reimbursing health care providers for the medical services they provide to Medicaid patients. Under the 1981 "Boren Amendment," the Act requires a participating state to reimburse the health care providers at rates 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).

As the Secretary's regulations recognize, the Boren Amendment envisions a two-step process. First, a state must make "findings" that its payment rates "are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards." 42 C.F.R. § 447.253(b)(1). These findings must be made whenever the state Medicaid agency "makes a change in its methods and standards, but not less often than annually." Id. After making these findings, the Medicaid agency "must make assurances" to the Secretary that the state plan complies with the applicable federal laws and regulations. Id. § 447.253(a); see Wilder, 496 U.S. at 513 n. 11, 110 S.Ct. at 2519 n. 11 (requirement of a finding is a "necessary prerequisite" to requirement of an assurance).

While a state cannot give an assurance to the federal government that its Medicaid program is in compliance without first making a finding to that effect, it is possible to make a finding without then issuing an assurance. As the regulations specify, a state must make a finding at least annually. A state need not issue an assurance to the federal government, however, unless it has changed its "payment methods and standards." 42 C.F.R. § 447.253(a); see Wilder, 496 U.S. at 513 n. 11, 110 S.Ct. at 2519 n. 11 (findings and assurances are "separate obligations"). This dispute revolves around the question of whether Illinois has properly complied with the findings requirement.

II. PROCEDURE

Almost four years ago, the Illinois Health Care Association and Heartland Manor Nursing Center ("Plaintiffs") filed a complaint in federal district court against the Secretary and against the Director of the Illinois Department of Public Aid ("IDPA"). Plaintiffs alleged that Defendants, acting in their official capacities, violated federal law by failing to comply with the Boren Amendment. The court properly exercised jurisdiction under 28 U.S.C. § 1331. Both defendants filed motions to dismiss and on August 4, 1989, the district court dismissed the Secretary on the basis of subject matter jurisdiction. On June 25, 1990, the district court denied IDPA's motion to dismiss.

On April 19, 1991, following a period of discovery, Plaintiffs filed a motion for summary judgment requesting a declaration that IDPA's actions were in contravention of the Medicaid Act. On October 28, 1991, the district court ruled in Plaintiffs' favor. Plaintiffs moved to amend the court's final order, but the court denied that motion on November 12, 1991. Defendant then filed this appeal on December 11, 1991. As the appeal from the final order was timely, we have jurisdiction under 28 U.S.C. § 1291.

III. STANDARD OF REVIEW

We review the district court's grant of summary judgment de novo, drawing all reasonable inferences in favor of the non-moving party. Williams v. Anderson, 959 F.2d 1411, 1413 (7th Cir.1992); Appley v. West, 929 F.2d 1176, 1179 (7th Cir.1991). We will uphold the entry of summary judgment "if there is no genuine issue as to any material fact and if the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

In making this determination, we employ the same standard as that employed by the trial court pursuant to Federal Rule of Civil Procedure 56(c). Lett v. Magnant, 965 F.2d 251 (7th Cir.1992). As the district court correctly noted, the Illinois reimbursement plan was approved by the Secretary and thus is a product of state and federal agency action. Illinois Health Care Ass'n v. Bradley, 776 F.Supp. 411 417 (N.D.Ill.1991). A trial court, therefore, must review the plan with the deference accorded federal agency actions. Pinnacle Nursing Home v. Axelrod, 928 F.2d 1306, 1313 (2d Cir.1991). This deference entitles the reimbursement plan to a presumption of regularity, Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971), but does not prevent the court from "a thorough, probing, in-depth review." Id. at 415, 91 S.Ct. at 823.

In conducting this review, the court "shall ... hold unlawful and set aside agency action, findings, and conclusions found to be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or "without observance of procedure required by law." 5 U.S.C. § 706. Our task then is to determine whether the Illinois plan complies with the requirements of federal law. Pinnacle Nursing Home, 928 F.2d at 1313. Only if there is no genuine issue of material fact as to IDPA's noncompliance, may we affirm the district court's judgment.

IV. DISCUSSION

A. Summary Judgment Confined to Procedural Defects

In their summary judgment motion, Plaintiffs asserted that Defendant failed to comply with the Boren Amendment's procedural and substantive components. Procedurally, Defendant allegedly failed to make findings and assurances that IDPA's reimbursement rates were reasonable and adequate to meet costs incurred by efficiently and economically operated facilities, as required by the Boren Amendment. Substantively, Defendant allegedly implemented a reimbursement scheme that resulted in inadequate payments and therefore violated the Boren Amendment's standard.

The district court limited its review, and final ruling, to the Plaintiffs' procedural claim. Prominent in the court's decision was its belief that "it was clearly Congress' intent that methodological decisions be left to state agencies." Illinois Health Care Ass'n, 776 F.Supp. at 417. This position finds support in Wilder v. Virginia Hospital Ass'n, 496 U.S. 498, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990), where the Supreme Court discussed at length the legislative history of the Boren Amendment. The Court concluded that Congress passed the Amendment in response to rapidly rising Medicaid costs. Congress blamed the inflationary spiral in part on the Secretary's complex and rigid reimbursement regulations. Id. at 506, 110 S.Ct. at 2515.

In order to develop alternative reimbursement methodologies that would promote efficient and economical delivery of services, Congress decided to give states more flexibility in calculating reasonable reimbursement rates. Id. States, for instance, could adopt prospective reimbursement rates. Instead of reimbursing health care providers for the actual cost of services already provided, a state could pay providers in advance based on a state's formula for what such services should cost. Id. at 507 n. 7, 110 S.Ct. at 2516 n. 7; Lett v. Magnant, 965 F.2d 251, 253 (7th Cir.1992).

Concomitantly, Congress reduced the Secretary's involvement in the rate-setting process. While the Secretary still approves a state's plan for medical assistance, the Secretary does not review the methods by which a state determines its reimbursement rates. Rather than inspecting the finding or the underlying data, the Secretary reviews only the reasonableness of the state's assurance. Wilder, 496 U.S. at 507-08, 110 S.Ct. at 2516-17.

Neither party challenges the district court's decision to confine its review to IDPA's procedural compliance. There is no need, therefore, to review...