Alabama Nursing Home Ass'n v. Califano

• Decision Date: 12 July 1977
• Docket Number: Civ. A. No. 77-52-N.
• Parties: ALABAMA NURSING HOME ASSOCIATION, an unincorporated association, et al., Plaintiffs, v. Joseph CALIFANO, Jr., Secretary of Health, Education and Welfare, et al., Defendants.
• Court: U.S. District Court — Middle District of Alabama

433 F. Supp. 1325

ALABAMA NURSING HOME ASSOCIATION, an unincorporated association, et al., Plaintiffs, v. Joseph CALIFANO, Jr., Secretary of Health, Education and Welfare, et al., Defendants.

Civ. A. No. 77-52-N.

United States District Court, M. D. Alabama, N. D.

July 12, 1977.

Stanley B. Sikes, William J. Bryant, and John W. Kelly, III, Jackson & Sikes, Selma, Ala., and Thomas C. Fox, George R. Clark, and Joel M. Hamme, Pierson, Ball & Dowd, Washington, D. C., for plaintiffs.

Ira DeMent, U. S. Atty., and Kenneth E. Vines, Asst. U. S. Atty., M. D. Ala., Montgomery, Ala., and Sondra D. Stigen, Dept. of Justice, Washington, D. C., for the federal defendants.

William K. Martin, Henry C. Barnett, and Herman H. Hamilton, Jr., of Capell, Howard, Knabe & Cobbs, Montgomery, Ala., Sp. Asst. Attys. Gen., for defendant Robert H. Holzworth.

William J. Baxley, Atty. Gen., and James T. Pons, Asst. Atty. Gen., Montgomery, Ala., for other state defendants.

JOHNSON, Chief Judge.

MEMORANDUM OPINION

This is an action contesting the validity of the current payment rates that the State of Alabama is using to reimburse nursing homes under the Medicaid Program. Jurisdiction in this matter is pursuant to 28 U.S.C. §§ 1331 and 2201 and 5 U.S.C. § 702. This action was filed in this Court February 1, 1977.¹ The case is now submitted upon defendant Holzworth's motion for dismissal, said motion being considered as a motion for summary judgment; the motion of the federal defendants for summary judgment; and plaintiffs' motion for summary judgment. This Court, in accordance with Rule 52 of the Federal Rules of Civil Procedure, incorporates in this memorandum opinion the appropriate findings of fact and conclusions of law.

Plaintiff Alabama Nursing Home Association is an unincorporated association existing under the laws of Alabama, which seeks to represent the interest of its members in this matter. The other named plaintiffs are individual skilled nursing homes and intermediate care facilities located in Alabama. The plaintiffs bring this action for themselves and also seek to bring it on behalf of the class of nursing homes in the state which are similarly situated. The propriety of this case proceeding as a class action has not been challenged by any party, and such an action will be permitted.

Defendants may be grouped into two categories: federal and state. The federal defendants are Joseph Califano, Jr., the Secretary of the Department of Health, Education and Welfare (HEW hereinafter), who is charged with administering the Medicaid Program for the federal government, and the Department itself. They will be treated together. The state defendants are various state officials involved in administering Medicaid for the state. They include the Director of the Alabama Medical Services Administration, Robert D. Holzworth, and the Secretary and members of the State Board of Health (State Committee of Public Health).²

Under the Medicaid Program, payments are made by the designated state agency to the institutions which provide medical services to qualified beneficiaries. These providers include, in some cases, nursing homes. The money for the payments comes from both state and federal sources and is to be paid in accordance with a plan which conforms to the requirements of the Social Security Act and is approved by the Secretary of HEW. Public Law 92-603, § 249 (hereinafter Section 249), 42 U.S.C. § 1396a(a)(13)(E), requires that plans provide for reimbursement to skilled nursing homes and intermediate care facilities "on a reasonable cost related basis, as determined in accordance with methods and standards which shall be developed by the State on the basis of cost-finding methods approved and verified by the Secretary." The statute says that this requirement shall be "effective July 1, 1976." However, the implementing regulations promulgated by HEW set an effective date of January 1, 1978. 45 C.F.R. § 250.30(a)(3)(iv). HEW's explanation for this discrepancy was that it had been extremely slow in publishing the implementing regulations and it feared that the delay might have prevented some states from meeting the deadline in the statute.³ Therefore, HEW set a later effective date to prevent the states from being penalized, when the fault lay with the Department.

The State of Alabama has the present ability to calculate nursing home reimbursement rates on a cost related basis within the meaning of the statute. It has in fact been making such calculations for some time. Payment is being made on this basis up to an absolute ceiling of $21.50 per patient, per day, for skilled nursing homes and $19.35 for intermediate care facilities. This ceiling is the center of the present controversy. It is undisputed that it is not cost related within the meaning of Section 249. Defendant Robert D. Holzworth, Director of the Medical Services Administration, recognized this in a September 14, 1976, memorandum to the State Board of Health and recommended that it be eliminated. In its place, Holzworth proposed a ceiling placed at the mean of all rates plus a one half standard deviation. The Board declined to pass on this recommendation and apparently put off consideration of the matter until December, 1977. According to Holzworth, at least one consideration which led to this was the HEW regulation giving the states until 1978 to comply with Section 249. Plaintiffs seek declaratory and injunctive relief, attacking the HEW regulation, 45 C.F.R. § 250.30(a)(3)(iv), and the current Alabama reimbursement rates to the extent that the present ceiling affects them.

HEW challenges the plaintiffs' standing to sue in this case, contending that any possibility of financial gain by the nursing homes is purely speculative. Assuming that the current ceilings are invalid, as it must when attacking standing to challenge them, HEW nevertheless points to the ceilings based on the mean that Holzworth proposed to the State Board of Health. HEW argues that, even if use of the present ceilings is enjoined, Alabama still might be able to impose the ceilings based on the mean.⁴

It has not been conclusively demonstrated, the Department says, that the nursing homes would be better off with the proposed ceilings than they are under the current limitations.⁵ Consequently, it is contended, no injury in fact has been shown.

There must be an injury in fact to support standing. Barlow v. Collins, 397 U.S. 159, 90 S.Ct. 832, 25 L.Ed.2d 192 (1970); Association of Data Processing Service Organizations v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970). This injury must be "real and immediate," not conjectural and hypothetical. Rizzo v. Goode, 423 U.S. 362, 96 S.Ct. 598, 46 L.Ed.2d 561 (1976); O'Shea v. Littleton, 414 U.S. 488, 94 S.Ct. 669, 38 L.Ed.2d 674 (1974); S. v. D., 410 U.S. 614, 93 S.Ct. 1146, 35 L.Ed.2d 536 (1973); Golden v. Zwickler, 394 U.S. 103, 89 S.Ct. 956, 22 L.Ed.2d 113 (1969). And "unadorned speculation will not suffice to invoke the federal judicial power." Simon v. Eastern Kentucky Welfare Rights Org., 426 U.S. 26, 44, 96 S.Ct. 1917, 1927, 48 L.Ed.2d 450 (1976). However, that is not the case here. Section 249 mandates that any state Medicaid plan provide for payment to nursing homes on a reasonable cost related basis. Where a state plan is not in conformity with the Social Security Act, those individuals most directly affected by the administration of the program may seek judicial enforcement of the statute's requirements. Rosado v. Wyman, 397 U.S. 397, 90 S.Ct. 1207, 25 L.Ed.2d 442 (1970). Thus, the nursing homes have a right to have their payments determined on a cost related basis, and it is the denial of this right which gives rise to standing. It is unnecessary to look behind the right, and see if it can definitely be shown that the obtaining of the right will ultimately be of financial benefit. In Rosado v. Wyman, supra, recipients of welfare payments brought an action to compel New York to administer its Aid to Families With Dependent Children program in conformity with the Social Security Act. The Supreme Court entertained the action and held that the state must either comply with the statute or withdraw from the program. As New York could have withdrawn, the plaintiffs might have ended up with no financial benefits at all. But the action was nonetheless permitted. In fact, standing to sue was not even challenged. An analogy may also be drawn to a situation where a person contends that he has been deprived of property without procedural due process. In such cases it is unnecessary for the plaintiff to show that conformity with procedural due process would change the result. Thus the nursing homes have standing to assert their right to receive payments calculated on a cost related basis, without having to show that obtaining this right would definitely result in monetary gain. That plaintiffs have a right and defendants are depriving them of it is sufficient.

Viewed another way, this case is an attack on the present ceiling on rates. If the present ceiling were lifted, and thus all payments were made on a cost related basis, approximately one hundred nursing homes would benefit financially. It is true that further state action, such as the imposition of a new ceiling based on the mean, might eliminate any gains that the nursing homes would make from the invalidation of the present ceiling. But in Rosado v. Wyman, supra, possible future state action in the form of state withdrawal from the Aid to Families With Dependent Children program would have eliminated any gains that the plaintiffs would have made from winning the case. The plaintiffs were able to bring an action in Rosado, and they may do so here.

HEW's argument on standing, and the above analysis, is premised on the assumption that a new ceiling based on the mean could be lower than or equal to the present ceiling. In fact, the ceiling that Dr. Holzworth proposed to the State Board...