Alacare, Inc.-North v. Baggiano, 85-7420

• Decision Date: 02 April 1986
• Docket Number: No. 85-7420,85-7420
• Parties: , Medicare&Medicaid Gu 35,333 ALACARE, INC.-NORTH, an Alabama corporation, Plaintiff-Appellant, v. Faye S. BAGGIANO, in her official capacity as Commissioner of the Alabama Medicaid Agency, Defendant-Appellee, and Alabama Medicaid Agency, Defendant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 963

785 F.2d 963

54 USLW 2524, Medicare&Medicaid Gu 35,333

ALACARE, INC.-NORTH, an Alabama corporation, Plaintiff-Appellant, v. Faye S. BAGGIANO, in her official capacity as Commissioner of the Alabama Medicaid Agency, Defendant-Appellee and Alabama Medicaid Agency, Defendant.

No. 85-7420.

United States Court of Appeals Eleventh Circuit.

April 2, 1986.

Jonathan H. Waller, Haskell, Slaughter, Young & Lewis, B. Glenn Murdock, Birmingham, Ala., for plaintiff-appellant.

James H. McLemore, Henry D. Barnett, Jr., Montgomery, Ala., for defendant-appellee.

Appeal from the United States District Court for the Middle District of Alabama

Before JOHNSON and HATCHETT, Circuit Judges, and MURPHY ^*, District Judge.

JOHNSON, Circuit Judge:

In Patsy v. Board of Regents of the State of Florida, 457 U.S. 496, 102 S.Ct. 2557, 73 L.Ed.2d 172 (1982), the Supreme Court determined that there is no general exhaustion of remedies requirement for plaintiffs pursuing claims under 42 U.S.C.A. Sec. 1983 (1985). This Circuit has not previously attempted to mark the precise contours of that holding. We hold today that Patsy does not preclude the finding of implicit exhaustion requirements in congressional enactments. But we also hold that no such requirement exists under the language of the Medicaid Act, 42 U.S.C.A. Sec. 1396, et seq. (1985). Accordingly, we AFFIRM in part and REVERSE AND REMAND in part the holding of the trial court below.

I.

This is an action brought under Section 1983 by a provider of health care services under the Medicaid Act. Medicaid is a cooperative endeavor of the state and federal governments. Each state is required, consistent with basic federal guidelines, to create its own administrative rules and regulations for running the program in that state through a specially created state agency. Each state must also set up an administrative review process, but is not required to provide for state judicial review.

Appellant Alacare Inc.-North ["Alacare"] operates the Adams Nursing Home in Alexander City, Tallapoosa County, Alabama. Prior to 1984 appellant's nursing home was certified under the Medicaid Act as an "intermediate care provider"--a level of care higher than mere room and board, but not as high as that provided by a "skilled care provider." The services provided by the latter are equivalent to those one could receive as a hospital in-patient. Those facilities certified to provide both intermediate and skilled care are called "dual care providers." The financial reimbursement from the federal government through the states is higher for skilled care than for intermediate care.

Appellant resolved to secure all necessary certification and licenses in order to operate as a dual care provider. It received the necessary federal and state documents as of February 1, 1984, but the appellee, Faye S. Baggiano, acting in her official capacity as Commissioner of the Alabama Medicaid Agency, refused to issue a dual care provider contract to the appellant for the contract year 1985-86. She based this on the existence of a surplus of skilled care beds in Tallapoosa County. Denial of a contract for good cause is permitted by 42 C.F.R. Sec. 442.12(d) (1984). The United States Department of Health and Human Services reviewed this decision, upon appellant's request, and approved the appellee's determination that Alacare should not be issued a dual care provider contract.

Appellant claims that this decision was without good cause, arbitrary, and capricious, in that Alacare has obtained all the necessary federal and state clearances save the contract. It claims that one offered justification--budgetary considerations--is in unlawful noncompliance with federal standards and proscribed by Alabama Nursing Home Ass'n v. Califano, 433 F.Supp. 1325, 1330 (M.D.Ala.1977). Appellant has exhausted all state administrative remedies, and is currently in the process of pursuing its state judicial remedies as provided by Ala.Code Sec. 41-22-20(a) (1975).

Concurrent with the pursuit of a state judicial remedy, Alacare filed this action on March 1, 1985, under Section 1983 for wrongful failure and refusal to contract with appellant as a dual care provider. Appellee Baggiano and defendant Alabama Medicaid Agency ["AMA"] filed motions to dismiss alleging, inter alia, failure to exhaust available remedies with the state. The trial court considered the motion to dismiss as a motion for summary judgment and granted that motion on May 3, 1985, due to failure to exhaust state remedies.

Alacare filed a motion to reconsider as to Baggiano, but not AMA. This was denied in an order entered June 28, 1985, the trial court finding that Alacare "has failed to show that the exhaustion requirement should be waived in this case." Alacare appeals only as to the summary disposition of its suit against Baggiano.

II.

This case raises two issues: A) whether the trial court properly found an implied requirement in the Medicaid Act to exhaust state remedies before pursuing a Section 1983 action in federal court; and B) if that requirement is proper, whether the trial court erred here in requiring exhaustion of both state administrative and judicial remedies.

A. Exhaustion Requirements:

The appellant argues that the trial court was in error in finding an implied exhaustion requirement for Medicaid actions under Section 1983; this poses a question of law. Neither party contests any factual issues here. Consequently, our review is independent. Cathbake Inv. Co. v. Fisk Electric Co., 700 F.2d 654, 656 (11th Cir.1983).

1) Implicit and Explicit Exhaustion Requirements:

In Patsy v. Board of Regents of the State of Florida, 457 U.S. 496, 102 S.Ct. 2557, 73 L.Ed.2d 172 (1982), the Supreme Court strongly reaffirmed that there is no general requirement that a plaintiff exhaust any remedy he might have at state law before proceeding into federal court, save where Congress has crafted an exception to that general rule. Id. at 512, 102 S.Ct. at 2565-66. The language of Patsy is, however, somewhat opaque on the question whether this congressionally created exception must be explicitly supplied or may be deemed implicit in the type of administrative machinery Congress constructs.

Alacare points to portions of Justice Marshall's Opinion for the Court that note how narrowly and clearly Congress created the only major exception to the no-exhaustion rule. ¹ From this appellant argues that Patsy must be read as imposing what Justice Powell called "a flat rule without exception." 457 U.S. at 534 (Powell, J., dissenting). Unless the Congress created a specific, and explicit, exception, appellant argues, a court may not find one.

The appellee, and the trial court below, note several passages in Patsy that contradict this. The Supreme Court recognized that "[o]f course, courts play an important role in determining the limits of an exhaustion requirement and may impose such a requirement even where Congress has not expressly so provided." 457 U.S. at 501, 102 S.Ct. at 2560. Patsy's footnote 4 elaborates on this theme:

Even where the statutory requirement of exhaustion is not explicit, courts are guided by congressional intent in determining whether application of the doctrine would be consistent with the statutory scheme .... With state administrative remedies, the focus is not so much on the role assigned to the state agency, but the role of the state agency becomes important once a court finds that deferring its exercise of jurisdiction is consistent with statutory intent.

457 U.S. at 502 n. 4, 102 S.Ct. at 2560 n. 4. In determining whether putatively implicit exceptions in fact exist, we must look always "to congressional intent; and a court should not defer the exercise of jurisdiction under a federal statute unless it is consistent with that intent." Id. at 501-02, 102 S.Ct. at 2560.

Patsy cannot be read quite so broadly as Alacare would like; nor can footnote 4 be applied quite as the trial court would have it. The effect of the former would be to render footnote 4 surplusage; affirming the trial court's holding in toto would place on the courts the burden of making a number of policy choices as to the scope and contours of exceptions for which the Supreme Court felt legislative solutions were preferable. Patsy, 457 U.S. at 513-14, 102 S.Ct. at 2566-67.

Adopting a broad reading of Patsy would exacerbate a tension that the Supreme Court created by failing to reconcile that case with Fair Assessment in Real Estate Ass'n v. McNary, 454 U.S. 100, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981). The Court in McNary held that, notwithstanding the no-exhaustion principles announced in McNeese v. Board of Education, 373 U.S. 668, 83 S.Ct. 1433, 10 L.Ed.2d 633 (1963), and its progeny, a Section 1983 action would not lie against a state tax assessor unless plaintiffs had first sought "protection of their federal rights by state remedies...." 454 U.S. at 116, 102 S.Ct. at 186. More important for this case is the language of Justice Brennan, concurring in the judgment for himself and Justices Marshall, Stevens, and O'Connor. Id. at 117, 102 S.Ct. at 186-87. Where the requirement of exhaustion merely defers, rather than displaces, the Section 1983 remedy, there need not be a "clear statement of congressional intent...." Rather, "a somewhat lesser showing is required.... Where the obligation to require exhaustion of administrative remedies may be fairly understood from congressional action, or is in accord with congressional policy, not only is Sec. 1983 no bar, but the federal courts should be alert to further those policies." Id. at 136, 102 S.Ct. at 196 (emphasis supplied). This came in the context of a state tax dispute, an area in which federal courts have long been reticent to intervene, but we find no basis in the language of the various opinions in McNary for limiting that holding to the tax context. Notwithstanding Justice Powell's dissent in Patsy, we are unable to...