Americare Properties, Inc. v. Whiteman, 70062

• Decision Date: 10 March 1995
• Docket Number: No. 70062,70062
• Citation: 257 Kan. 30,891 P.2d 336
• Parties: , 47 Soc.Sec.Rep.Ser. 225, Medicare & Medicaid Guide P 43,164 AMERICARE PROPERTIES, INC., et al., Appellees-Cross-Appellants, v. Donna L. WHITEMAN, Secretary of Social and Rehabilitation Services, and The Kansas Department of Social and Rehabilitation Services, Appellants-Cross-Appellees.
• Court: Kansas Supreme Court

Page 336

891 P.2d 336

257 Kan. 30, 47 Soc.Sec.Rep.Ser. 225,

Medicare & Medicaid Guide P 43,164

AMERICARE PROPERTIES, INC., et al., Appellees-Cross-Appellants, v. Donna L. WHITEMAN, Secretary of Social and Rehabilitation

Services, and The Kansas Department of Social and

Rehabilitation Services,

Appellants-Cross-Appellees.

No. 70062.

Supreme Court of Kansas.

March 10, 1995.

Syllabus by the Court

1. When dealing with reimbursement rates under the federal Medicaid Act, the Boren Amendment, 42 U.S.C. § 1396a(a)(13)(A) (1988), requires the responsible state agency, the Kansas Department of Social and Rehabilitation Services (SRS), to make reimbursement at rates which SRS "finds," and "makes assurances" satisfactory to the Health Care Financing Administration, 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 and regulations.

2. The Kansas Department of Social and Rehabilitation Services (SRS) must both procedurally and substantively comply with the requirements of the Boren Amendment. Compliance requires that SRS procedurally find that the rates are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities, and SRS's reimbursement plan must substantively adopt rates that are actually reasonable and adequate to meet the cost that must be incurred by efficiently and economically operated providers.

3. Procedural compliance with the Boren Amendment is a question of law subject to de novo review.

4. Substantive compliance with the Boren Amendment is reviewed under a deferential standard, and the agency's action will not be invalidated unless it is arbitrary and capricious.

5. Procedural compliance with the Boren Amendment requires that a state agency identify generally its standard for determining which facilities are efficiently and economically operated and the costs of operating those facilities. Such an identification may be implicit in the state's methods and standards. The state agency must also make a finding that the rates at which it reimburses facilities are reasonable and adequate to meet the costs that must be incurred by those facilities. In doing so, it must conduct an objective analysis, evaluation, or some type of factfinding process to determine the effects of the rates on the level of care Medicaid patients receive and, as part of this process, compare its rates against the objective standard of an efficiently and economically operated institution. There is a presumption that a state agency will engage in a bona fide finding process before it makes assurances.

6. A state agency may use budgetary considerations in setting its reimbursement rates under the Boren Amendment as long as it makes a finding that the resulting rates are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers. However, a state agency may not change its objective standard for determining which institutions are economically and efficiently operated without findings that establish a connection between its new standard and the actual costs facilities must bear.

7. In reviewing a state reimbursement plan for substantive compliance with the Boren Amendment, the phrase "reasonable and adequate" is not a precise number but rather a rate which falls within a range or zone of reasonableness.

8. The Boren Amendment creates a right, enforceable pursuant to 42 U.S.C. § 1983 (1988), to have a state comply with the procedural and substantive requirements of the amendment.

9. The Eleventh Amendment to the United States Constitution prohibits suits against sovereign states in federal court. However, the Eleventh Amendment does not apply to suits in state courts.

10. Neither a state nor its officials acting in their official capacities are persons under 42 U.S.C. § 1983 (1988). However, a state official is considered a person when the action is one for prospective injunctive relief. Official capacity actions for prospective relief are not treated as actions against the state.

11. In an action to determine whether Medicaid reimbursement rates set by SRS comply with the Boren Amendment, it is held: (1) The district court did not err in determining that the rates promulgated by State Plan Amendment MS-87-03 failed to comply procedurally with the Boren Amendment; (2) the district court did not err in determining that rates for 1982 through 1986 complied with the Boren Amendment; and (3) the district court erred in determining that the plaintiffs were entitled to attorney fees pursuant to 42 U.S.C. § 1983 (1988) and 42 U.S.C. § 1988 (1988).

Patrick D. Gaston, of Bennett, Lytle, Wetzler, Martin & Pishny, L.C., Prairie Village, argued the cause, and Robert F. Bennett and Patricia A. Bennett, of the same firm, were with him on the briefs for appellants/cross-appellees.

William E. Enright, of Scott, Quinlan & Hecht, Topeka, argued the cause and was on the brief for appellees/cross-appellants.

DAVIS, Justice:

This appeal involves a class action filed by Kansas adult care homes challenging the Kansas Department of Social and Rehabilitation Services (SRS) procedural and substantive basis for Medicaid reimbursement. Medicaid is a joint federal and state program providing medical assistance, including nursing care, to the indigent, aged, and infirm. The defendant SRS is the designated single state agency for administration of Title XIX (Medicaid) programs in Kansas. Defendant Donna L. Whiteman was the appointed head of SRS at the time this action was initiated. The plaintiffs include a number of adult care nursing homes in the state and will hereinafter be referred to collectively as Americare.

SRS State Plan Amendment MS-87-03 reduced State Medicaid reimbursement to Kansas adult care homes effective January 1 through June 30, 1987. Americare filed their petition on January 26, 1987, seeking injunctive relief against State Plan Amendment MS-87-03. Injunctive relief was denied. Americare amended its petition, attacking not only State Plan Amendment MS-87-03 but also attacking Medicaid reimbursement from 1982 through 1986. Americare advanced five counts in its amended petition: (1) declaratory relief pursuant to K.S.A. 60-1701 et seq.; (2) relief under 42 U.S.C. § 1983 (1988) against claimed violations of rights conferred upon plaintiffs under the federal Medicaid Act, 42 U.S.C. § 1396a et seq. (1988); (3) relief under the Kansas Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq.; (4) certification of the plaintiff class under K.S.A. 60-223; and (5) damages in excess of $2,000,000.

The district court certified a plaintiff class under K.S.A. 60-223(b)(2) for purposes of counts (1) and (5), defining the class as "[a]ll persons and entities, (skilled nursing facilities (SNF), intermediate care facilities (ICF), and intermediate care facilities for the mentally retarded (ICF/MR)) who have provided or continue to provide Medicaid (Title XIX) services pursuant to 42 U.S.C. § 1396a et seq. and K.S.A. 39-708c(x) to the medically indigent, aged and infirm from and after January 26, 1982."

On cross-motions for summary judgment, the trial court granted summary judgment to Americare with respect to State Plan Amendment MS-87-03 effective January 1 through June 30, 1987. The court concluded that SRS had failed to comply with procedural requirements of the federal Medicaid Act, Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (1988), and granted judgment in favor of the plaintiff class for the difference between the amount provided for in State Plan Amendment MS-87-03 and the amount reimbursed prior to January 1, 1987. The trial court also granted Americare attorney fees as the prevailing party under 42 U.S.C. § 1983, pursuant to 42 U.S.C. § 1988. On all other counts and issues including Americare's attack for reimbursement from 1982 through 1987, the trial court granted summary judgment to SRS.

SRS appeals from the decision that its State Plan Amendment MS-87-03 failed to comply with the procedural and substantive requirements of the Medicaid Act, 42 U.S.C. § 1396a et seq. SRS also appeals the award of attorney fees, contending that the court did not have jurisdiction to consider Americare's claim for relief under 42 U.S.C. § 1983. Americare cross-appealed, arguing that the court erred in finding that the Kansas Medicaid reimbursement system prior to MS-87-03 (from 1982 through 1986) did not violate the Medicaid Act.

In order to frame the issues raised by this appeal, some background concerning the Federal Medicaid Act is appropriate. The recent case of Pinnacle Nursing Home v. Axelrod, 928 F.2d 1306 (2d Cir.1991), provides a description of the operation of the Medicaid Act as well as some pertinent history of the Act.

"The Medicaid Program (the Act) was established pursuant to title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (1988). It establishes a joint federal and state cost-sharing system to provide necessary medical services to indigent persons who otherwise would be unable to afford such care. Participation in this system is optional. Once a state does decide to participate, however, it must abide by certain requirements imposed by the Act and regulations promulgated thereunder. To qualify for federal reimbursement, a state must submit to the Secretary [of Health and Human Services] for approval a plan for medical assistance. 42 U.S.C. § 1396a(b). This plan 'is a comprehensive written statement submitted by the agency describing the nature and scope of its Medicaid program and giving assurance that it will be administered in conformity with the specific requirements of title XIX, the regulations in ... Chapter IV [of the Code of Federal Regulations], and other applicable official issuances of the...