Amisub (PSL), Inc. v. State of Colo. Dept. of Social Services

• Decision Date: 11 July 1989
• Docket Number: No. 88-2482,88-2482
• Citation: 879 F.2d 789
• Court: U.S. Court of Appeals — Tenth Circuit
• Parties: , Medicare&Medicaid Gu 37,968 AMISUB (PSL), INC., d/b/a AMI St. Luke's Hospital, Inc., AMI Presbyterian Denver Hospital, Inc., and AMI Presbyterian Aurora Hospital, Inc., Plaintiffs/Appellants, v. The STATE OF COLORADO DEPARTMENT OF SOCIAL SERVICES, and Irene M. Ibarra, Executive Director of the State of Colorado, Department of Social Services, Defendants/Appellees.

Page 789

879 F.2d 789

26 Soc.Sec.Rep.Ser. 271, Medicare&Medicaid Gu 37,968

AMISUB (PSL), INC., d/b/a AMI St. Luke's Hospital, Inc., AMI Presbyterian Denver Hospital, Inc., and AMI Presbyterian Aurora Hospital, Inc. Plaintiffs/Appellants, v. The STATE OF COLORADO DEPARTMENT OF SOCIAL SERVICES, and Irene M. Ibarra, Executive Director of the State of Colorado, Department of Social Services, Defendants/Appellees.

No. 88-2482.

United States Court of Appeals Tenth Circuit.

July 11, 1989.

Rehearing Denied Aug. 31, 1989.

Patric Hooper (L. Richard Freese, Jr., and Sharon E. Caulfield of Davis, Graham & Stubbs, Denver, Colo., with him on the briefs), Hooper, Lundy & Bookman, Inc., Los Angeles, Cal., for plaintiffs/appellants.

Wade S. Livingston, Asst. Atty. Gen. (Duane Woodard, Atty. Gen., Charles B. Howe, Deputy Atty. Gen. and Richard H. Forman, Sol. Gen., Denver, Colo., with him on the brief), for defendants/appellees.

Wayne J. Fowler of Saunders, Snyder, Ross & Dickson, P.C., Denver, Colo., on the briefs, for amicus curiae American Hosp. Ass'n and amicus curiae Colo. Hosp. Ass'n.

Michael F. Anthony, Jeffrey M. Teske, Lawrence E. Singer, Chicago, Ill., on the brief, for amicus curiae American Hosp. Ass'n.

Before ANDERSON, BARRETT and BRORBY, Circuit Judges.

BRORBY, Circuit Judge.

Plaintiffs, three licensed Colorado hospitals (hereinafter "appellants" or "Hospitals") appeal from a final judgment against them. 698 F.Supp. 217. As Medicaid providers, they challenged the State of Colorado's system for reimbursement of inpatient hospital services as violative of 42 U.S.C. Sec. 1396 et seq. (1989 Supp.) (hereinafter "Medicaid Act"). On appeal, appellants allege the district court had jurisdiction based on 28 U.S.C. Sec. 1331, 28 U.S.C. Sec. 1361, and 42 U.S.C. Sec. 1983. The district court correctly held jurisdiction was based on 28 U.S.C. Sec. 1331 since plaintiffs were challenging Colorado's compliance with the Medicaid Act in a 42 U.S.C. Sec. 1983 action. ¹ We are in accord with the district court on the jurisdictional basis, and, furthermore, hold that 28 U.S.C. Sec. 1361 (1976), the federal mandamus statute, is not a jurisdictional basis in this case. The named defendants in the district court and appellees here are the State of Colorado Department of Social Services (CDSS) and Irene M. Ibarra, its Executive Director. No relief against state officials or state agencies is afforded by Sec. 1361. ²

On appeal, appellants present the following issues:

1. Did the District Court improperly limit its review of the agency decision by determining only whether the Medicaid payment rates in question were arbitrarily and capriciously established?

2. Were the Medicaid payment rates in question established by Appellees ("the State Medicaid Agency") in accordance with the procedures required by the governing federal Medicaid statute and regulations?

3. Are the Medicaid payment rates in question authorized by and consistent with the governing federal Medicaid statute and regulations?

4. Are the Medicaid payment rates in question established by the State Medicaid Agency arbitrary and capricious?

In response, the appellees contend that (1) the Hospitals have no statutory right to a particular Medicaid rate, i.e., "42 U.S.C. Sec. 1396a(a)(13)(A) is not the kind of statute that creates enforceable rights under 42 U.S.C. Sec. 1983"; (2) the Hospitals are not the "intended beneficiaries of the federal medicaid statutes"; (3) the reimbursement rates set by CDSS are not arbitrary and capricious; and (4) CDSS made the "findings" and "assurances" required by federal law.

First, we hold that, pursuant to 42 U.S.C. Sec. 1396 et seq., the Hospitals have enforceable rights under 42 U.S.C. Sec. 1983; second, we hold that the Hospitals have standing to challenge the reimbursement rates under the Colorado Medicaid Plan; third, we hold that the district court improperly limited its review of the agency decision by determining only whether the Colorado reimbursement plan was arbitrary and capricious; fourth, the Colorado Medicaid payment rates were not in accordance with the procedures required by the federal Medicaid statute and regulations; fifth, the Medicaid reimbursement rates as established are violative of federal law; and sixth, the Medicaid payment rates as established are arbitrary and capricious.

Therefore, we REVERSE the district court. We declare the reimbursement rates to be in violation of federal law and prohibit their usage.

I. FACTS

Effective July 1, 1988, the Colorado Medicaid Agency (CDSS) implemented a new provider reimbursement plan. 10 C.C.R. 2505-10, Sec. 8.356 (1988). The new plan employs diagnostically related groupings (DRG's) to pay providers prospectively determined rates based on the Medicaid patient's discharge diagnosis. The system classifies ailments or hospitalizations according to the discharge diagnoses and assigns to them a relative weight, which reflects relative resource consumption. When a provider has treated a Medicaid patient, the relative weight is multiplied by a base rate. A different base rate was determined for three peer groups of hospitals: (a) urban hospitals, (b) rural hospitals, and (c) rural referral centers. Hospitals within each group are presumed to have similar costs.

To compute base rates, the new Colorado Medicaid plan employs the following steps: Reimbursable Medicare costs are determined by cost standards in 42 U.S.C. Sec. 1395x(v)(1)(A) (1983) and 42 C.F.R. Sec. 413.1 et seq. (1987). Medicare reasonable costs do not encompass actual costs, but rather provide standards for reasonable allowable costs for provider reimbursement, i.e., only allowable costs which are reasonable in amount are reimbursable. To calculate the Medicaid base rate, an average Medicare reimbursable cost per discharge for each peer group is calculated. Then, the average Medicare cost per discharge is multiplied by .88 to determine the Medicaid average. ³ Thus, the calculation presumes that Medicaid patients, in general, incur only 88% of the medical costs of Medicare patients with the same ailment. Finally, CDSS multiplies the .88 reduced payment by .54, i.e., it reduces provider reimbursement by 46%. ⁴ The .54 is known as the budget adjustment factor (BAF), and is based solely on the sums historically and currently appropriated by the Colorado legislature for provider reimbursement for inpatient hospital services. The BAF resulting in a 46% decrease in provider reimbursement rates "has no relation to the actual costs of hospital services."

Because the BAF reduces provider reimbursement by 46%, the district court properly found that "no Colorado hospital recovers its actual costs." In addition, it properly found that "[s]ome of these Colorado hospitals are efficiently and economically operated."

II. PRELIMINARY ISSUES

Before we reach the merits of the case, we must address three preliminary issues: (1) whether this suit is barred by the Eleventh Amendment; ⁵ (2) whether 42 U.S.C. Sec. 1396 et seq. creates enforceable rights under 42 U.S.C. Sec. 1983; and, (3) appellants' standing to challenge Colorado's Medicaid plan. We address these issues at the start since any one of them could dispose of the case in toto.

A. Eleventh Amendment

In addition to Irene M. Ibarra, Executive Director of the State of Colorado, Department of Social Services, the hospitals have named the State of Colorado, Department of Social Services, as defendant. As previously noted, we raise the Eleventh Amendment issue sua sponte.

In this case, we must decide whether the State of Colorado may be subject to suit in federal court for alleged violations of the Medicaid Act. The State presents no arguments in support of its Eleventh Amendment defense, presumably resting on its bald assertion of the defense in the Pre-Trial Order. The district court was completely silent on the issue. However, we must address it since the Eleventh Amendment may be a jurisdictional bar to this court with respect to the State of Colorado as named defendant.

The Eleventh Amendment provides:

The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.

Even though the clear language does not so provide, the Eleventh Amendment has been interpreted to bar a suit by a citizen against the citizen's own State in Federal Court. Hans v. State of Louisiana, 134 U.S. 1, 10, 10 S.Ct. 504, 505, 33 L.Ed. 842 (1890). In essence, the fundamental principle of sovereign immunity embodied in the Eleventh Amendment limits the grant of federal jurisdiction in Article III. Welch v. Texas Dept. of Highways and Pub. Transp., 483 U.S. 468, 472, 107 S.Ct. 2941, 2945, 97 L.Ed.2d 389 (1987), citing Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 98, 104 S.Ct. 900, 906, 79 L.Ed.2d 67 (1984).

The sovereign immunity afforded by the Eleventh Amendment is not absolute. In Clark v. Barnard, 108 U.S. 436, 447, 2 S.Ct. 878, 882, 27 L.Ed. 780 (1883), the Supreme Court held that if a State waives immunity and consents to suit in federal court, the Eleventh Amendment is not a bar. However, a State may waive immunity "only where stated 'by the most express language or by such overwhelming implications from the text as [will] leave no room for any other reasonable construction.' " Edelman v. Jordan, 415 U.S. 651, 673, 94 S.Ct. 1347, 1361, 39 L.Ed.2d 662 (1974) (quoting Murray v. Wilson Distilling Co., 213 U.S. 151, 171, 29 S.Ct. 458, 464, 53 L.Ed. 742 (1909)). Furthermore, "constructive consent" is not sufficient to overcome sovereign immunity. Edelman, 415 U.S. at 673, 94 S.Ct. at 1360. In addition, the Supreme Court has held that Congress may abrogate Eleventh Amendment sovereign immunity without the State's consent. Fitzpatrick v. Bitzer, 427 U.S. 445, 456, 96 S.Ct. 2666, 2671, 49 L.Ed.2d 614 (1976...