Arkansas Medical Soc., Inc. v. Reynolds

• Decision Date: 20 April 1993
• Docket Number: No. LR-C-92-429.,LR-C-92-429.
• Parties: ARKANSAS MEDICAL SOCIETY, INC., et al., Plaintiffs, v. Jack REYNOLDS, Director, Department of Human Services, State of Arkansas, Defendant.
• Court: U.S. District Court — Eastern District of Arkansas

819 F. Supp. 816

ARKANSAS MEDICAL SOCIETY, INC., et al., Plaintiffs, v. Jack REYNOLDS, Director, Department of Human Services, State of Arkansas, Defendant.

No. LR-C-92-429.

United States District Court, E.D. Arkansas, W.D.

April 20, 1993.

COPYRIGHT MATERIAL OMITTED

Michael W. Mitchell, and David L. Ivers, Mitchell, Blackstock, Simmons, and Barnes, Little Rock, AR, for plaintiffs.

Debby Thetford Nye, Chief Counsel, DHS Office of Chief Counsel, Little Rock, AR, for defendant.

MEMORANDUM OPINION AND ORDER

SUSAN WEBBER WRIGHT, District Judge.

To balance Arkansas' Medicaid budget in fiscal year 1993, the Arkansas Department of Human Services (DHS) reduced reimbursement rates to various Medicaid providers by 20% and implemented certain cost-sharing provisions. The plaintiffs, who include both Medicaid providers and recipients, filed suit under 42 U.S.C. § 1983 claiming these actions violate federal Medicaid laws under Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. For the reasons that follow, the Court finds the reduction in reimbursement rates and implementation of the cost-sharing provisions are not in accordance with the requirements of the federal Medicaid laws and, therefore, are invalid.¹

I.

Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., commonly known as the Medicaid Act, is a federal-state cooperative program designed to provide medical assistance to persons whose income and resources are insufficient to meet the costs of medical care. The program is financed by both the federal and state governments. Under this system of "cooperative federalism," if a State agrees to establish a Medicaid plan that satisfies the requirements of Title XIX, which include several mandatory categories of health services, the federal government agrees to pay a specified percentage of the total amount expended as medical assistance under the State plan. Harris v. McRae, 448 U.S. 297, 308, 100 S.Ct. 2671, 2683-84, 65 L.Ed.2d 784 (1980) (citation omitted). A state's participation in the Medicaid program is voluntary, but once a state chooses to participate it must comply with federal statutory and regulatory requirements. Id. at 301, 100 S.Ct. at 2680; Weaver v. Reagen, 886 F.2d 194, 197 (8th Cir.1989).

The Department of Health and Human Services (HHS) is the federal agency charged with administering the federal Medicaid program and has delegated much of this responsibility to the federal Health Care Financing Administration (HCFA). To qualify for federal reimbursement, the Medicaid Act requires each state to submit its Medicaid plan to the federal government, specifically HCFA, for approval. 42 U.S.C. § 1396a. 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 Department." 42 C.F.R. § 430.10. HCFA's review is of a cursory nature. The agency reviews only the state's assurances. It does no substantive review of its own and does not require states to submit findings or underlying data. AMISUB (PSL) v. Colorado Dept. of Social Services, 879 F.2d 789, 800 (10th Cir.1989), cert. denied, 496 U.S. 935, 110 S.Ct. 3212, 110 L.Ed.2d 660 (1990).

Each state's Medicaid program, if it elects to have one, must be administered by a single state agency. 42 U.S.C. § 1396a(a)(5); 42 C.F.R. § 431.10. DHS, formerly under the direction of Jack Reynolds,² is the state agency responsible for administering the Medicaid program in the State of Arkansas. The Division of Economic and Medical Services is the division within DHS directly responsible for administering the state's medical assistance programs, including the Medicaid program. The Director of the Division is Kenny Whitlock, and the Director of the Medicaid program is Ray Hanley, who reports to Mr. Whitlock.

II.

Plaintiffs claim that DHS violated the procedural and substantive requirements of federal law and the Administrative Procedure Act under Arkansas law. Plaintiffs seek injunctive, declaratory and other appropriate relief restraining DHS from imposing any reduction in reimbursement rates to physicians and other noninstitutional health care providers and from imposing any cost-sharing (co-payment or co-insurance) on Medicaid recipients. Plaintiffs also seek mandatory injunctive relief requiring DHS to develop standards and methods to be used in setting payment rates to assure that payments to health care providers are consistent with federal law.

Following a hearing on July 20, 1992, this Court issued a verbal order enjoining DHS from implementing the 20% reduction in reimbursement rates (which became effective on July 1, 1992) with respect to obstetrical and pediatric care, and in speech, physical, and occupational therapy for children pending a trial on the merits. The Court subsequently issued an order incorporating the verbal order in writing and denying DHS's motion for reconsideration. See Memorandum and Order, August 18, 1992. Additional hearings to determine whether the preliminary injunction should be extended to other areas of the Medicaid program were held on August 18 and 19, 1992. By Memorandum and Order dated November 5, 1992, the Court declined to extend the injunction to other areas.

The trial on the merits began on November 30, 1992 and concluded on December 3, 1992. Although the Court previously declined to extend the injunction, the Court's task at this point is different. The Court must now determine whether, as a final matter, DHS is in violation of the federal Medicaid laws.

A.

As a preliminary matter, the Court addresses DHS's claim that this matter is moot with respect to the areas of obstetrics and pediatrics. Two days before the trial on the merits, DHS informed plaintiffs that it had withdrawn the plan imposing a 20% cut on obstetrical and pediatric services, apparently because of a letter from HCFA expressing concern over the rate reduction in these areas. See Plaintiff's Exhibit 68. In the letter, HCFA requested "additional or clarifying information" from DHS concerning, inter alia, any adverse affect on provider participation. Id. As a result of HCFA's concerns, DHS, in a letter dated November 25, 1992, requested to withdraw State Medicaid Plan TN 92-30 (which reflects the revisions in obstetrical and pediatric payment rates). See Defendant's Exhibit 115. In addition, Mr. Hanley stated at trial that DHS has no plans to again seek a reduction in reimbursement rates in these areas. DHS argues that in withdrawing TN 92-30, the issue of reducing obstetrical and pediatric payment rates became moot. The Court disagrees.

"A case is moot when the issues presented are no longer `live' or the parties lack a legally cognizable interest in the outcome." Steele v. Van Buren Public School Dist., 845 F.2d 1492, 1494 (8th Cir.1988) (quoting Powell v. McCormack, 395 U.S. 486, 496-97, 89 S.Ct. 1944, 1951, 23 L.Ed.2d 491 (1969)). DHS's withdrawal of TN 92-30 and its disavowal of intent to seek a 20% reduction in reimbursement rates with respect to obstetrical and pediatric services is not sufficient to moot the case as to these areas.

Voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case, i.e., does not make the case moot. A controversy may remain to be settled in such circumstances, e.g., a dispute over the legality of the challenged practices. The defendant is free to return to his old ways. This, together with a public interest in having the legality of the practices settled, militates against a mootness conclusion.

Steele, 845 F.2d at 1494 (quoting United States v. W.T. Grant Co., 345 U.S. 629, 632-33, 73 S.Ct. 894, 897, 97 L.Ed. 1303 (1953)). See also City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 289, 102 S.Ct. 1070, 1074, 71 L.Ed.2d 152 (1982) ("It is well settled that a defendant's voluntary cessation of a challenged practice does not deprive a federal court of its power to determine the legality of the practice").

While a case may nevertheless be moot if the defendant can demonstrate that "there is no reasonable expectation that the wrong will be repeated," the defendant's burden "is a heavy one." Steele, 845 F.2d at 1494 (quoting United States v. W.T. Grant Co., 345 U.S. at 632-33, 73 S.Ct. at 897). Here, DHS has not met its burden. DHS maintains the continuing authority to seek an amendment to the state plan to reduce reimbursement rates for obstetrical and pediatric care. DHS's withdrawal of TN 92-30 would thus not preclude it from later seeking a reduction in payment rates for these services by submitting an amendment to the plan with the same or similar deficiencies (which will be discussed infra) should the Court accept DHS's mootness argument. Indeed, notwithstanding testimony to the contrary, Mr. Whitlock's November 25 letter to HCFA indicates that DHS plans to again seek a reduction in obstetrical and pediatric reimbursement rates:

In response to your letter dated September 21, 1992, and following the program staff's telephone conversations, it has been determined that currently we do not have access data to demonstrate access patterns as your office is requiring to support the use of these geographic regions. We will develop supplemental data to cover this and it will be part of future submissions of obstetrical and pediatric payment rates.

Defendant's Exhibit 115 (emphasis supplied).

Because DHS's intentions with respect to reimbursement rates in the areas of obstetrics and pediatrics are ambiguous, and considering the continuing ability of DHS to amend the plan, the Court does not find this matter to be moot.

B.

Plaintiffs raise two interrelated federal claims which this Court finds are meritorious. They allege the Medicaid...