Bethphage Lutheran Service, Inc. v. Weicker

• Decision Date: 01 November 1991
• Docket Number: Civ. No. 2:91CV00654 (AHN).
• Citation: 777 F. Supp. 1093
• Parties: BETHPHAGE LUTHERAN SERVICE, INC. v. Lowell P. WEICKER, Jr., in his official capacity as Governor of the State of Connecticut; Toni Richardson, in her official capacity as Commissioner of the Department of Mental Retardation of the State of Connecticut; and Audrey Rowe, in her official capacity as Commissioner of the Department of Income Maintenance of the State of Connecticut.
• Court: U.S. District Court — District of Connecticut

777 F. Supp. 1093

BETHPHAGE LUTHERAN SERVICE, INC. v. Lowell P. WEICKER, Jr., in his official capacity as Governor of the State of Connecticut; Toni Richardson, in her official capacity as Commissioner of the Department of Mental Retardation of the State of Connecticut; and Audrey Rowe, in her official capacity as Commissioner of the Department of Income Maintenance of the State of Connecticut.

Civ. No. 2:91CV00654 (AHN).

United States District Court, D. Connecticut.

November 1, 1991.

Richard P. Nelson, Nelson & Morris, Lincoln, Neb., Mark R. Kravitz, Rochelle S. Wood, Wiggin & Dana, New Haven, Conn., for plaintiff.

Kenneth A. Graham, Arnold I. Menchel, Peter P. Welch, Asst. Attys. Gen., Hartford, Conn., for defendants.

MEMORANDUM OF DECISION ON DEFENDANTS' MOTION TO DISMISS

NEVAS, District Judge.

Bethphage Lutheran Service, Inc. ("Bethphage"), a Connecticut not-for-profit corporation, brings this action for preliminary and permanent injunctive relief and a declaratory judgment against Governor Lowell P. Weicker, Jr., Toni Richardson, the Commissioner of the Department of Mental Retardation, and Audrey Rowe, the Commissioner of the Department of Income Maintenance, ("the defendants") in their capacities as officials of the State of Connecticut. Bethphage contracts with the Connecticut Department of Mental Retardation ("DMR") to provide residential and day services to persons with mental retardation and other developmental disabilities. The services are funded jointly by the United States Department of Health and Human Services and the State of Connecticut. Bethphage contends that the defendants propose to fund Bethphage's 1991-92 fiscal year service contracts at a level that is inconsistent with the standards of efficiency, economy and quality of care mandated by statute. Specifically, Bethphage brings this action pursuant to 42 U.S.C. § 1983 ("section 1983"), claiming violations of (1) 42 U.S.C. § 1396a (a)(13)(A); (2) 42 U.S.C. § 1396a (a)(30)(A); (3) 42 U.S.C. § 1396a (a)(19); (4) 42 U.S.C. 1396n (c); (5) the right to equal protection under the fourteenth amendment; and (6) the right to due process under the fourteenth amendment. On August 23, 1991, the court held a hearing on the defendants' motion to dismiss the complaint pursuant to Rules 12(b)(1) and 12(b)(6), Fed.R.Civ.P. At the conclusion of the hearing the court informed the parties that it would issue a short order disposing of the motion and subsequently would issue a memorandum of decision. On August 26, 1991, the court granted the motion to dismiss. This memorandum articulates the basis of the August 26th order.

I. Background

A. Medicaid

Title XIX of the Social Security Act is popularly know as the Medicaid Act, 42 U.S.C. § 1396 et seq. Medicaid is a cooperative federal-state program through which the federal government provides financial assistance to the states so that the states may furnish medical, rehabilitation and other services to certain low-income persons. Although participation in Medicaid is voluntary, participating states must comply with certain requirements imposed by the Medicaid Act and regulations promulgated by the Secretary of Health and Human Services ("the Secretary"). The Secretary customarily acts through the Health Care Finance Administration ("HCFA"). To qualify for federal assistance the Secretary must approve a State Plan for medical assistance, 42 U.S.C. § 1396a (a), that contains a comprehensive statement describing the nature and the scope of the state's program. 42 C.F.R. § 430.10 (1989). The plan must designate a single state agency to supervise or administer the State Plan. 42 U.S.C. § 1396a (a)(5).

Congress also has authorized persons with mental retardation or other developmental disabilities to receive Medicaid services in a community setting through passage of the Home and Community Based Services Waiver Act ("Waiver Act"). 42 U.S.C. § 1396n (c). The Waiver Act excuses states from satisfying all requirements of the Medicaid Act. To qualify for a waiver, a state must develop alternative regulatory schemes aimed at lowering the cost of medical assistance while at the same time maintaining the level of care. Although the Waiver Act authorizes the Secretary to waive certain requirements of the Medicaid Act it does not authorize the Secretary to waive any sections of the Medicaid Act governing the health, safety or welfare of Medicaid recipients. Indeed, the Secretary is not authorized to grant a waiver unless the state provides additional assurances that its waiver plan includes necessary safeguards to protect the health and welfare of individuals provided services under the waiver. 42 U.S.C. § 1396n (c)(2).

B. State of Connecticut Implementation of the Waiver

Since July 1, 1987, the State of Connecticut has funded services for persons with mental retardation or other developmental disabilities under a waiver ("Connecticut Waiver"). The Connecticut Waiver was approved by HCFA and was amended to include day care services. Although the Connecticut Waiver was scheduled to expire on September 30, 1991, the defendants obtained temporary extensions. The Connecticut Waiver is administered by DMR.

C. Standards and Protections

As part of the health and welfare assurances required by the Waiver Act, the defendants have incorporated by reference numerous standards and protections afforded Connecticut residents under state law. The assurances and standards incorporated include Conn.Gen.Stat. § 17a-238 (b), which provides that each person placed under the direction of the Commissioner of Mental Retardation shall be protected from harm and receive humane and dignified treatment adequate for his or her needs and for the development of his or her full potential at all times, and Conn.Gen.Stat. § 17a-227 (b), which requires that DMR regulations insure the comfort, safety, adequate medical care and treatment of persons with mental retardation or other developmental disabilities in residential facilities.

1. Reimbursement Procedure

Waiver providers are reimbursed for residential and day program services by DMR pursuant to Conn.Gen.Stat. § 17-313b. Reimbursement for residential services is governed by Conn. Agencies Regs. § 17-313b-1 et seq. By contract and by regulation, day services are included in the same funding procedure. Conn. Agencies Regs. § 17-313b-3. The residential and day service contracts result from negotiations between DMR and the certified provider, here Bethphage. An operations plan ("OP") is incorporated into the signed contract. The OP is essentially a budget that estimates the provider's expenditures for the fiscal year. The OP is divided into three categories: program salary costs, program non-salary costs, and administrative and general costs. The total estimated expenditures in the three categories become the total authorized expenditure for the contract year. Additionally, at the close of the contract year each provider prepares and files an Audited Consolidated Operational Report ("ACOR"), which details actual expenditures. Conn. Agencies Regs. § 17-313b-8(1)(i). Incurred costs that exceed the contract amount are not reimbursed. Conversely, if the provider has spent less than the estimated cost for a category in the OP, the provider is required to return the difference to DMR. Conn. Agencies Regs. § 17-313b-8(1)(ii). Finally, excess costs of not more than 10% of a particular category can be funded from amounts not expended in another category.

2. Negotiations for a New Contract

Under the state regulations, negotiations for new provider contracts must be based upon information contained in the most recent ACOR, the provider's OP and other relevant information. Conn. Agencies Regs. § 17-313b-6(5).

D. The Present Action

Bethphage is a charitable organization that is affiliated with the Evangelical Lutheran Church in America. Bethphage's mission is to provide services to mentally retarded and developmentally disabled persons. Bethphage currently serves approximately 154 mentally retarded and developmentally disabled persons. At all relevant times, Bethphage programs have been licensed by DMR and certified by the Department of Income Maintenance for participation as a Waiver Act provider.

Effective July 1, 1989, Bethphage entered into its first contracts with DMR to provide residential and day services to persons with mental retardation or other developmental disabilities. In the first year of operation, Bethphage instituted cost containment measures which, compared with the previous provider, reduced costs on an annualized basis by $1,185,000. Nevertheless, Bethphage incurred a loss of more than $400,000 over the amount of funding initially approved for it by DMR. Accordingly, DMR made a supplemental grant of nearly $300,000 for the 1989-90 fiscal year, reducing Bethphage's operating loss to approximately $120,000.

The OP approved by DMR for fiscal year 1990-91 was in the original amount of $6,812,055. Several new programs were added to the OP during the year and the total DMR-approved fiscal 1990-91 OP was $7,139,422. If the new programs were annualized on the basis of the approved 1990-91 spending levels for those programs, the annualized OP for those services would be $7,371,960. During the 1990-91 fiscal year Bethphage instituted additional cost containment measures that resulted in a reduction in costs of approximately $69,000, compared with the previous year's costs. Again, Bethphage incurred an operating loss for the year, based upon unaudited figures, of approximately $220,000.¹ In spite of repeated requests by Bethphage, DMR refused to include in the fiscal year 1990-91 funding for the expenses covered by the fiscal year 1989-90 supplemental grant.

Bethphage appealed the fiscal year 1990-91 funding shortfall to DMR in March of 1991. On May 10, 1991, counsel for DMR and Bethphage held a pre-hearing conference. During the course of the next several months, counsel for DMR...