Bethphage Lutheran Service, Inc. v. Weicker

• Decision Date: 02 June 1992
• Docket Number: D,No. 949,949
• Parties: , Medicare & Medicaid Guide P 40,323, 3 NDLR P 55 BETHPHAGE LUTHERAN SERVICE, INC., Plaintiff-Appellant, v. Lowell P. WEICKER, Jr., in his official capacity as Governor of the State of Connecticut; Toni Richardson, Commissioner, Department of Mental Retardation; Audrey Rowe, Commissioner, Department of Income Maintenance, Defendants-Appellees. ocket 91-9052.
• Court: U.S. Court of Appeals — Second Circuit

Page 1239

965 F.2d 1239

37 Soc.Sec.Rep.Ser. 458, Medicare & Medicaid Guide

P 40,323,

3 NDLR P 55

BETHPHAGE LUTHERAN SERVICE, INC., Plaintiff-Appellant, v. Lowell P. WEICKER, Jr., in his official capacity as Governor

of the State of Connecticut; Toni Richardson, Commissioner,

Department of Mental Retardation; Audrey Rowe,

Commissioner, Department of Income Maintenance, Defendants-Appellees.

No. 949, Docket 91-9052.

United States Court of Appeals, Second Circuit.

Argued Feb. 28, 1992.

Decided June 2, 1992.

Richard P. Nelson, Lincoln, Neb. (Rochelle Shana Wood, Mark R. Kravitz, Wiggin & Dana, New Haven, Conn.; Nelson Morris Holdeman & Titus, Lincoln, Neb., on the brief), for plaintiff-appellant.

Arnold I. Menchel, Asst. Atty. Gen., Hartford, Conn. (Richard Blumenthal, Atty. Gen., Richard J. Lynch, James P. Welsh, Asst. Atty. Gens., Hartford, Conn., on the brief), for defendants-appellees.

Before: LUMBARD, NEWMAN and WINTER, Circuit Judges.

JON O. NEWMAN, Circuit Judge:

Bethphage Lutheran Service, Inc. ("Bethphage"), a Connecticut not-for-profit corporation providing residential and day-care services to persons with mental retardation and other disabilities, appeals from the August 27, 1991, judgment of the United States District Court for the District of Connecticut (Alan H. Nevas, Judge) dismissing its complaint against various Connecticut officials on the ground that abstention was appropriate pursuant to the Burford doctrine. See Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). Bethphage provides services under contract with the Connecticut Department of Mental Retardation ("DMR"). The services are funded jointly by the U.S. Department of Health and Human Services and the State of Connecticut. Bethphage contended 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 federal statute. Bethphage challenges the District Court's abstention decision, contending, among other things, that state law does not afford it an adequate state court remedy and instead remits it to binding arbitration. We disagree with that view of state law and affirm the District Court's decision to abstain.

Background

A. Medicaid. Medicaid, 42 U.S.C. § 1396 et seq., 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. Participation in Medicaid is voluntary, but 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"). For a state to qualify for federal assistance, the Secretary, customarily acting through the Health Care Finance Administration ("HCFA"), 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).

By enacting the Home and Community Based Services Waiver Act ("Waiver Act"), 42 U.S.C. § 1396n(c), Congress has authorized persons with mental retardation or other developmental disabilities to receive Medicaid services in a community setting. 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, see 42 U.S.C. § 1396n(c)(3), 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).

Since July 1, 1987, the State of Connecticut has funded services for persons with mental retardation or other developmental disabilities under a waiver. The Connecticut Waiver was approved by HCFA and is administered by the Connecticut Department of Mental Retardation ("DMR"). 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 that person's needs and for the development of that person's 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.

Waiver providers are reimbursed for residential and day program services by DMR pursuant to Conn.Gen.Stat. § 17-313b and Conn. Agencies Regs. §§ 17-313b-1 through 17-313b-18. The residential and day service contracts result from negotiations between DMR and the certified provider, here Bethphage. An operations plan ("OP"), which estimates the provider's expenditures for the fiscal year and serves as the total authorized yearly expenditures, is incorporated into the signed contract. At the close of the contract year, each provider prepares and files an Audited Consolidated Operation Report ("ACOR"), which details actual expenditures. Incurred costs that exceed the contract amount are not reimbursed. Conn. Agencies Regs. § 17-313b-8(1)(i). On the other hand, if the provider has spent less than the estimated cost, the provider is required to return most or all of the difference to DMR. Conn. Agencies Regs. § 17-313b-8(1)(ii). Under the state regulations, negotiations for 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-8(v)(5).

B. The Bethphage contracts. Bethphage currently serves approximately 154 mentally retarded and developmentally disabled persons. Bethphage's programs have been licensed by DMR and certified by the Department of Income Maintenance ("DIM") for participation as a Waiver Act provider. In 1989 Bethphage entered into its first contract with DMR to provide residential and day services. 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, 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 with commensurate additions to the approved funding. If the new programs were annualized on the basis of the approved 1990-91 spending levels for those programs, the annualized OP 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.

Bethphage appealed the fiscal year 1990-91 funding shortfall to DMR in March of 1991. A hearing was held before the DMR on October 10-11, 1991. At the time of oral argument of this appeal, DMR had not yet rendered a decision.

In July 1991, DMR presented Bethphage with an approved OP for fiscal year 1991-92. The OP provides for total authorized expenditures in the amount of $7,201,004. This is a decrease of (1) $170,956 from the 1990-91 OP on an annualized period, (2) $220,000 from 1990-91 spending levels, and (3) $3,144,731 from Bethphage's requested OP.

C. The pending lawsuit. Bethphage brought this action in the District Court 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, in their official capacities. Bethphage sued pursuant to 42 U.S.C. § 1983, claiming violations of various provisions of the Medicaid Act and a denial of the right to equal protection and due process under the Fourteenth Amendment. The lawsuit concerns the proposed funding for the 1991-92 fiscal year. Bethphage argues that if it were to reduce the expenditures to the levels funded by the DMR-approved OP, then the level of its services would be substantially reduced, placing in jeopardy the health, safety, and welfare of Bethphage's clients as well as its status as a licensed and certified provider of services. ¹ Bethphage seeks (1) a declaratory judgment that defendants' actions are unlawful, (2) a preliminary injunction so that Bethphage need not accept the OP as a condition of funding, (3) a permanent injunction barring defendants from violating a variety of Bethphage's statutory and constitutional rights, and (4) a permanent injunction defining future funding levels.

The defendants moved to dismiss the complaint offering a host of arguments. They argued, among other things, that...