California Hosp. Ass'n v. Schweiker, CV 82-0297-CHH (JRx)

• Decision Date: 23 June 1982
• Docket Number: No. CV 82-0297-CHH (JRx),CV 82-0991-CHH (Px) and CV 82-684-CHH (JRx).,CV 82-0297-CHH (JRx)
• Citation: 559 F. Supp. 110
• Parties: CALIFORNIA HOSPITAL ASSOCIATION, a nonprofit California corporation; White Memorial Medical Center, a nonprofit California corporation, Plaintiffs, v. Richard SCHWEIKER, Secretary of Health and Human Services; Beverlee A. Myers, Director of Department of Health Services, State of California, Defendants. UNITED HOSPITAL ASSOCIATION, a nonprofit corporation, Plaintiff, v. STATE DEPARTMENT OF HEALTH SERVICES, State of California, Defendant. CHILDREN'S HOSPITAL MEDICAL CENTER OF NORTHERN CALIFORNIA, et al., Plaintiffs, v. STATE OF CALIFORNIA, et al., Defendants.
• Court: U.S. District Court — Central District of California

559 F. Supp. 110

CALIFORNIA HOSPITAL ASSOCIATION, a nonprofit California corporation; White Memorial Medical Center, a nonprofit California corporation, Plaintiffs, v. Richard SCHWEIKER, Secretary of Health and Human Services; Beverlee A. Myers, Director of Department of Health Services, State of California, Defendants.

UNITED HOSPITAL ASSOCIATION, a nonprofit corporation, Plaintiff, v. STATE DEPARTMENT OF HEALTH SERVICES, State of California, Defendant.

CHILDREN'S HOSPITAL MEDICAL CENTER OF NORTHERN CALIFORNIA, et al., Plaintiffs, v. STATE OF CALIFORNIA, et al., Defendants.

Nos. CV 82-0297-CHH (JRx), CV 82-0991-CHH (Px) and CV 82-684-CHH (JRx).

United States District Court, C.D. California.

June 23, 1982.

Musick, Peeler & Garrett, Charles F. Forbes, James E. Bertero, Thomas B. Curtis, Los Angeles, Cal., for Cal. Hospital Ass'n & White Memorial Center.

George Deukmejian, Atty. Gen., Anne S. Pressman, Barbara M. Motz, Deputy Attys. Gen., Los Angeles, Cal., for defendants Beverlee A. Myers and State Dept. of Health Services.

Weissburg & Aronson, Patric Hooper, Mark Windisch, Los Angeles, Cal., for United Hospital Ass'n.

Hanson, Bridgett, Marcus, Vlahos & Stromberg, Michael Duncheon, San Francisco, Cal., for Children's Hospital.

Stephen S. Trott, U.S. Atty., Frederick M. Brosio, Jr., Asst. U.S. Atty., Chief, Civ. Div., Carolyn M. Reynolds, Ian Fan, Asst. U.S. Attys., Los Angeles, Cal., for Federal defendant.

CYNTHIA HOLCOMB HALL, District Judge.

JUDGMENT GRANTING

PERMANENT INJUNCTION

IT IS ORDERED, ADJUDGED AND DECREED, based upon the Findings of Fact and Conclusions of Law filed June 23, 1982, that implementation of the State Plan Amendment is unlawful and is enjoined until such time as the State Department of Health Services makes a finding in compliance with statutory and regulatory requirements as to the reasonableness and adequacy of the proposed rates to meet the costs of efficiently and economically operated hospitals, submits an assurance to the Department of Health and Human Services that it has made such a finding, and receives Department of Health and Human Services approval.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

FINDINGS OF FACT

1. The State of California participates in the Medicaid program established by the Medicaid Act, Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., under which federal funding is provided for qualified state programs to furnish medical assistance to certain persons of low income. California's qualified Medicaid plan is called Medi-Cal. Amendments to California's plan require federal approval. The Department of Health Services of the State of California ("State DHS") cannot implement such changes without federal approval, since doing so would mean loss of federal funding.

2. Plaintiff California Hospital Association ("CHA") is a non-profit corporation, organized and existing under the laws of the State of California, with its principal offices in Sacramento, California. CHA is a state hospital association representing over 500 member hospitals in the State of California and brings this action on behalf of its aggrieved member hospitals, most of which participate in the Medi-Cal program.

3. Plaintiff White Memorial Medical Center ("White") is a non-profit corporation, organized and existing under the laws of the State of California, with its principal place of business in Los Angeles, California. White is a provider of inpatient hospital services under the Medi-Cal program.

4. Plaintiff United Hospital Association ("UHA") is a non-profit corporation, organized and existing under the laws of the State of California. UHA is an association of approximately 130 hospitals located throughout California and is organized for the purpose of representing its members in matters of common concern. UHA brings this action on behalf of its member hospitals.

5. Plaintiffs Children's Hospital Medical Center of Northern California, Children's Hospital of Los Angeles, Valley Children's Hospital and Guidance Clinic of Fresno, Children's Hospital and Health Center of San Diego and Children's Hospital of Orange County (collectively "Children's Hospitals") are all non-profit corporations organized and existing under the laws of the State of California. Children's Hospitals are providers of inpatient hospital services under the Medi-Cal program.

6. Defendant Richard Schweiker ("Secretary") is the Secretary of the Department of Health and Human Services ("DHHS"), the federal agency charged with responsibility for the administration of the federal Medicaid program. Defendant Carolyn K. Davis ("Administrator") is the Administrator of the Health Care Financing Administration ("HCFA"). HCFA is responsible for the review and approval of state Medicaid plans and plan amendments.

7. Defendant Beverlee A. Myers ("Director") is the Director of the State DHS, the single state agency charged with responsibility for the administration of Medi-Cal pursuant to 42 C.F.R. § 431.10. Defendant Mary Ann Graves is the Director of the Department of Finance of the State of California. Defendant Kenneth Cory is the Controller of the State of California.

8. State Medicaid programs, including Medi-Cal, are required to reimburse hospitals for inpatient services in accordance with federal Medicaid law and the regulations implementing that law. Prior to August 31, 1981, the federal Medicaid Act required that states pay providers the "reasonable cost" of rendering inpatient hospital services.

9. On August 13, 1981, section 2173 of the Omnibus Budget Reconciliation Act of 1981, Pub.L. No. 97-35 Stat. 808-809 ("OBRA") amended the Medicaid provisions for determining reimbursement for inpatient hospital services. Among the changes was the removal of the requirement to pay the reasonable cost of inpatient services and the substitution of the requirement that a state pay for inpatient services:

Through the use of rates (determined in accordance with methods and standards developed by the State) and which, in the case of hospitals, take into account the situation of hospitals which serve a disproportionate number of low income patients with special needs and provide, in the case of hospital patients receiving services at an inappropriate level of care ..., for lower reimbursement rates reflecting the level of care actually received ... which the State finds, and makes assurances satisfactory to the Secretary, 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, regulations, and quality and safety standards and to assure that individuals eligible for medical assistance have reasonable access (taking into account geographic location and reasonable travel time) to inpatient hospital services of adequate quality; ...

42 U.S.C. § 1396a(a)(13)(A) as amended.

10. On September 30, 1981, DHHS, through HCFA, published regulations implementing 42 U.S.C. § 1396a(a)(13)(A) ("DHHS regulations"). The DHHS regulations were published as amendments to 42 C.F.R. Part 447. Federal Register Vol. 46, No. 189, at 47971-47973, September 30, 1981. Those regulations provide in pertinent part:

"447.250 Basis and purpose.

Sections 447.251 through 447.265 of this subpart implement section 1902(a)(13)(A) of the Act, which requires that the State plan provide for payment for hospital ... services through the use of rates that the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated facilities to provide services in conformity with State and Federal laws, regulations, and quality and safety standards."

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"447.252 General requirements.

(a) Payment rates. (1) The Medicaid agency must pay for inpatient hospital services and long-term care facility services through the use of rates that are reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards.

(2) The payment rates used by the Medicaid agency must be determined in accordance with methods and standards developed by the agency.

(3) With respect to inpatient hospital services—

(i) The methods and standards used to determine payment rates must take into account the situation of hospitals which serve a disproportionate number of low income patients with special needs; ...

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(iii) The payment rates for such services must be adequate to assure that recipients have reasonable access, taking into account geographic location and reasonable travel time, to inpatient hospital services of adequate quality.

(b) State findings. The Medicaid agency must find that the rates used to reimburse providers satisfy the requirements of paragraphs (a)(1) and (a)(3) of this section.

(c) State assurances. The Medicaid agency must make assurances satisfactory to the Secretary that the requirements of paragraphs (a)(1), (a)(3)(iii), (b), and (f) of this section are met and that, in making significant changes in its methods and standards for determining payment rates, it has complied with the public notice requirements in § 447.254.

(d) Submittal of assurances and related information. The Medicaid agency must comply with the requirements regarding submittal of assurances and related information in § 447.255...."

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"447.253 State plan requirements.

(a) The plan must provide that the requirements of this subpart are met.

(b) The plan must specify the methods and standards used by the agency to set payment rates....

(d) The plan must provide that the agency will make the findings and submit the assurances and related information to HCFA, as required under §§ 447.252 and 447.255."

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"447.255 Submittal of assurances and...