Chase Brexton Health Services, Inc. v. Maryland

• Decision Date: 09 June 2005
• Docket Number: No. 04-1710.,04-1710.
• Citation: 411 F.3d 457
• Parties: CHASE BREXTON HEALTH SERVICES, INCORPORATED; Choptank Community Health System, Incorporated; Community Clinic, Incorporated; Park West Health System, Incorporated; People's Community Health Center, Incorporated; Three Lower Counties Community Health Services, Incorporated; Total Health Care, Incorporated, Plaintiffs-Appellants, v. The State of MARYLAND, Department of Health and Mental Hygiene, Defendant-Appellee, and Nelson Sabatini, Secretary, State of Maryland Department of Health and Mental Hygiene, Defendant.
• Court: U.S. Court of Appeals — Fourth Circuit

411 F.3d 457

CHASE BREXTON HEALTH SERVICES, INCORPORATED; Choptank Community Health System, Incorporated; Community Clinic, Incorporated; Park West Health System, Incorporated; People's Community Health Center, Incorporated; Three Lower Counties Community Health Services, Incorporated; Total Health Care, Incorporated, Plaintiffs-Appellants, v. The State of MARYLAND, Department of Health and Mental Hygiene, Defendant-Appellee, and Nelson Sabatini, Secretary, State of Maryland Department of Health and Mental Hygiene, Defendant.

No. 04-1710.

United States Court of Appeals, Fourth Circuit.

Argued March 17, 2005.

Decided June 9, 2005.

COPYRIGHT MATERIAL OMITTED

ARGUED: James Leo Feldesman, Feldesman Tucker Leifer Fidell, L.L.P., Washington, D.C., for Appellants. Joel Lewis Tornari, Office of the Attorney General of Maryland, Department of Health & Mental Hygiene, Baltimore, Maryland, for Appellee. ON BRIEF: Kathy S. Ghiladi, Feldesman Tucker Leifer Fidell, L.L.P., Washington, D.C., for Appellants. J. Joseph Curran, Jr., Attorney General of Maryland, Elizabeth M. Kameen, Assistant Attorney General, Baltimore, Maryland, for Appellee.

Before WILKINS, Chief Judge, NIEMEYER, Circuit Judge, and WILSON, United States District Judge for the Western District of Virginia, sitting by designation.

Vacated and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Chief Judge WILKINS and Judge WILSON joined.

OPINION

NIEMEYER, Circuit Judge.

Seven healthcare providers commenced this action under 42 U.S.C. § 1983 against the Secretary of the Maryland Department of Health and Mental Hygiene, challenging Maryland's method for reimbursing plaintiffs under Maryland's Medicaid plan on the basis that the method violated the federal Medicaid law. They seek a declaratory judgment and injunctive relief.

Invoking the abstention doctrine in Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976), the district court stayed this action in favor of related and pending Maryland administrative proceedings involving two of the healthcare providers and other related Maryland administrative proceedings commenced after this action was commenced.

Because we conclude that this action does not meet the criteria for Colorado River abstention, we vacate the district court's stay order and remand for further proceedings.

I

Chase Brexton Health Services, Inc.; Choptank Community Health System, Inc.; Community Clinic, Inc.; Park West Health System, Inc.; People's Community Health Center, Inc.; Three Lower Counties Community Health Services, Inc.; and Total Health Care, Inc. are healthcare providers that have qualified under the Medicaid program to provide healthcare services to low-income individuals in Maryland in exchange for reimbursement from Medicaid funds. The Medicaid program is a cooperative federal-state program through which the United States provides financial assistance to participating States to enable them to pay for healthcare services rendered to those otherwise unable to afford healthcare. States electing to participate in the program must comply with requirements imposed by federal law and have an approved "State Medicaid plan," under which qualified healthcare providers are reimbursed for the services they render. See 42 U.S.C. § 1396a(a).

The methods for reimbursement provided by federal law have changed over the years. Between 1989 and 1997, the federal Medicaid law required States to reimburse qualified healthcare providers for "100 percent of costs which are reasonable and related to the cost of furnishing such services or based on such other tests of reasonableness as the Secretary prescribes in regulations." Pub.L. No. 101-239, § 6404(a), (c), 103 Stat. 2106, 2264 (1989) (originally codified as 42 U.S.C. § 1396a(a)(13)(E)). From 1997 until 2000, the federal Medicaid law required States to reimburse qualified healthcare providers for "100 percent (or 95 percent for services furnished during fiscal year 2000 ...) of costs which are reasonable and related to the cost of furnishing such services or based on such other tests of reasonableness as the Secretary prescribes in regulations." Pub.L. No. 105-33, § 4712(a), 111 Stat. 251, 508 (1997) (originally codified as 42 U.S.C. § 1396a(a)(13)(C)). Finally, at the end of 2000, Congress amended federal law to require States to implement prospective payment systems for funding qualified healthcare providers. The prospective payments prescribed, however, are based on a "reasonable cost" reimbursement requirement similar to the requirements previously applied. The reasonable cost requirement instructs States to start with a base amount equal to "an amount (calculated on a per visit basis) that is equal to 100 percent of the average of the costs of the center or clinic of furnishing such services during fiscal years 1999 and 2000 which are reasonable and related to the cost of furnishing such services, or based on such other tests of reasonableness as the Secretary prescribes in regulations." Pub.L. No. 106-554, § 1(a)(6), 114 Stat. 2763, 2763, 2763A-572-73 (2000) (currently codified as 42 U.S.C. § 1396a(bb)(2)). For every year after 2001, the reimbursement level increases from that base amount by a predetermined percentage. 42 U.S.C. § 1396a(bb)(3).

In June 2000, People's Community Health Center, Inc. and Community Clinics, Inc., two of the appellants in this case, filed administrative appeals with the Maryland Department of Health and Mental Hygiene ("Maryland Department of Health"), disputing Maryland's determination of their reimbursement amounts for their fiscal years 1996-1998. These two healthcare providers contended that an administrative cap and a rate ceiling imposed by Maryland violated the federal law that required the reimbursement of all of the healthcare providers' reasonable costs. A Maryland administrative law judge conducted a hearing on the two appeals and, on March 24, 2003, issued a proposed order concluding that "Maryland's regulation providing for an administrative cap, as applied [,] conflicted with Federal law and [was] arbitrary and capricious" but that the evidence was insufficient to conclude that the rate ceiling was illegal. The Maryland Department of Health filed exceptions to the proposed order in April 2003, and, the Secretary of the Maryland Department of Health has, as counsel for Maryland have informally advised the court, issued a final decision reversing the administrative law judge. The Secretary's decision is now before the Maryland Board of Review, which, according to counsel for Maryland, is the "last stop" in the Maryland administrative process before appellants are given access to Maryland courts.

While the appeals of the two healthcare providers were pending before the Maryland Department of Health, the seven healthcare providers named above commenced this action on May 27, 2003, against the Maryland Department of Health and Nelson J. Sabatini in his official capacity as Secretary of the Maryland Department of Health. The seven healthcare providers requested: (1) an injunction requiring the Maryland Department of Health to implement the "prospective payment system" required by Congress in 2000; (2) a declaration that the Maryland Department of Health's use of the administrative cap and rate ceiling before enactment of the prospective payment system at the end of 2000 violated the reasonable cost requirements of federal law; (3) an injunction prohibiting the Maryland Department of Health from using the administrative cap and rate ceiling in reaching a final settlement for the years 1999 and 2000; and (4) an injunction prohibiting the Maryland Department of Health from using the administrative cap and rate ceiling in calculating the per-visit rates for 1999 and 2000 that are to be used in setting the prospective payment rates for the years after 2000.

After this action was commenced and while it was pending, the Maryland Department of Health determined the prospective payment rates for each qualified healthcare provider, and the seven healthcare providers in this case appealed those determinations administratively, contending that those rates also violated federal law because they incorporated an administrative cap and rate ceiling in the calculations of the base 1999 and 2000 rates. Counsel for Maryland have informally advised this court that an administrative law judge has held a hearing on those appeals and issued a proposed order upholding the prospective rate determinations made by the Maryland Department of Health. That order remains pending within the state administrative process.

In this action, upon Maryland's motion to dismiss or for summary judgment, the district court dismissed the healthcare providers' claims against the Maryland Department of Health on sovereign immunity grounds, leaving the providers' claims pending against the Secretary of the Maryland Department of Health. The district court also dismissed the healthcare providers' first claim — that the Maryland Department of Health failed to implement a prospective payment system — because, as of the time the court considered the motion, the Maryland Department of Health had established such a system. With respect to the healthcare providers' second claim — that the administrative cap and rate ceiling applied by the Maryland Department of Health violated federal law — the district court stayed the proceedings pending the outcome of state administrative proceedings, relying on Colorado River Water Conservation District v. United States, 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976).

The healthcare providers appeal only the district court's stay order.

II

In applying Colorado River abstention to stay the proceedings in this case, the district court considered as parallel state proceedings not only the two administrative appeals filed before the commencement of this action but also the...