Christ the King Manor, Inc. v. Sec'y U.S. Dep't of Health & Human Servs.

• Decision Date: 19 September 2013
• Docket Number: Nos. 12–3401,12–3501.,s. 12–3401
• Citation: 730 F.3d 291
• Court: U.S. Court of Appeals — Third Circuit
• Parties: CHRIST THE KING MANOR, INC.; Baldock Associates, d/b/a Baldock Health Care Center; Bonham Nursing Center; Briarleaf Nursing and Convalescent Center, Inc.; Brookmont Health Care Center, LLC; Cathedral Village; Ellen Memorial Health Care Center–Honesdale, Inc.; Greenleaf Nursing and Convalescent Center, Inc.; Humbert Lane Associates, d/b/a Humbert Lane Nursing and Rehabilitation Center; Jewish Home of Greater Harrisburg; Kinkora Pythian Home Corporation; Kutztown Manor, Inc.; Misericordia Convalescent Home; CPSR Associates, LLC, d/b/a Mon Valley Care Center; Pickering Manor Home; 4144 Schaper Avenue Operating Company, LLC, d/b/a Presque Isle Rehabilitation & Nursing Center; Rheems Nursing and Rehabilitation, LLC; Residence for Rental Care at Shadyside, Ltd.; Perini Service/Southampton Manor Limited, d/b/a Shippensburg Health Care Center; Siemon Nursing Home, Inc.; Windsor, Inc., d/b/a Snyder Memorial Health Care Center; Southwestern Group, Ltd, d/b/a Southwestern Nursing Center; Carbon–Schuylkill Community Hospital, Inc., d/b/a St. Luke's Miners Memorial Geriatric Center; Susquehanna Valley Nursing and Rehabilitation Center, LLC; 890 Weatherwood Lane Operating Company, LLC, d/b/a The Rehabilitation and Nursing Center at Greater Pittsburgh; Westwood Operator, L.P., d/b/a Village at Pennwood; Misericordia Convalescent Home v. SECRETARY UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; Charlene Frizzera, in her official capacity as Acting Administrator of the Centers for Medicare & Medicaid Services (CMS); Harriet Dichter, in her official capacity as Secretary of Public Welfare for the Commonwealth of Pennsylvania, Department of Public Welfare Christ The King Manor, Inc.; Bonham Nursing Center; Cathedral Village; Ellen Memorial Health Care Center–Honesdale, Inc.; Susquehanna Valley Nursing And Rehabilitation Center, LLC; Rheems Nursing & Rehabilitation, LLC Southwestern Group, Ltd. d/b/a Southwestern Nursing Center; CPSR Associates, LLC d/b/a Mon Valley Care Center; Kinkora Pythian Home Corp.; Siemon Nursing Home, Inc.d/b/a Siemon's Lakeview Manor Estate; 4114 Schaper Avenue Operating Co., LLC d/b/a Presque Isle Rehabilitation & Nursing Center; 890 Weatherwood Lane Operating Company, LLC d/b/a The Rehabilitation and Nursing center at Greater Pittsburgh; Briarleaf Nursing & Convalescent Center, Inc.; Brookmont Health Care Center; Kutztown Manor, Inc.; Greenleaf Nursing and Covalescent Center; Windsor, Inc. d/b/a Snyder memorial Health Care Center; Carbon–Schuylkill Community Hospital, Inc. d/b/a St. Luke's Miner's Memorial Geriatric Center; Pickering Manor Home, Appellants in 12–3401 Baldock Associates, d/b/a Baldock Health Care Center; Humbert Lane Associates, d/b/a Humbert Lane Nursing and Rehabilitation Center, Appellants in 12–3501.

730 F.3d 291

CHRIST THE KING MANOR, INC.; Baldock Associates, d/b/a Baldock Health Care Center; Bonham Nursing Center; Briarleaf Nursing and Convalescent Center, Inc.; Brookmont Health Care Center, LLC; Cathedral Village; Ellen Memorial Health Care Center–Honesdale, Inc.; Greenleaf Nursing and Convalescent Center, Inc.; Humbert Lane Associates, d/b/a Humbert Lane Nursing and Rehabilitation Center; Jewish Home of Greater Harrisburg; Kinkora Pythian Home Corporation; Kutztown Manor, Inc.; Misericordia Convalescent Home; CPSR Associates, LLC, d/b/a Mon Valley Care Center; Pickering Manor Home; 4144 Schaper Avenue Operating Company, LLC, d/b/a Presque Isle Rehabilitation & Nursing Center; Rheems Nursing and Rehabilitation, LLC; Residence for Rental Care at Shadyside, Ltd.; Perini Service/Southampton Manor Limited, d/b/a Shippensburg Health Care Center; Siemon Nursing Home, Inc.; Windsor, Inc., d/b/a Snyder Memorial Health Care Center; Southwestern Group, Ltd, d/b/a Southwestern Nursing Center; Carbon–Schuylkill Community Hospital, Inc., d/b/a St. Luke's Miners Memorial Geriatric Center; Susquehanna Valley Nursing and Rehabilitation Center, LLC; 890 Weatherwood Lane Operating Company, LLC, d/b/a The Rehabilitation and Nursing Center at Greater Pittsburgh; Westwood Operator, L.P., d/b/a Village at Pennwood; Misericordia Convalescent Home

v. SECRETARY UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; Charlene Frizzera, in her official capacity as Acting Administrator of the Centers for Medicare & Medicaid Services (CMS); Harriet Dichter, in her official capacity as Secretary of Public Welfare for the Commonwealth of Pennsylvania, Department of Public Welfare Christ The King Manor, Inc.; Bonham Nursing Center; Cathedral Village; Ellen Memorial Health Care Center–Honesdale, Inc.; Susquehanna Valley Nursing And Rehabilitation Center, LLC; Rheems Nursing & Rehabilitation, LLC Southwestern Group, Ltd. d/b/a Southwestern Nursing Center; CPSR Associates, LLC d/b/a Mon Valley Care Center; Kinkora Pythian Home Corp.; Siemon Nursing Home, Inc.d/b/a Siemon's Lakeview Manor Estate; 4114 Schaper Avenue Operating Co., LLC d/b/a Presque Isle Rehabilitation & Nursing Center; 890 Weatherwood Lane Operating Company, LLC d/b/a The Rehabilitation and Nursing center at Greater Pittsburgh; Briarleaf Nursing & Convalescent Center, Inc.; Brookmont Health Care Center; Kutztown Manor, Inc.; Greenleaf Nursing and Covalescent Center; Windsor, Inc. d/b/a Snyder memorial Health Care Center; Carbon–Schuylkill Community Hospital, Inc. d/b/a St. Luke's Miner's Memorial Geriatric Center; Pickering Manor Home, Appellants in 12–3401Baldock Associates, d/b/a Baldock Health Care Center; Humbert Lane Associates, d/b/a Humbert Lane Nursing and Rehabilitation Center, Appellants in 12–3501.

Nos. 12–3401, 12–3501.

United States Court of Appeals, Third Circuit.

Argued: May 31, 2013.

Filed: Sept. 19, 2013.

Recognized as Unconstitutional

42 U.S.C.A. § 1396c

Daniel K. Natirboff [Argued], Capozzi & Associates, Harrisburg, PA, for Appellants.

Sheila Lieber, Jeffrey E. Sandberg, [Argued], United States Dep't of Justice, Washington, DC, for Appellees.

Patrick S. Crawley, Sean A. Kirkpatrick, [Argued], Office of Attorney General of Pennsylvania, Harrisburg, PA, for Appellee Harriet Dichter.

Before: JORDAN and VANASKIE, Circuit Judges, and RAKOFF ^*, Senior District Judge.

OPINION OF THE COURT

JORDAN, Circuit Judge.

This appeal arises from a challenge to the approval by the Secretary of the United States Department of Health and Human Services (“the Secretary” or “HHS”) of a 2008 amendment to Pennsylvania's state plan for administering its Medicaid program. Numerous private nursing facilities that provide services to Medicaid recipients argue that the state plan amendment, or “SPA,” violates Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. (the “Medicaid Act” or the “Act”). Specifically, they contend that the SPA adjusted Pennsylvania's method for determining Medicaid reimbursement rates to private nursing facilities for the 2008–09 fiscal year without considering quality of care, which they say violates 42 U.S.C. § 1396a(a)(30)(A) (“Section 30(A)”), and without satisfying the public process requirements of 42 U.S.C. § 1396a(a)(13)(A) (“Section 13(A)”). To remedy those alleged violations, Plaintiffs invoke the Administrative Procedure Act (the “APA”) and the Supremacy Clause of the Constitution,and seek declaratory and injunctive relief against the Secretary, the Administrator of the Centers for Medicare and Medicaid Services (“CMS”) (collectively, the “Federal Defendants”), and the Secretary of Pennsylvania's Department of Public Welfare (“DPW” or the “State Defendant”).¹ The District Court granted in part the Defendants' motions to dismiss, and then entered summary judgment in their favor on the remaining claims. For the reasons that follow, we will affirm those rulings in part and reverse them in part.

I. BackgroundA. Factual and Statutory Background

Medicaid is “a cooperative federal-state program that provides medical care to needy individuals.” Douglas v. Indep. Living Ctr. of S. Cal., –––U.S. ––––, 132 S.Ct. 1204, 1208, 182 L.Ed.2d 101 (2012). States that choose to participate in the program are responsible for developing and implementing a state Medicaid plan and have considerable control over the plan's details and administration. Pa. Pharmacists Ass'n v. Houstoun, 283 F.3d 531, 533 (3d Cir.2002) (en banc) (citing Wilder v. Va. Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990)). In order to qualify for federal funding, however, a state plan must comply with the requirements of the Medicaid Act. 42 U.S.C. § 1396a (defining the requirements a state plan must satisfy for approval); id. § 1396b(a) (providing for federal payments “to each [s]tate which has a plan approved”). Those requirements include, among other things, the so-called “equal access provision” of Section 30(A), which mandates that a state plan provide “methods and procedures” to assure that the state pays participating nursing facilities and other Medicaid providers at rates that are consistent with efficiency, economy, quality of care, and adequate access to providers by Medicaid beneficiaries. 42 U.S.C. § 1396a(a)(30)(A); see Ark. Med. Soc'y, Inc. v. Reynolds, 6 F.3d 519, 522 (8th Cir.1993) (explaining that Section 30(A) “is typically called the equal access provision”). State plans must also satisfy Section 13(A) of the Act, which requires that rates of payment to hospitals and nursing facilities be determined using a public process similar to notice-and-comment rulemaking. 42 U.S.C. § 1396a(a)(13)(A).

CMS is the division of HHS tasked with ensuring that state plans comply with those and other requirements of the Medicaid Act. States must submit their proposed plans to CMS, and the agency must review each plan, “make a determination as to whether it conforms to the requirements for approval,” 42 U.S.C. § 1316(a)(1), and “approve any plan which fulfills the conditions specified” in the Medicaid Act, 42 U.S.C. § 1396a(b). See also42 C.F.R. § 430.12 (describing the submittal of state plans to CMS). A state may later amend an approved plan, but any amendments must also be submitted to CMS, and the agency must “determine whether the [amended] plan continues to meet the requirements for approval.” 42 C.F.R. § 430.12(c)(2)(i). States are required to amend their plans “whenever necessary to reflect,” among other things, “[m]aterial changes in State law, organization, or policy, or in the State's operation of the Medicaid program.” Id.

Pennsylvania has elected to participate in the Medicaid program, and it has designated DPW as the “single [s]tate agency” responsible for creating and administering the state's Medicaid plan.²See42 U.S.C. § 1396a(a)(5) (requiring states to establish or designate “a single [s]tate agency to administer ... the plan”). Since 1996, Pennsylvania, in accordance with an approved state plan, has paid participating nursing facilities for Medicaid-related services using an “annual prospective payment rate” often referred to as the “case-mix rate.” ³See55 Pa.Code § 1187.95 (“Prices will be set prospectively on an annual basis....”); Christ the King Manor v. Pennsylvania, 911 A.2d 624, 630 (Pa.Commw.Ct.2006) (“Since July 1996, DPW compensated both public and private nursing facilities through its [Medicaid] program under what is known as the case-mix payment system.”). DPW calculates the “case-mix rate” using a complex formula that produces an individualized per diem reimbursement rate for each facility based on the “allowable costs” incurred by facilities,⁴ the acuity level of residents,⁵ and other factors. See55 Pa.Code § 1187.96 (describing the “[p]rice and rate-setting computations”). ( See also J.A. at 232–242 (Pennsylvania's State Plan).) The rate is effective for one year, from July 1 through the following June 30, and it is adjusted quarterly, based on resident acuity. 55 Pa.Code § 1187.95(a).

Under that methodology, Pennsylvania's reimbursement rates to nursing facilities have risen steadily each year, and, beginning in 2000, the state grew concerned that the pace of that inflation was creating unsustainable costs. In June 2005, DPW announced that reimbursement rates had increased by 29.4% over the previous five years, and that, unless rates were somehow limited, there would be “insufficient funds available to make case-mix payments to [Medicaid] nursing facilities in accordance with the existing case-mix payment methodology.” 35 Pa. Bull. 3267 (June 4, 2005). Therefore, after soliciting public comments and receiving input from Pennsylvania's Medical Assistance Advisory Committee,⁶ DPW proposed using a budget adjustment factor, or “BAF,” to slow the increasing rates.

As it has come to be used in Pennsylvania, a BAF is a fraction by which each provider's case-mix payment rate is multiplied, thereby reducing the...