COLO. HEALTH CARE ASS'N v. Colo. Dept. of Soc. Serv.

• Decision Date: 05 December 1984
• Docket Number: Civ. A. No. 83-K-345.
• Citation: 598 F. Supp. 1400
• Parties: COLORADO HEALTH CARE ASSOCIATION; Geriatrics, Inc.; Miller Nursing Home, Inc., d/b/a Fairview Care Center; Springs Village, Inc., d/b/a Springs Village Recovery Center; W II, Inc., d/b/a St. Paul Health Center; W III, Inc., d/b/a Glen Ayr Health Center; North Shore Manor, Inc.; and Evergreen Care Center, Ltd., Plaintiffs, v. COLORADO DEPARTMENT OF SOCIAL SERVICES; George S. Goldstein, in his official capacity as Acting Executive Director of the Department of Social Services; Colorado State Board of Social Services; Gilbert Slade; Nona Thayer; Felix S. Cordova; Thomas C. Hickman; Mark E. Notestine; Larry Velasquez; Sharon G. Hill; James E. Martin; and Florangel Mendez, in their official capacities as members of the Colorado Board of Social Services; and the State of Colorado, Defendants.
• Court: U.S. District Court — District of Colorado

598 F. Supp. 1400

COLORADO HEALTH CARE ASSOCIATION; Geriatrics, Inc.; Miller Nursing Home, Inc., d/b/a Fairview Care Center; Springs Village, Inc., d/b/a Springs Village Recovery Center; W II, Inc., d/b/a St. Paul Health Center; W III, Inc., d/b/a Glen Ayr Health Center; North Shore Manor, Inc.; and Evergreen Care Center, Ltd., Plaintiffs, v. COLORADO DEPARTMENT OF SOCIAL SERVICES; George S. Goldstein, in his official capacity as Acting Executive Director of the Department of Social Services; Colorado State Board of Social Services; Gilbert Slade; Nona Thayer; Felix S. Cordova; Thomas C. Hickman; Mark E. Notestine; Larry Velasquez; Sharon G. Hill; James E. Martin; and Florangel Mendez, in their official capacities as members of the Colorado Board of Social Services; and the State of Colorado, Defendants.

Civ. A. No. 83-K-345.

United States District Court, D. Colorado.

December 5, 1984.

COPYRIGHT MATERIAL OMITTED

Frederick Miles and Barry D. Epstein, Miles & McManus, Denver, Colo., for plaintiffs.

Wade Livingston, Asst. Atty. Gen., Denver, Colo., for defendants.

MEMORANDUM OPINION AND ORDER

KANE, District Judge.

This action challenges the defendant Colorado State Board of Social Services policy of reducing certain medicaid payments to nursing home operators in an attempt to alleviate budget shortfalls.

Individual plaintiffs are duly authorized business entities in Colorado who own, lease, operate or manage long-term care facilities and are certified, participating providers of long-term nursing care and other services under the Colorado Medical Assistance Program. Plaintiff Colorado Health Care Association is a not-for-profit corporation and is comprised of members who are long-term care nursing providers.¹

Defendant Colorado Department of Social Services is responsible for the administration and supervision of the Colorado medicaid program. It implements the rules of defendant Colorado State Board of Social Services governing the medicaid program's scope and content, requirements, obligations and rights of providers who are certified for participation in the program. Colo.Rev.Stat. §§ 26-1-111 and 26-4-101 to 116 (1982 Repl.Vol.).

A. Procedural History

Plaintiffs instituted this action in the District Court in and for the City and County of Denver, State of Colorado (Case No. 83-CV-1172) on February 7, 1983. They challenged adoption by the board of an amendment to its medicaid program regulations which eliminated payment of a statutorily established "incentive allowance" as part of the reimbursement for certified medicaid providers of long-term care nursing services. The complaint included claims for judicial review under Colorado's Administrative Procedure Act, Colo.Rev. Stat. §§ 24-4-101 to 108 (1982 Replacement Volume), injunctive and declaratory relief and damages. Simultaneously, plaintiffs moved for a stay or postponement of the effective date of the agency action under Colo.Rev.Stat. §§ 24-4-106(5) and (8) (1973), and for a temporary restraining order under Colo.R.Civ.P. 65. The complaint asserts six separate claims for relief as follows: the first claim asserts violations of separation of powers under the Colorado constitution; the second claim alleges violations of the Colorado Administrative Procedures Act; the third claim alleges violations of the federal Social Security Act; the fourth and fifth claims assert substantive deprivation of rights, privileges and immunities including equal protection; and, finally, the sixth claim alleges a common law breach of contract.

On March 2, 1983, defendants, in a volte-face to their position against federal court intrusion, filed a petition for removal of the action to this court under the provisions of 42 U.S.C. § 1441, alleging that the matter primarily involved a federal question requiring the construction of the Medicaid Program under Title XIX of the Social Security Act. Defendants also filed their answer to the complaint, generally denying plaintiffs' allegations. Jurisdiction over the third, fourth and fifth claims is based upon resolution of questions of federal law. See Friendship Villa—Clinton, Inc. v. Buck, 512 F.Supp. 720, 722-25 (D.Md.1981). I retain pendent jurisdiction over the remaining state law claims in the interests of judicial economy.

Plaintiffs' motion for a stay or postponement of the effective date of the agency action was scheduled for a hearing on March 9, 1983. At that time, however, the parties appeared and agreed that the hearing should be indefinitely continued based upon a settlement, at least in part, of the issues in this case. Thereafter, by stipulation dated May 18, 1983, defendants agreed to reinstate the incentive payments to qualified providers on a retroactive basis from and after February 4, 1983 and that such payments were to be brought current by no later than May 25, 1983. The stipulation further provided that upon defendants' failure to pay the incentive factor to the extent of available funds, either party could request the court to schedule a hearing in connection with the determination of whether the incentive factor would be paid further. This stipulation was approved and reduced to an order on May 19, 1983.

On or about June 28, 1983, plaintiffs filed a Motion for Order to Show Cause, alleging that defendants had violated the stipulation of the parties and order of the court by failing to pay the incentive allowance for approximately one and one-half months in April through June of 1983. On July 1, 1983 I entered an order, setting July 18, 1983 for a hearing requiring defendants to show cause why they should not be ordered to continue to pay the incentive allowance for the full period from February 4, 1983 through June 30, 1983. This order was later amended on July 12, 1983 to correct a typographical error.

The show cause hearing was held on July 18th and 19th, at which time the parties appeared and submitted briefs, stipulations of fact and evidence, testimony of witnesses and exhibits. At the conclusion of the hearing I requested the parties to consider consolidation of the hearing under the provisions of Fed.R.Civ.P. 65(a)(2). Accordingly, on July 27, 1983, the parties filed a stipulation requesting that I consider the record made in the course of the pleadings, stipulations and the show cause hearing as being dispositive of a trial on the merits.

After further stipulation of the parties, the complaint was supplemented on June 7, 1984 seeking additional relief because of the suspension of the incentive allowance again in June 1984. The issues raised in the supplemental complaint and the original complaint are identical.

The parties submitted extensive briefs before and after the evidentiary hearing. All relevant facts and legal issues have been presented and the case is ripe for final determination.

B. The Colorado Medicaid Program

Colorado participates in the federal matching fund program, established under Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 to 1396p. It provides for medical assistance to needy individuals and is popularly known as "medicaid." Colorado Medical Assistance Act, Colo.Rev.Stat. §§ 26-4-101 to 108 (1973). This case involves only the portion of the Colorado medicaid program under which eligible recipients receive nursing home care.

In Colorado, when a nursing home provides care for a medicaid eligible recipient, the Colorado Department of Social Services pays the nursing home for that care on the basis of a per diem rate. The department establishes a rate for each individual nursing home. In general this rate is adjusted for each nursing home at least twice a year. These rates are prospective and based on costs. This means a nursing home is paid on a rate based upon costs reported earlier. For example, a nursing home providing services in August of 1983 may be paid a rate based upon costs reported for a period ending in May of 1983, or earlier.

Although the rate is based generally on costs there are some restrictions and adjustments before it can be finally calculated. Under Colorado law, nursing home costs are divided into two categories: administrative costs and health care costs. Colo.Rev.Stat. § 26-4-110 (1973). Health care costs are not subject to a maximum reimbursement formula or "ceiling." They are not involved in the calculation of the incentive allowance. Administrative costs, on the other hand, are subject to a maximum reimbursement formula or "ceiling," which is defined in the regulations as "the actual cost of administration, property, and room and board costs (excluding raw food) to the ninetieth percentile (90%-ile) of all medicaid patients residing in each class of nursing homes." 10 C.C.R. §§ 2505-10 and 8.441.3(c)(2). Nursing homes with administrative costs below the ninetieth percentile of all nursing homes in their class receive a rate based upon their total reported administrative costs. Nursing homes with administrative costs above ninetieth percentile will receive a rate based on something less than their total reported administrative costs. This ninetieth percentile maximum reimbursement level is often referred to as a "ceiling" or "cap."

If a nursing home's administrative costs are below the ceiling, the department will increase the nursing home's rate by an incentive allowance. Colo.Rev.Stat. § 26-4-110(5)(c) (1973); 10 C.C.R. § 2505-10 and 8.441.2(E).² The incentive factor is calculated as one-half of the difference between the ceiling and a provider's actual administrative costs. If a nursing home keeps its costs, and thus its rates, below the ceiling, the nursing home and the department split the amount saved. The formula provides nursing homes with an incentive to contain their costs, hence the name "incentive allowance."

The department makes one other adjustment to costs before setting rates. Colo. Rev.Stat. § 26-4-110(5)(b) (1973); 10 C.C.R. § 2505-10, 8.441.2(D). The costs are increased based upon the consumer price...