COM. OF MASS. BY D. OF PUB. WEL. v. Heckler

• Decision Date: 12 January 1984
• Docket Number: Civ. A. No. 82-1048-G.
• Citation: 576 F. Supp. 1565
• Parties: COMMONWEALTH OF MASSACHUSETTS by its DEPARTMENT OF PUBLIC WELFARE, Plaintiff, v. Margaret HECKLER et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

576 F. Supp. 1565

COMMONWEALTH OF MASSACHUSETTS by its DEPARTMENT OF PUBLIC WELFARE, Plaintiff, v. Margaret HECKLER et al., Defendants.

Civ. A. No. 82-1048-G.

United States District Court, D. Massachusetts.

January 12, 1984.

Leah S. Crothers, Ellen L. Janos, William L. Pardee, Asst. Attys. Gen., Boston, Mass., for plaintiff.

Ralph Child, Asst. U.S. Atty., Boston, Mass., Ellen J. Sazzman, Robin M. Stutman, Dept. of Justice, Civil Div., Washington, D.C., for defendants.

MEMORANDUM AND ORDER THAT JUDGMENT BE ENTERED FOR PLAINTIFF

GARRITY, District Judge.

In this action the Commonwealth of Massachusetts (Commonwealth) seeks judicial review, pursuant to 5 U.S.C. § 702, of a final decision of the Departmental Grant Appeals Board (GAB) of the Department of Health and Human Services (HHS). The GAB disallowed approximately $3.7 million in federal Medicaid reimbursement to the Commonwealth to offset a prior overpayment of $3.7 million. The Commonwealth also seeks declaratory and injunctive relief, pursuant to 5 U.S.C. §§ 702, 703 and 28 U.S.C. § 2201, to determine the rights and obligations of the Commonwealth under the Medicaid program, 42 U.S.C. § 1396b et seq., and to prevent the withholding of the federal funds.

The dispute arose following a routine audit of the accounts receivable ledgers of the Commonwealth's Department of Public Welfare (DPW) by the Health Care Financing Administration (HCFA). This agency is a part of HHS, and is responsible for administering the Medicaid program at the federal level. The audit not coincidentally followed the filing in bankruptcy of 27 nursing homes (IDAK et al.) which had been receiving Medicaid payments. On February 21, 1980, HCFA issued its decision that the Commonwealth had overpaid these nursing homes by more than $10 million, so that the Commonwealth owed HHS $5,115,610. This amount represents the amount paid to the Commonwealth by HHS in excess of the final rate, less the amount which had been repaid by the Commonwealth to HHS. HHS was authorized by HCFA to offset this amount against Federal Financial Participation (FFP) owed to the Commonwealth. This offset procedure is known as a disallowance.

The Commonwealth timely appealed this decision to the GAB, which on February 26, 1982 sustained the disallowance and directed the parties to resolve the question of the exact amount owing to HHS. This was finally accomplished on June 30, 1983, the amount being $3,703,098, but pending this appeal no adjustment has been made to the amounts paid to the Commonwealth.¹

On April 22, 1982, the Commonwealth filed actions appealing the GAB's decision in both this court and the United States Court of Appeals for the First Circuit. On August 20, 1982, defendant HHS filed a motion to dismiss in our court. We stayed our decision on this motion pending the decision by the Court of Appeals. On January 12, 1983, the appellate court held that it was without jurisdiction to hear the case, rejecting plaintiff's argument that this was a "noncompliance" case rather than a disallowance suit. Had it been the former, the Court of Appeals would have had jurisdiction under 42 U.S.C. § 1316(a)(3). The court explained the difference between the two concepts as follows:

Disallowances typically involve a denial of FFP Federal Financial Participation for a narrow item or class of items, and do not, in some general sense, affect the working of the program or federal-state cooperation. Whereas a finding of noncompliance can (although it need not) lead to the cessation of federal participation altogether, a disallowance is merely a retrospective refusal to share in an unauthorized expenditure.

Commonwealth of Mass. v. Departmental Grant Appeals Board, (1st Cir.1983) 698 F.2d 22 at 25. The court found that this was not a compliance matter since it merely involved a dispute over "specific excess payments in certain limited circumstances, and not ... the state's overall ratesetting or payment methodology." At 29. Were the failure to reimburse HHS its share of excess payments itself to constitute noncompliance, then this would render meaningless the distinction between noncompliance actions and disallowance actions. Since 42 U.S.C. § 1316(a)(3) granted jurisdiction to the Court of Appeals only in noncompliance actions, the court held that it lacked jurisdiction to review the GAB's disallowance decision. It withheld its judgment until further notice, however, so as not to put the Commonwealth in the awkward position of being forced to challenge the ruling by petition for certiorari to the Supreme Court before knowing whether it could obtain review in the district court. The court authorized the district court to act in related proceedings notwithstanding that judgment has yet to be entered.

On November 30, 1983, we heard argument on defendant's motion to dismiss. Defendant did not press its motion to dismiss for lack of jurisdiction. However, even where jurisdiction is uncontested, it is the court's responsibility to determine whether it has jurisdiction. We hold that it does. County of Alameda v. Weinberger, (9 Cir.1975) 520 F.2d 344, Woodstock/Kenosha Health Center v. Schweiker (7 Cir. 1983) 713 F.2d 285.

The remaining issue is whether plaintiff has failed to state a claim upon which relief may be granted. This turns on whether HHS has correctly interpreted the Medicaid provisions of the Social Security Act, 42 U.S.C. § 1396 et seq., and in particular, the word "overpayment" in 42 U.S.C. § 1396b(d). To comprehend the arguments of the parties it is worthwhile to review the workings of the Medicaid program.

The Medicaid program is a retrospective reimbursement system under which the state DPW makes provisional payments to health care providers (in this case, nursing homes) at "interim rates" established by the Massachusetts Rate Setting Commission. These rates are based on the amount to which the provider was entitled in previous years. Each quarter, HHS reimburses the Commonwealth at approximately 50% of the interim rate. This reimbursement is called Federal Financial Participation (FFP). Following the close of the rate year, the Commission establishes a "final rate" based upon the actual costs of the provider during that year. If the final rate exceeds the interim rate, then the health care provider is entitled to receive further payment from the Commonwealth. If, on the other hand, the final rate is lower than the interim one, the Commonwealth is entitled to recover the difference. The issue at hand is whether the Commonwealth should be required to refund HHS its share of this excess whenever the situation occurs, or whether its obligation to refund HHS's share arises only after it obtains repayment by the health care provider.

Surprisingly, there does not appear to be any case law on this subject, and the Medicaid Act itself is ambiguous. The applicable provision, 42 U.S.C. §...