Concourse Rehabilitation & Nursing Center, Inc. v. DeBuono

• Decision Date: 03 June 1999
• Docket Number: No. 98-7894,98-7894
• Citation: 179 F.3d 38
• Parties: , CONCOURSE REHABILITATION & NURSING CENTER INC.; Concourse Nursing Home, Plaintiff-Appellant, v. Barbara A. DeBUONO, individually and as Commissioner of the New York State Department of Health, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

Page 38

179 F.3d 38, CONCOURSE REHABILITATION & NURSING CENTER INC.; Concourse Nursing Home, Plaintiff-Appellant, v. Barbara A. DeBUONO, individually and as Commissioner of the New York State Department of Health, Defendant-Appellee.

No. 98-7894.

United States Court of Appeals Second Circuit.

Argued Nov. 9, 1998.

Decided June 3, 1999.

Marvin Neiman, New York, New York (Theodore T. Mairanz, Betsy R. Malik, Neiman Ginsburg & Mairanz, P.C., New York, New York, of counsel), for Appellant.

Barbara K. Hathaway, Assistant Attorney General, New York, New York (Dennis C. Vacco, Attorney General of the State of New York, John W. McConnell, Deputy Solicitor General, Michael S. Belohlavek, Assistant Attorney General, New York, New York, of counsel), for Appellee.

Cornelius D. Murray, Albany, New York (Pamela A. Nichols, O'Connell and Aronowitz, P.C., Albany, New York, of counsel), filed a brief for Amicus Curiae New York State Health Facilities Association, Inc.

Evelyn Huang, New York, New York, filed a brief Amicus Curiae for The Greater New York Health Care Facilities Association.

Harvey Weinberg, Garden City, New York (John F. Kaley, Weinberg, Kaley, Gross & Pergament, L.L.P., of counsel), filed a brief Amicus Curiae for The Southern New York Association, Inc.

Before: WINTER, Chief Judge, CARDAMONE, and STRAUB, Circuit Judges

CARDAMONE, Circuit Judge:

Plaintiff, Concourse Rehabilitation & Nursing Center, Inc. and Concourse Nursing Home (collectively Concourse, plaintiff or appellant), is a 240-bed residential health care facility in the Bronx, New York. Concourse was found as a result of a State audit to have been reimbursed for care of Medicaid patients in an amount greater than that to which it was entitled. It thereafter brought a 42 U.S.C. § 1983 suit in the United States District Court for the Southern District of New York, challenging the audit on the grounds that the State changed its Medicaid plan without federal approval, and has appealed from that court's adverse judgment.

A State administers its Medicaid plan pursuant to the provisions of Title XIX of the Social Security Act, 42 U.S.C. §§ 1396, 1396a-u (1994 & Supp. II 1996) (Medicaid Act or Act). After initial approval of a State plan, the State is not required to seek further federal approval unless it makes an actual change in its plan's terms and conditions. Unlike those things viewed as changeless--the constancy of the North Star, the color of one's skin, and the spots of a leopard--the State Medicaid plan can be changed. The subject of this appeal is whether on the record in this case such a change was effectuated to a degree sufficient to require the State to seek federal approval.

Our precedents dictate that federal jurisdiction over a § 1983 claim is lacking when such claim alleges simply that a State has violated the provisions of its own Medicaid plan, in the absence of any conflict with federal law. What our precedents have not resolved--and what we must answer--is whether a federal court may entertain a § 1983 claim alleging that a State's interpretation of its own plan departs so far from that plan's terms as to constitute a de facto amendment to it, thereby triggering federal approval requirements under the Act.

BACKGROUND

A. The Medicaid Program

We deal on this appeal with the Medicaid Program, a program that pays the costs of medical services for indigent persons who cannot afford such care and that is jointly funded by the federal and State governments. While participation by a State is optional, if a State chooses to join the Medicaid Program, it must submit a plan to the U.S. Secretary of Health and Human Services (Secretary) for approval. The plan must be in writing and must comprehensively describe the nature and scope of the State's Medicaid program. Upon approval of the plan by the Secretary, the State becomes entitled to receive reimbursement from the federal government for a percentage of the monies it pays to residential health care facilities for their care of Medicaid patients. The balance of the costs for such care is furnished by State and local governments.

The joint program is administered by the federal and State governments pursuant to the Medicaid Act found in Title XIX of the Social Security Act. The federal money distributed to individual States for the operation of State-formulated medical assistance plans must be approved by the Health Care Financing Administration (Health Financing Agency), a division of the Department of Health and Human Services, according to standards contained in 42 U.S.C. § 1396a(a). See New York v. Shalala, 119 F.3d 175, 177 (2d Cir.1997). At the time this case arose, the approval process was governed by a subsection of § 1396a(a) known as the "Boren Amendment." See 42 U.S.C. § 1396a(a)(13) (1994) (former Boren Amendment); Pinnacle Nursing Home v. Axelrod, 928 F.2d 1306, 1309 (2d Cir.1991) (discussing the Boren Amendment); Balanced Budget Act of 1997, Pub.L. No. 105-33, § 4711(a)(1), 111 Stat. 251, 507-08 (rewriting the Boren Amendment as applicable to payment for items and services furnished on or after Oct. 1, 1997).

Pursuant to the Boren Amendment, the Secretary issued regulations requiring further federal approval of certain amendments to State plans. These regulations, currently in effect, require that the State plan provide for amendments to the plan itself:

(c) Plan amendments. (1) The [State Medicaid] plan must provide that it will be amended whenever necessary to reflect--

...

(ii) Material changes in State law, organization, or policy, or in the State's operation of the Medicaid program.

42 C.F.R. § 430.12(c) (1998). With respect to inpatient hospitals and long-term care facilities in particular, the regulations further provide:

(a) State assurances. In order to receive [Health Financing Agency] approval of a State plan change in payment methods and standards, the [State] Medicaid agency must make assurances satisfactory to [the Health Financing Agency] that the requirements set forth in paragraphs (b) through (i) of this section are being met....

(b) Findings. Whenever the Medicaid agency makes a change in its methods and standards, but not less often than annually, the agency must make the following findings:

(1) Payment rates. (i) The Medicaid agency pays 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.

Id. § 447.253(a)-(b)(1)(i) (emphasis added).

B. The New York State Medicaid Plan

Under Article 28 of the New York Public Health Law, the Commissioner of the New York State Department of Health is responsible for setting State Medicaid reimbursement rates for nursing homes, more formally known as "residential health care facilities." See N.Y. Pub. Health Law § 2808 (McKinney 1993 & Supp.1999). The current method for setting such rates--initially implemented by the New York State Department of Health (Department) on January 1, 1986--is set forth in Subpart 86-2 of the Commissioner's Administrative Rules and Regulations. See N.Y. Comp.Codes R. & Regs. tit. 10, § 86-2 (1995).

Under the present approach, the direct cost component of Medicaid reimbursements for a particular nursing home is gauged according to a "case mix index," which reflects the number of patients in the facility, the severity of each patient's diagnosis, and the consumption of resources required by patients with similar diagnoses. See id. § 86-2.10(a)(5). Hence, a patient with a severe condition, but one that is likely to improve under treatment, will entitle the nursing home to greater Medicaid reimbursement from State and local monies than will a patient whose equally severe condition is not likely to improve with treatment.

To ensure that the case mix index is kept up-to-date, the Department requires health care facilities to evaluate their patients periodically using a form known as the "Patient Review Instrument" (Patient Review). See id. § 86-2.30(a), (i). As additional safeguards for accuracy, only qualified nurses may prepare Patient Review, and the Department contracts with the Foundation for Quality Medical Care (Foundation) to audit the Patient Review process. See id. § 86-2.30(c)(2), (e)(5).

Patient Review employs a number of standards, formally called "documentation qualifiers." These standards draw inferences regarding a patient's medical condition based upon documentation contained in the patient's medical record and are then used to calculate the case mix index. The instant controversy, for example, centers on a dispute as to the Patient Review qualifiers relevant to classifying a patient as needing either "maintenance therapy" or "restorative therapy," depending on the level of physical and/or occupational therapy that the patient receives.

As a prerequisite to classifying a patient at "maintenance therapy," the qualifiers state that the patient's medical record must indicate the patient receives therapy meeting the following description:

Therapy is provided to maintain and/or retard deterioration of current functional/ADL ["Activities of Daily Living"] status. Therapy plan of care and progress notes should support that patient has no potential for further or any significant improvement.

Id. § 86-2.30(i) (Patient Review, Question 27). The qualifiers dictate the following evaluative standard for classifying patients at "restorative therapy":

There is positive potential for improved functional status within a short and predictable period of time. Therapy plan of care and progress notes should support that patient has this potential/is improving.

Id.

In addition to these Patient Review qualifiers, the Department has promulgated an "Audit Tool"--not originally included in the State...