Daniels v. Wadley

• Decision Date: 15 May 1996
• Docket Number: No. 3:79-3107-NA-CV.,3:79-3107-NA-CV.
• Citation: 926 F. Supp. 1305
• Parties: Cluster DANIELS, et al. v. Fredia WADLEY, et al.
• Court: U.S. District Court — Middle District of Tennessee

926 F. Supp. 1305

Cluster DANIELS, et al. v. Fredia WADLEY, et al.

No. 3:79-3107-NA-CV.

United States District Court, M.D. Tennessee, Nashville Division.

May 15, 1996.

Lenny Lee Croce, Martha Rose Lionberger, Legal Services of TN, Oak Ridge, TN, for plaintiffs.

Jennifer Helton Small, Office of the Attorney General, Nashville, TN, for defendants.

MEMORANDUM

JOHN T. NIXON, Chief Judge.

At issue in the above-styled action are (1) Plaintiffs' Motion to Modify Second Consent Decree and/or for Further Relief (Doc. No. 323); (2) Plaintiffs' Motion for Further Injunctive Relief (Doc. No. 325); (3) Plaintiffs' Motion to Investigate the Defendants' Apparent Contempt of Court (Doc. No. 326); (4) Plaintiffs' Request for Opportunity to Reply to Defendants' Responses Including Proposed Modifications and Regulations (Doc. No. 339); and (5) Plaintiffs' Renewed Motion to Investigate the Defendants' Apparent Contempt of Court (Doc. No. 363).

I. Background

The Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 (1988), which confers original jurisdiction over all civil suits arising under the Constitution or laws of the United States, and 28 U.S.C. §§ 1343(a)(3) and (4), which provide for original jurisdiction in this court for suits authorized by 42 U.S.C. § 1983 to redress the deprivation under color of state law of any rights, privileges, and immunities guaranteed by the Constitution of the United States or by acts of Congress.

This case is the continuation of a class action started in 1979 regarding the provision of medical assistance under Tennessee's pre-1994 Medicaid program. Plaintiffs in the current action are Medicaid-eligible enrollees of the Tennessee Medicaid Demonstration Project Number 11-C-99638/4-03 ("TennCare").¹

Plaintiffs seek to modify the Second Consent Decree in this action, which this Court entered on September 2, 1992 (Doc. No. 278), in order to prevent the denial, delay, reduction, suspension or termination of medical assistance or other adverse action to enrollees without due process and a timely fair hearing in accordance with Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (the "Medicaid Act"), the conditions imposed under TennCare, and the Equal Protection and Due Process Clauses of the Fourteenth Amendment to the United States Constitution.

Defendants agree that the Second Consent Decree should be modified as a result of changes to Tennessee's Medicaid Program, which took effect as of January 1, 1994, when Tennessee implemented TennCare. Defendants assert, however, that Plaintiffs' proposed modifications are inappropriate. Defendants propose their own modifications and Plaintiffs object to Defendants' proposal.

The parties agree that Defendants have not received waivers from the U.S. Department of Health and Human Services ("HHS"), which oversees the TennCare program, regarding any of Defendants' obligations to provide for review of coverage disputes outlined in 42 U.S.C. § 1396a(a)(3), 42 C.F.R. § 431.205 and Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970).²

For the reasons discussed below, the Court concludes that the existing TennCare hearing procedures violate the Medicaid Act and the Due Process Clause of the Fourteenth Amendment. Accordingly, the Court orders Defendants to submit proposed modifications to the Second Consent Decree within ninety days.

II. Analysis

A. The Appropriateness of Modifying the Proposed Consent Decree

Under TennCare, Tennessee's current program for providing health care to Medicaid eligible individuals, Managed Care Organizations ("MCOs") have financial incentives to deny enrollees health care even when such health care is medically appropriate. These incentives arise out of significant changes to Tennessee's Medicaid Program, which took effect with the inception of TennCare. Based on these changes, the Court finds that it is appropriate to modify the Second Consent Decree. Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 393-95, 112 S.Ct. 748, 765, 116 L.Ed.2d 867 (1992).

The Tennessee Medicaid program in place at the time that the Second Consent Decree was negotiated permitted a recipient to choose his or her provider. The program required providers, for the most part, to directly bill the state for services rendered. Recipients could be denied medical assistance if a particular provider refused to accept the recipient's Medicaid card or otherwise refused to participate in the Medicaid program.³ In such circumstances the recipient simply went to another provider to obtain services. Once the recipient located a provider willing to accept Medicaid, the service was provided, and the provider billed Medicaid for payment.

If the Medicaid Bureau denied a provider's claim for payment, the provider could sometimes directly bill the recipient. A Medicaid recipient could be directly billed if the recipient was ineligible at the time that the service was provided, if the service was not covered, or if limits for a particular service had been exceeded. If payment was denied due to provider error, the provider was prohibited from seeking any payment from the recipient.

In many situations prior authorization for medical care was not required under the Tennessee Medicaid program. Where prior authorization was required, the Medicaid Act permitted the recipient to request a fair hearing, comporting with the requirements set forth in Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970), 42 C.F.R. § 431.205(d), to appeal a denial of authorization. The Medicaid Act required that such hearings take place before an impartial hearing officer. § 431.240(a)(3). The Medicaid Act required that the coverage dispute be resolved within ninety days of the recipient's request for a hearing. § 431.244(f). In many circumstances, the Medicaid Act mandated that services to the recipient continue until the coverage dispute was resolved through a fair hearing. § 431.230(a).

The system for providing health care to Medicaid eligible citizens and resolving coverage disputes is different under TennCare than under Tennessee's pre-1994 Medicaid program. Under TennCare enrollees are not free to choose their own providers. To obtain services from specialists, enrollees must obtain a referral from their primary care physician who is under contract with an MCO. TennCare forms contracts with MCOs to pay for enrollees' health care. MCOs receive a flat fee for each enrollee that the MCO covers. MCOs make a profit to the extent that their total income in flat fees exceeds the amount that the MCO pays to doctors and hospitals for treating sick enrollees. In order to prevent enrollees from receiving "too much" care, which would hurt an MCOs profit margin, MCOs screen enrollee care requests through primary care physicians with whom the MCOs have contracts. Through the use of these physician-employees, MCOs determine which care requests to authorize and which to deny.

Under TennCare if an enrollee wishes to appeal an adverse coverage decision, the enrollee does not have immediate access to an impartial decision maker. An enrollee's claim is not heard before an administrative judge or hearing officer, as defined by T.C.A. § 4-5-102, until after the enrollee has waded through several stages of preliminary review. Tenn.Admin.Reg. § 1200-13-12-.11. The entire appeals process may take more than ninety days. Id. And services do not continue pending resolution of the coverage dispute by an impartial decision maker. Id.

The Court finds that because of the pecuniary incentives that MCOs have for denying, suspending, or terminating care under the TennCare system, and because of other differences between Tennessee's pre-1994 Medicaid program and TennCare, TennCare enrollees need strong due process protections to protect themselves from inappropriate denials of health care. For these reasons the Court finds that it is appropriate to modify the Second Consent Decree.

B. The Grievance Procedure Under the TennCare Program

Under the TennCare program, if an enrollee is denied requested care, the enrollee may appeal that decision through an appeals process. The appeals process currently in place is designed to address three categories of appeals: (1) appeals of adverse decisions regarding applications, premiums, and disenrollment; (2) appeals of decisions to deny, reduce, or terminate services; and (3) appeals of decisions to deny medically necessary services.

1. Appeal of a Decision Regarding Applications, Premiums, or Disenrollment

If an MCO issues an unfavorable decision regarding an enrollee's enrollment status or premium level, the enrollee or prospective enrollee has thirty days to request administrative review by the TennCare Enrollee Review Unit. The Enrollee Review Unit may request additional information and the enrollee has thirty days in which to supply the information. After the enrollee responds, the Enrollee Review Unit issues a decision. If the enrollee disagrees with the decision, the enrollee may, within thirty days, request a hearing before the Commissioner of the Tennessee Department of Finance and Administration. If the matter involves an amount in controversy of less than $500, there will be an informal hearing. Otherwise there will be a formal hearing. Either variety of hearing will be presided over by an administrative judge or a hearing officer.⁴

2. Appeal of Decisions to Deny, Reduce, or Terminate Services.

If an MCO denies, reduces, or terminates an enrollee's coverage, the enrollee may request, within thirty days, that the MCO review the decision. The MCO then has thirty days to reconsider the decision. If the enrollee is not satisfied with the outcome of the MCO's review, the enrollee may, within thirty days, request a review by the Medical Review Unit, Bureau of TennCare ("MRU"). When the MRU receives the enrollee's request for review it must notify the MCO of the request. The MCO then has five...