Exeter Memorial Hosp. Ass'n v. Belshe, CIV-S-96-693 DFL JFM.

• Decision Date: 15 October 1996
• Docket Number: CIV-S-96-693 DFL JFM.
• Citation: 943 F.Supp. 1239
• Court: U.S. District Court — Eastern District of California
• Parties: EXETER MEMORIAL HOSPITAL ASSOCIATION, a non-profit corporation, dba Memorial Hospital at Exeter, Plaintiff, v. Kimberly BELSHE, Director of the California Department of Health Services, Defendant.

Page 1239

943 F.Supp. 1239

EXETER MEMORIAL HOSPITAL ASSOCIATION, a non-profit corporation, dba Memorial Hospital at Exeter, Plaintiff, v. Kimberly BELSHE, Director of the California Department of Health Services, Defendant.

CIV-S-96-693 DFL JFM.

United States District Court, E.D. California.

October 15, 1996.

Byron J. Gross, Gooper, Lundy & Bookman, Inc., Los Angeles, CA, for Exeter Memorial Hospital.

Raoul Thorbourne, Deputy Attorney General, Sacramento, CA, for Belshe.

MEMORANDUM OF OPINION AND ORDER

LEVI, District Judge.

The question presented in this case is whether a State may implement a change in the rate of reimbursement to certain Medicaid providers prior to approval of a State plan amendment by the Secretary of Health and Human Services ("the Secretary"). Plaintiff Exeter Memorial Hospital Association ("Exeter") seeks a preliminary injunction to compel the California Department of Health Services ("DHS") to cease enforcement of its most recent amendment to its Medicaid reimbursement plan, as that amendment is applied to DHS's payments to Exeter.

I.

Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., authorizes payment of federal matching funds to States to defray expenses that the States incur in providing medical assistance to low income persons. If a State chooses to participate in this program, it must comply with the requirements of the Act and of the regulations issued by the Secretary. Central to this litigation and to the structure of the program is the requirement that the State submit to the Secretary a State plan that sets forth the State's proposal for delivering medical assistance. The State plan must describe the nature and scope of the State's Medicaid program, must conform to an extensive list of substantive statutory requirements, and must give assurances that it will be administered in accordance with the Act and applicable regulations of the Department of Health and Human Services. 42 U.S.C. § 1396a(a) & (b); 42 C.F.R. § 430.10.¹

The agency responsible for approving State plans is the Health Care Finance Administration ("HCFA"), an arm of the Department of Health and Human Services. The agency's approval of the State plan is a necessary precondition to the State's entitlement to federal funds. 42 U.S.C. §§ 1396, 1396b(a).

The reimbursement rate provided by the State plan to Medicaid providers is addressed at Section 1396a(a)(13)(A) of the Act, known as the Boren Amendment, Pub.L. 96-499, § 962(a), 94 Stat. 2650 (1980). This portion of the statute requires that a State plan for medical assistance must

provide ... for payment ... of nursing facility services ... through the use of rates .. which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities....

42 U.S.C. § 1396a(a)(13)(A).

The Act contemplates that the States may wish to amend their State plans, including the rate structure. Whenever a State seeks to make changes in its approved Medicaid plan, it must submit a State Plan Amendment ("SPA") to HCFA so that HCFA may determine whether the amended State plan continues to comply with federal requirements. 42 C.F.R. § 430.12. If the SPA proposes a change in payment methods and standards, the State must again provide satisfactory assurances to HCFA that the reimbursement rates are adequate under the standards provided in the statute and regulations. 42 C.F.R. §§ 447.253², 447.256. HCFA may approve or disapprove the submitted amendment, or it may request more information before making a determination. 42 C.F.R. § 430.16. If HCFA fails to act upon a submitted amendment within 90 days after its submission, the amendment is deemed approved. 42 C.F.R. § 430.16. A request for more information stops the 90-day clock. 42 C.F.R. § 430.16(a)(2)³; 42 C.F.R. § 447.256(b). The 90-day period begins anew when the State submits the requested information.

California's Medicaid program ("Medi-Cal") includes an inpatient hospital level of care known as "subacute" care. Subacute care is for those patients that do not need acute hospital care, but require more attention than they would receive at a skilled nursing facility. 22 C.C.R. § 51124.5(a). Prior to 1995, subacute care reimbursement rates were based on a model developed by DHS. Payments were on a per-diem basis at an all-inclusive rate per patient day ("ppd"). One rate was paid for ventilator-dependent patients, and a lower rate was paid for nonventilator-dependent patients. All hospital-based subacute care providers received the same ppd for each class of patients, while all freestanding subacute care providers received a lower ppd for each class. Prior to the 1995 change, hospital-based subacute care units such as Exeter received a rate of $370.50 ppd for non-ventilator-dependent patients and a rate of $392.22 ppd for ventilator-dependent patients. The pre-1995 rate is referred to as a "modeled" rate, presumably because it draws on a model as opposed to the particular provider's actual costs.

On September 29, 1995, DHS submitted to HCFA State Plan Amendment No. 95-017, which proposed changes to both the Medi-Cal reimbursement rates and the method by which those rates are computed. Under the amendment reimbursement is no longer to be based on the same modeled rates for all like providers. Instead, the rate is the lesser of: (1) each individual facility's actual costs as projected by DHS, based upon the cost reports from the past two years adjusted for inflation; or (2) the prospective class median rate for like providers.

However, DHS discovered that it lacked sufficient data to arrive at accurate total cost figures for subacute care providers. Specifically, DHS lacked information on the cost of "ancillary" services such as speech therapy, occupational therapy, and respiratory therapy. Thus, while arriving at a figure for routine subacute costs based on actual costs reported by providers, DHS arrived at a separate figure for ancillary costs based upon the old "modeled rate" method. The modeled rate for ancillary costs included only physical therapy, occupational therapy, and "other therapy," and was set at $30.49 ppd.

DHS then used a combination of routine costs derived from 1993 numbers, adjusted for inflation, plus the modeled rate for ancillary costs to arrive at a total cost figure for each provider, and a median total cost figure for each class of provider. The total cost median for subacute rates was $401.08 for non-ventilator-dependent patients and $423.67 for ventilator-dependent patients. If a provider's actual reported costs were lower than this rate, it received an amount equal to its actual costs; if its actual costs were above this rate it received only the median rate. DHS implemented the new methodology on an emergency basis, with the changes to be effective October 16, 1995 for all providers who would see their reimbursement rates fall as a result of the changes.

Exeter's "actual" costs [1993 reported costs adjusted for inflation + modeled ancillary rate] were determined by DHS to be $326.97 for ventilator-dependent patients and $303.37 for non-ventilator-dependent patients — below the median rate. Thus, these rates constituted Exeter's new reimbursement amounts. Exeter claims that the new rates reflect a cut of approximately 20%, amounting to a loss of approximately $84,000 per month.⁴

In December of 1995 HCFA notified DHS that it would not approve SPA 95-017 as submitted, but required more information before approval could be given. HCFA also stated that it would take no action on SPA 95-017 until it received more information on nine previous unapproved California SPA's, dating back to 1991. DHS has kept the new rate structure in place pending HCFA approval. The requested information has not yet been provided by DHS to HCFA. Exeter challenges DHS' implementation of the new rate structure in advance of approval by HCFA.

II.

The parties agree that a Medicaid provider such as Exeter may bring an action under 42 U.S.C. § 1983 on a claim that the State has violated 42 U.S.C. § 1396a(a)(13)(A) (the Boren Amendment) and the regulations implementing that code section. See Wilder v. Virginia Hospital Ass'n, 496 U.S. 498, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990); Washington State Health Facilities Association v State of Washington DSHS, 698 F.2d 964, 965 n. 4 (9th Cir.1982). Exeter brings such a claim and requests a preliminary injunction that would require DHS to cease making Medicaid payments to Exeter under SPA 95-017 until such time as that amendment is approved by HCFA.⁵ To obtain a preliminary injunction the moving party must demonstrate (1) a likelihood of success on the merits and the possibility of irreparable injury, or (2) sufficiently serious questions going to the merits and a balance of hardships tipping sharply in the moving party's favor. Johnson Controls, Inc. v. Phoenix Control Systems, Inc., 886 F.2d 1173, 1174 (9th Cir. 1989).

As to the merits, the question presented is one of timing — whether DHS acted consistently with the Boren Amendment and the applicable regulations when it implemented SPA 95-017 prior to obtaining HCFA approval.⁶ The parties agree that if HCFA were to disapprove the State plan amendment, the State would be required to reimburse providers under the existing plan and would be required to do so retroactively. Similarly, there is no dispute that if the amendment is ultimately approved the new reimbursement rate may be applied retroactively to the first day of the quarter in which the plan amendment was submitted. 42 C.F.R. § 447.256(c). In short, once HCFA either approves or disapproves the amendment, the reimbursement paid by DHS to the providers will be adjusted as need be; the dispute arises as to what happens in the meantime, once the SPA is submitted but HCFA has not yet either approved nor disapproved the amendment. Exeter...