Folden v. Washington State Dept. of Social and Health Services

• Decision Date: 11 December 1992
• Docket Number: 90-35475,Nos. 90-35397,s. 90-35397
• Citation: 981 F.2d 1054
• Parties: , Medicare & Medicaid Guide P 40,961 Henry B. FOLDEN and Jean Folden, husband and wife, dba Crestwood Convalescent Center, et al., Plaintiffs-Appellants-Cross-Appellees, v. WASHINGTON STATE DEPARTMENT OF SOCIAL AND HEALTH SERVICES, Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1054

981 F.2d 1054

39 Soc.Sec.Rep.Ser. 594, Medicare & Medicaid Guide

P 40,961

Henry B. FOLDEN and Jean Folden, husband and wife, dba Crestwood Convalescent Center, et al Plaintiffs-Appellants-Cross-Appellees, v. WASHINGTON STATE DEPARTMENT OF SOCIAL AND HEALTH SERVICES Defendant-Appellee-Cross-Appellant.

Nos. 90-35397, 90-35475.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Nov. 6, 1991.

Decided Dec. 11, 1992.

Thomas H. Grimm and John F. Sullivan, Inslee, Best, Doezie & Ryder, Bellevue, WA, for plaintiffs-appellants-cross-appellees.

Charles A. Miller and Mark H. Lynch, Special Asst. Attys. Gen., DC, for defendant-appellee-cross-appellant.

Appeal from the United States District Court for the Western District of Washington.

Before: WRIGHT, HUG and LEAVY, Circuit Judges.

HUG, Circuit Judge:

This case concerns the adequacy of payments to facilities that have contracted with the Washington Department of Social and Health Services to provide nursing home care under the state plans in effect since 1981. The owners of 14 such facilities brought this class action, contesting the adequacy of the state payments under the state plans and contending that they do not meet the federal requirements under the Medicaid Provisions of the Social Security Act, more particularly, the provisions of the amendment to that statute known as the Boren Amendment. In a thorough and carefully analyzed opinion, the district court found that the state plans, as administered by the Washington State officials, met the procedural requirements of the Boren Amendment and were reasonable and adequate to meet the costs, which must be incurred by efficiently and economically operated facilities, as required by that federal standard. We affirm essentially for the reasons expressed in the district court opinion.

Federal jurisdiction in the district court was based upon 28 U.S.C. § 1331 (1988). The jurisdiction in this court is based on 28 U.S.C. § 1291 (1988).

The issues presented in this appeal are: (1) whether the state plans, as administered, complied with the procedural fact-finding requirement of the Boren Amendment; (2) whether the State's Medicaid reimbursement rates for nursing homes satisfy the Boren Amendment's substantive requirement that the State's payments to Medicaid providers are reasonable and adequate to meet the costs which must be incurred by "efficiently and economically operated facilities"; (3) whether the amended state regulation concerning the scope of field audits was invalid because it was in violation of the Washington statute concerning publication of audit rules; (4) whether the appellees are entitled to attorneys' fees pursuant to 42 U.S.C. § 1988 (1988).

The facts and procedural posture of this case are carefully set out in the district court's published opinion, 744 F.Supp. 1507 (W.D.Wash.1990), to which we refer.

I.

The Boren Amendment, which was passed on October 1, 1980, is an amendment to the Social Security Act that provides for Medicaid ("Medicaid Act"). The Boren Amendment is codified as 42 U.S.C. § 1396a(a)(13)(A) (1988). Prior to the adoption of the Boren Amendment, the Medicaid Act required payment to nursing homes "on a reasonable cost related basis." 42 U.S.C. § 1396a(a)(13)(E) (1976). This standard obligated the states to pay nursing homes for whatever reasonable costs the facilities incurred in providing care to Medicaid recipients. The Boren Amendment was enacted as a part of the Omnibus Reconciliation Act of 1980, Pub.L. No. 96-499, § 8962(a), 94 Stat. 2599 (1980). This was in response to concerns that the prior standard for reimbursement under Medicaid did not give sufficient authority to the states to control the continuing increase in nursing home costs. See Senate Comm. on the Budget, 96th Cong., 2d Sess., Reconciliation (S. 2885) and Special Rules for Its Consideration 94-95 (Comm.Print 1980); West Virginia Univ. Hosps., Inc. v. Casey, 885 F.2d 11, 23 (3d Cir.1989), cert. denied, 496 U.S. 936, 110 S.Ct. 3213, 110 L.Ed.2d 661 (1990).

The change was from reimbursement of all reasonable costs to only those costs that "must be incurred by efficiently and economically operated facilities" to provide the care that is required under federal and state quality standards. This permitted states to alter their plans for the purpose of encouraging providers to contain the costs of health care services and allowed states to accommodate the reductions in the amount of funds that the federal government would pay to the states under the Medicaid program. Wisconsin Hosp. Ass'n v. Reivitz, 733 F.2d 1226, 1228 (7th Cir.1984). The Boren Amendment was designed to give states greater flexibility in calculating reasonable costs and in containing the continuing escalation of those costs. The Boren Amendment allows the states to adopt a "prospective" rate-setting system, which sets out a predetermined rate that the provider will receive and, thus, encourages the provider to meet that rate or to absorb the loss if the provider's actual costs exceed that rate. The State of Washington has adopted a rather complex and detailed prospective rate-setting system. This is detailed in the district court's opinion. 744 F.Supp. at 1511-13.

Each state participating in the Medicaid program is required to have state plans that must be approved by the Secretary of the U.S. Department of Health and Human Services through the Health Care Financing Administration ("HCFA"). 42 U.S.C. § 1396a. The Boren Amendment requires that, in seeking reimbursement for Medicaid services, each state make "assurances" satisfactory to the Secretary of Health and Human Services that the rates are in accordance with the standard of the Boren Amendment. These assurances are to be based on "findings" that the state has made. The findings are not submitted to the agency but merely form the basis for the assurances that are submitted. The only procedural requirement of the Boren Amendment is that the state provide assurances and that those assurances be based upon findings.

The appellants contend that the State has failed to make the requisite findings to support the assurances given to the federal agency. The district court correctly noted that the procedural requirements of the federal regulation are satisfied if the state agency has engaged in a bona fide fact-finding process and the assurances to the federal agency are based upon its findings. 744 F.Supp. at 1532. The district court noted that the states are free to create their own methods of arriving at the required findings and that the finding process does not require any special studies or written findings. It is sufficient if the state agency has considered, on the basis of some reasonably principled analysis, whether its payment rates meet the substantive requirements of the Boren Amendment. Id.

The appellants rely upon a statement in Amisub (PSL), Inc. v. Colorado Dep't of Social Servs., 879 F.2d 789, 796 (10th Cir.1989), cert. denied, 496 U.S. 935, 110 S.Ct. 3212, 110 L.Ed.2d 660 (1990). The court stated:

The plain language of federal Medicaid law mandates the State Medicaid Agency, at a minimum, to make "findings" which identify and determine (1) efficiently and economically operated [facilities]; (2) the costs that must be incurred by such [facilities]; and, (3) payment rates which are reasonable and adequate to meet the reasonable costs of the state's efficiently and economically operated [facilities].

879 F.2d at 796 (emphasis in original). The appellants' contend that the State must define what is an "economically and efficiently operated facility." In effect, the appellants contend that the State is required to set up a model of an efficiently and economically operated facility and then match the cost of all facilities against that model. As the district court noted, this is neither a requirement of the Boren Amendment nor a requirement of the Amisub opinion. 744 F.Supp. at 1532.

The statutory requirement of the Boren Amendment is that state findings and assurances set out that the rates 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 HCFA has developed regulations to implement the Boren Amendment. The regulations require the state Medicaid agency to make a finding that 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.

42 C.F.R. § 447.253(b)(1).

This does not mean that a model of an economically operated facility must be established but, instead, that the reimbursable costs are to be those that meet the standards of efficiently and economically operated facilities. The states are left considerable latitude in how to determine what the costs are that "must be incurred by efficiently and economically operated facilities." As the district court correctly noted, the "HCFA has specifically rejected the suggestion that states should be required to define efficiently and economically operated facilities, because 'the State's methods and standards implicitly act as the State's definition of an efficiently and economically operated facility.' " 744 F.Supp. at 1532 (citing 48 Fed.Reg. 56049 (Dec. 19, 1983)).

The State of Washington has not chosen to set up a model of an efficiently and economically operated facility; instead, it has chosen through statutes and regulations to adopt a different method of determining how that standard can be met. As the district court correctly noted:

Under Washington's Medicaid statute, the identification of efficiently and economically operated facilities is closely tied to, and is part of, the...