Friendship Villa-Clinton, Inc. v. Buck

Citation512 F. Supp. 720
Decision Date31 March 1981
Docket NumberCiv. No. K-80-1850.
PartiesFRIENDSHIP VILLA—CLINTON, INC. d/b/a Clinton Convalescent Center v. Charles R. BUCK, Ph.D Secretary, Maryland State Department of Health and Mental Hygiene.
CourtU.S. District Court — District of Maryland

Joseph E. Casson, Malcolm J. Harkins, III and Joseph L. Bianculli, Washington, D. C., and James R. Eyler, Baltimore, Md., for plaintiff.

Stephen H. Sachs, Atty. Gen. of Maryland, and Stephen J. Sfekas and Henry E. Schwartz, Asst. Attys. Gen. of Maryland, Baltimore, Md., for defendant.

FRANK A. KAUFMAN, District Judge.

In this case, Friendship Villa — Clinton, Inc. (Clinton) challenges, as violative of its rights under the federal and Maryland Constitutions, federal statutes and federal and Maryland regulations, certain federal and state regulations in accordance with which Maryland computes the reimbursable expenses of nursing homes under the Medicaid statute, 42 U.S.C. § 1396 et seq. Because this Court concludes that plaintiff's claims are barred by the Eleventh Amendment, it need not and does not reach the merits of any of those claims.

I. FACTS

The parties have stipulated to the material facts. On December 29, 1978, J. Kennedy Sills, the owner of all of the issued and outstanding stock of Pine View Gardens, Inc. (Pine View), a Maryland corporation, agreed to sell all of that stock to Wallace R. Carlson. Carlson was then the sole stock-holder of Friendship Villa Equity Corporation, a Colorado corporation. Pine View owned, on December 29, 1978, land, buildings, improvements, furniture and equipment of a nursing and convalescent center in Clinton, Maryland which Pine View was leasing to American Nursing Home and Convalescent Center, Inc. American was licensed by the State of Maryland to operate a 265-bed facility and was a provider of Medicaid services.

After the Department of Health and Mental Hygiene of the State of Maryland (Department), of which defendant Buck is Secretary and which is responsible for administering the Maryland Medicaid program, approved the change in ownership contemplated by the said December 29, 1978 agreement, Carlson acquired, on June 5, 1979, pursuant to that December 29, 1978 agreement, 100 percent of the stock of Pine View and thereafter liquidated Pine View. Carlson then leased the said liquidated assets to plaintiff herein, namely, Clinton, a Maryland corporation and a wholly owned subsidiary of Friendship Villa Equity Corporation. The parties have agreed that Clinton's costs for the purpose of Medicaid reimbursement are determined by the transactions pursuant to which Carlson individually became the owner of the Clinton assets and not by the terms of the subsequent lease between him and Clinton since he and Clinton are "related parties" within the meaning of 42 C.F.R. § 405.427. The parties have also agreed that the consideration paid by Carlson for the stock of Pine View was the result of an arms length transaction and reflected the fair market value of the assets of Pine View as an ongoing nursing and convalescent home facility. After Carlson leased, as aforesaid, the liquidated assets to Clinton, the latter, as a corporation, received a license to operate the nursing home from the Department and entered into a provider agreement with the Department. Until August of 1979 Clinton was reimbursed by the Department at the rate of $30.70 per patient day for care and services rendered under Medicaid. In August, 1979, a review of projected budgets and operating costs by the Department led it to reduce that reimbursement rate to $25.45 per patient day.1

The August, 1979 reduction was caused by the Department's determination not to use, in calculating reimbursable costs, the cost to Carlson of acquiring the Pine View assets, but rather to use the costs of Pine View. In so doing, the Department refused to treat the totality of the transactions as being in essence a sale of assets by Pine View to Clinton. If such a direct sale had occurred, at arms length, then the Department would have looked to the costs so incurred by Clinton. But because there was first a sale of all of Pine View's stock to Carlson, and then a liquidation caused by Carlson, the Department viewed the acquisition by Carlson of Sills' stock as a sale of stock which did not require or permit revaluation of assets, and the subsequent liquidation as a transaction between related parties, Pine View and Carlson, which was required to be disregarded for cost purposes under 42 C.F.R. § 405.427. After Clinton objected to those determinations by the Department, the latter informally reviewed them, but afforded no formal administrative hearing because administrative review of cost determinations by the Department is available to a provider of services only after final cost determinations are made at the end of the fiscal year.2

Clinton instituted this case in July, 1980 seeking a preliminary injunction requiring defendant to use the price Carlson paid to Sills as the basis for valuing the assets of the nursing home in computing Medicaid reimbursements, and a declaratory judgment that the Department's current method of calculating Clinton's reimbursable costs is a violation of the Medicaid statute, of applicable federal regulations, and of constitutional and lawful rights of plaintiff.

On September 19, 1980, after this action was filed, Friendship Villa Equity Corporation, Clinton's parent corporation, sold all of its interests in sixteen nursing homes, including the Clinton, Maryland facility in question here, and in so doing cancelled out the rights of its wholly-owned subsidiary, Clinton, the plaintiff herein, to operate the Clinton, Maryland facility. Accordingly, on September 19, 1980, Clinton ceased the operation of the nursing, convalescent facility in Clinton, Maryland. Thus, since September 19, 1980, Clinton seeks herein only what it as plaintiff claims is proper reimbursement for the period between June, 1979 and September, 1980 when it was a Medicaid provider.

II. JURISDICTION

Plaintiff alleges jurisdiction under 28 U.S.C. § 1331(a) and § 1343.3 Defendant contends that jurisdiction over the within action is barred by section 205(h) of the Social Security Act, 42 U.S.C. § 405(h),4 which provides:

The findings and decision of the Secretary after a hearing shall be binding upon all individuals who were parties to such hearing. No findings of fact or decision of the Secretary shall be reviewed by any person, tribunal, or governmental agency except as herein provided. No action against the United States, the Secretary, or any officer or employee thereof shall be brought under section 24 of the Judicial Code of the United States to recover on any claim arising under this title.

That provision is found in Title II of the Social Security Act. However, it has been incorporated into Title XVIII of the Social Security Act, the Medicare chapter, by § 1872 of the Act, 42 U.S.C. § 1395ii. Defendant argues that provision is applicable to this Medicaid case (under Title XIX) because the regulations which Clinton challenges were promulgated under Medicare (Title XVIII) and then adopted and made applicable to Medicaid. In effect defendant contends that this case, while brought under Title XIX, is in reality a challenge to Medicare regulations, and so should be governed by the jurisdictional limitations applicable to Medicare.

This action would have been barred by 42 U.S.C. § 405(h) had it been brought under the Medicare statute. Rhode Island Hospital Inc. v. Califano, 585 F.2d 1153, 1156 (1st Cir. 1978); St. Louis University v. Blue Cross Hospital Service, 537 F.2d 283, 287-89 (8th Cir.), cert. denied, 429 U.S. 577, 97 S.Ct. 484, 50 L.Ed.2d 584 (1976). See Weinberger v. Salfi, 422 U.S. 749, 757, 95 S.Ct. 2457, 2463, 45 L.Ed.2d 522 (1975) (Title II).

In Rhode Island Hospital, supra, the plaintiff had challenged the regulations in issue under both Medicare and Medicaid. Chief Judge Coffin, in that case, in the course of considering the applicability of section 405(h) to cases attacking Medicare regulations under Medicaid, wrote at 1161-63 (footnote omitted):

We agree * * * that § 405(h) presents no jurisdictional bar in cases arising under Title XIX. See Springdale Convalescent Center v. Mathews, 545 F.2d 943, 949 (5th Cir. 1977).
* * * * * *
Were we to assume § 1331 jurisdiction over the Hospital's Medicaid claim we would find ourselves in the peculiar posture of hearing a case that consists entirely of a challenge to the limits promulgated under Title XVIII, when we are expressly barred by Title XVIII from entertaining that challenge at this time. To so allow Title XIX to become the back door into Title XVIII, which has barred this case from entrance, would result in an automatic circumvention of the Title XVIII administrative machinery when its cost limitations have been adopted by Title XIX and the provider, as will usually be the case, furnishes services under both Titles.
* * * * * * We are not faced with a case like Springdale in which the gravamen of the action can be said to arise under the Medicaid Act and resolution requires analysis of a Medicare provision. At issue here is the validity of the Title XVIII reimbursement limits which allegedly deprive a provider of reimbursement for Medicare costs, and as a result of their impact on Title XIX, of a much smaller amount of Medicaid costs as well. By declining to exercise jurisdiction over this case we leave the Hospital to the Title XVIII administrative process. To the extent that its challenge to the Medicare reimbursement limits would be successful there, or in a court after obtaining a "final determination", as required by 42 U.S.C. § 1395oo(f), the benefits of the determination will accrue to it as a provider of Medicaid as well as Medicare services.

In Hadley Memorial Hospital, Inc. v. Harris, 1980 CCH Medicare and Medicaid Guide ¶ 30,533 at p. 10,062 (D.Kan.1980), the Court, relying on the Rhode Island...

To continue reading

Request your trial
4 cases
  • Weide v. Mass Transit Admin.
    • United States
    • U.S. District Court — District of Maryland
    • June 28, 1985
    ...its Eleventh Amendment rights "merely from the fact that Maryland provides a state judicial remedy." Friendship Villa-Clinton, Inc. v. Buck, 512 F.Supp. 720, 727 n. 11 (D.Md.1981). Consequently, plaintiff's claim under § 1983 against the MTA must fail because the Eleventh Amendment preclude......
  • COLO. HEALTH CARE ASS'N v. Colo. Dept. of Soc. Serv.
    • United States
    • U.S. District Court — District of Colorado
    • December 5, 1984
    ...over the third, fourth and fifth claims is based upon resolution of questions of federal law. See Friendship Villa—Clinton, Inc. v. Buck, 512 F.Supp. 720, 722-25 (D.Md.1981). I retain pendent jurisdiction over the remaining state law claims in the interests of judicial Plaintiffs' motion fo......
  • Pollock v. CITRUS ASSOCIATES, ETC.
    • United States
    • U.S. District Court — Southern District of New York
    • May 6, 1981
    ... ... CITRUS ASSOCIATES OF the NEW YORK COTTON EXCHANGE, INC., ContiCommodity, Inc., Norton Waltuch, and "John Does" Nos. 1-10, ... ...
  • NEW YORK CITY HEALTH AND HOSPITALS v. Perales
    • United States
    • U.S. District Court — Southern District of New York
    • September 23, 1993
    ...to change its course of conduct to minimize the cost should it decide not to assume the added cost."); Friendship Villa-Clinton, Inc. v. Buck, 512 F.Supp. 720, 725 (D.Md.1981) ("Plaintiff is claiming reimbursement for services which have already been provided. The fact the precise amount of......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT