Granville House, Inc. v. Department of Health and Human Services

• Decision Date: 18 August 1983
• Docket Number: No. 83-1062,83-1062
• Parties: GRANVILLE HOUSE, INC., Appellee, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Appellant, Arthur E. Noot as Commissioner of Public Welfare for the State of Minnesota.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1292

715 F.2d 1292

2 Soc.Sec.Rep.Ser. 504

GRANVILLE HOUSE, INC., Appellee, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Appellant, Arthur E. Noot as Commissioner of Public Welfare for the

State of Minnesota.

No. 83-1062.

United States Court of Appeals,

Eighth Circuit.

Submitted June 15, 1983.

Decided Aug. 18, 1983.

James M. Rosenbaum, U.S. Atty., Mary Egan, Asst. U.S. Atty., Minneapolis, Minn., Donna Morros Weinstein, Regional Atty., Carolyn Cozad Hughes, Asst. Regional Atty., U.S. Dept. of Health and Human Services, Chicago, Ill., for appellant.

Warren P. Eustis and Jay T. Hartman, Gilmore, de Lambert, Aafedt, Eustis & Forde, P.A., Minneapolis, Minn., for appellee.

Before HEANEY, Circuit Judge, and FLOYD R. GIBSON and ROSENN ^*, Senior Circuit Judges.

HEANEY, Circuit Judge.

This case involves a challenge to the interpretation of the phrase "institutions for mental disease" contained in the Medicaid Act. The district court held that the interpretation adopted by the Department of Health and Human Services (HHS), to include the diseases of chemical dependency and alcoholism within the term "mental diseases," was unreasonable. We reverse in part and remand to the district court with directions to it to allow the Grant Appeals Board the opportunity to consider and decide this matter, after which any party may seek review in the district court.

I. BACKGROUND

Granville House, Inc., is a nonprofit corporation that operates three residential chemical dependency treatment programs in Minnesota. Jane Dickman House, established in 1963, serves women aged sixteen and over; Team House, established in 1972, serves men aged seventeen and over; and Warren Eustis House, established in 1980, serves adolescents aged thirteen to eighteen. The three facilities have a total capacity of one hundred six residents. Granville's primary mission since its founding in 1963 has been to treat poor people who are victims of chemical dependency. Prior to 1980, approximately ninety percent of its residents were indigent clients, whose expenses, since 1972, were paid through public funds. ¹

In the mid to late 1970s, Granville made inquiries concerning the availability of federal funding under the Medicaid program, Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. (1976 & Supp. V 1981). Title XIX provides for the federal government to share with the states the costs of various types of medical assistance, including services provided in intermediate care facilities (ICFs). See 42 U.S.C. § 1396d(a)(15) (1976). ² Commencing in 1978, Granville invested approximately $300,000 to bring the facilities at Jane Dickman House and Team House into conformity with the standards for intermediate care facilities. Once its facilities were certified as ICFs, Granville believed its residents would become eligible for Medicaid reimbursement. Approximately $200,000 was spent at Warren Eustis House for a similar purpose.

During this time period, however, officials in the Minnesota Department of Public Welfare, the State's Title XIX agency, advised Granville that its clients would not be eligible for reimbursement under Medicaid because its facilities were institutions for mental disease (IMDs). They indicated that these facilities were IMDs because over fifty percent of the residents were diagnosed as chemically dependent (in fact, all residents have such a diagnosis), a disease which is currently viewed by HHS as a mental disease or disorder.

Title XIX provides that no federal funds shall be paid for services provided to an individual who is under sixty-five years of age and who is a patient in an institution for mental disease or tuberculosis. Id.; 42 U.S.C. § 1396d(a)(18)(B) (Supp. V 1981). See 42 C.F.R. §§ 435.1008(a)(2), 440.140(a)(1)(ii), (a)(2) & (c) (1982). In 1972, Congress removed the restriction on federal financial participation for inpatient psychiatric hospital services provided to individuals under age twenty-one. 42 U.S.C. § 1396d(a)(16) (1976 & Supp. V 1981); id. § 1396d(h) (1976). See 42 C.F.R. § 440.160 (1982). Thus, the statute currently provides that persons between the ages of twenty-one and sixty-five who are patients in IMDs may not receive Medicaid. ³

Title XIX also provides that the Secretary of HHS "shall make and publish such rules and regulations, not inconsistent with this chapter, as may be necessary to the efficient administration of the [Medicaid program]," 42 U.S.C. § 1302 (Supp. V 1981), and pursuant to this authority the Secretary has promulgated regulations that define the term "institution for mental diseases." The regulations define "institution" as "an establishment that furnishes (in single or multiple facilities) food, shelter, and some treatment or services to four or more persons." 42 C.F.R. § 435.1009 (1982).

An IMD is specifically defined as:

an institution that is primarily engaged in providing diagnosis, treatment or care of persons with mental diseases, including medical attention, nursing care and related services. Whether an institution is an institution for mental diseases is determined by its overall character as that of a facility established and maintained primarily for the care and treatment of individuals with mental diseases, whether or not it is licensed as such.

Id.

HHS has further interpreted this definition of an IMD in a series of internal documents in the Field Staff Information and Instruction Series (FSIIS). These FSIIS documents were issued by the Medical Services Administration of the Social and Rehabilitation Service, the predecessor agency of the Health Care Financing Administration (HCFA), as guidelines for its regional officials. The most important one, for purposes of this case, is FSIIS FY-76-44, which directed the use of the World Health Organization's International Classification of Diseases (ICD) for determining what constitutes a "mental disease." FSIIS FY-76-44, dated November 7, 1975, specifically states:

An institution is characterized as "primarily" one for mental diseases if it is licensed as such, if it advertises as such or if more than 50 percent of the patients are in fact patients with mental disease. * * * Mental diseases are those listed under the heading of mental disorders in the eighth revision, International Classification of Diseases, Adapted for Use in the United States * * * except that mental retardation is not included for this purpose. ⁴

Alcoholism and other chemical dependencies are listed as mental disorders in the ICD. Thus, as a March 29, 1978, letter from Acting Regional Medicaid Director George R. Holland to a Minnesota official in the Department of Public Welfare states:

Under Medicaid chemical dependency is viewed as a form of mental disorder. Therefore, patients with such diagnosis who require skilled or intermediate [ICF] care would be eligible for Federal funding under the Medicaid program unless they are in a facility for mental diseases and their age is under 65 years. This latter restriction does not apply to young patients under 21 years of age in psychiatric facilities accredited by the Joint Commission on Accreditation of Hospitals. [Emphasis added.]

See generally Schweiker v. Wilson, 450 U.S. 221, 225 n. 5, 101 S.Ct. 1074, 1078 n. 5, 67 L.Ed.2d 186 (1981).

Granville filed this action in federal district court on May 12, 1980, against the Department of Health and Human Services and the Commissioner of the Department of Public Welfare in his official capacity, seeking a declaration that the classification of chemical dependency as a mental disease is arbitrary and capricious and that the treatment of chemical dependency in a certified ICF qualifies for federal financial participation under Medicaid. Granville invoked the district court's jurisdiction pursuant to 28 U.S.C. § 1331, claiming that the matter arose under the Constitution and Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. (1976 & Supp. V 1981).

The Minnesota Department of Public Welfare (hereinafter State) initially defended the suit, maintaining that its policies concerning Medicaid reimbursement for chemical dependency treatment were proper, that the district court lacked jurisdiction, and that Granville lacked standing and had failed to exhaust its available administrative remedies. The State later changed its position, however, and in February, 1982, moved to file a cross-claim against HHS and to consolidate the instant case with a companion case, Minnesota v. Schweiker, Civ. No. 4-82-155 (D.Minn., filed Feb. 26, 1982). ⁵ In its cross-claim, the State alleged jurisdiction under 28 U.S.C. §§ 1331 & 2201 and sought a declaratory judgment that HHS's interpretation of the Medicaid statute and regulations as precluding coverage for services provided to individuals in residential facilities serving the chemically dependent is contrary to law and regulations, arbitrary and capricious, and an abuse of discretion.

HHS opposed the consolidation and filing of the cross-claim, but after the district court ruled against it, HHS filed an answer denying the allegations in the State's cross-claim. HHS also denied the allegations in Granville's complaint, and further asserted that the district court lacked jurisdiction, and that Granville lacked standing.

Both Granville and HHS moved for summary judgment, and the district court heard evidence on the question of whether chemical dependency should be classified as a mental disorder. Because the agency's decision to use the ICD's classification scheme to further define the term "mental diseases" is not a regulation, but rather is simply an interpretation by the agency of a term contained in a regulation, the decision does not have the force and effect of law. See General Electric Co. v. Gilbert, 429 U.S. 125, 141, 97 S.Ct. 401, 410, 50 L.Ed.2d 343 (1976); 2 K. Davis, Administrative Law Treatise § 7:10 at 52 (1979). See also Schweiker v. Hansen, 450 U.S. 785, 789, 101 S.Ct. 1468, 1471, 67...