Grijalva v. Shalala

• Decision Date: 17 October 1996
• Docket Number: Civ. No. 93-711 TUC ACM.
• Parties: Gregoria GRIJALVA, Carol Knox, May Lea, Beatrice Bennett, and Mildred Morrell, as individuals and representatives of a class of persons similarly situated, Plaintiffs, Josephine Balistreri, Fred S. Scherz, Kevin A. Driscoll, Mina Ames, Edmundo B. Cardenas, Arline T. Donoho, Patricia Sloan, Beth Robley, Goldie M. Powell and Richard Baxter, Plaintiffs-Intervenors, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.
• Court: U.S. District Court — District of Arizona

Page 747

946 F.Supp. 747

Gregoria GRIJALVA, Carol Knox, May Lea, Beatrice Bennett, and Mildred Morrell, as individuals and representatives of a class of persons similarly situated, Plaintiffs Josephine Balistreri, Fred S. Scherz, Kevin A. Driscoll, Mina Ames, Edmundo B. Cardenas, Arline T. Donoho, Patricia Sloan, Beth Robley, Goldie M. Powell and Richard Baxter, Plaintiffs-Intervenors, v. Donna E. SHALALA, Secretary of Health and Human Services, Defendant.

Civ. No. 93-711 TUC ACM.

United States District Court, D. Arizona.

October 17, 1996.

COPYRIGHT MATERIAL OMITTED

Sally Hart Wilson, Center for Medicare Advocacy, Inc., Southern Arizona Legal Aid, Tucson, AZ, for Plaintiffs.

Sheila M. Lieber, Michael J. Haungs, Civil Division, U.S. Department of Justice, Washington, DC, for Defendant.

ORDER

MARQUEZ, Senior District Judge.

This action involves the Medicare program and its coverage of medical care dispensed by Health Maintenance Organizations (HMOs).¹ Plaintiffs seek declaratory and injunctive relief against the Secretary for abdicating her responsibility to monitor HMOs and to ensure that HMOs provide Medicare covered benefits. Plaintiffs ask that the Court order Defendant Shalala, Secretary of Health and Human Services, to implement and enforce effective notice, hearing, and appeals procedures for HMO service denials. Plaintiffs and Defendant simultaneously move for summary judgment.

Defendant alleges that HMOs are privately owned entities and their actions cannot be imputed to the federal government. Defendant contends that this Court has no jurisdiction to review the Health Care Finance Administration's (HCFA's) supervision of HMOs. Defendant asserts that neither the Administrative Procedure Act (APA), Constitution, or the Medicare statutes provide for judicial oversight of the Secretary.² Defendant repeats her previous argument that, here, there can be no judicial review because Plaintiffs failed to exhaust their administrative remedies.

Plaintiffs seek summary judgment for Defendant's failure to enforce service requirements on HMOs in violation of statutory mandates and the Due Process Clause of the Constitution. Plaintiffs complain HMOs either fail to provide any notice or provide inadequate notice when medical services are denied. Plaintiffs contend that the Constitution requires an expedited hearing before an HMO can deny services and that HMOs carry the burden of proof for Medicare denials.

A. Jurisdiction Revisited: 42 U.S.C. § 405(g)

Section 405(g) of the Social Security Act applies to service denials by HMOs because 42 U.S.C. § 1395mm provides:

(B) A member enrolled with an eligible organization under this section who is dissatisfied by reason of his failure to receive any health service to which he believes he is entitled and at no greater charge than he believes he is required to pay is entitled, if the amount in controversy is $100 or more, to a hearing before the Secretary to the same extent as is provided in section 405(b) of this title, and in any such hearing the Secretary shall make the eligible organization a party. If the amount in controversy is $1000 or more, the individual or eligible organization shall, upon notifying the other party, be entitled to judicial review of the Secretary's final decision as provided in section 405(g) of this title, and both the individual and the eligible organization shall be entitled to be parties to that judicial review. (emphasis added).

42 U.S.C. § 405(b) requires that the Secretary make findings of fact, and decide the rights of any individual applying for a payment under this subchapter. Any decision by the Secretary which is in whole or in part unfavorable to a claimant "shall contain a statement of the case, in understandable language, setting forth a discussion of the evidence, and stating the Secretary's determination and the reason or reasons upon which it is based." 42 U.S.C. § 405(b). Further:

Upon request ... and showing in writing that rights may be prejudiced by any decision the Secretary has rendered, [the Secretary] ... shall give ... reasonable notice and opportunity for hearing. If a hearing is held, [the Secretary] shall, on the basis of evidence adduced at the hearing, affirm, modify, or reverse his findings of fact and such decision. Any such request ... must be filed within sixty days after notice of such decision is received....

Id.

42 U.S.C. § 405(g) provides for judicial review of a final decision by the Secretary. "A final judgment in the context of § 405(g) and § 1395mm(c)(5)(B) consists of two elements: (1) the presentment of a claim to the Secretary; and 2) exhaustion of administrative remedies. Johnson v. Shalala, 2 F.3d 918, 921 (9th Cir.1993)." (Order filed December 5, 1994 at 4.) The presentment requirement, the non-waiveable criteria for jurisdiction, is not an issue here, Id. at 5; all Plaintiffs in the instant case filed claims for Medicare covered services and protested HMO denials. (Plaintiffs' Supplement to Plaintiffs' Memorandum in Support of Motion for Certification of Class Action filed June 26, 1995.) This Court waived the exhaustion requirement by its Order of December 15, 1994, (See Order at 5-8); this Court previously held, and again affirms, that jurisdiction exists under § 405(g).

Abundant case law supports such jurisdiction under § 405(g) for challenges involving various Social Security entitlement Programs. See e.g.: Johnson v. Shalala, 2 F.3d 918 (9th Cir.1993) (exhaustion waived: Social Security Income (SSI) recipient challenged Social Security Administration policy of counting all in-kind loans as income); Briggs v. Sullivan, 886 F.2d 1132 (9th Cir.1989) (exhaustion waived: challenge to Secretary's policy of withholding SSI beneficiaries' representative payments during time beneficiary was without representation; declaratory and injunctive action against Secretary for improper policy and procedure); Schoolcraft v. Sullivan, 971 F.2d 81 (8th Cir.1992) (exhaustion waived: Social Security disability beneficiaries challenged Secretary's failure to ensure that uniform standards were applied at all levels of review, specifically initial determination conducted by state agency), cert. denied, 510 U.S. 1081, 114 S.Ct. 902, 127 L.Ed.2d 93 (1994); Himmler v. Califano, 611 F.2d 137 (6th Cir.1979) (exhaustion waived: applicants for Medicare benefits alleged due process violations when benefits were terminated by fiscal intermediary without notice and hearing); Kraemer v. Heckler, 737 F.2d 214 (2nd Cir.1984) (exhaustion waived: due process challenge to Secretary's policy of allowing Utilization Review Committee (URC) to terminate Medicare without notice or hearing); Goodnight v. Shalala, 837 F.Supp. 1564 (Utah 1993) (exhaustion waived: claim against state agency for procedural irregularities violating Medicare regulations and against Secretary for failure to enforce); Vorster v. Bowen, 709 F.Supp. 934 (C.D.Cal.1989) (exhaustion waived: due process challenge to initial determination of coverage by private carrier providing Part B, Medicare supplemental insurance); Fox v. Bowen, 656 F.Supp. 1236 (D.Conn.1987) (exhaustion waived: fiscal intermediaries' routine denials of Medicare coverage, based on improper presumptions, for certain categories of physical therapy violated due process).

Assuming this Court correctly waived the exhaustion requirement for jurisdiction under § 405(g), there is nothing unique about 42 U.S.C. § 1395mm and its provisions for judicial review via § 405(g) of the Social Security Act which affects jurisdiction over claims against the Secretary just because dispensation of medical care is via an HMO.

B. State Action: HMO Service Denials

Defendant makes much of the fact that HMOs are private, non-governmental entities because it is a fundamental rule of law that due process under the Fourteenth Amendment attaches only to actions which may fairly be said to be those of the state. Shelley v. Kraemer, 334 U.S. 1, 13, 68 S.Ct. 836, 842, 92 L.Ed. 1161 (1948). Therefore, Plaintiffs' claim hinges on whether HMO denials of service constitute state action.

Defendant argues that HMOs are merely private providers who contract with the government to provide medical care to Medicare beneficiaries. Defendant's scenario fits within the protected confines of Blum v. Yaretsky, 457 U.S. 991, 102 S.Ct. 2777, 73 L.Ed.2d 534 (1982). In Blum, the Supreme Court found nursing home decisions to transfer patients to lower care facilities did not constitute state action even though the transfer decision resulted in a corresponding termination of benefits. The transfer decisions, made by attending physicians and home administrators,³ were made by private parties according to professional standards. Id. at 1008, 102 S.Ct. at 2787-88. Since there was no evidence that the State had exercised coercive power or provided significant encouragement, overt or covert, there could be no finding in law of state action. Id. at 1004, 102 S.Ct. at 2785-86.

Defendant, the State of Arizona, made this same argument in J.K. v. Dillenberg, 836 F.Supp. 694 (Ariz.1993): "REBHAs [regional behavioral health authorities] are responsible for the decision making that Plaintiffs seek to enjoin, but [] they function as private entities whose actions cannot be attributed to the state." Dillenberg, 836 F.Supp. at 697. Judge John M. Roll distinguished the nursing homes in Blum as private providers which did not execute state responsibilities for a state created service, Id. at 698, from those in Dillenberg, where the state had delegated the entire responsibility for its mandated behavioral health care duties to REBAHs. The state action factors in Dillenberg were: 1) the private entities, REBHAs, were subject to extensive state involvement; and 2) the contract required REBHAs to "`comply with all Federal, State, and local laws, rules, regulations, standards and executive orders, governing performance of duties ... and shall...