HCMF Corp. v. Allen

• Decision Date: 01 November 2000
• Docket Number: No.00-1360,00-1360
• Parties: (4th Cir. 2001) HCMF CORPORATION; HERITAGE HALL HOLDING LIMITED PARTNERSHIP; HERITAGE HALL XIII PARTNERSHIP; HCMF PARTNERSHIP VI; HCMF VI ADDITION LIMITED PARTNERSHIP; HCMF XV PARTNERSHIP, Plaintiffs-Appellants, v. CLAUDE A. ALLEN, Secretary of Health and Human Resources; ROBERT W. LAUTERBERG, Director of the Department of Medical Assistance Services, Commonwealth of Virginia; H. ALAN BIGLEY, JR.; DANIEL M. BRODY; LA TISHA OWENS CHATMAN; CATHERINE C. COLGAN; DENICE KING GARNER; STEVEN L. MINTER; JAMES T. PARMELEE; CATHERINE P. SAUNDERS; JAMES R. SMITH; JAMES L. MASLOFF, Defendants-Appellees, and JAMES GILMORE, The Governor of the Commonwealth of Virginia; THE DEPARTMENT OF MEDICAL ASSISTANCE SERVICES; FRANK MEDICO, Defendants. . Argued:
• Court: U.S. Court of Appeals — Fourth Circuit

Page 273

238 F.3d 273 (4th Cir. 2001)

HCMF CORPORATION; HERITAGE HALL HOLDING LIMITED PARTNERSHIP; HERITAGE HALL XIII PARTNERSHIP; HCMF PARTNERSHIP VI; HCMF VI ADDITION LIMITED PARTNERSHIP; HCMF XV PARTNERSHIP, Plaintiffs-Appellants, v. CLAUDE A. ALLEN, Secretary of Health and Human Resources; ROBERT W. LAUTERBERG, Director of the Department of Medical Assistance Services, Commonwealth of Virginia; H. ALAN BIGLEY, JR.; DANIEL M. BRODY; LA TISHA OWENS CHATMAN; CATHERINE C. COLGAN; DENICE KING GARNER; STEVEN L. MINTER; JAMES T. PARMELEE; CATHERINE P. SAUNDERS; JAMES R. SMITH; JAMES L. MASLOFF, Defendants-Appellees and JAMES GILMORE, The Governor of the Commonwealth of Virginia; THE DEPARTMENT OF MEDICAL ASSISTANCE SERVICES; FRANK MEDICO, Defendants.

No.00-1360.

UNITED STATES COURT OF APPEALS, FOR THE FOURTH CIRCUIT.

Argued: November 1, 2000.

Decided: January 23, 2001.

Appeal from the United States District Court for the Western District of Virginia, at Roanoke.

Samuel G. Wilson, Chief District Judge. (CA-98-297-7) [Copyrighted Material Omitted] COUNSEL: ARGUED: Earle Duncan Getchell, Jr., MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P., Richmond, Virginia, for Appellants. Edward Meade Macon, Senior Assistant Attorney General, Richmond, Virginia, for Appellees. ON BRIEF: Robert T. Adams, Robert L. Hodges, William H. Baxter, II, MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P., Richmond, Virginia, for Appellants. Mark L. Earley, Attorney General, William H. Hurd, Solicitor General, Judith Williams Jagdmann, Deputy Attorney General, Gregory E. Lucyk, Assistant Attorney General, Richmond, Virginia, for Appellees.

Before WIDENER, WILKINS, and NIEMEYER, Circuit Judges.

Affirmed by published opinion. Judge Wilkins wrote the opinion, in which Judge Widener and Judge Niemeyer joined.

OPINION

WILKINS, Circuit Judge:

HCMF Corporation and several related corporate entities (collectively, "HCMF") brought this action pursuant to 42 U.S.C.A. S 1983 (West Supp. 2000) alleging that the Virginia Department of Medical Assistance Services (DMAS), which administers the Medicaid program in Virginia, violated HCMF's asserted statutory federal right to "reasonable and adequate" rates of reimbursement under the Medicaid program.¹ 42 U.S.C.A. S 1396a(a)(13)(A) (West 1992). After the district court dismissed this claim as barred by the Eleventh Amendment, HCMF moved to amend its complaint to allege a new claim. The district court denied the motion to amend, reasoning that the claim HCMF sought to add to its complaint was indistinct from its original claim, and thus the amendment was futile. Although we conclude that the proposed amendment contained a different claim, we nevertheless agree with the district court that the amendment was futile. Accordingly, we affirm.

I.

HCMF operates several nursing homes in Virginia. The construction of the nursing homes was financed by bonds authorized by Industrial Development Authorities (IDA). HCMF secured the IDA bonds by obtaining insured mortgages from the U.S. Federal Housing Administration (FHA). The FHA mortgages have a slightly higher interest rate than the IDA bonds.

Medicaid is a joint federal-state program under which federal funds are made available to states that provide medical services to eligible recipients. See Mowbray v. Kozlowski, 914 F.2d 593, 595 (4th Cir. 1990). Although states that choose to participate must comply with certain federal Medicaid requirements each state administers its own program. See Cabell Huntington Hosp., Inc. v. Shalala, 101 F.3d 984, 986 (4th Cir. 1996).

The federal Medicaid requirement relevant here was contained in the Boren Amendment: Each state was required to assure the federal government that under its Medicaid program the state reimbursed nursing facilities at rates that were "reasonable and adequate." 42 U.S.C.A. S 1396a(a)(13)(A). Congress repealed the Boren Amendment effective October 1, 1997. See Balanced Budget Act of 1997, Pub. L. No. 105-33, S 4711, 111 Stat. 251, 507-08 (1997). The new S 1396a(a)(13)(A) contains no substantive mandate; it merely requires that states determine their reimbursement rates via a "public process" that allows providers notice and an opportunity to comment on the proposed rates. See 42 U.S.C.A. S 1396a(a)(13)(A) (West Supp. 2000).

Under the Medicaid program in Virginia, DMAS reimburses nursing facilities that provide care to Medicaid clients for plant costs, including incurred interest costs. See 12 Va. Admin. Code 30-90-30(A) (West 2000). DMAS reimbursed HCMF at the FHA mortgage interest rate for several years. In 1993, however, DMAS notified HCMF that henceforth it would reimburse HCMF at the IDA bonds interest rate and that it would seek a refund from HCMF for the years that DMAS reimbursed at the higher, FHA-mortgage interest rate.

HCMF filed this action in May 1998, claiming, as is relevant here, that reimbursement at the bond interest rate violated the Boren Amendment. The district court dismissed the claim for lack of jurisdiction. The court concluded that the Eleventh Amendment barred any retrospective relief against the state and that no prospective or injunctive relief was possible because Congress repealed the Boren Amendment effective October 1, 1997. The court stated that "[w]ith the repeal of the Boren Amendment nothing remains that remotely resembles a federal right to reasonable and adequate rates." HCMF Corp. v. Gilmore, 26 F. Supp. 2d 873, 880 (W.D. Va. 1998).

HCMF moved to amend its complaint to add a new claim based on a December 1997 letter from the United States Health Care Financing Administration (HCFA) that allegedly continued the"reasonable and adequate" standard from the Boren Amendment. In the letter, HCFA opined that "states are not required to subject their existing rates to a public process to the extent that those existing rates were validly determined in accordance with legal standards in effect prior to October 1, 1997." Children's Hosp. & Health Ctr. v. Belshe, 188 F.3d 1090, 1095 (9th Cir. 1999) (internal quotation marks omitted), cert. denied, 120 S. Ct. 2197 (2000). HCMF urged that because DMAS had not adopted new rates pursuant to a public process since October 1, 1997, HCFA's letter effectively continued the"reasonable and adequate" standard of the Boren Amendment for DMAS' rates. HCMF alleged that the letter established a "federal policy [that] creates federal rights enforceable" under S 1983. J.A. 237.

The district court denied HCMF's motion to amend. The court reasoned that the proposed amendment asserted no new legal theory, but rather amounted to a request for reconsideration of the dismissal of the previous claim, and that amending the complaint would therefore be futile.

II.

Leave to amend "shall be freely given when justice so requires." Fed. R. Civ. P. 15(a). A motion to amend should be denied "only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile." Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir. 1999) (internal quotation marks omitted). We review the decision of a district court to grant or deny a motion to amend for abuse of discretion. See id.

We agree with HCMF's contention that the proposed amendment set forth a new legal theory. HCMF originally claimed that it had a federal right under the Boren Amendment itself for DMAS to pay reasonable and adequate rates of reimbursement. See Wilder v. Va. Hosp. Ass'n, 496 U.S. 498, 509-10 (1990) (holding that Boren Amendment created substantive federal right, enforceable by health care providers, to reasonable and adequate rates). In the proposed amendment, HCMF sought to assert that HCFA's letter created a federal right to reasonable and adequate rates of reimbursement. Although both of these claims sought enforcement of the "reasonable and adequate" standard located in the Boren Amendment, the legal theory in the motion to amend was distinct--that a federal policy, rather than a federal statute, created a federal right. Accordingly, the district court was incorrect to consider the amendment merely a restatement of the original claim.

The issue thus becomes whether HCMF's proposed amendment was nevertheless futile.² HCMF asserts that the claim presented in the proposed amendment was not futile because other federal courts have permitted enforcement of the federal rights provided in the Boren Amendment despite its repeal. See Belshe, 188 F.3d at 1095,...