Hcmf Corp. v. Gilmore

• Decision Date: 09 November 1998
• Docket Number: Civil Action No. 98-0297-R.
• Citation: 26 F.Supp.2d 873
• Parties: HCMF CORPORATION, et al. Plaintiffs, v. James GILMORE, et al. Defendants.
• Court: U.S. District Court — Western District of Virginia

Page 873

26 F.Supp.2d 873

HCMF CORPORATION, et al. Plaintiffs, v. James GILMORE, et al. Defendants.

Civil Action No. 98-0297-R.

United States District Court, W.D. Virginia, Roanoke Division.

November 9, 1998.

COPYRIGHT MATERIAL OMITTED

Robert Thomas Adams, Richard Cullen, Earle Duncan Getchell, Jr., Thomas J. Stallings, Robert L. Hodges, McGuire, Woods, Battle & Boothe, Richmond, VA, for Plaintiffs.

Edward Meade Macon, Mark L. Earley, William Henry Hurd, Gregory E. Lucyk, Siran S. Faulders, Office of the Attorney General, Richmond, VA, for Defendants.

Memorandum Opinion and Order

WILSON, Chief Judge.

Plaintiffs, affiliated owners or operators of seven nursing facilities in Virginia (collectively "Heritage"), bring this action pursuant to 42 U.S.C. § 1983 (1994) for alleged violations of the reimbursement standards purportedly prescribed by 42 U.S.C. § 1396a(a)13 of the Medicaid Act, for failing to follow Medicaid statutes and regulations before adopting a new reimbursement policy, and for alleged violations of their Fourteenth Amendment rights to due process and equal protection.¹ They name as defendants James Gilmore, the Governor of Virginia; Claude Allen, the Secretary of Virginia's Department of Health and Human Resources; Robert Lauterberg, the Director of Virginia's Department of Medical Assistance Services ("DMAS") — the State agency responsible for administering Virginia's Medicaid system; and DMAS and its board members (collectively "Defendants"). Heritage seeks a declaratory judgment under 28 U.S.C. § 2201 declaring that Defendants "have deprived plaintiffs of federal rights under color of state law" and an injunction requiring Defendants "to comply with Federal law," reimburse Heritage "adequately under 42 U.S.C. § 1396a(a)13," revise Heritage's "interim plant rates," and reimburse Heritage "the difference between the interim plant rates implemented by defendants and the interim plant rate allowable under Federal and State law for fiscal years 1994-1997." (Compl. at 22-23.) Defendants move to dismiss on several grounds. They maintain the Eleventh Amendment to the United States Constitution bars the suit, that the suit is not ripe, that the Younger and Colorado River abstention doctrines require dismissal, and that Heritage's due process claim is not sustainable under Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 L.Ed.2d 420 (1981).² The court concludes (1) that the suit is ripe, (2) that abstention is not warranted, (3) that the Eleventh Amendment precludes the court from exercising jurisdiction over Heritage's claims that Defendants violated the reimbursement standards purportedly prescribed by the Medicaid Act and failed to follow Medicaid statutes and regulations, and (4) that Defendants did not violate Heritage's rights to procedural due process. Finally, the court reserves judgment on Heritage's equal protection claim because the parties have not addressed the merits of that claim.

I.

"Medicaid is a cooperative federal-state program through which the Federal Government provides financial assistance to States so that they may furnish medical care to needy individuals." Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). The Medicaid Act requires participating States to comply with certain requirements imposed by the Act and implementing regulations promulgated by the Secretary of Health and Human Services (the "Secretary"). See id. To participate, a state must submit a proposed plan for medical assistance that contains a comprehensive statement describing the nature and scope of the State's Medicaid program and have that plan approved by the Secretary. See id. Among other things, the plan must include "a scheme for reimbursing health care providers for the medical services provided to needy individuals." Id. Before its repeal in 1997, the Boren Amendment to the Medicaid Act required each state plan to establish payment and reimbursement rates that were "reasonable and adequate" to cover the costs that must be incurred by "efficiently and economically operated facilities." Omnibus Budget Reconciliation Act of 1980, Pub.L. No. 96-499, § 962(a), 94 Stat. 2599, 2650 (1980) (codified at 42 U.S.C. § 1396a(a)(13)) (repealed 1997). In 1997, however, Congress repealed the Boren Amendment and expressly provided that the repealed Boren Amendment standard is not applicable to payments for health provider services rendered after October 1, 1997. Balanced Budget Act of 1997, Pub.L. No. 105-33, § 4711(a)(1), 111 Stat. 251, 507-08 (1997) (to be codified at 42 U.S.C. § 1396a(a)(13)). The Balanced Budget Act of 1997 left to the states entirely the formulation of new standards, prescribing only a public notice process for participating states to follow in setting those standards. Virginia has not amended its plan to set new standards.

In 1993, DMAS began notifying the seven Heritage nursing care facilities that those facilities had received excess reimbursement for plant costs. DMAS had reimbursed those facilities based on the interest rate on bonds the facilities obtained from local industrial development authorities rather than on their Federal Housing Administration ("FHA") mortgage interest rates. According to DMAS, an earlier review revealed a significant relationship between the facilities' FHA mortgage obligations and the industrial development authority bonds secured by those mortgages. DMAS claims it discovered that those facilities were able to structure the transactions to retire fully their bond indebtedness before the expiration of their FHA mortgages. Their bond rate, therefore, according to DMAS, more accurately reflected their plant costs. Consequently, DMAS notified the facilities by "Notices of Program Reimbursement" that it would seek reimbursement for excess plant costs claimed through 1993 and would adjust their future reimbursement rates.

Virginia's administrative appeals process, which is augmented by Va.Code Ann. §§ 32.1-325.1, 9-6.14:1 to 6:14:21 (Michie 1997 & 1993), is detailed in Virginia's Medicaid plan. See Beverly Health & Rehabilitation Servs., Inc. v. Metcalf, 24 Va.App. 584, 484 S.E.2d 156, 159-60 (Va.Ct.App.1997). Upon receiving a "Notice of Program Reimbursement," a health care provider can request an "Informal Fact Finding Conference" to review the initial decision. See id. If the provider remains dissatisfied following that initial review, the provider can appeal the decision to a hearing officer and receive a de novo hearing. See id. The hearing officer is required to make a recommendation to the Director of DMAS (the "Director"), who can accept or reject the hearing officer's recommendation. See id. The Director is required, however, to defer to the hearing officer's findings that are "explicitly based on the demeanor of witnesses." Id. The provider can appeal the Director's final decision to the state Circuit Court, which owes deference to the agency's interpretation of its own rules and regulations, see id., and either of the parties can appeal the Circuit Court's decision to the Virginia Court of Appeals.

The seven nursing care facilities in this case have appealed DMAS's initial decision, and all seven appeals are awaiting an informal fact-finding conference.

II.

The court requested the parties to address the question of whether this case is ripe because its resolution rests upon contingent future events. DMAS may, on further consideration, decide that its initial decision was wrong and that Heritage is entitled to the reimbursement it seeks, or in the event of an unfavorable decision, Heritage could have Virginia's state courts review the matter. The court now concludes that the case is ripe despite the availability of additional state administrative and judicial remedies. Talbot v. Lucy Corr Nursing Home, 118 F.3d 215 (4th Cir.1997), is instructive.

The plaintiff in Talbot brought a § 1983 action alleging a violation of the nursing care facility resident rights provisions of the Medicare Act. See id. at 216 (alleging a violation of 42 U.S.C. § 1395i-3(c)). The District Court dismissed for nonexhaustion. See id. at 218. The Fourth Circuit reversed, expressly agreeing with and relying on the reasoning of the Eleventh Circuit in Alacare, Inc.-North v. Baggiano, 785 F.2d 963 (11th Cir.1986), which held that plaintiffs are not required to exhaust state administrative remedies in § 1983 suits to enforce the provisions of the Medicaid Act. See id. at 969. "In holding against an exhaustion requirement, the Alacare court rejected the notion that the existence of a federally-mandated state administrative review process was sufficient to evidence Congress' intent that exhaustion of those remedies should be required before permitting a § 1983 claim." Talbot, 118 F.3d at 220. Talbot's agreement with and reliance on Alacare makes it clear that in the Fourth Circuit, assuming arguendo that Wilder had not already made it clear, that exhaustion is not required.³

Although this court questioned the ripeness of Heritage's suit, it did so because of the availability of further state administrative review. Thus, though the court couched its inquiry in terms of ripeness, its analytical basis was indistinguishable from the exhaustion analysis previously rejected by the Fourth Circuit and arguably the Supreme Court. Accordingly, the court will not dismiss Heritage's suit on ripeness grounds.

III.

Defendants request the court to abstain under the Younger and Colorado River abstention doctrines in light of pending administrative proceedings. The court finds neither abstention doctrine applicable.

Under the Younger abstention doctrine, which takes its name from the seminal case of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971), federal courts should abstain "whenever federal claims have been or could be presented in ongoing state judicial proceedings that concern important state interests." Hawaii Housing...