JK By And Through RK v. Dillenberg, CIV 91-261 TUC JMR.

• Citation: 836 F. Supp. 694
• Decision Date: 07 October 1993
• Docket Number: No. CIV 91-261 TUC JMR.,CIV 91-261 TUC JMR.
• Parties: J.K., a minor, By and Through R.K., et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. Jack DILLENBERG, in his official capacity as Director of the Arizona Department of Health Services; Charles Carbone, in his official capacity as Director, Division of Behavioral Health Services, Arizona Department of Health Services; Mabel Chen, in her official capacity as Acting Director, Arizona Health Care Cost Containment System, Defendants.
• Court: U.S. District Court — District of Arizona

836 F. Supp. 694

J.K., a minor, By and Through R.K., et al., on behalf of themselves and all others similarly situated, Plaintiffs, v. Jack DILLENBERG, in his official capacity as Director of the Arizona Department of Health Services; Charles Carbone, in his official capacity as Director, Division of Behavioral Health Services, Arizona Department of Health Services; Mabel Chen,¹ in her official capacity as Acting Director, Arizona Health Care Cost Containment System, Defendants.

No. CIV 91-261 TUC JMR.

United States District Court, D. Arizona.

October 7, 1993.

Leslie J. Cohen and Jane Hudson, Arizona Center for Law in the Public Interest, Tucson, AZ, and William E. Morris, Southern Arizona Legal Aid, Inc., Tucson, AZ, for plaintiffs.

Andrew M. Federhar and Timothy Berg, Fenemore Craig, P.C., Tucson, AZ, and C. Eileen Bond, Office of Atty. Gen., Phoenix, AZ, for defendants Jack Dillenberg and Charles Carbone.

Logan T. Johnston, Margo L. Friedland and Catherine M. Dodd, Johnston, Maynard, Grant & Parker, Phoenix, AZ, for defendant Mabel Chen, M.D.

ORDER

ROLL, District Judge.

INTRODUCTION

The instant action challenges the sufficiency of behavioral health services provided eligible children pursuant to the state of Arizona's Medicaid plan. The Second Amended Complaint alleges that state administration of that program violates controlling federal statutes and their implementing regulations. In particular, Plaintiffs contend that the state has imposed or knowingly sanctioned unlawful restrictions on the scope, duration, and amount of medically necessary mental health services, and similarly violated federal regulations governing their termination, suspension, and reduction. The Court previously certified this case as a class action, encompassing those children who are or who will become eligible for Title XIX behavioral health services furnished at Defendants' direction.

Defendant Jack Dillenberg is Director of the Arizona Department of Health Services ("ADHS"). Defendant Charles Carbone is Deputy Director of ADHS's Division of Behavioral Health Services ("DBHS"). DBHS is responsible for providing mental health services for Title XIX children. Defendant Mabel Chen is Acting Director of the Arizona Health Care Cost Containment System ("AHCCCS"), the single state Medicaid agency responsible for the provision of Title XIX children's mental health services in Arizona. DBHS, by contract, provides Title XIX mandated mental health services to children through six regional behavioral health authorities ("REBHA") located throughout the state.

Currently before the Court are the parties' cross-motions for summary judgment and the Defendants' individual and joint motions to dismiss. For the following reasons, Plaintiffs' motion for summary judgment is granted in part. Defendants' various joint and individual motions are denied.

RELEVANT FEDERAL LAW

"In 1965, Congress established `Medicaid,' a cooperative federal state health benefits assistance program designed to provide necessary medical services to low income persons." Citizens Action League v. Kizer, 887 F.2d 1003, 1005 (9th Cir.1989), cert. denied, 494 U.S. 1056, 110 S.Ct. 1524, 108 L.Ed.2d 764 (1990). Title XIX of the Social Security Act, codified at 42 U.S.C. § 1396 et seq., requires that states which accept Medicaid funding provide early and periodic screening and diagnostic procedures to all Title XIX eligible children and to provide those children with treatment for all mental illnesses discovered through the screening process. State governments possess primary responsibility for administration of the program, but in so doing must abide by the requirements of the Act to qualify for receipt of federal Medicaid funds. Beltran v. Myers, 701 F.2d 91, 92 (9th Cir), cert. denied, 462 U.S. 1134, 103 S.Ct. 3115, 77 L.Ed.2d 1369 (1983).

State participation in the Medicaid program is optional. If a state does elect to participate, it must comply with all provisions of the federal Medicaid statute and implementing regulations, except insofar as individual requirements may be waived by the federal government. Id.

States maintaining medical assistance plans approved by the Secretary of the United States Department of Health and Human Services receive federal financial assistance partly underwriting operation of their Medicaid program. 42 U.S.C. § 1396(b). These medical assistance plans designate services that the state will make available to eligible individuals. Arizona participates in the Medicaid program through its Arizona Health Care Cost Containment System ("AHCCCS"). A.R.S. § 36-2907.01. If a state chooses to participate, it stands to lose its federal funding if it fails to comply with the federal statute and regulations. Schweiker v. Gray Panthers, 453 U.S. 34, 36-37, 101 S.Ct. 2633, 2636-37, 69 L.Ed.2d 460 (1981); Mississippi Hospital Association, Inc. v. Heckler, 701 F.2d 511, 515 (5th Cir. 1983).

State Medicaid plans must provide that the amount, duration, and scope of each covered service will remain sufficient or reasonably achieve the purpose of the service provided. 42 C.F.R. § 440.230(b). Federal regulations prohibit Defendants from denying or reducing the amount, duration or scope of the Title XIX covered services based on the diagnosis, type of illness or condition suffered. 42 C.F.R. § 440.230(c). States must make payments to mental health treatment providers adequate to ensure that their services remain available to Medicaid recipients to at least the extent that such services are available to the general population. 42 C.F.R. § 447.204. Coverage is not boundless; an agency "may place appropriate limits on a service based on such criteria as medical necessity or on utilization control procedures." 42 C.F.R. § 440.230(d). Finally, and crucial to the issues at stake here, whenever a state takes an action to reduce, suspend, or terminate Title XIX services, the state or local agency must give ten days written notice, an opportunity to appeal, and maintain services during the appeal process. 42 U.S.C. § 1396a(a)(3); 42 C.F.R. §§ 431.200-431.250.

FACTUAL BACKGROUND

The uncontroverted facts are as follows. The Arizona Department of Health Services entered into a contract with CODAMA, the REBHA serving Maricopa County, to provide behavioral health services to eligible children in that area. The contract recognizes and requires CODAMA to comply with all applicable state and federal laws. In January of 1993, CODAMA introduced a new policy, with certain exceptions,² whereby Title XIX children residing in residential treatment centers or therapeutic group homes would be discharged from treatment in ninety days.

As to the individual named Plaintiffs,³ Plaintiff K.P. has Tourette's Syndrome and resides at a residential treatment center in Scottsdale.⁴ K.P.'s mother was orally informed that his stay at the center had been terminated pursuant to the new policy. When written notice came, it did not contain details explaining the reasons for K.P.'s termination nor any information regarding the appeals process. K.P.'s doctor recommends a continued stay at the facility.

Plaintiff S.M. suffers from bi-polar disorder, post-traumatic stress syndrome, and has a history of abuse. She resides at a residential treatment center in Phoenix. Her residence was terminated through written notification. However, the letter does not explain the reasons for termination, procedures for appeal and retention of services pending appeal. S.M.'s treatment team recommends continued residential placement as medically necessary.

DISCUSSION

CROSS-MOTIONS FOR SUMMARY JUDGMENT

Class Plaintiffs move for summary judgment, requesting a ruling requiring Defendants to follow Medicaid statutory regulations mandating that treatment decisions be made on the basis of medical necessity, and that prior to termination or reduction of services, reasonable notice, including information regarding the patient's rights to and pending appeal, be given. Defendants cross-move arguing that Plaintiffs have no entitlement to prior notice, hearing, and continued services when there is a change in the amount or level of services.

I.

Defendant Chen concedes that federal law requires notice of an action terminating, suspending, or reducing Medicaid eligibility or covered services, but that this requirement applies only to the state and not to independent contractors hired to perform certain services. In other words, it is Chen's position that the REBHAs are responsible for the decision making that Plaintiffs seek to enjoin, but that they function as private entities whose actions cannot be attributed to the state.

The state action inquiry divides along several broad lines. The first looks at whether the private actor was engaging in a traditional government function. A government function is one that has been typically performed by government exclusively. Jackson v. Metropolitan Edison Co., 419 U.S. 345, 352-54, 95 S.Ct. 449, 454-55, 42 L.Ed.2d 477 (1974) (no state action in the operation of a private utility company even though it was given virtual monopoly status and licensed by the state). The government function analysis is quite restrictive and the mere operation of business which could be performed by a government will not be construed as a public function. Id. See Flagg Brothers, Inc. v. Brooks, 436 U.S. 149, 98 S.Ct. 1729, 56 L.Ed.2d 185 (1978) (no state action in the sale of a debtor's goods by a warehouseman even though a state law authorized such sales); Hudgens v. National Labor Relations Board, 424 U.S. 507, 96 S.Ct. 1029, 47 L.Ed.2d 196 (1976) (first amendment did not apply to privately owned shopping centers); Marsh v. Alabama, 326 U.S. 501, 66 S.Ct. 276, 90 L.Ed. 265 (1946) (company town encompassing both residential and commercial districts was subject to the limits of the first and fourteenth amendments).

In a second category of cases, state action is based on the relationship...