K.C. v. Shipman

• Decision Date: 10 May 2013
• Docket Number: No. 12–1575.,12–1575.
• Citation: 716 F.3d 107
• Parties: K.C., a minor child, by and through his mother and next friend, AFRICA H.; Allison Taylor Johns; L.S., a minor child, by and through his father and next friend, Ron S.; D.C., a minor child, by his mother and next friend, Penny C., Plaintiffs–Appellees, M.S., a minor child, through his parent and natural guardian, Rachelle S., Intervenor/Plaintiff–Appellee, v. Pamela SHIPMAN, in her official capacity as Area Director of Piedmont Behavioral Health Care Area Mental Health, Developmental Disabilities, and Substance Abuse Authority; Piedmont Behavioral Healthcare Area Mental Health, Developmental Disabilities and Substance Abuse Authority, d/b/a PBH, Defendants–Appellants, and Lanier M. Cansler, in his official capacity as Secretary of the Department of Health and Human Services; Albert A. Delia, in his official capacity as Acting Secretary of the Department of Health and Human Services, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

716 F.3d 107

K.C., a minor child, by and through his mother and next friend, AFRICA H.; Allison Taylor Johns; L.S., a minor child, by and through his father and next friend, Ron S.; D.C., a minor child, by his mother and next friend, Penny C., Plaintiffs–Appellees,M.S., a minor child, through his parent and natural guardian, Rachelle S., Intervenor/Plaintiff–Appellee,

v. Pamela SHIPMAN, in her official capacity as Area Director of Piedmont Behavioral Health Care Area Mental Health, Developmental Disabilities, and Substance Abuse Authority; Piedmont Behavioral Healthcare Area Mental Health, Developmental Disabilities and Substance Abuse Authority, d/b/a PBH, Defendants–Appellants,andLanier M. Cansler, in his official capacity as Secretary of the Department of Health and Human Services; Albert A. Delia, in his official capacity as Acting Secretary of the Department of Health and Human Services, Defendants.

No. 12–1575.

United States Court of Appeals, Fourth Circuit.

Argued: March 21, 2013.

Decided: May 10, 2013.

ARGUED:Wallace Churchill Hollowell, III, Nelson Mullins Riley & Scarborough, LLP, Raleigh, North Carolina, for Appellants. Douglas Stuart Sea, Legal Services of Southern Piedmont, Inc., Charlotte, North Carolina, for Appellees. ON BRIEF:Stephen D. Martin, Nelson Mullins Riley & Scarborough, LLP, Raleigh, North Carolina, for Appellants. Jane Perkins, National Health Law Program, Carrboro, North Carolina; John R. Rittelmeyer, Jennifer L. Bills, Morris McAdoo, Disability Rights NC, Raleigh, North Carolina, for Appellees.

Before WILKINSON, KING, and WYNN, Circuit Judges.

Appeal dismissed by published opinion. Judge WILKINSON wrote the opinion, in which Judge KING and Judge WYNN joined.

OPINION

WILKINSON, Circuit Judge:

Plaintiffs are a class of Medicaid beneficiaries who suffer from severe developmental disabilities. In July 2011, they sued (1) the Secretary of the North Carolina Department of Health and Human Services (“the Secretary” or “the NCDHHS”); (2) Piedmont Behavioral Healthcare (“PBH”), a local subdivision of the state that manages the delivery of plaintiffs' Medicaid services pursuant to a contract with the NCDHHS; and (3) Pamela Shipman, the director of PBH. Plaintiffs alleged that defendants violated their rights under the Medicaid statute and the Due Process Clause of the Fourteenth Amendment by reducing their health care services without notice and an opportunity for a hearing. The district court awarded a preliminary injunction in plaintiffs' favor, ordering defendants to reinstate plaintiffs' services to their prior levels and enjoining defendants from reducing those services without a hearing.

In this appeal, PBH and Shipman challenge the district court's entry of the preliminary injunction. Critically, however, the other defendant in this case—the Secretary of the NCDHHS—did not join in the appeal. Under the Medicaid statute and basic principles of justiciability, the Secretary's decision dictates the disposition of this case. That is because a provision in the statute, 42 U.S.C. § 1396a(a)(5), requires each state to designate a “single State agency” to administer its Medicaid plan (here, the NCDHHS) and a regulation prohibits PBH from “chang[ing] or disapprov[ing] any administrative decision of that agency,” 42 C.F.R. § 431.10(e)(3). Yet PBH seeks to do exactly that through its appeal—to reduce plaintiffs' services immediately, notwithstanding the NCDHHS's decision to comply with the injunction. Moreover, the Secretary's choice means that any judgment we could enter in PBH's favor would not provide PBH the redress it seeks: because the NCDHHS would remain bound by the preliminary injunction, so too would PBH as its agent. We therefore dismiss this appeal.

I.

A.

The case involves the delivery of Medicaid services to a class of North Carolina Medicaid recipients who suffer from chronic disabilities such as cerebral palsy, seizure disorders, mental retardation, and autism. While plaintiffs' conditions are serious enough to qualify them for institutional placement, they are able to live in community environments with the assistance of certain support services. For example, named plaintiff D.C. is a teenage Medicaid recipient with severe autism. Although he is verbally non-communicative and requires supervision at all times, D.C. is able to live at home with the help of professionals who teach him basic skills such as eating, dressing, and personal hygiene, and who provide temporary care for him when his parents are unavailable.

Plaintiffs receive these services through a type of Medicaid program known as “managed care Medicaid.” In contrast to traditional fee-for-service Medicaid, where beneficiaries seek services directly from providers who are then reimbursed by the state, managed care Medicaid is a model in which the state contracts with a managed care organization (“MCO”), which oversees the delivery of services to beneficiaries in exchange for a fixed, prospective payment from the state for each enrollee. See Medicaid Program; Medicaid Managed Care: New Provisions, 67 Fed. Reg. 40,989, 40,989 (June 14, 2002).

In this case, PBH is the MCO that manages the delivery of plaintiffs' Medicaid services, and Shipman is PBH's director.¹ More specifically, PBH is party to a contract with the NCDHHS under which PBH provides managed care to roughly 675 disabled individuals, including plaintiffs, as part of a program known as the North Carolina Innovations Waiver. The contract requires PBH to provide these enrollees with a list of certain covered health care services. PBH does so through a system in which it requires pre-authorization for non-emergency services like the skill-building and temporary care provided to plaintiff D.C. To obtain authorization, enrollees and their guardians meet each year with their physicians and a PBH employee to design an individual support plan identifying the services that the enrollee needs. The identified services are then submitted to PBH for approval. Once an enrollee's services are authorized, the contract provides that if PBH reduces or terminates those services, PBH must provide the enrollee with certain notice and appeal rights described in 42 C.F.R. §§ 438.400– .424.

As part of its pre-authorization process, PBH sets annual “base budget” amounts for each enrollee—the maximum level of funding that is available for certain non-emergency services. Prior to 2011, PBH set plaintiffs' base budget amounts using a benchmark system that was intended to tailor the amount of funding an enrollee could receive to his or her medical needs. In light of increasing service requests and budget shortfalls, however, PBH designed a new system, which established different funding categories for enrollees based on factors such as the enrollee's needs, safety risk, age, and place of living.

Pursuant to this updated system, PBH sent letters to Innovations Waiver enrollees in March and April of 2011 informing them of their newly assigned base budget amounts. For some enrollees—in particular, the five named plaintiffs and the members of the class eventually certified by the district court—the letter indicated that their previous base budget amounts would be reduced. The letter also stated that the new base budget amounts would be “the maximum amount of base service funds that can be authorized in your Individual Support Plan” and that PBH would be in contact to develop their next plan.

To illustrate, D.C.'s parents received a letter from PBH informing them that D.C.'s base budget would be reduced from $47,588.52 to $18,799.60 in graduated steps beginning on July 1, 2011. The letter contained no information on how to appeal or challenge the reduced amount. As a result, even though D.C. was approved on April 21, 2011 to receive $43,579.52 worth of skill-building and temporary care services, D.C.'s mother eventually signed a new plan (under what she states were threats that PBH would terminate all of D.C.'s services) reducing D.C.'s services to comply with his new budget. Under the new plan, D.C.'s services were reduced by seventy to one hundred hours per month from their prior levels. In order to maintain D.C.'s services at those prior levels and to avoid placing him in an institution, D.C.'s parents paid for his care directly out of their savings.

B.

On July 5, 2011, four Innovations Waiver enrollees filed a class action against Lanier Cansler, the Secretary of the NCDHHS; ² PBH; and Shipman. A fifth enrollee, M.S., intervened as a plaintiff in December 2011. The plaintiffs (now appellees) sought preliminary and permanent injunctions reinstating their services to previously authorized levels and enjoining defendants (and their agents) from reducing their services without complying with the notice and hearing requirements of the Medicaid statute and the Fourteenth Amendment.

The district court ruled on plaintiffs' motion for a preliminary injunction on March 29, 2012. Because the Medicaid regulations require an MCO to provide notice and hearing rights only when it has taken “action,” 42 C.F.R. § 431.200(b), the court focused its attention on defendants' argument that the reduction of plaintiffs' budgets did not amount to “action” in the first place. The court noted that “action” is defined in relevant part as the “reduction, suspension, or termination of a previously authorized service,” id. § 438.400(b). It then reasoned that PBH took “action” by reducing the plaintiffs' authorized service budgets and “communicat[ing] to [them] that as of July 2011, they must reduce or terminate certain services to comply with” those reduced budgets. The district court thus held that plaintiffs were entitled to the notice and appeal rights provided for by the Medicaid statute and the Fourteenth Amendment. The court further ruled that defendants had failed to comply with those requirements and accordingly granted the motion for a preliminary injunction.

On April 27, 2012, defendants PBH...