Kansas Health Care Ass'n, Inc. v. Kansas Dept. of Social and Rehabilitation Services

• Decision Date: 04 August 1994
• Docket Number: No. 93-3182,93-3182
• Citation: 31 F.3d 1536
• Parties: , Medicare & Medicaid Guide P 42,572 KANSAS HEALTH CARE ASSOCIATION, INC.; Kross Development Company, Inc., doing business as Rossville Valley Manor; Vintage Group, Inc., doing business as Gatewood Care Center; Innovative Health of Kansas, Inc., doing business as Lakewood Health Care Center; Americare Properties, Inc., doing business as Pleasant Valley Manor and Moran Manor; Riverview Manor, Inc., doing business as Riverview Manor, for themselves and all others similarly situated, Plaintiffs-Appellees, v. KANSAS DEPARTMENT OF SOCIAL AND REHABILITATION SERVICES; Donna Whiteman, Secretary, Kansas Department of Social and Rehabilitation Services, Defendants-Appellants. American Health Care Association, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1536

31 F.3d 1536

45 Soc.Sec.Rep.Ser. 320, Medicare & Medicaid Guide

P 42,572

KANSAS HEALTH CARE ASSOCIATION, INC.; Kross Development

Company, Inc., doing business as Rossville Valley Manor;

Vintage Group, Inc., doing business as Gatewood Care Center;

Innovative Health of Kansas, Inc., doing business as

Lakewood Health Care Center; Americare Properties, Inc.,

doing business as Pleasant Valley Manor and Moran Manor;

Riverview Manor, Inc., doing business as Riverview Manor, for themselves and all others similarly situated, Plaintiffs-Appellees, v. KANSAS DEPARTMENT OF SOCIAL AND REHABILITATION SERVICES;

Donna Whiteman, Secretary, Kansas Department of

Social and Rehabilitation Services,

Defendants-Appellants.

American Health Care Association, Amicus Curiae.

No. 93-3182.

United States Court of Appeals,

Tenth Circuit.

Aug. 4, 1994.

Rehearing Denied Sept. 7, 1994.

Phyllis D. Thompson, Covington & Burling, Washington, DC (Vicki J. Larson and Alicia M. Strohl, Covington & Burling, Washington, DC, and Bruce A. Roby, Dept. of Social and Rehabilitation Services, Topeka, KS, with her on the briefs), for appellants.

Kevin M. Fowler (John C. Frieden and Randall J. Forbes with him on the briefs), Frieden, Haynes & Forbes, Topeka, KS, for appellees.

Joel M. Hamme and Joseph W. Metro, Reed Smith Shaw & McClay, Washington, DC, on the briefs, for amicus curiae, American Health Care Ass'n.

Before ANDERSON and TACHA, Circuit Judges, and ROSZKOWSKI, ^* Senior District Judge.

STEPHEN H. ANDERSON, Circuit Judge.

Defendants appeal from orders of the district court imposing a mandatory preliminary injunction and awarding plaintiffs interim relief on their claim that defendants' Medicaid payment plan for nursing home facilities violated federal law. We affirm.

BACKGROUND

Plaintiff Kansas Health Care Association, Inc. ("KHCA") is a nursing home trade association representing approximately half of the 400 nursing homes in Kansas. The remaining five plaintiffs are corporations that own and operate six Medicaid-certified nursing homes in Kansas. ¹ Defendant Kansas Department of Social and Rehabilitation Services ("SRS") is the state agency charged with administering the reimbursement of nursing homes that participate in the Medicaid program. The other defendant, Donna Whiteman, is the Secretary of SRS, whom plaintiffs sue in her official capacity.

Kansas participates in the Medicaid program, a joint federal/state arrangement authorized by Title XIX of the Social Security Act, 42 U.S.C. Sec. 1396-1396v ("Medicaid Act"), under which the federal government gives grants to states to assist them in providing medical, nursing home, and other care for certain low-income individuals. See Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513-14, 110 L.Ed.2d 455 (1990). The decision to participate in the Medicaid program is voluntary, but participating states are thereby obligated to comply with the Act and regulations promulgated by the Secretary of the United States Department of Health and Human Services ("Secretary"). Id.; AMISUB (PSL), Inc. v. Colorado Dep't of Social Servs., 879 F.2d 789, 794 (10th Cir.1989), cert. denied, 496 U.S. 935, 110 S.Ct. 3212, 110 L.Ed.2d 660 (1990).

To qualify for federal Medicaid funds, a state must submit a "plan for medical assistance" to the Health Care Financing Administration ("HCFA"), the Secretary's delegate with responsibility for administering the Medicaid program. 42 U.S.C. Sec. 1396. ² The plan must contain a detailed and comprehensive description of the state's Medicaid program, including reimbursement procedures for those persons or entities who provide services to Medicaid patients. 42 U.S.C. Sec. 1396a(a); 42 C.F.R. Sec. 430.10 (1993).

The Boren Amendment to the Medicaid Act governs payment rates to nursing home facilities and requires a state plan to:

provide ... for payment ... of the ... services ... through the use of rates (determined in accordance with methods and standards developed by the State ...) ... which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and Federal laws, regulations, and quality and safety standards....

42 U.S.C. Sec. 1396a(a)(13)(A); see also 42 The Boren Amendment contains both a procedural and a substantive component. Each creates rights enforceable by 42 U.S.C. Sec. 1983. See Wilder, 496 U.S. at 524, 110 S.Ct. at 2525; Kansas Health Care Ass'n v. Kansas Dep't of Social and Rehabilitation Servs., 958 F.2d 1018, 1020 (10th Cir.1992) ("KHCA I "). The procedural component involves two separate parts:

                C.F.R. Sec. 447.250(a). 3  The Act and implementing regulations similarly obligate state plans to provide for the payment of such costs "consistent with efficiency, economy, and quality of care."  42 U.S.C. Sec. 1396a(a)(30);  42 C.F.R. Sec. 447.250(b)
                

First, the State Medicaid Agency must engage in a "finding" process that all federal requirements have been met to substantiate its assurances, including the assurances that its payment rates satisfy the "efficiency and economy" requirement. Second, the State Medicaid Agency must supply HCFA with "assurances" that all federal requirements have been met, including the "efficiency and economy" requirement.

AMISUB, 879 F.2d at 796 (citing 42 U.S.C. Sec. 1396a(a)(13)(A); 42 C.F.R. Secs. 447.205, 447.250(a), 447.253(a) and (b)). The state's "findings" precede the "assurances" to HCFA. The findings are not themselves, however, reviewed by HCFA; only the assurances are.

We have further held that the findings requirement encompasses a three-part determination: the state agency must "at a minimum, ... make 'findings' which identify and determine (1) efficiently and economically operated hospitals; (2) the costs that must be incurred by such hospitals; and (3) payment rates which are reasonable and adequate to meet the reasonable costs of the state's efficiently and economically operated hospitals." AMISUB, 879 F.2d at 796 (emphasis original). ⁴ While a state is "free to create its own method for arriving at the required findings," the requirement to make findings is real: "[m]ere recitation of the wording of the federal statute is not sufficient for procedural compliance. There is a presumption that a state will engage in a bona fide finding process before it makes assurances to HCFA that the required findings have been made." Id. at 797. Several courts have interpreted AMISUB's identification and determination requirement to not mandate explicit "findings," but to permit its "accomplishment through the terms of the state plan itself." New Jersey Ass'n of Health Care Facilities v. Gibbs, 838 F.Supp. 881, 898 (D.N.J.1993); Folden v. Washington Dep't of Social and Health Servs., 744 F.Supp. 1507, 1533 (W.D.Wash.1990), aff'd, 981 F.2d 1054 (9th Cir.1992).

Substantively, to satisfy the Boren Amendment's "reasonable and adequate" standard, Medicaid payments must fall within a "zone or range of reasonableness." Colorado Health Care Ass'n, 842 F.2d at 1167; see also Folden v. Washington Dep't of Social and Health Servs., 981 F.2d 1054, 1058 (9th Cir.1992); West Virginia Univ. Hosps., Inc. v. Casey, 885 F.2d 11, 26 (3d Cir.1989), cert.

                denied, 496 U.S. 936, 110 S.Ct. 3213, 110 L.Ed.2d 661 (1990). 5  The Boren Amendment does not specifically state whether all or only a certain percentage of Medicaid patient expenditures must be reimbursed. 6  Indeed, an issue in this case is whether all "allowable" reasonable costs must be reimbursed, or whether some lesser percentage satisfies the Medicaid Act. 7  Individual components of the reimbursement rate do not necessarily determine compliance with the Boren Amendment.  "It is the resulting overall payment which is evaluated for statutory compliance."  Colorado Health Care Ass'n, 842 F.2d at 1167;  Folden, 744 F.Supp. at 1535
                

The state must amend its plan to reflect changes in federal or state law or policy, and to reflect any changes in the operation of its Medicaid program. Amendments must be submitted to the HCFA for approval. 42 C.F.R. Sec. 430.12(c). Thus, any amendments which change the payment rate for services, such as nursing home services, must receive HCFA approval. Id. Sec. 447.253(a). Whenever a state changes its payment rates, but in any event not less than annually, the state agency administering its Medicaid program must make findings that the payment rates are "reasonable and adequate to meet the costs that must be incurred by efficiently and economically operated providers...." Id. Sec. 447.253(b)(1).

States, rather than the federal government, administer their own Medicaid programs, and each state has " 'wide discretion in administering its local program' " provided it complies with federal Medicaid law. Erie County Geriatric Ctr. v. Sullivan, 952 F.2d 71, 74 (3d Cir.1991) (quoting Lewis v. Hegstrom, 767 F.2d 1371, 1373 (9th Cir.1985)). While states have considerable discretion, their determination of reasonable reimbursement rates must be principled: "[t]he state must articulate 'a rational connection between the facts found and the choice made.' " Colorado Health Care Ass'n, 842 F.2d at 1167 (quoting Baltimore Gas and Elec. Co. v. Natural Resources Defense Council, 462 U.S. 87, 105, 103 S.Ct. 2246, 2256, 76 L.Ed.2d 437 (1983)); see also Pinnacle Nursing Home v. Axelrod, 928 F.2d 1306, 1314 (2d Cir.1991) (A state must "establish a nexus between the costs of operating efficient and economic nursing facilities and the proposed reimbursement rates under the state plan.").

Kansas has by statute elected to participate in the Medicaid program. See Kan.Stat.Ann. Sec. 39-708c. Kansas employs a prospective-payment, facility-specific, Medicaid reimbursement system. On July 1 of each year, SRS establishes a new reimbursement rate...