Newfield House, Inc. v. Massachusetts Dept. of Public Welfare

• Decision Date: 13 July 1981
• Docket Number: Nos. 80-1541,80-1554,s. 80-1541
• Citation: 651 F.2d 32
• Parties: NEWFIELD HOUSE, INC., Plaintiff-Appellant, v. MASSACHUSETTS DEPARTMENT OF PUBLIC WELFARE et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 32

651 F.2d 32

NEWFIELD HOUSE, INC., Plaintiff-Appellant, v. MASSACHUSETTS DEPARTMENT OF PUBLIC WELFARE et al.,

Defendants-Appellees.

Nos. 80-1541, 80-1554.

United States Court of Appeals, First Circuit.

Argued Feb. 10, 1981.

Decided June 4, 1981.

As Modified on Denial of Rehearing and Rehearing En Banc

July 13, 1981.

Kenneth A. Behar, Boston, Mass., with whom Barbara J. Sproat, John F. O'Leary, and O'Leary, Behar & Kalman, Boston, Mass., were on brief, for Newfield House, Inc.

Judith S. Yogman, Asst. Atty. Gen., Boston, Mass., with whom Francis X. Bellotti, Atty. Gen., Garrick F. Cole, Sp. Asst. Atty. Gen., and Hill & Barlow, Boston, Mass., were on brief, for Massachusetts Department of Public Welfare, et al.

Carolyn S. Grace, Asst. U. S. Atty., Boston, Mass., with whom Edward F. Harrington, U. S. Atty., Boston, Mass., was on brief for Secretary of Health and Human Services.

Before COFFIN, Chief Judge, WINTER, Circuit Judge, ^* SKINNER, District Judge. ^**

COFFIN, Chief Judge.

This case requires us to determine the proper allocation of the costs of health care for Medicaid-funded residents of a nursing home in the period between the home's voluntary withdrawal from participation as a Medicaid provider and the successful relocation of the patients to other facilities. The question, clearly one for which none of the parties had planned, was at the relevant time not addressed directly by any state or federal statute or regulation. Viewing the matter primarily as one of contractual interpretation, we affirm the district court's ruling that the state was required to pay for such care at the rate paid prior to the home's withdrawal.

I

The plaintiff, Newfield House, Inc. ("Newfield House" or "the home"), a nursing-home health-care facility duly licensed by the Massachusetts Department of Public Health, served as a provider of nursing home services in the Medicaid program since the inception of the program in Massachusetts. Newfield House provided care for both Medicaid and non-Medicaid patients, charging a rate of $19.70 per day for the former and $25.00 per day for the latter. Until May 1975, Newfield House, apparently like other nursing home providers in Massachusetts, participated in the Medicaid program without any written agreement. On May 17, 1975, the federal Department of Health, Education and Welfare (HEW) sent a letter to the Massachusetts Department of Public Welfare (DPW), directing it to enter into written provider contracts with all nursing home providers as a condition of receiving the 50 percent federal financial participation provided by the program. Newfield House received DPW's proposed provider contract on May 30, and immediately replied that it would not continue as a Medicaid provider under the terms of that agreement. It proposed an alternative agreement, under which it would continue to provide services for the ten patients then receiving Medicaid payments, but only at its higher private patient rate. DPW rejected this offer, and Newfield House refused to sign an agreement providing for limited interim continuation at the prior Medicaid rate. DPW informed Newfield House on August 24, 1976 that, because the home had not signed a provider agreement, DPW would terminate Medicaid payments to it as of October 1, 1976.

Prior to October 1, Newfield House brought suit in Massachusetts Superior Court to enjoin DPW from terminating payments to it for its ten Medicaid patients unless and until the department relocated the patients to other facilities. The court entered a temporary restraining order directing DPW to pay for nursing home services for the home's Medicaid patients at the home's private patient rate of $25 per day. The order was initially continued for 15 days by agreement of the parties, and was subsequently ordered continued while the case was assigned for trial on an expedited basis.

Before trial was to begin, however, DPW removed the case to federal district court, and that court denied Newfield House's motion to remand the case to state superior court. Defendants moved to dissolve the state court restraining order, but the district court maintained the order in effect and ultimately denied the motion on grounds of mootness. With the district court's permission, Newfield House added the Secretary of HEW, the Massachusetts Department of Public Health (DPH), and the Medicaid-funded patients then residing at the home as defendants. In addition, DPW brought a counterclaim against Newfield House seeking return of all money paid under the restraining order, and Newfield House added its Medicaid patients as third-party defendants on that counterclaim. Both Newfield House and some of the patients' families petitioned the court for appointment of a guardian ad litem to represent the patients, but the district court declined to act on the petitions and, with one limited exception, no patient ever appeared in the case. At the close of the case, the court granted HEW's motion to dismiss it from the action.

On the central issue presented, the district court ordered Newfield House to repay to DPW the excess of the payments made under its interim order at the home's private patient rate of $25 per day over the amount that would have been due at its Medicaid rate of $19.70 per day, but only that excess (a total of $8,538.74 of the $53,305.31 paid). The court first drew a sharp distinction between voluntary and involuntary terminations of nursing home provider arrangements, and held that the federal Medicaid regulations in force at all times relevant here imposed no obligation on the state to provide such payments in the case of a voluntary termination. But the court went on to conclude that "unusual circumstances" present in this case supported a finding of a "constructive provider agreement" between the state and the home during the pendency of this dispute citing such circumstances as the uncertainty surrounding the parties' obligations, the fact that the state would have been required "with minor exceptions" to provide care for Newfield House's patients at the same or greater rates at other facilities, and the existence of the temporary restraining order issued by the state court and continued by the federal court.

Emphasizing that providing for the care of the patients had been its central concern throughout the litigation, the court stressed that such relevant equitable/contractual factors as unjust enrichment and detrimental reliance in its view mitigated against the state and in favor of the home and its patients. The court held that its refusal to return to the state all the payments made to the home did not violate the Eleventh Amendment, since such payments had been prospective with respect to the then-valid interim orders pursuant to which they were made. Finally, the court suggested that the state pursue administrative remedies seeking reimbursement from the federal government, expressing the view that while it could not order such reimbursement (since the state had not exhausted available administrative remedies) it did not think those remedies necessarily futile.

II

The central issue posed by this case is whether either federal statutes and regulations or the state's own prior actions require the state to pay Newfield House for care provided to Medicaid-eligible patients between the time Newfield House withdrew from the Medicaid program and the time those patients were successfully relocated. We agree with the district court that while federal Medicaid provisions do not themselves require such payments, the state's essentially contractual dealings with the home, viewed in light of relevant equitable considerations, do obligate it to reimburse the home for the services provided. We note that this precise legal question will not recur in Massachusetts, since the state has subsequently sought to do precisely what our analysis suggests it must do to avoid such a liability: enact legislation placing the burden of interim or relocation costs on providers. We of course express no view on the actual effect of that statute or subsequent regulations. See Mass.Gen.L. ch. 118, § 4; 106 C.M.R. § 456.401-05.

We first focus on Newfield House's attempt to find a basis in federal law for imposing a duty upon the state to relocate patients or pay for their continued care at a withdrawing facility. Its argument relies on one HEW regulation, 42 C.F.R. § 449.10(b)(15)(v) (1977), on two interpretations of that regulation, and on two related HEW guidelines. The regulation provides that a state can receive federal funds for payments for up to 30 days care to an institution whose provider agreement "has expired or otherwise terminated", but only for previously admitted patients and most critically only "if the state agency makes a showing satisfactory to the Secretary that it has made reasonable efforts to facilitate the orderly transfer of such individuals from such facility to another facility". Two HEW documents interpret this regulation. First, and most favorably to the plaintiff, a manual issued by HEW's Office of Nursing Home Affairs, apparently applicable even where a facility voluntarily withdraws from Medicaid, sets forth a view of relocation responsibilities that strongly implies state responsibility for relocation costs and interim expenses. ¹ Second, following HEW's agreement to a consent decree of general applicability in Cornell v. Creasy, 491 F.Supp. 124 (N.D.Ohio 1978), and subsequent to the events at issue in this case, HEW's Health Care Finance Administration issued guidelines detailing state agencies' responsibilities for transferring patients. ² In addition, other divisions of HEW have in other contexts manifested a similar general understanding: the Office of Human Development/Administration on Aging issued a Technical Assistance Memorandum designed to aid state agencies having the "primary responsibility" for developing relocation plans for nursing home patients ...