Ohio Academy of Nursing Homes, Inc. v. Barry

Decision Date26 December 1990
Docket NumberNo. 89-1429,89-1429
Citation564 N.E.2d 686,56 Ohio St.3d 120
CourtOhio Supreme Court
Parties, 32 Soc.Sec.Rep.Ser. 170, Medicare & Medicaid Guide P 39,480, 1 NDLR P 180 OHIO ACADEMY OF NURSING HOMES, INC., Appellant, v. BARRY, Director, et al., Appellees.

Syllabus by the Court

1. Medicaid providers may bring an injunction or declaratory judgment action pursuant to Section 1983, Title 42, U.S.Code, in order to seek enforcement of their rights under Section 1396a(a)(13)(A), Title 42, U.S. Code. (Wilder v. Virginia Hosp. Assn. [1990], 496 U.S. 498, 110 S.Ct. 2510, 110 L.Ed.2d 455, followed.)

2. In a due process determination, Medicaid providers have a legitimate property interest in the reimbursement rate provided under R.C. 5111.21, 5111.22 and Section 1396a(a)(13)(A), Title 42, U.S.Code.

On November 9, 1987, plaintiff-appellant, Ohio Academy of Nursing Homes, Inc. ("Academy"), filed a class action complaint on behalf of approximately one hundred fifty nursing homes for declaratory and injunctive relief and a writ of mandamus against appellees, Patricia K. Barry, Director of the Ohio Department of Human Services ("ODHS"), and ODHS in the Court of Common Pleas of Franklin County.

The Academy sought declaratory and injunctive relief with respect to the effect on the Medicaid rate for long-term care services of appellees' reduction of the ceiling for administrative and general services ("A & G") cost reimbursement from $12.55 to $10.80 for the period of November 15, 1987 through June 30, 1988. The complaint set forth claims for relief for appellees' alleged violation of the due process and equal protection provisions of Sections 2, 10 and 16, Article I, Ohio Constitution, and the Fifth and Fourteenth Amendments to the United States Constitution. Further, relief was sought for certain alleged violations of federal and state statutes, which included: Sections 1396a(a)(2), (4), (10)(B), (13)(A), and (19), Section 1983, Title 42, U.S.Code, and R.C. 5111.02, 5111.21(A), and 5111.23(B).

In order to provide a basis for understanding the arguments presented in this case, a historical background is necessary. In 1965, Congress enacted Title XIX of the Social Security Act to grant financial assistance to states providing medical care to needy persons. See Section 1396, Title 42, U.S.Code.

Although state participation was, and still is, voluntary, once a state agrees to enter the program it must comply with various requirements of the Act and regulations promulgated by the Secretary of Health and Human Services ("Secretary"). Under Sections 1396 and 1396a(a), a state must submit to the Secretary a "plan" for medical assistance. The plan must contain a comprehensive statement describing the nature and scope of the state's Medicaid program, Section 430.10, Title 42, C.F.R., and a scheme for reimbursing providers of health care services to needy persons. Section 1396a(a)(11)(A), Title 42, U.S.Code.

In Section 1396a(a)(13)(A) ("Boren Amendment"), 1 Congress set forth that a state must reimburse providers according to rates that the state "finds, and makes assurances satisfactory to the Secretary," are "reasonable and adequate" to meet the costs of "efficiently and economically operated facilities * * *." The Boren Amendment does not define these terms, and the Secretary has concluded that states should formulate the factors to be considered in setting rates that are "reasonable and adequate" to meet the costs of "efficiently and economically operated facilit[ies]." See 48 Fed.Reg. 56,049 (1983). However, the legislative history of the Boren Amendment indicates congressional "intent that a State not develop rates under this section solely on the basis of budgetary appropriations * * *." H.R.Conf.Rep. No. 1479, 96th Cong., 2d Sess. 154, reprinted in 1980 U.S.Code Cong. & Admin.News 5526, 5944.

In 1965, Ohio elected to participate in the cooperative joint venture with the federal government called the Medicaid Program and accordingly enacted former R.C. 5101.51, a forerunner of the current R.C. Chapter 5111. See 131 Ohio Laws 1210; 138 Ohio Laws, Part I, 1842. In order to deliver covered health services, appellee ODHS, pursuant to statute, entered into contracts with various types of health care providers. Nursing home providers 2 are obligated by R.C. Chapter 5111 to meet specified standards. A provider is required to accept the amount the state pays for services as payment in full. Ohio Adm.Code 5101:3-1-172(D).

Pursuant to R.C. Chapter 5111, costs incurred by nursing home providers are reimbursed in basically three areas: (1) nursing costs, dietary costs and utility costs along with property taxes, R.C. 5111.23; (2) administrative and general services costs, R.C. 5111.24; and (3) property costs, R.C. 5111.25.

Ohio Adm.Code 5101:3-3-21(B), which addresses administrative and general service costs ("A & G" costs), formerly provided:

"The ceiling for all routine administrative and general services costs for all SNF [skilled nursing] or ICF [intermediate care] facilities participating in the medicaid program (except state-operated facilities) is the rate at the eighty-third percentile of audited costs for the prior cost report as experienced by a scientifically selected sample of such LTCFs [long-term care facilities] participating in the medicaid program plus an inflation factor. * * * "

Effective October 15, 1987, Ohio Adm.Code 5101:3-3-21(B) was amended to read:

"The ceiling for all routine administrative and general services costs for all SNF or ICF facilities participating in the medicaid program (except state-operated facilities) is mean audited costs for the prior cost report as experienced by a scientifically selected sample of such LTCFs participating in the medicaid program plus an inflation factor. * * * "

The parties agree that the change from the eighty-third percentile of costs to the mean, by virtue of the amendment to Ohio Adm.Code 5101:3-3-21(B), reduced the maximum A & G reimbursement rate for nursing homes from $12.55 per patient per day to $10.80 per patient per day. It is also agreed that lowering the ceiling from the eighty-third percentile to the mean reduced the reimbursement rate to the sixty-seventh percentile. According to the amici curiae, Association of Ohio Philanthropic Homes and Housing for the Aging and Ohio Health Care Association, the amendment had the effect of denying one third of nursing home Medicaid providers full reimbursement for their A & G costs.

In the present case, the appellees moved for the trial court to dismiss the action or, in the alternative, grant summary judgment. The trial court, in granting summary judgment in favor of the appellees, found that the Academy did not have a cause of action under Section 1396a(a)(13)(A) or Section 1983, Title 42, U.S.Code, to challenge the validity of the rate reduction. The other constitutional claims were also denied. The trial court noted that the Academy, pursuant to R.C. 119.12, had the right to an administrative appeal and, therefore, it could not seek a declaratory judgment in the trial court. Finally, the trial court found that further discovery was unnecessary. The court of appeals affirmed, stating under Cort v. Ash (1975), 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26, and the facts of this case, no cause of action existed for providers under Section 1983 for violations of Section 1396a(a)(13)(A). The court of appeals also held that Ohio Adm.Code 5101:3-3-21 was constitutional under rational basis scrutiny. Finally, the court rejected the Academy's contention that discovery was incomplete, since additional discovery would not help create a genuine issue of fact.

The cause is now before this court pursuant to the allowance of a motion to certify the record.

Geoffrey E. Webster, Tataru, Wallace & Warner and Terry Tataru, Columbus, for appellant.

Anthony J. Celebrezze, Jr., Atty. Gen., Diane Weaver and Alan Schwepe, Clarence D. Rogers, Jr., Climaco, Climaco, Seminatore, Lefkowitz & Garofoli Co., L.P.A., Kenneth F. Seminatore, Anthony J. Garofoli and Kathryn T. Joseph, Cleveland, for appellees.

Benesch, Friedlander, Coplan & Aronoff, N. Victor Goodman, Cleveland, Harry M. Brown, James F. DeLeone, John J Duffey and Mark D. Tucker, Columbus, urging reversal for amici curiae, Ass'n of Ohio Philanthropic Homes and Housing for the Aging and Ohio Health Care Ass'n.

Bricker & Eckler and James J. Hughes, Jr., Columbus, urging reversal for amicus curiae, Ohio Hospital Ass'n.

HOLMES, Justice.

The central issue before this court is whether the Academy may assert a private cause of action under Section 1983 for alleged violations of the Boren Amendment. Also before the court is the propriety of the trial court's decision to enter summary judgment in favor of the appellees. For the reasons which follow, we find that the Academy may bring this action, and that the trial court erred in granting summary judgment for the appellees.

I Medicaid Providers' Cause of Action Under Sections 1983 and 1396a(a)(13)(A), Title 42, U.S.Code

In propositions of law one, two and six advanced by the Academy, the issue centers on whether a Medicaid provider has a cause of action under Sections 1983 and 1396a(a)(13)(A), Title 42, U.S.Code. The very recent United States Supreme Court decision of Wilder v. Virginia Hosp. Assn. (1990), 496 U.S. 498, 110 S.Ct. 2510, 110 L.Ed.2d 455, rendered subsequent to the court of appeals' decision herein, is determinative of this issue.

In Wilder, the respondent, a nonprofit corporation composed of public and private hospitals operating in Virginia, filed suit against state officials for declaratory and injunctive relief under Section 1983, alleging, inter alia, the "state plan" violated the Boren Amendment because its reimbursement rates were not "reasonable and adequate." The Supreme Court opinion noted:

" * * * The primary objective of the [Boren] Amendment was to free...

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