Pediatric Specialty v. Ark. Dept. of Human Serv.

• Decision Date: 17 April 2006
• Docket Number: No. 05-1668.,05-1668.
• Citation: 443 F.3d 1005
• Parties: PEDIATRIC SPECIALTY CARE, INC.; Child & Youth Pediatric Day Clinics, Inc.; Family Counseling & Diagnostic Clinic; Tomorrow's Child Learning Center, LLC; D & D Family Enterprises, Inc.; James Swindle; Stacey Swindle, as parents and next best friends of Jacob and Noah Swindle, Minors; Susann Crespino, as parent and next best friend of Michael Crespino, a minor; Plaintiffs-Appellees, v. ARKANSAS DEPARTMENT OF HUMAN SERVICES; Defendant-Appellant, Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services; Defendant, Ray Hanley, in his individual capacity as Director of the Division of Medical Services of The Arkansas Department of Human Services; Defendant-Appellant, Arkansas Foundation for Medical Care; Defendant, Roy Jeffus, in his official capacity as Interim Director of Arkansas Department of Human Services Division of Medical Services; Defendant-Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

443 F.3d 1005

PEDIATRIC SPECIALTY CARE, INC.; Child & Youth Pediatric Day Clinics, Inc.; Family Counseling & Diagnostic Clinic; Tomorrow's Child Learning Center, LLC; D & D Family Enterprises, Inc.; James Swindle; Stacey

Swindle, as parents and next best friends of Jacob and Noah Swindle, Minors; Susann Crespino, as parent and next best friend of Michael Crespino, a minor; Plaintiffs-Appellees, v. ARKANSAS DEPARTMENT OF HUMAN SERVICES; Defendant-Appellant, Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services; Defendant, Ray Hanley, in his individual capacity as Director of the Division of Medical Services of The Arkansas Department of Human Services; Defendant-Appellant, Arkansas Foundation for Medical Care; Defendant,

Roy Jeffus, in his official capacity as Interim Director of Arkansas Department of Human Services Division of Medical Services; Defendant-Appellant.

No. 05-1668.

United States Court of Appeals, Eighth Circuit.

Submitted: February 15, 2006.

Filed: April 17, 2006.

COPYRIGHT MATERIAL OMITTED

James Walter Erwin, argued, St. Louis, MO (Breck G. Hopkins, Lee S. Thalheimer, and Harry W. Wellford, Jr., on the brief), for appellant.

Martin Wayne Bowen, argued, Little Rock, AR (Philip E. Kaplan, on the brief), for appellee.

Before SMITH, HEANEY, and BENTON, Circuit Judges.

HEANEY, Circuit Judge.

This case, which involves disputes about the medical services that Arkansas provides to needy children, returns to this court following two prior appeals and remands for further proceedings. In its first appeal, the Arkansas Department of Human Services (ADHS) challenged a district court injunction that forced it to keep its Child Health Management Services (CHMS) program as part of its state Medicaid plan. We held that, pursuant to the Medicaid Act, children had an enforceable right to early and periodic screening, diagnosis, and treatment (EPSDT) services. Pediatric Specialty Care. Inc. v. Ark. Dep't of Human Servs., 293 F.3d 472, 478-79 (8th Cir.2002) (hereinafter Pediatric I). We reversed the injunction, however, to the extent that it required ADHS to continue the CHMS program as part of its state plan. Id. at 480. So long as the state continued to pay for CHMS-type services when prescribed by a doctor, we reasoned, the state fulfilled its obligations under the Medicaid Act. Id. at 480-81. We then remanded for further proceedings.

On remand, the district court considered the plaintiffs' procedural and substantive due process claims. The district court held that ADHS violated the procedural due process rights of the plaintiffs by attempting to change the CHMS program without first conducting a study about the effect such a change would have on the efficiency, economy, quality of care, and access to care, as required by 42 U.S.C. § 1396a(a)(30)(A). It further held that ADHS had engaged in "conscience shocking" behavior by trying to reduce medical services to needy children based on political and fiscal motivations. On appeal, we affirmed the district court's ruling on the plaintiffs' procedural due process claim. Pediatric Specialty Care, Inc. v. Ark. Dep't of Human Servs., 364 F.3d 925, 929-31 (8th Cir.2004) (hereinafter Pediatric II). As to the substantive due process claim, however, we held that ADHS's attempt to move CHMS services "off-plan" for cost savings was not conscience shocking, and thus reversed the district court's contrary holding. Id. at 932. We again remanded for further proceedings.

On remand, the district court considered, among other things, damages claims against Kurt Knickrehm, Ray Hanley, and Roy Jeffus, all current or past high-level supervisors of ADHS.¹ Knickrehm, Hanley, and Jeffus moved for summary judgment, asserting they were entitled to qualified immunity. ADHS contended that it was entitled to absolute immunity under the Eleventh Amendment because it was an agency of the state of Arkansas. The district court granted the motion as to Knickrehm, but denied it as to Hanley and Jeffus. Although its order expressly disposed of all of the defendants' other summary judgment claims, it was silent regarding ADHS's Eleventh Amendment argument.

On appeal, Hanley and Jeffus contend that the district court erred in denying their claim for summary judgment based on qualified immunity. ADHS argues that the district court erred in failing to grant it summary judgment based on Eleventh Amendment immunity. We find no error in the district court's conclusion that Hanley and Jeffus are not entitled to summary judgment on this basis. On ADHS's Eleventh Amendment claim, we agree that it must be dismissed from the suit as an agency of the state. Our review of the record, however, indicates that the plaintiffs have sought prospective injunctive relief from ADHS by suing its directors, and ADHS has admitted that its officials can be sued for the purpose of seeking prospective injunctions. Thus, we affirm in part, but direct the district court on remand to dismiss ADHS from the suit.

BACKGROUND

Much of the background of this dispute has been recounted in our prior opinions of Pediatric I and Pediatric II, and will not be fully restated here. The plaintiffs include medical clinics that provide EPSDT services to special needs children in Arkansas and recipients of those services. The services are provided for the purpose of increasing the functional levels of developmentally impaired children. These services have been offered in Arkansas through the CHMS model, which "extends diagnostic and evaluative services, pediatric day treatment, and various therapies to children from six months to six years of age." Pediatric II, 364 F.3d at 928.

Over the past several years, ADHS has tried to curtail its payments for CHMS services. In November of 2001, ADHS issued a press release stating that it would restructure the CHMS program, terminating day treatment and therapeutic programs, resulting in a savings of several million dollars. As relevant to this appeal, the plaintiffs have alleged² that Hanley, Jeffus, and the ADHS employed a system requiring prior authorization for CHMS services solely for budget-related reasons without consideration of the medical necessity of the services.

The prior authorization regime was operated by Arkansas Foundation for Medical Care (AFMC), an independent organization that contracted to provide this service to ADHS. Beginning in July of 2001,³ AFMC was presented with applications for CHMS services, and was tasked with determining whether the requested services were medically necessary based on a review of the child's medical records. First, a nurse reviewer received a CHMS provider's request for prior authorization. If the nurse reviewer did not approve the plan, it was sent to a physician reviewer. If the physician reviewer denied the services, the provider could ask for reconsideration, and the plan would be reviewed by a second physician. Nurse reviewers may not override a doctor's decision to recommend services.

At some point while Hanley was director, he changed the prior authorization process so that the AFMC would review not only whether the service requested was of a medically necessary type, but also inquire as to the medically necessary amount of the service. This essentially led to a wholesale reduction in CHMS services from six hours per day, per child to no more than three and one-half to four hours per day, per child.

The plaintiffs presented evidence from their expert, Dr. Sharon Ramey. Dr. Ramey testified that six hours per day of services is most effective for needy children. The district court believed that Dr. Ramey's testimony, taken in the light most favorable to the plaintiffs, raised an inference that the prior authorization procedure's reduction in CHMS services was based on considerations other than the medical necessity of the children.

Dr. John Whitaker was a doctor reviewer who worked for AFMC. He testified that AFMC used guidelines that only permitted nurses to approve up to three and one-half hours of CHMS services for children. He stated that he would not generally approve six hours of CHMS services for a child because, in his view, a child could not be expected to get beneficial results for more than four hours per day of a CHMS program. He further testified that, at the request of nurse supervisor Amy Carson, he had developed what he termed "rote denials" or "canned denials," which were pre-scripted denial letters⁴ that nurses were supposed to use for certain types of claims that were easily disposed of.

According to Dr. Whitaker, it came to his attention in December of 2003 that one of AFMC's nurse reviewers, Tilerra Coats, was reducing CHMS services far greater than she should have been, and misusing his denial codes. Whitaker began to institute quality control on Coats's work, randomly checking the entire file in which she would recommend reduced services. On each occasion, Dr. Whitaker subsequently approved the child for more care than Coats had. In some instances, despite Dr. Whitaker's direction, the ultimate decision was not changed, and the child would receive less care than Dr. Whitaker had authorized. Dr. Whitaker also discovered that Coats was often altering his approvals to provide less service to the children. Dr. Whitaker brought this problem to the attention of Carson, Coats's supervisor, but nothing was done to correct matters. In fact, when Dr. Whitaker audited some of his past charts, he noticed that Carson had actually signed off on charts that Coats had altered. On further inquiry, Carson had written on a number of these files what she believed was the rationale for the files not accurately reflecting the services approved by Dr. Whitaker. Most often her explanation was merely her own opinion stating that she did not believe the services were necessary, or supporting Coats's opinion to that effect. Neither Coats, Carson, nor any other...