Pinnacle Nursing Home v. Axelrod
| Decision Date | 15 August 1989 |
| Docket Number | CIV-89-0744T.,No. CIV-89-0706T,CIV-89-0706T |
| Citation | 719 F. Supp. 1173 |
| Parties | PINNACLE NURSING HOME; Lakeshore Nursing Home; Fenton Park Nursing Home; Sylcox Nursing Home and Health Related Facility; Nortonian Nursing Home; Elcor Nursing Home; Elcor's Marriott Manor; Waterview Hills Nursing Center, Inc.; Walnut Mountain Care Center; Ridge View Manor Nursing Home; Manor Oak Skilled Nursing Facility, Buffalo, Manor Oak Skilled Nursing Facility, Jamestown; Manor Oak Skilled Nursing Facility, Warsaw; Fenton Park Health Related Facility, d/b/a Greenhurst Health Care Center; Oneonta-Richmond, Inc. d/b/a Oneonta Nursing Home; Vestal-Johnson, Inc. d/b/a Vestal Johnson Nursing Home; Crest Manor Nursing Home; Doanes Nursing Home; Blossom Health Care Center; Pontiac Nursing Home; Brae Loch Manor Health Care Facility; Nor Loch Manor Health Care Facility; Grand Island Manor Nursing Home; Hornell Nursing Home and Health Related Facility; Hurlbut Nursing Homes; Penfield Nursing Home; Conesus Lake Nursing Home; Elm Manor Nursing Home; Wedgewood Nursing Home; Westgate Nursing Home; Woodside Manor Nursing Home, Inc.; Newark Manor Nursing Home; and Avon Nursing Home, Plaintiffs, v. David AXELROD, M.D., as Commissioner of Health of the State of New York; Cesar Perales, as Commissioner of Social Services of the State of New York; Dall Forsythe as Director of the Budget of the State of New York, and Louis Sullivan, as Secretary of the United States Department of Health and Human Services, Defendants. VALLEY VIEW MANOR NURSING HOME, Plaintiff, v. David AXELROD, M.D., as Commissioner of Health of the State of New York; Cesar Perales, as Commissioner of Social Services of the State of New York; Dall Forsythe as Director of the Budget of the State of New York, and Louis Sullivan, as Secretary of the United States Department of Health and Human Services, Defendants. |
| Court | U.S. District Court — Western District of New York |
Harter, Secrest & Emery (C. Richard Cole, of counsel), Rochester, N.Y., for plaintiffs.
Atty. Gen. of the State of N.Y. (Jeffrey M. Dvorin, Asst. Atty. Gen., of counsel), Dept. of Law, Albany, N.Y., for Axelrod, Perales and Forsythe.
U.S. Attorney's Office (Brian McCarthy, Asst. U.S. Atty., of counsel), Rochester, N.Y., for Sullivan.
The plaintiffs in these nearly identical actions are residential health care facilities caring for elderly and infirmed patients in 16 different counties throughout New York State.1 The defendants2 are state and federal officials who are charged with the administration and/or review of New York State's Medicaid program, a program jointly supported with federal and state funds, which reimburses facilities such as plaintiffs' for their provision of necessary medical services to the indigent.
Plaintiffs commenced these actions in June, 1989, for declaratory and injunctive relief, alleging that the current method under which they are reimbursed by Medicaid is both invalid under federal law and violative of their constitutional right to equal protection under the law. Jurisdiction arises under 28 U.S.C. § 1331.
Plaintiffs have also moved for preliminary injunctions to enjoin the state from reimbursing them pursuant to the challenged reimbursement rates and further to require the state to reimburse plaintiffs in accordance with a former rate methodology. Plaintiffs in Pinnacle have also moved, in the alternative, for summary judgment. Louis Sullivan, the federal defendant, has also moved for summary judgment.
For the reasons discussed below, and in accordance with this decision, plaintiffs' motions for preliminary injunction are granted and their motion for summary judgment is partially granted and partially denied, with leave to renew upon completion of discovery. Defendant Sullivan's motions for summary judgment are denied.
Plaintiffs are residential health care facilities within the meaning of N.Y. Public Health Law § 2801(3). Each plaintiff provides nursing home and/or other health-related services to elderly or infirmed patients who are indigent, under the Medicaid program established by Congress pursuant to Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq.
The Medicaid program establishes a joint federal and state cost-sharing system to provide necessary medical services to individuals with limited resources. As part of the Medicaid program, the federal government reimburses participating states for a percentage of the payments each state makes to facilities for medical services furnished to the impoverished. Participation in the Medicaid program is voluntary. Once a state elects to participate in Medicaid, however, it must comply with relevant federal statutory requirements.
Since the inception of the Medicaid program in 1966, the method for reimbursing facilities such as plaintiffs' has undergone significant change. Prior to 1981, the federal Medicaid statute required reimbursement of the "reasonable cost" of in-patient services rendered to Medicaid patients. This retrospective method reimbursed participating facilities based upon their actual, allowable costs. This "reasonable cost" standard was, however, specifically repealed by Congress in 1980. See Omnibus Budget Reconciliation Act of 1980 (OBRA of 1980), Pub.L. 96-499, § 962(b), 1980-5 U.S.Code Cong. & Admin. News 5744 and Omnibus Budget Reconciliation Act of 1981 (OBRA of 1981), Pub.L. 97-35, 1981-1 U.S. Code Cong. & Admin. News (95 Stat.) 809 (the "Boren Amendment").
The purposes of the Boren Amendment are twofold: (i) to enable individual states to develop various Medicaid plans and (ii) to increase the economy and efficiency of all such plans. The Boren Amendment amended the Medicaid Act to provide that each participating state must make findings and provide assurances satisfactory to the Secretary of the United States Department of Health and Human Services that the Medicaid rates set by the state provide:
for payment ... 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 and to assure that individuals eligible for medical assistance have reasonable access ... to ... services of adequate quality;
In enacting the Boren Amendment, Congress essentially abandoned the "reasonable cost" reimbursement principles of the old Medicaid Act as inflationary and, in its place, adopted a new, anti-inflationary reimbursement standard with the stated purpose of "promoting the efficient and economical delivery of medical services." See S.Rep. No. 139, 97th Cong., 1st Sess. 478 (1981), reported in 1981 U.S.Code Cong. & Admin. News at 396, 744.
Having elected to participate in the Medicaid program, New York was obligated to adopt a Medicaid reimbursement system comporting with both the Boren Amendment and the regulations promulgated thereunder. See 42 C.F.R. § 447.1 et seq. (1988).
Under the provisions of Article 28 of the New York Public Health Law, the New York State Department of Health is charged with the responsibility for setting Medicaid reimbursement rates for residential health care facilities such as plaintiffs'. The methodology for computing reimbursement rates is set forth in N.Y. Comp.Codes R. & Regs. tit. 10, § 86-2. Since 1986, in response to the Boren Amendment, New York has set its Medicaid reimbursement prospectively, based upon historic 1983 costs incurred by facilities throughout the state and adjusted for inflation.3
As part of the 1986 Medicaid plan, the New York State Commissioner of Health introduced the Regional Input Price Adjustment Factor ("RIPAF") in order to "neutralize the difference in wage and fringe benefit costs between and among the regions of New York State." N.Y.Comp. Codes R. & Regs. tit. 10, § 86-2.10(c)(3)(i). Under RIPAF, the average wage rate for facilities within each of the State's 16 regions was calculated for the base year of 1983, and every facility reimbursed based upon the "average wage rate" within its region. Plaintiffs provide the following example of the effect of RIPAF on reimbursement:
Each facility within the Rochester region received wage reimbursement in 1986 based upon the 1983 Rochester region's $7.00 per hour average wage rate, rather than at each facility's actual 1983 wage rate. Thus, two Rochester region homes with actual 1983 wage rate costs of $9.00 per hour and $5.00 per hour would both have received 1986 reimbursement based upon the $7.00 regional average rate, trended forward by an inflation index.
(Pinnacle plaintiffs' Memorandum of Law at 8.)
The parties agree that this 1986 RIPAF methodology was fully approved by the Health Care Financing Administration ("HCFA") (the agency charged by the U.S. Department of Health and Human Services with reviewing Medicaid plans).
In October 1986, just ten months after New York's 1986 Medicaid reimbursement methodology had taken effect, the New York Department of Health advised residential health care facilities within New York that "emergency" conditions required an alteration to that methodology. Effective January 1, 1987, the Department proposed to implement the "1987 Adjustment to RIPAF." The 1987 Adjustment to RIPAF purported to create "an average statewide positive or negative 10% corridor" around the already-established regional average wage rates. This Adjustment effectively provides that all homes whose actual 1983 costs fall within the specified "corridor"4 would no longer be reimbursed based on the regional average wage rate, but rather upon each facility's actual reported 1983 wage rate.5
The New York State Department of Health attempted to justify the 1987 Adjustment to RIPAF by stating that the 1986 RIPAF methodology had ...
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