Rehabilitation Ass'n of Virginia, Inc. v. Kozlowski

• Decision Date: 22 November 1993
• Docket Number: No. 3:93CV402.,3:93CV402.
• Citation: 838 F. Supp. 243
• Parties: REHABILITATION ASSOCIATION OF VIRGINIA, INC., Plaintiff, v. Bruce U. KOZLOWSKI, as Director of Virginia Department of Medical Assistance Services, and Donna E. Shalala, as Secretary of the United States Department of Health and Human Services, Defendants.
• Court: U.S. District Court — Eastern District of Virginia

838 F. Supp. 243

REHABILITATION ASSOCIATION OF VIRGINIA, INC., Plaintiff, v. Bruce U. KOZLOWSKI, as Director of Virginia Department of Medical Assistance Services, and Donna E. Shalala, as Secretary of the United States Department of Health and Human Services, Defendants.

No. 3:93CV402.

United States District Court, E.D. Virginia, Richmond Division.

November 22, 1993.

Alexander Macdonald Macaulay, David Gant Shuford, Mays & Valentine, Richmond, VA, Peter F. Nadel, Rosenman & Colin, New York City, for Rehabilitation Ass'n of Virginia, Inc.

Sharon Maitland Moon, Pamela Malone Reed, Office of Atty. Gen., Richmond, VA, for Bruce U. Kozlowski.

Robert William Jaspen, U.S. Atty.'s Office, Richmond, VA, Carol Federghi, Dept. of Justice, Civ. Div., Washington, DC, for Donna E. Shalala.

MEMORANDUM

MERHIGE, District Judge.

This matter came before the Court on October 18, 1993 on cross motions for summary judgment pursuant to Federal Rule 56, and defendants' motion to dismiss under Federal Rule 12(b). Plaintiff Rehabilitation Association of Virginia ("the Association")¹ brought this action against Bruce U. Kozlowski, Director of the Virginia Department of Medical Assistance Services, ("the Director") and Donna E. Shalala, Secretary of the United States Department of Health and Human Services, ("the Secretary") challenging certain statutes pertaining to the Commonwealth's Medicaid State Plan as violative of the federal Medicare and Medicaid Acts.² The parties agreed to dispense with the non-jury trial scheduled for November 5, 1993 and submit the matter for final disposition on the instant motions.

Background

In 1988, the Virginia General Assembly adopted legislation and a State Medicaid Plan amendment which altered the billing procedures for Medicaid services to Medicaid patients. These enactments, and their legality under the Federal Medicare and Medicaid Acts, are the basis for the instant action. Plaintiff contends that Virginia Plan Amendment 88-08³ unlawfully prohibits therapy providers from submitting separate claims for Medicaid payment and illegally provides that the costs of physical therapy services be included in the calculation of the nursing facility's Medicaid per diem rate. Also, plaintiff argues that Virginia Plan Amendment No. 90-29, approved by the Secretary effective January 1, 1991, unlawfully limits the Commonwealth's "cost-sharing" in Medicare "Part B" services for "Qualified Medicare Beneficiaries" ("QMBs") to the reimbursement level established by Medicaid. Plaintiff maintains that Virginia is legally obligated to pay the entire difference for services to QMBs rather than the often lesser amount established by Medicaid. Before addressing in detail the effect of these enactments, and their viability under statutory authority, a brief discussion of the Medicare/Medicaid scheme is appropriate.

The Medicare Act is generally divided into two parts. Under "Part A," the federal government provides people who are 65 years of age and older and certain disabled individuals with an inpatient hospital insurance plan. 42 U.S.C. §§ 1395c-1395i-4. In addition, "Part B" of the Medicare Act provides that people who are eligible for Medicare may voluntarily obtain supplementary insurance for other medical care, including hospital outpatient services and other services that are generally not covered under Part A. Part B of the Medicare statute is involved in this action.

In order to be covered by Part B, a Medicare-eligible person must pay insurance premiums. Further, Part B obligates the federal government to pay 80% of the "reasonable costs" of outpatient hospital services and 80% of "reasonable charges" for physician services rendered to the insured. The remaining 20% of the reasonable costs and charges, the "coinsurance" amount, and the annual deductible are paid by the Medicare patients themselves.

The Medicaid Act, as opposed to the Medicare Act, provides for a joint federal and state funded system which subsidizes medical care for the needy, regardless of age. States participating in Medicaid must propose a plan which must be approved by the Secretary as conforming with federal requirements. 42 U.S.C. §§ 1396a(a) and 1396a(b). The state plan must include a schedule of payment rates which the state designates or the services that a Medicaid patient might seek. Once the Secretary approves a state's plan, the federal government will assist the state in its reimbursement program with Federal Medicaid funds. The health care providers who treat Medicaid patients must agree to accept the Medicaid rate and not ask the patient to pay any money beyond that point.

An additional component of the Medicare Act, and one significant to the instant action, is the QMB provision. The authors of the Medicare Act recognized that the cost of enrolling in the optional Part B program (the 20% coinsurance and the annual deductible) might prohibit certain poor Medicare-eligibles (those who are eligible for Medicaid as well) from receiving Part B services. Accordingly, the Act provided for states to enroll the poorest of the Medicare beneficiaries, i.e. those "dually eligible" for Medicaid, in the Part B program by entering into a "buyin" agreement with the Secretary and paying the premiums on their behalf. In addition, the state Medicaid programs were to pay Medicare deductibles and coinsurance amounts to the extent that the individual could not.

In 1989, Congress expanded this protection for the elderly poor and provided that state Medicaid programs were required to pay Medicare cost-sharing on behalf of QMBs. Omnibus Budget Reconciliation Act of 1986 ("OBRA '86"), Pub.L. No. 99-509, § 9403, 100 Stat. 1874, 2053 (1986). QMBs were defined to include all medicare-eligible individuals with incomes below federal poverty levels. Thus, "QMB" includes those who are "dually eligible" as well as other poor Medicare beneficiaries. 42 U.S.C. § 1396a(a)(10)(E). In this case, Plaintiff challenges both the mechanics of payments made by the state for services rendered to QMBs as well as the rate at which the state reimburses therapy providers for their services to QMBs.

When therapy services are rendered to a Medicare patient who is also eligible for Medicaid, the Medicare program pays the therapy provider 80% of the reasonable cost for these services. The Commonwealth, plaintiff argues, is liable for the entire 20% coinsurance when such services are provided to a QMB. However, plaintiff argues, pursuant to Plan Amendment 88-08, the Commonwealth no longer pays the 20% Part B coinsurance for therapy services furnished to QMBs in nursing facilities. Plaintiff has no quarrel with the direct billing amendments to the extent they prohibit the submission of separate Medicaid claims furnished to Medicaid patients who are not also Medicare-eligible (so-called "pure" Medicaid patients). What plaintiff challenges in this action is the application of the direct billing amendments so as allegedly to eliminate payment of Medicare Part B cost-sharing to rehabilitation agencies for therapy services furnished to Medicare patients: the dual eligibles and other QMBs. Under the Medicare Act, plaintiff contends, the Commonwealth must pay the deductible and 20% Medicare coinsurance to the provider for all QMBs.

Plaintiff also challenges Virginia Plan Amendment 90-29 which provides for payment by the Commonwealth of Medicare Part B cost-sharing for QMBs only to the extent that the amount paid by the Commonwealth, plus the 80% Medicare payment, does not exceed the level of reimbursement established for such service by the Medicaid program. In short, plaintiff complains that when the Medicaid rate for a service is lower than the Medicare-approved reasonable cost or charge, the Commonwealth will limit payment of the Medicare cost-sharing so that the total payment to the provider does not exceed the Medicaid rate. Further, plaintiff states that if the Medicaid rate is lower than the 80% Medicare payment, the Commonwealth pays no cost-sharing.⁴

This memorandum will first address the threshold arguments regarding standing, failure to state a claim, and statute of limitations raised by defendants in their respective motions. Next, the Court will discuss the legality of the direct billing prohibition and the Medicaid rate limitation under the Medicare and Medicaid Acts.

Discussion

The Director first asserts that the Association lacks standing to bring this action. The Director argues that, under Warth v. Seldin, 422 U.S. 490, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975) and Hunt v. Washington State Apples Advert. Comm'r, 432 U.S. 333, 97 S.Ct. 2434, 53 L.Ed.2d 383 (1977), in order to have standing an association must show that its members would otherwise have standing to sue in their own right, that the interests the association seeks to protect are germane to the organization's purpose, and that neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit. Hunt, 432 U.S. at 343, 97 S.Ct. at 2441.

The Association, defendants argue, has failed to satisfy each of the requirements for associational standing. Defendants maintain that there is no allegation in this case that any rehabilitation agency has made a claim for payment, either to a nursing facility, a third-party payer, or to the Medicaid program. As such, defendant avers, there has been no injury. The Director adds that, in order to determine whether the Association members were paid properly, it would be necessary to examine each and every contract between a rehabilitation agency and a nursing facility. Relying on Kansas Health Care Ass'n v. Kansas Dep't of Social & Rehab. Servs., 958 F.2d 1018 (10th Cir.1992), the Director contends that this case requires the participation of individual entities not before the Court.

Plaintiff submits that the Director mischaracterizes the Association's claim. Plaintiff asserts that its claim is that the...