Rye Psychiatric Hosp. Center, Inc. v. Surles

• Decision Date: 07 November 1991
• Docket Number: No. 88 Civ. 5922 (GLG).,88 Civ. 5922 (GLG).
• Citation: 777 F. Supp. 1142
• Parties: RYE PSYCHIATRIC HOSPITAL CENTER, INC., Plaintiff, v. Richard C. SURLES, PhD., Commissioner of the Office of Mental Health of the State of New York, and Cesar A. Perales, Commissioner of the State of New York Department of Social Services, Defendants.
• Court: U.S. District Court — Southern District of New York

777 F. Supp. 1142

RYE PSYCHIATRIC HOSPITAL CENTER, INC., Plaintiff, v. Richard C. SURLES, PhD., Commissioner of the Office of Mental Health of the State of New York, and Cesar A. Perales, Commissioner of the State of New York Department of Social Services, Defendants.

No. 88 Civ. 5922 (GLG).

United States District Court, S.D. New York.

November 7, 1991.

Shanley & Fisher (Frederick A. Nicoll, of counsel), New York City, for plaintiff.

Robert Abrams, Atty. Gen. of State of N.Y. by Brian T. McGovern, Asst. Atty. Gen., New York City, for defendants.

OPINION

GOETTEL, District Judge.

Plaintiff Rye Psychiatric Hospital Center ("Rye Psychiatric") originally commenced this action against defendants Richard C. Surles and Cesar A. Perales to challenge New York's Medicaid reimbursement system as applied to private psychiatric hospitals as violative of the Boren Amendment to the Medicaid Act. Plaintiff presently seeks injunctive relief from this court directing defendants to commence specific actions designed to implement the court's prior decision which rendered the minimum utilization adjustment to New York's Medicaid reimbursement rates null and void.

I. FACTUAL BACKGROUND

The facts of this case were fully detailed in this court's prior opinion of July 2, 1991. While it is unnecessary to repeat the court's explanation of the Medicaid system and the enactment of the Boren Amendment, we must provide an overview of the background and subsequent procedural history of the case to allow for a full understanding of the context and disposition of plaintiff's motion.

Rye Psychiatric, a private psychiatric hospital located in New York, originally brought this action under 42 U.S.C. § 1983 (1988) against the respective department heads of the Office of Mental Health of the State of New York and the State of New York Department of Social Services. Plaintiff challenged New York's state plan for Medicaid as insufficient under the Boren Amendment to the Social Security Act and its corresponding federal regulations.¹ To promote increased rate-setting flexibility and efficiency for states, the Boren Amendment's implementing regulations require states to make at least annual findings that its reimbursement rates are reasonable and adequate. See Pinnacle Nursing Home v. Axelrod, 928 F.2d 1306, 1310 (2nd Cir.1991).

Specifically, plaintiff claimed that the state's method of calculating Medicaid reimbursement rates which included a minimum utilization adjustment violated the procedural requirements of the Boren Amendment as well as the equal protection and due process clauses of the United States Constitution. Additionally, plaintiff claimed that New York's reimbursement rates did not meet the Boren Amendment's substantive requirements. Although state participation is optional, once a state elects to take part in the Medicaid program it must comply with federal statutory requirements. See Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784 (1980). On July 2, 1991, this court declared the minimum utilization adjustment included in New York's reimbursement formula for private psychiatric hospitals as codified at 14 N.Y.C.R.R. § 577.7(g) to be null and void since state officials failed to conduct any formal findings as required by the Boren Amendment to support the rate adjustments. See Rye Psychiatric Hosp. Center, Inc. v. Surles, 768 F.Supp. 82 (S.D.N.Y.1991). The court declined to resolve any of plaintiff's substantive claims under the Boren Amendment regarding New York's Medicaid reimbursement rate schedule until the procedural violations were cured by the state. See id. at 89.

Plaintiff presently contends that defendants, despite this court's holding the minimum utilization adjustment to be null and void, continue to use it in calculating Rye Psychiatric's current Medicaid reimbursement rates and have failed to revise the provisional rates of prior fiscal years to exclude the voided adjustment. In short, plaintiff states that the defendants have done nothing to implement the court's prior decision. Plaintiff further notes that it remains in a precarious financial position because of the insufficient reimbursements it has been receiving from the state.

Plaintiff has submitted this order to show cause seeking a court order compelling defendants to commence reimbursing Rye Psychiatric at its 1990 Medicaid rate absent the minimum utilization adjustment — i.e. a rate of $423.18 per patient per day — and to complete within ninety days a final audit of its rates between January 1, 1987 and July 2, 1991 (the date of this court's prior decision on the minimum utilization adjustment). Furthermore, plaintiff requests the court to order defendants to pay them the difference between reimbursement rates calculated without factoring in the minimum utilization adjustment and the rates actually received by plaintiff during this period. Plaintiff also asks the court to compel defendants to increase its reimbursement rates an additional five percent to reflect its proper status as a disproportionate share hospital under 42 U.S.C. § 1396r-4(b) of the Boren Amendment. By separate motion plaintiff requests attorney's fees from defendants.

On October 3, 1991, plaintiff received from New York's Office of Mental Health ("OMH") the Proposed 1991 Medicaid Rates for private psychiatric hospitals. The estimated rates chart specifies Rye Psychiatric's 1990 Medicaid reimbursement rate as $432.18 and its proposed 1991 rate as $448.80. Plaintiff calls attention to a notation below the chart which states that the 1989 Capital Costs figures reflect some preliminary audit adjustments.

According to defendants, plaintiff's reimbursement rate has been revised from July 2, 1991 through the present to exclude the improperly adopted minimum utilization adjustment. Defendants also state that revised reimbursement payments to plaintiff have already commenced effective July 2, 1991. Plaintiff, in its amended Article 78 petition, admits that OMH has made Medicaid reimbursement payments without the minimum utilization factor as of July 2, 1991.

II. DISCUSSION

The principal issue raised by defendants in opposition to plaintiff's motion for injunctive relief is the immunity afforded to states under the eleventh amendment. Before the court can grant plaintiff's motion and issue the requested relief it must satisfy itself that the types of relief at issue do not run afoul of the eleventh amendment's restrictions on the power of federal courts to grant relief against a state.

The eleventh amendment to the Constitution of the United States provides that:

"The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State."

U.S. CONST. amend. XI. Generally, this provision is viewed as an explicit limitation to the subject matter jurisdiction of the federal courts. See Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 467, 65 S.Ct. 347, 352, 89 L.Ed. 389 (1945). While the amendment's language expressly confines its application to the diversity jurisdiction of federal courts to hear suits against states by citizens of other states or foreign nations, the Supreme Court has extended its meaning to also preclude suits in federal court against a state by its own citizens. See Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33 L.Ed. 842 (1890).

Although the evolution of eleventh amendment doctrine has often been marked by inconsistency and, to many, disarray, some basic principles may be gleaned from the caselaw. The eleventh amendment not only protects states from suit but may also shield state officials with immunity. "When the action is in essence one for the recovery of money from the state, the state is the real, substantial party in interest and is entitled to invoke its sovereign immunity from suits even though individual officials are nominal defendants." Ford Motor Co., 323 U.S., at 464, 65 S.Ct., at 350.

The central elements in the application of eleventh amendment immunity to state officials are the timing of the injury and the nature of the relief sought. The Supreme Court has carved out an exception to eleventh amendment immunity for awards of prospective injunctive relief. See Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908). The dividing line between permissible relief and relief proscribed by the eleventh amendment was clarified by the Court in Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974), when it distinguished between retroactive and prospective relief. Simply put, the eleventh amendment bars the award of retroactive relief for violations of federal law which would require the payment of funds from a state treasury. See Edelman v. Jordan, 415 U.S. 651, 677, 94 S.Ct. 1347, 1362, 39 L.Ed.2d 662 (1974). Federal courts possess the power to award an injunction governing a state official's future conduct. However, the amendment's immunity is triggered when relief amounts to the payment of state funds as a form of compensation for past breaches of legal duties by state officials. See id. at 668, 94 S.Ct. at 1358; Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 102-03, 104 S.Ct. 900, 909, 79 L.Ed.2d 67 (1984) (Pennhurst II). Any court that has faced this issue realizes that walking this retroactive/prospective line is no simple feat.

How a court formally labels its relief is immaterial; what matters is the nature of the relief. If the relief "will to a virtual certainty be paid from state funds and not from the pockets of the individual state officials who were the defendants in the action," it is barred by the eleventh amendment. Edelman v. Jordan, 415 U.S., at 668, 94 S.Ct., at 1358. The concern animating the retroactive/prospective distinction is the balance between the competing interests of the supremacy clause and...