State of Minn. by Noot v. Heckler (Two Cases)

• Decision Date: 30 September 1983
• Docket Number: 82-2297,Nos. 82-1164,s. 82-1164
• Citation: 718 F.2d 852
• Parties: , Medicare&Medicaid Gu 33,413 STATE OF MINNESOTA, by its Commissioner of Public Welfare, Arthur E. NOOT, Petitioner, v. Margaret M. HECKLER, Secretary, and the United States Department of Health and Human Services, Respondents. STATE OF MINNESOTA, by its Commissioner of Public Welfare, Arthur E. NOOT, Appellee, v. Margaret M. HECKLER, in her official capacity as Secretary of the United States Department of Health and Human Services, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 852

718 F.2d 852

3 Soc.Sec.Rep.Ser. 108, Medicare&Medicaid Gu 33,413

STATE OF MINNESOTA, by its Commissioner of Public Welfare, Arthur E. NOOT, Petitioner, v. Margaret M. HECKLER, Secretary, and the United States

Department of Health and Human Services, Respondents.

STATE OF MINNESOTA, by its Commissioner of Public Welfare, Arthur E. NOOT, Appellee, v. Margaret M. HECKLER, in her official capacity as Secretary

of the United States Department of Health and

Human Services, Appellant.

Nos. 82-1164, 82-2297.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 8, 1982.

Decided Sept. 30, 1983.

Warren Spannaus, Atty. Gen., State of Minn., Alan T. Held, Sp. Asst. Atty. Gen., St. Paul, Minn., for petitioner.

Susanne M. Lee, Dept. of Health and Human Services, Washington, D.C., for respondents; Juan A. del Real, Gen. Counsel, Ann T. Hunsaker, Asst. Gen., Sarah W. Wilcox, Dept. of Health and Human Services, of counsel.

Charles A. Miller, J. Peter Byrne, Covington & Burling, Washington, D.C., for the States of Ala., Conn., Md., Mich., Mo., N.Y., Okl., R.I., W.Va., Wis., amici curiae.

Hubert H. Humphrey, III, Atty. Gen., State of Minn., Alan T. Held, Sp. Asst. Atty. Gen., St. Paul, Minn., for State of Minn.

Before LAY, Chief Judge, ROSS and FAGG, Circuit Judges.

LAY, Chief Judge.

These cases were consolidated for purposes of resolving issues of subject matter jurisdiction and conflicting interpretations of Title XIX of the Social Security Act, 42 U.S.C. Sec. 1396 et seq. (1976 & Supp. V 1981). The State of Minnesota contests a decision of the Secretary of the United States Department of Health and Human Services (HHS) disallowing federal financial participation to the State under the Medical Assistance Program (Medicaid) for costs incurred in three community residential facilities. The facilities were determined by the Secretary to be "institutions for mental diseases" (IMDs) and thus were not qualified for partial federal reimbursement of medical costs for individuals eligible for Medicaid.

Beginning in 1973, the State of Minnesota paid Medicaid claims for individuals receiving services in the Andrew Care Home, the Birchwood Care Home, and the Hoikka House. The three community residential care homes had been certified as "intermediate care facilities" (ICFs). ¹ "Intermediate care facility services" for eligible individuals under 65 are reimbursable under the Act other than such services provided in an institution for tuberculosis or an "institution for mental diseases." See 42 U.S.C. Sec. 1396d(a)(15), (18)(B) (1976). The residents of these three homes included a majority of individuals with mental illness diagnoses. During the quarters ending September 30, 1977 through June 30, 1978, Minnesota claimed and was paid $896,159 in federal financial participation for services provided to the Medicaid recipients at these three facilities. In November 1978 the HHS Health Care Financing Administration (HCFA) submitted an audit report which recommended disallowance of the $896,159 claim on the ground that these facilities were IMDs. The agency employed unpublished interpretive guidelines to determine if the "overall character" of the facilities fit the regulatory definition of an IMD as being "primarily engaged in providing diagnosis, treatment or care of persons with mental diseases." See 42 C.F.R. Sec. 435.1009(e) (1982); see also id. Sec. 440.140(a)(2) (1982). As a result, the Secretary disallowed the State's claim. The State petitioned the HHS Departmental Grant Appeals Board for a review of the decision. Consolidating the petition with requests by the States of Connecticut, California, and Illinois to review similar disallowances, the Board upheld the agency decision. Departmental Grant App.Bd. Nos. 79-52-MN-HC, 79-89-MN-HC, 80-44-IL-HC, 80-150-CT-HC, 80-184-CA-HC (Nov. 30, 1981). HHS recovered the full amount of these funds paid to Minnesota by offsetting federal financial participation in a supplemental grant to the State.

Minnesota filed a petition for direct review of the final agency order with this court; such action was taken to protect the right of review in the event the dispute was determined to be a plan conformity matter under 42 U.S.C. Sec. 1316(a)(3) (1976 & Supp. V 1981), ² and not a disallowance under 42 U.S.C. Sec. 1316(d) (1976 & Supp. V 1981). ³ The State also sought review of the Board's decision in the United States District Court for the District of Minnesota by filing an action for declaratory and injunctive relief as well as restoration of its grant money withheld by HHS.

The district court granted summary judgment in favor of the State of Minnesota, holding that HHS acted arbitrarily, capriciously, and outside the scope of its authority; it ordered HHS to return to the State the disallowed funds. Minnesota v. Schweiker, No. 4-82-155, slip op. at 14 (D.Minn. Aug. 25, 1982). HHS now appeals this decision. The two cases were consolidated to resolve the jurisdictional issues and the merits.

I. Plan Conformity or Disallowance.

A fundamental question is whether this dispute involves a noncompliance question or a disallowance. Both the Secretary and the State urge that the matter involves a disallowance and therefore this court has no jurisdiction to directly review the Board's decision. We agree.

Recent decisions from other circuits have taken divergent approaches to assessing the nature of Medicaid controversies. The First Circuit employs a functional analysis which examines three criteria: (1) whether the matter could comfortably fit within the plan conformity language of 42 U.S.C. Sec. 1396c (1976); (b) whether the broad nature of the dispute points to characterization as a conformity issue; and (3) what procedures and label the Secretary has chosen, "not as definitive but as entitled to some respect." See Massachusetts v. Departmental Grant Appeals Board, 698 F.2d 22, 27-30 (1st Cir.1983). Cf. New Jersey v. Department of Health and Human Services, 670 F.2d 1262, 1272 (3d Cir.1981) (New Jersey I ) (court must independently evaluate underlying substance of dispute so that court of appeals' jurisdiction is not contingent upon Secretary's unfettered discretion); State Department of Public Welfare v. Califano, 556 F.2d 326, 330 (5th Cir.1977), cert. denied, 439 U.S. 818, 99 S.Ct. 78, 58 L.Ed.2d 108 (1978) (court should review Social Security Act, legislative history, and circumstances of claim to see what label best serves purposes of the act and the equities of the situation).

In contrast, the Seventh Circuit found the functional approach "complicated and therefore uncertain in application--a serious weakness in a jurisdictional test." Illinois v. Schweiker, 707 F.2d 273, 278 (7th Cir.1983). Instead, it adopted a literal test which allows HHS' choice of the plan conformity or disallowance label and procedures to control. ⁴ Id. Cf. Connecticut v. Schweiker, No. 82-4023 (2d Cir. April 20, 1982) (without explanation, court of appeals dismissed for lack of jurisdiction a petition for direct review of alleged plan conformity issue; Secretary had denominated the dispute as a disallowance); Department of Public Health v. Departmental Grant Appeals Board, 672 F.2d 916 (6th Cir.1981) (same); Washington Department of Social and Health Services v. Schweiker, No. 81-7414 (9th Cir. Sept. 30, 1981) (same). ⁵

Although some deference is to be accorded the Secretary's opinion on these jurisdictional fact issues, we find the functional test in Massachusetts v. Departmental Grant Appeals Board, 698 F.2d at 27-30, is more in accord with the traditional role of federal judicial review which mandates judicial inquiry as to congressional intent, jurisdiction, and the legality of federal administrative actions. Accord New Jersey I, 670 F.2d at 1272.

The underlying nature of this controversy stems from the discrete reason that three nursing homes were decertified and thus did not qualify for federal funding. In this regard, the district court correctly observed "[t]his dispute does not concern the validity of Minnesota's Medicaid plan or its overall administration." Minnesota v. Schweiker, slip op. at 4-5. Plan conformity issues under the statute, sections 1316(a)(3) and 1396c, generally relate to compliance questions that have a broad impact on the overall state program. We cannot say, under the plan conformity specifications of section 1396c(2), that the State in the administration of its Medicaid plan failed to comply substantially with the provisions of 42 U.S.C. Sec. 1396a (1976 & Supp. V 1981). The decertification here is basically rooted in a failure to comply with an agency interpretive guideline. ⁶ In addition, the claim arises out of the disallowance procedures involving a specific audit, and only a retroactive, not prospective, sanction was imposed. ⁷ We thus conclude that the dispute clearly relates to a disallowance rather than a conformity issue. Accord Connecticut v. Schweiker, No. 82-4023 (2d Cir. Apr. 20, 1983); Connecticut v. Schweiker, 557 F.Supp. 1077, 1079 & n. 5 (D.Conn.1983).

II. Jurisdiction of District Court.

Although section 1316(a)(3) grants a state dissatisfied with a plan conformity decision the right to direct review in a court of appeals, the provision for disallowances, section 1316(d), is silent as to the availability of judicial review for such disputes. ⁸

We agree with the courts that have found that disallowance decisions under section 1316(d) are judicially reviewable. Illinois v. Schweiker, 707 F.2d at 275-277; Alameda v. Weinberger, 520 F.2d 344, 347-48 (9th Cir.1975); Colorado Department of Social Services v. Department of Health and Human Services, 558 F.Supp. 337, 347-48 (D.Colo.1983); Connecticut v. Schweiker, 557 F.Supp. at 1079. Cf. Solomon v. Califano, 464 F.Supp. 1203 (D.Md.1979) (court reviewed disallowance decision without discussing jurisdiction); Georgia v. Califano, 446 F.Supp. 404 (N.D.Ga.1977) (same). Contra State Department of Public...