Virginia Hosp. Ass'n v. Baliles

• Decision Date: 13 October 1987
• Docket Number: No. 86-2171,86-2171
• Citation: 830 F.2d 1308
• Parties: Medicare&Medicaid Gu 36,700 The VIRGINIA HOSPITAL ASSOCIATION, Plaintiff-Appellant, v. Gerald L. BALILES, Governor of Virginia; Eva S. Teig, Secretary of Human Resources of Commonwealth of Virginia; Ray T. Sorrell, Director, Medical Assistance Service; Bette O. Kanter, Member State Board of Medical Assistance Services; Joseph M. Teefy, Member State Board Medical Assistance Services; R. Michael Berryman, Member State Bar of Medical Assistance Services; Ford Tucker Johnson, Sr., D.D.S. Member, State Board of Medical Assistance Services; A. Epes, Jr., Medical Doctor; Ruth Hanft, Member State Board of Medical Assistance Services; Patricia E. Sloan, R.N., Ed.D. Member, State Board of Medical Assistance Services; Jordan H. Goldman, Member State Board of Medical Services; Robert N. Lambeth, Jr., Member State Board of Medical Assistance Service; Elsa A. Porter, Member State Board of Medical Assistance Services; John N. Simpson, Member State Board of Medical Assistance Services, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1308

830 F.2d 1308

Medicare&Medicaid Gu 36,700

The VIRGINIA HOSPITAL ASSOCIATION, Plaintiff-Appellant, v. Gerald L. BALILES, Governor of Virginia; Eva S. Teig,

Secretary of Human Resources of Commonwealth of Virginia;

Ray T. Sorrell, Director, Medical Assistance Service; Bette

O. Kanter, Member State Board of Medical Assistance

Services; Joseph M. Teefy, Member State Board Medical

Assistance Services; R. Michael Berryman, Member State Bar

of Medical Assistance Services; Ford Tucker Johnson, Sr.,

D.D.S. Member, State Board of Medical Assistance Services;

A. Epes, Jr., Medical Doctor; Ruth Hanft, Member State

Board of Medical Assistance Services; Patricia E. Sloan,

R.N., Ed.D. Member, State Board of Medical Assistance

Services; Jordan H. Goldman, Member State Board of Medical

Services; Robert N. Lambeth, Jr., Member State Board of

Medical Assistance Service; Elsa A. Porter, Member State

Board of Medical Assistance Services; John N. Simpson,

Member State Board of Medical Assistance Services,

Defendants-Appellees.

No. 86-2171.

United States Court of Appeals, Fourth Circuit.

Argued May 7, 1987.

Decided Oct. 13, 1987.

Martin Andrew Donlan, Jr. (John William Crews, Peter M. Mellette, Crews & Hancock, Richmond, Va., on brief), for plaintiff-appellant.

Roger Lewis Chaffe, Sr. Asst. Atty. Gen. (Mary Sue Terry, Atty. Gen. of Virginia, R. Claire Guthrie, Deputy Atty. Gen., Pamela M. Reed, Asst. Atty. Gen., Richmond, Va., on brief), for defendants-appellees.

Before WIDENER, PHILLIPS, and ERVIN, Circuit Judges.

ERVIN, Circuit Judge:

Plaintiff Virginia Hospital Association ("VHA") appeals from the district court's grant of summary judgment in favor of the defendant officials of the Commonwealth of Virginia in this case challenging the administration of Virginia's Medicaid program. The district court granted summary judgment for the defendants on the ground that VHA was collaterally estopped to litigate the issues raised in its complaint. Because we believe that application of collateral estoppel was improper under the circumstances of this case, we reverse the judgment of the district court and remand this action for further proceedings.

I.

VHA is a nonprofit association of public and private hospitals in Virginia. We gather from the record in this case that VHA's function is to represent and seek to advance the interests of its members in various matters of concern to Virginia hospitals. VHA brought this action to challenge Virginia's procedures for reimbursing the costs that Virginia hospitals incur through their participation in the Medicaid program. VHA's complaint alleged that Virginia's Medicaid reimbursement procedures violated the requirements of the Social Security Act and the due process clause of the fourteenth amendment.

The defendants moved for dismissal of the complaint, or, alternatively, for summary judgment. Although the motion was based on a number of alternative grounds, ¹ the defendants' primary contention was that VHA was collaterally estopped to litigate the issues raised in its complaint. The district court granted summary judgment for the defendants on the ground that VHA was collaterally estopped by the court's prior decision in Mary Washington Hospital, Inc. v. Fisher, 635 F.Supp. 891 (E.D.Va.1985). This appeal followed.

II.

In order to understand the issues presented by this appeal, some discussion of the Medicaid program in Virginia is necessary. Medicaid is a cooperative federal-state program that furnishes medical care to needy persons. States, such as Virginia, that participate in the Medicaid program reimburse the costs incurred by hospitals that provide health care to Medicaid recipients. In turn, the federal government reimburses part of the costs that participating states incur under the program. In order to qualify for such reimbursement, states participating in the Medicaid program must comply with federal laws and regulations.

In 1981, Congress amended the hospital reimbursement provisions of the federal Medicaid statute as part of the Omnibus Budget Reconciliation Act. ² The statute now provides that each state participating in the Medicaid program must reimburse hospitals at rates set by the state that

are 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 inpatient hospital services of adequate quality....

42 U.S.C. Sec. 1396a(a)(13)(A) (1982).

In response to this statutory amendment, Virginia changed its procedures for reimbursement of hospitals under the Medicaid program. Virginia adopted a prospective reimbursement system based on annual reimbursement ceiling rates. The new program sets reimbursement ceiling rates for peer groups of hospitals based on the number of beds per hospital and the location of each hospital in either a rural or an urban area. Under this program, no Virginia hospital participating in the Medicaid program can receive reimbursement at a rate higher than its reimbursement ceiling rate. The initial reimbursement ceiling rates were based on hospital cost data from the year 1981, and these rates were adjusted by a "reimbursement escalator" when the new program went into effect on July 1, 1982. Under Virginia's program, reimbursement ceiling rates are increased each year through application of the reimbursement escalator. The reimbursement escalator used in the program is the consumer price index.

Virginia's new Medicaid reimbursement plan was challenged in Mary Washington Hospital, Inc. v. Fisher, 635 F.Supp. 891 (E.D.Va.1985), in which a single hospital sued officials administering Virginia's Medicaid program. The hospital alleged that Virginia's reimbursement plan violated the requirements of 42 U.S.C. Sec. 1396a(a)(13)(A) (1982) in that it (1) failed to set reimbursement rates that were reasonable and adequate to meet the costs incurred by efficiently and economically operated hospitals; and (2) failed to set reimbursement rates that would ensure Medicaid recipients reasonable access to inpatient hospital services of adequate quality. Additionally, Mary Washington Hospital challenged Virginia's use of the consumer price index as its reimbursement escalator under the plan, on the ground that hospital costs could be expected to increase at a rate in excess of the rate of inflation, thus rendering hospital reimbursements under Virginia's plan increasingly inadequate. Finally, the hospital claimed that Virginia's plan did not comply with federal regulations requiring each state participating in the Medicaid program to provide an appeals procedure allowing individual hospitals to seek administrative review of their reimbursement rates. See 42 C.F.R. Sec. 447.253(c) (1986).

The district court in Mary Washington Hospital upheld Virginia's Medicaid reimbursement plan in its entirety, except for the plan's appeals provisions. Specifically, the court found that Virginia's reimbursement rates were reasonable and adequate to meet the costs incurred by efficiently and economically operated hospitals. See Mary Washington Hospital, 635 F.Supp. at 900-01. Additionally, the court concluded that Virginia's reimbursement rates would ensure Medicaid recipients reasonable access to inpatient hospital services of adequate quality. See id. at 902. The court declined to resolve the hospital's challenge to Virginia's use of the consumer price index as its reimbursement escalator under the plan, on the ground that this issue did not, at that time, present a justiciable controversy. See id. at 901.

The Mary Washington Hospital court ruled that Virginia's procedures for hospitals to appeal their reimbursement rates were inadequate under federal law. The defendants were allowed sixty days within which to formulate new appeals procedures, and the new procedures were presented to the court for review. The court held that the new procedures were appropriate and meaningful appeals procedures as required by federal law. The decision in Mary Washington Hospital was never appealed.

III.

The issues raised by VHA in this case are quite similar to those presented in Mary Washington Hospital. For example, VHA alleges that the reimbursement rates under Virginia's plan do not comply with the requirements of federal law, in that they do not reasonably and adequately meet the costs incurred by efficiently and economically operated hospitals. Additionally, VHA challenges Virginia's use of the consumer price index as its reimbursement escalator under the plan, alleging that use of this reimbursement escalator will result in increasingly inadequate reimbursement rates in the future. Finally, VHA challenges the adequacy of Virginia's procedures for individual hospitals to appeal reimbursement rates.

The district court granted summary judgment for the defendants in this case on the ground that VHA was collaterally estopped to litigate the issues raised in its complaint, because those issues had previously been decided in the Mary Washington Hospital litigation. We think that the district court erred in applying collateral estoppel under the circumstances of this case, because VHA, which was not a party in Mary Washington Hospital, could not be bound by the judgment rendered in that suit under collateral estoppel principles. ³

The doctrine of collateral estoppel precludes relitigation of issues of fact or law that are identical to issues which have been actually determined and necessarily decided in prior litigation in which the party against whom collateral estoppel is asserted had a full and fair opportunity to litigate. See, e.g., Thomas v. General Services Administration, 794 F.2d 661, 664 (Fed.Cir.1986); National Labor Relations Board v. Master Slack and/or Master Trousers Corp., ...