Wesley Health Care Ctr. v. DeBuono

• Decision Date: 23 October 2000
• Docket Number: Docket No. 99-7938
• Citation: 244 F.3d 280
• Parties: (2nd Cir. 2001) WESLEY HEALTH CARE CENTER, INC., Plaintiff-Appellant, v. BARBARA DEBUONO, M.D., as Commissioner of the New York State Department of Health; ROSS PRINZO, as Commissioner of the Albany County Department of Social Services; and BRIAN WING, as Acting Commissioner of the New York State Department of Social Services, Defendants-Appellees. Submitted:
• Court: U.S. Court of Appeals — Second Circuit

Page 280

244 F.3d 280 (2nd Cir. 2001)

WESLEY HEALTH CARE CENTER, INC., Plaintiff-Appellant, v. BARBARA DEBUONO, M.D., as Commissioner of the New York State Department of Health; ROSS PRINZO, as Commissioner of the Albany County Department of Social Services; and BRIAN WING, as Acting Commissioner of the New York State Department of Social Services, Defendants-Appellees.

Docket No. 99-7938

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Submitted: October 23, 2000.

Decided: March 22, 2001.

Appeal from judgment of the United States District Court for the Northern District of New York (Lawrence E. Kahn, Judge) dismissing on summary judgment plaintiff's 42 U.S.C. § 1983 claims alleging violations of the Medicaid Act, 42 U.S.C. §§ 1396, et seq., and the Fifth Amendment's "takings clause" as applied to the states through the Fourteenth Amendment. Affirmed.

RAUL A. TABORA, JR., Tobin and Dempf, Albany, New York, for Plaintiff- Appellant.

KATHLEEN M. TREASURE, Assistant Solicitor General, Albany, New York (Eliot Spitzer, Attorney General, Nancy A. Spiegel, Assistant Solicitor General, Peter H. Schiff, Senior Counsel, Craig Denning, Assistant County Attorney, Albany County), for Defendants-Appellees.

Before: CARDAMONE, WINTER, and POOLER, Circuit Judges.

POOLER, Circuit Judge:

Plaintiff-Appellant Wesley Health Care Center, Inc. ("Wesley") appeals from a judgment of the United States District Court for the Northern District of New York (Lawrence E. Kahn, Judge), upon a July 8, 1999, Decision and Order granting summary judgment to Defendants-Appellees, Barbara DeBuono, M.D., as Commissioner of the New York State Department of Health; Ross Prinzo, as Commissioner of the Albany County Department of Social Services; and Brian Wing, as Acting Commissioner of the New York State Department of Social Services. We affirm the judgment of the district court and hold that 1) 42 U.S.C. § 1396a(a)(25) does not confer a federal right which would support a private cause of action under 42 U.S.C. § 1983 upon health care providers like Wesley, and 2) Wesley has no takings claim under the Fifth Amendment to the United States Constitution as it is applied to the states through the Fourteenth Amendment because Wesley cannot show a property interest in the insurance proceeds that form the basis of its takings claim.

BACKGROUND

Medicaid is a federal program implemented at the state level through state plans that must comply with federal requirements in order to receive federal funding. See 42 U.S.C. § 1396a. In New York, the program is administered at the state level by the New York State Department of Health ("Department"). See N.Y. Pub. Health Law § 201(1)(v). Because Medicaid is a "payor of last resort," 42 U.S.C. § 1396a(a)(25) requires states to implement "third party liability (TPL) programs" which "ensure that Federal and State funds are not misspent for covered services to eligible Medicaid recipients when third parties exist that are legally liable to pay for those services." Medicaid Programs; State Plan Requirements and Other Provisions Relating to State Third Party Liability Programs, 55 Fed. Reg. 1423, 1423-24 (1990). The Medicaid statute requires that each state agency administering the Medicaid program take measures to find out when third parties (like private insurers) are legally obligated to pay for services covered by the plan. See 42 U.S.C. § 1396a(25)(A). Each state plan must include a method of pursuing claims against such third parties. See id. If third party liability is discovered after medical care has been provided, the state agency must seek reimbursement from the third party. See 42 U.S.C. § 1396a(25)(B). Providers may not seek to collect amounts from covered individuals where third parties are obliged to pay an amount at least equal to the amount that would be paid by Medicaid for the service. See 42 U.S.C. § 1396a(25)(C). Providers may seek payment from individuals covered by Medicaid if the amount third parties must pay for a service does not equal the amount Medicaid would pay. See id. In such a case, a provider may collect only the difference between what the private insurer must pay and the amount that Medicaid will pay. See id. A provider may not refuse health care to an individual covered by Medicaid because a third party has a legal obligation to pay for the services rendered. See 42 U.S.C. § 1396a(25)(D).

The Health Care Financing Administration ("HCFA") has issued implementing regulations which further specify the way third party liability is to be handled. Where third party liability exists, the state agency must reject a claim for reimbursement for that service and return it to the provider for a determination of the amount of the third party's liability. See 42 C.F.R. § 433.139(b)(1). The state agency must pay the difference if the third party's payment obligation does not at least equal the amount the provider is entitled to under Medicaid. See id. This method of payment is called 'cost avoiding'; it entails shifting to the provider the burden of securing payment from third parties.

The alternative method of payment is called 'pay and chase,' and it "is used when the State pays the total amount allowed under the agency's payment schedule and then seeks reimbursement from the liable third party." Medicaid Programs; State Plan Requirements and Other Provisions Relating to State Third Party Liability Programs, 55 Fed. Reg. 1423, 1425 (1990). In certain specific circumstances-where, for example, labor, delivery, or postpartum care is involved-the regulations permit or even require the state agency to use a pay and chase method of reimbursement. See 42 C.F.R. § 433.139(b)(2), (3). In circumstances where it is cost effective to do so, a state agency may use the pay and chase method if it receives a waiver from HCFA. See 42 C.F.R. § 433.139(e).

New York regulations disallow reimbursement to providers unless the provider has first "sought reimbursement from liable third parties." N.Y. Comp. Codes R. & Regs. tit. 18, § 540.6(e)(2)(ii). Thus, a provider is eligible for reimbursement from the social services department where third party liability exists, so long as the provider submits a claim to the third party. "Any reimbursement the provider recovers from liable third parties shall be applied to reduce any claims for medical assistance submitted for payment to the medical assistance program by such provider or shall be repaid to the medical assistance program within 30 days after third-party liability has been ascertained...." N.Y. Comp. Codes R. & Regs. tit. 18, § 540.6(e)(4). Thus, while the regulations shift the burden of pursuing third party payments to providers, they also contemplate paying out monies for which third party liability exists, on the condition that the agency will be reimbursed when the third party finally pays.

Wesley is a nonprofit corporation operating a 356 bed nursing home. Operators of nursing homes in New York must first bill any liable third parties for health care services rendered and then may bill the Medicaid program for Medicaid reimbursement Thus, a nursing home may receive reimbursement from the Medicaid program prior to receiving payment from any third party insurer. The nursing home must pay the Department any funds it receives from third party insurers in excess of the amounts it is entitled to receive under the Medicaid program and must repay the Medicaid program for any funds already received for the service. In accord with federal regulations, the Department then reimburses itself and the federal government for their expenditures under the program. See 42 C.F.R. § 433.154. The remaining funds are then turned over to the individual recipient of health care services and are treated as either income or resources for purposes of Medicaid eligibility. See id.

Wesley operates a "young adult" unit for residents suffering progressive disabling conditions like multiple sclerosis. "Young adult" residents typically have some form of private insurance in addition to Medicaid coverage which, in some cases, will cover all of the insured's prescription drug needs. At the same time, residents typically receive Medicaid coverage, which, under the New York plan, means that Wesley receives an overall per diem rate set by the Department for care of the resident. Wesley complains that due to the nature of illnesses suffered by its 'young adult' residents, prescription drug costs alone can eat up all the funds Wesley receives from Medicaid for providing nursing home care. This case arose out of Wesley's efforts to find a way to, on the one hand, continue receiving Medicaid funds for its patients while, on the other hand, receiving additional amounts from private insurers where the insurers' coverage offers higher reimbursements for health care services.¹

Because Wesley cannot retain insurance proceeds collected from third party insurers in excess of the amount it is entitled to receive from the state Medicaid program as reimbursement for providing nursing home care, it brought suit under 42 U.S.C. § 1983. Wesley alleged that New York's Medicaid program violated federal laws and regulations requiring use of the cost avoiding method of collecting payments-that is, Wesley claimed New York is required to let providers seek reimbursement from third parties. Wesley further claimed that as payor of last resort, New York's Medicaid program had no right to recover all insurance proceeds remaining after Wesley had taken the portion it was entitled to under the Medicaid plan. Wesley also claimed that the State's recovery of insurance proceeds was a taking in violation of the Constitution. The State and Wesley both moved for summary judgment.

The District Court for the Northern District of New York (Kahn, J.) held that Wesley had no right to sue under section 1983 for a violation of the Medicaid statute's third party liability provisions because those provisions were not...