LAMAR ALEXANDER, ET AL., PETITIONERS V. ROSIER JENNINGS, ET AL.

   No. 83-727

   In the Supreme Court of the United States

   October Term, 1983

   On Writ of Certiorari To The United States Court of Appeals For The
Sixth Circuit

   Brief For the United States as Amicus Curiae Supporting Petitioners

            TABLE OF CONTENTS
   Interest of the United States
   Statement
   Introduction and summary of argument
   Argument:
      Tennessee's 14-day limit on inpatient hospital
      care for all Medicaid recipients does not have a
      disparate impact on the handicapped, and so is
      consistent with Section 504 and its implementing
      regulations
      A. Tennessee's plan does not have a disparate
         impact because the relevant benefit (hospital services)
         is provided equally to handicapped and
         nonhandicapped alike
         1. Section 504 does not dictate what kind of
            benefit the State must provide
         2. Tennessee law and the Medicaid Act
            contemplate that the relevant benefit (the
            provision of health services) may be subject
            to a reasonable annual limit
      B. Section 504 should not be read as requiring the
         State to distribute program benefits in a way
         that produces equality of results
         1. The court of appeals' approach obliterates
            the distinction between nondiscrimination
            and affirmative action, requires unforeseen
            subsidies, and produces new disparate impacts
            of its own
         2. The cases do not support the conclusion
            that inequalities in result automatically
            constitute a disparate impact
   Conclusion
   Appendix

                          QUESTION PRESENTED

   The United States will address the following question:

   Whether a 14-day annual limit on Medicaid coverage for inpatient
hospital care has a "disparate impact" on the handicapped if a
disproportionate number of handicapped Medicaid-eligible hospital
users require more than 14 days of such care.

                     INTEREST OF THE UNITED STATES

   The United States has substantial responsibility for enforcing
Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794) in
connection with federally assisted programs and activities.  /1/ This
case concerns the interpretation of that Section and its implementing
regulations, /2/ and the outcome will directly affect the actions of
numerous federal agencies and recipients of federal funds.  For the
same reason, the United States has participated as amicus curiae in
other cases before this Court involving Section 504.  See Southeastern
Community College v. Davis, 442 U.S. 397 (1979);  University of Texas
v. Camenisch, 451 U.S. 390 (1981);  Consolidated Rail Corp. v.
Darrone, No. 82-862 (Feb. 28, 1984).

                               STATEMENT

   1. This suit was brought by Medicaid recipients from the State of
Tennessee to challenge an array of changes proposed by the State to
control its Medicaid expenditures.  By the time of the district
court's decision (Pet. App. A27-A51), the only remaining issue was the
validity of Tennessee's proposed reduction in the number of hospital
days covered by Medicaid from 20 to 14 per year.  Although the
validity of this proposed reduction was challenged on several grounds,
the questions presented on certiorari concern its propriety only under
Section 504 of the Rehabilitation Act.  /3/

   At trial, statistical evidence was submitted comparing inpatient
hospital use by individuals who qualify for Medicaid benefits on the
basis of blindness or disability (deemed "handicapped" by the parties
and by the court (J.A. 40)) with inpatient hospital use by individuals
who qualify for Medicaid benefits on the basis of other considerations
(deemed "nonhandicapped").  /4/ The district court found that during
fiscal year 1979-1980, 341,960 persons qualified for Medicaid benefits
in Tennessee.  Of these 90,668 (26.5%) were handicapped.  During the
same period 51,140 Medicaid recipients used one or more days of
inpatient hospital care.  Of these 16,852 (33.0%) were handicapped
(Pet. App. A31-A32).  /5/ Out of the 7279 Medicaid recipients who
needed more than 14 days of hospital care, 4617 (63.4%) were
handicapped (J.A. 170-172, 182-184).

   Looking at those figures another way, respondents noted that of the
Medicaid recipients who used inpatient hospital care, 92.2% of the
nonhandicapped (31,626 divided by 34,288) would have been fully served
by 14 days of coverage, whereas only 72.6% of the handicapped (12,235
divided by 16,852) would have been fully served.  Thus 27.4% of the
handicapped users of this service, as opposed to 7.8% of the
nonhandicapped users, required some hospitalization for which they
would not be reimbursed if the 14-day limit went into effect.  On the
basis of these statistics respondents argued that the 14-day limit
would have a disparate impact on the handicapped, and that they had
therefore shown a prima facie violation of Secton 504.

   The district court rejected this argument.  It held (Pet. App.
A34-A35) that the proportionately greater hospital use by handicapped
Medicaid eligibles in fiscal year 1979-1980 was not necessarily
attributable to their handicaps, and that the 1979-1980 statistics
therefore showed little about likely future hospital use.  /6/ In any
event, the court held that the disparity shown by respondents "(did)
not amount to discrimination" under Section 504 (Pet. App. A40).

   On appeal the Sixth Circuit vacated and remanded for further
proceedings, holding that respondents had shown a disparate impact,
and therefore established a prima facie case (Pet. App. A1-A19).
Citing medical testimony describing the inpatient hospitalization
patterns of patients with various handicaps, /7/ the court found to be
clearly erroneous the district court's finding that the disparity
demonstrated for 1979-1980 might not continue in later years (Pet.
App. A10-A12).  /8/ The court further held that that disparity
sufficed to establish a prima facie case, stating (Pet. App. A9-A10):

      (T)he district court erred by confusing the prima facie case
      with a decision on the ultimate outcome.  * * * The
      establishment of disparate impact is not determinative of
      whether the defendant is guilty of discrimination.  It merely
      requires the defendant to rebut the inference of discriminatory
      action.  * * * (T)he showing of disparate impact proved a prima
      facie case and required the state to explain its choice.

   The court went on to consider the justification offered by the
State for its proposed reduction in inpatient hospital coverage (Pet.
App. A12-A16).  The court found that the State "was justified in
attempting to reduce its Medicaid expenses" (Pet. App. A13).  It
noted, however, that respondents -- in addition to proving a prima
facie case of disparate impact -- had presented an alternative plan
that might have affected the handicapped less while still reducing the
State's expenses.  /9/ The court held that under these circumstances
the State must rebut the prima facie case either by "demonstrat(ing)
that the alternative method * * * will not accomplish the State's
objective of cost-saving," /10/ or by "coming forward with some
substantial justification for the adoption of the plan with the
greater discriminatory impact" (Pet. App. A16).  /11/

   2.a. Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794)
provides:

         No otherwise qualified handicapped individual * * * shall,
      solely by reason of his handicap, be excluded from the
      participation in, be denied the benefits of, or be subjected to
      discrimination under any program or activity receiving Federal
      financial assistance * * *.

   A "handicapped individual" is defined as "any person who (i) has a
physical or mental impairment which substantially limits one or more
of such person's major life activities, (ii) has a record of such an
impairment, or (iii) is regarded as having such an impairment" (29
U.S.C. 706(7)(B)).  HHS regulations implementing Section 504 define
"major life activities" as "functions such as caring for one's self,
performing manual tasks, walking, seeing, hearing, speaking,
breathing, learning, and working" (45 C.F.R. 84.3(j)(2)(ii)).

   b. Title XIX of the Social Security Act (see 42 U.S.C. (Supp. V)
1396a(a)(10)) ties eligibility for Medicaid benefits to eligibility
for either Supplemental Security Income (SSI) (42 U.S.C. 1381 et seq.)
or Aid to Families with Dependent Children (AFDC) (42 U.S.C. (& Supp.
V) 601 et seq.).  It is thus essentially limited to five categories of
individuals:  (1) the blind;  (2) the disabled;  (3) the aged (65 or
older);  (4) dependent children (generally under age 18) deprived of
parental support;  and (5) caretaker-relatives of such children.  /12/
Eligibility is also limited by financial and other considerations, but
no one, regardless of income, is eligible for Medicaid unless he falls
into one of these five categories.

   A person is "disabled" for purposes of SSI and Medicaid eligibility
"if he is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be
expected to last for a continuous period of not less than twelve
months" (42 U.S.C. 1382c(a)(3)(A)).

                 INTRODUCTION AND SUMMARY OF ARGUMENT

   The question we address in this brief is whether Tennessee's 14-day
limit of Medicaid coverage for inpatient hospital care has a disparate
impact on the handicapped /13/ so as to constitute a prima facie
violation of Section 504 of the Rehabilitation Act.

   The petition presents as a separate antecedent question whether "a
'disparate imapct' or 'effects' test (is) appropriate to determine a
violation of Section 504 of the Rehabilitation Act of 1973 and
regulations issued thereunder" (Pet. i).  This issue was not briefed,
argued, or decided in either the district court or the court of
appeals.  Our brief in this case proceeds on the assumption that a
showing of "disparate effects" could, in a proper case, constitute a
prima facie violation of Section 504 -- either because Section 504
itself may encompass "disparate effects," /14/ or because the numerous
agency regulations implementing Section 504 -- which prohibit
recipients from using criteria that have the "purpose or effect" of
discriminating against the handicapped /15/ -- may constitute a valid
means of implementing the open-ended statutory directive.  See
Guardians Association v. Civil Service Commission, No. 81-431 (July 1,
1983).

   However, we do not think that the Court needs to pass on the
validity of either of these assumptions, or to revisit the question
that so troubled the Court in Guardians under the parallel provisions
of Title VI -- the role of purpose and effect in interpreting the
statute and the regulations.  As we demonstrate below, Tennessee's
plan does not have a disparate impact on the handicapped even if one
assumes that an "effects" test is proper.  A finding of disparate
impact depends on a showing that the handicapped are affected
unequally with respect to some relevant good or benefit.  In this case
Tennessee has provided the same good or benefit (hospital care up to
14 days) to all individuals eligible for Medicaid (pages 11-12, 16-21,
infra).

   Should the Court reject our principal contention, and conclude that
the facts here can constitute a showing of disparate impact, two
questions would still remain to be decided.  The first is whether such
a showing is legally sufficient to establish a prima facie case under
Section 504 and its regulations.  The second is whether, if it is, the
State here successfully rebutted the respondents' showing.  /16/ We
suggest that the appropriate disposition of both of these questions
would be to remand them for determination in the first instance by the
lower courts, where they have not yet been considered.

   We turn then to the court of appeals' conclusion that the State's
proposed 14-day limit on Medicaid coverage for inpatient hospital care
would have a disparate impact on the handicapped, and that respondents
had therefore made out a prima facie case under Section 504.  This
conclusion is erroneous.

   A. Respondents' showing of "disparate impact" is legally
insufficient because the State plan offers the same benefit to all
Medicaid eligibles, handicapped and nonhandicapped alike.  The court
of appeals' conclusion that the handicapped are affected "more harshly
than others" (Pet. App. A8) rests on the assumption that the benefit
Tennessee is conferring is not a fixed amount of health services, but
the satisfaction of health needs.  That assumption is incorrect.

   Section 504 does not dictate what kind of benefit a recipient of
federal funds must provide.  It simply commands that the handicapped
be allowed to share equally in the benefits of a federally assisted
program, whatever those may be.  What those benefits are is in the
first instance determined by the federal fund recipient (here the
State), which is the entity that has chosen to undertake the program
or activity of distributing those benefits.  That determination must,
of course, be consistent with the federal funding statute (here the
Medicaid Act) that subsidizes the recipient's program or activity.
Here all the State has undertaken is to give Medicaid eligibles
inpatient hospital services up to 14 days.  Such a limitation on
hospital care is fully consistent with the Medicaid Act, which defines
"medical assistance" as "payment of part * * * of the cost of * * *
care and services." 42 U.S.C. (Supp. V) 1396d(a).  Indeed the Medicaid
Act includes its own equality provision (one more specific than
Section 504), which says only that "the medical assistance made
available to any individual * * * shall not be less in amount,
duration, or scope than the medical assistance made available to any
other * * * individual." 42 U.S.C. (Supp. V) 1396a(a)(10) (emphasis
added).

   B. The court of appeals appears to have thought that Section 504,
while leaving a recipient free to choose "the goal of (its) program"
(Pet. App. A12 n.8), requires funds to be allocated so that the
handicapped and nonhandicapped are equally successful in achieving
that ultimate goal.

   1. This suggestion dissolves all distinction between
nondiscrimination and affirmative action.  It may be that a greater
percentage of the handicapped require more than 14 days of hospital
care to achieve the ultimate goal of good health.  But the same would
be true if the State reverted to a 20-day limit.  The only way to
assure equality in reaching the goal of good health is to allocate
more health care money per capita to the handicapped.  Section 504 --
an antidiscrimination (rather than an affirmative action) statute --
does not mandate such a redistributive subsidy.  Indeed, such a
redistribution may well have a disparate impact on other groups
protected by other antidiscrimination laws.

   2. An approach requiring equality of results is unsupported by the
case law dealing with Section 504 and cognate statutes.  In
Southeastern Community College v. Davis, 442 U.S. 397 (1979), this
Court made clear that discrimination against the handicapped should be
measured in the context of the "program" as defined by the recipient
of federal funds.  It also held that "(t)he language and structure of
the Rehabilitation Act of 1973 reflect a recognition by Congress of
the distinction between the evenhanded treatment of qualified
handicapped persons and affirmative efforts to overcome the
disabilities caused by handicaps.  * * * Section 504 does not refer at
all to affirmative action." 442 U.S. at 410.

                               ARGUMENT

 TENNESSEE'S 14-DAY LIMIT ON INPATIENT HOSPITAL CARE FOR ALL MEDICAID
RECIPIENTS DOES NOT HAVE A DISPARATE IMPACT ON THE HANDICAPPED, AND SO
IS CONSISTENT WITH SECTION 504 AND ITS IMPLEMENTING REGULATIONS

   According to the court of appeals, respondents demonstrated that
the State's proposed 14-day limit on Medicaid coverage for inpatient
hospital care would have disparate impact on the handicapped, and
therefore established a prima facie case under Section 504.  /17/ This
conclusion is erroneous.

 A. Tennessee's Plan Does Not Have A Disparate Impact Because The
Relevant Benefit (Hospital Services) Is Provided Equally To
Handicapped And Nonhandicapped Alike

   The court of appeals held that Tennessee's plan was "a facially
neutral policy which affected (the) protected group() more harshly
than others" (Pet. App. A8).  But in one obvious way the State's plan
affects everyone equally:  all Medicaid recipients are entitled to 14
days of hospital care;  none is entitled to more.  The court's
conclusion is meaningful only if one assumes that the relevant "good"
or "benefit" /18/ being distributed (and as to which a discriminatory
effect is prohibited) is not the provision of health services, but the
satisfaction of health needs.

   How does one determine what is the relevant "good" or "benefit"?
Our submission is that the answer cannot be derived from Section 504
itself.  Section 504 was not intended to generate an independent
substantive definition of what is the federally subsidized good or
benefit as to which discrimination is prohibited.  Rather, it is the
recipient -- here the State -- that in the first instance must
determine what benefit-distributing program or activity it wishes to
undertake.  (In this case we believe that Tennessee has undertaken a
program of distributing, not satisfaction of health needs, but
hospital care.) Of course, because the federal grant statute
subsidizes the recipient's program or activity, the recipient's choice
of benefits must be consistent with that federal law.  (Here
Tennessee's decision to distribute, as a benefit, up to 14 days of
hospital care is fully consistent with the Medicaid Act.) The purpose
of Section 504 is simply to assure that qualified handicapped
individuals are given an equal opportunity to share in those benefits
that the recipient has undertaken to distribute and the federal
government has undertaken to subsidize.

 1. Section 504 Does Not Dictate What Kind Of Benefit The State Must
Provide

   Like the notion of equality itself, /19/ Section 504 generates no
self-contained or independent substantive rule of conduct.  It states
that "(n)o otherwise qualified handicapped individual * * * shall,
solely by reason of his handicap, be excluded from the participation
in, be denied the benefits of, or be subjected to discrimination under
any program or activity receiving Federal financial assistance" (29
U.S.C. 794).  Nothing in that language defines or even constrains the
kind of "program or activity" a recipient may conduct, or what its
"benefits" may be.  It presumes that the program may be of "any" kind
the federal government is willing to assist.  Once the recipient has
established a program and complied with the requirements for federal
aid, however, Section 504 commands that the handicapped be given an
equal opportunity to share in its benefits, whatever they may be.

   Suppose Tennessee were to decide that it wished to give each of its
citizens $100, to be spent on health care, and the federal government
decided to contribute $70 per person for this program.  Section 504
obviously requires that the handicapped, like everyone else, receive
$100;  but it would hardly be thought that the program was (prima
facie) invalid under Section 504 because $100 may buy less "good
health" for the handicapped than for the nonhandicapped.  Simiarly, if
the State decides to offer specific health services, Section 504
simply insists that the handicapped have equal access to those
services, not that those services produce equivalent results for the
handicapped.

   The Section 504 regulations (to which the court of appeals referred
(Pet. App. A12 n.8)) are consistent with this understanding of the
role of Section 504.  45 C.F.R. 84.4(b)(2) provides that

         (2) For purposes of this part, aids, benefits, and services,
      to be equally effective, are not required to produce the
      identical result or level of achievement for handicapped and
      nonhandicapped persons, but must afford handicapped persons
      equal opportunity to obtain the same result, to gain the same
      benefit, or to reach the same level of achievement, in the most
      integrated setting appropriate to the person's needs.  /20/

   Under this section, the handicapped must be given an "equal
opportunity" to get "the same benefit" (whatever that may be) that the
State offers to others.  The explanatory appendix to the regulations
illustrates what is meant by such an "equal opportunity" (45 C.F.R.
Pt. 84 App. A. Paragraph 6):

      For example, a welfare office that uses the telephone for
      communicating with its clients must provide alternative modes of
      communicating with its deaf clients.

   The other provision referred to by the court of appeals (Pet. App.
A8 & n.5, A12 n.8) was 45 C.F.R. 84.4(b)(4), which states:

         (4) A recipient may not, directly or through contractual or
      other arrangements, utilize criteria or methods of
      administration (i) that have the effect of subjecting qualified
      handicapped persons to discrimination on the basis of handicap,
      (or) (ii) that have the purpose or effect of defeating or
      substantially impairing accomplishment of the objectives of the
      recipient's program with respect to handicapped persons * * *.

   Clause (i) speaks of discriminatory "effect," but like the statute,
it says nothing about the kinds of benefits whose uneven distribution
will have that result.  Clause (ii) refers to the "recipient's
program";  that program's "objectives" are assumed to have been
defined by the recipient outside the framework of Section 504.

   Thus Section 504 leaves a recipient of federal funds free to decide
the kind of benefit it wishes to offer and the objectives of its
program.  The federal grant statute determines whether a program
distributing that benefit is entitled to a federal subsidy.  And
Section 504 comes into play at the next step:  whatever benefit is
offered, and has been subsidized, must be made available to the
handicapped on equal terms with the nonhandicapped.  The explanatory
appendix gives the following examples:

      Recipients are not required * * * to provide specialized
      services and aids to handicapped persons in health programs.
      If, for example, a college infirmary treats only simple
      disorders such as cuts, bruises, and colds, its obligation to
      handicapped persons is to treat such disorders for them.

   45 C.F.R. Pt. 84 App. A, Paragraph 33.

      One common misconception about the regulation /21/ is that it
      would require specialized hospitals and other health care
      providers to treat all handicapped persons.  The regulation
      makes no such requirement.  Thus a burn treatment center need
      not provide other types of medical treatment to handicapped
      persons unless it provides such medical services to
      nonhandicapped persons.  It could not, however, refuse to treat
      the burns of a deaf person because of his or her deafness.

   45 C.F.R. Pt. 84 App. A, Paragraph 36.  A third discusses the
regulation (45 C.F.R. 84.53) forbidding discrimination in the
treatment of drug and alcohol addicts:

      This provision does not mean that all hospitals and outpatient
      facilities must treat drug addiction and alcoholism.  It simply
      means, for example, that a cancer clinic may not refuse to treat
      cancer patients simply because they are also alcoholics.

   45 C.F.R. Pt. 84 App. A, Paragraph 37.

   In this case the court of appeals found it significant that
Tennessee's plan, by limiting coverage to 14 days, would not "afford
the best cure" (Pet. App. A12 n.8) for some sufferers of "asthma,
emphysema, chronic bronchitis," and "'(d)egenerative diseases of
neurology'" (id. at A11).  But that is no different from saying that
the State has not chosen to pay for treatment of drug addiction or
alcoholism, or for major disorders in general, or for anything other
than burn treatment.  Section 504 does not require the State to treat
those conditions at all.  A fortiori it does not require the State to
provide more than 14 days of hospital care for them, particularly when
it does not do so for other conditions.  /22/

 2. Tennessee Law And The Medicaid Act Contemplate That The Relevant
Benefit (The Provision Of Health Services) May Be Subject To A
Reasonable Annual Limit

   The court of appeals apparently believed that Tennessee law and the
Medicaid Act do not contemplate a benefit program of health services
subject to a flat annual maximum.  It held that it (Pet. App. A12
n.8):

      would be too simplistic an analysis to hold that all the
      Medicaid program requires is a particular number of days in the
      hospital.  Rather, it is likely that the objective is to afford
      the best cure, therapy, or preventative treatment that the
      allotted funds can provide.  /23/ This is made clear by the
      Tennessee law defining medical assistance as the "payment of the
      cost of care, services and supplies necessary to prevent,
      diagnose, correct or cure conditions in the person." Tenn. Code
      Ann. Section 14-23.103(2).

   Nothing in Tennessee law, however, suggests that the State has
chosen to distribute anything other than a limited amount of health
services.  On the contrary, Tennessee law specifically empowers "(t)he
commissioner (of public health) * * * by rule and regulation (to) fix
the maximum level of services as are deemed necessary to insure that
an expenditure of state funds shall not exceed the amount provided for
those purposes." Tenn. Code Ann. Section 14-23-109 (1980).  Pursuant
to this provision, the commissioner had previously limited coverage to
20 days for all Medicaid recipients.  By the reduction at issue in
this case he proposed, pursuant to the same authority, to offer needed
care up to 14 days -- nothing more, nothing less.

   The court of appeals also said that it "would be too simplistic * *
* to hold that all the Medicaid program requires is a particular
number of days in the hospital" (Pet. App. A12 n.8).  We disagree.
Both Title XIX of the Social Security Act (42 U.S.C. (& Supp. V) 1396
et seq.) and the Medicaid regulations (42 C.F.R. Pt. 430 et seq.)
envision precisely that kind of limitation.  /24/ Section 1901 of the
Act provides for grants to states "(f)or the purpose of enabling each
State, as far as practicable under the conditions in such State, to
furnish * * * medical assistance" (42 U.S.C. 1396 (emphasis added)).
"(M)edical assistance" is defined as "payment of part or all of the
cost of * * * care and services" (42 U.S.C. (Supp. V) 1396d(a)
(emphasis added)).  Section 1902 of the Act requires state plans to
"include reasonable standards * * * for determining * * * the extent
of medical assistance under the plan" (42 U.S.C. 1396a(a)(17)
(emphasis added)).

   Tennessee's proposal is also consistent with the equality rule
incorporated in Section 1902(a)(10) of the Medicaid Act.  That section
is far more specific than Section 504 about the kind of Medicaid
benefits the blind and disabled are entitled to get on equal terms
with others.  It states (42 U.S.C. (Supp. V) 1396a(a)(10) (emphasis
added)):

      (a) A State plan for medical assistance must --

                      *     *     *     *     *

         (10) provide --

                      *     *     *     *     *

         (B) that the medical assistance made available to any
      individual described in clause (A) /25/ --

         (i) shall not be less in amount, duration, or scope than the
      medical assistance made available to any other such individual *
      * *.

   See also 42 C.F.R. 440.240.  The court of appeals itself held,
somewhat quixotically, that the State's proposal was in "the best
interest of Tennessee Medicaid recipients" (Pet. App. A16), and
consistent with Section 1902(a)(19) of the Act, 42 U.S.C.
1396a(a)(19).  /26/ Finally, the regulations implementing the Act also
permit a state agency to "place appropriate limits on a service" (42
C.F.R. 440.230(d)), so long as the service provided is "sufficient in
amount, duration, and scope to reasonably achieve its purpose" (id.
Section 440.230(b)).  /27/

   Other courts have concluded that similar (and even shorter) annual
limits on hospital care are consistent with the Medicaid Act.  See,
e.g., Charleston Memorial Hospital v. Conrad, 693 F.2d 324, 329-330
(4th Cir. 1982) (inpatient hospital days limited to 12);  Virginia
Hospital Ass'n v. Kenly, 427 F. Supp. 781 (E.D. Va. 1977) (inpatient
hospital days limited to 21);  cf. Curtis v. Taylor, 625 F.2d 645,
653, modified, 648 F.2d 946 (5th Cir. 1980) (reduction in coverage of
physician visits to three per month).  Such limits are permissible,
the courts have held, so long as the "state plan will meet the medical
needs of 'most' eligible Medicaid recipients." Charleston Memorial
Hospital v. Conrad, 693 F.2d at 330.  Here the district court found
that the state plan would fully serve 95% of even handicapped Medicaid
eligibles (Pet. App. A34 n.6).  For that reason the Health Care
Financing Administration has approved Tennessee's 14-day limit.  /28/
Similar annual limits are currently in effect in nine other states.
/29/

   To conclude:  whether respondents have shown a prima facie case of
disparate impact depends on the nature of the benefit Tennessee has
allegedly distributed in unequal fashion.  Section 504, however, is
not an independent source of law that defines what benefit a recipient
of federal funds must offer.  Instead, it directs that the handicapped
be afforded an equal opportunity to share in whatever benefit a
recipient's program, as subsidized by the federal grant statute,
happens to provide.  Here Tennessee law, in conformity with the
Medicaid Act and its regulations, has chosen to offer a limited amount
of health services (not satisfaction of health needs) on equal terms
to all individuals eligible for Medicaid.  In the distribution of that
benefit there is no disparate impact on the handicapped.

 B. Section 504 Should Not Be Read As Requiring The State To
Distribute Program Benefits In A Way That Produces Equality Of Results

   One might attempt, even accepting all we have said thus far, to
defend the court of appeals' decision on a more sophisticated level.
The court did not, after all, say that the State had to take money
allocated for hospital care and spend it for some unrelated benefit.
Instead the court sought out the underlying purpose of hospital care
-- "good health" (Pet. App. A22) -- and required that the handicapped
be assured of the same success rate as the nonhandicapped in achieving
that purpose (Pet. App. A12 n.8).  Its assumption seems to have been
that Section 504 leaves a recipient free to choose the purpose of its
program, but requires that the available funds be allocated so as to
create equality of results with respect to that ultimate or
fundamental purpose.

   We do not think that Section 504 can bear such a reading.  Section
504 was designed simply to eliminate discrimination against the
handicapped, not to require the creation of subsidy (or
affirmative-action) programs which will produce equality of results
for them.  The court of appeals' approach has the effect of dissolving
all distinctions between nondiscrimination on the one hand, and
subsidy or affirmative action on the other.  Section 504 should not be
read to obliterate the commonly understood conceptual categories
against which it was enacted and which serve to make meaningful its
animating concerns.  Further, the court of appeals' approach reads
Section 504 as requiring the State to engage in a significant
redistribution from the nonhandicapped to the handicapped, a result
that should not be required in the absence of a clear indication of
congressional intent.  Finally, the court's approach, by requiring the
State to apportion Medicaid funds to achieve equal results for the
handicapped and the nonhandicapped, may produce new inequalities
affecting other protected groups.  These consequences of the court's
approach are not supported by the case law dealing with Section 504
and cognate statutes.

 1. The Court Of Appeals' Approach Obliterates The Distinction Between
Nondiscrimination And Affirmative Action, Requires Unforeseen
Subsidies, And Produces New Disparate Impacts Of Its Own

   a. Congress does not legislate in a vacuum.  When it enacts
statutes such as Section 504, which refer to concepts such as
discrimination, it must be taken to refer to conceptual categories
that have some commonly understood meaning.  The fundamental problem
with the court of appeals' approach is that it ascribes to Congress a
reductionist intention to obliterate these conceptual meanings and to
dissolve the distinctions that flow from them.

   One common assumption -- confirmed by the functioning of our
markets -- is that a person who offers the same goods and services at
the same price to all customers is treating all customers equally (is
not discriminating against any of them) even though the satisfaction
that the same goods will create in individual customers may vary.  If
a hospital offers everyone health care at $ X per day, it is treating
everyone equally, and there is no discrimination even if some people
need care more than others.  Society may then decide that people who
are in greater need of hospital care should be provided with
lower-priced (or free) care, but that is thought of as a question of
subsidy, not a question of how to eliminate discrimination.  In just
the same way, once society has decided to subsidize a limited amount
of hospital care for a group of people, it cannot be thought to
discriminate if it leaves all of them subject to the identical limit
(and thus subject to the market for their unmet needs), even though
some may have greater needs than others.

   If one accepts the court of appeals' hypothesis that the underlying
purpose of Tennessee's plan is good health, and that any benefit
package giving the handicapped a lower success rate in achieving that
result has a disparate impact, the real issue becomes not whether
Tennessee can reduce its hospital coverage from 20 to 14 days, but
whether it can impose any annual limit on coverage.  The reason is
that although the number of handicapped needing further
hospitalization decreases with more coverage, the disproportion in
"cures" between handicapped and nonhandicapped actually increases as
the maximum stay period is lengthened (J.A. 182-183).  /30/

   It would of course be possible to avoid all such "disparate
impacts" by providing 365 days of hospital coverage.  Then everyone
would be offered the same benefit, and the handicapped and
nonhandicapped would have their needs met in equal fashion.  Yet even
the court of appeals agreed that "(t)he State * * * was justified in
attempting to reduce its Medicaid expenses" (Pet. App. A13).  The only
other possible solution that satisfies the "purpose" identified by the
court of appeals is to redistribute the funds available for hospital
care by giving more per capita to the handicapped, so that equal
percentages of the handicapped and nonhandicapped may achieve the goal
of good health.  This converts Section 504 from an antidiscrimination
statute into an instrument of affirmative-action redistribution.  No
matter how wise or humane this may be as a matter of social policy, it
would be unwarranted to read such a policy into the sparse and limited
language of Section 504.

   b. To read Section 504 as animated by the general underlying
purpose of producing equality of results might have the untoward
consequence of creating (or increasing) disparate impacts (so
conceived) with respect to other groups, some themselves protected by
antidiscrimination laws.

   We start here with the fact that the handicapped as a class already
receive proportionately more of the State's Medicaid assistance --
including hospital care -- than do the nonhandicapped as a class.  A
greater proportion of handicapped than nonhandicapped persons is
eligible for Medicaid benefits in the first place, because persons
between 21 and 65 (with no dependent children) cannot qualify for
Medicaid coverage (regardless of income) unless they are either blind
or disabled.  Further, of those eligible for Medicaid, a greater
proportion of the handicapped than of the nonhandicapped receives
inpatient hospital care.  See note 5, supra.  Finally, of those who
receive inpatient hospital care, a greater proportion of handicapped
than of nonhandicapped persons uses the full 14 days of care offered
under the State's plan.  See page 3, supra, and App., infra, 11a.

   The court of appeals' approach would require increasing these
disproportions.  But if the State must pay still more money per capita
annually for hospital care for the blind and disabled, it will
necessarily pay less for AFDC recipients.  See page 6, supra.  And if
in Tennessee, as in Texas, "the proportion of AFDC recipients who are
black or Mexican-American is higher than the proportion of the * * *
blind, or disabled welfare recipients who fall within these minority
groups" (Jefferson v. Hackney, 406 U.S. 535, 538 (1972)), respondents'
proposal might be considered to have a "disparate impact" on those
protected by Title VI.

   Making results rather than benefits the focus for identifying
disparate impact would have similar consequences outside the area of
health care.  Consider, for example, the question of federal financial
aid to elementary and secondary schools.  See, e.g., 20 U.S.C. 2701 et
seq.; 20 U.S.C. 3801 et seq.  One might say that the underlying
purpose of such school programs is not the provision of education
services, but the successful achievement of learning -- measured
perhaps by SAT scores.  One could then claim that such a program had a
disparate impact on the mentally handicapped if funds were not so
allocated as to bring their SAT scores into parity with those of the
nonhandicapped.  /31/ But a redistribution of this sort -- what in
common understanding would be regarded as affirmative action in favor
of the handicapped -- may very well have a disparate impact on
disadvantaged (but nonhandicapped) minorities protected by Title VI.

   Indeed, even a system of direct cash grants in equal amounts to all
individuals below a certain income level could be suspect under
Section 504, provided one defined the purpose of the grants in
sufficiently general result-oriented terms -- to promote health or
learning.  And since the class protected by Section 504 is not
necessarily congruent with the classes protected by Titles VI and IX,
a redistribution of funds to help the handicapped better achieve the
program's "purpose" would often create new disparate impacts of its
own.  /32/

 2. The Cases Do Not Support The Conclusion That Inequalities In
Result Automatically Constitute A Disparate Impact

   The cases decided by this Court and other courts under Section 504
do not support the approach taken by the court of appeals.  In
Southeastern Community College v. Davis, 442 U.S. 397 (1979), the
issue was not whether the respondent got equal "benefits" from a
federally assisted nursing program, but whether she was "qualified" to
"participat(e) in" the program at all (29 U.S.C. 794).  In answering
that question, however, this Court assumed that it should measure
discrimination in the context of the program as the recipient of
federal assistance defined it /33/ (442 U.S. at 413 n.12):

      Southeastern's program, structured to train persons who will be
      able to perform all normal roles of a registered nurse,
      represents a legitimate academic policy, and is accepted by the
      State.

   To the argument that the respondent could benefit from (and perhaps
even be licensed after completing) a suitably modified program, the
Court responded (442 U.S. at 410):

         The language and structure of the Rehabilitation Act of 1973
      reflect a recognition by Congress of the distinction between the
      evenhanded treatment of qualified handicapped persons and
      affirmative efforts to overcome the disabilities caused by
      handicaps.  * * *

         * * * Section 504 does not refer at all to affirmative
      action.  * * * Congress understood accommodation of the needs of
      handicapped individuals may require affirmative action and knew
      how to provide for it in those instances where it wished to do
      so.

   In the cases relied upon by the court of appeals (Pet. App.
A7-A10), where a disparate impact was found, the very benefit offered
by the recipient reached the protected group in disproportionately
small numbers.  /34/ Those cases therefore involved issues like that
presented by architectural and transportation barriers.  When a
recipient of federal education aid provides a classroom or a library
with no access ramp, it offers a benefit that -- unlike Tennessee's
hospital care -- does not reach relatively equal numbers of the
handicapped and nonhandicapped.  The same is true when the recipient
constructs a public transportation system with federal money, but
designs it in a way that bars use by the handicapped.  /35/

   The point can perhaps best be illustrated by Aesop's fable about
the fox and the stork.  Section 504 is violated if a recipient offers
the fox and the stork an equal amount of milk in a container only the
stork can drink from.  Griggs v. Duke Power Co., 401 U.S. 424, 431
(1971).  But if an equal amount of milk is offered in a container
accessible to both, there is no discrimination under Section 504 even
though the fox, in order to be healthy, needs more milk than the
stork.

   This Court has twice considered the issue of disparate impact under
Title VI.  In Guardians Association, supra, the use of an unvalidated
written examination and a seniority system for layoffs caused minority
candidates to be hired later and laid off sooner, so that
proportionately fewer blacks and Hispanics than whites enjoyed the
benefits of employment in a federally funded program.  The case thus
fits comfortably into the category of situations where the very
benefit being offered by a recipient of federal funds is less
accessible to the protected group than to others.

   In Lau v. Nichols, 414 U.S. 563 (1974), the Court found that the
use of English as the sole language for instruction had the effect of
denying non-English-speaking Chinese children the benefits of public
education (414 U.S. at 568).  The Court concluded that the federally
funded program or activity was the provision of educational services,
and that access to these services was completely cut off to those who
were "handicapped" by their failure to speak English.  The case thus
is clearly analogous to ones where the handicapped are barred from
access to a library or school by physical barriers;  it nowhere
suggests that it is discrimination not to allocate educational
services in such a way as to produce equal achievement in learning.
/36/

   The claim made by respondents here is not like the claims
adjudicated in Guardians and Lau.  Respondents do not contend that
they, like employees hired late and dismissed early, receive a
proportionately smaller share of the State's program benefits.  Nor do
they claim that 14 days of care would (like English instruction to
Chinese speakers;  or like a library without ramps for one in a
wheelchair) be wholly ineffective for them.  They argue instead that
the handicapped, because of their relatively greater medical needs,
will not achieve equality of results (in terms of good health) if
hospitalization is limited to a maximum of 14 days for all.  The
solution they propose is an allocation of funds that will give the
handicapped (per capita) more than the nonhandicapped -- indeed, more
than the unequal division of the State already provides.  This is the
very kind of affirmative action that Davis held Section 504 does not
require.

                              CONCLUSION

   The judgment of the court of appeals should be reversed.

   Respectfully submitted.

   REX E. LEE

      Solicitor General

   WM. BRADFORD REYNOLDS

      Assistant Attorney General

   PAUL M. BATOR

      Deputy Solicitor General

   CHARLES J. COOPER

      Deputy Assistant Attorney General

   JOHN H. GARVEY

      Assistant to the Solicitor General

   BRIAN K. LANDSBERG

   MICHAEL CARVIN

      Attorneys

   MAY 1984

   /1/ In 1976 the President directed the Secretary of Health,
Education, and Welfare to "establish standards for determining who are
handicapped individuals and guidelines for determining what are
discriminatory practices, within the meaning of section 504." Exec.
Order No. 11,914, 41 Fed. Reg. 17871 (1976).  The Secretary issued
detailed regulations.  45 C.F.R. Pt. 85 (1978).  In 1980 the
Secretary's responsibility was transferred to the Attorney General
(Exec. Order No. 12,250, 45 Fed. Reg. 72995 (1980)), and the
regulations were "deemed to have been issued by the Attorney General."
Id. at 72997;  see 28 C.F.R. Pt. 41.  The regulations require each
federal agency to issue its own regulations concerning handicap
discrimination in the programs and activities financially assisted by
that agency.  28 C.F.R. 41.4.

   /2/ At least 24 federal agencies have regulations which incorporate
a "disparate impact" test.  See 5 C.F.R. 900.704(b)(3) (OPM);  7
C.F.R. 15b.4(b)(4) (DOA);  10 C.F.R. 4.121(b)(4) (NRC);  10 C.F.R.
1040.63(b)(4) (DOE);  14 C.F.R. 1251.103(b)(5) (NASA);  15 C.F.R.
8b.4(b)(4) (DOC);  18 C.F.R. 1307.4(b)(3) (TVA);  22 C.F.R.
142.4(b)(4) (DOS);  22 C.F.R. 217.4(b)(4) (AID/IDCA);  28 C.F.R.
41.51(b)(3), 42.503(b)(3) (DOJ);  29 C.F.R. 32.4(b)(4) (DOL);  31
C.F.R. 51.52(b)(1)(vi), 51.55(b)(1)(viii) (D. Treas. (ORS));  32
C.F.R. 56.8(a)(6) (DOD);  34 C.F.R. 104.4(b)(4) (D. Ed.);  38 C.F.R.
18.404(b)(4) (VA);  49 Fed. Reg. 1656 (1984) (to be codified at 40
C.F.R. Pt. 7) (EPA);  41 C.F.R. 101-8.303(d) (GSA);  43 C.F.R.
17.203(b)(4) (DOI);  45 C.F.R. 84.4(b)(4) (HHS);  45 C.F.R.
605.4(b)(4) (NSF);  45 C.F.R. 1151.17(c) (NEA);  45 C.F.R. 1170.12(c)
(NEH);  45 C.F.R. 1232.4(b)(3) (ACTION);  49 C.F.R. 27.7(b)(4) (DOT).

   /3/ Respondents argued below that the proposed reduction also
violated the Social Security Act and its implementing regulations
(Pet. App. A43-A51).

   /4/ The pertinent eligibility criteria for Medicaid benefits are
described at page 6, infra.  For further comment on the question of
who are the "handicapped" see note 13, infra.

   /5/ Thus 18.6% of all handicapped Medicaid recipients (16,852
divided by 90,668) used inpatient hospital care, while 13.6% of
nonhandicapped recipients (34,288 divided by 251,292) used this
service.

   /6/ The court said (Pet. App. A34 n.6):

         For example, there was no attempt to show what percentage of
      handicapped users required inpatient hospital treatment as a
      result of their handicapping condition.  It seems likely that
      some handicaps, such as blindness, would rarely require
      hospitalization, while others, such as mental illness, might
      well require frequent hospitalization.  Without some such
      evidence, the court is left to speculate on what extent the
      existence of handicaps in the broad sense of Section 504 affects
      the statistical disparity shown for the study year.

   The court also pointed out (ibid.) that even in 1979-1980 only 5%
of all handicapped Medicaid eligibles (27.4% X 18.6%) needed more than
14 days of inpatient hospital care.  The corresponding figure for
nonhandicapped Medicaid eligibles was 1% (7.8% X 13.6%).

   /7/ The State also admitted in its appellate brief that "the
handicapped population of Medicaid recipients would suffer
proportionately more from the reduction in hospital benefits than the
nonhandicapped Medicaid recipients" (see Pet. App. A11 n.7).

   /8/ The court "disagree(d)" (Pet. App. A10) with the district
court's finding that the evidence did not indicate the extent to which
the existence of handicaps affects the statistical disparity.

   /9/ As the district court indicated (Pet. App. A36 n.7),
respondents' plan would have limited inpatient hospital coverage on a
per-stay basis rather than a per-year basis.  The court of appeals'
characterization of the plan as "limiting the total number of visits
per annum rather than the number of days" (Pet. App. A13) is
incorrect.  Respondents proposed that a fixed number of days be
allowed for each type of hospital stay (e.g., appendectomy, coronary
bypass surgery), based on a fixed percentage (whatever was needed to
keep the total cost within the State's budget) of the average number
of days needed for stays of that nature.  See Br. in Opp. 3 n.1;  J.A.
59-61, 98-107, 120-121;  C.A. App. 320-329.

   /10/ We assume that demonstrating that the alternative method does
not really have a lesser disparate impact on the handicapped would
also suffice to rebut the prima facie case.

   /11/ Judge Merritt dissented (Pet. App. A20-A26).

   /12/ The first three categories are SSI eligibles;  the last two
are AFDC eligibles.

   /13/ As we mentioned above, throughout this litigation the term
"handicapped Medicaid eligibles" has been used to describe the blind
and disabled, and "nonhandicapped Medicaid eligibles" to describe all
others.  But as the statutory definitions show, while the blind and
the disabled are "handicapped" for purposes of Section 504, it does
not follow that persons who qualify for Medicaid on some other basis
are not.  The class of "handicapped" persons protected by Section 504
is in fact must broader than the class of "disabled" persons eligible
for Medicaid benefits.  Section 504 protects people fully capable of
engaging in "substantial gainful activity" (42 U.S.C. 1382c(a)(3)(A)),
who have either (i) a physical or mental impairment (or a record of
such an impairment) which is regarded as limiting their ability to
work, or (ii) a physical or mental impairment (or a record of such an
impairment) which substantially limits (or is regarded as limiting)
some other "major life activit(y)." 29 U.S.C. 706(7)(B).  Thus, for
example, dyslexic and hearing-impaired AFDC recipients would be
"handicapped" under Section 504, but would have been included in the
class of "nonhandicapped Medicaid eligibles" in the statistics used
here.  Had they instead been included among the "handicapped Medicaid
eligibles," the proof might have been significantly different.  If
their handicaps do not require much hospital care, the percentage of
the handicapped requiring more than 14 days would have been lower than
27.4% (since the denominator would have been larger), and the
percentage of the nonhandicapped would have been higher than 7.8%
(since the denominator would have been correspondingly smaller).

   As a result, we think that the court of appeals' decision (quite
apart from any legal error) rests on an erroneous factual premise --
that it is "the handicapped" as defined in the Rehabilitation Act who
are disproportionately affected by Tennessee's plan.  If the Court
should disagree with our principal contention (pages 10-30, infra), it
may nonetheless wish to consider vacating the judgment below and
remanding to the court of appeals with instructions to remand to the
district court for further findings of fact that are consistent with
the definition of "handicapped individual" set forth in 29 U.S.C.
706(7)(B).

   /14/ This Court has not considered whether the differences in
statutory language and legislative history between Title VI and
Section 504 would require a different result here than the Court
reached in Guardians Association v. Civil Service Commission, No.
81-431 (July 1, 1983), on this question.

   /15/ See page 14, infra.

   /16/ See note 17, infra.

   /17/ Application of a disparate impact test, in cases where it is
appropriate, typically involves three steps:  (1) the plaintiff must
establish that the challenged act or practice has a disproportionate
adverse effect on a protected class;  (2) the defendant must then
demonstrate that the act or practice has a "manifest relationship" to
a legitimate interest;  (3) "(e)ven in such a case, * * * the
plaintiff may prevail if he shows that the (defendant) was using the
practice as a mere pretext for discrimination." Connecticut v. Teal,
457 U.S. 440, 447 (1982).  See Albemarle Paper Co. v. Moody, 422 U.S.
405, 425 (1975) (quoting Griggs v. Duke Power Co., 401 U.S. 424, 432
(1971) (Title VII).  See also NAACP v. Medical Center, Inc., 657 F.2d
1322, 1334-1335 (3d Cir. 1981) (en banc) (Title VI);  Bryan v. Koch,
627 F.2d 612, 616-619 (2d Cir. 1980) (Title VI).

   As we show below, this case is unlike the typical disparate impact
case because the very existence of a disparity depends on how one
defines the benefit that respondents are deprived of.  If the benefit
is properly defined as the provision of inpatient hospital services,
then the handicapped are affected in precisely the same way as other
Medicaid eligibles -- under the State's proposal, everyone is subject
to the identical 14-day limit on these services.  To require the State
to justify its 14-day limitation under these circumstances is to
proceed to step (2) of the inquiry before the plaintiffs have made out
a prima facie case under step (1).  In the circumstances of this case
it is thus part of the plaintiffs' initial burden to establish that
the relevant benefit is something other than what the State maintains
it is.

   /18/ Section 504 states that qualified handicapped individuals may
not be "excluded from the participation in, be denied the benefits of,
or be subjected to discrimination under any program or activity
receiving Federal financial assistance" (emphasis added).  As this
Court's decision in North Haven Board of Education v. Bell, 456 U.S.
512, 520 (1982), demonstrates, one may be "subjected to
discrimination" -- e.g., in employment -- even though he does not
"directly benefit from federal grants, loans, or contracts." See also
Consolidated Rail Corp. v. Darrone, No. 82-862 (Feb. 28, 1984).  In
this case, however, respondents' very claim is that the State has not
given them their proper share of the good being handed out in a
federally subsidized "benefit program." It is therefore appropriate to
analyze the case as raising the question whether the relevant benefit
is the provision of hospital services, or rather the satisfaction of
health needs.

   /19/ The term "equality" expresses a relation -- the idea that some
person or thing (X) is equal to another (Y) in some attribute (Z).
What that attribute (Z) might be is determined not by the idea of
equality but by some external system that makes it relevant.

   /20/ Section 84.4(b)(2) explains and qualifies 45 C.F.R.
84.4(b)(1)(iii), which states that

         (1) A recipient, in providing any aid, benefit, or service,
      may not, directly or through contractual, licensing, or other
      arrangements, on the basis of handicap:

                      *     *     *     *     *

         (iii) Provide a qualified handicapped person with an aid,
      benefit, or service that is not as effective as that provided to
      others * * *.

   /21/ The regulation referred to is 45 C.F.R. 84.52(a), which
specifically addresses discrimination against the handicapped in the
provision of health, welfare, and other social services.

   /22/ Other cases dealing with claims like respondents' have
understood this point.  See e.g., Doe v. Colautti, 592 F.2d 704,
707-710 (3d Cir. 1979) (state may limit the number of days it will pay
for hospitalization in a private mental institution, though it
provides unlimited hospitalization for physical illness);  Doe v.
Devine, 545 F. Supp. 576, 585 (D.D.C. 1982), aff'd on other grounds,
703 F.2d 1319 (D.C. Cir. 1983) (reduction of inpatient mental health
benefits below the levels for physical illness).

   /23/ The meaning of this is somewhat obscure.  Obviously, if "the
allotted funds" are limited, the State cannot pay for cures in all
cases.  And curing those who can be healed in 14 days -- with
substantial help (14 days of care) for those who cannot -- is
certainly one way of defining "the best cure * * * the allotted funds
can provide." Another way of distributing funds might be that proposed
by respondents:  paying a percentage of each person's stay in the
hospital, with no limit on the number of stays.  That would not
provide a cure in any case (since the percentage must be less than
100% if funds are limited), but would give the most seriously ill
(people needing more than 14 days of care) the same percentage of
their costs as the least seriously ill.  The court of appeals seems to
have envisioned a third possible scheme:  an annual limit on the
number of stays, but no limit on the number of days per stay (Pet.
App. A13-A14).  This would provide cures in some cases (patients who
had not used up their allotted number of stays), but not in all.
Whether those uncured would number more than 7279 (the number of
people needing more than 14 days of care) is not apparent from the
record.

   /24/ We note that Section 504 regulations must "be consistent with
achievement of the objectives of the statute authorizing the financial
assistance." 42 U.S.C. 2000d-1;  29 U.S.C. 794a(a)(2).

   /25/ "(C)lause (A)" refers to

      all individuals receiving aid or assistance under any plan of
      the State approved under * * * part A (AFDC) or part E (Foster
      Care and Adoption Assistance) of subchapter IV of this chapter *
      * *, or with respect to whom supplemental security income
      benefits are being paid under subchapter XVI (SSI) of this
      chapter * * *.

   Respondents claim that Tennessee has discriminated against the
blind and the disabled (a subclass of SSI recipients) by offering them
medical assistance equal "in amount, duration, (and) scope" to that
offered other Medicaid recipients (AFDC recipients and aged SSI
recipients).

   /26/ That section provides that

   (a) A State plan for medical assistance must --

                      *     *     *     *     *

         (19) provide such safeguards as may be necessary to assure
      that eligibility for care and services under the plan will be
      determined, and such care and services will be provided in a
      manner consistent with simplicity of administration and the best
      interests of the recipients.

   /27/ The Medicaid Act specifically permits a number of other
cost-cutting approaches whose effect on the blind and disabled would
be more severe than Tennessee's proposal.  One is the "Section 209(b)
option," which would permit a state to cover fewer of the blind and
disabled than are eligible for SSI.  See Schweiker v. Gray Panthers,
453 U.S. 34, 38-39 (1981);  42 U.S.C. 1396a(f).  The Act also makes it
possible for a state to drop the disabled entirely from the covered
group of medically (as opposed to categorically) needy.  42 U.S.C.
(Supp. V) 1396c(a)(10)(C);  H.R. Conf. Rep. 97-208, 97th Cong., 1st
Sess. 970-971 (1981).  (For a discussion of the distinction between
the categorically and the medically needs, see Schweiker v. Gray
Panthers, 453 U.S. at 37.)

   /28/ We have reproduced at App., infra, 1a-4a, a copy of the August
25, 1981 Notice of Approval and Attachment 3.1.A.1 (The "Subject of
Amendment" in the Notice (App., infra, 2a) includes an ellipsis.  The
full title of the subject is "Inpatient hospital services other than
those provided in an institution for mental diseases or tuberculosis."
We have appended at App., infra, 5a-9a, a September 26, 1983 Notice
which makes this clear.)

   /29/ we have reproduced at App., infra, 10a a list of those states
and their annual limits.  The source of this information is LaJolla
Management Corporation, Analysis of State Medicaid Program
Characteristics, 1983, at 47-48 (Dec. 1983).

   /30/ For example, while 3.5 times as many handicapped as
nonhandicapped Medicaid-eligible hospital users (27.4% divided by
7.8%) require more than 14 days of hospitalization, 4.02 times as many
(16.9% divided by 4.2%) require more than 19 days.  We illustrate in
App., infra, 11a, that this proposition is true for every increase in
coverage from one to 19 days.  Although there are no figures to show
the relative rates or utilization for exactly 20 days, the parties
stipulated that they did "not have any information that would indicate
that patterns of patient utilization of twenty days coverage per year
differ significantly from patterns of utilization of fifteen to
nineteen (15-19) days of hospitalization per year" (J.A. 40).  The
figures given in App., infra, 11a, are taken from J.A. 182-183.

   /31/ The suggestion is not fanciful.  One might sensibly object
that the goal of equal SAT scores is naturally impossible for some
children to reach, and that Section 504 does not require pointless
expenditures.  But in the same way the goal of good health ("the best
cure" (Pet. App. A12 n.8)) is unattainable for some of the physically
handicapped.  Yet what the court of appeals' decision requires is that
the handicapped as a class make the same progress toward that goal
(have their medical needs met at the same rate) as the nonhandicapped
as a class.

   /32/ As even the court of appeals acknowledged (Pet. App. A13), the
State is entitled to "a great deal of latitude in structuring the
services it provides to its citizens." See also Beal v. Doe, 432 U.S.
438, 444 (1977) (the Medicaid Act "confers broad discretion on the
States to adopt standards for determining the extent of medical
assistance");  Jefferson v. Hackney, 406 U.S. 535 (1972).  "Even a
completely neutral practice will inevitably have some disproportionate
impact on one group or another.  * * * (T)his Court has never held()
that discrimination must always be inferred from such consequences."
Los Angeles Dep't of Water & Power v. Manhart, 435 U.S. 702, 711 n.20
(1978) (emphasis in original).

   /33/ See also Timms v. Metropolitan School District of Wabash
County, 722 F.2d 1310, 1318 (7th Cir. 1983) ("(S)ection 504 forbids
exclusion from programs rather than prescribing the programs'
content.").

   /34/ In NAACP v. Medical Center, Inc., 657 F.2d 1322 (3d Cir. 1981)
(en banc), the claim was that the recipient, by relocating a hospital,
had made it more difficult for the handicapped and minorities to get
to the facility.  The court assumed, "without deciding, that the
plaintiff (had) presented a prima facie case" under Title VI, and went
on to hold that the recipient had adequately justified whatever burden
it imposed on the protected group.  657 F.2d at 1324, 1333-1337.  In
Bryan v. Koch, 627 F.2d 612, 616-617 (2d Cir. 1980), the claim was
that New York City, by offering hospital care only outside central
Harlem, would fail to serve the black and hispanic patients who lived
there.  The court concluded that the plaintiffs had made a prima facie
showing of disparate impact under Title VI, but that the City had
adequately justified its decision.  627 F.2d at 616-620.

   /35/ See, e.g., Dopico v. Goldschmidt, 687 F.2d 644 (2d Cir. 1982);
 but cf. American Public Transit Ass'n v. Lewis, 655 F.2d 1272, 1278
(D.C. Cir. 1981).

   In Georgia Association of Retarded Citizens v. McDaniel, 716 F.2d
1565 (11th Cir. 1983) (GARC), a class of mentally retarded children
raised claims under both Section 504 and the Education of the
Handicapped Act, 20 U.S.C. 1401 et seq.  (EHA), challenging the
defendants' policy of refusing to consider providing education in
excess of the traditional 180-day school year to handicapped children.
 Although the court did not analyze the plaintiffs' Section 504 claim
in terms of "disparate impact," they alleged, in essence, that the
180-day limitation -- although applied across the board to all school
children -- had a disparate impact on the severely and profoundly
mentally retarded, who regressed as a result of the three-month summer
break in their training.  Such children, the plaintiffs argued, were
therefore not provided an equal opportunity to benefit from their
educational programs.  The Eleventh Circuit sustained this claim.

   We argued in the court of appeals (716 F.2d at 1580 n.15), and
continue to believe, that the Section 504 holding in GARC is
inconsistent with this Court's decision in Southeastern Community
College v. Davis, 442 U.S. 397 (1979).  GARC is in any event different
from this case in one critical respect.  The federal funds involved
there included monies provided under the EHA for the purpose of
providing each handicapped child with a "free appropriate public
education" (20 U.S.C. 1412(1)), a purpose that requires consideration
of the "unique needs" of each such child.  20 U.S.C. 1401(16) and
(18).  And as we pointed out above (pages 12, 18-21, supra), although
Section 504 does not dictate the kinds of benefits a recipient may
offer, such obligations may be imposed by the federal funding statute
itself and the funding agency's regulations.  For that reason the
Section 504 regulations governing public education programs receiving
aid from the Department of Education incorporate requirements similar
to those imposed by the EHA.  See 34 C.F.R. 104.33(a) ("free
appropriate public education"), 104.33(b)(1) ("appropriate" education
is one "designed to meet individual educational needs").  The Section
504 regulations governing recipients of HHS funds for health, welfare,
and other social services, by contrast, contain no such requirement
that individual needs be considered. 45 C.F.R. Pt. 84, Subpt. F.

   /36/ One can conceive of the benefit being distributed in Lau as
"instruction-given-in-English" and then assert that Chinese-speaking
students were offered that benefit like everyone else.  In the same
way, one can argue that a rampless library is offering, as a service,
"books-in-a-building-without-ramps," and that that service is
available equally to all;  similarly, the fox and the stork do have
equal access to the benefit of "milk-in-a-long-necked-container" if
that is how one chooses to define the benefit.

   The point illustrates that reductionist extensions can be made with
equal logic in both directions.  Antidiscrimination legislation can
obviously be emptied of meaning if every discriminatory policy is
"collapsed" into one's definition of what is the relevant benefit.
But as the Court assumed in Davis, 442 U.S. at 410-411, Congress in
Section 504 was legislating against a background in which there is
some meaningful commonsense distinction between discrimination on the
one hand and affirmative action on the other.  To maintain that
distinction, some generally understood distinction between what
constitutes milk and what constitutes a container must be maintained.
It is our submission that, in this case, the "milk" is the provision
of inpatient hospital services, not "good health." The handicapped may
not be discriminated against with respect to or barred from access to
that service.

   There is an additional difficulty with any suggestion that Lau
controls this case.  The Court there, in defining the school
district's obligations, relied primarily on guidelines issued by the
funding agency (HEW), which required federally assisted school
districts "'to rectify * * * language deficienc(ies) in order to open'
the instruction to students who had 'linguistic deficiencies'" (414
U.S. at 567, quoting 35 Fed. Reg. 11595 (1970)).  And it is as true
under Title VI as it is under Section 504 that "(i)dentification of
those instances where a refusal to accommodate the needs of (the
protected class) amounts to discrimination against (it) continues to
be an important responsibility of HEW." Southeastern Community College
v. Davis, 442 U.S. at 413.  As we have already made clear, the
concerned agency has found no such problem here.

                               APPENDIX