Case 4:01-cv-00830-BSM Document 1 Filed 12/06/01 Page 1 of 8

IN THE UNITED STATE DISTRICT COURT EASTERN DISTRICT OF ARKANSAS WESTERN DIVISION

FILED
u.s. DISTRICT COURT
EASTI'RN DISTRICT ARKANSAS
DEC 06 2001 CKI~._
~~~~ PT. CLERK

PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., FAMILY COUNSELING & DIAGNOSTIC CLINIC, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, D & D FAMILY ENTERPRISES, INC., JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT BEST FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT BEST FRIEND OF MICHAEL CRESPINO, A MINOR
VS.
ARKANSAS DEPARTMENT OF HUMAN SERVICES; KURT KNICKREHM, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; AND RAY HANLEY, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES

4

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PLAINTIFFS CV - 0 08 3

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CASE NO.

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This case assigned to District Jud and to Mag istrate JUdge~::::::-¥:::t!:::d.-s&:.~
DEFENDANTS

COMPLAINT

The plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Family Counseling & Diagnostic Clinic, Inc., Tomorrow's Child Learning Center, LLC, D & D Family Enterprises, Inc., James and Stacey Swindle, as Parents and Next Best Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Best Friend of Michael Crespino, a Minor, respectfully come before this Court, by and through their attorneys, Kaplan, Brewer, Maxey & Haralson, P.A., and Armstrong Allen, PLLC, and for their Complaint against

Case 4:01-cv-00830-BSM Document 1 Filed 12/06/01 Page 2 of 8
the defendants, Arkansas Department of Human Services, Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services, and Ray Hanley, in his individual capacity and in his official capacity as Director of the Division of Medical Services of the Arkansas Department of Human Services, state:
JURISDICTIONAL STATEMENT
1. Plaintiff Pediatric Specialty Care, Inc. is an Arkansas corporation and has its principal place of business in Pulaski County, Arkansas. Pediatric Specialty Care, Inc. is a qualified provider of services under the Child Health Management Services ("CHMS") program which is part of the Arkansas Medicaid plan.
2. Plaintiff Child & Youth Pediatric Day Clinics, Inc. is an Arkansas corporation and has its principal place of business in Craighead County, Arkansas. Child & Youth Pediatric Day Clinics, Inc. is a qualified provider of CHMS services under the Arkansas Medicaid plan.
3. Plaintiff Family Counseling & Diagnostic Clinic, Inc. is an Arkansas corporation and has its principal place of business in St. Francis County, Arkansas. Family Counseling & Diagnostic Clinic, Inc. is a qualified provider of CHMS services under the Arkansas Medicaid plan.
4. Plaintiff Tomorrow's Children, Inc. is an Arkansas corporation and has its principal place of business in Mississippi County, Arkansas. Tomorrow's Children, Inc. is a qualified provider of CHMS services under the Arkansas Medicaid plan.
5. PlaintiffD & D Family Enterprises, Inc. is an Arkansas corporation and has its principal place of business in Sharp County, Arkansas. D & D Family Enterprises, Inc. is a qualified provider of CHMS services under the Arkansas Medicaid plan.
6. Plaintiff James and Stacey Swindle are the parents of Jacob and Noah Swindle,
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minors and qualified recipients of therapy services under the CHMS program. The Swindle family resides in Pulaski County, Arkansas.
7. Plaintiff Susann Crespino is the mother of Michael Crespino, a minor and qualified recipient under the CHMS program. The Crespino family resides in Marion County, Arkansas.
8. Defendant Arkansas Department of Human Services ("DHS") is an agency of the State of Arkansas.
9. Defendant Kurt Knickrehm is Director of the Arkansas Department of Human Services and, based on information and reasonable belief, is a resident of Pulaski County, Arkansas.
10. Defendant Ray Hanley is Director of the Division of Medical Services of the Arkansas Department of Human Services and, based on information and reasonable belief, is a resident of Pulaski County, Arkansas.
11. The plaintiffs seek declaratory and injunctive relief pursuant to 42 U.S.C. § 1983, and contend that the defendants have violated their federal constitutional and statutory rights with regard to their planned termination of funding of the CHMS program which currently exists under the Arkansas Medicaid plan.
12. The Court has federal question jurisdiction pursuant to 28 U.S.C. § 1331, civil rights jurisdiction pursuant to 28 U.S.C. § 1343, and venue pursuant to 28 U.S.C. § 1391.
FACTS PRESENTED·
13. Title XIX ofthe Social Security Act, 42 U.S.C. § 1396 et seg. (1992 & Supp. 2000), commonly referred to as the Medicaid Act, is a federal-state cooperative program designed to provide "medical assistance" to persons whose income and resources are insufficient
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to meet the costs of medical care. The program is financed by both the federal and state govermnents.
14. The federal Department of Health and Human Services is charged with administration of the Medicaid program, and has delegated much of its responsibility to the Health Care Financing Administration.
15. Arkansas participates in the Medicaid program, and DHS is the state agency charged with administration of the Medicaid program in Arkansas.
16. Under the Medicaid program, if a State agrees to establish a Medicaid plan that satisfies the requirements of Title XIX, the federal govermnent will pay a specified percentage of the total amount expended as "medical assistance" under the plan.
17. Federal law requires that in setting reimbursement rates for medical providers enrolled in the Medicaid program, the rates must be sufficient to assure efficiency, economy, and quality of care, and sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population. There is a binding obligation on each state to utilize methods and procedures which consider these factors in setting reimbursement rates.
18. Participation in the Medicaid program is voluntary, but once a State chooses to participate, it must comply with federal statutory and regulatory requirements.
19. The Medicaid Act defines "medical assistance" as "payment of part or all of the cost of [enumerated] care and services". As a general matter, a State may choose which enumerated services to provide, but some services are mandated for most categories of needy persons who receive services under the plan.
20. Essentially, there are three categories of potential recipients under the Medicaid Act: the "categorically needy", the "medically needy", and those whose needs are determined in
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reference to the poverty level. 21. A State plan must provide "medical assistance" to the "categorically needy", but
may choose whether to provide services to the "medically needy". 22. Among those services for the "categorically needy"is early and periodic
screening, diagnostic, and treatment services ("EPSDT") for qualified recipients under the age of 21.
23. The CHMS program is set forth under that part of the State plan designated for the "categorically needy" and under that part ofthe State plan which relates specifically to EPSDT.
24. EPSDT services include those provided under the CHMS program. 25. On November 30, 2001, the defendants announced a decision they have made to redefine the CHMS program and no longer pay for day treatment and therapy services (referred to herein as "the decision"). According to a press release issued by the defendants, the decision will change how services are delivered to children who do not have serious medical problems but who nonetheless are considered at risk. 26. The decision was made by defendants Knickrehm and Hanley while acting under color of state law. 27. The plaintiffs, and all other providers, children, and families involved in the CHMS program, will suffer extreme injury, loss, and hardship if the decision is not enjoined.
COUNT ONE: SUBSTANTIVE DUE PROCESS
28. Services currently provided under the CHMS program are mandatory and cannot be limited by the defendants.
29. If implemented, the decision will eliminate mandatory services currently provided under the CHMS program.
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30. The decision is arbitrary, capricious, and truly irrational, and shocks traditional notions ofjustice under the law.
31. By making the decision, the defendants have violated the plaintiffs' rights to substantive due process under the 14th Amendment to the Constitution of the United States.
COUNT TWO: PROCEDURAL DUE PROCESS
32. If implemented, the decision will result in a zero-dollar reimbursement for day treatment and therapy services provided under the CHMS program.
33. If implemented, the decision will severely limit the quality of care offered by CHMS providers and have a devastating impact on the level of efficiency and economy which currently exists in the CHMS program.
34. The defendants have failed to utilize methods and procedures which consider the factors ofefficiency, economy, quality of care, and equal access prior to making the decision.
35. By failing to utilize methods and procedures which consider the factors of efficiency, economy, quality of care, and equal access prior to making the decision, the defendants have violated the plaintiffs' rights to procedural due process under the 14th Amendment to the Constitution of the United States.
COUNT THREE: SUBSTANTIVE DUE PROCESS AND 42 U.S.C. § 1396a(a)(19)
36. In the alternative, if services currently provided under the CHMS program are not mandatory, the defendants have no rational basis for the decision.
37. By making the decision, the defendants have violated the plaintiffs' rights to substantive due process under the 14th Amendment to the Constitution of the United States.
38. By making the decision, the defendants have violated the best interests of all
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medicaid recipients as protected by 42 U.S.C. § 1396a(a)(l9). mRYDEMAND
39. The plaintiffs demand a jury trial with respect to all issues offact that may arise herein.
WHEREFORE, the plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Family Counseling & Diagnostic Clinic, Inc., Tomorrow's Child Learning Center, LLC, D & D Family Enterprises, Inc., James and Stacey Swindle, as Parents and Next Best Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Best Friend of Michael Crespino, a Minor, pray that the Court issue a declaratory ruling that services currently provided under the CHlVlS program are mandatory, that the Court issue an injunction which strikes down the decision and preserves the CHMS program as it currently exists, that they be awarded their costs herein expended, including reasonable attorney fees pursuant to 42 U.S.C. § 1988, and that they be awarded all other reliefto which they may be entitled.
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Respectfully submitted, PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., FAMILY COUNSELING & DIAGNOSTIC CLINIC, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, AND JAMES AND STACY SWINDLE, AS PARENTS AND NEXT BEST FRIENDS OF JACOB AND NOAH SWINDLE, Plaintiffs KAPLAN, BREWER, MAXEY, & HARALSON, P.A. 415 Main Street Little Rock, AR 72201 (501) 372-0400 (501) 376-3612
By:
ARMSTRONG ALLEN, PLLC 100 Morgan Keegan Drive Suite 100 Little Rock, AR 72202 (501) 280-01 (501) 280- 66 (fac· ile)
By:
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 Case 4:01-cv-00830-BSM Document 76 Filed 01/06/03 Page 1 of 18

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IN THE UNITED STATE DISTRICT COURT J,.I 0 G" J

-- EASTERN DISTRICT OF ARKANSMM[c; '.1 ''',

WESTERN DIVISION

81 _ _'-- ,<~ ':''-::(, CLEF:V

PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT FRIEND OF MICHAEL CRESPINO, A MINOR

PLAINTIFFS

VS.

CASE NO. 4:01CV00830 WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES; KURT KNICKREHM, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; RAY HANLEY, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES, AND ARKANSAS FOUNDAnON FOR MEDICAL CARE, INC.

DEFENDANTS

AMENDED COMPLAINT

The plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle. Minors. and Susann Crespino, as Parent and Next Friend of Michael Crespino. a Minor. respectfully come before this Court, by and through their attorneys, Kaplan, Brewer. Maxey & Haralson, P.A., and Armstrong Allen, PLLC, and for their Amended

Case 4:01-cv-00830-BSM Document 76 Filed 01/06/03 Page 2 of 18
Complaint against the defendants, Arkansas Department of Human Services, Kurt Knickrehrn, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services, Ray Hanley, in his individual capacity and in his official capacity as Director of the Division of Medical Services of the Arkansas Department of Human Services, and Arkansas Foundation for Medical Care, Inc., state:
JURISDICTIONAL STATEMENT
1. Plaintiff Pediatric Specialty Care, Inc. is an Arkansas corporation and has its principal place of business in Pulaski County, Arkansas. Pediatric Specialty Care, Inc. is a qualified provider of services under the Child Health Management Services ("CHMS") program which is part of the Arkansas Medicaid plan.
2. Plaintiff Child & Youth Pediatric Day Clinics, Inc. is an Arkansas corporation and has its principal place of business in Craighead County, Arkansas. Child & Youth Pediatric Day Clinics, Inc. is a qualified provider of CHMS services under the Arkansas Medicaid plan.
3. Plaintiff Tomorrow's Child Learning Center, LLC is an Arkansas corporation and has its principal place of business in Mississippi County, Arkansas. Tomorrow's Child Learning Center, LLC is a qualified provider of CHMS services under the Arkansas Medicaid plan.
4. Plaintiff James and Stacey Swindle are the parents of Jacob and Noah Swindle, minors and qualified recipients of therapy services under the CHMS program. The Swindle family resides in Pulaski County, Arkansas.
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5. PlaintiffSusann Crespino is the mother of Michael Crespino, a minor and

qualified recipient under the CHMS program. The Crespino family resides in Marion County,

Arkansas.

6. Defendant Arkansas Department of Human Services ("ADHS") is an agency of

the State of Arkansas.

7. Defendant Kurt Knickrehm is Director of the Arkansas Department of Human

Services and, based on information and reasonable belief, is a resident of Pulaski County,

Arkansas.

8. Defendant Ray Hanley is Director of the Division of Medical Services of the

Arkansas Department of Human Services and, based on information and reasonable belief, is a

resident of Pulaski County, Arkansas.

9.

Defendant Arkansas Foundation for Medical Care, Inc. (nAFMc n) is an Arkansas

corporation and has its principal place of business in Sebastian County, Arkansas.

10. The plaintiffs seek declaratory and injunctive relief pursuant to 42 U.S.C. § 1983,

and contend that the defendants have violated their federal constitutional and statutory rights with

regard to actions they have taken with respect to the provision of CHMS services under the

Arkansas Medicaid plan.

11. The Court has federal question jurisdiction pursuant to 28 U.S.C. § 1331, civil

rights jurisdiction pursuant to 28 U.S.c. § 1343. and venue pursuant to 28 U.S.c. § 1391.

FACTS PRESENTED

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12. Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. (1992 & Supp. 2000), commonly referred to as the Medicaid Act, is a federal-state cooperative program designed to provide "medical assistance" to persons whose income and resources are insufficient to meet the costs of medical care. The program is financed by both the federal and state governments.
13.. The federal Department of Health and Human Services is charged with administration of the Medicaid program, and has delegated much of its responsibility to the Centers for Medicare & Medicaid Services.
14. Arkansas participates in the Medicaid program, and ADHS is the state agency charged witll administration of the Medicaid program in Arkansas.
15. Under the Medicaid program, if a State agrees to establish a Medicaid plan that satisfies the requirements of Title XIX, the federal government will pay a specitied percentage of the total amount expended as "medical assistance" under the plan.
16. Federal law requires that in setting reimbursement rates for medical providers enrolled in the Medicaid program, the rates must be sufficient to assure efficiency, economy, and quality of care, and sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population. There is a binding obligation on each state to utilize methods and procedures which consider these factors in setting reimbursement rates.
17. Participation in the Medicaid program is voluntary, but once a State chooses to participate, it must comply with federal statutory and regulatory requirements.
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18. The Medicaid Act defines "medical assistance" as "payment of part or all of the cost of [enumerated] care and services". As a general matter, a State may choose which enumerated services to provide, but some services are mandated for most categories of needy persons who receive services under the plan.
19. Essentially, there are three categories of potential recipients under the Medicaid Act: the "categorically needy", the "medically needy", and those whose needs are determined in reference to the poverty level.
20. A State plan must provide "medical assistance" to the "categorically needy", but may choose whether to provide services to the "medically needy".
21. Among those services for the "categorically needy"is early and periodic screening, diagnostic, and treatment services ("EPSDT") for qualified recipients under the age of 21.
22. The CHMS program is set forth under that part of the State plan designated for the "categorically needy" and under that part of the State plan which relates specifically to EPSDT.
23. EPSDT services include those provided under the CHMS program. 24. On November 30,2001, the defendants announced a decision they have made to redefine the CHMS program and no longer pay for day treatment and therapy services (referred to herein as "the decision"). According to a press release issued by the defendants, the decision will change how services are delivered to children who do not have serious medical problems but who nonetheless are considered at risk. 25. The plaintiffs, and all other providers, children, and families involved in the CHMS program, will suffer extreme injury, loss, and hardship if the decision is not enjoined.
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26. The CHMS program comprises an array of clinic services that are intended to provide full medical multi-discipline diagnosis, evaluation, and treatment for the purpose of intervention, treatment, and prevention of long-term disability for eligible recipients.
27. Services under the CHMS program are designed for children who have the most significant medical and developmental diagnoses, and for those who present with multiple, complex conditions. Thousands of children are enrolled in the CHMS program at any given time.
28. Generally stated, services under the CHMS program can be broken down into three broad categories: diagnosis and evaluation services, therapy services, and early intervention day treatment services.
29. When the CHMS program first went into effect, a child could enter the program based on a referral from his or her physician (referred to in Medicaid te=s as a Primary Care Physician or "PCP"). Diagnostic and evaluation services were provided at the CHMS clinic. CHMS staff developed a treatment plan, and the treatment plan was approved by the PCP. The treatment plan included therapy services provided in conjunction with early intervention day treatment services designed to result in the maximum reduction of the child's physical and mental disabilities.
30. Initially, payment for CHMS services was fairly straightforward. Services provided wIder the treatment plan were billed by procedures codes, and payment was equal to the amount of time spent in providing the particular service multiplied by the rate for that service established by ADHS. Given the nature of this fo=ula, ADHS could reduce payment for CHMS services by limiting the amount of services that could be provided, or by reducing rates.
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31. In the beginning, however, and as previously stated, the amount of services provided to a child was based on the treatment plan developed by the CHMS clinic and approved by the PCP. The only part of the payment formula controlled by ADHS was the rate.
32. The amount of therapy services provided to a child depended on the child's particular disabilities. Therapy services could include physical therapy, speech therapy, occupational therapy, or psychotherapy, or a combination thereof
33. As for early intervention day treatment services (referred to in Medicaid terms as "core services "), children generally received a minimum of six hours of core services per day, five days per week. ADHS routinely reimbursed providers for that amount of core treatment at the rates it established for such services.
34. In the fall of 1997, payment for core services was approximately $125.00 per child per day. ADHS, in an effort to reduce payments under the CHMS program, asked CHMS providers if the rates for core services could be reduced or handled in such a way so as to make the program less expensive.
35. Based on this call, a work group consisting of ADHS staff and CHMS providers was created. As a result of their work, an agreement was reached that limited the daily payment for core services to $95.00 per child per day. This agreement went into effect on April 1, 1998, and provided as follows:
Effective for claims with dates of service on or after April 1, 1998, the Division of Medical Services will implement a $95.00 per day rate for the CHMS-Early Intervention Services (ages 0 through 5) procedure codes. One day of care will be defined as a minimum of 6 hours of service that can include the following procedures with maximums noted below. 99211
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99212 Z1570 Z1571 (Maximum 3 units) Z1572 ZI575 36. Despite this agreement, ADHS announced in early 1999 that the daily rate for core services would be reduced from $95.00 to $75.00 per child per day. 37. ADHS, Mr. Knickrehm, and Mr. Hanley decided to reduce the rate for core services filr purely budgetary reasons and without considering the factors of efficiency, economy, quality of care, and equal access as required by federal law. ADHS, Mr. Knickrehm, and Mr. Hanley refused to conduct a study that considered those factors, and a lawsuit was filed against to enjoin their decision. That lawsuit was filed in the United States District Court for the Eastern District of Arkansas, Western Division, given Case No. LR-C-99-810, and assigned to the Honorable James M. Moody. 38. PSCI filed a motion for temporary injunctive relief along with its Complaint. The Court conducted a hearing with respect to that motion, and ruled that the defendants failed to consider the factors of efficiency, economy, quality of care, and equal access before they reduced the daily rate for core services. The Court concluded that the defendants violated the federal statutory rights ofPSCI as provided by 42 U.S.C. § l396a(a)(30)(A), and temporarily enjoined the rate change just before it went into effect. An order to that effect was filed with the Court on November 5, 1999. See the Order attached hereto and marked as "Exhibit A". 39. Thereafter, ADHS, Mr. Knickrehm, and Mr. Hanley submitted an offer of judgment to PSCI. PSCI accepted the offer, and a Judgment ref1ecting the agreement was tIled on December 14, 1999. See the Judgment attached hereto and marked as "Exhibit B". In
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accordance with the agreement, ADHS, Mr. Knickrehm, and Mr. Hanley were permanently enjoined from implementing the $75.00 daily rate for core services. They were also ordered to not reduce rates for services under the CHMS program below the rates in effect on November 6, 1999, unless such reductions are based on an analysis of the costs incurred by efficient and economic providers of such services and are established in conformity with applicable state and federal laws.
40. During that time, on October I, 1999, ADHS, Mr. Knickrehm, and Mr. Hanley implemented a "utilization control" measure that requires "prior authorization" for all children who wish enter the CHMS program.
41. Generally stated, prior authorization is a form of utilization control by which a state Medicaid agency can verify a patient's need for medical services before services are provided. Prior authorization does not define the services that are available under a particular program, but is a tool the agency may use to ensure that only necessary medical services will be provided.
42. Since its inception, this "first layer" of prior authorization has been administered by AFMC and its employees under contract with ADHS. Referral by the PCP is still required, and a treatment plan must still be developed by the CHMS provider and approved by the PCP. However, the defendants control the admission of each child into the program, regardless of the prescription written by the PCP. Medical reviewers employed by AFMC, including nurses and doctors, decide whether to admit or deny children without deference to the PCP and without conducting a physical examination of the child. They also refuse to admit children with serious developmental delays in only one area of function.
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43. On March 1, 2000, within weeks after resolution of the litigation referred to above, ADHS, Mr. Knickrehm, and Mr. Hanley added a "second layer" of prior authorization to the CHMS program. Unlike the "first layer" of prior authorization, which relates solely to the admission of children into the CHMS program, the "second layer" controls the type and amount of medical services for which ADHS will pay once a child is allowed to enter the program. The prescription written by the PCP no longer determines the types and amounts of services that may be provided. The defendants do not examine the child and do not give any deference to the prescription written by the PCP.
44. As with all programs provided by ADHS under the state Medicaid plan, a provider manual has been issued with respect to the CHMS program. Among other things, the CHMS Provider Manual ("the Manual") defines the services available to children under the program. The Manual makes general reference to the two levels of prior authorization referred to above, but does not set forth any standards or criteria for determining whether a child may be admitted into or removed from the program, or the type and amount of services for which the defendants will pay.
45. In fact, the defendants have not promulgated any written guidelines or regulations that govern the process of prior authorization under the CHMS program. For example, and without limitation, there are no written guidelines or regulations that define:
a. The qualifications of those who may be employed by AFMC to make decisions relative to issues of medical care for children with physical and mental disabilities;
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b. The standards and criteria to be used by AFMC in deciding which children

may be admitted into the CHMS program;

c. The standards and criteria to be used by AFMC in deciding the types of

services that children mayor may not receive;

d. The standards and criteria to be used by AFMC in deciding the amounts of

services that children mayor may not receive;

e. The standards and criteria to be used by AFMC in deciding whether

ADHS will pay for physical therapy, occupational therapy, and speech therapy services;

f

The standards and criteria to be used by AFMC in deciding whether or not

services prescribed by a PCP may be ignored or declined;

g. The reports and supporting documentation that CHMS providers must

submit in order to get paid for services they provide;

h. The manner in which the defendants may issue new rules that affect the

process of prior authorization;

1.

The manner in which the defendants must provide notice of such new rules

to CHMS providers; or

J.

The ruJes that govern the process by which decisions made by the

defendants may be questioned or appealed.

46. The fact that no written guidelines or regUlations exist with respect to the process

of prior authorization renders the process constitutionally infirm. The lack of any meaningful

standards leaves the entire process of prior authorization subject to arbitrary, capricious, and truly

irrational decision-making on 'ile part of the defendants.

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47. The absence of written guidelines or regulations is the result of a decision made by the defendants. That decision has resulted in the following:
a. Denial of admission of eligible children into the CHMS program; b. Removal of eligible children from the CHMS program; c. Denial of services to children enrolled in tbe CHMS program; and d. Limitation or reduction of the types and amounts of services that may be provided to children enrolled in the CHMS program. 48. Together and separately the defendants have abused tbe process of prior authorization in this way, and have done so for budgetary reasons and to retaliate against the CHMS program. For example, the defendants have unilaterally reduced the amount of core services available to every child allowed into the program from approximately six hours to 3.5 hours per child per day, regardless of the child's medical or psychological condition. Children will not experience the maximum reduction of their physical and mental abilities with only 3.5 hours of core services per child per day. To ensure they receive this maximum benefit, the plaintiffs have continued to provide six hours of core services per child per day and they should be paid for those services. 49. Witb respect to physical therapy, occupational therapy, and speech therapy services, the defendants have even gone so far as to apply the process of prior authorization only after such services are provided, with the plaintiffs forced to either deny the provision of federally-mandated services or assume the risk that those services will not be approved. In addition, the defendants have issued new rules regarding entitlement to these types of therapy,
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without notice to the plaintiffs, and used these new rules to deny payment to the plaintiffs and future services to children.
50. Such decisions have been made for budgetary reasons, and to retaliate against the CHMS program, without considering the factors of efficiency, economy, quality of care, and equal access as required by 42 U.S.c. § 1396a(a)(30)(A). These decisions have no medical basis and violate prescriptions written by PCPs. These decisions are inconsistent with community standards of medical care, and in many cases have forced the plaintiffs to provide CHMS services for which the defendants will not pay.
5!. While AFMC issues written decisions with respect to children seeking enrollment and services under the CHMS program, those decisions are not signed and fail to identify the persons who made them. The plaintiffs have tried to identify and speak with the persons who make these decisions, but the defendants refuse to identify these persons or allow the plaintiffs to speak with them.
52. The defendants have acted in this manner for the sole purpose of reducing payments under the CHMS program. ADHS, Mr. Knickrehm, and Mr. Hanley tried to lower the daily rate for core services in 1999, but Judge Moody determined that they violated well-settled law in the process. Not able to change rates, they contracted with AFMC to manipulate the other half of the payment equation by limiting entry into the program and reducing the types and amounts of services for which ADHS will pay. They even tried to terminate the CHMS program altogether, but this Court has enjoined that effort as well.
53. While it is true that the defendants have not reduced rates for services as they tried to do in 1999, they have nonetheless reduced payments under the CHMS program by refusing to
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Case 4:01-cv-00830-BSM Document 76 Filed 01/06/03 Page 14 of 18
admit children into the program, expelling children from the program, denying services to children enrolled in the program, and either limiting or reducing the provision of critical medical services mandated by federal law.
54. The defendants continue to act in an arbitrary, capricious, and truly irrational manner by changing the rules as they relate to the process of prior authorization without notifying CHMS providers that such changes have been made. The defendants then deny services to qualified children based on the failure of CHMS providers to comply with these rules. The plaintiffs have asked the defendants to issue written guidelines or regulations so as to avoid these problems, but the defendants have refused to do so.
55. By their conduct, the defendants have violated the plaintiffs rights under 42 U.S.c. § 1396a(a)(30)(A). That statute requires the defendants to consider the factors of efficiency, economy, quality of care, and equal access before payments are reduced under the Medicaid program. The defendants have not considered these factors in any way, and have used the process of prior authorization to reduce payments under the CHMS program for purely budgetary reasons.
56. In addition, the defendants have violated the rights of children enrolled in the CHMS program, and of those removed or kept out of the program by the defendants, under 42 U.S.C. § 1396d(a)(13). That statute requires the defendants to provide services to children qualified for enrollment in the Medicaid program that result in the maximum reduction of their physical and mental disabilities. Children enrolled in the CHMS program, and those who would be enrolled in the program but tor the defendants, have profound disabilities that may be treated with services provided only under the CHMS program.
14

Case 4:01-cv-00830-BSM Document 76 Filed 01/06/03 Page 15 of 18
57. The conduct of the defendants is arbitrary, capricious, truly irrational, and conscious shocking. As a result, the defendants have violated the federal constitutional rights of the plaintiffs, the children enrolled in the CHMS program, and the children the defendants have either removed or kept out ofthe program. The defendants have violated their rights to due process and equal protection of the laws, and they should be held liable for all damages resulting from such conduct.
58. The conduct of the defendants has been willful and malicious and in knowing violation of the federal statutory and constitutional rights ofthe plaintiffs, the children enrolled in the CHMS program, and the children they have either removed or kept out of the program. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to prevent similar conduct in the future.
59. As for the lack of any written guidelines or regulations as they relate to the process of prior authorization, the plaintiffs request emergency, temporary, and permanent injunctive relief against the defendants by which the current system of prior authorization is enjoined until written guidelines or regulations can be drafted.
60. The defendants have violated the rights of the plaintiffs to procedural and due process.
61. At all times described herein, the defendants were acting under color of state law.
JURY DEMAND
62. The plaintiffs demand a jury trial with regard to all issues of fact that may arise herein.
15

Case 4:01-cv-00830-BSM Document 76 Filed 01/06/03 Page 16 of 18 \\THEREFORE, the plaintiffs, Pediatric Specialty Care, Inc. and Child & Youth Pediatric
Day Clinics, Inc., pray that their request for injunctive relief be granted, that they be awarded judgment for compensatory damages against defendants Kurt Knickrelun, Ray Hanley, Dr. Michael Moody, and the Jane/John Doe defendants, jointly and severally, that they be awarded judgment for punitive damages against Kurt Knickrelun, Ray Hanley, Dr. Michael Moody, and the Jane/John Doe defendants, that they be awarded their costs herein expended, including reasonable attorney fees pursuant to 42 U.S.C. § 1988, and that they be awarded all other relief to which they may be entitled.
16

Case 4:01-cv-00830-BSM Document 76 Filed 01/06/03 Page 17 of 18

Respectfully submitted,

PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT BEST FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT BEST FRIEND OF MICHAEL CRESPINO, A MINOR, Plaintiffs

ARMSTRONG ALLEN, PLLC

100 Morgan Keegan Drive

Suite 100

Little Rock, AR 72202

(501) 280-0100 i/c/"

(SOl) 280-0166(' csimil.

. .

. /

"j
/

/

//

By:

~/ / .
.'

/

~PLAN, BREWER, MAXEY, &
HARALSON, P.A. 415 Main Street Little Rock, AR 7220 I (SOl) 372-0400 (501) 376-3612
By: I~WW tl~L,Philip E. Kaplan (68026)

17

Case 4:01-cv-00830-BSM Document 76 Filed 01/06/03 Page 18 of 18
CERTIFICATE OF SERVICE I, an attorney for the plaintiffs, certify that I have served a copy of the foregoing pleading on opposing counsel by depositing a copy thereot: postage prepaid, in the United States Mail, addressed as follows: Mr. Breck Hopkins Office of Chief Counsel Arkansas Department of Human Services P.O. Box 1437 Slot 1033 Little Rock, AR 72203-1437 this 6th day of January, 2003.
/ /
18

 
 ,
-,

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 1 of 29

•

FIl EP' . ~f.~ IN THE UNITED STATES DISTRICTpX1RT

EASTERN DISTRICT OF WESTERN DIVISION

.
_ -

US DIS",,,, STERN Di"CR "l lcURT
u !eT Aixr:JiNSAS

" "
Jl;"

,

2 ,J

2C~3

PEDIATRIC SPECIALTY CARE, INC.; CHILD & YOUTH PEDIATRIC DAY

JAMESW

By:

. MCCORMACK, CLERK

CLINICS, INC.; TOMORROW'S CHILD

LEARNING CENTER, LLC; JAMES

AND STACEY SWINDLE, AS PARENTS

AND NEXT FRIENDS OF JACOB AND

NOAH SWINDLE, MINORS; AND

SUSANN CRESPINO, AS PARENT AND

NEXT FRIEND OF MICHAEL CRESPINO,

A MINOR

PLAINTIFFS

VS.

CASE NO. 4:01CV00830 WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES; KURT KNICKREHM, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; RAY HANLEY, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; AND ARKANSAS FOUNDATION FOR MEDICAL CARE, INC.

DEFENDANTS

SECOND AMENDED COMPLAINT

The plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Friend of Michael Crespino, a Minor, respectfully corne before this Court, by and through their attorneys,

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 2 of 29
Kaplan, Brewer, Maxey & Haralson, P.A., and Annstrong Allen, PLLC, and for their Second Amended Complaint against the defendants, Arkansas Department ofHwnan Services, Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services, Ray Hanley, in his individual capacity and in his official capacity as Director of the Division of Medical Services of the Arkansas Department ofHwnan Services, and Arkansas Foundation for Medical Care, Inc., state:
STATEMENT OF JURISDICTION AND VENUE
1. Plaintiff Pediatric Specialty Care, Inc. is an Arkansas corporation, has its principal place of business in Pulaski County, Arkansas, and is a qualified provider of services under the Child Health Management Services ("CHMS").
2. Plaintiff Child & Youth Pediatric Day Clinics, Inc. is an Arkansas corporation, has its principal place of business in Craighead County, Arkansas, and is a qualified provider of CHMS services under the Arkansas Medicaid plan.
3. PlaintiffTomoITow's Child Learning Center, LLC is an Arkansas corporation, has its principal place of business in Mississippi County, Arkansas, and is a qualified provider of CHMS services under the Arkansas Medicaid plan.
4. Plaintiffs James and Stacey Swindle are the parents of Jacob and Noah Swindle, minors and qualified recipients of therapy services under the CHMS program, and reside in Pulaski County, Arkansas.
5. Plaintiff Susann Crespino is the mother of Michael Crespino, a minor and qualified recipient under the CHMS program, and resides in Marion County, Arkansas.

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 3 of 29
6. Defendant Arkansas Department of Human Services ("ADHS") is an agency of the State of Arkansas.
7. Defendant Kurt Knickrehm is Director of the Arkansas Department of Human Services and, based on information and reasonable belief, is a resident of Pulaski County, Arkansas.
8. Defendant Ray Hanley is Director of the Division of Medical Services of the Arkansas Department of Human Services and, based on information and reasonable belief, is a resident of Pulaski County, Arkansas.
9. Defendant Arkansas Foundation for Medical Care, Inc. ("AFMC") is an Arkansas corporation and has its principal place of business in Sebastian County, Arkansas.
10. Pursuant to 42 US.c. § 1983, the plaintiffs seek declaratory and injunctive relief against the defendants, and contend that the defendants, while acting under color of state law, have violated, and continue to violate, their federal constitutional and statutory rights by the manner in which they use the process of prior authorization to: (I) reduce payments for CHMS services without considering the factors of economy, efficiency, quality of care, and equal access; (2) deprive children of their right to CHMS services that, if provided, would result in the maximum reduction of their physical and mental disabilities and restore them to their bestpossible functional level; and (3) deny payment to CHMS providers for services provided to children in an effort to make sure that they achieve the maximum reduction oftheir physical and mental disabilities and are restored to their best-possible functional level.
II. In addition, pursuant to 42 US.c. § 1983, the plaintiffs seek money damages against defendants Kurt Knickrehm, Ran Hanley, and AFMC, in their individual capacities, and
3

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 4 of 29
contend that these defendants, while acting under color of state law, have violated, and continue to violate, their federal constitutional and statutory rights by the manner in which they use the process of prior authorization to: (1) reduce payments for CHMS services without considering the factors of economy, efficiency, quality of care, and equal access; (2) deprive children of their right to CHMS services that, if provided, would result in the maximum reduction of their physical and mental disabilities and restore them to their best-possible functional level; and (3) deny payment to CHMS providers for services provided to children in an effort to make sure that they achieve the maximum reduction of their physical and mental disabilities and are restored to their best-possible functional level.
12. The Court has federal question jurisdiction pursuant to 28 U.S.C. § 1331. 13. The Court has civil rights jurisdiction pursuant to 28 U.S.C. § 1343. 14. The Court has venue pursuant to 28 U.S.C. § 139l.
STATEMENT OF FACTS
15. Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq. (1992 & Supp. 2000), commonly referred to as the Medicaid Act, is a joint federal and state program designed to provide "medical assistance" to qualified persons.
16. Under the Medicaid Act, if a state agrees to establish a Medicaid plan ("State plan") that satisfies the requirements of Title XIX, the federal govemment will pay a specified percentage of the total amount expended as "medical assistance" under the plan.
17. Participation in the Medicaid program is voluntary, but if a state elects to participate, it must do so in accordance with federal statutes and regulations.
4

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 5 of 29
18. The federal Department of Health and Human Services is charged with administration of the Medicaid program, and has delegated much of its responsibility to Centers for Medicare & Medicaid Services ("CMS").
19. Arkansas participates in the Medicaid program, and Arkansas Department of Human Services ("ADHS") is the state agency charged with administration ofthe Medicaid program in Arkansas.
20. The Medicaid Act defines "medical assistance" as "payment of part or all of the cost of [enumerated] care and services".
21. Some services are mandatory and must be provided under the State plan. 22. Mandatory services include those provided under the early and periodic screening, diagnostic, and treatment services ("EPSDT") provisions of the Medicaid Act. 23. EPSDT services include those provided under the CHMS program. 24. The CHMS program comprises an array of clinic services that are intended to provide full medical multi-discipline diagnosis, evaluation, and treatment for the purpose of intervention, treatment, and prevention of long-term disability for eligible children. 25. Generally stated, services under the CHMS program can be broken down into three broad categories: (1) diagnosis and evaluation services, (2) therapy services, and (3) early intervention day treatment services. 26. CHMS therapy services include physical therapy, speech therapy, occupational therapy, and psychotherapy.
5

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 6 of 29
27. CHMS early intervention day treatment services include cognitive development services, developmental motor activity services, and self-care and social/emotional developmental services.
28. When the CHMS program first went into effect, a child could enter the program based on a referral from his or her physician (referred to in Medicaid terms as the Primary Care Physician or "PCP").
29. Diagnostic and evaluation services were provided by CHMS staff, and, as required by EPSDT, individualized treatment plans were developed for the treatment of all developmental disabilities that were discovered during the screening process.
30. Treatment plans generally included the various CHMS therapy and early intervention day treatment services requested by clinic staff, consistent with applicable standards of medical practice.
31. After a treatment plan was developed for a particular child, it was submitted to the CHMS clinic's Medical Director for approval.
32. To the extent a treatment plan included physical therapy, speech therapy, or occupational therapy, the CHMS clinic was required to obtain a prescription from the PCP.
33. If the Medical Director approved the treatment plan, CHMS services were provided in accordance with the plan, the CHMS provider billed ADHS for the services it provided, and ADHS paid the bill.
34. Initially, payment for CHMS services was fairly straightforward: for each service provided under the treatment plan, payment was determined by multiplying the number of units of service actually provided by the rate for that service as published by ADHS in the State plan.
6

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 7 of 29
35. Given the nature of this fee-far-service formula, ADHS could reduce payment for CHMS services by either reducing the rates for those services, or the number of units of service that could be provided over a certain period of time.
36. When the CHMS program first went into effect, CHMS clinics provided, on average, six hours of early intervention day treatment services (referred to in Medicaid terms as "core services ") per child per day, five days a week.
37. ADHS routinely reimbursed providers for this amount of core services (six hours per child per day, five days per week) at rates published by ADHS in the State plan.
38. In the fall of 1997, payment for core services was approximately $125.00 per child per day.
39. ADHS, in an effort to reduce payments under the CHMS program, asked CHMS providers if the rates for core services could be reduced or handled in such a way so as to make the program less expensive.
40. Based on this call, a work group consisting of ADHS staff and CHMS providers was created.
41. As a result of their work, an agreement was reached that limited the daily payment for core services to $95.00 per child per day.
42. This agreement went into effect on April I, 1998, and provided as follows: Effective for claims with dates of service on or after April 1, 1998, the Division of Medical Services will implement a $95.00 per day rate for the CHMS-EarJy Intervention Services (ages 0 through 5) procedure codes. One day of care will be defined as a minimum of 6 hours of service that can include the following procedures with maximums noted below. 99211
7

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 8 of 29
99212 Z1570 Z1571 (Maximum 3 units) Z1572 Z1575 43. Despite this agreement, ADHS announced in early 1999 that the daily rate for core services would be reduced from $95.00 to $75.00 per child per day. 44. ADHS, Mr. Knickrehm, and Mr. Hanley decided to reduce the rate for core services for purely budgetary reasons. 45. Prior to reducing the daily rate for core services, ADHS, Mr. Knickrehm, and Mr. Hanley failed to consider the factors of efficiency, economy, quality of care, and equal access as required by federal law. 46. ADHS, Mr. Knickrehm, and Mr. Hanley refused to conduct a study that considered those factors, and a lawsuit was filed to enjoin their decision. 47. The lawsuit was filed in the United States District Court for the Eastern District of Arkansas, Western Division, given Case No. LR-C-99-810, and assigned to the Honorable James M.Moody. 48. The plaintiff filed a motion for temporary injunctive relief along with its Complaint. 49. The Court conducted a hearing with respect to the plaintiffs motion, and ruled that the defendants failed to consider the factors of efficiency, economy, quality of care, and equal access before they reduced the daily rate for core services.
8

--------------------------------------------------------------------------------------------Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 9 of 29
50. The Court concluded that the defendants violated the federal statutory rights of the plaintiff as provided by 42 U.S.C. § 1396a(a)(30)(A), and issued a preliminary injunction that stopped the rate reduction before it went into effect.
5!. An order to that effect was filed with the Court on November 5, 1999. 52. Thereafter, ADHS, Mr. Knickrehm, and Mr. Hanley submitted an offer of judgment to the plaintiff. 53. The plaintiff accepted their offer, and a Judgment reflecting the agreement was filed on December 14, 1999. 54. In accordance with this agreement, ADHS, Mr. Knickrehm, and Mr. Hanley were permanently enjoined from implementing the $75.00 daily rate for core services. They were also ordered to not reduce rates for services under the CHMS program below the rates in effect on November 6, 1999, unless the reduction is based on an analysis of the costs incurred by efficient and economic providers of such services and are established in conformity with applicable state and federal laws. 55. During that time, ADHS, acting through Mr. Knickrehm and Mr. Hanley, developed a "utilization control" program that requires "prior authorization" of CHMS services. 56. Generally stated, the Medicaid Act recognizes prior authorization as an accepted form of utilization control that a State may use to verify a patient's need for Medicaid services before those services are provided. 57. Prior authorization is an inherent state action, which may be conducted by the State or a private contractor hired by the State.
9

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 10 of 29
58. According to the prior authorization program developed by Mr. Knickrehm and Mr. Hanley, there are now two "layers" of prior authorization under the CHMS program.
59. The first layer of prior authorization applies to the admission of children into the CHMS program, and went into effect on October 1, 1999.
60. The second layer of prior authorization applies to the number of units of CHMS services a child may receive over a certain period of time, and went into effect on March 1,2000.
61. ADHS contracted with AFMC to implement the two layers of prior authorization developed by Mr. Knickrehm and Mr. Hanley.
62. The CHMS Provider Manual requires AFMC to consider requests for CHMS services within 15 business days.
63. At all times described herein, AFMC was acting as the agent of ADHS for the purpose of prior authorizing CHMS services under the State plan.
COUNT ONE: VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A) UNDER THE FIRST LAYER OF PRIOR AUTHORIZATION
64. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
65. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose, directed AFMC to use the first layer of prior authorization to limit the admission of qualified children into the CHMS program so that their pre-determined cost savings can be achieved.
10

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 11 of 29
66. AFMC has used, and continues to use, the first layer of prior authorization to deny admission into the CHMS program to eligible children who have only one diagnosed medical, behavioral, or developmental delay, disability, or handicapping condition.
67. In accordance with EPSDT, the CHMS program was designed to provide therapy and early intervention day treatment services to all eligible children diagnosed as suffering any medical, behavioral, or developmental delay, disability, or handicapping condition, not just those with more than one diagnosis.
68. Before the first layer of prior authorization went into effect, ADHS did not limit CHMS services to children with only one diagnosed medical, behavioral, or developmental delay, disability, or handicapping condition.
69. Before the first layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for services provided to children with only one diagnosed medical, behavioral, or developmental delay, disability, or handicapping condition.
70. Before the defendants can use the first layer of prior authorization to limit admission of qualified children into the CHMS program so that the pre-determined cost savings can be achieved, ADHS must consider the factors of economy, efficiency, quality of care, and equal access as required by 42 V.S.c. § 1396a(a)(30)(A).
71. ADHS has failed to consider these factors. 72. Mr. Knickrehm, Mr. Hanley, and AFMC understand that may not use the first layer of prior authorization to limit admission of qualified children into the CHMS program so that the pre-determined cost savings can be achieved unless ADHS considers the factors of economy, efficiency, quality of care, and equal access.
11

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 12 of 29
73. Mr. Knickrehm, Mr. Hanley, and AFMC understand that ADHS has failed to consider these factors.
74. Despite their understanding, AFMC continues to use the first layer of prior authorization to reduce payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley.
75. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(30)(A).
76. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
77. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future.
COUNT TWO: VIOLATION OF 42 U.S.C. § 1396d(a)(13) UNDER THE FIRST LAYER OF PRIOR AUTHORIZATION
78. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
79. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose, have directed AFMC to use the first layer of prior authorization to limit the admission of qualified children into the CHMS program so that their pre-determined cost savings can be achieved.
12

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 13 of 29
80. AFMC has used, and continues to use, the first layer of prior authorization to deny admission into the CHMS program to eligible children who have only one diagnosed medical, behavioral, or developmental delay, disability, or handicapping condition.
81. In accordance with EPSDT, the CHMS program was designed to provide therapy and early intervention day treatment services to all eligible children diagnosed as suffering any medical, behavioral, or developmental delay, disability, or handicapping condition, not just those with more than one diagnosis.
82. Before the first layer of prior authorization went into effect, ADHS did not limit CHMS services to children with more than one diagnosed medical, behavioral, or developmental delay, disability, or handicapping condition.
83. Before the first layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for services provided to children with only one diagnosed medical, behavioral, or developmental delay, disability, or handicapping condition.
84. By using the first layer of prior authorization to deny admission into the CHMS program to children with only one diagnosed medical, behavioral, or developmental delay, disability, or handicapping condition, the defendants, while acting under color of state law, have violated, and continue to violate, the rights of these children to CHMS services mandated by 42 U.S.c. § 1396d(a)(13).
85. Mr. Knickrehrn, Mr. Hanley, and AFMC understand that they are denying mandatory services to children, but continue to do so for the mere purpose of reducing payments under the CHMS program to the level pre-determined by Mr. Knickrehrn and Mr. Hanley.
13

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 14 of 29
86. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
87. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future.
COUNT THREE: VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A) UNDER THE SECOND LAYER OF PRIOR AUTHORIZATION
88. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the second layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
89. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose, directed AFMC to use the second layer of prior authorization to deny core services to children admitted into the CHMS program so that their pre-determined cost savings can be achieved.
90. AFMC has used, and continues to use, the second layer of prior authorization to cut the provision of core services from six hours per child per day to 3.5 hours per child per day, regardless of the child's medical or psychological condition.
91. Before the second layer of prior authorization went into effect, ADHS defined one day of care as a minimum of six hours of CHMS core services per child per day.
92. Before the second layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for up to six hours of core services per child per day, depending on the amount of core services actually provided.
14

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 15 of 29
93. Before the defendants can use the second layer of prior authorization to deny services to children admitted into the CHMS program so that the pre-detennined cost savings can be achieved, ADHS must consider the factors of economy, efficiency, quality of care, and equal access as required by 42 U.S.C. § 1396a(a)(30)(A).
94. ADHS has failed to consider these factors. 95. Mr. Knickrehm, Mr. Hanley, and AFMC understand that they may not use the second layer of prior authorization to deny services to children admitted into the CHMS program so that the pre-detennined cost savings can be achieved unless ADHS considers the factors of economy, efficiency, quality of care, and equal access. 96. Mr. Knickrehm, Mr. Hanley, and AFMC understand that ADHS has failed to consider these factors. 97. Despite their understanding, AFMC continues to use the second layer of prior authorization to reduce payments under the CHMS program to a level pre-detennined by Mr. Knickrehm and Mr. Hanley. 98. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 99. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future. 100. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.c. § 1396a(a)(30)(A).
COUNT FOUR: VIOLATION OF 42 U.S.C. § 1396d(a)(l3) UNDER THE SECOND LAYER OF PRIOR AUTHORIZATION
15

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 16 of 29
101. Based on infonnation and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the second layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-detennined by them.
102. Based on infonnation and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose, directed AFMC to use the second layer of prior authorization to deny core services to children admitted into the CHMS program so that their pre-determined cost savings can be achieved.
103. AFMC has used, and continues to use, the second layer of prior authorization to cut the provision of core services from six hours per child per day to 3.5 hours per child per day, regardless of the child's medical or psychological condition.
104. Six hours of CHMS core services per child per day results in the maximum reduction of physical and mental disabilities, and restores children to their best-possible functional level.
105. Before the second layer of prior authorization went into effect, ADHS defined one day of care as a minimum of six hours of CHMS core services per child per day.
106. Before the second layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for six hours of core services per child per day.
107. The current level of CHMS core services approved by AFMC per child per day does not result in the maximum reduction of physical and mental disabilities, and does not restore children to their best-possible functional level.
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Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 17 of 29
108. Mr. Knickrehm, Mr. Hanley, and AFMC understand that the current level of CHMS core services approved by AFMC per child per day does not result in the maximwn reduction of physical and mental disabilities, and does not restore children to their best-possible functional level.
109. Mr. Knickrehm, Mr. Hanley, and AFMC understand that they are denying mandatory services to eligible children, but continue to do so for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
110. Despite their understanding, AFMC continues to use the second layer of prior authorization to reduce payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
Ill. By using the second layer of prior authorization to cut the provision of core services to all children from six hours per child per day to 3.5 hours per child per day, the defendants, while acting under color of state law, have violated the rights of these children to CHMS services mandated by 42 U.S.C. § 1396d(a)(13).
112. To ensure that the children treated by the plaintiff providers receive the maximum reduction of their physical and mental disabilities, and are restored to their best-possible functional level, they have continued to provide up to six hours of core services per child per day.
113. The provider plaintiffs are entitled to payment for the provision of such services. 114. The conduct of the defendants has been willful and malicious, and in knowing violation ofthe rights of the plaintiffs.
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Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 18 of 29

115. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future.

COUNT FIVE: VIOLATION OF SUBSTANTIVE DUE PROCESS

116. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley,

while acting under color of state law, developed the process of prior authorization for the

purpose of reducing payments under the CHMS program to a level pre-determined by them.

117. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, in

order to accomplish their purpose, directed AFMC to not publish regulations that govern the

prior authorization of CHMS services so that it can create new rules, without notice to recipients

or providers, and use those rules to deny CHMS services to eligible children so that their pre-

determined cost savings can be achieved.

118. AFMC has refused, and continues to refuse, to publish regulations that govern the

prior authorization of CHMS services so that it can create new rules, without notice to recipients

or providers, and use those rules to deny services to children admitted into the CHMS program.

119. For example, AFMC has refused to publish regulations that define:

a. The information needed by AFMC to determine whether a child may be

admitted into the CHMS program;

b.

The medical standards used by AFMC to determine whether a child may

be admitted into the CHMS program;

c. The information needed by AFMC to determine whether a child may

receive the CHMS services set forth in the child's treatment plan;

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Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 19 of 29

d. The medical standards used by AFMC to detennine whether a child may

receive the CHMS services set forth in the child's treatment plan;

e. The infonnation needed by AFMC to detennine whether a child may

receive the amounts ofCHMS services set forth in the child's treatment plan; and

f.

The medical standards used by AFMC to detennine whether a child may

receive the amount ofCHMS services set forth in the child's treatment plan.

120. By refusing to publish regulations that govern the infonnation needed by AFMC

to detennine whether a child may be admitted into the CHMS program, AFMC has on many

occasions refused to admit children because their CHMS providers failed to submit infonnation

they were never told to provide.

121. By refusing to publish the medical standards used by AFMC to detennine whether

a child may be admitted into the CHMS program, AFMC has on many occasions taken

advantage of the lack of published standards to refuse admission to children based on standards

of its own making and clearly inconsistent with accepted medical practice.

122. By refusing to publish regulations that govern the infonnation needed by AFMC

to detennine whether a child may receive the CHMS services set forth in the child's treatment

plan, AFMC has on many occasions denied services to children because their CHMS providers

failed to submit infonnation they were never told to provide.

123. By refusing to publish the medical standards used by AFMC to detennine whether

a child may receive the CHMS services set forth in the child's treatment plan, AFMC has on

many occasions taken advantage of the lack of published standards to refuse services to children

based on standards of its own making and clearly inconsistent with accepted medical practice.

19

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 20 of 29
124. By refusing to publish regulations that govern the information needed by AFMC to determine whether a child may receive the amounts ofCHMS services set forth in the child's treatment plan, AFMC has on many occasions denied services to children because their CHMS providers failed to submit information they were never told to provide.
125. By refusing to publish the medical standards used by AFMC to determine whether a child may receive the amount of CHMS services set forth in the child's treatment plan, AFMC has on many occasions taken advantage of the lack of published standards to refuse services to children based on standards of its own making and clearly inconsistent with accepted medical practice.
126. Such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness.
127. Mr. Knickrehm, Mr. Hanley, and AFMC understand that such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness, but continue to engage in such conduct for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
128. By such conduct, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights to substantive due process under the Fourteenth Amendment to the Constitution of the United States.
129. The conduct ofthe defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
130. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future.
20

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 21 of 29
COUNT SIX: VIOLATION OF 42 U.S.c. § 1396a(a)(8) 131. Based on infonnation and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-detennined by them. 132. Based on infonnation and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose, have authorized AFMC to not consider requests for services with reasonable promptness so that their pre-detennined cost savings can be achieved. 133. AFMC often refuses to follow the regulation set forth in the CHMS Provider Manual that requires it to process requests for services within 15 business days. 134. AFMC often takes at least a month, and sometimes as long as five months, to process requests for services. 135. Pursuant to 42 U.S.c. § 1396a(a)(8), the State Plan "must ... provide that all individuals wishing to make application for medical assistance under the plan shall have opportunity to do so, and that such assistance shall be furnished with reasonable promptness to all eligible individuals". 136. Mr. Knickrehm, Mr. Hanley, and AFMC understand that they must consider requests for CHMS services with reasonable promptness. 137. Mr. Knickrehm, Mr. Hanley, and AFMC understand that they must consider requests for CHMS services within 15 business days.
21

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 22 of 29
l3S. Despite their understanding, AFMC often refuses to consider requests for CHMS services with reasonable promptness to reduce payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley.
l39. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § l396a(a)(S).
140. The conduct ofthe defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
141. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future.
COUNT SEVEN: VIOLATION OF 42 U.S.C. § 1396a(a)(3)
142. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
143. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose, have refused to provide a fair hearing to children who are denied admission into the CHMS program under the first layer of prior authorization.
144. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose, have refused to provide a fair hearing to children who have CHMS services denied to them under the second layer of prior authorization.
145. Although ADHS provides an appeal to CHMS recipients, it does not provide an appeal to CHMS providers.
22

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 23 of 29
146. When an appeal is filed, ADHS refuses to teII the CHMS recipient the name of the nurses and doctors employed by AFMC who made the adverse decisions against them.
147. Without such information, it is impossible for the CHMS recipient to determine the opinions formed by the nurses and doctors who wiII be calIed to testify against the child.
148. Without such information, it is impossible for the CHMS recipient to determine the basis of the opinions formed by the nurses and doctors who wiII be calIed to testify against the child.
149. Without such information, it is impossible for the CHMS recipient to determine the information upon which the nurses and doctors relied in forming their opinions.
150. Without such information, it is impossible for the CHMS recipient to receive a fair hearing.
151. Several months ago, plaintiffs Pediatric Specialty Care, Inc. and Child & Youth Pediatric Day Clinics, Inc. submitted a request to ADHS pursuant to the Arkansas Freedom of Information Act in which they requested the names ofthe nurses and doctors employed by AFMC who make these decisions.
152. ADHS refused to provide the requested information, and referred the plaintiffs to AFMC.
153. The plaintiffs requested the same information from AFMC, and it refused to provide the information as welI.
154. In order to get this information, the plaintiffs filed a lawsuit against AFMC under the Arkansas Freedom of Information Act.
23

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 24 of 29
155. On January 15, 2003, Pulaski County Circuit Judge John Ward ordered AFMC to produce the requested infonnation.
156. AFMC filed a motion to reconsider, and Pulaski County Circuit Judge Jay Moody affinned Judge Ward's decision in all respects.
157. AFMC did not appeal that decision, and the time has run for filing an appeal. 158. Since that time, a CHMS recipient suffered an adverse decision at the hands of AFMC. 159. The CHMS recipient filed an appeal, and asked AFMC to identify the nurses and doctors who issued the adverse decision. 160. Although Judge Ward and Judge Moody previously rejected AFMC's legal argument that such infonnation was protected from disclosure under federal law, AFMC refused to teJl the CHMS recipient the names of the doctors and nurses who issued the adverse decision against her. 161. As the basis for refusing to give such infonnation to the CHMS recipient, AFMC relied on the same argument previously rejected by Judge Ward and Judge Moody. 162. Based on infonnation and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose of reducing payments under the CHMS program to the level pre-detennined by them, instructed AFMC to not identify the doctors and nurses who issue adverse decisions against CHMS recipients. 163. By refusing to provide such infonnation to CHMS recipients who seek to appeal adverse decisions, the defendants, while acting under color of state law, have violated, and continue to violate, their right to a fair hearing under 42 U.S.C. § 1396a(a)(3).
24

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 25 of 29
164. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
165. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future.
INCORPORATION OF ORIGINAL COMPLAINT
166. Because some of the claims set forth by the plaintiffs in their original Complaint are presently on appeal, the plaintiffs restate and incorporate by reference all allegations and claims set forth in their original Complaint as though set forth herein in their entirety, word for word.
JURY DEMAND
167. The plaintiffs demand a jury trial with regard to all issues offact that may arise herein.
WHEREFORE, the plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child Leaming Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle, Minors, and Susarm Crespino, as Parent and Next Friend of Michael Crespino, a Minor, pray for the following relief:
a. That the Court determine that the defendants have violated, and continue to violate, the plaintiffs' rights under 42 US.C. § 1396a(a)(30)(A), 42 US.C. § 1396d(a)(13), the substantive due process component ofthe Fourteenth Amendment to the Constitution of the United States, 42 US.C. § 1396a(a)(8), and 42 US.C. § 1396a(a)(3), as alleged herein;
25

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 26 of 29

b. That the Court issue an injunction that prohibits the defendants from denying

admission into the CHMS program to children who have only one diagnosed medical,

behavioral, or developmental delay, disability, or handicapping condition;

c. That the Court issue an injunction that prohibits the defendants from approving

less than six hours of CHMS core services per child per day;

d. That the Court issue an injunction that orders the defendants to draft regulations

to govern the prior authorization of CHMS services consistent with applicable standards of

medical practice;

e. That the Court issue an injunction that orders the defendants to enact said

regulations after providing notice and opportunity for public comment to CHMS recipients and

providers;

f.

That the Court issue an injunction that prohibits the defendants from denying

CHMS services based on rules or medical standards not properly enacted by AFMC;

g. That the Court issue an injunction that orders the defendants to process each

request for CHMS services within 15 business days after it is received by AFMC, lest all

services set forth in the request be deemed approved;

h. That the Court issue an injunction that orders the defendants to notify each CHMS

recipient, and the recipient's provider, of the name and address of each doctor and nurse who

denies a request for admission into the CHMS program, or a request for CHMS services;

I.

That the Court issue an injunction that orders the defendants to provide an

opportunity for a fair hearing to each CHMS recipient, and the recipient's provider, who suffers

a denial of admission into the CHMS program or a denial of CHMS services;

26

Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 27 of 29

J.

That the Court award the plaintiffs their costs herein expended;

k. That the Court award the plaintiffs reasonable attorney fees pursuant to 42 U.S.C. § 1988; and

1.

That the Court award the plaintiffs all other relief to which they may be entitled.

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Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 28 of 29
Respectfully submitted, PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT BEST FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT BEST FRIEND OF MICHAEL CRESPINO, A MINOR, Plaintiffs ARMSTRONG ALLEN, PLLC 100 Morgan Keegan Drive Suite 100 Little Rock, AR 7 02 (501) 280-0100. (SOl) 280-01 .(facsi . e)
If
By:
LAN, BREWER, MAXEY, & HARALSON, PA 415 Main Street Little Rock, AR 72201 (SOl) 372-0400 (501) 376-3612 (facsimile)
By: Philip E. Kaplan (68026)
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Case 4:01-cv-00830-BSM Document 95 Filed 06/23/03 Page 29 of 29
CERTIFICATE OF SERVICE I, an attorney for the plaintiffs, certify that I have served a copy of the foregoing pleading on opposing counsel by depositing a copy thereof, postage prepaid, in the United States Mail, addressed as follows: Mr. Breck Hopkins Office of Chief Counsel Arkansas Department of Human Services P.O. Box 1437 Slot 1033 Little Rock, AR 72203-1437 Mr. Michael Rainwater Attorney at Law P.O. Box 17250 Little Rock, AR 72222-7250 this 23d day of June, 2003.
29

 
 Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 1 of 28

uFllED EAsTERN '5',~~CCT COURT

TARIWISAs

IN THE UNITED STATE DISTRlCT COURT MAY 14

EASTERN DISTRlCT OF ARKANSAS

200,

WESTERN DIVISION ~AMES W. MCCORMAC

y._

K, CLERK

PEDIATRlC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRlC DAY CLINICS. INC., TOMORROW'S CHILD LEARNING CENTER, LLC. JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT FRlENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT FRlEND OF MICHAEL CRESPINO, A MINOR

OEP CLERK
PLAINTIFFS

VS.

CASE NO. 4:01CV00830 WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES; KURT KNICKREHM, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; RAY HANLEY, IN HIS INDIVIDUAL CAPACITY; ROY JEFFUS, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; AND ARKANSAS FOUNDATION FOR MEDICAL CARE, INC.

DEFENDANTS

THIRD AMENDED COMPLAINT

TIle plaintiffs. Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child L~arning Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Friend of Michael Crespino. a Minor, respectfully come before this Court, by and through their attorneys,

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 2 of 28
Kaplan, Brewer, Maxey & Haralson, P.A., and Armstrong Allen, PLLC, and for their Third Amended Complaint against the defendants, Arkansas Department of Human Services, Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services, Ray Hanley, in his individual capacity, Roy Jeffus, in his individual capacity and in his oflicial capacity as Director of the Division of Medical Services of the Arkansas Department of Human Services, and Arkansas Foundation for Medical Care, Inc., state:
STATEMENT OF JURISDICTION AND VENUE
1. Plaintiff Pediatric Specialty Care, Inc. is an Arkansas corporation, has its principal place of business in Pulaski County, Arkansas, and is a qualified provider of services under the Child Health Management Services ("CHMS").
2. Plaintiff Child & Youth Pediatric Day Clinics, Inc. is an Arkansas corporation, has its principal place of business in Craighead County, Arkansas, and is a qualified provider of CHMS services under the Arkansas Medicaid plan.
3. Plaintiff Tomorrow's Child Learning Center, LLC is an Arkansas corporation, has its principal place of business in Mississippi County, Arkansas, and is a qualified provider of CHMS services under the Arkansas Medicaid plan.
4. Plaintiffs James and Stacey Swindle are the parents of Jacob and Noah Swindle, minors and qualified recipients of therapy services under the CHMS program, and reside in Pulaski County, Arkansas.

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 3 of 28
5. Plaintiff Susann Crespino is the mother of Michael Crespino, a minur and qualified recipient under the CHMS program, and resides in Marion County, Arkansas.
6. Defendant Arkansas Department of Human Services CADHS") is an agency of the State of Arkansas.
7. Defendant Kurt Knickrehm is Director of the Arkansas Deparlment of Human Services and, based on info=ation and reasonable belief, is a resident of Pulaski County, Arkansas.
8. Defendant Ray Hanley is the fo=er Director of the Division of Medical Services of the Arkansas Department of Human Services and, based on info=ation and reasonable belief, is a resident of Pulaski County, Arkansas.
9. Defendant Roy Jeffus is the current Director of the Division of Medical Services of the Arkansas Department of Human Services and, based on info=ation and reasonable belief, is a resident of Pulaski County, Arkansas.
10. Defendant Arkansas Foundation for Medical Care, Inc. ("AFMC") is an Arkansas corporation and has its principal place of business in Sebastian County, Arkansas.
11. Pursuant to 42 U.S.C. § 1983, the plaintiffs seek declaratory and injunctive relief against the defendants, and contend that the defendants, while acting under color of state law, have violated, and continue to violate, their federal constitutional and statutory rights by the manner in which they use the process of prior authorization to: (1) reduce payments for CHMS services without considering the factors of economy, efficiency, quality of care, and equal access; (2) deprive children of their right to CHMS services that, if provided, would result in the maximum reduction of their physical and mental disabilities and restore them to their best-
3

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 4 of 28
possible functional level; and (3) deny payment to CHMS providers for services provided to children in an effort to make sure that they achieve the maximum reduction of their physical and mental disabilities and are restored to their best-possible functional level.
12. In addition, pursuant to 42 U.S.C. § 1983, the plaintiffs seek money damages against defendants Kurt Knickrehm, Ran Hanley, and Roy Jeffus in their individual capacities, and AFMC, and contend that these defendants, while acting under color of state law, have violated, and continue to violate, their federal constitutional and statutory rights by the manner in which they use the process of prior authorization to: (1) reduce payments for CHMS services without considering the factors of economy, efficiency, quality of care, and equal access; (2) deprive children of their right to CHMS services that, if provided, would result in the maximum reduction of their physical and mental disabilities and restore them to their best-possible functional level; and (3) deny payment to CHMS providers for services provided to children in an effort to make sure that they achieve the maximum reduction of their physical and mental disabilities and are restored to their best-possible functional level.
13. The Court has federal question jurisdiction pursuant to 28 U.S.C. § 1331. 14. The Court has civil rights jurisdiction pursuant to 28 U.S.C. § 1343. IS. The Court has venue pursuant to 28 U.S.C. § 1391.
STATEMENT OF FACTS
16. Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq. (1992 & Supp. 2000), commonly referred to as the Medicaid Act, is a joint federal and state progr,un designed to provide "medical assistance" to qualified persons.
4

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 5 of 28
17. Under the Medicaid Act, if a state agrees to establish a Medicaid plan ("State plan") that satisfies the requirements of Title XIX, the federal government will pay a specified percentage of the total amount expended as "medical assistance" under the plan.
18. Participation in the Medicaid program is voluntary, but if a state elects to participate, it must do so in accordance with federal statutes and regulations.
19. The federal Department of Health and Human Services is charged with administration of the Medicaid program, and has delegated much of its responsibility to Centers for Medicare & Medicaid Services ("CMS").
20. Arkansas participates in the Medicaid program, and Arkansas Department of Human Services ("ADHS") is the state agency charged with administration of the Medicaid program in Arkansas.
21. The Medicaid Act defmes "medical assistance" as "payment of part or all of the cost of [enumerated] care and services".
22. Some services are mandatory and must be provided under the State plan. 23. Mandatory services include those provided under the early and periodic screening, diagnostic, and treatment services ("EPSDT") provisions of the Medicaid Act. 24. EPSDT services include those provided under the CHMS program. 25. The CHMS program comprises an array of clinic services that are intended to provide full medical mUlti-discipline diagnosis, evaluation, and treatment for the purpose of intervention, treatment, and prevention oflong-term disability for eligible children
5

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 6 of 28
26. Generally stated, services under the CHMS program can be broken down into three broad categories: (I) diagnosis and evaluation services, (2) therapy services, and (3) early intervention day treatment services.
27. CHMS therapy services include physical therapy, speech therapy, occupational therapy, and psychotherapy.
28. CHMS early intervention day treatment services include cognitive development services, developmental motor activity services, and self-care and social/emotional developmental services.
29. When the CHMS program first went into effect, a child could enter the program based on a referral from his or her physician (referred to in Medicaid terms as the Primary Care Physician or "PCP").
30. Diagnostic and evaluation services were provided by CHMS staff. and, as required by EPSDT, treatment plans were developed for the treatment of all developmental disabilities that were discovered during the screening process.
31. A treatment plan included the various CHMS therapy and early intervention day treatment services requested by clinic staff, and the number of units of service that should be provided over a certain period of time, consistent with applicable standards of medical practice.
32. After a treatment plan was developed for a particular child, it was submitted to the PCP for approval.
33. If the PCP approved the treatment plan, CHMS services were provided in accordance with the plan, the CHMS provider billed ADHS for the services it provided. and ADHS paid the bill.
6

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 7 of 28
34. Initially, payment for CHMS services was fairly straightforward: for each service provided under the treatment plan, payment was determined by multiplying the number of units of service actually provided by !be rate for !bat service as published by ADHS in the State plan.
35. Given the nature of this fee-for-service formula, ADHS could reduce payment for CHMS services by either reducing the rates for those services, or !be number of units of service that could be provided over a certain period of time.
36. When the CHMS program first went into effect, CHMS clinics provided, on average, six hours of early intervention day treatment services (referred to in Medicaid terms as "core services ") per child per day, five days a week.
37. ADHS routinely reimbursed providers for this amount of core services (six hours per child per day, five days per week) at rates published by ADHS in !be State plan.
38. In !be fall of 1997, payment for core services was approximately $125.00 per child per day.
39. ADHS, in an effort to reduce payments under !be CHMS program, asked CHMS providers if !be rates for core services could be reduced or handled in such a way so as to make the program less expensive.
40. Based on this call, a work group consisting of ADHS staff and CHMS providers was created.
41. As a result of their work, an agreement was reached that limited !be daily payment for core services to $95.00 per child per day.
42. This agreement wenl into effect on April I, 1998, and provided as follows:
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Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 8 of 28
Effective for claims with dates of service on or after April 1, 1998, the Division of Medical Services will implement a $95.00 per day rate for the CHMS-Early Intervention Services (ages 0 through 5) procedure codes. One day of care will be defined as a minimum of 6 hours of service that can include the following procedures with maximums noted below. 99211 99212 Z1570 ZI571 (Maximum 3 units) Z1572 21575 43. Despite this agreement, ADHS announced in early 1999 that the daily rate for core services would be reduced from $95.00 to $75.00 per child per day. 44. ADHS, Mr. Knickrehm, and Mr. Hanley decided to reduce the rate for core services for purely budgetary reasons. 45. Prior to reducing the daily rate for core services, ADHS, Mr. Knickrehm, and Mr. Hanley failed to consider the factors of efficiency, economy, quality of care, and equal access as required by federal law. 46. ADHS, Mr. Knickrehm, and Mr. Hanley refused to conduct a study that considered those factors, and a lawsuit was filed to enjoin their decision. 47. The lawsuit was filed in the United States District Court for the Eastern District of Arkansas, Western Division, given Case No. LR-C-99-810, and assigned to the Honorable James M.Moody. 48. The plaintiff filed a motion for temporary injunctive relief along with its Complaint.
8

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 9 of 28
49. The Court conducted a hearing with respect to the plaintiff s motion, and ruled that the defendants failed to consider the factors of effIciency, economy, quality of care, and equal access before they reduced the daily rate for core services.
50. The Court concluded that the defendants violated the federal statutory rights of Lhe plaintiff as provided by 42 U.S.C. § J396a(a)(30)(A), and issued a preliminary injunction that stopped the rate reduction before it went into effect.
5!. An order to that effect was filed with the Court on November 5, 1999.
52. Thereafter, ADHS, Mr. Knickrehm, and Mr. Hanley submitted an offer of
judgment to the plaintiff 53. The plaintiff accepted their offer, and a Judgment reflecting the agreement was
filed on December 14, 1999.
54. In accordance with this agreement, ADHS, Mr. Knickrehm, and Mr. Hanley were
pe=anently enjoined from implementing the $75.00 daily rate for core services. They were also ordered to not reduce rates for services under the CHMS program below the rates in effect on November 6, 1999, unless the reduction is based on an analysis of the costs incurred by efficient and economic providers of such services and are established in conformity with applicable state and federal laws.
55. During that time, ADHS, acting through Mr. Knickrehm and Mr. Hanley,
developed a "utilization control" program that requires "prior authorization" of CHMS services. 56. Generally stated, the Medicaid Act recognizes prior authorization as an accepted
1'0= of utilization control that a State may use to verify a patient's need for Medicaid services before those services are provided.
9

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 10 of 28
57. Prior authorization is an inherent state action, which may be conducted by the State or a private contractor hired by the State.
58. According to the prior authorization program developed by Mr. Knickrehrn and Mr. Hanley, there are now two "layers" of prior authorization under the CHMS program.
59. The fust layer of prior authorization applies to the admission of children into the CHMS program, and went into effect on October I, 1999.
60. The second layer of prior authorization applies to the number of units of CHMS services a child may receive over a certain period of time, and went into effect on March I, 2000.
61. ADHS contracted with AFMC to implement the two layers of prior authorization developed by Mr. Knickrehrn and Mr. Hanley.
62. The CHMS Provider Manual requires AFMC to consider requests for CHMS services within 15 working days.
63. At all times described herein, AFMC was acting as the agent of ADHS for the purpose of prior authorizing CHMS services under the State plan.
COUNT ONE: VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A) UNDER THE FIRST LAYER OF PRIOR AUTHORIZATION
64. Based on information and reasonable belief, Mr. Knickrehrn and Mr. Hanley. while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
65. Based on information and reasonable belief, Mr. Knickrehrn, Mr. Hanley, and Mr. Jeffus, in order to accomplish this purpose, have directed AFMC to use the fust layer of prior
10

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 11 of 28
authorization to limit the admission of qualified children into the CHMS program so that their pre-determined cost savings can be achieved.
66. AFMC has used, and continues to use, the first layer of prior authorization to deny admission into the CHMS program to eligible children who have a developmental delay in only one area.
67. In accordance with EPSDT, the CHMS program was designed to provide therapy and early intervention day treatment services to all eligible children who are diagnosed as suffering a developmental delay, not just those who have developmental delays in more than one area.
68. Before the first layer of prior authorization went into effect, ADHS did not limit CHMS services to children with developmental delays in only one area.
69. Before the first layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for services provided to children with developmental delays in only one area.
70. Before the defendants can use the first layer of prior authorization to limit admission of qualified children into the CHMS program so that the pre-determined cost savings can be achieved, ADHS must consider the factors of economy, efficiency, quality of care, and equal access as required by 42 U.S.C. § 1396a(a)(30)(A).
71. ADHS has failed to consider these factors. 72. The defendants understand that may not use the first layer of prior authorization to limit admission of qualified children into the CHMS program so that the pre-dctelIDined cost
11

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 12 of 28
savings can be achieved unless ADHS considers the factors of economy, efficiency, quality of care, and equal access.
73. The defendants understand that ADHS has failed to consider these factors. 74. Despite their understanding, AFMC continues to use the first layer of prior :mthorization to reduce payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley. 75. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.c. § 1396a(a)(30)(A). 76. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 77. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
COUNT TWO: VIOLATION OF 42 U.S.C. § 1396d(a)(13) UNDER THE FIRST LAYER OF PRIOR AUTHORIZATION
78. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
79. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish this purpose, have directed AFMC to use the fust layer of prior authorization to limit the admission of qualified children into the CHMS program so that their pre-determined cost savings can be achieved.
12

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 13 of 28
80. AFMC has used, and continues to use, the fIrst layer of prior authorization to deny admission into the CHMS program to eligible children who have a developmental delay in only one area.
81. In accordance with EPSDT, the CHMS program was designed to provide therapy and early intervention day treatment services to all eligible children diagnosed as suffering a developmental delay, not just those with developmental delays in more than one area.
82. Before the fIrst layer of prior authorization went into effect, ADHS did not limit CHMS services to children with developmental delays in only one area.
83. Before the fIrst layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for services provided to children with developmental delays in only one area.
84. By using the fIrst layer of prior authorization to deny admission into the CHMS program to children with developmental delays in only one area, the defendants, while acting lmder color of state law, have violated, and continue to violate, the rights of these children to CHMS services mandated by 42 U.S.C. § 1396d(a)(13).
85. The defendants understand that they are denying mandatory services to children, but continue to do so for the mere purpose of reducing payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley.
86. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
87. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
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COUNT THREE: VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A) UNDER nIE SECOND LAYER OF PRIOR AUTHORIZATION 88. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the second layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them. 89. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have directed AFMC to use the second layer of prior authorization to deny core services to children admitted into the CHMS program so that their pre-determined cost savings can be achieved. 90. AFMC has used, and continues to use, the second layer of prior authorization to cut the provision of core services from six hours per child per day to 3.5 hours per child per day, regardless of the child's medical or psychological condition. 91. Before the second layer of prior authorization went into effect, ADHS defined one day of care as a minimum of six hours of CHMS core services per child per day. 92. Before the second layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for six hours of core services per child per day. 93. Before the defendants can use the second layer of prior authorization to deny services to children admitted into the CHMS program so that the pre-determined cost savings can be achieved, ADHS must consider the factors of economy, efficiency, quality of care, and equal access as required by 42 U.S.c. § 1396a(a)(30)(A). 94. ADHS has failed to consider these factors.
14

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95. The defendants understand that they may not use the second layer of prior authorization to deny services to children admitted into the CHMS program so that the predetermined cost savings can be achieved unless ADHS considers the factors of economy, efficiency, quality of care, and equal access.
96. The defendants understand that ADHS has failed to consider these factors. 97. Despite their understanding, AFMC continues to use the second layer of prior authorization to reduce payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley. 98. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 99. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future. 100. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(30)(A).
COUNT FOUR: VIOLATION OF 42 U.S.c. § 1396d(a)(13) UNDER THE SECOND LAYER OF PRIOR AUTHORIZATION
101. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the second layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
102. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have directed AFMC to use the second layer of prior
15

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 16 of 28
authorization to deny core services to children admitted into the CHMS program so that their pre-determined cost savings can be achieved.
103. AFMC has used, and continues to use, the second layer of prior authorization to cut the provision of core services from six hours per child per day to 3.5 hours per child per day, regardless of the child's medical or psychological condition.
104. Six hours of CHMS core services per child per day results in the maximum reduction of physical and mental disabilities, and restores children to their best-possible functional level.
105. Before the second layer of prior authorization went into effect, ADHS defined one day of care as a minimum of six hours of CHMS core services per child per day.
106. Before the second layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for six hours of core services per child per day.
107. The current level of CHMS core services approved by AFMC per child per day does not result in the maximum reduction of physical and mental disabilities, and does not restore children to their best-possible functional level.
108. The defendants understand that the current level ofCHMS core services approved by AFMC per child per day does not result in the maximum reduction of physical and mental disabilities, and does not restore children to their best-possible functional level.
109. The defendants understand that they are denying mandatory services to eligible children, but continue to do so for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
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Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 17 of 28
110. Despite their understanding, AFMC continues to use the second layer of prior authorization to reduce payments under the CHMS program to a level pre-determined by Mr. Knickrehrn and Mr. Hanley.
Ill. By using the second layer of prior authorization to cut the provision of core services to all children from six hours per child per day to 3.5 hours per child per day, the defendants, while acting under color of state law, have violated the rights of these children to CHMS services mandated by 42 U.S.c. § l396d(a)(13).
112. To ensure that the children treated by the plaintiff providers receive the maximum reduction of their physical and mental disabilities, and are restored to their best-possible functional level, they have continued to provide six hours of core services per child per day.
113. The provider plaintiffs are entitled to payment for the provision of such services. 114. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 115. For these reasons, punitive damages should be imposed against Mr. Knickrehrn, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
COUNT FIVE: VIOLATION OF SUBSTANTIVE DUE PROCESS
116. Based on information and reasonable belief, Mr. Knickrehrn and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
117. Based on information and reasonable belief, Mr. Knickrehrn, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have directed AFMC to not publish regulations that
17

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 18 of 28

govern the prior authorization of CHMS services so that it can create new rules, without notice to

recipients or providers, and use those rules to deny CHMS services to eligible children so that

their pre-determined cost savings can be achieved.

118. AFMC has refused, and continues to refuse, to publish regulations that govern the

prior authorization of CHMS services so that it can create new rules, without notice to recipients

or providers, and use those rules to deny services to children admitted into the CHMS program.

119. For example, AFMC has refused to publish regulations that define:

a. The information needed by AFMC to determine whether a child may be

admitted into the CHMS program;

b.

The medical standards used by AFMC to determine whether a child may

be admitted into the CHMS program;

c. The information needed by AFMC to determine whether a child may

receive the CHMS services set forth in the child's treatment plan;

d. The medical standards used by AFMC to determine whether a child may

receive the CHMS services set forth in the child's treatment plan;

e. The information needed by AFMC to determine whether a child may

receive the amounts ofCHMS services set forth in the child's treatment plan; and

f. The medical standards used by AFMC to determine whether a child may

receive the amount ofCHMS services set forth in the child's treatment plan.

120. By refusing to publish regulations that govern the information needed by AFMC

to determine whether a child may be admitted into the CHMS program, AFMC has on many

18

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 19 of 28
occasions refused to admit children because their CHMS providers failed to submit info=ation they were never told to provide.
12l. By refusing to publish the medical standards used by AFMC to determine whether a child may be admitted into the CHMS program, AFMC has on many occasions taken advantage of the lack of published standards to refuse admission to children based on standards of its own making and clearly inconsistent with accepted medical practice.
122. By refusing to publish regulations that govern the information needed by AFMC to dete=ine whether a child may receive the CHMS services set forth in the child's treatment plan, AFMC has on many occasions denied services to children because their CHMS providers failed to submit info=ation they were never told to provide.
123. By refusing to publish the medical standards used by AFMC to determine whether a child may receive the CHMS services set forth in the child's treatment plan, AFMC has on many occasions taken advantage of the lack of published standards to refuse services to children based on standards of its own making and clearly inconsistent with accepted medical practice.
124. By refusing to publish regulations that govern the info=ation needed by AFMC to dete=ine whether a child may receive the amounts of CHMS services set forth in the child's treatment plan, AFMC has on many occasions denied services to children because their CHMS providers failed to submit info=ation they were never told to provide.
125. By refusing to publish the medical standards used by AFMC to determine whether a child may receive the amount ofCHMS services set forth in the child's treatment plan, AFMC has on many occasions taken advantage of the lack of published standards to refuse services to
19

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 20 of 28
children based on standards of its own making and clearly inconsistent with accepted medical practice.
126. Such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness.
127. The defendants understand that such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness, but continue to engage in such conduct for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
128. By such conduct, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights to substantive due process under the Fourteenth Amendment to the Constitution of the United States.
129. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
130. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
COUNT SIX: VIOLATION OF 42 U.S.C. § 1396a(a)(8)
131. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
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Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 21 of 28
132. Based on information and reasonable belief: Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have authorized AFMC to not consider requests for services with reasonable promptness so that their pre-determined cost savings can be achieved.
133. AFMC often refuses to follow the regulation set forth in the CHMS Provider Manual that requires it to process requests for services within 15 business days.
134. AFMC often takes at least a month, and sometimes as long as five months, to process requests for services.
135. Pursuant to 42 U.S.C. § 1396a(a)(S), the State Plan "must ... provide that all individuals wishing to make application for medical assistance under the plan shall have opportunity to do so, and that such assistance shall be furnished with reasonable promptness to all eligible individuals".
136. The defendants understand that they must consider requests for CHl'vlS services with reasonable promptness.
13 7. The defendants understand that they must consider requests for CHl'vfS services within 15 working days.
13S. Despite their understanding, AFMC often refuses to consider requests for CHMS services with reasonable promptness to reduce payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley.
139. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(S).
140. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
21

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 22 of 28
141. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
COUNT SEVEN: VIOLATION OF 42 U.S.c. Q1396a(a)(3)
142. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
143. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have refused to provide a fair hearing to children who are denied admission into the CHMS program under the first layer of prior authorization.
144. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have refused to provide a fair hearing to children who have CHMS services denied to them under the second layer of prior authorization.
145. Although ADHS provides an appeal to CHMS recipients, it does not provide an appeal to CHMS providers.
146. When an appeal is filed, ADHS refuses to tell the CHMS recipient the name of the nurses and doctors employed by AFMC who made the adverse decisions against them.
147. Without such information, it is impossible for the CHMS recipient to determine the opinions formed by the nurses and doctors who will be called to testify against the child.
148. Without such information, it is impossible for the CHMS recipient to determine the basis of the opinions formed by the nurses and doctors who will be called to testify against the child.
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Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 23 of 28
149. Without such information, it is impossible for the CHMS recipient to determine the information upon which the nurses and doctors relied in forming their opinions.
150. Without such information, it is impossible for the CHMS recipient to receive a fair hearing.
151. Several months ago, plaintiffs Pediatric Specialty Care, Inc. and Child & Youth Pediatric Day Clinics, Inc. submitted a request to ADHS pursuant to the Arkansas Freedom of Information Act in which they requested the names of the nurses and doctors employed by AFMC who make these decisions.
152. ADHS refused to provide the requested information, and referred the plaintiffs to AFMC.
153. The plaintiffs requested the same information from AFMC, and it refused to provide the information as well.
154. In order to get this information, the plaintiffs filed a lawsuit against AFMC under the Arkansas Freedom of Information Act.
155. On January 15,2003, Pulaski County Circuit Judge John Ward ordered AFMC to produce the requested information.
156. AFMC filed a motion to reconsider, and Pulaski County Circuit Judge Jay Moody affirmed Judge Ward's decision in all respects.
157. AFMC did not appeal that decision, and the time has run for filing an appeal. 158. Since thallime, a CHMS recipient suffered an adverse decision at the hands of AFMC.
23

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 24 of 28
159. The CHMS recipient filed an appeal, and asked AFMC to identify the nurses and doctors who issued the adverse decision.
160. Although Judge Ward and Judge Moody previously rejected AFMC's legal argument that such information was protected from disclosure under federal law. AFMC refused to tell the CHMS recipient the names of the doctors and nurses who issued the adverse decision against heL
161. As the basis for refusing to give such information to the CHMS recipient, AFMC relied on the same argument previously rejected by Judge Ward and Judge Moody.
162. Based on information and reasonable belief, Mr. Knickrehm and ML Hanley, in order to accomplish their purpose of reducing payments under the CHMS program to the level pre-determined by them, instructed AFMC to not identifY the doctors and nurses who issue adverse decisions against CHMS recipients.
163. By refusing to provide such information to CHMS recipients who seek to appeal adverse decisions, the defendants, while acting under color of state law, have violated, and continue to violate, their right to a fair hearing under 42 U.S.C. § 1396a(a)(3).
164. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
165. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future.
INCORPORATION OF ORIGINAL COMPLAINT
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Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 25 of 28
166. Because some of the claims set forth by the plaintiffs in their original Complaint are presently on appeal, the plaintiffs restate and incorporate by reference all allegations and claims set forth in their original Complaint as though set forth herein in their entirety, word for word.
JURY DEMAND
167. The plaintiffs demand ajury trial with regard to all issues offact that may arise herein.
WHEREFORE, the plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Friend of Michael Crespino, a Minor, pray for the following relief:
a. That the Court determine that the defendants have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(30)(A), 42 U.S.C. § 1396d(a)(l3), the substantive due process component of the Fourteenth Amendment to the Constitution of the United States, 42 U.S.C. § l396a(a)(8), and 42 U.S.C. § l396a(a)(3), as alleged herein;
b. That the Court issue an injunction that prohibits the defendants from denying admission into the CHMS program to children who have a developmental delay in only one area;
c. That the Court issue an injunction that prohibits the defendants from approving less than six hours of CHMS core services per child per day;
25

Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 26 of 28

d. That the Court issue an injunction that orders the defendants to draft regulations

to govern the prior authorization of CHMS services consistent with applicable standards of

medical practice;

e. That the Court issue an injunction that orders the defendants to enact said

regulations after providing notice and opportunity for public comment to CHMS recipients and

providers;

f.

That the Court issue 'ill injunction that prohibits the defendants from denying

CHMS services based on rules or medical standards not properly enacted by AFMC;

g. That the Court issue an injunction that orders the defendants to process each

request for CHMS services within 15 working days after it is received by AFMC, lest all services

set forth in the request be deemed approved;

h. That the Court issue an injunction that orders the defendants to notify each CHMS

recipient, and the recipient's provider, of the name and address of each doctor and nurse who

denies a request for admission into the CHMS program, or a request for CHMS services;

I.

That the Court issue an inj unction that orders the defendants to provide an

opportunity for a fair hearing to each CHMS recipient, and the recipient's provider, who suffers

a denial of admission into the CHMS program or a denial of CHMS services;

J.

That the Court award the plaintiffs their costs herein expended;

k. That the Court award the plaintiffs reasonable attorney fees pursuant to 42 U.S.c.

~ 1988; and

1. That the Court award the plaintiffs all other relief to which they may be entitled.

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Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 27 of 28
Respectfully submitted, PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT BEST FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT BEST FRIEND OF MICHAEL CRESPINO, A MINOR, Plaintiffs KAPLAN, BREWER, MAXEY, & HARALSON, P.A. 415 Main Street Little Rock, AR 72201 (501) 372-0400 (501) 376-3612 (facsimile) ARMSTRONG ALLEN, PLLC 100 Morgan Keegan Drive Suite 100 Little Rock, AR 72202 (501) 280-0100 (501) 280-7 (f:~/le)
//~/ C
By: MartmW. Bowen (90095)
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Case 4:01-cv-00830-BSM Document 144 Filed 05/14/04 Page 28 of 28
CERTIFICATE OF SERVICE
I, an attorney for the plaintiffs, certify that I have served a copy of the foregoing pleading on opposing counsel by depositing a copy thereof, postage prepaid, in the United States Mail, addressed as follows: Mr. Breck Hopkins Office of Chief Counsel Arkansas Department of Human Services P.O. Box 1437 Slot 1033 Little Rock, AR 72203-1437 Ms. Lori Freno Assistant Attorney General 323 Center Street Suite 200 Little Rock, AR 72201 Mr. Michael Rainwater Attorney at Law P.O. Box 17250 Little Rock, AR 72222-7250 this 14th day of May, 2004.
I
I
28

 
 Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 1 of 29

EASTMRtf~~,I~CAQRURT ,•~
•
IN THE UNITED STATE DISTRICT COURT EASTERN DISTRICT OF ARKANSAS

I
KANSAS ,,j

WESTERN DIVISION

JUL 072004

~::MES w. MCCORMACK, CLERK

PEDIATRIC SPECIALTY CARE, INC, CHILD & YOUTH PEDIATRIC DAY CLINICS, INC, TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT FRIEND OF MICHAEL CRESPINO, A MINOR

DEPCLERK PLAINTIFFS

VS.

CASE NO. 4:01CV00830 WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES; KURT KNICKREHM, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; RAY HANLEY, IN HIS INDIVIDUAL CAPACITY; ROY JEFFUS, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; AND ARKANSAS FOUNDATION FOR MEDICAL CARE, INC.

DEFENDANTS

FOURTH AMENDED COMPLAINT

The plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Friend of Michael Crespino, a Minor, respectfully come before this Court, by and through their attorneys,

/73

Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 2 of 29
Kaplan, Brewer, Maxey & Haralson, P.A., and Armstrong Allen, PLLC, and for their Fourth Amended Complaint against the defendants, Arkansas Department of Human Services, Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services, Ray Hanley, in his individual capacity, Roy Jeffus, in his individual capacity and in his official capacity as Director of the Division of Medical Services of the Arkansas Department of Human Services, and Arkansas Foundation for Medical Care, Inc., state:
STATEMENT OF JURISDICTION AND VENUE
1. Plaintiff Pediatric Specialty Care, Inc. is an Arkansas corporation, has its principal place of business in Pulaski County, Arkansas, and is a qualified provider of services under the Child Health Management Services ("CHMS").
2. Plaintiff Child & Youth Pediatric Day Clinics, Inc. is an Arkansas corporation, has its principal place of business in Craighead County, Arkansas, and is a qualified provider of CHMS services under the Arkansas Medicaid plan.
3. Plaintiff Tomorrow's Child Learning Center, LLC is an Arkansas corporation, has its principal place of business in Mississippi County, Arkansas, and is a qualified provider of CHMS services under the Arkansas Medicaid plan.
4. Plaintiffs James and Stacey Swindle are the parents of Jacob and Noah Swindle, minors and qualified recipients of therapy services under the CHMS program, and reside in Pulaski County, Arkansas.
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 3 of 29
5. Plaintiff Susann Crespino is the mother of Michael Crespino, a minor and qualified recipient under the CHMS program, and resides in Marion County, Arkansas.
6. Defendant Arkansas Department of Human Services ("ADHS") is an agency of the State of Arkansas.
7. Defendant Kurt Knickrehm is Director of the Arkansas Department of Human Services and, based on information and reasonable belief, is a resident of Pulaski County, Arkansas.
8. Defendant Ray Hanley is the former Director of the Division of Medical Services of the Arkansas Department of Human Services and, based on information and reasonable b~1i~f, is a resident of Pulaski County, Arkansas.
9. Defendant Roy Jeffus is the current Director of the Division of Medical Services of the Arkansas Department of Human Services and, based on information and reasonable belief, is a resident of Pulaski County, Arkansas.
10. Defendant Arkansas Foundation for Medical Care, Inc. ("AFMC") is an Arkansas corporation and has its principal place of business in Sebastian County, Arkansas.
I!. Pursuant to 42 U.S.C. § 1983, the plaintiffs seek declaratory and injunctive relief against the defendants, and contend that the defendants, while acting under color of state law, have violated, and continue to violate, their federal constitutional and statutory rights by the manner in which they use the process of prior authorization to: (1) reduce payments for CHMS services without considering the factors of economy, efficiency, quality of care, and equal access; (2) deprive children of their right to CHMS services that, if provided, would result in the maximum reduction of their physical and mental disabilities and restore them to their best-
3

Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 4 of 29
possible functional level; and (3) deny payment to CHMS providers for services provided to children in an effort to make sure that they achieve the maximwn reduction of their physical and mental disabilities and are restored to their best-possible functional level.
12. In addition, pursuant to 42 U.S.C. § 1983, the plaintiffs seek money damages against defendants Kurt Knickrehm, Ran Hanley, and Roy Jeffus in their individual capacities, and AFMC, and contend that these defendants, while acting under color of state law, have violated, and continue to violate, their federal constitutional and statutory rights by the manner in which they use the process of prior authorization to: (1) reduce payments for CHMS services without considering the factors of economy, efficiency, quality of care, and equal access; (2) deprive children of their right to CHMS services that, if provided, would result in the maximwn reduction of their physical and mental disabilities and restore them to their best-possible functional level; and (3) deny payment to CHMS providers for services provided to children in an effort to make sure that they achieve the maximwn reduction of their physical and mental disabilities and are restored to their best-possible functional level.
13. In addition, pursuant to 42 U.S.C. § 1983, the plaintiffs seek an order that declares 42 U.S.C. § 1320c-9 and 42 C.F.R. § 478.24 unconstitutional as being in violation of their rights to procedural due process.
14. The Court has federal question jurisdiction pursuant to 28 U.S.C. § 1331. 15. The Court has civil rights jurisdiction pursuant to 28 U.S.C. § 1343. 16. The Court has venue pursuant to 28 U.S.C. § 1391.
STATEMENT OF FACTS
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17. Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq. (1992 & Supp. 2000), commonly referred to as the Medicaid Act, is ajoint federal and state program designed to provide "medical assistance" to qualified persons.
18. Under the Medicaid Act, if a state agrees to establish a Medicaid plan ("State plan") that satisfies the requirements of Title XIX, the federal government will pay a specified percentage of the total amount expended as "medical assistance" under the plan.
19. Participation in the Medicaid program is voluntary, but if a state elects to participate, it must do so in accordance with federal statutes and regulations.
20. The federal Department of Health and Human Services is charged with administration of the Medicaid program, and has delegated much of its responsibility to Centers for Medicare & Medicaid Services ("CMS").
21. Arkansas participates in the Medicaid program, and Arkansas Department of Human Services ("ADHS") is the state agency charged with administration of the Medicaid program in Arkansas.
22. The Medicaid Act defmes "medical assistance" as "payment of part or all of the cost of [enumerated] care and services".
23. Some services are mandatory and must be provided under the State plan. 24. Mandatory services include those provided under the early and periodic screening, diagnostic, and treatment services ("EPSDT") provisions of the Medicaid Act. 25. EPSDT services include those provided under the CHMS program.
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 6 of 29
26. The CHMS program comprises an array of clinic services that are intended to provide full medical multi-discipline diagnosis, evaluation, and treatment for the purpose of intervention, treatment, and prevention oflong-term disability for eligible children.
27. Generally stated, services under the CHMS program can be broken down into three broad categories: (1) diagnosis and evaluation services, (2) therapy services, and (3) early intervention day treatment services.
28. CHMS therapy services include physical therapy, speech therapy, occupational therapy, and psychotherapy.
29. CHMS early intervention day treatment services include cognitive development services, developmental motor activity services, and self-care and social/emotional developmental services.
30. When the CHMS program fust went into effect, a child could enter the program based on a referral from his or her physician (referred to in Medicaid terms as the Primary Care Physician or "PCP").
31. Diagnostic and evaluation services were provided by CHMS staff, and, as required by EPSDT, treatment plans were developed for the treatment of all developmental disabilities that were discovered during the screening process.
32. A treatment plan included the various CHMS therapy and early intervention day treatment services requested by clinic staff, and the number of units of service that should be provided over a certain period of time, consistent with applicable standards of medical practice.
33. After a treatment plan was developed for a particular child, it was submitted to the PCP for approval.
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 7 of 29
34. If the PCP approved the treatment plan, CHMS services were provided in accordance with the plan, the CHMS provider billed ADHS for the services it provided, and ADHS paid the bill.
35. Initially, payment for CHMS services was fairly straightforward: for each service provided under the treatment plan, payment was determined by multiplying the number of units of service actually provided by the rate for that service as published by ADHS in the State plan.
36. Given the nature of this fee-for-service formula, ADHS could reduce payment for CHMS services by either reducing the rates for those services, or the number of units of service that could be provided over a certain period of time.
37. When the CHMS program fust went into effect, CHMS clinics provided, on average, six hours of early intervention day treatment services (referred to in Medicaid terms as "core services ") per child per day, five days a week.
38. ADHS routinely reimbursed providers for this amount of core services (six hours per child per day, five days per week) at rates published by ADHS in the State plan.
39. In the fall of 1997, payment for core services was approximately $125.00 per child per day.
40. ADHS, in an effort to reduce payments under the CHMS program, asked CHMS providers if the rates for core services could be reduced or handled in such a way so as to make the program less expensive.
41. Based on this call, a work group consisting of ADHS staff and CHMS providers was created.
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 8 of 29
42. As a result of their work, an agreement was reached that limited the daily payment for core services to $95.00 per child per day.
43. This agreement went into effect on April 1, 1998, and provided as follows: Effective for claims with dates of service on or after April I, 1998, the Division of Medical Services will implement a $95.00 per day rate for the CHMS-Early Intervention Services (ages 0 through 5) procedure codes. One day of care will be defined as a minimum of 6 hours of service that can include the following procedures with maximums noted below. 99211 99212 ZI570 Z1571 (Maximum 3 units) Z1572 Z1575
44. Despite this agreement, ADHS announced in early 1999 that the daily rate for core services would be reduced from $95.00 to $75.00 per child per day.
45. ADHS, Mr. Knickrehm, and Mr. Hanley decided to reduce the rate for core services for purely budgetary reasons.
46. Prior to reducing the daily rate for core services, ADHS, Mr. Knickrehm, and Mr. Hanley failed to consider the factors of efficiency, economy, quality of care, and equal access as required by federal law.
47. ADHS, Mr. Knickrehm, and Mr. Hanley refused to conduct a study that considered those factors, and a lawsuit was filed to enjoin their decision.
48. The lawsuit was filed in the United States District Court for the Eastern District of Arkansas, Western Division, given Case No. LR-C-99-810, and assigned to the Honorable James M.Moody.
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 9 of 29
49. The plaintiff filed a motion for temporary injunctive relief along with its Complaint.
50. The Court conducted a hearing with respect to the plaintiff s motion, and ruled that the defendants failed to consider the factors of efficiency, economy, quality of care, and equal access before they reduced the daily rate for core services.
51. The Court concluded that the defendants violated the federal statutory rights of the plaintiff as provided by 42 U.S.c. § 1396a(a)(30)(A), and issued a preliminary injunction that stopped the rate reduction before it went into effect.
52. An order to that effect was filed with the Court on November 5, 1999. 53. Thereafter, ADHS, Mr. Knickrehm, and Mr. Hanley submitted an ofler of judgment to the plaintiff. 54. The plaintiff accepted their offer, and a Judgment reflecting the agreement was filed on December 14, 1999. 55. In accordance with this agreement, ADHS, Mr. Knickrehm, and Mr. Hanley were permanently enjoined from implementing the $75.00 daily rate for core services. They were also ordered to not reduce rates for services under the CHMS program below the rates in effect on November 6, 1999, unless the reduction is based on an analysis of the costs incurred by efficient and economic providers of such services and are established in conformity with applicable state and federal laws. 56. During that time, ADHS, acting through Mr. Knickrehm and Mr. Hanley, developed a "utilization control" program that requires "prior authorization" of CHMS services.
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 10 of 29
57. Generally stated, the Medicaid Act recognizes prior authorization as an accepted fonn of utilization control that a State may use to verify a patient's need for Medicaid services before those services are provided.
58. Prior authorization is an inherent state action, which may be conducted by the State or a private contractor hired by the State.
59. According to the prior authorization program developed by Mr. Knickrehrn and Mr. Hanley, there are now two "layers" of prior authorization under the CHMS program.
60. The first layer of prior authorization applies to the admission of children into the CHMS program, and went into effect on October 1, 1999.
61. The second layer of prior authorization applies to the number of units of CHMS services a child may receive over a certain period of time, and went into effect on March I, 2000.
62. ADHS contracted with AFMC to implement the two layers of prior authorization developed by Mr. Knickrehrn and Mr. Hanley.
63. The CHMS Provider Manual requires AFMC to consider requests for CHMS services within 15 working days.
64. At all times described herein, AFMC was acting as the agent of ADHS for the purpose of prior authorizing CHMS services under the State plan.
COUNT ONE: VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A) UNDER THE FIRST LAYER OF PRIOR AUTHORIZATION
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 11 of 29
65. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
66. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish this purpose, have directed AFMC to use the first layer of prior authorization to limit the admission of qualified children into the CHMS program so that their pre-determined cost savings can be achieved.
67. AFMC has used, and continues to use, the first layer of prior authorization to deny admission into the CHMS program to eligible children who have a developmental delay in only one area.
68. In accordance with EPSDT, the CHMS program was designed to provide therapy and early intervention day treatment services to all eligible children who are diagnosed as suffering a developmental delay, not just those who have developmental delays in more than one area.
69. Before the first layer of prior authorization went into effect, ADHS did not limit CHMS services to children with developmental delays in only one area.
70. Before the first layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for services provided to children with developmental delays in only one area.
71. Before the defendants can use the first layer of prior authorization to limit admission of qualified children into the CHMS program so that the pre-determined cost savings
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 12 of 29
can be achieved, ADHS must consider the factors of economy, efficiency, quality of care, and equal access as required by 42 U.S.c. § 1396a(a)(30)(A).
72. ADHS has failed to consider these factors. 73. The defendants understand that may not use the first layer of prior authorization to limit admission of qualified children into the CHMS program so that the pre-determined cost savings can be achieved unless ADHS considers the factors of economy, efficiency, quality of care, and equal access. 74. The defendants understand that ADHS has failed to consider these factors. 75. Despite their understanding, AFMC continues to use the first layer of prior authorization to reduce payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley. 76. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.c. § 1396a(a)(30)(A). 77. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 78. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
COUNT TWO: VIOLATION OF 42 U.S.c. § 1396d(a)(]3) UNDER THE FIRST LAYER OF PRIOR AUTHORIZATION
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 13 of 29
79. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
80. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish this purpose, have directed AFMC to use the first layer of prior authorization to limit the admission of qualified children into the CHMS program so that their pre-determined cost savings can be achieved.
81. AFMC has used, and continues to use, the fust layer of prior authorization to deny admission into the CHMS program to eligible children who have a developmental delay in only one area.
82. In accordance with EPSDT, the CHMS program was designed to provide therapy and early intervention day treatment services to all eligible children diagnosed as suffering a developmental delay, not just those with developmental delays in more than one area.
83. Before the first layer of prior authorization went into effect, ADHS did not limit CHMS services to children with developmental delays in only one area.
84. Before the first layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for services provided to children with developmental delays in only one area.
85. By llsing the first layer of prior authorization to deny admission into the CHMS program to children with developmental delays in only one area, the defendants, while acting llI1der color of state law, have violated, and continue to violate, the rights of these children to CHMS services mandated by 42 U.S.C. § 1396d(a)(l3).
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 14 of 29
86. The defendants understand that they are denying mandatory services to children, but continue to do so for the mere purpose of reducing payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley.
87. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
88. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
COUNT THREE: VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A) UNDER THE SECOND LAYER OF PRIOR AUTHORIZATION
89. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the second layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
90. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have directed AFMC to use the second layer of prior authorization to deny core services to children admitted into the CHMS program so that their pre-determined cost savings can be achieved.
91. AFMC has used, and continues to use, the second layer of prior authorization to cut the provision of core services from six hours per child per day to 3.5 hours per child per day, regardless of the child's medical or psychological condition.
92. Before the second layer of prior authorization went into effect, ADHS defined one day of care as a minimum of six hours of CHMS core services per child per day.
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Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 15 of 29
93. Before the second layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for six hours of core services per child per day.
94. Before the defendants can use the second layer of prior authorization to deny services to children admitted into the CHMS program so that the pre-determined cost savings can be achieved, ADHS must consider the factors of economy, efficiency, quality of care, and equal access as required by 42 U.S.C. § 1396a(a)(30)(A).
95. ADHS has failed to consider these factors. 96. The defendants understand that they may not use the second layer of prior authorization to deny services to children admitted into the CHMS program so that the predetermined cost savings can be achieved unless ADHS considers the factors of economy, efficiency, quality of care, and equal access. 97. The defendants understand that ADHS has failed to consider these factors. 98. Despite their understanding, AFMC continues to use the second layer of prior authorization to reduce payments under the CHMS program to a level pre-determined by Mr. Knickrehrn and Mr. Hanley. 99. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 100. For these reasons, punitive damages should be imposed against Mr. Knickrehrn, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future. 101. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(30)(A).
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COUNT FOUR: VIOLATION OF 42 U.S.C. § 1396d(a)(]3) UNDER THE SECOND LAYER OF PRIOR AUTHORIZATION
102. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the second layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
103. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have directed AFMC to use the second layer of prior authorization to deny core services to children admitted into the CHMS program so that their pre-determined cost savings can be achieved.
104. AFMC has used, and continues to use, the second layer of prior authorization to cut the provision of core services from six hours per child per day to 3.5 hours per child per day, regardless of the child's medical or psychological condition.
105. Six hours of CHMS core services per child per day results in the maximum reduction of physical and mental disabilities, and restores children to their best-possible functional level.
106. Before the second layer of prior authorization went into effect, ADHS defined one day of care as a minimum of six hours of CHMS core services per child per day.
107. Before the second layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for six hours of core services per child per day.
108. The current level ofCHMS core services approved by AFMC per child per day does not result in the maximum reduction of physical and mental disabilities, and does not restore children to their best-possible functional level.
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109. The defendants understand that the current level of CHMS core services approved by AFMC per child per day does not result in the maximum reduction of physical and mental disabilities, and does not restore children to their best-possible functional level.
110. The defendants understand that they are denying mandatory services to eligible children, but continue to do so for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
111. Despite their understanding, AFMC continues to use the second layer of prior authorization to reduce payments under the CHMS program to a level pre-determined by Mr. Knickrelml and Mr. Hanley.
112. By using the second layer of prior authorization to cut the provision of core services to all children from six hours per child per day to 3.5 hours per child per day, the defendants, while acting under color of state law, have violated the rights of these children to CHMS services mandated by 42 U.S.C. § 1396d(a)(l3).
113. To ensure that the children treated by the plaintiff providers receive the maximum reduction of their physical and mental disabilities, and are restored to their best-possible functional level, they have continued to provide six hours of core services per child per day.
114. The provider plaintiffs are entitled to payment for the provision of such services. 115. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights ofthe plaintiffs. 116. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
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COUNT FIVE: VIOLATION OF SUBSTANTIVE DUE PROCESS

117. Based on info=ation and reasonable belief, Mr. Knickrehm and Mr. Hanley,

while acting under color of state law, developed the process of prior authorization for the

purpose of reducing payments under the CHMS program to a level pre-dete=ined by them.

118. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr.

Jeffus, in order to accomplish their purpose, have directed AFMC to not publish regulations that

govern the prior authorization of CHMS services so that it can create new rules, without notice to

recipients or providers, and use those rules to deny CHMS services to eligible children so that

their pre-dete=ined cost savings can be achieved.

119. AFMC has refused, and continues to refuse, to publish regulations that govern the

prior authorization of CHMS services so that it can create new rules, without notice to recipients

or providers, and use those rules to deny services to children admitted into the CHMS program.

120. For example, AFMC has refused to publish regulations that define:

a. The info=ation needed by AFMC to determine whether a child may be

admitted into the CHMS program;

b.

The medical standards used by AFMC to determine whether a child may

be admitted into the CHMS program;

c. The info=ation needed by AFMC to dete=ine whether a child may

receive the CHMS services set forth in the child's treatment plan;

d. The medical standards used by AFMC to dete=ine whether a child may

receive the CHMS services set forth in the child's treatment plan;

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e. The information needed by AFMC to determine whether a child may

receive the amounts ofCHMS services set forth in the child's treatment plan; and

f.

The medical standards used by AFMC to determine whether a child may

receive the amount of CHMS services set forth in the child's treatment plan.

121. By refusing to publish regulations that govern the information needed by AFMC

to determine whether a child may be admitted into the CHMS program, AFMC has on many

occasions refused to admit children because their CHMS providers failed to submit information

they were never told to provide.

122. By refusing to publish the medical standards used by AFMC to determine whether

a child may be admitted into the CHMS program, AFMC has on many occasions taken

advantage of the lack of published standards to refuse admission to children based on standards

of its own making and clearly inconsistent with accepted medical practice.

123. By refusing to publish regulations that govern the information needed by AFMC

to determine whether a child may receive the CHMS services set forth in the child's treatment

plan, AFMC has on many occasions denied services to children because their CHMS providers

failed to submit information they were never told to provide.

124. By refusing to publish the medical standards used by AFMC to determine whether

a child may receive the CHMS services set forth in the child's treatment plan, AFMC has on

many occasions taken advantage of the lack of published standards to refuse services to children

based on standards of its own making and clearly inconsistent with accepted medical practice.

125. By refusing to publish regulations that govern the information needed by AFMC

to determine whether a child may receive the amounts of CHMS services set forth in the child's

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treatment plan, AFMC has on many occasions denied services to children because their CHMS providers failed to submit information they were never told to provide.
126. By refusing to publish the medical standards used by AFMC to determine whether a child may receive the amount of CHMS services set forth in the child's treatment plan, AFMC has on many occasions taken advantage of the lack of published standards to refuse services to children based on standards of its own making and clearly inconsistent with accepted medical practice.
127. Such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness.
128. The defendants understand that such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness, but continue to engage in such conduct for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
129. By such conduct, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights to substantive due process under the Fourteenth Amendment to the Constitution of the United States.
13 O. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
131. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
COUNT SIX: VIOLATION OF 42 U.S.C. § 1396a(a)(8)
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132. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose ofreducing payments under the CHMS program to a level pre-determined by them.
133. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have authorized AFMC to not consider requests for services with reasonable promptness so that their pre-determined cost savings can be achieved.
134. AFMC often refuses to follow the regulation set forth in the CHMS Provider Manual that requires it to process requests for services within 15 business days.
135. AFMC often takes at least a month, and sometimes as long as five months, to process requests for services.
136. Pursuant to 42 U.S.C. § \396a(a)(8), the State Plan "must ... provide that all individuals wishing to make application for medical assistance under the plan shall have opportunity to do so, and that such assistance shall be furnished with reasonable promptness to all eligible individuals".
137. The defendants understand that they must consider requests for CHMS services with reasonable promptness.
138. The defendants understand that they must consider requests for CHMS services within 15 working days.
139. Despite their understanding, AFMC often refuses to consider requests for CHMS services with reasonable promptness to reduce payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley.
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140. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.c. § 1396a(a)(8).
141. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
142. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, Mr. Jeffus, and AFMC so as to deter similar conduct in the future.
COUNT SEVEN: VIOLATION OF 42 U.S.C. § 1396a(a)(3)
143. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
144. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have refused to provide a fair hearing to children who are denied admission into the CHMS program under the first layer of prior authorization.
145. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have refused to provide a fair hearing to children who have CHMS services denied to them under the second layer of prior authorization.
146. Although ADHS provides an appeal to CHMS recipients, it does not provide an appeal to CHMS providers.
147. When an appeal is filed, ADHS refuses to tell the CHMS recipient the name of the nurses and doctors employed by AFMC who made the adverse decisions against them.
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148. Without such information, it is impossible for the CHMS recipient to determine the opinions fonned by the nurses and doctors who will be called to testify against the child.
149. Without such infonnation, it is impossible for the CHMS recipient to determine the basis of the opinions fonned by the nurses and doctors who will be called to testify against the child.
150. Without such information, it is impossible for the CHMS recipient to determine the infonnation upon which the nurses and doctors relied in fonning their opinions.
151. Without such infonnation, it is impossible for the CHMS recipient to receive a fair hearing.
152. Several months ago, plaintiffs Pediatric Specialty Care, Inc. and Child & Youth Pediatric Day Clinics, Inc. submitted a request to ADHS pursuant to the Arkansas Freedom of Infonnation Act in which they requested the names of the nurses and doctors employed by AFMC who make these decisions.
153. ADHS refused to provide the requested infonnation, and referred the plaintiffs to AFMC.
154. The plaintiffs requested the same infonnation from AFMC, and it refused to provide the infonnation as well.
155. In order to get this information, the plaintiffs filed a lawsuit against AFMC under the Arkansas Freedom of Infonnation Act.
156. On January 15,2003, Pulaski County Circuit Judge John Ward ordered AFMC to produce the requested infonnation.
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157. AFMC filed a motion to reconsider, and Pulaski County Circuit Judge Jay Moody affirmed Judge Ward's decision in all respects.
158. AFMC did not appeal that decision, and the time has run for tiling an appeal. 159. Since that time, a CHMS recipient suffered an adverse decision at the hands of AFMC. 160. The CHMS recipient filed an appeal, and asked AFMC to identify the nurses and doctors who issued the adverse decision. 161. Although Judge Ward and Judge Moody previously rejected AFMC's legal argument that such information was protected from disclosure under federal law, AFMC refused to tell the CHMS recipient the names of the doctors and nurses who issued the adverse decision against her. 162. As the basis for refusing to give such information to the CHMS recipient, AFMC relied on the same argument previously rejected by Judge Ward and Judge Moody. 163. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose of reducing payments under the CHMS program to the level pre-determined by them, instructed AFMC to not identify the doctors and nurses who issue adverse decisions against CHMS recipients. 164. By refusing to provide such information to CHMS recipients who seek to appeal adverse decisions, the defendants, while acting under color of state law, have violated, and continue to violate, their right to a fair hearing under 42 U.S.C. § 1396a(a)(3). 165. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
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166. For these reasons, punitive damages should be imposed against Mr. Knickrehm, Mr. Hanley, and AFMC so as to deter similar conduct in the future.
COUNT SEVEN: VIOLATION OF PROCEDURAL DUE PROCESS
167. On May 28, 2004, the District Court issued an Order which states that 42 U.S.C. § 1320c-9 and 42 C.F.R. § 478.24 protect disclosure of the names of the doctors and nurses who issue adverse decisions against CHMS recipients.
168. Given the District Court's decision, these statutes violate the rights of the plaintiffs to procedural due process because they deny CHMS recipients and providers the right to a fair hearing with respect to adverse decisions made by the defendants.
169. Without the names of the doctors and nurses who issue adverse decisions against CHMS recipients, CHMS recipients and providers have no opportunity to speak with these doctors and nurses prior to an appeal hearing to determine the reasons for the denial of CHMS servIces.
170. Without the names of the doctors and nurses who issue adverse decisions against CHMS recipients, CHMS recipients and providers have no opportunity to compel the presence of these doctors and nurses at the appeal hearing, to confront these doctors and nurses at the appeal hearing, and cross examine these doctors and nurses with respect to their denial of CHMS servIces.
INCORPORATION OF ORIGINAL COMPLAINT
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171. Because some of the claims set forth by the plaintiffs in their original Complaint are presently on appeal, the plaintiffs restate and incorporate by reference all allegations and claims set forth in their original Complaint as though set forth herein in their entirety, word for word.
WHEREFORE, the plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Friend of Michael Crespino, a Minor, pray for the following relief:
a. That the Court determine that the defendants have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(30)(A), 42 U.S.C. § 1396d(a)(l3), the substantive due process component of the Fourteenth Amendment to the Constitution of the United States, 42 U.S.c. § 1396a(a)(8), and 42 U.S.C. § 1396a(a)(3), as alleged herein;
b. That the Court issue an injunction that prohibits the defendants from denying admission into the CHMS program to children who have a developmental delay in only one area;
c. That the Court issue an injunction that prohibits the defendants from approving less than six hours of CHMS core services per child per day;
d. That the Court issue an injunction that orders the defendants to draft regulations to govern the prior authorization of CHMS services consistent with applicable standards of medical practice;
e. That the Court issue an inj unction that orders the defendants to enact said regulations after providing notice and opportunity for public comment to CHMS recipients and providers;
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f.

That the Court issue an injunction that prohibits the defendants from denying

CHMS services based on rules or medical standards not properly enacted by AFMC;

g. That the Court issue an injunction that orders the defendants to process each

request for CHMS services within 15 working days after it is received by AFMC, lest all services

set forth in the request be deemed approved;

h. That the Court issue an injunction that orders the defendants to notify each CHMS

recipient, and the recipient's provider, of the name and address of each doctor and nurse who

denies a request for admission into the CHMS program, or a request for CHMS services;

1.

That the Court issue an injunction that orders the defendants to provide an

opportunity for a fair hearing to each CHMS recipient, and the recipient's provider, who suffers

a denial of admission into the CHMS program or a denial of CHMS services;

J.

That the Court issue an order which declares that 42 U.S.C. § 1320c-9 and 42

C.F.R. § 478.24 are unconstitutional as being in violation of their rights to procedural due

process;

k. That the Court award the plaintiffs their costs herein expended;

1.

That the Court award the plaintiffs reasonable attorney fees pursuant to 42 U.S.C.

§ 1988; and

m. That the Court award the plaintiffs all other relief to which they may be entitled.

27

Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 28 of 29

Respectfully submitted,

PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT BEST FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT BEST FRIEND OF MICHAEL CRESPINO, A MINOR, Plaintiffs

KAPLAN, BREWER, MAXEY, & HARALSON, P.A. 415 Main Street Little Rock, AR 72201 (501) 372-0400 (501) 376-3612 (facsimile)

ARMSTRONG ALLEN, PLLC 100 Morgan Keegan Drive Suite 100 Little Rock, AR 72202 (501) 280-~~0 (501) 280?jt66 (facsimile)

~' /1 . /(i

; /

/
-/

(

I

By: :t~wen (90095)

/

28

Case 4:01-cv-00830-BSM Document 173 Filed 07/07/04 Page 29 of 29
CERTIFICATE OF SERVICE
I, an attorney for the plaintiffs, certify that I have served a copy of the foregoing pleading on opposing counsel by depositing a copy thereof, postage prepaid, in the United States Mail, addressed as follows: Mr. Breck Hopkins Office of Chief Counsel Arkansas Department of Human Services P.O. Box 1437 Slot 1033 Little Rock, AR 72203-1437 Ms. Lori Freno Assistant Attorney General 323 Center Street Suite 200 Little Rock, AR 72201 Mr. Michael Rainwater Attorney at Law P.O. Box 17250 Little Rock, AR 72222-7250 this 7th day of July, 2004.
29

 
 Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 1 of 30

FILED
u.s. DISTRICT COURT
EASTERN DISTRICT ARKANSAS

IN THE UNITED STATE DISTRICT COURT EASTERN DISTRICT OF ARKANSAS

JAN 04 2005

WESTERN DIVISION

JAMES W. McCORMACK, CLERK

By:--------;::;;=r;-;:::D;-E-PcC;L:E)Ri7K

PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT FRIEND OF MICHAEL CRESPINO, A MINOR

PLAINTIFFS

VS.

CASE NO. 4:01CV00830 WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES; KURT KNICKREHM, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; RAY HANLEY, IN HIS INDIVIDUAL CAPACITY; ROY JEFFUS, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; AND ARKANSAS FOUNDATION FOR MEDICAL CARE, INC.

DEFENDANTS

ARKANSAS DEPARTMENT OF HUMAN SERVICES; KURT KNICKREHM, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; RAY HANLEY, IN HIS INDIVIDUAL CAPACITY; AND ROY JEFFUS, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES

THIRD-PARTY PLAINTIFFS

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 2 of 30

VS.
TOMMY THOMPSON. SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, IN HIS OFFICIAL CAPACITY, AND MARK MCCLELLAN, ADMINISTRATOR OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, CENTERS FOR MEDICARE AND MEDICAID SERVICES, IN HIS OFFICIAL CAPACITY

THIRD-PARTY DEFENDANTS

FIFTH AMENDED COMPLAINT

The plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Friend of Michael Crespino, a Minor, respectfully come before this Court, by and through their attorneys, Kaplan, Brewer, Maxey & Haralson, P.A., and Armstrong Allen, PLLC, and for their Fifth Amended Complaint against the defendants, Arkansas Department of Human Services, Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services, Ray Hanley, in his individual capacity, Roy Jeffus, in his individual capacity and in his official capacity as Director of the Division of Medical Services of the Arkansas Department of Human Services, and Arkansas Foundation for Medical Care, Inc., state:

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 3 of 30
STATEMENT OF JURISDICTION AND VENUE
1. Plaintiff Pediatric Specialty Care, Inc. is an Arkansas corporation, has its principal place of business in Pulaski County, Arkansas, and is a qualified provider of services under the Child Health Management Services ("CHMS").
2. Plaintiff Child & Youth Pediatric Day Clinics, Inc. is an Arkansas corporation, has its principal place of business in Craighead County, Arkansas, and is a qualified provider of CHMS services under the Arkansas Medicaid plan.
3. Plaintiff Tomorrow's Child Learning Center, LLC is an Arkansas corporation, has its principal place of business in Mississippi County, Arkansas, and is a qualified provider of CHMS services under the Arkansas Medicaid plan.
4. Plaintiffs James and Stacey Swindle are the parents of Jacob and Noah Swindle, minors and qualified recipients of therapy services under the CHMS program, and reside in Pulaski County, Arkansas.
5. Plaintiff Susann Crespino is the mother of Michael Crespino, a minor and qualified recipient under the CHMS program, and resides in Marion County, Arkansas.
6. Defendant Arkansas Department of Human Services ("ADHS") is an agency of the State of Arkansas.
7. Defendant Kurt Knickrehm is Director of the Arkansas Department of Human Services and, based on information and reasonable belief, is a resident of Pulaski County, Arkansas.
3

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 4 of 30
8. Defendant Ray Hanley is the fonner Director of the Division of Medical Services of the Arkansas Department of Human Services and, based on infonnation and reasonable belief, is a resident of Pulaski County, Arkansas.
9. Defendant Roy Jeffus is the current Director of the Division of Medical Services of the Arkansas Department of Human Services and, based on infonnation and reasonable belief, is a resident of Pulaski County, Arkansas.
10. Defendant Arkansas Foundation for Medical Care, Inc. (flAFMC") is an Arkansas corporation and has its principal place of business in Sebastian County, Arkansas.
11. Pursuant to 42 U.S.C. § 1983, the plaintiffs seek declaratory and injunctive relief against the defendants, and contend that the defendants, while acting under color of state law, have violated, and continue to violate, their federal constitutional and statutory rights by the manner in which they use the process of prior authorization to: (1) reduce payments for CHMS services without considering the factors of economy, efficiency, quality of care, and equal access; (2) deprive children of their right to CHMS services that, if provided, would result in the maximum reduction of their physical and mental disabilities and restore them to their bestpossible functional level; and (3) deny payment to CHMS providers for services provided to children in an effort to make sure that they achieve the maximum reduction of their physical and m
12. In addition, pursuant to 42 U.S.C. § 1983, the plaintiffs seek money damages against defendants Kurt Knickrehm, Ran Hanley, and Roy Jeffus in their individual capacities, and AFMC, and contend that these defendants, while acting under color of state law, have violated, and continue to violate, their federal constitutional and statutory rights by the manner in
4

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 5 of 30
which they use the process of prior authorization to: (1) reduce payments for CHMS services without considering the factors of economy, efficiency, quality of care, and equal access; (2) deprive children of their right to CHMS services that, if provided, would result in the maximum reduction of their physical and mental disabilities and restore them to their best-possible functional level; and (3) deny payment to CHMS providers for services provided to children in an effort to make sure that they achieve the maximum reduction of their physical and mental disabilities and are restored to their best-possible functional level.
13. In addition, pursuant to 42 U.S.C. § 1983, the plaintiffs seek an order that declares 42 U.S.C. § 1320c-9 and 42 C.F.R. § 478.24 unconstitutional as being in violation of their rights to procedural due process.
14. The Court has federal question jurisdiction pursuant to 28 U.S.C. § 1331.
15. The Court has civil rights jurisdiction pursuant to 28 U. s. C. § 1343.
16. The Court has venue pursuant to 28 U.S.C. § 1391. STATEMENT OF FACTS
17. Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq. (1992 & Supp. 2000), commonly referred to as the Medicaid Act, is a joint federal and state program designed
18. Under the Medicaid Act, if a state agrees to establish a Medicaid plan ("State plan") that satisfies the requirements of Title XIX, the federal government will pay a specified percentage of the total amount expended as "medical assistance" under the plan.
5

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 6 of 30
19. Participation in the Medicaid program is voluntary, but if a state elects to participate, it must do so in accordance with federal statutes and regulations.
20. The federal Department of Health and Human Services is charged with administration of the Medicaid program, and has delegated much of its responsibility to Centers for Medicare & Medicaid Services ("CMS").
21. Arkansas participates in the Medicaid program, and Arkansas Department of Human Services ("ADHS") is the state agency charged with administration of the Medicaid program in Arkansas.
22. The Medicaid Act defines "medical assistance" as "payment of part or all of the cost of [enumerated] care and services".
23. Some services are mandatory and must be provided under the State plan. 24. Mandatory services include those provided under the early and periodic screening, diagnostic, and treatment services ("EPSDT") provisions of the Medicaid Act. 25. EPSDT services include those provided under the CHMS program. 26. The CHMS program comprises an array of clinic services that are intended to provide full medical multi-discipline diagnosis, evaluation, and treatment for the purpose of intervention, treatment, and prevention of long-term disability for eligible children. 27. Generally stated, services under the CHMS program can be broken down into three broad categories: (1) diagnosis and evaluation services, (2) therapy services, and (3) early intervention day treatment services. 28. CHMS therapy services include physical therapy, speech therapy, occupational therapy, and mental health services.
6

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 7 of 30
29. CHMS early intervention day treatment services include cognitive development services, developmental motor activity services, and self-care and social/emotional developmental services, all of three of which are referred to collectively as cognitive therapy.
30. When the CHMS program first went into effect, a child could enter the program based on a referral from his or her physician (referred to in Medicaid terms as the Primary Care Physician or "PCP").
31. Diagnostic and evaluation services were provided by CHMS staff, and, as required by EPSDT, treatment plans were developed for the treatment of all developmental disabilities that were discovered during the screening process.
32. A treatment plan included the various CHMS therapy and early intervention day treatment services requested by clinic staff, and the number of units of service that should be provided over a certain period of time, consistent with applicable standards of medical practice.
33. After a treatment plan was developed for a particular child, it was submitted to the PCP for approval.
34. If the PCP approved the treatment plan, CHMS services were provided in accordance with the plan, the CHMS provider billed ADHS for the services it provided, and ADHS paid the bill.
35. Initially, payment for CHMS services was fairly straightforward: for each service provided under the treatment plan, payment was determined by multiplying the number of units of service actually provided by the rate for that service that was published by ADHS in the State plan.
7

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 8 of 30
36. Given the nature of this fee-for-service fonnula, ADHS could reduce payment for CHMS services by either reducing the rates for these services, or by reducing the number of units of service that could be provided over a certain period of time.
37. When the CHMS program first went into effect, CHMS clinics provided, on average, six hours of early intervention day treatment services (referred to in Medicaid tenns as "core services") per child per day, five days a week.
38. ADHS routinely reimbursed providers for this amount of core services (six hours per child per day, five days per week) at rates published by ADHS in the State plan.
39. In the fall of 1997, payment for core services was approximately $125.00 per child per day.
40. ADHS, in an effort to reduce payments under the CHMS program, asked CHMS providers if the rates for core services could be reduced or handled in such a way so as to make the program less expensive.
41. Based on this call, a work group consisting of ADHS staff and CHMS providers was created.
42. As a result of their work, an agreement was reached that limited the daily payment for core services to $95.00 per child per day.
43. This agreement went into effect on April 1, 1998, and provided as follows: Effective for claims with dates of service on or after April 1, 1998, the Division of Medical Services will implement a $95.00 per day rate for the CHMS-Early Intervention Services (ages 0 through 5) procedure codes. One day of care will be defined as a minimum of 6 hours of service that can include the following procedures with maximums noted below. 99211
8

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 9 of 30
99212 Z1570 Z1571 (Maximum 3 units) Z1572 Z1575 44. Despite this agreement, ADHS announced in early 1999 that the daily rate for core services would be reduced from $95.00 to $75.00 per child per day. 45. ADHS, Mr. Knickrehm, and Mr. Hanley decided to reduce the rate for core services for purely budgetary reasons. 46. Prior to reducing the daily rate for core services, ADHS, Mr. Knickrehm, and Mr. Hanley failed to consider the factors of efficiency, economy, quality of care, and equal access as required by federal law. 47. ADHS, Mr. Knickrehm, and Mr. Hanley refused to conduct a study that considered those factors, and a lawsuit was filed to enjoin their decision. 48. The lawsuit was filed in the United States District Court for the Eastern District of Arkansas, Western Division, given Case No. LR-C-99-810, and assigned to the Honorable James M.Moody. 49. The plaintiff filed a motion for temporary injunctive relief along with its Complaint. 50. The Court conducted a hearing with respect to the plaintiffs motion, and ruled that the defendants failed to consider the factors of efficiency, economy, quality of care, and equal access before they reduced the daily rate for core services.
9

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 10 of 30
51. The Court concluded that the defendants violated the federal statutory rights of the plaintiff as provided by 42 U.S.C. § 1396a(a)(30)(A), and issued a preliminary injunction that stopped the rate reduction before it went into effect.
52. An order to that effect was filed with the Court on November 5, 1999. 53. Thereafter, ADHS, Mr. Knickrehm, and Mr. Hanley submitted an offer of judgment to the plaintiff. 54. The plaintiff accepted their offer, and a Judgment reflecting the agreement was filed on December 14, 1999. 55. In accordance with this agreement, ADHS, Mr. Knickrehm, and Mr. Hanley were permanently enjoined from implementing the $75.00 daily rate for core services. They were also ordered to not reduce rates for services under the CHMS program below the rates in effect on November 6, 1999, unless the reduction is based on an analysis of the costs incurred by efficient and economic providers of such services and are established in conformity with applicable state and federal laws. 56. During that time, ADHS, acting through Mr. Knickrehm and Mr. Hanley, developed a "utilization control" program that requires "prior authorization" of CHMS services. 57. Generally stated, the Medicaid Act recognizes prior authorization as an accepted form of utilization control that a State may use to verify a patient's need for Medicaid services before those services are provided. 58. Prior authorization is an inherent state action, which may be conducted by the State or a private contractor hired by the State.
10

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 11 of 30
59. According to the prior authorization program developed by Mr. Knickrelun and Mr. Hanley, there are now two "layers" of prior authorization under the CHMS program.
60. The first layer of prior authorization applies to the admission of children into the CHMS program, and went into effect on October 1, 1999. Mr. Knickrelun and Mr. Hanley developed the first layer of prior authorization with the intention of reducing payment for CHMS services by approximately $1,200,000.00 for State Fiscal Year 2000.
61. The second layer of prior authorization applies to the number of units of CHMS services a child may receive over a certain period of time, and went into effect on March 1,2000.
62. ADHS contracted with AFMC to implement the two layers of prior authorization developed by Mr. Knickrelun and Mr. Hanley.
63. The CHMS Provider Manual requires AFMC to consider requests for CHMS services within 15 working days.
64. At all times described herein, AFMC was acting as the agent of ADHS for the purpose of prior authorizing CHMS services under the State plan.
COUNT ONE: VIOLATION OF 42 U.S.C. § 1396a(a)(30)CA) UNDER THE FIRST LAYER OF PRIOR AUTHORIZATION
65. Based on information and reasonable belief, Mr. Knickrelun and Mr. Hanley, while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
66. Based on information and reasonable belief, Mr. Knickrelun, Mr. Hanley, and Mr. Jeffus, in order to accomplish this purpose, have directed AFMC to use the first layer of prior
11

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 12 of 30
authorization to limit the admission of qualified children into the CHMS program so that their pre-determined cost savings can be achieved.
67. AFMC has used, and continues to use, the first layer of prior authorization to deny admission into the CHMS program to eligible children who have cognitive delays, and who could thus benefit from early intervention day treatment services, but do not have delays in any other area.
68. In accordance with EPSDT, the CHMS program was designed to treat children who suffer cognitive delays, and was not designed to exclude children who suffer cognitive delays but do not need any other form of therapy, i.e. physical therapy, speech therapy, occupational therapy, or mental health services.
69. Before the first layer of prior authorization went into effect, ADHS did not limit CHMS services to children who only suffered cognitive delays.
70. Before the first layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for services provided to children who only suffered cognitive delays.
71. Before the defendants can use the first layer of prior authorization to limit admission of qualified children into the CHMS program so that the pre-determined cost savings can be achieved, ADHS must consider the factors of economy, efficiency, quality of care, and equal access as required by 42 U.S.C. § 1396a(a)(30)(A).
72. ADHS has failed to consider these factors. 73. The defendants understand that may not use the first layer of prior authorization to limit admission of qualified children into the CHMS program so that the pre-determined cost
12

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 13 of 30
savings can be achieved unless ADHS considers the factors of economy, efficiency, quality of care, and equal access.
74. The defendants understand that ADHS has failed to consider these factors. 75. Despite their understanding, AFMC continues to use the first layer of prior authorization to reduce payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley. 76. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(30)(A). 77. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 78. For these reasons, punitive damages should be imposed against the defendants so as to deter similar conduct in the future.
COUNT TWO: VIOLATION OF 42 U.S.C. § 1396d(a)(13) UNDER THE FIRST LAYER OF PRIOR AUTHORIZATION
79. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
80. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish this purpose, have directed AFMC to use the first layer of prior authorization to limit the admission of qualified children into the CHMS program so that their pre-determined cost savings can be achieved.
13

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 14 of 30
81. AFMC has used, and continues to use, the first layer of prior authorization to deny admission into the CHMS program to eligible children who have cognitive delays, and who could thus benefit from early intervention day treatment services, but do not have delays in any other area.
82. In accordance with EPSDT, the CHMS program was designed to treat children who suffer cognitive delays, and was not designed to exclude children who suffer cognitive delays but do not need any other form of therapy, i.e. physical therapy, speech therapy, occupational therapy, or mental health services.
83. Before the first layer of prior authorization went into effect, ADHS did not limit CHMS services to children who only suffer cognitive delays.
84. Before the first layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for services provided to children who only suffer cognitive delays.
85. By using the first layer of prior authorization to deny admission into the CHMS program to children who only suffer cognitive delays, the defendants, while acting under color of state law, have violated, and continue to violate, the rights of these children to CHMS services mandated by 42 U.S.C. § 1396d(a)(13).
86. The defendants understand that they are denying mandatory services to children, but continue to do so for the mere purpose of reducing payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley.
87. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
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Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 15 of 30
88. For these reasons, punitive damages should be imposed against the defendants so as to deter similar conduct in the future.
COUNT THREE: VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A) UNDER THE SECOND LAYER OF PRIOR AUTHORIZATION
89. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the second layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
90. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have directed AFMC to use the second layer of prior authorization to deny core services to children admitted into the CHMS program so that their pre-determined cost savings can be achieved.
91. AFMC has used, and continues to use, the second layer of prior authorization to cut the provision of core services from six hours per child per day (a full-day program) to approximately 3.5 hours per child per day (a half-day program), regardless of the child's medical or psychological condition.
92. Before the second layer of prior authorization went into effect, ADHS defined one day of care as a minimum of six hours of CHMS core services per child per day.
93. Before the second layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for six hours of core services per child per day.
94. Before the defendants can use the second layer of prior authorization to deny services to children admitted into the CHMS program so that the pre-determined cost savings can
15

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 16 of 30
be achieved, ADHS must consider the factors of economy, efficiency, quality of care, and equal access as required by 42 U.S.C. § 1396a(a)(30)(A).
95. ADHS has failed to consider these factors. 96. The defendants understand that they may not use the second layer of prior authorization to deny services to children admitted into the CHMS program so that the predetermined cost savings can be achieved unless ADHS considers the factors of economy, efficiency, quality of care, and equal access. 97. The defendants understand that ADHS has failed to consider these factors. 98. Despite their understanding, AFMC continues to use the second layer of prior authorization to reduce payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley. 99. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 100. For these reasons, punitive damages should be imposed against the defendants so as to deter similar conduct in the future.
COUNT FOUR: VIOLATION OF 42 U.S.C. § 1396d(a)(13) UNDER THE SECOND LAYER OF PRIOR AUTHORIZATION
101. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the second layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
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Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 17 of 30
102. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have directed AFMC to use the second layer of prior authorization to deny core services to children admitted into the CHMS program so that their pre-determined cost savings can be achieved.
103. AFMC has used, and continues to use, the second layer of prior authorization to cut the provision of core services from six hours per child per day (a full-day program) to approximately 3.5 hours per child per day (a half-day program), regardless of the child's medical or psychological condition.
104. Six hours of CHMS core services per child per day (a full-day program) results in the maximum reduction of physical and mental disabilities, and restores children to their bestpossible functional level.
105. Before the second layer of prior authorization went into effect, ADHS defined one day of care as a minimum of six hours of CHMS core services per child per day.
106. Before the second layer of prior authorization went into effect, ADHS routinely reimbursed CHMS providers for six hours of core services per child per day.
107. The current level ofCHMS core services approved by AFMC per child per day does not result in the maximum reduction of physical and mental disabilities, and does not restore children to their best-possible functional level.
108. The defendants understand that the current level of CHMS core services approved by AFMC per child per day does not result in the maximum reduction of physical and mental disabilities, and does not restore children to their best-possible functional level.
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..----------------------------------------------------- --
Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 18 of 30
109. The defendants understand that they are denying mandatory services to eligible children, but continue to do so for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
110. Despite their understanding, AFMC continues to use the second layer of prior authorization to reduce payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
111. By using the second layer of prior authorization to cut the provision of core services to all children from approximately six hours per child per day to 3.5 hours per child per day, the defendants, while acting under color of state law, have violated the rights of these children to CHMS services mandated by 42 U.S.C. § 1396d(a)(13).
112. To ensure that the children treated by the plaintiff providers receive the maximum reduction of their physical and mental disabilities, and are restored to their best-possible functional level, they have continued to provide six hours of core services per child per day.
113. The provider plaintiffs are entitled to payment for the provision of such services. 114. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs. 115. For these reasons, punitive damages should be imposed against the defendants so as to deter similar conduct in the future.
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Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 19 of 30

COUNT FIVE: VIOLATION OF SUBSTANTIVE DUE PROCESS

116. Based on infonnation and reasonable belief, Mr. Knickrehm and Mr. Hanley,

while acting under color of state law, developed the process of prior authorization for the

purpose of reducing payments under the CHMS program to a level pre-detennined by them.

117. Based on infonnation and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr.

Jeffus, in order to accomplish their purpose, have directed AFMC to not publish regulations that

govern the prior authorization of CHMS services so that it can create new rules, without notice to

recipients or providers, and use these rules to deny CHMS services to eligible children so that

their pre-detennined cost savings can be achieved.

118. AFMC has refused, and continues to refuse, to publish regulations that govern the

prior authorization of CHMS services so that it can create new rules, without notice to recipients

or providers, and use these rules to deny services to children admitted into the CHMS program.

119. For example, AFMC has refused to publish regulations that define:

a. The infonnation required by AFMC to detennine whether a child may be

admitted into the CHMS program;

b.

The medical standards used by AFMC to detennine whether a child may

be admitted into the CHMS program;

c. The infonnation required by AFMC to detennine whether a child may

receive the CHMS services set forth in the child's treatment plan;

d. The medical standards used by AFMC to detennine whether a child may

receive the CHMS services set forth in the child's treatment plan;

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Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 20 of 30
e. The information required by AFMC to determine whether a child may receive the amounts ofCHMS services set forth in the child's treatment plan; and
f. The medical standards used by AFMC to determine whether a child may receive the amount of CHMS services set forth in the child's treatment plan. 120. By refusing to publish regulations that govern the information required by AFMC to determine whether a child may be admitted into the CHMS program, AFMC has on many occasions refused to admit children because their CHMS providers failed to submit information they were never told to provide. 121. By refusing to publish the medical standards used by AFMC to determine whether a child may be admitted into the CHMS program, AFMC has on many occasions taken advantage of the lack of published standards to refuse admission to children based on standards of its own making and clearly inconsistent with accepted medical practice. 122. By refusing to publish regulations that govern the information needed by AFMC to determine whether a child may receive the CHMS services set forth in the child's treatment plan, AFMC has on many occasions denied services to children because their CHMS providers failed to submit information they were never told to provide. 123. By refusing to publish the medical standards used by AFMC to determine whether a child may receive the CHMS services set forth in the child's treatment plan, AFMC has on many occasions taken advantage of the lack of published standards to refuse services to children based on standards of its own making and clearly inconsistent with accepted medical practice. 124. By refusing to publish regulations that govern the information needed by AFMC to determine whether a child may receive the amounts ofCHMS services set forth in the child's
20

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 21 of 30
treatment plan, AFMC has on many occasions denied services to children because their CHMS providers failed to submit information they were never told to provide.
125. By refusing to publish the medical standards used by AFMC to determine whether a child may receive the amount of CHMS services set forth in the child's treatment plan, AFMC has on many occasions taken advantage of the lack of published standards to refuse services to children based on standards of its own making and clearly inconsistent with accepted medical practice.
126. Such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness.
127. The defendants understand that such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness, but continue to engage in such conduct for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
128. By such conduct, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights to substantive due process under the Fourteenth Amendment to the Constitution of the United States.
129. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
130. For these reasons, punitive damages should be imposed against the defendants so as to deter similar conduct in the future.
21

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 22 of 30
COUNT SIX: VIOLAnON OF 42 U.S.C. § 1396a(a)(8) 131. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them. 132. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish their purpose, have authorized AFMC to not consider requests for services with reasonable promptness so that their pre-determined cost savings can be achieved. 133. AFMC often refuses to follow the regulation set forth in the CHMS Provider Manual that requires it to process requests for services within 15 business days. 134. AFMC often takes at least a month, and sometimes as long as five months, to process requests for services. 135. Pursuant to 42 U.S.C. § 1396a(a)(8), the State Plan "must ... provide that all individuals wishing to make application for medical assistance under the plan shall have opportunity to do so, and that such assistance shall be furnished with reasonable promptness to all eligible individuals". 136. The defendants understand that they must consider requests for CHMS services with reasonable promptness. 137. The defendants understand that they must consider requests for CHMS services within 15 working days.
22

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 23 of 30
138. Despite their understanding, AFMC often refuses to consider requests for CHMS services with reasonable promptness to reduce payments under the CHMS program to the level pre-determined by Mr. Knickrehm and Mr. Hanley.
139. For these reasons, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(8).
140. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
141. For these reasons, punitive damages should be imposed against the defendants so as to deter similar conduct in the future.
COUNT SEVEN: VIOLATION OF 42 U.S.C. § 1396a(a)(3) 142. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the process of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them. 143. Although ADHS allows CHMS recipients to appeal adverse decisions made by AFMC, it does not provide a right of appeal to CHMS providers. 144. When an appeal is filed, ADHS refuses to tell the CHMS recipient the name of the nurses and doctors employed by AFMC who made the adverse decisions against them. 145. Without such information, it is impossible for the CHMS recipient to determine the opinions formed by the nurses and doctors who will be called to testify against the child.
23

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 24 of 30
146. Without such information, it is impossible for the CHMS recipient to determine the basis of the opinions formed by the nurses and doctors who will be called to testify against the child.
147. Without such information, it is impossible for the CHMS recipient to determine the information upon which the nurses and doctors relied in forming their opinions.
148. Without such information, it is impossible for the CHMS recipient to receive a fair hearing.
149. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, in order to accomplish their purpose of reducing payments under the CHMS program to the level pre-determined by them, have instructed AFMC to not identify the doctors and nurses who issue adverse decisions against CHMS recipients.
150. By refusing to provide such information to CHMS recipients who seek to appeal adverse decisions, the defendants, while acting under color of state law, have violated, and continue to violate, their right to a fair hearing under 42 U.S.C. § 1396a(a)(3).
151. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
152. For these reasons, punitive damages should be imposed against the defendants so as to deter similar conduct in the future.
24

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 25 of 30
COUNT EIGHT: VIOLATION OF PROCEDURAL DUE PROCESS
153. On May 28, 2004, the District Court issued an Order which states that 42 U.S.C. § 1320c-9 and 42 C.F.R. § 478.24 protect disclosure of the names ofthe doctors and nurses who' issue adverse decisions against CHMS recipients.
154. Given the District Court's decision, these statutes violate the rights of the plaintiffs to procedural due process because they deny CHMS recipients and providers the right to a fair hearing with respect to adverse decisions made by the defendants.
155. Without the names of the doctors and nurses who issue adverse decisions against CHMS recipients, CHMS recipients and providers have no opportunity to speak with these doctors and nurses prior to an appeal hearing to determine the reasons for the denial of CHMS servIces.
156. Without the names of the doctors and nurses who issue adverse decisions against CHMS recipients, CHMS recipients and providers have no opportunity to compel the presence of these doctors and nurses at the appeal hearing, to confront these doctors and nurses at the appeal hearing, and cross examine these doctors and nurses with respect to their denial of CHMS servIces.
COUNT NINE: VIOLATION OF SUBSTANTIVE DUE PROCESS
157. Based on information and reasonable belief, Mr. Knickrehm and Mr. Hanley, while acting under color of state law, developed the first layer of prior authorization for the purpose of reducing payments under the CHMS program to a level pre-determined by them.
25

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 26 of 30
158. Based on information and reasonable belief, Mr. Knickrehm, Mr. Hanley, and Mr. Jeffus, in order to accomplish this purpose, have directed AFMC to use the first and second layers of prior authorization to deny CHMS services to Medicaid-eligible children in Arkansas.
159. Nurse reviewers employed by AFMC, at the direction of corporate officers of AFMC, have altered decisions made by AFMC physician advisors to admit children into the CHMS program, and informed CHMS providers and recipients that AFMC physician advisors have denied admission to these children.
160. In addition, nurse reviewers employed by AFMC, at the direction of ADHS and corporate officers of AFMC, have altered decisions made by AFMC physician advisors to approve CHMS services for children, and informed CHMS providers and recipients that AFMC physician advisors have denied requested services to these children.
161. Such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness.
162. The defendants understand that such conduct is arbitrary, capricious, truly irrational, conscious shocking, and offensive to traditional notions of fairness, but continue to engage in such conduct for the mere purpose of reducing payments under the CHMS program to a level pre-determined by Mr. Knickrehm and Mr. Hanley.
163. By such conduct, the defendants, while acting under color of state law, have violated, and continue to violate, the plaintiffs' rights to substantive due process under the Fourteenth Amendment to the Constitution of the United States.
164. The conduct of the defendants has been willful and malicious, and in knowing violation of the rights of the plaintiffs.
26

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 27 of 30
165. For these reasons, punitive damages should be imposed against the defendants so as to deter similar conduct in the future.
WHEREFORE, the plaintiffs, Pediatric Specialty Care, Inc., Child & Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James and Stacey Swindle, as Parents and Next Friends of Jacob and Noah Swindle, Minors, and Susann Crespino, as Parent and Next Friend of Michael Crespino, a Minor, pray for the following relief:
a. That the Court determine that the defendants have violated, and continue to violate, the plaintiffs' rights under 42 U.S.C. § 1396a(a)(30)(A), 42 U.S.C. § 1396d(a)(13), the substantive due process component of the Fourteenth Amendment to the Constitution of the United States, 42 U.S.c. § 1396a(a)(8), and 42 U.S.C. § 1396a(a)(3), as alleged herein;
b. That the Court issue an injunction that prohibits the defendants from denying admission into the CHMS program to children who have cognitive delays but do not have delays in any other area;
c. That the Court issue an injunction that prohibits the defendants from approving less than six hours of CHMS core services per child per day;
d. That the Court issue an injunction that orders the defendants to draft regulations to govern the prior authorization of CHMS services consistent with applicable standards of medical practice;
e. That the Court issue an injunction that orders the defendants to enact said regulations after providing notice and opportunity for public comment to CHMS recipients and providers;
27

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 28 of 30

f.

That the Court issue an injunction that prohibits the defendants from denying

CHMS services based on rules or medical standards not properly enacted by AFMC;

g. That the Court issue an injunction that orders the defendants to process each

request for CHMS services within 15 working days after it is received by AFMC, lest all services

set forth in the request be deemed approved;

h. That the Court issue an injunction that orders the defendants to notify each CHMS

recipient, and the recipient's provider, of the name and address of each doctor and nurse who

denies a request for admission into the CHMS program, or a request for CHMS services;

1.

That the Court issue an injunction that orders the defendants to provide an

opportunity for a fair hearing to each CHMS recipient, and the recipient's provider, who suffers

a denial of admission into the CHMS program or a denial of CHMS services;

J.

That the Court issue an order which declares that 42 U.S.C. § 1320c-9 and 42

C.F.R. § 478.24 are unconstitutional as being in violation of their rights to procedural due

process;

k. That the Court appoint a Special Master for the purpose of conducting a full

investigation of the fraud being committed by the defendants with respect to the prior

authorization of CHMS admission and services so that affected CHMS providers and recipients

can notified of such fraud and appropriate legal claims can be made for all damages resulting

therefrom;

l.

That the Court award the plaintiffs their costs herein expended;

m. That the Court award the plaintiffs reasonable attorney fees pursuant to 42 U.S.C.

§ 1988; and

28

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 29 of 30

n. That the Court award the plaintiffs all other relief to which they may be entitled.

Respectfully submitted,

PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY CLINICS, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND STACEY SWINDLE, AS PARENTS AND NEXT BEST FRIENDS OF JACOB AND NOAH SWINDLE, MINORS, AND SUSANN CRESPINO, AS PARENT AND NEXT BEST FRIEND OF MICHAEL CRESPINO, A MINOR, Plaintiffs

KAPLAN, BREWER, MAXEY, & HARALSON, P.A. 415 Main Street Little Rock, AR 72201 (501) 372-0400 (501) 376-3612 (facsimile)

ARMSTRONG ALLEN, PLLC

100 Morgan Keegan Drive

([/7 Suite 100

Little Rock, AR 7. 202

(501) (501)

228800--0~10

,

I

By:

/

wen (90095)

29

Case 4:01-cv-00830-BSM Document 250 Filed 01/04/05 Page 30 of 30
CERTIFICATE OF SERVICE
I, an attorney for the plaintiffs, certify that I have served a copy of the foregoing pleading on opposing counsel by depositing a copy thereof, postage prepaid, in the United States Mail, addressed as follows: Mr. Breck Hopkins Office of Chief Counsel Arkansas Department of Human Services P.O. Box 1437 Slot 1033 Little Rock, AR 72203-1437 Mr. Michael Rainwater Attorney at Law P.O. Box 17250 Little Rock, AR 72222-7250 Mr. Richard Pence Assistant United States Attorney P.O. Box 1229 Little Rock, AR 72203 this 4th day of January, 2005.
30

 
 Case 4:01-cv-00830-BSM Document 169 Filed 07/06/04 Page 1 of 6

IN THE UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF ARKANSAS WESTERN DIVISION

FILED
u.s. DISTRICT COURT
EASTERN DISTRICT ARKANSAS

PEDIATRIC SPECIALTY CARE, INC., CHILD & YOUTH PEDIATRIC DAY

JUL - 6 2004

CLINICS, INC., TOMORROW'S CHILD LEARNING CENTER, LLC, JAMES AND

~~~ES W. McCORMACK, CLERK

STACEY SWINDLE, AS PARENTS AND

DEP CLERK

NEXT BEST FRIENDS OF JACOB AND

NOAH SWINDLE, MINORS, AND

SUSANN CRESPINO, AS PARENT AND

NEXT BEST FRIEND OF MICHAEL

CRESPINO, A MINOR

PLAINTIFFS

v.

No. 4:01CV00830 WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES; KURT KNICKREHM, IN HIS INDIVIDUAL CAPACITY AND IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES; RAY HANLEY, IN HIS INDIVIDUAL CAPACITY; AND ROY JEFFUS IN HIS OFFICIAL CAPACITY AS DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES

DEFENDANTS AND THIRD PARTY PLAINTIFFS

ARKANSAS FOUNDATION FOR MEDICAL CARE, INC.

DEFENDANTS

TOMMY THOMPSON, SECRETARY OF THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES IN HIS OFFICIAL CAPACITY; AND MARK McCLELLAN, ADMINISTRATOR, UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES CENTERS FOR MEDICARE AND MEDICAID SERVICES, IN HIS OFFICIAL CAPACITY

THIRD PARTY DEFENDANTS

THIRD PARTY COMPLAINT

Case 4:01-cv-00830-BSM Document 169 Filed 07/06/04 Page 2 of 6
,
The third party plaintiffs, Arkansas Department of Human Services; Kurt Knickrehm in his official capacity as director of the Arkansas Department of Human Services; and Roy Jeffus in his official capacity as Director of the Arkansas Department of Human Services Division of Medical Services, for their third party complaint state:
INTRODUCTION l. The third party plaintiffs assert against Tommy Thompson, Secretary of the Department of Health and Human Services in his official capacity; and Mark McClellan, Administrator, CMS, in his official capacity, a claim for federal financial participation for medical assistance payments for Child Health Management Services ("CHMS") that are required by orders of the United States District Court for the Eastern District of Arkansas, opinions of the United States Court of Appeals for the Eighth Circuit, or both, and which would not be made but for such orders and opinions, regardless of whether such payments conform to one or more of the following: (1) Title XIX of the Social Security Act ("Medicaid"); (2) Medicaid regulations; (3) The Arkansas Medicaid State Plan approved by CMS.
STATEMENT OF JURISDICTION AND VENUE
1. Plaintiffs are various Arkansas corporations and individuals. 2. Defendant Arkansas Department of Human Services ("ADHS") is an agency of the executive branch of the State of Arkansas, a sovereign entity.
2

Case 4:01-cv-00830-BSM Document 169 Filed 07/06/04 Page 3 of 6
3. Defendants Knickrehm and Jeffus in their official capacities are officials of the ADHS.
4. Defendant Arkansas Foundation for Medical Care ("AFMC") is an Arkansas Corporation with its principal place of business in Fort Smith, Arkansas. AFMC performs Medicaid utilization reviews under contract with ADHS to determine whether to authorize CHMS care.
5. Third party defendant United States Department of Health and Human Services Center for Medicare and Medicaid Services ("CMS") is a Department of the United States of America; Tommy Thompson is Secretary of the Department of Health and Human Services, and Mark McClellan is Administrator, CMS.
6. Plaintiff has filed a second amended complaint, a copy of which is attached as Exhibit A. Among other things, plaintiffs allege that CHMS is medically necessary by virtue of being prescribed, but that in the course of performing utilization reviews, AFMC denies substantial amounts of requested care. Plaintiffs seek a determination that such denials are in violation of various alleged federal and constitutional rights; and pray for an order directing AFMC to determine that all prescribed CHMS is medically necessary and to automatically approve such care.
7. The Court has jurisdiction over third party claims as they arise under federal law.
8. The Court has jurisdiction of claims against the United States under 28 U.S.c. § 1346 (a)(2).
9. Venue is proper in the Eastern District of Arkansas under 28 U.S.C.1402 (a).
3

Case 4:01-cv-00830-BSM Document 169 Filed 07/06/04 Page 4 of 6
,
STATEMENT OF FACTS 10. Medicaid is a joint federal-state program to provide medical assistance to persons whose income and resources are insufficient to meet the costs of such care. II. Medicaid is financed by state and federal funds. The proportion of federal funds is determined separately for each state by application of a formula, the product of which is the federal medical assistance percentage for that state. In Arkansas, CMS pays approximately seventy-five percent of the cost of medical assistance. 12. In order to receive federal Medicaid funding, each state must submit a state Medicaid plan to CMS, receive CMS approval of the plan, operale lhe slale's Medicaid program in compliance with Medicaid laws and regulations, and in conformity with the approved Medicaid State Plan. 13. The complaint concerns CHMS, a service for children under the Arkansas Stale Medicaid Plan. 14. Third party plaintiffs contracted with AFMC to determine the medical necessity of CHMS. Under the contract, AFMC issues prior approvals for medically necessary CHMS for Medicaid eligible children and denies prior approvals for CHMS that is not medically necessary. 15. The Medicaid child health program (Early and Periodic Screening, Diagnosis, and Treatment, or "EPSDT") requires that in order to qualify for Medicaid reimbursement, EPSDT services must be necessary. 16.42 U.S.C. § 1396a (a)(30)(A) requires states to implement effective methods and procedures limiting Medicaid payments under the State Plan to medically necessary care.
4

Case 4:01-cv-00830-BSM Document 169 Filed 07/06/04 Page 5 of 6
,
17. Failure by a state to conform to the State Medicaid Plan approved by CMS subjects the state to loss of federal Medicaid funding.
18. Payments made in the absence of effective methods to prevent payment for unnecessary care generally are not entitled to federal matching funds.
19. The Arkansas Medicaid State Plan, Attachment 3.1-A, p. Ii (for categorically needy recipients) and Attachment 3.1-8, p. 2h (for medically needy recipients) provide that "CHMS treatment requires prior authorization to determine and verify the patient's need for CHMS services." Accordingly, prior authorization must determine and verify medical necessity in order for Arkansas to remain in compliance with its approved Medicaid State Plan and thus remain eligible for federal Medicaid funds.
20. Federal Medicaid funding is necessary for Arkansas to continue providing Medicaid in general, and CHMS in particular.
21. Unless CMS is made a party hereto, it may not be enjoined to provide federal financial participation for CHMS provided in the absence of prior authorization that determines and verifies medical necessity for CHMS.
22. Unless CMS is made a party hereto, it may not be enjoined to provide federal financial participation for CHMS provided in the absence of effective utilization controls.
CLAIM
23. CMS is liable to the third party plaintiff for the federal medical assistance percentage of Medicaid funds that are paid as a consequence of this litigation.
24. Any decree causing the third party plaintiff to pay for medically unnecessary care or to suspend activities to determine and verify medical necessity as required by the
5

Case 4:01-cv-00830-BSM Document 169 Filed 07/06/04 Page 6 of 6

approved State Medicaid Plan will require federal action and cooperation to effectuate.

25. Joinder of CMS as a third party defendant is necessary in order to give effect

to any order entered in favor of plaintiff.

WHEREFORE, third party defendants pray that any relief rendered in favor of

plaintiff include a determination that CMS is liable to the third party plaintiff for the

federal medical assistance percentage of Medicaid funds that are paid as a consequence

of such relief.

Respectfully submitted,

ARKANSAS DEPARTMENT

OF HUMAN SERVICES

By:

/d ~.4~ '/7/- -/ -

Breck G. Hopkins

Chief Deputy Counsel Arkansas Bar Number 77065

P. O. Box 1437, Slot S260 Little Rock, AR 72203-1437 (50 I) 682-8934

MIKE BEEBE

Attorney General

By:

ilJ

111=

I
Ii

Lori Freno

Assistant Attorney General

Arkansas Bar Number 97042

323 Center Street, Suite 200

Little Rock, AR 72201-2610

(501) 682-1314

6

 
 United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

No. 05-1115 ___________

Pediatric Specialty Care, Inc.; Child & Youth Pediatric Day Clinics, Inc.; Family Counseling & Diagnostic Clinic; Tomorrow’s Child Learning Center, LLC; D&D Family Enterprises, Inc.; James Swindle; Stacey Swindle, as parents and next best friends of Jacob and Noah Swindle, Minors; Susann Crespino, as parent and next best friend of Michael Crespino, a minor;
Plaintiffs-Appellees,
v.
Arkansas Department of Human Services; Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services; Ray Hanley, in his individual capacity as Director of the Division of Medical Services of The Arkansas Department of Human Services;
Defendants,
Arkansas Foundation for Medical Care;

* * * * * * * * * * * * * * Appeals From the United States * District Court for the * Eastern District of Arkansas. * * * * * * * * * * * * * * *

*

Defendant-Appellant,

*

*

Roy Jeffus, in his official capacity

*

as Interim Director of Arkansas

*

Department of Human Services

*

Division of Medical Services;

*

*

Defendant.

*

___________

No. 05-1116 ___________

Pediatric Specialty Care, Inc.;

*

Child & Youth Pediatric Day Clinics, *

Inc.; Family Counseling &

*

Diagnostic Clinic; Tomorrow’s

*

Child Learning Center, LLC; D&D *

Family Enterprises, Inc.; James

*

Swindle; Stacey Swindle, as parents *

and next best friends of Jacob and

*

Noah Swindle, Minors; Susann

*

Crespino, as parent and next best

*

friend of Michael Crespino, a minor; *

*

Plaintiffs-Appellees,

*

*

v.

*

*

Arkansas Department of Human

*

Services; Kurt Knickrehm, in his

*

individual capacity and in his

*

official capacity as Director of the

*

Arkansas Department of Human

*

Services; Ray Hanley, in his

*

individual capacity as Director of

*

-2-

the Division of Medical Services of *

The Arkansas Department of Human *

Services;

*

*

Defendants-Appellants,

*

*

Arkansas Foundation for Medical

*

Care;

*

*

Defendant,

*

*

Roy Jeffus, in his official capacity

*

as Interim Director of Arkansas

*

Department of Human Services

*

Division of Medical Services;

*

*

Defendant-Appellant.

*

___________

Submitted: February 15, 2006 Filed: April 17, 2006 ___________

Before SMITH, HEANEY, and BENTON, Circuit Judges. ___________

HEANEY, Circuit Judge.

The issue presented in this appeal is whether the district court erred by ordering the Arkansas Department of Human Services (ADHS) and the Arkansas Foundation for Medical Care (AFMC) to publish to Medicaid service beneficiaries and providers the identity of physician reviewers who make decisions to approve or deny medical care to Medicaid-eligible children. Because the district court’s order is at odds with the relevant Medicaid regulations, we reverse.

-3-

BACKGROUND
The general background to this case is detailed in our prior decisions in Pediatric Specialty Care, Inc., v. Arkansas Department of Human Services, 293 F.3d 472 (8th Cir. 2002); Pediatric Specialty Care, Inc. v. Arkansas Department of Human Services, 364 F.3d 925 (8th Cir. 2004); and Pediatric Specialty Care, Inc. v. Arkansas Department of Human Services, No. 05-1668, issued today. In short, this case stems from ADHS’s attempts to curtail the services it provides to needy children in Arkansas pursuant to the Medicaid Act. ADHS contracts with AFMC to review applications for Medicaid services and to determine whether and to what extent applicants qualify for those services. The plaintiffs are applicants for Medicaid services, both as recipients and providers. They contend that ADHS and AFMC manipulate their system of prior authorization so as to deny medically necessary services to qualified, Medicaid-eligible children solely for the state’s financial benefit.
As relevant to this appeal, one of the plaintiffs in this matter, Tomorrow’s Child Learning Center, LLC, moved the district court for a temporary restraining order requiring AFMC (and, consequently, ADHS) to disclose to Medicaid service recipients and providers the names of the physician reviewers who made determinations regarding whether and to what extent children were eligible for treatment. By order dated May 28, 2004, the court treated this motion as one for a preliminary injunction and denied the motion, holding that such disclosure was prohibited by applicable Medicaid Act provisions and regulations. Several months later, the district court informed the parties that it was reconsidering its earlier decision and solicited letter briefs on the matter. On November 29, 2004, the court issued an order reversing its May 28, 2004 decision. In the decision, the court held that the plaintiffs “may discover the name, qualifications, and identity of each peer review physician and advisor who participated in the denial of medical benefits, based on the premise that the care did not meet medical necessity requirements,” but
-4-

that the plaintiffs “may not discover any patient records of non-parties, nor may Plaintiffs discover any material produced by [AFMC] that evaluated the failure of a particular medical provider to follow professional standards of care.” (Dist. Ct. Order of Nov. 29, 2004 at 15.) This appeal followed.
ANALYSIS
“We review a district court’s grant or denial of preliminary injunctive relief for an abuse of discretion or misplaced reliance on an erroneous legal principle.” Goff v. Harper, 60 F.3d 518, 520 (8th Cir. 1995). This is a “deferential standard,” only permitting us to reverse the district court if, “after a thorough review of the record, the proof unmistakably establishes clear error or an abuse of discretion.” FTC v. Freeman Hosp., 69 F.3d 260, 267 (8th Cir. 1995).
Ordinarily, the district court is to consider four factors in deciding whether to issue the preliminary injunction: (1) the threat of irreparable harm, (2) the balance between that harm and the injury to the non-moving party if the injunction is granted, (3) the probability of success on the merits of the claim, and (4) whether granting the injunction would benefit the public interest. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc).
AFMC and ADHS assert that the district court’s order must be reversed because it conflicts with provisions of the Medicaid Act, as well as regulations interpreting the Act that protect the confidentiality of peer reviewers. The plaintiffs argue that the district court’s order is not a final appealable matter, because the district court did not explicitly go through a Dataphase analysis. We disagree, and thus undertake analysis of whether the order was properly issued. Accord Baker Elec. Co-Op, Inc. v. Chaske, 28 F.3d 1466, 1472 (8th Cir. 1994) (characterizing a temporary restraining order as a preliminary injunction and undertaking a Dataphase analysis even though the district court failed to do so).
-5-

Pursuant to 42 U.S.C. § 1320c-9(a), data and information collected by a peer review organization such as AFMC “shall be held in confidence and shall not be disclosed,” except in very limited circumstances. “No patient record in the possession of [a peer review organization] shall be subject to subpoena or discovery proceedings in a civil action.” § 1320c-9(d). The statute states more specifically that information reviewed by a peer review organization in order to determine if the provider’s quality of care meets professional standards is privileged from discovery. Id. (referencing §§ 1320c-3(a)(1)(B) and 1320c-5(a)(2)).
The Department of Health & Human Services (HHS) is charged by statute with the authority to promulgate regulations regarding the confidentiality of patient records held by peer review organizations. Those regulations must “assure adequate protection of the rights and interests of patients, health care practitioners, or providers of health care.” 42 U.S.C. § 1320c-9(a)(2). HHS has issued such regulations, which interpret what information is subject to disclosure and what information is confidential. The regulations deem information confidential if it “explicitly or implicitly identifies an individual patient, practitioner, or reviewer,” and all peer review deliberations. 42 C.F.R. § 480.101(b) (emphasis added). The regulation defines peer review deliberations to include “review notes, minutes of meetings and any other records of discussions and judgments involving matters regarding [peer review] responsibilities and appeals from [peer review organization] determinations, in which the opinions of, or judgment about, a particular individual or institution can be discerned.” § 480.101(b)(4). Peer review organizations generally may not disclose confidential information, subject to limited exceptions. See generally 42 C.F.R. §§ 480.130-480.143 (regulations regarding disclosure of confidential information).
Within the regulations concerning disclosure of confidential information, it is stated that a peer review organization “must not disclose its deliberations,” except to federal governmental agencies such as the Centers for Medicare and Medicaid
-6-

Services, the Office of the Inspector General, or the General Accounting Office. 42 C.F.R. § 480.139(a)(1). The regulations further state that a peer review organization may only disclose “information on a particular practitioner or reviewer at the written request of or with the written consent of that practitioner or reviewer.” 42 C.F.R. § 480.133(a)(2)(iii).
Taken together, these regulations do not permit the disclosure ordered by the district court. They indicate clearly that: (1) nearly all peer review organization information is confidential; (2) confidential information related to deliberations must not be disclosed, except in circumstances not presented here; and (3) physician reviewer identities may be disclosed, but only with the reviewer’s written consent. Thus, it seems clear under the regulations that the information plaintiffs seek–the identities of physician reviewers in specific cases–is not subject to discovery.
The plaintiffs have not argued, nor do we see any reason why, these regulations are not entitled to deference. See Chevron U.S.A. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984). The district court cited Public Citizen, Inc. v. United States Department of Health & Human Services, 332 F.3d 654 (D.C. Cir. 2003), in support of the view that we need not follow the agency’s confidentiality regulations. There, the court refused to grant Chevron deference to the confidentiality regulations for a section of the Medicaid Act that was enacted after the regulations were promulgated. Pub. Citizen, 332 F.3d at 659.
We agree with the proposition that where regulations precede enactment of the statute, they cannot possibly be read as interpreting the statute. That is not the situation before us, however. Since § 42 U.S.C. § 1320c-9’s most recent amendment, HHS has reconsidered and amended the confidentiality provisions of its regulations, such that information could now be disclosed with the written consent of a medical practitioner or peer reviewer. See 69 Fed. Reg. 48916, 49266-67 (Aug. 11, 2004) (amending 42 C.F.R. §§ 480.133, 480.140). Thus, unlike Public Citizen, the
-7-

confidentiality regulations at issue here have been significantly and materially changed subsequent to the statute’s amendment.
According the regulations the deference required by Chevron, we find the interpretation to be “based on a permissible construction of the statute.” Chevron, 467 U.S. at 843. The statute governing disclosure specifically charges HHS with the duty to ensure peer review information is kept confidential through regulations aimed toward protecting “the rights and interests of patients, health care practitioners, [and] providers of health care.” 42 U.S.C. § 1320c-9(a)(2). The regulations effectuate that purpose, as they allow disclosure of the identities of peer reviewers only after obtaining written consent of the peer reviewer. 42 C.F.R. § 480.133(a)(2)(iii). While the plaintiffs may disagree with HHS’s regulation, it is permissible and thus must stand.
CONCLUSION The district court’s order compelling disclosure of the identities of peer reviewers conflicts with the applicable enforceable regulations. For this reason, we have no alternative but to reverse.
______________________________
-8-

 
 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION

PEDIATRIC SPECIALTY CARE, INC., ET AL

PLAINTIFFS

v.

CASE NO.: 4:01CV00830 BSM

ARKANSAS DEPARTMENT OF HUMAN SERVICES, ET AL

DEFENDANTS

ORDER OF DISMISSAL

On November 10, 2008, plaintiffs’ counsel advised the court that the parties have

resolved this matter.

IT IS THEREFORE ORDERED that this action be, and is hereby, dismissed with

prejudice.

IT IS SO ORDERED this 13th day of November, 2008.

UNITED STATES DISTRICT JUDGE

 
 Case 4:01-cv-00830-BSM Document 41 Filed 07/30/02 Page 1 of 4

IN THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF ARKANSAS WESTERN DIVISION

u.Folb~cPuRT
EASTERN DISTRICT ARKANSAS

PEDIATRIC SPECIALTY CARE, INC., ET AL.

PLAINTIFFS

VS.

CASE NO. 4:01CV00830 WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES; ET AL.

DEFENDANTS

AMENDED INJUNCTION Consistent with the Eighth Circuit's opinion and mandate entered on the district court docket on July 15, 2002, the December 19, 200 I If\iunction is amended as follows: Defendants are not obligated to specifically include Child Health Management Services Program ("CHMS") early intervention day treatment services in the Arkansas State Medicaid Plan ("State Plan"). It is defendants' position that there are no funds specifically dedicated to CHMS early intervention day treatment services. Thus, they contend that they cannot be enjoined from cutting funding which does not exist. If this is the case, then defendant is correct, i.e. they cannot be enjoined from cutting funds which do not exist. Therefore, I enjoin the defendants to pay' for early intervention day treatment services when prescribed by a physician for the purpose stated in the Medicaid Act. Where defendants get the money, and what mechanism they establish to pay for these services, are left up to them, Moreover, under 42

'The Eighth Circuit uses "provide," "reimburse," and "pay" when addressing the defendants' duty regarding early intervention day treatment services, For consistency's sake, I will use the verb "pay,"

Case 4:01-cv-00830-BSM Document 41 Filed 07/30/02 Page 2 of 4
U.S.C'. § 1396a (43) the State has a duty to infonn Medicaid recipients (I) about early and periodic screening, diagnosis, and treatment ("EPSDT") services (which include early intervention day treatment services), and (2) that the State must arrange for the corrective treatments prescribed by physicians.
The Eighth Circuit did not directly discuss defendants' duty to provide therapy to Medicaid recipients because defendant Arkansas Department of Human Services during oral arguments at the Eighth Circuit stated that CHMS therapists could enroll as Medicaid therapists under the new state plan. Since the 8th Circuit affirmed my December 19, 2001 Order on all points except the one concerning the naming of CHMS early intervention day treatment services, my ruling that defendants could not cut funding to therapy services stands. However, to be consistent (and to follow the 8th Circuit's directions), the December 19th Injunction is amended to provide that the defendants do not have to include CHMS therapy in the State Plan, but like the early intervention day treatment services, they do have to pay for the therapy, provide a mechanism for this payment, and they must inform Medicaid recipients about the available therapy services.
The 8th Circuit stated that it understood that under the State Plan the diagnostic and evaluation leg of CHMS [would remain] intact, meaning that a physician would still refer a child to aCHMS clinic for an evaluation, the staff at the CHMS clinic would perfonn the evaluation, and a CHMS physician would recommend the needed therapies.2
Based on this language, defendants are enjoined to continue to pay for the "diagnostic and evaluation leg" of CHMS, and to infonn Medicaid recipients in an understandable manner about
'Pediatric Speciality Care, Inc. v. Arkansas Department ofHuman Services, 293 F.3d 472, 476 (8th Cir. 2002).
2

Case 4:01-cv-00830-BSM Document 41 Filed 07/30/02 Page 3 of 4
the services. However, like the early intervention day treatment services, and therapy services, defendants may use another mechanism (i.e., other than CHMS) to pay for the "diagnostic and evaluation" services.
To summarize and conclude, defendants do not have to specifically include CHMS early intervention day treatment services, therapies and other treatments, or diagnostic and evaluation services, by name, in the State Plan, but they do have to pay for the these services (and provide a mechanism for payment) when prescribed by a physician for the purpose stated in the Medicaid Act. Moreover, and importantly, defendants must inform potential Medicaid recipients in an understandable manner about these available services.
:Tit-
IT IS SO ORDERED this l!!dfiY of July, 2002.
Ij/~A-~
Wm. R. Wilson, Jr. United States District Judge
3

Case 4:01-cv-00830-BSM Document 41 Filed 07/30/02 Page 4 of 4
bm UNITED STATES DISTRICT COURT Eastern District of Arkansas
U.S. Court House 600 West Capitol, Suite 402 Little Rock, Arkansas 72201-3325
July 30, 2002

* * MAILING CERTIFICATE OF CLERK * *
Re: 4:01-cv-00830.

True and correct copies of the attached were mailed by the clerk to the following:

Philip E. Kaplan, Esq. Kaplan, Brewer & Maxey, P.A. Metro Centre Mall 415 Main Street Little Rock, AR 72201-3801
Martin Wayne Bowen, Esq. Armstrong Allen, PLLC Post Office Box 251310 Little Rock, AR 72225-1310
Breck G. Hopkins, Esq. Arkansas Department of Human Services Office of Chief Counsel 700 Main Street Post Office Box 1437 Little Rock, AR 72203-1437
Lee S. Thalheimer, Esq. Arkansas Department of Human Services office of Chief Counsel Slot S260 700 Main Street Post Office Box 1437 Little Rock, AR 72203-1437
press

~ot~ Date:

James W. McCormack, Clerk BY:

 
 Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

2002 WL 34236910 Only the Westlaw citation is currently available.
United States District Court, E.D. Arkansas,
Western Division.
PEDIATRIC SPECIALTY CARE, INC.; Child & Youth Pediatric Day Clinics, Inc.; Family
Counseling & Diagnostic Clinic, Inc.; Tomorrow’s Child Learning Center, LLC; D & D Family
Enterprises, Inc .; James and Stacey Swindle, as Parents and Next Best Friends of Jacob and Noah Swindle, Minors; and Susann Crespino, as Parent
and Next Best Friend of Michael Crespino, a Minor, Plaintiffs v.
ARKANSAS DEPARTMENT OF HUMAN SERVICES; Kurt Knickrehm, in his Individual Capacity and in his Official Capacity as Director of the Arkansas Department of Human Services; and Ray Hanley, in his Individual Capacity and in his Official Capacity as Director of the Division of Medical Services of the Arkansas Department of
Human Services, Defendants.
No. 4:01CV00830–WRW. | Nov. 27, 2002.
Attorneys and Law Firms
Martin Wayne Bowen, Robinson, Biggs, Ingram, Solop & Farris, PLLC, Philip E. Kaplan, Kaplan, Brewer, Maxey & Haralson, P.A., Charles A. Banks, Banks Law Firm, PLLC, Little Rock, AR, for Plaintiffs.
Breck G. Hopkins, Lee S. Thalheimer, Arkansas Department of Health and Human Services—LR Office of Chief Counsel, Little Rock, AR, for Defendants.
Opinion
ORDER
WM. R. WILSON, JR., United States District Judge.
I. PROCEDURAL HISTORY

*1 For a number of years, the Medicaid plan in Arkansas

has

provided

medical

services

to

developmentally-delayed children under the Child Health

Management Services (“CHMS”) program. These

services include diagnosis and evaluation, early

intervention day treatment, and a wide array of therapies.

On November 30, 2001, citing shortfalls in state revenue,

the Defendants announced a decision to redefine the

CHMS program and no longer pay for daycare and

therapy services.1 In response to this decision, the

Plaintiffs2 filed this lawsuit requesting declaratory relief

and an injunction to prevent the decision from going into

effect.

1

This announcement will sometimes be referred to as

“the decision,” and sometimes as “the press release.”

2

Plaintiffs are a group of qualified providers of Child

Health Management Services (“CHMS”) throughout

the state of Arkansas and several individual recipients

of CHMS services who are represented by their parents.

In Count I of their Complaint, the Plaintiffs allege that the decision, if implemented, will violate their rights to substantive due process because the day treatment and therapy services provided under the CHMS program are mandatory and cannot be eliminated. In Count II of their Complaint, the Plaintiffs allege that the decision, if implemented, will violate their rights to procedural due process because the Defendants failed to utilize methods and procedures that consider the factors of efficiency, economy, quality of care and equal access prior to making the decision. In Count III of their Complaint, the Plaintiffs allege that the decision, if implemented, will violate their rights to substantive due process and their rights under 42 U.S.C. § 1396(a)(19) because the Defendants have no rational basis for the decision and have failed to consider the best interests of all Medicaid recipients in this case.
When the Plaintiffs filed their Complaint on December 6, 2001, they also filed a motion for a temporary restraining order. On December 13, 2001, I held a hearing on the motion, at which time the parties agreed to treat the hearing as one for permanent injunctive relief. At the conclusion of that hearing, I ruled that the early intervention day treatment and therapy services provided under the CHMS program result in the maximum reduction of physical or mental disabilities and restore
1

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

children to their best-possible functional level. Because the Defendants intended to terminate payment for those services under the CHMS program, and based on the finding that early intervention day treatment services are not provided anywhere else under the State Medicaid Plan, I held that early intervention day treatment services, provided in conjunction with therapy services, are mandated by the Medicaid Act. Therefore, I issued a permanent injunction that requires the Defendants to pay for early intervention day treatment and therapy services under the CHMS program.3

3

See order dated December 18, 2001 (Doc. No. 8).

The Defendants appealed. The Eighth Circuit affirmed the injunction to the extent it requires the Arkansas Department of Human Services (“ADHS”) to pay for CHMS-type services. However, the Eighth Circuit reversed the injunction to the extent it required “that CHMS early intervention day treatment services be specifically named in the State Plan.” The Eighth Circuit also held that the State Plan “need not specifically list every treatment service conceivably available under the EPSDT [Early and Periodic Screening, Diagnosis and Treatment (“EPSDT”) ] mandate.” But, the Court firmly reminded the Defendants that they have a duty under 42 U.S.C. § 1396a(43) “to inform Medicaid recipients about the EPSDT services that are available to them and that they must arrange for the corrective treatments prescribed by physicians.” The Court also warned the Defendants that they “may not shirk their responsibilities to Medicaid recipients by burying information about available services in a complex bureaucratic scheme.” The Eighth Circuit concluded by remanding the case for modification of the injunction, according to its order, and directed consideration of Plaintiffs’ procedural due process claim.4

4

See Eighth Circuit opinion of July 15, 2002 (Doc. No.

30).

*2 On remand, a series of on-the-record telephone conferences were held in an effort to modify the permanent injunction. An amended injunction was issued on August 10, 2002, and the remaining claims were scheduled for a hearing. Prior to that hearing, which is the subject of this Order, the Defendants filed a motion for summary judgment. The Defendants then argued, for the first time, that the decision they made in November of

1999 had nothing to do with eliminating payment for early intervention day treatment and therapy services under the CHMS program. Instead, the Defendants argued that the decision they made last November was simply to remove the CHMS program from the State Medicaid Plan, but that they intended to continue paying for early intervention day treatment and therapy services under the EPSDT program. Defendants argued that they were entitled to summary judgment because they had not engaged in rate setting and, therefore, were not obligated under federal law to consider the factors of efficiency, economy, quality of care and equal access prior to making their decision.5 Plaintiffs contended, among other things, that the plain language of 42 U.S.C. § 1396a(a)(30) is broader than rate-setting. I found that there were material questions of fact to be decided, and denied the motion.

5

See September 3, 2002 Order Denying Motion for

Summary Judgment (Doc. No. 46).

On September 12, 2002, another hearing was held in order to consider the remaining issues in this case—that is, those set forth in Count II and Count III of the Plaintiffs’ Complaint. A resolution of those issues requires an accurate view of “the decision” made by the Defendants. According to the allegations made by the Plaintiffs in their Complaint, Defendants’ decision is set forth in the ADHS press release6 dated November 30, 2001, which states that ADHS has decided to redefine the CHMS program and no longer pay for early intervention day treatment and therapy services.7

6

The press release actually refers to day care, not early

intervention day treatment services. However, I found

that CHMS clinics provide early intervention day

treatment services, not just day care, and that finding

was affirmed on appeal. See Eighth Circuit opinion of

July 15, 2002, at 5–6, 9–10 (Doc. No. 30).

7

See Plaintiffs’ Exhibit 4.

As noted above, the Defendants are now arguing, for the first time, that they never intended to stop paying for such services. The new argument is that they simply intended to remove the CHMS program from the State Medicaid Plan, but that they intended to continue to provide early intervention day treatment services and related therapies
2

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

under EPSDT. I will now attempt again to determine what “the decision” really was.

11

See page 36 of the September transcript.

II. THE DECISION As stated above, according to the allegations made by the Plaintiffs in their Complaint, the Defendants’ decision is set forth in the November 30, 2001 press release. This release states that ADHS has decided to redefine the CHMS program and no longer pay for early intervention day treatment and therapy services.8 Despite this undisputed fact, the Defendants maintain that they never intended to stop paying for such services—rather, that they claim that they merely intended to reduce Medicaid expenditures by removing all references to CHMS services from the State Plan, while still paying for those services under the EPSDT program. The EPSDT program requires a “screening” to determine which services are “medically necessary;” therefore, the projected savings would come from fewer services being provided as a result of more intense screening.9

8

See Plaintiffs’ Exhibit 4 and footnote 4.

9

See page 49–52 of the September transcript.

*3 The Defendants argue that Joe Quinn, who is the spokesperson for ADHS and the author of the press release, did not have authority to make Medicaid policy decisions. Nevertheless, he had the authority to announce Medicaid policy decisions actually made, which he accomplished with a press release. Mr. Hanley testified at the September hearing that he would have seen the press release prior to publication and did not recall making any objection to it.10 In addition, Mr. Hanley testified that the Director of ADHS, Defendant Kurt Knickrehm, approved the decision before the press release was issued.11 Consequently, the press release was state policy. Joe Quinn had the authority to release it to the public. While the Defendants adopted a “get thee behind me Satan” attitude toward the press release, I find that it was an approved announcement of the Defendants’ position, i.e., their “decision.”

10

See page 45 of the September transcript.

At the first hearing in December of 2001, there was no contention that the decision made by the Defendants was what they now claim it to be. In other words, based on the whole record, it is clear to me that the press release reflects Defendants’ decision, which was to redefine CHMS and no longer pay for early intervention day treatment and therapy services. Contrary to what the Defendants now suggest, the press release did not say that ADHS merely intended to remove reference to CHMS treatment services from the State Plan or that it intended to provide early intervention day treatment and therapy services under the EPSDT program.
If the Defendants had decided to simply remove reference to CHMS services from the State Plan but continue paying for those services under EPSDT, as they now suggest, they surely would have said so in their Answer. Their Answer, which was filed several days after the press release, however, does not say anything of the sort. To the contrary, the Defendants admit in their Answer that their decision was reflected in the press release they issued on November 30, 2001. Prior to losing in December of 2001, the Defendants said nothing to suggest that my view of their decision was incorrect or that early intervention day treatment services would still be paid for under the EPSDT program. Plaintiffs argued that the services provided by CHMS were mandated under the EPSDT, and Defendants argued that they were not. T do not accept the Defendants’ new-found argument that they always intended to pay for CHMS-type services under EPSDT.
III. “OFF–PLANNING” Defense counsel originally contended that early intervention day treatment services are not mandated by the Medicaid Act.12 Mr. Hanley has made similar remarks. For example, Mr. Hanley testified that, if the decision at issue in this case goes into effect, early intervention day treatment services would no longer be provided under the State Plan.13 The Defendants argue that, while it is true Mr. Hanley intended to delete CHMS day treatment provisions from the plan, deletion was appropriate in light of the Eighth Circuit’s ruling. The Eighth Circuit ruled that it was not necessary for the “State Plan to specifically list every treatment service conceivably available under the EPSDT mandate.” However, this ruling in no way
3

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

permitted deletion of the services.

12

See page 15 of the December transcript.

13

See page 198 of the December transcript.

*4 After the Eighth Circuit opinion, along came “off-planning.” At some point since my ruling of December 18, 2001, and the Eighth Circuit decision of July 15, 2002, the Defendants developed this thing described as “off-planning.” Despite the Eighth Circuit’s clear mandate, they now intend to take CHMS-type services off of the Arkansas State Medicaid Plan and place them elsewhere under the services provided by ADHS.
The novelty of this new position is supported by the testimony of Plaintiffs’ witness, Mr. Tom Dalton, former Director of ADHS. As of September 12, 2002 (the date of the last hearing), this “off-plan” notion was new to him. I note that his experience with the issues involved in this case is quite extensive—and I credit his testimony. Among other things, Mr. Dalton testified that he had never heard that phrase used by Defendants until after the Eighth Circuit decision.14 Mr. Dalton also testified that, during his tenure at ADHS, the term “off-plan” was never mentioned, nor had “off-planning” been implemented with any other programs.15

14

See page 107 of the September transcript.

15

See page 109 of the September transcript.

The only conclusion that I can reach is that the Defendants intend to use the “off-plan” concept to side-step the requirements of federal and state law as interpreted by the Eighth Circuit. This, they may not do. Again (and again), while the required services need not be specifically listed, they still must be provided under state Medicaid.
To accept the Defendants’ current view would require me to ignore their Answer, their press release, and their sworn testimony back in December of last year. This view

also contradicts the testimony of their own expert witness, Dr. Michael Moody, who testified that early intervention day treatment services would not be provided under any part of the State Plan if the decision made in November of 2001 goes into effect.16 This new view also contradicts the December 2001 testimony of Defendant, Mr. Ray Hanley, who testified that the services, now conceded by the Defendants to be required, were optional.17 In fine, the “off-plan” is off limits.

16

See pages 248, 250, 439 of the December transcript.

17

See pages 201–203 of the December transcript.

IV. PROCEDURAL DUE PROCESS Having determined that the record as a whole reflects that the decision at issue was expressed by the Defendants in their press release dated November 30, 2001, I next consider the issues presented in Count II of the Plaintiffs’ Complaint. The Plaintiffs have argued throughout this litigation that the Defendants failed to consider the factors of efficiency, economy, quality of care and equal access prior to making their decision. Their argument is based on 42 U.S.C. § 1396a(a)(30), which provides that a state plan for medical assistance must:
Provide such methods and procedures relating to the payment for ... care and services available under the plan ... as may be necessary to ... assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area....
*5 In Arkansas Medical Society, Inc. v. Reynolds, 6 F.3d 519, 528 (8th Cir.1993), the Eighth Circuit held that 42 U.S.C. § 1396a(a)(30)(A) creates rights that are enforceable in a civil rights lawsuit brought pursuant to 42 U.S.C. § 1983. The issue thus becomes whether the
4

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

Defendants have violated the provisions of 42 U.S.C. § 1396a(a)(30)(A) in deciding to terminate funding for early intervention day treatment services under the State Plan.
Under Arkansas Medical Society, whenever a state cuts reimbursement rates for Medicaid services, it must first consider the effect its decision will have on the factors set forth in 42 U.S.C. § 1396a(a)(30)(A)—that is, economy, efficiency, quality of care and equal access. The Defendants concede that they did not consider these factors before making their decision to terminate funding for early intervention day treatment services. They admitted as much in the statement of undisputed facts filed in support of their motion for summary judgment, as well as through the testimony of Mr. Hanley.18

18

See pages 198–199 of the December transcript and

Statement of Undisputed Material Facts (Doc. No. 44).

The Defendants argue that they were not obligated to consider the four factors set forth under the statute because 42 U.S.C. § 1396a(a)(30)(A) only applies to rate setting. I also reject this argument. The statute obligates the Defendants to provide “such methods and procedures relating to the payment for ... care and services available under the plan ... as may be necessary to ... assure that payments are consistent with” economy, efficiency, quality of care and equal access.19 The statute speaks in reference to the adequacy of “payments,” and is not limited to situations where the only thing being changed is a payment rate. In view of the specific facts of this case, I do not find Defendants’ cases from other circuits addressing rate-setting to be persuasive.20

19

42 U.S.C. § 1396a(a)(30)(A).

20

Rimes v. Shalala, 999 F.2d 684, 691 (2d

Cir.1993)(Court of Appeals held that public notice

requirements of federal regulations did not apply to

changes in requirements for Medicaid eligibility);

Moody Emergency Med, Servs. v. City of Millbrook,

697 F.Supp. 488, 495–497 (M.D.Ala.1997)(District

Court found that provider’s claim challenging

distribution of Medicaid recipients for use of its

services, rather than adequacy of reimbursement rates

for its services, failed to state actionable claim under

equal access provision); Sobky v. Smoley, 855 F.Supp.

1123, 1138 (E.D.Cal.1994)(The District Court found

that the state practice of allowing counties to determine whether and in what amount to provide Medicaid funded methadone maintenance treatment did not violate equal access provision of Medicaid statute). See the legislative history found in H.R.Rep. No. 101–247 (1989), reprinted in 1989 U.S.C.C.A.N.1906, 2060, 2115–16.

Plaintiffs argue that changes in payments for Medicaid services can trigger this statute and that payment is equal to the rate established for a particular type of service multiplied by the number of units of service provided.21 Payment may be reduced by lowering the rate, and payment may also be reduced by lowering the units of service that may be provided. Here, the Defendants decided to stop paying for early intervention day treatment services altogether. Defendants contend that moving the services to EPSDT will not affect the rate changes for such services—so they are not required to consider the factors of economy, efficiency, quality of care and equal access. The facts, however, reveal that moving the services previously provided by CHMS to EPSDT will decrease the availability of these services to developmentally-delayed children due to the added level of screening required under EPSDT.22 This action reduces the number of services paid for by the state, which, in turn, reduces the state’s expenditures. Consequently, this affects payment for Medicaid services.

21

For example: basic eye examination (type of service

provided at fixed rate) x 15 children (units) = payment.

22

See pages 49–50 and 112–114 of the September

transcript.

Had the Defendants decided to reduce the rate for early intervention day treatment services to a penny per unit, then the provisions of 42 U.S.C. § 1396a(a)(30)(A) would be implicated and the four factors set forth under that statute would have to be studied. But, accepting the argument proposed by the Defendants would allow them to eliminate payment for those services altogether, thereby avoiding the necessity of performing any analysis. If Defendants’ reasoning were followed, it would create a gaping loophole in the Medicaid Act. I decline to accept this notion.
*6 If the Defendants’ decision were to go into effect,
5

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

early intervention day treatment services would not be paid for under any other part of the Arkansas Medicaid Plan. Because early intervention day treatment services would not be available under any other part of this plan, the decision would obviously also have a substantially adverse impact on equal access to this care.
The decision made by the Defendants affects payment for early intervention day treatment services.23 I do not believe that the language of the statute is limited to rate-setting cases. In Seniors United for Action v. Ray, 529 F.Supp. 55, 60 (N.D.Iowa 1981), the court held that “the elimination of a Medicaid service is a change in both the level and method of payment.” While the case did not involve the Medicaid statute before me today, the reasoning of that decision is sound and is analogous. Before the Defendants can terminate Medicaid payment for such services, they must conduct a proper study and assure the citizens of Arkansas that the factors of economy, efficiency, quality of care and equal access will not be jeopardized.

23

Both parties agree that the proposed plan amendment

does not specifically address rate setting. The

undisputed evidence establishes that, after the Plan is

amended in accordance with the July 30, 2002 amended

injunction (Doc. No. 41), future EPSDT services that

are equivalent to existing CHMS services will be paid

at the present CHMS rates.

In the present case, the Plaintiffs have presented evidence of a course of conduct at ADHS, implemented by the individual defendants over a number of years, that raises deep concerns. ADHS lost in Arkansas Medical Society,26 a case involving the factors of economy, efficiency, quality of care and equal access. It seems to me that should have been a word to the wise. Nonetheless, the Defendants decided in 1999 to cut CHMS payment rates for early intervention day treatment services without considering those factors.27 ADHS amended its Medicaid plan and changed reimbursement rates for CHMS providers which would have reduced the bundled cap rate for core treatment services from $95.00 to $75.00 per day.28 By failing to conduct any kind of analysis, the Defendants ignored federal law when they decided to cut rates. A lawsuit was filed and the United States District Court for the Eastern District of Arkansas enjoined them.29 This should have been another word to the wise.

26

Arkansas Medical Society, Inc. v. Reynolds, 6 F.3d 519,

528 (8th Cir.1993)(The district court held that ADHS

violated 42 U.S .C. § 1396a(a)(30)(A) by failing to

consider whether proposed reimbursement rate

reductions to Medicaid providers based on state

budgetary concerns were consistent with efficiency,

economy, and quality of care and whether the rate cuts

would affect Medicaid recipients’ access to health care

services).

V. SUBSTANTIVE DUE PROCESS In Counts I and III of their Complaint, the Plaintiffs allege that the decision made by the Defendants violates their right to substantive due process. The Fourteenth Amendment guarantees substantive due process, “which prevents the government from engaging in conduct that shocks the conscience or interferes with rights implicit in the concept of ordered liberty.”24 The Fourteenth Amendment also prohibits “conduct that is so outrageous that it ... offends ‘judicial notions of fairness, [or is] offensive to human dignity.’ “25

24

Moran v. Clarke, 296 F.3d 638, 643 (8th Cir.2002).

25

Wetter v. Purkett, 137 F.3d 1047, 1051 (8th

Cir.1998)(en banc).

27

See Pediatric Specialty Care, Inc. v. Arkansas

Department of Human Services, No.

4:99CV00810–JMM, Complaint filed October 28, 1999

(Doc. No. 1).

28

Id.

29

See page 114 of the December transcript which

references Pediatric Specialty Care, Inc. v. Arkansas

Department of Human Services, No.

4:99CV00810–JMM, Order of Injunction filed

November 5, 1999 (Doc. No. 8).

Despite the above, the Defendants decided in this case, in November of 2001, to stop paying for early intervention
6

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

day treatment services altogether.30 The Defendants now attempt to cast their decision in a different light. I have been perplexed at Defendants’ change of position between December, 2001, and September, 2002. After considering all the evidence, it looks to all the world like political considerations may well have been a motivating factor in Defendants’ original decision reflected in the November 30, 2001 press release and its change of position reflected in its current arguments.

30

Plaintiffs’ Exhibit 4.

*7 The Plaintiffs presented evidence that the decision was motivated by “politics.” Don Tilton testified that he spoke with Mr. Knickrehm and Mr. Hanley at the State Capitol on November 26, 2001.31 During that conversation, Mr. Tilton says that he explained that it would make more sense for the Defendants to spread the budget cuts that needed to be made across the entire Medicaid program in Arkansas, rather than just focus cuts on the CHMS program .32 Mr. Tilton says that he described it as a “fairness issue,” and Mr. Knickrehm agreed with his remark.33 Mr. Knickrehm said, “Don, the truth of the matter is, this is getting ready to get down to just plain old politics.”34 While Mr. Knickrehm and Mr. Hanley denied these statements, I credit Mr. Tilton’s testimony.

31

See page 152 of the December transcript.

32

See page 155 of the December transcript.

33

See page 157 of the December transcript.

34

See pages 152 and 157 of the December transcript.

Mr. Tilton also testified that the Defendants harbor ill will toward the CHMS program because of its past association with Nick Wilson, a former state senator from Arkansas who at one point was involved in the CHMS program.35 Senator Wilson and the Governor of Arkansas were bitter political adversaries and, according to the testimony of Mr. Tilton, Mr. Knickrehm and Mr. Hanley both mentioned a “Nick Wilson factor” when dealing with the

CHMS program.36 Since Nick Wilson was no longer on the scene (either in the Senate or with CHMS), it is a little hard to understand why the Defendants were still concerned with this factor; but, apparently, the ill will lingered.

35

See page 158 of the December transcript.

36

See pages 157 to 160 of the December transcript.

It is hard for me to think of any other reason for Defendants’ adamant and continuing refusal to accept the plain language of the Eighth Circuit decision. If politics is not the explanation, what else could be?
On top of this evidence, the press release indicates that the only state Medicaid program targeted for extinction in November of 2001 was the CHMS program. While there were other cuts proposed at that time, no other program was to be eviscerated in the same manner as was the CHMS program. Rather than consulting with CHMS providers in an effort to solve the budget problems at ADHS, and rather than proposing rate reductions for all Medicaid programs in Arkansas (supported by an appropriate study), the Defendants decided to stop paying for early intervention day treatment services and leave other programs completely intact.
As a result of this decision, many children will be denied “the same degree of access to the technical professional concerns that might have come from therapists.”37 Mr. Dalton testified that “fewer children will use the service ... fewer children will have that service available to them because primary care physicians, maybe not skilled, not as skilled in some areas in issues of pediatrics, will be loathe to recommend the levels of service that many of these children with developmental delays will be requiring.”38 Developmentally delayed children should not be treated in this way. The proposed result of the Defendants’ decision is the type of behavior that “shocks the conscience ‘of the court,’ “ and, therefore, it is enjoined.

37

See page 112 of the September transcript.

7

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

38

See page 113 of the September transcript.

*8 After the Defendants were enjoined last December from cutting early intervention day treatment services, they are now attempting to sidestep the injunction by “off planing” the CHMS program. Under the decision set forth in the press release, the Defendants intended to stop paying for early intervention day treatment and therapy services in CHMS clinics, allowing the clinics to perform only those services related to the diagnosis and evaluation of developmental delays. Under their “new” way of thinking, it is apparent that the Defendants intended to get rid of the CHMS program altogether and CHMS clinics would no longer exist. In fact, the Defendants acknowledge in a letter dated October 1, 200239 that “off planning” the CHMS program will allow them to reduce rates for CHMS services without conducting the study required by 42 U.S.C. § 1396a(a)(30)(A) and without considering the best interests of all Medicaid recipients required by 42 U.S.C. § 1396a(a)(19).

39

Plaintiffs submitted the letter as an Exhibit pursuant to

Court order. See page 134–135 of the September

transcript.

I find that the Defendants violated Plaintiffs’ substantive due process rights, and I enjoin the Defendants from “off planning” the type of services now offered by the CHMS program. As stated at the September hearing, I have had a difficult time understanding Defendants’ adamant positions—many of which are squarely contrary to the Eighth Circuit’s opinion and contrary to my orders which were upheld by the Eighth Circuit.40 Perhaps this Order will help the Defendants’ see it from another angle.

40

See page 8 of the September transcript.

VI. CONCLUSION For these reasons, I hold for the Plaintiffs. The Plaintiffs are prevailing parties and may file a motion for their costs and attorneys fees within the time provided under the applicable rules of procedure. Judgment will be entered accordingly.
IT IS SO ORDERED.
	  

8

 
 Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 1 of 20

IN THE UNITED STATES DISTRICT COURT

FILED

EASTERN DISTRICT OF ARKANSAS

WESTERN DIVISION

EAST~~N'6'I~t~g~~SAS

PEDIATRIC SPECIALTY CARE, INC.: CHILD & YOUTH PEDIATRIC DAY CLINICS, INC.: TOMORROW'S CHILD LEARNING CENTER, LLC: JAMES and STACEY SWINDLE, as parents and next friends of JACOB and NOAH SWINDLE, minors: and SUSANN CRESPINO, as parent and next friend of MICHAEL CRESPINO, a minor

MAY 2 8 2IJOlt
JAMES W. McCORMACK, CLERK By:----------,;c'Di"TDECP 'COLEiR<K
PLAINTIFFS

VS.

Case No. 4:01-CV-00830-WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES: KURT KNICKREHM, in his individual and official capacity as DIRECTOR OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES: RAY HANLEY, in his individual and official capacity as DIRECTOR OF THE DIVISION OF MEDICAL SERVICES OF THE ARKANSAS DEPARTMENT OF HUMAN SERVICES: and ARKANSAS FOUNDATION FOR MEDICAL CARE, INC.

DEFENDANTS

ORDER

Pending are Plaintiff Tomorrow's Child Learning Center's ("Plaintiffs) Motion for

Temporary Restraining Order (Doc. No. 117) and Motion to Show Cause (Doc. No. 119).

Defendants have responded to each motion (Doc. No. 126). Several hearings have been held, and

the Motion for Temporary Restraining Order will be treated as a Motion for Preliminary Injunction

under Rule 65(a) of the Federal Rules of Civil Procedure.

I. INTRODUCTION

Plaintiff requests an injunction under Rule 65 of the Federal Rules of Civil Procedure, to

enjoin Defendants: (1) from denying admission into the CHMS program to eligible children who

I

1 50

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 2 of 20
have only one diagnosed medical, behavioral, or developmental delay, disability, or handicapping condition; (2) from reducing early intervention day treatment services from 6 hours to 3.5 hours per child, per day, regardless of the child's medical or psychological condition; (3) to publish the names ofpeer review physicians, upon request, to beneficiaries and providers; and (4) to publish regulations that govern the prior authorization of CHMS services, in order to prevent Defendants from creating new rules without notice to recipients or providers and using the new rules to deny CHMS services to eligible children.
In order to obtain a preliminary injunction, Plaintiff is required to clearly demonstrate a "substantial probability of success at trial by the moving party" and possible "irreparable injury to the moving party" if an injunction is not issued,I or to show that "there are sufficiently serious questions going to the merits making them a fair ground for litigation and a balance of hardships tipping decidedly toward plaintiff.'" For the reasons set forth below, I hold that Plaintiffhas not met its burden with respect to the first three issues; however, Defendants should be required to publish the criteria upon which prior authorization is based (recognized standardized tests). Therefore, Plaintiffs Motion for Temporary Restraining Order and Preliminary Injunction is GRANTED in PART and DENIED in PART.
II. THE MEDICAID ACT AND CHMS MODEL The Medicaid program3 is a jointly funded federal-state program established by Congress in 1965 to enable each State to furnish medical assistance to certain individuals. A state's participation
I Frejlach v. Butler, 573 F.2d 1026, 1027 (8th Cir. 1978). , Campbell "66" Exp., Inc. v. Rundel, 597 F.2d 125, 127 (8th Cir. 1979). 3 42 U.S.C. §§ 1396-1396v.
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Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 3 of 20
in the program is voluntary; however, if a State chooses to participate and receive federal matching funds, it must comply with federal Medicaid law! Arkansas participates in the Medicaid program, and the Arkansas Department of Human Services ("ADHS") is the state agency charged with administering the program.
In 1967, Congress amended the Act to require early and periodic screening, diagnostic and treatment ("EPSDT") services to Medicaid-eligible children. Th<: EPSDT reforms enacted by Congress in 1989 obligate participating states "to provide a comprehensive package of preventive services that meet reasonable standards ofmedical necessity.'" Under the EPSDT provisions, states are required to provide, in addition to screening, vision, dental, and hearing services, other health care, diagnostic services, treatment, and other measures which are necessary to correct or ameliorate defects and physical and mental illnesses and conditions discovered by screening services, regardless of whether those services are covered under the state plan.6 These amendments, therefore, require states to provide Medicaid coverage for any service "identified as medically necessary through the EPSDT program.,,7
The CHMS program is administered by ADHS and is "the health care model that Arkansas currently uses to provide early intervention diagnostic and therapy services to Medicaid-eligible children between the ages of six months and six years.'" The CHMS program may be divided into
4 42 U.S.C. § 1396a(a). 5 Rosie D. ex reI. John D. v. Swift, 310 F.3d 230, 232 (I st Cir. 2002). 6 42 U.S.C. § 1396d(r)(5). 7 Rosie D., 310 F.3d at 232. , Pediatric Spec. Care, Inc., et al. v. Ark. Dept. ofHuman Servs., et aI., 293 F.3d 472, 475 (8th Cir. 2002).
3

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 4 of 20
three categories: (J) diagnostic and evaluation services; (2) early intervention day treatment; and (3) therapies and other treatments:
CHMS clinics are designed for chi Idren who "have or are at increased risk for chronic physical, developmental, behavioral, or emotional conditions and who require health and related services of a type or amount beyond that required by children generally."'o The program is designed to facilitate the maximum reduction of physical or mental disability [md restoration ofan individual to the best possible functional level. This goal is accomplished by providing full medical multidiscipline diagnosis, evaluation, and treatment in one location to more effectively intervene, treat, and prevent long-term disability for eligible children.
Each CHMS clinic is staffed by a multidisciplinary team of medical professions, including nurses, social workers, therapists, and psychologists, who provide diagnostic and evaluation services. Under this program, the primary care physician refers a child to a CHMS clinic for a "diagnostic evaluation consisting of audiology, medical, behavioral, speech, language, and psychological assessments."" Once the evaluation is complete, CHMS staff prepare an individualized treatment
9 Id at 475. 10 Id. Plaintiff notes that a child who has been diagnosed with AIDS, cystic fibrosis, child maltreatment syndrome (victim ofabuse and neglect), Down Syndrome, lead poisoning, congenital heart disease, cerebral degeneration, or macroephaly, is eligible for the program. CHMS Provider Manual § 217.110. A child who has a developmental diagnosis such as autism, blindness or visual impairment, cerebral palsy, cognitive disorders, deafness or hearing impediment, developmental delay, motor skills disorder, learning disabilities, or mental retardation, may also be eligible for CHMS. CHMS Provider Manual § 217.120. However, CHMS is required for children who are diagnosed with three or more medical, developmental, behavioral, or environmental conditions/traumas. CHMS Provider Manual § 217.130. See also Pediatric Spec. Care, Inc., 293 F.3d at 475, n.!. " Pediatric Spec. Care, Inc., 293 F.3d at 475.
4

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 5 of 20
plan for the child, and a CHMS physician then prescribes services and treatments for the child.12 Currently, CHMS is the only program under the state Medicaid plan in which children may receive early intervention day treatment services in conjunction with therapy services. 13
According to the Eighth Circuit, "[t]he early intervention day treatment program is a type of day care program run by early childhood specialists and overseen by medical staff. ,,14 This program is designed to "ameliorate conditions discovered by the EPSDT evaluations and to strengthen the skills children learn in therapy.,,15 To accomplish this goal, teachers and therapists work closely together, and medical personnel are available for emergencies. 16 The program is meant to serve "children who are not able to function or learn in a normal day can: setting such as Head Start."17 Although Arkansas's State Medicaid Plan need not specifically include CHMS early intervention day treatment services, ADHS cannot refuse to pay for the services for categorically needy children if they are medically necessary.I'
12 Jd. at 476. \3 Id. at 475. The therapies and treatments provided at the CHMS clinics include: nutrition services, behavior therapies, occupational and physical therapies, speech and language pathology services, psychological therapies, and early intervention day treatment. Id. at 476. CHMS clinics provide approximately six hours of early intervention day treatment services in conjunction with therapy services. As I noted in an earlier order, early intervention day treatment is a rehabilitative service with medical and remedial components. See Pediatric Specialty Care, Inc., et al. v. Ark. Dept. a/Human Servs., No. 4:01-CV-00830-WRW, slip. op. at 14 (E.D. Ark. Dec. 18,2001). 14 Pediatric Spec. Care, Inc., 293 F.3d at 476, n.2. 15 Id. 16 Id. 17 Id. The services are charged in units, and are multiplied by the rates published by AFMC. These services are not paid in bulk. I' Id. at 479.
5

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 6 of 20
III. DISCUSSION
A. PRIOR AUTHORIZATION
Plaintiff first contends that the CHMS program is designed to treat children who carry a prescription for, at a minimum, early intervention day treatment services and at least one form of therapy19 Since ADHS contracted with AFMC to provide utilization controls of the CHMS program in 2000, Plaintiff alleges that Defendant AFMC has refused to recognize cognitive, adaptive, or personal/social areas ofdelay, and will only approve children who are severely delayed in terms of their motor or communication skills.20 By adopting these standards, Plaintiff contends, Defendants only admit children who have been prescribed early intervention day treatment and two or more forms of therapy." This procedure, according to Plaintiff, violates the Medicaid Act because Defendants may not limit CHMS services to only those children with severe delays, and because admission based on the number ofdiagnoses ignores the requirement that Medicaid provide services which are medically necessary.'2
19 During the hearings held in this matter, Plaintiff acknowledged that a child who has only a prescription for early intervention day treatment services or one form of therapy would not be submitted to AFMC for admission into the CHMS program. Plaintiff admits that, although early intervention day treatment services are available only in a CHMS setting, the services are meant to be provided in conjunction with another form of therapy. At one time, CHMS services were not subject to any form of utilization review; CHMS services were prescribed by treating physicians, provided and billed by CHMS facilities, and paid for by ADHS. ADHS routinely admitted children for whom early intervention day treatment services and only one form of therapy were prescribed.
20 Gross motor delays are treated with physical therapy, fine motor delays are treated with occupational therapy, and communication delays are treated with speech therapy.
21 Affidavit of Melissa Thomas at ~ 2, Exhibit A. 22 42 U.S.C. § 1396d(a)(l3) and 1396d(r).
6

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 7 of 20
Defendants counter that, under the Medicaid Act, they are pennitted to use peer review physicians to detennine whether prescribed services are medically necessary, in an effort to ensure that Medicaid funds are only used for medically necessary treatments. It is well-settled that "participating states are not required . . . to fund all medical services falling under one of the mandatory coverage categories ... because [Congress has conferred] 'broad discretion on the States to adopt standards for detennining the extent of medical assistance""m to ensure that "the largest number ofnecessary medical services to the greatest number ofneedy people."24 The Eighth Circuit, in Smith v. Rasmussen," recognized that each state is given "broad discretion ... to adopt standards for detennining the extent of medical assistance," as long as the standards are "reasonable" and "consistent with the objectives of the Act.,,'6 Thus, a State "may place appropriate limits on a service based on such criteria as medical necessity or on utilization control procedures.""
Congress authorized each State to contract with utilization and quality control peer review organization to perfonn "medical or utilization review functions ... with respect to specific services or providers."28 Under section 1320c-l, a "utilization and quality control peer review organization consists of licensed doctors of medicine ... engaged in the practice of medicine or surgery in the
23 Hern v. Beye, 57 F.3d 906, 910 (lOth Cir. 1995). 24 Smith v. Rasmussen, 249 F.3d 755, 759 (8th Cir. 2001). " 249 F.3d 755 (8th Cir. 2001). 26 ld. at 759. 27 ld., see also Weaver v. Reagen, 886 F.2d 194, 198 (8th Cir. 1989) (en banc) and Beal v. Doe, 432 U.S. 438, 444 (1977) (quoting 42 U.S.C. § 1396a(a)(l7). 28 42 U.S.c. § 1396a(d).
7

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 8 of 20
area [who] ... perform review functions required under section 1320c-3."29 Section 1320c-3 lists the various functions of peer review organizations and notes that peer review organizations:
Review some or all of the professional activities . . . of physicians and other health care practitioners and institutional and noninstitutional providers of health care services in the provision ofhealth care services and items for which payment may be made ... for the purpose of determining whether -- (A) such services and items are or were reasonable and medically necessary and whether such services and items are not allowable under subsection (a)(l) or (a)(9) of section 1395y of this title ... 30 If the peer review organization concludes that a prescribed treatment is not medically necessary, the beneficiary, practitioner, or provider is entitled to a reconsideration by the peerreview organization that made the decision." Before a reconsidered determination may be made, the beneficiary or provider must be given an opportunity to submit new evidence.32 Under the peer review system implemented by AFMC, requests for CHMS services are forwarded to AFMC.33 Ifthe child does not meet the AFMC's internal screening guidelines, the request is forwarded to a peer review physician, who determines whether CHMS treatment is medically necessary for the maximum reduction of disability and functional restoration. If so, the treatment is "prior authorized" and the child will be treated at a CHMS clinic.
29 42U.S.C. § 1320c-\. 30 42 U.S.C. § 1320c-3. 31 42 U.S.C. § 1320c-4. A dissatisfied beneficiary, provider, physician, or other practitioner seeking a reconsideration must submit a written request to the peer review organization that made the initial determination within 60 days after receipt of the notice of an initial determination. See 42 C.F.R. §§ 478.18 and 478.20. 32 42 C.F.R. § 478.24. This section appears in the regulations governing the Centers for Medicare and Medicaid Services ofthe Department of Health and Human Services. 33 See also CHMS Provider Manual, § 242.000, which sets forth the prior authorization procedure to be followed by CHMS providers.
8

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 9 of 20
During the hearing, AFMC representatives testified that AFMC's nurses and peer reviewers focus on the number ofprescriptions which are medically necessary when deciding whether to prior authorize CHMS services. Because CHMS services are defined as "multidisciplinary care," Defendants interpret this to mean that the CHMS program is not designed to provide a single treatment, such as physical therapy alone. Thus, CHMS services are typically approved for children with multiple medical, behavioral, or developmental delays, disabilities, or handicapping conditions who require multidisciplinary treatment. Children with only a single diagnosis are also approved for CHMS benefits, if the diagnosis is severe enough that multidisciplinary treatment is necessary. If a primary care physician prescribes early intervention day treatment and only one form oftherapy, CHMS services are approved ifboth prescriptions are deemed to be medically necessary. However, iftwo treatments are prescribed and a peer reviewer determines that only one is medically necessary, CHMS multidisciplinary care is denied.34
Plaintiff argues that, because "the decision of whether or not certain treatment . IS 'medically necessary' rests with the individual recipient's physician and not with clerical personnel or government officials."35 Applying this principle, Plaintiff contends that Defendants may not second-guess a physician's recommended treatment. I agree that, ordinarily, "[tJhe decision of whether or not certain treatment or a particular type of surgery is 'medically necessary' rests with the individual recipient's physician and not with clerical personnel or government officials."36
34 A child with only one medically necessary treatment, according to Defendants, may seek treatment from a Medicaid-enrolled provider who provides that one service. If a CHMS provider is properly qualified, and enrolled to furnish the necessary single treatment, a child with only one prescription may receive his or her treatment at a CHMS facility.
35 Weaver, 886 F.2d at 199. 36 Pinneke v. Preisser, 623 F.2d 546, 550 (8th Cir. 1980).
9

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 10 of 20
Defendants maintain that the determination of whether services are medically necessary is not solely reserved for the physician who prescribes the services, but may ultimately be decided by peer reviewers.37 I agree.
Congress has authorized states to contract with peer review organizations for the final determination of whether services are medically necessary, despite the fact that each health care practitioner, physician, hospital or other health care facility, organization, or agency is required "to assure, to the extent of his authority that services or items ordered or provided by such practitioner or person to beneficiaries and recipients under this chapter ... will be provided economically and only when, and to the extent, medically necessary.,,3'
Because Congress has authorized Arkansas to contract with a peer review organization to determine whether services are medically necessary, I cannot hold that AFMC is required to approve services for every prescription submitted for prior authorization, so Plaintiffs Motion for Temporary Restraining Order on this specific point is DENIED39
B. SEVERITY OF DELAY Plaintiffnext contends that AFMC refuses to recognize a need for any form oftherapy unless a child is severely delayed. Before January I, 2003, according to Plaintiff, Defendants recognized a need for therapy ifthe need was equal to or less than a -1.3 standard deviation.40 Moreover, CHMS
37 42 C.F.R. § 476.1 defines "peer review" as "review by health care practitioners of services ordered or furnished by other practitioners in the same professional field."
38 42 U.S.C. § B20c-S. 39 Only after this procedure has been followed maya court review the denial of CHMS services to determine whether AFMC's decision violates the Medicaid Act. 40 As I understand it, the standard deviation refers to the severity of a child's delay. For example, if tests reveal that a child's deviation from a standard norm is -1.3, the child is classified
10

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clinics are required to test each child before the prior authorization expires. Ifthe child has improved above a -1.5 standard deviation level, Defendants remove the child from the CHMS program. Ifthe child regresses below the -1.5 standard deviation, the child re-qualifies for CHMS services and is readmitted. According to Plaintiff, under this system, a child receives sporadic treatment and is never able to obtain the maximum reduction of physical and mental disability and restoration to the best possible functional level. Therefore, Plaintiffseeks to enjoin Defendants from limiting services based on this standard.41
Defendants admit that AFMC reviews therapy requests to determine if the applicant's impairment is -1.5 deviations below normal. Defendants also assert that this impairment level is generally accepted as the threshold at which therapies become medically necessary, and denies that the thresholdwas ever -1.3, as Plaintiff alleges but did not prove. For the same reasons set forth in the previous section, I am unable to conclude that the standards established by AFMC as part of its peer review/prior authorization procedures are arbitrary or capricious.
The Medicaid Act requires that treatments administered under the Act comply with professionally recognized standards 4 ' Although Plaintiff has presented evidence that AFMC once approved services for children with only a -1.3 standard deviation, Plaintiff has presented no evidence that the -1.5 standard deviation is not the professionally recognized standard at which therapies become medically necessary. Moreover, the Eighth Circuit has recognized that a State may
as moderately delayed. A child who scores a -1.5 standard deviation is classified as severely delayed.
41 42 U.S.C. I 396d(a)(l 3). 42 42 U.S.C. § B20c-5.
11

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deny benefits upon based on the degree of medical necessity.43 Thus, I cannot compel Defendants to alter the standards established in the CHMS manual for admission into the program. For the Same reasons, I cannot require AFMC to continue to pay for CHMS services once a child improved above the -1.5 standard deviation, although there is evidence that if a child is removed, he or she may regress.
Based on the evidence presented during the various hearings held in this matter, I find that Plaintiff has failed to show that a likelihood of success on the merits on this particular issue. The motion to enjoin Defendants to alter the standards concerning the level at which admission into the CHMS program must be permitted is, therefore, DENIED.
C. REDUCTION OF EARLY INTERVENTION DAY TREATMENT SERVICES Plaintiff also seeks an injunction to prohibit AFMC from reducing early intervention day treatment services from six hours to 3 or 3.5 hours per day, per child. Plaintiff notes that, before, March 1, 2000, ADHS required providers to provide a minimum of six hours of early intervention day treatment service, depending on the severity ofa child's developmental delays. Now AFMC will only approvebetween 3 to 3.5 hours of early intervention day treatment services per child per day, a level that will not result, Plaintiff contends, in the maximum reduction of physical and mental impairment, and which will not restore the individual to the best possible functionallevel.44
43 Pinneke, 623 F.2d at 550. 44 Affidavit ofDr. Sharon Ramey at ~ 15, Exhibit B. According to Dr. Ramey, the collective body of research indicates that early intervention day treatment services result in the maximum reduction of physical and mental disability and restoration of an individual to the best-possible functional level when at least six hours of these services are provided per child per day. In contrast, Dr. Ramey points out, there is no evidence that such lesser amounts produce any measurable benefits at all, much less the maximum reduction of disability or the best possible functional level.
12

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Defendants respond that there is no evidence of an "across-the-board" decision to reduce the number of hours available as part of early intervention day treatment services, and admit that such a decision would violate the Medicaid Act. Instead, Defendants contend that the six hour requirement should be altered because: (1) the fixed number is not based on medical necessity, and inevitably results in unnecessary services, which violates the Medicaid Act; (2) it wastes resources by failing to match needs and services; and (3) it overpays providers for children who need less than six hours of treatment.
Defendants argue that each child is different, and the determination of the length of early intervention day treatment services necessary to ensure the maximum reduction of physical and mental impairment and functional restoration should be performed on a case-by-case basis. In other words, the Medicaid Act prohibits the disbursement of funds for services which are not medically necessary. Because not all children have the same needs, the length of early intervention day treatment services should vary depending on the child's needs.
I recognize that Plaintiff has presented evidence that indicated that six hours of early intervention day treatment results in the maximum reduction of physical and mental disability but based on the principles outlined above, I cannot say that the approval ofthe number of hours a child receives in early intervention day treatment, if based on an individualized determination ofmedical necessity, violates the Medicaid Act. As noted, however, a rule limiting the amount of services for all children, regardless of the severity of their delays and without consideration of a child's diagnosed condition, his prescribed treatment, and the accumulated knowledge of the medical community," may well run afoul of the Medicaid Act's requirements that services be based on
45 Pinneke, 623 F.2d at 549. 13

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 14 of 20
medical necessity. To the extent that Plaintiff seeks an order enjoining Defendants from limiting services based on a case-by-case assessment ofeach prescription for CHMS services, the Motion is DENIED.
D. PUBLICATION OF REGULATIONS
Finally, Plaintiff contends that AFMC should be enjoined to publish regulations that govern the prior authorization ofCHMS services. At this time, Plaintiffasserts that AFMC does not do so, which enables it to create new rules, without notice to CHMS recipients and providers, in order to deny CHMS services to eligible children. As one example, Ms. Bell testified that Defendants often deny prescribed services on the ground that a test used to evaluate a child's needs is not recognized by Defendants. AFMC' s Amy Carson stated during one of the hearings in this matter that a list of accepted tests is being put together by different therapy associations, but that the list is incomplete and has not been received by AFMC.
The Eighth Circuit has already warned that providers are required to "inform Medicaid recipients about the EPSDT services that are available to them and ... must arrange for the corrective treatments prescribed by physicians."46 Defendants are not permitted to "shirk [their] responsibilities to Medicaid recipients by burying information about available services in a complex bureaucratic scheme."47
During the hearing, Ms. Bell testified that the example cited above was only one of many, and that obtaining prior authorization from AFMC has become a trial by which the blind are essentially leading the blind. Although Defendants insist that their guidelines are available to
46 Pediatric Spec. Care, Inc., 289 F.3d at 481. 47 Id.
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providers upon request, they have clearly been denying services based on unpublished criteria. This is contrary to the Eighth Circuit admonition mentioned above. Nor may Defendants bury requirements or standards for various services so that providers are unable to comply with those requirements by providing the proper information and records. Accordingly, until AFMC's requirements and standards for CHMS services is published, including the tests required to obtain services, Defendants are enjoined from arbitrarily denying services based on unpublished criteria, and from changing its criteria without notice to providers and recipients of Medicaid benefits. Providers are also required to certify that the care or services "wi1l be of a quality which meets professionally recognized standards of health care ... and will be supported by evidence of medical necessity and quality in such form and fashion and at such time as may reasonably be required by a reviewing peer review organization in the exercise of its duties and responsibilities.""
E. DISCLOSURE OF NAMES Plaintiff seeks an Order enjoining Defendants to reveal the names of peer reviewers responsible for determining when and whether services are medically necessary. Congress has addressed this point and has stated that peer review organizations are not "federal agencies" for purposes of the Freedom ofInformation Act, and:
[Any1"data or information acquired by any such organization in the exercise of its
duties and functions shall be held in confidence and shall not be disclosed to any person except: (I) to the extent that may be necessary to carry out the purposes of this part, (2) in such cases and under such circumstances as the Secretary shall by regulations provide to assure adequate protection of the rights and interests of patients, health care practitioners, or providers of health care, or
48 42 U.S.C. § 1320c-5. 15

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(3) in accordance with subsection (b) of this section.49 Subsection (b) lists specific instances where the peer review organization "shall" provide date an information, none of which includes the scenario set forth by Plaintiff, when Plaintiff wants the name to challenge the peer review physician. Moreover, under subsection (c), the statute provides that it is illegal to disclose the information for any other reason, and may result in a fine of not more than $1,000 and imprisonment of6 months, together with the costs ofprosecution. Section (d) goes so far as to specifically provide that "no patient record in the possession of an organization ... shall be subject to subpoena or discovery proceedings in a civil action."50 There is a federal regulation that explains this more effectively, providing that, "at the request
ofa provider, practitioner or beneficiary, the [peer review organization1must provide an opportunity
for examination ofthe material upon which the initial denial determination was based."51 However, under the regulations, the peer review organization is absolutely prohibited from furnishing any of the following:
(1) A record of the PRO deliberation; or (2) The identity of the PRO review coordinators, physician advisors, or consultants who assisted in the initial denial determination without their consent. 52 I do not cotton to the notion that "secret doctors" are able to perform peer reviews; it seems to me that this procedure places Medicaid beneficiaries and providers at an unfair advantage when they attempt to challenge the denial of benefits based on a peer reviewers assessment. Although I do not
49 42 U.S.C. § 1320c-9. 50 42 U.S.C. § 1320c-9. 51 42 C.F.R. § 478.24. 52 Id.
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Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 17 of 20
like it at all, it appears to be the law, and I therefore DENY Plaintiffs Motion to compel the publication of peer reviewer's names.
IV. CONCLUSION In previous orders, I have held that the Arkansas Department of Human Services may not refuse to provide CHMS services in all cases under the Medicaid Act.53 Now, Plaintiff asks that AFMC be required to approve all prescriptions for CHMS services; to compel Defendants to lower the standards they have set for admission into the program; and to disclose the names of peer reviewers who make the decision to deny services. After reviewing the applicable law, Plaintiffs Motion is DENIED with respect to these points. However, it is clear that Defendants deny services based on standards which are not always published (the DAYC test example). In this regard, I hold that Plaintiff has shown a likelihood of success on the merits and irreparable harm; therefore, Plaintiffs Motion is GRANTED, and Defendants are enjoined from denying services based on an unpublished list of accepted testing criteria. Further, Defendants must forthwith compile a list of recognized tests which establish a need for the various therapies and services provided by CHMS providers. For the reasons set forth above, Plaintiffs Motion for Temporary Restraining Order (Doc. No. 117) is GRANTED in part and DENIED in PART; however, Plaintiffs Motion to Show Cause (Doc. No. 1J9) should also be, and hereby is, DENIED. Notwithstanding this holding, I leave
53 This holding reflects the well-established principle that, although a State has considerable discretion in fashioning its Medicaid program, the discretion of the state is not unbridled. A state may not "arbitrarily deny or reduce the amount, duration, or scope of a required service ... to an otherwise eligible recipient solely because of the diagnosis, type of illness or condition." Weaver, 886 F.2d at 197-98.
17

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 18 of 20

Defendants with a quote from Salazar v. District o/Columbia,54 in which the Honorable Gladys

Kessler observed that:

[A Medicaid] case is about people--children and adults who are sick, poor, and

vulnerable--for whom life, in the memorable words of poet Langston Hughes, "ain't

been no crystal stair." It is written in the dry and bloodless language of "the law"--

statistics, acronyms ofagencies, and bureaucratic entities, Supreme Court case names

and quotes, official governmental reports, periodicity tables, etc. But let there be no

forgetting the real people to whom this dry and bloodless language gives voice:

anxious, working parents who are too poor to obtain medications or heart catheter

procedures or lead poisoning screens for their children, AIDS patients unable to get

treatment, elderly persons suffering from chronic conditions like diabetes and heart

disease who require constant monitoring and medical attention. Behind every "fact"

found herein is a human face and the reality of being poor in the richest nation on

th~y earth.55
IT IS SO ORDERED

of May, 2004.

Alii t?£j!it!IfdtcL/
UNI D STA ES ISTRICT JU GE WM. R. WILSON, JR.

54 954 F. Supp. 278 (D.C. 1996). 55 Salazar, 954 F. Supp. at 281.
18

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 19 of 20
dc UNITED STATES DISTRICT COURT Eastern District of Arkansas
U.S. Court House 600 West Capitol, Suite 402 Little Rock, Arkansas 72201-3325
May 28, 2004

* * MAILING CERTIFICATE OF CLERK * *
Re: 4:01-cv-00830.

True and correct copies of the attached were mailed by the clerk to the following:

Michael R. Rainwater, Esq. Duncan & Rainwater 6315 Ranch Drive Post Office Box 17250
Little Rock, AR 72222-7250

Press

Martin Wayne Bowen, Esq. Armstrong Allen, PLLC
Post Office Box 251310 Little Rock, AR 72225-1310

Philip E. Kaplan, Esq. Kaplan, Brewer & Maxey, P.A.
Metro Centre Mall
415 Main Street Little Rock, AR 72201-3801

Lee S. Thalheimer, Esq. Arkansas Department of Human Services
Office of Chief Counsel
Slot S260 700 Main Street Post Office Box 1437 Little Rock, AR 72203-1437

Breck G. Hopkins, Esq. Arkansas Department of Human Services Office of Chief Counsel
700 Main Street Post Office Box 1437 Little Rock, AR 72203-1437

Lori Freno, Esq. Arkansas Attorney General's Office Catlett-Prien Tower Building

Case 4:01-cv-00830-BSM Document 150 Filed 05/28/04 Page 20 of 20 323 Ce~ter Street Suite 200 Little Rock, AR 72201-2610
William R. Kanter, Esq. U. S. Department of Justice 601 D Street, NW Room 9121 Washington, DC 20530
Colette G. Matzzie, Esq. U. S. Department of Justice 601 D Street, NW Room 9121 Washington, DC 20530

Da.te: ____5/28/04__

James W. McCormack, Clerk BY: _ __Doris Collins

 
 Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 1 of 17
FILED
u.s. DISTRICT COURT
EASTERN DISTRICT ARKANSAS

NOV 292004

IN THE UNITED STATE DISlRICT COURT EASTERN DISTRICT OF ARKANSAS

~~:~. CK,

::;-_ ~

WESTERN DIVISION

"

:iP CLERK

PEDIATRIC SPECIALTY CARE, INC., ET AL

vs.

NO. 4:01CV00830 WRW

ARKANSAS DEPARTMENT OF HUMAN SERVICES, ET AL

PLAINTIFFS DEFENDANTS

ORDER On May 28, 2004, an order was entered in this case addressing several pending motions, including a Motion by Plaintiff seeking an Order to compel or enjoin Defendants to reveal the names of peer reviewers responsible for determining when and whether services are medically necessary (Docket No. ISO). Against my initial instinct that "secret doctors" should not be allowed to deny medical care when Medicaid beneficiaries could not effectively challenge the denial, I found that 42 U.S.C.§1320c-9 clothed the deliberations of peer review organizations (PRO) with a statutory privilege against the formal discovery process in any administrative or civil proceeding. On reflection, I tentatively changed my mind, but before entering this Order, I asked the parties to file letter briefs on the subject. After reviewing the Defendant's arguments, I am convinced that the original Order addressing this issue was wrong.
Background Due to the complexity of the laws and regulations in this case, background information is necessary. In 1982, Congress amended the Social Security Act by enacting the "Peer Review Improvement Act," codified as 42 U.S.C. §1320c, et seq. The 1982 legislation allowed PROs to assume responsibility for the review of health care services funded under Medicare; to determine
242

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 2 of 17
if those services are medically necessary, efficient, effective; and if they meet professionally recognized standards of care. The amended statute also contained a number of confidentiality provisions that are in 42 U.S.c.§ 1320c-9. These generally prohibit the disclosure of information acquired or produced by a PRO in carrying out its functions under its contracts with the Department of Human Services (DHS). At the time the Act was amended, Congress also authorized the Secretary of Health and Ruman Services to create additional regulations addressing the confidentiality provision. The pertinent regulations were originally promUlgated in 1985 and have not significantly changed since that time. See 42 CFR §§ 476.101-133 (1985) and 42 CFR §§ 480.101-133 (2002). Unfortunately, the names of these organizations change often, and what were referred to as peer review organizations (PROs) are now called quality improvement organizations (QIOs). To avoid any further confusion, I will continue to use the old moniker, PRO.
By amending the Act as codified in §I 320c-9, and by limiting the formal discovery process in civil litigation, Congress created a statutory privilege with respect to certain information in the possession of, or produced by, PROs. In their letter brief, the Department of Human Services (DRS) claims that "nothing in Federal law authorizes the disclosure sought by plaintiffs." As stated above, I now disagree.
Plaintiffs do not have to prove that disclosure of evidence in a civil or administrative action is "authorized." The DRS must show that the disclosure is protected by a privilege. Privileges are not generally favored by federal courts and are narrowly construed so that access to truth will not be unnecessarily fettered. The general rule is that "the public has a right to every man's evidence." Trammel v. United States. 445 U.S. (1980) (quoting United States v. Bryan. 339 U.S. 323, 331 (1950)). Any infringements on the "predominant principle of utilizing
2

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 3 of 17
all rational means for ascertaining the truth," are to be strictly construed. Jaffee v. Redmond, 518 U.S. 1,9 (1996); University ofFa., v. Equal Employment Opportunity Com 'n, 493 U.S. 182 at 189 (1990). Tensions arise in the law of privileges when the public benefit of keeping certain information confidential conflicts with the public benefit of ascertaining the truth of a matter through the disclosure of all relevant information. See Trammel, 445 U.S. at 50, 100 S.Ct. 906; University ofFa, 493 U.S. 182 at 189; Jaffee, 518 U.S. at 9. The United States Supreme Court summed up the guiding rule succinctly: "[A]n asserted privilege must serve the public ends." Upjohn v. United States, 449 U.S. 383,389 (1981). Thus, to recognize a matter as privileged is to find that its concealment promotes an important public interest that outweighs the need for evidence. See Trammel, 445 U.S. at 51. These principles are manifested in 42 U.S.C. §1320c9(d). The language of this subsection ofthe Act is unambiguous, and establishes what matters are and are not protected from formal discovery process. It is also clear that this section was promulgated by Congress to distinguish the formal discovery process -- together with the traditional subpoena power'-- from FOI requests and other discovery avenues provided to the general public. In other words, this section applies to individuals who are either parties to lawsuits or are pursuing administrative remedies.
,
The Compulsory Process Clause confers the right to compel witnesses to appear through use of subpoena power. The right to compel a witness's presence in the courtroom could not protect the integrity of the adversary process if it did not embrace the right to have the witness's testimony heard by the trier of fact. The right to offer testimony is thus grounded in the Sixth Amendment even though it is not described in so many words. Us. v. Janis 2004 WL 2421999, 5 (8th Cir. 2004)
3

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 4 of 17
Section 1320c-9(d) reads: (d) Subpoena and discovery proceedings regarding patient records No patient record in the possession of an organization having a contract with the Secretary under this part shall be subject to subpoena or discovery proceedings in a civil action. No document or other information produced by such an organization in connection with its deliberations in making determinations under section 1320c-3(a)(l)(B) or 1320c-5(a)(2) of this title shall be subject to subpoena or discovery in any administrative or civil proceeding; except that such an organization shall provide, upon request of a practitioner or other person adversely affected by such a determination, a summary of the organization's findings and conclusions in making the determination. 42 U.S.C. §1320c-9 (Emphasis added)
There are two types of documents protected under subsection (d) of § l320c-9: 1) patient records in possession of the PRO; 2) records produced by the PRO containing information about its deliberations that specifically deal with matters outlined in subsection 1320c-3(a)(l )(B) and subsection 1320c-5(a)(2). Patient records are addressed in the first sentence of subsection 1320c-9(d), while materials other than patient records are addressed in the second sentence. I will discuss these two types of information separately, starting first where subsection (d) begins -- patient records.
Discussion The DHS argues that the term "patient records" means any patient information connected exclusively with medical necessity determinations. This is not what the sentence says, instead it refers to "patient records in possession of the PRO". 42 U.S.C. l320c-9(d), Peer review organizations have custody and control of individual patient records for a variety of reasons, not just for medical necessity determinations.
4

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 5 of 17
Defendant DHS, also claims that the term patient records includes records that disclose the identity of any PRO physician who makes medical necessity decisions. In other words, Defendant has redefined patient records to include medical records of individuals under medical necessity review, and any documents revealing the name of the physicians responsible for medical necessity reviews. This interpretation is overly broad.
Statutory interpretation starts with the language of the statute itself; and a statute is read applying the "ordinary, contemporary and common meaning" of the words used. Perrin v. United States, 444 U.S. 37,42 (1979). A patient record is a medical record generated by a treating physician for treatment and diagnosis. This is the common and ordinary usage of this term. In fact, Federal Regulations routinely interchange the terms "medical records" and "patient records" in rules designed to protect patient privacy.' In short, there is no indication that Congress meant to embellish the common sense definition of "patient records" in the manner suggested by Defendant.
Further, the first sentence of subsection 1320c-9(d) describes documents created by entities other than PROs, because it clearly refers to records in the "possession of" these organizations. By contrast, there is no reference to records "created, produced or generated" by the PRO. Applying common usage and common sense to the wording of the first sentence, I find that the term patient records includes medical records of treating physicians, not records created by reviewing physicians working for a PRO.
Medical or patient records generally contain private information and are owed protection. However, there is no specific federal privilege protecting the confidentiality of medical records
'See 38 CFR §1.489; 38 CFR §17.81-82; 38 CFR §403.730 ;42 CFR §403.730; §416.47; 42 CFR §482.13; 42 CFR §482.24; 42 CFR §486.306; 42 CFR §489.24.
5

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 6 of 17
in federal cases. Federal Rule of Evidence 501 does not recognize a physician-patient (or hospital-patient) privilege. Rule 501 makes federal common law the source of any privileges in federal-question suits unless an Act of Congress provides otherwise. Northwestern Memorial Hasp. v. Ashcroft, 362 F.3d 923, (7th Cir. 2004). Congress would have no need to pass a law to protect a litigant's own medical records from discovery for the obvious reason that the patientparty could secure her own records simply by going to the source without resorting to serving costly subpoenas on PROs.
While a patient may secure her own records, she should not be allowed to gain access to the medical records of others because the records may be relevant to her pending lawsuit. This is the public policy rationale for the first sentence of subsection I320c-9(d). It is designed to prevent parties to civil actions from getting non-party patient records in order to advance a theory of liability or to buttress a claim or defense to a civil action.
If, on the other hand, I were to adopt a more expansive interpretation of subsection I320c-9(d) -- and find that the term patient records exempts from discovery all documents that are possessed by a PRO as well as produced by PRO physicians during a review process-- then there would have been no need for Congress to draft the second sentence carving out an additional privilege. Such an expansive reading would prohibit any litigant at any time, from determining what goes on during the review process of a PRO. In other words, Congress would have created a Star Chamber of the Medicare-Medicaid process.
However, Congress drafted a second sentence that is more specific in the creation of an additional privilege. In other words, the second sentence in §1320c-9(d) sets out what materials in addition to patient records are privileged. An overly broad construction of the terminology in the first sentence would render the second sentence superfluous. In statutory construction,
6

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 7 of 17
where specific expressions conflict with general ones, the rule is to give greater effect to the specific expression. See Reeder-Simco GMC, Inc. v. Volvo GM Heavy Truck Corp. 374 F.3d 701,716 (8th Cir. 2004); Sutherland Statutory Construction § 51.05, at 499-500 (N. Singer ed.1984). At the very least, specific expressions should inform an interpretation of general expressions. An expansive construction of the first sentence of §I320c-9(d) would create a privilege protecting from disclosure all documents as well as the identity of all physicians connected to PROs. I have reviewed federal case law and have discovered that when faced with similar questions, federal courts are reluctant to recognize a broad privilege applicable to peer review organizations. 3 Because I decline to accept the interpretation of the first sentence suggested by DHS, an examination of the more specific second sentence of subsection 1320c9(d) is now in order.
The second sentence precludes discovery of information described in two other subsections ofthe Amended Act. These are §1320c-3(a)(l)(B) and §1320c-5(a)(2). In order to better understand the intent of Congress, it is important to review both subsections in context. I will begin with the §1320c-3(a):
(a)Review of professional activities, determinations of review authority; consultation with professional health care practitioners, standards of health care; other duties....
(1) The organization shall review some or all of the professional activities in the area, subject to the
3University ofPa., 493 U.S. at 195; Virmani v. Novant Health, Inc., 259 F.3d 284 (4th Cir. 2001); Memorial Hasp. For McHenry County, 664 F.2d 1058 (7th Cir. 1981); Leon v. County ofSan Diego, 202 F.R.D. 631 (S.D. Cal, 2001); Nilavar, MD. v. Mercy Health System-
Western Ohio, 210 F.R.D. 597 (S.D. Ohio, 2002); Public Citizen, Inc. v: Us. Dept. OfHealth
and Human Services, 332 F.3d 654 (D.C. Cir., 2003); Atteberry v. Longmont United Hospital, 221 F.R.D. 644 (D. Col. 2004).
7

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 8 of 17
terms of the contract and subject to the requirements of subsection (d) of this section, of physicians and other health care practitioners and institutional and noninstitutional providers of health care services in the provision of health care services and items for which payment may be made... for the purpose of determining whether-
(A) such services and items are or were reasonable and medically necessary and whether such services and items are not allowable under subsection (a)(l) or (a)(9) of section 1395y of this title; (B) the quality ofsuch services meets professionally recognized standards of health care; and (C) in case such services and items are proposed to be provided in a hospital or other health care facility on an inpatient basis, such services and items could, consistent with the provision of appropriate medical care, be effectively provided more economically on an outpatient basis or in an inpatient health care facility of a different type. 42U.S.C § 1320c-3(a) (Emphasis added).
Clearly, placing §1320c-3(a)(l)(B) in context shows that there are two other categories
listed in subsection (A) and (C) which have been excluded from the privilege created in §1320c-
9(d). These excluded materials are: (I) documents gathered for the purpose of making a
medical necessity determination; and (2) information gathered to determine feasibility of
outpatient versus inpatient care. On the other hand, Congress specifically included information
gathered by a PRO to determine whether medical providers meet recognized "standards of care."
42 U.S.C.§ 1320c-3(a)(I)(B).
This brings me to a consideration of §1320c-5(a) and a review of the entire subsection:
(a) Assurances regarding services and items ordered or provided by practitioner or provider
8

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 9 of 17
It shall be the obligation of any health care practitioner and any other person (including a hospital or other health care facility, organization, or agency) ... to assure, to the extent of his authority that services or items ordered or provided by such practitioner or person to beneficiaries and recipients under this chapter-(1) will be provided economically and only when, and to the extent, medically necessary; (2) will be ofa quality which meets professionally recognized standards ofhealth care; and (3) will be supported by evidence of medical necessity and quality in such form and fashion and at such time as may reasonably be required by a reviewing peer review organization in the exercise of its duties and responsibilities. 42 U.S.C.A. § 1320c-5(a) (Emphasis added).
Again, there are two additional categories of information outlined in this subsection that
are not privileged. These two categories are set out in subsections (1) and (3) and address
information gathered to determine medical necessity and the efficacy of the evidence supporting
medical necessity. The privileged information set out in subsection (2) is information gathered
to determine if medical providers meet recognized "standards of care." 42 U.S.C.§ 1320c-5(a)(2).
Both §1320c-3(a) and §1320c-5(a) list three categories of information that a PRO may
gather. Only one of these categories of information is designated as privileged by §1320c-9(d). The category involves standard ofcare inquiries. The pertinent language of §1320 (a)(1 )(B)
refers to information that the care provided by the physician is "of a quality which meets professionally recognized standards of health care." Likewise, the pertinent language of §J320c-5(a)(2) refers to information that the care provided by the physician is "of a quality which meets professionally recognized standards of health care." When a physician fails to
9

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 10 of 17
provide care that meets recognized standards, he or she has committed malpractice.4 The use of the phrase standard ofcare makes it clear that this category of information concerns negligence mqumes.
There are two other categories of information that are excluded from the privilege conferred by §1320c-9(d), and include information gathered for medical necessity and feasibility. See above §1320c-3(a)(I) (A) and (C); §1320c-5(a) (I) and (3). I can only conclude that Congress did not intend to protect these categories of information from disclosure, else Congress would have listed them. It follows that Congress intended for information within these two categories to be non-privileged. It is sound statutory construction that the express designation of one thing may properly be construed to mean the exclusion of another. Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion. INS v. Cardoza-Fonseca, 480 U.S. 421, 432, (1987). See also Singh-Kaur v. Ashcroft 385 F.3d 293, 299 (3,d Cir. 2004)
Subsections (A) and (C) of §1320c-3 and (I) and( 3) of §1320c-5 refer to information gathered by PROs for the purpose of determining that care is medically necessary, is economically effective, and is supported by evidence of medical necessity and quality. In sum, . the second sentence in I 320c-9(d) protects from disclosure any investigative material associated with findings of possible medical negligence. Such a protection from disclosure would conform with numerous state laws which protect peer review evaluations made for the purpose of
4ARKANSAS MODEL JURY INSTRUCTIONS, Instruction 1501 (1999); Dewitt v. Brown, 669 F.2d 516 (81h Cir. Ark. 1982)
10

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 11 of 17
investigating possible malpractice.' The public interest at play here is the need to encourage peer review committees to evaluate candidly a provider's competence or lack thereof, so safety issues may be addressed and corrected for the public good. Congress determined that such public interest is important enough to outweigh the need for evidence, and therefore, justified the creation of a privilege. Trammel, 455 U.S. at 51.
The case repeatedly cited by Defendants in this matter is Armstrong v. Dwyer, 155 F3d 211 (3,d Cir. 1998). The Armstrong case involved a medical malpractice investigation made by a PRO on behalf of the DHS. The plaintiff in Armstrong was seeking material from the PRO that investigated the defendant physician's care of the plaintiff. The court applied the specific language of § I320c-9 and held that such materials were privileged.
However, the facts presented in Armstrong are clearly distinguishable from a MedicareMedicaid beneficiary pursing a civil action requesting material from the PRO which denied benefits based on medical necessity. As I have explained above, Congress specifically allows disclosure of such material by excluding it from the list of material protected in the second sentence of §1320c-9(d). The first sentence is not applicable in this situation because the patient records belong to the beneficiary challenging the denial, and the plaintiffs would not have to obtain their own medical records from the PRO, since plaintiffs have a right to those records.
'See Ark. Code. Ann. § 25-19- 105(a) et seq. (Supp.1995); Ark.Code Ann. § 16-46-105 (RepI.1994)( provides that peer review and quality assurance records shall not be subject to discovery or admissible in any legal proceeding and shall be absolutely privileged communications.); Berry v. Saline Memorial Hosp., 322 Ark. 182 (Ark., I 995)
II

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 12 of 17
Defendant, Arkansas Foundation for Medical Care (AFMC) bases its argument on regulations enacted by the Secretary of Health and Human Services. AFMC begins its argument by quoting 42 U.S.C.§ 1320c-3(a)(9)(A), which authorizes the Secretary to permit access to any information "subject to the provisions of1320c-9 ofthis title." I agree. Any regulations must be consistent with the intent of Congress as set forth in the statute itself.
In two cogent opinions from the District of Columbia Circuit, the District Court and Circuit Court refused to accept the Defendant's broad interpretation of the Peer Review Improvement Act as evidenced in the PRO manual created by the Department of Human Services. Public Citizen, Inc. v. Department ofHealth and Human Service, et al. 151 F.Supp.2d 64 (D.C.D.C.2001) aff'd 332 F.3d 654 (D.C. Cir. 2003). Instead the District Court ordered the Department to provide a litigant with substantive information contained in a peer review investigation. The District Court pointed out-- and the Circuit Court agreed-- that when a statute is clear and unambiguous, consideration of administrative interpretation contrary to such language is inappropriate. Id. at lSI F. Supp. 70; 332 F.3d 659 (citing Chevron U.SA. Inc. v. Natural Resources Defense Council, 467 U.S. 837, 104 S.Ct. 2778 (1984».
Defendant, AFMC cites 42 CFR §480.139 (b) (1) which forbids the disclosure of QIO (PRO) deliberations and the identity of the physicians, advisors and consultants involved in deliberations. However, the preceding regulation, 42 CFR §480.138 (b) (1), sets forth the application of the regulation. First, confidential material in medical necessity determinations are only mentioned in relation to investigations by state and federal licensing agencies who are studying the patterns of certain practitioners. Again, this is applicable to professional standards mqumes.
12
I

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 13 of 17
Second, 42 CFR §430.138(b) (1) states that restrictions on disclosures are not applicable "in the course ofadministrative hearings held under the Social Security Act. " Finally, 42 CFR §480.138(b)(2) states in pertinent part that "[AJ QIO must disclose information regarding QIO deliberations and quality review study information only as specified in 42 CFR §480.139" (Emphasis added). Once again, the words medical necessity are absent. This, I believe, is an eloquent silence. It follows that this exclusion means that 42 CFR §480.l39 applies to quality reviews, not medical necessity reviews, except to the extent that medical necessity materials reveal patterns of professional conduct or misconduct.
AFMC strenuously argues that the identity of physicians and others who take part in PRO deliberations are absolutely protected from a formal discovery process by the above cited regulation. As stated, the regulations must be consistent with the intent expressed by Congress as unambiguously set out in §1320c-9. I have read this section of the Peer Review Improvement Act carefully. There is nothing in the language of §1320c-9 that demonstrates an intent to protect the confidentiality of PRO physicians and advisors. In fact, §1320c-9(a)(2) declares its general purpose is to insure the confidentiality of the following PRO material: "[AJny data or information acquired by any such organization in the exercise of its duties and functions shall be held in confidence and shall not be disclosed to any person." Again, I point out that the use of the term "acquired" and the absence of the term "produced" is significant. The word produced only appears in subsection 1320c-9(d), addressing standard ofcare investigations, which I have already discussed.
Most importantly, Congress gives the Secretary the right to create exceptions to any limitations imposed by §1320c-9, but Congress does not give the Secretary the power to expand
13

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 14 of 17
the Act. The Act requires the Secretary to formulate regulations so that exceptions to the confidentiality rule may be created for the following reasons:
(1) to the extent that may be necessary to carry out the purposes of this part, (2) in such cases and under such circumstances as the Secretary shall by regulations provide to assure adequate protection of the rights and interests ofpatients, health care practitioners, or providers a/health care. (emphasis added)
A close reading of subsection (a)(2), quoted above, indicates that Congress was interested in protecting the privacy and interests of patients, health care practitioners, and other health care providers-not members of PRO organizations. The court in the Public Citizen case agrees that the Secretary's role with regard to non-disclosure is not expansive:
[But] §1320c-9(a)(2) does not permit the Secretary to impose his own nondisclosure requirements; rather, it authorizes the Secretary to promulgate regulatory exceptions to the general non-disclosure requirement. Public Citizen, Inc., 332 FJd at 664.
Although the level of deference afforded an agency interpretation is high, courts remain the final authority in matters of statutory interpretation and must reject administrative constructions which are contrary to clear congressional intent. Ragsdale v. Wolverine Worldwide Inc., 218 FJd 933, 936 (8th 2000). In the instant case, I do not find that the regulation relied on by the AFMC to be necessarily in conflict with §1320c-9. The conflict arises only if! accept AFMC's interpretation of the regulation, and I do not. Instead, I find that 42 C.F.R. §480.138, limits the application of 42 CFR §480.139 to quality investigations that are concerned with possible safety issues involving departures from standard of care, and licensing of practitioners.
14

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 15 of 17
Conclusion In view of the above, I find that Plaintiffs may utilize all formal discovery tools provided by the Federal Rules of Civil Procedure. Consequently, Plaintiffs may discover the name, qualifications, and identity of each peer review physician and advisor who participated in the denial of medical benefits, based on the premise that the care did not meet medical necessity requirements. Further, the Plaintiffs may discover any other relevant material produced by the PRO in making medical necessity determination in their case. On the other hand, consistent with the intent of §l320c-9 (d),Plaintiffs may not discover any patient records of non-parties, nor may Plaintiffs discover any material produced by the PRO that evaluated the failure of a particular medical provider to follow professional standards of care.
l/llt.
IT IS SO ORDERED thi~ day of November, 2004
UNI1~CT JUDGE WM. R. WILSON, JR.
THIS DOCUMENT ENTERED ON DOCKET SHEET IN COMPLIANCE
o~IW&,2 A~~/O%F:C::
15

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 16 of 17
bm UNITED STATES DISTRICT COURT Eastern District of Arkansas
U.S. Court House 600 West Capitol, Suite 402 Little Rock, Arkansas 72201-3325
November 30, 2004
* * MAILING CERTIFICATE OF CLERK * *
Re: 4:01-cv-00830.
True and correct copies of the attached were mailed by the clerk to the following:
Michael R. Rainwater, Esq. Duncan & Rainwater 6315 Ranch Drive Post Office Box 17250 Little Rock, AR 72222-7250
Martin Wayne Bowen, Esq. Armstrong Allen, PLLC Post Office Box 251310 Little Rock, AR 72225-1310
Philip E. Kaplan, Esq. Kaplan, Brewer & Maxey, P.A. Metro Centre Mall 415 Main Street Little Rock, AR 72201-3801
Lee S. Thalheimer, Esq. Arkansas Department of Human Services Office of Chief Counsel Slot S260 700 Main Street Post Office Box 1437 Little Rock, AR 72203-1437
Breck G. Hopkins, Esq. Arkansas Department of Human Services Office of Chief Counsel 700 Main Street Post Office Box 1437 Little Rock, AR 72203-1437
Richard M. Pence Jr., Esq. U. S. Attorney's Office Eastern District of Arkansas

Case 4:01-cv-00830-BSM Document 242 Filed 11/29/04 Page 17 of 17
425 West Capitol Avenue, Suite 500 Post Office Box 1229 Little Rock, AR 72203-1229
press

James W. McCormack, Clerk

Date:

BY:

 
 Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

2005 WL 5660038 Only the Westlaw citation is currently available.
United States District Court, E.D. Arkansas,
Western Division.
PEDIATRIC SPECIALTY CARE, INC.; Child & Youth Pediatric Day Clinics, Inc.; Tomorrow’S Child Learning Center, LLC; James And Stacey Swindle, as parents and next friends of Jacob and Noah Swindle, minors; and Susann Crespino, as parent and next friend of Michael Crespino, a
minor, Plaintiffs v.
ARKANSAS DEPARTMENT OF HUMAN SERVICES; Kurt Knickrehm, in his individual and
official capacity as Director of the Arkansas Department of Human Services; Ray Hanley, in his individual capacity as Director of the Arkansas
Department of Human Services Division of Medical Services; Arkansas Foundation for Medical Care, Inc.; and Roy Jeffus, in his official
capacity as Interim Director of Arkansas Department of Human Services Division of Medical Services, Defendants/Third-Party
Plaintiffs v.
The United States Department of Health & Human Services, Centers for Medicare & Medicaid
Services; Tommy Thompson, Secretary of the United States Department of Health & Human
Services, in his official capacity; and Mark McClellan, Administrator, United States Department of Health & Human Services Center for Medicare & Medicaid Services, in his Official
Capacity, Third-Party Defendants.
No. 4:01CV00830 WRW. | Feb. 7, 2005.
Attorneys and Law Firms
Martin Wayne Bowen, Robinson, Biggs, Ingram, Solop & Farris, PLLC, Philip E. Kaplan, Kaplan, Brewer, Maxey & Haralson, P.A., Charles A. Banks, Banks Law Firm, PLLC, Little Rock, AR, for Plaintiffs.
Breck G. Hopkins, Lee S. Thalheimer, Arkansas Department of Health and Human Services, Office of Chief Counsel, Michael R. Rainwater, Rainwater, Holt & Sexton, Little Rock, AR, for Defendants/Third-Party

Plaintiffs.
Opinion
ORDER
WM. R. WILSON, JR., United States District Judge.
*1 Pending are Defendants Arkansas Department of Human Services (ADHS), Kurt Knickrehm, Roy Jeffus and Ray Hanley’s Motion for Summary Judgment (Doc. No. 162), Supplemental Motion for Summary Judgment (Doc. No. 253), and Motion for Ruling on Qualified Immunity Issue (Doc. No. 221). For the reasons stated below, Defendants’ Motion for Summary Judgment and Supplemental Motion are DENIED except with respect to the individual liability of separate Defendant Kirk Knickrehm for civil damages. Defendants’ Motion for Ruling on Qualified Immunity is DENIED as MOOT.
I. BACKGROUND Plaintiffs are composed of medical providers for, and medicaid recipients of special benefits mandated by the Social Security Act (“SSA”). These benefits are identified as Early Periodic Screening Diagnostic and Treatment Services (“EPSDT”). The services are designed to restore developmentally impaired children to their best possible functional level. Arkansas uses a health care model program to effectuate EPSDT benefits: the Child Health Management Services program (“CHMS”). Clinics licensed under the CHMS program provide diagnostic screening and treatment to children to help reduce physical and mental impairments and to ready them for school. Included in the program are day treatment clinics that provide daily monitoring, care, and therapy for eligible children.
Plaintiffs are CHMS providers and recipients. Plaintiffs filed a complaint and five subsequent amended complaints1 alleging that Defendants, Arkansas Department of Human Services (“ADHS”), Kurt Knickrehm, Ray Hanley, and Roy Jeffus intentionally violated §§ 1396(a)(30)(A), 1396a(a)(8), 1396a(a)(3), and 1396d(a)(13) of the SSA by implementing and manipulating a prior authorization process for the sole purpose of meeting general budget concerns; without
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considering economy, efficiency, quality of care, and equal access. In addition, Plaintiffs contend that budget concerns overshadowed the real purpose of the entitlement program-maximum reduction of disability. Plaintiffs also allege that Defendants violated their procedural and substantive due process rights. Plaintiffs’ Fifth Amended Complaint adds allegations of misrepresentation and fraud in the peer review process-a process utilized by Defendants to review and authorize eligibility for EPSDT services. Plaintiffs have requested injunctive relief and monetary damages. The monetary damages claim is based solely on the allegedly arbitrary reduction of day treatment from six (6) hours to three and a half (3.5) hours.

1

Doc.Nos. 1, 76, 95, 144, 173.

The individual defendants are Mr. Knickrehm, current Director of ADHS since January, 1999; Mr. Hanley, Director of Division of Medical Services of ADHS from 1994 through January 6, 2003; and Mr. Jeffus, current Director of Division of Medical Services of ADHS beginning on January 6, 2003. Before becoming Director of the Division of Medical Services, Mr. Jeffus was the division’s senior Assistant Director.
Defendants allege in their Motion for Summary Judgement that Plaintiffs’ Third Amended Complaint should be dismissed as a matter of law because: (1) Plaintiffs have no standing to bring this action; (2) eligibility for the EPSDT program is properly based on medical necessity; (3) Peer Review Organizations (“PROs”) are favored by federal law for the purpose of reviewing recommended treatment to ensure that it is, in fact, medically necessary; (4) all benefits mandated by the Medicaid Act must meet the medical necessity standard before providers and recipients are entitled to benefits as a matter of federal statutory right; (5) the prior authorization process implemented by Mr. Hanley on behalf of ADHS is a legitimate means for avoiding payment of unnecessary Medicaid costs, thereby meeting the standard of medical necessity prescribed by the Medicaid Act; (6) Plaintiffs are provided with sufficient procedural due process to challenge any decisions made as a result of the prior authorization process and have failed to exhaust those processes; (7) the prior authorization process through the use of PROs are rationally related to legitimate government ends of ensuring that only medically necessary services are approved, and consequently, Plaintiffs cannot

demonstrate deprivation of substantive due process; and (8) Defendants Kurt Knickrehm, Ray Hanley and Roy Jeffus are entitled to qualified immunity.
*2 In sum, Defendants contend that medical necessity is appropriate justification for making policy changes for medicaid eligibility under the State Plan. Defendants further argue that the individual capacity Defendants-Mr. Knickrehm, Mr. Hanley, and Mr.Jeffus-acted in good faith, and are immune from civil damages.
In their Supplemental Motion, Defendants contend that Plaintiffs can produce no evidence linking Defendants to the alleged misconduct of the AFMC. Finally, Defendants argue that Plaintiffs cannot produce sufficient evidence to show that the individual capacity Defendants intentionally and arbitrarily violated the Social Security/Medicaid Act (“SSMA”).

II. SUMMARY JUDGMENT STANDARD Summary judgment is appropriate only when there is no genuine issue of material fact, so that the dispute may be decided on purely legal grounds.2 The Supreme Court has established guidelines to assist trial courts in determining whether this standard has been met:

2

Holloway v. Lockhart, 813 F.2d 874 (8th Cir.1987);

Fed R. Civ. P. 56.

The inquiry performed is the threshold inquiry of determining whether there is the need for a trial-whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.3

3

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250,

106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The Court of Appeals for the Eighth Circuit has cautioned that summary judgment is an extreme remedy that should only be granted when the movant has established a right to the judgment beyond controversy.4 Nevertheless, summary judgment promotes judicial economy by preventing trial when no genuine issue of fact remains.5 This court must view the facts in the light most favorable to the party opposing the motion.6 The Motion should be denied if, in reviewing the evidence in this light,
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reasonable men can differ as to the conclusions to be drawn from it.7

4

Inland Oil & Transport Co. v. United States, 600 F.2d

725, 727 (8th Cir.1979).

believe should be taken into account-such as evidence presented by disinterested witnesses or evidence that is corroborated by independent sources. On the other hand, all evidence presented by the non-moving party is given deference.

5

Id. at 728.

6

Id. at 727-28.

7

Cargill v. Liberty Mutual Ins. Co., 488 F.Supp. 49

(D.C.Minn.1979), affd. 621 F.2d 275 (8th Cir.1980);

Greenwood v. Dittimer, 596 F.Supp. 235

(D.C.Ark.1984) affd. 776 F.2d 785 (8th Cir.1985).

The above-cited standard has been recently applied and more fully explained by the Supreme Court in Reeves v. Sanderson Plumbing Products, Inc.:
The court must draw all reasonable inferences in favor of the non-moving party and it may not make credibility determinations or weigh the evidence. Thus, although the court should review the record as a whole, it must disregard all evidence favorable to the moving party that the jury is not required to believe ... that is, the court should give credence to the evidence favoring the moving party that is un-impeached, at least to the extent that the evidence comes from disinterested witnesses.8

8

530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105

(2000) (emphasis added).

In other words, the Supreme Court has clearly directed that when weighing the record on summary judgment, the evidence presented by the moving party must be evaluated in a much different light than the evidence presented by the non-moving party. When considering the evidence presented by the moving party, only evidence that is presented by witnesses that a jury is obliged to

III. DISCUSSION
A. Standing To Bring Action: *3 A private action against a State official to vindicate federal statutory rights is authorized by 42 U.S.C. § 1983. Whether a provision of the Medicaid Act creates enforceable procedural and substantive rights turns on whether the provision was intended to benefit a plaintiff. If so, an enforceable right is created unless, it merely reflects a congressional preference for a certain kind of conduct rather than a binding obligation on the governmental unit; or unless the interest the plaintiff asserts is “too vague and amorphous such that it is beyond the competence of the judiciary to enforce.”9

9

Wilder v. Virginia Hosp. Ass’n, 496 U.S. 498, 509, 110

S.Ct. 2510, 110 L.Ed.2d 455 (1990).

Medicaid is a joint federal-state program that provides medical care to low-income individuals. Beneficiaries of the program are the aged, blind, and permanently disabled.10 Beneficiaries have also been found to include care givers. In Wilder, the Supreme Court held that a specific provision of the Medicaid Act created enforceable substantive rights for institutional health care providers, as well as for the aged, blind, and impaired.11

10

See 42 U.S.C. § 1396 et seq.; Wilder, 496 U.S. at 502.

11

Wilder, 496 U.S. at 520.

The Medicaid Act sets out a list of sixty-five (65) items that must be contained within a valid state plan.12 One such item is the so-called “equal access” provision:

12

See 42 U.S.C. § 1396a(a) subsections(1) through (65).

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[A State plan for medical assistance must] provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan ... as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.13

13

42 U.S.C. § 1396a(a)(30) (Emphasis added).

The Eighth Circuit considered whether the Wilder rationale also applied to the above-cited equal access provision. The court found that the SSMA created substantive enforceable rights under § 1983 with respect to the equal access provision.14 Moreover, in Reynolds, the court determined that recipients and health care providers were intended beneficiaries under the equal access provision, since health care providers, as payees, obviously are affected by substantive changes in state schemes under Medicaid.15

14

Arkansas Med. Soc’y, Inc. v. Reynolds, 6 F.3d 519, 525

(8th Cir.1993), citing Wilder, 496 U.S. at 512. (“[T]he

equal access language ‘sets forth a congressional

command which is wholly uncharacteristic of a mere

suggestion or nudge.’ ”).

15

Reynolds, 6 F.3d at 526-28 (emphasis added). See also

Nebraska Health Care Ass’n v. Dunning, 778 F.2d

1291, 1295 (8th Cir.1985); Oklahoma Nursing Home

Ass’n v. Demps, 792 F.Supp. 721, 727

(W.D.Okla.1992).

The same conclusion was reached in Pediatric Specialty Care et al. v. Arkansas Department of Human Services, et al.,16 where the Eighth Circuit held that Plaintiffs in the present case properly asserted federal rights enforceable in a § 1983 action. The court found that substantive statutory rights enforceable by § 1983 were created with respect to EPSDT benefits as a whole and specifically, with respect to entitlements in § 1396d(a)(6) and § 1396d(a)(13).17 The Eighth Circuit held “that a Medicaid-eligible individual has a federal right to early intervention day treatment when a physician recommends

such treatment.”18

16

293 F.3d 472, 487 (8th Cir.2002).

17

Id. at 480.

18

Id. (emphasis added).

*4 In sum, plaintiffs who care for eligible children, along with the children themselves, have enforceable § 1983 rights. Therefore, whether the providers and recipients in this case have standing as beneficiaries to bring this action has been settled by the Eighth Circuit.19 In fact, the court made it clear that both recipients and providers are intended beneficiaries of the EPSDT services as defined by § 1396d as well as § 1396a.20 The court also pointed out that “even without individual standing, the provider plaintiffs in this case have standing to assert the rights of their CHMS patients.”21 All Plaintiffs in this case may seek redress for any alleged violation of substantive statutory rights created by the Medicaid Act. Therefore, the threshold basis of standing is met.

19

Id.

20

Id.

21

Id. (citing Singleton v. Wulff, 428 U.S. 106, 115-17, 96

S.Ct. 2868, 49 L.Ed.2d 826 (1976)).

B. Standing to Assert an Interest in the Litigation: In addition to contending that the medical providers are not beneficiaries of the equal access provision, Defendants argue that Plaintiffs have failed to allege, or present evidence of sufficient injury. In order to meet the constitutional standing requirement, Plaintiffs must suffer an injury-in-fact that is an invasion of a legally protected interest-one that is concrete and particularized.22 The injury-in-fact requirement serves to distinguish a person
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with a direct stake in the outcome of a litigation-even though small-from a person with a mere interest in the problem.23

22

Republican Party of Minn., Third Congressional Dist.

v. Klobuchar, 381 F.3d 785, 791 (8th Cir.2004).

23

United States v. Students Challenging Regulatory

Agency Procedures, 412 U.S. 669, 689 n. 14, 93 S.Ct.

2405, 37 L.Ed.2d 254(1973).

Plaintiffs allege that Defendants invaded a legally protected interest that is concrete, to which they are its beneficiaries-entitlement to EPSDT benefits. Furthermore, Plaintiffs have more than a “mere interest in the problem.” The denial of this federal entitlement results in loss to providers and recipients alike. The evidence indicates that providers have lost significant revenue as a result of an allegedly unlawful prior authorization process; and recipients have been deprived of services crucial to their medical needs.24

24

Plaintiffs’ original Response Ex. P, affidavit of Dr.

Sharon Ramy.

Finally, Defendants contend that Plaintiffs lack standing because Plaintiffs cannot show that they made individual administrative claims challenging the medical necessity determinations at the state level. However, the existence of administrative procedures where health care providers and medicaid recipients can obtain review of individual claims for payment does not foreclose a private remedy in the federal courts through § 1983.25

25

See Patsy v. Board of Regents of Fla., 457 U.S. 496,

516, 102 S.Ct. 2557, 73 L.Ed.2d 172 (1982); Wilder,

496 U.S. at 523.

In sum, the record offers sufficient evidence that Plaintiffs have standing to bring the current action. The fact that Plaintiffs can challenge denials through a state administrative process is irrelevant to their right to seek redress under § 1983-especially when the denial of benefits is as sweeping as has allegedly occurred in this case.

C. Medical Necessity: The remainder of Defendants’ contentions are based on the standard of “medical necessity.” Defendants argue that the state has the discretion to limit the scope of eligibility based on medical necessity of prescribed care. Moreover, Defendants assert that PROs, such as the Arkansas Foundation for Medical Care (AFMC), are an appropriate vehicle through which prescribed treatments may be reviewed for compliance with medical necessity. Defendants assert that any changes implemented through the prior authorization process are consistent with the mandate of the SSMA-to provide only those services that are medically necessary. Finally, Defendants argue that the prior authorization process is within the realm of state authority; and is legitimately based solely on considerations of medical necessity. Defendants vigorously deny improper motive behind the changes.

*5 The state has the right to place limits on treatment based on medical necessity. However, the boundaries of state discretion are limited by the rules and regulations of the Medicaid Act. The state’s authority and limitations are addressed in several opinions handed down by the Eighth Circuit, beginning with the role of the treating physician and weight given his opinions: “[t]he Medicaid statute and regulatory scheme create a presumption in favor of the medical judgment of the attending physician in determining the medical necessity of treatment.”26 However, while there is a presumption in favor of the treating physician, the regulations make it clear that treating physicians are not the sole arbiter of medical necessity.

26

Pinneke v. Preisser, 623 F.2d 546, 549 (8th Cir.1980);

Smith v. Rasmussen, 249 F.3d 755, 759 (8th Cir.2001).

There is no question that the Medicaid Act confers broad discretion on the states to adopt standards for determining the extent of needed medical assistance.27 Indeed, the Department of Health and Welfare regulations read: “The agency may place appropriate limits on services based on such criteria as medical necessity.”28 As the Eighth Circuit has concisely pointed out Medicaid was designed “to provide the largest number of necessary medical services to the greatest number of needy people.”29 However, any medical necessity standards adopted by the state must be “reasonable ” and “consistent with the objectives of the Act.”30 Further, the Medicaid Act mandates that a
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provided service must be “sufficient in amount, duration, and scope to reasonably achieve its purpose.”31 Medical necessity determinations must be consistent with the overall goal of the recommended treatment and the objectives of the program-to provide appropriate care that achieves maximum reduction of impairment. Thus, the Act and its regulations both protect and limit a state’s discretion to define the scope of necessary coverage.32

27

Smith, 249 F.3d at 759.

28

42 C.F.R. § 440.230(d).

29

Ellis v. Patterson, 859 F.2d 52, 55 (8th Cir.1988).

34

Pediatric Specialty Care, Inc. et al. v. Arkansas

Department of Human Services et al., 364 F.3d 925

(8th Cir.2004).

Following Beal, the Eighth Circuit wrote an exhaustive analysis of the “medical necessity” standard in Hodgson v. Board of County Commissioners, County of Hennepin.35 In Hodgson, the court found that, once a state designates services that it will provide, the state may make eligibility decisions only on the basis of individual need. The court held that the only time a state could make sweeping exclusions of a medical procedure were when the procedure is “never, or generally never, of sufficient medical necessity.”36

35

614 F.2d 601, 608-10 (1980).

30

Beal, 432 U.S. at 443 (emphasis added).

31

42 C.F.R. § 440.230(b).

32

Rasmussen, 249 F.3d at 759.

It should also be noted that Plaintiffs challenge agency prior authorization guidelines that affect the medical care of large categories of impaired children. This is distinct from case-specific determinations of medical necessity. The Supreme Court has indicated that “serious statutory questions might be presented if a state Medicaid plan excluded necessary medical treatment from its coverage”33 Plaintiffs’ allegations suggest that Defendants are using the medical necessity standard as justification for what is, instead, a de facto coverage exclusion. The Eighth Circuit recently made it clear that decisions to eliminate components of the CHMS program would result in a substantial change to the level of payment for services mandated by the Medicaid Act.34

33

Beal v. Doe, 432 U.S. 438, 444, 97 S.Ct. 2366, 53

L.Ed.2d 464 (1977) (emphasis added).

36

Id. at 608.

*6 The court said that a state may reasonably modify its eligibility requirements and medically necessary services. However, the restrictions must be consistent with the degree of a recipient’s medical needs.37 The court further held that within the category of “medical necessity” the scope of review must be in accordance with the Medicaid Act-to provide medical assistance in the best interest of the recipient and on an even-handed basis.38 The court also held that eligibility determinations based on type of condition, illness, or diagnosis are never reasonable. By way of example, the Eighth Circuit explained that a state may not choose to provide eyeglass subsidies for only those persons whose poor vision is from an eye disease, even though the state considers them most needy. In other words, simply because a child from a poor family suffers from a serious eye disease, he is not any more eligible for eye glasses than one who is simply near-sighted. The question, and basic criterion, is whether each child needs the corrective therapy.39 The regulations permit discrimination in benefits based upon the degree of medical necessity, but not upon the extent of medical disorders from which the person suffers.40 Likewise, Defendants argue that because the CHMS day treatment clinics must provide multidisciplinary care to address the needs of the most seriously impaired children, i.e., those who need a variety of therapies-then children who need day treatment, but are not so seriously impaired, should be excluded from coverage. Again, this ignores the basic
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criterion-whether the child needs day treatment corrective therapy to ameliorate his disability. Finally, the Eighth Circuit has also held that state schemes based solely on budget concerns are invalid.41

37

Id. at 610-611 (emphasis added).

38

Id. (emphasis added).

39

Id. at 608 (citing White v. Beal, 555 F.2d 1146, 1150-52

(3d Cir.1977)). See also 42 C.F.R. § 230(c).

40

See Pinneke, 623 F.2d at 550.

41

Reynolds, 6 F.3d at 522, 531 (emphasis added).

As stated above, under the above regulations and precedent, the actions of the state with respect to benefits must be reasonable and consistent with the objectives of the Medicaid Act. Medical necessity determinations must be geared to the medical need of the recipient. The opinion of the treating physician is given reasonable deference. Any coverage denial cannot be based legitimately on the diagnosis of the recipient or on budget concerns. In 1967, Congress amended the Medicaid Act to provide EPSDT services to medicaid eligible children. The stated objective of these services is to facilitate the maximum reduction of physical or mental disability, and restore a child to the best possible functional level. The state plan must provide medically necessary services that reasonably meet this objective. Finally, Plaintiffs’ allegations raise a legitimate legal and factual question that is material to this case: to wit, are Defendants denying coverage to a large segment of eligible children under the rubric of “medical necessity?” I have already held that any reduction in services that is applied to all children without consideration of an individual child’s diagnosed medical condition, and prescribed treatment and the accumulated knowledge of the medical community would run afoul of the Medicaid Act.42

42

Doc.No. 150, p. 13.

*7 Here, Defendants have provided information from administrators of the ADHS and the AFMC to show that medical necessity is the sole guiding principle by which eligibility for CHMS is determined.43 These same administrators offer additional testimony that authorization of CHMS services is case specific; is based on the opinions of qualified independent physicians; and is based reasonably on the legitimate need of each medicaid eligible child.44 In short, Defendants present testimony from its own administrators that the ADHS has limited the scope and duration of services in a manner which complies with the overall objectives of the medicaid act and the EPSDT provisions. However, under the Reeves holding, this is not evidence that a fact finder is necessarily obliged to believe.45

43

Affidavits of Ray Hanley (Defendants’ Exhibit 4); Roy

Jeffus (Defendants’ Exhibit 5); Marilyn Strickland,

Utilization Review Administrator for the Division of

Medical Services (Defendants’ Exhibit 6); Dr. Michael

Moody, Medical Director for AFMC (Defendants’

Exhibit 7)

44

Defendants’ Motion for Summary Judgment Exs. 2-8.

45

Reeves, 530 U.S. at 150.

D. Budget Concerns versus Medical Necessity: On the other hand, Plaintiffs have provided evidence from which a reasonable fact finder could draw conflicting conclusions-beginning with the original notice announcing the intentions of Mr. Hanley to modify the scope of medicaid coverage.46 The notice reveals that the proposed changes would provide a significant decrease in medicaid expenditure. Addressing cost benefits, together with a notice of proposed changes in medicaid eligibility, creates a reasonable inference that the proposed modifications were motivated by financial concerns. As pointed out above, this, standing alone, is not a legitimate basis for limiting eligibility or the scope and duration of required services. “A state may not flout the Medicaid Act’s requirements in order to suit state budgetary
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needs.”47 In affirming the District Court, the Eighth Circuit found that persuasive precedent supports the proposition that budgetary considerations cannot be the conclusive factor in decisions regarding Medicaid.48 The conclusive factor in rate determination must not be the amount of money appropriated by a given state’s legislature; rather the state Medicaid agency must make an objective, principled decision regarding what is reasonable and adequate to meet the needs of medicaid beneficiaries.49

46

PIaintiffs’ original Response, Ex. A.

47

Arkansas Medical Soc., Inc. v. Reynolds, 819 F.Supp.

816, 824 (E.D.Ark.1993) (citing Alabama Nursing

Home Ass’n v. Harris, 617 F.2d 388, 396 (5th

Cir.1980).

reasonably achieve its purpose.”52 As Defendants are well aware, the stated purpose for EPSDT services, including day treatment, is to provide treatment for the maximum reduction of physical and mental disability.

50

Dr. Whitaker (Plaintiffs’ original Response Ex. G, p.

39); Dr. Tracey Steward (Plaintiffs’ original Response

Ex. H, p. 58); Dr. H. Frazier Kennedy (Plaintiffs’

original Response Ex. K, pp. 25-26); Dr. Susan

Keathley (Plaintiffs’ original Response Ex. L, p. 33).

51

Plaintiffs’ original Response Ex. P, pp. 8-14.

52

42 C.F.R. § 440.230(b) (emphasis added).

48

Arkansas Medical Soc., Inc. v. Reynolds, 6 F.3d 519,

531 (8th Cir.1993).

49

Illinois Hosp. Ass’n v. Illinois Dept. of Public Aid 576,

F.Supp. 360, 368 (D.C.Ill.1983).

E. Medical Needs of Individual Recipients: Plaintiffs offer additional evidence that a decrease from six (6) hours to three and a half (3.5) hours per day of treatment services is applied generally, without any specific investigation as to individual recipients; or the effect such a reduction has on equal access to quality care. For instance, not one of the reviewing physicians could provide an example when more than three and a half (3.5) hours of day treatment were approved. Moreover, none of these physicians offered a reasonable medical foundation for the reduction in the scope and duration of intervention therapies offered by CHMS clinics.50 Plaintiffs presented Dr. Sharon Ramey, an expert in the field of pediatric developmental disabilities, who testified that the most effective manner of achieving maximum improvement for impaired children includes intervention therapies lasting at least six (6) hours each day.51 Therefore, Plaintiffs have raised an inference that Defendants have violated 42 C.F.R. § 440.230(b), which requires that “each service must be sufficient in amount, [and] duration ... to

F. Eligibility based on Single Impairment Diagnosis: *8 Defendants have created guidelines where a child with a malady that creates a single impairment-requiring only one type of therapy such as speech therapy, physical therapy, etc.-is not prior authorized for CHMS services, despite the severity of the impairment. Plaintiffs have produced evidence indicating that this “prior authorization” guideline has excluded large numbers of children from EPSDT services, discouraging providers from making additional attempts to obtain EPSDT services for such children.53 Such a policy may well violate the requirement set forth in 42 C.F.R. § 440 .230(c) which reads: “The Medicaid agency may not arbitrarily deny or reduce the amount, duration, or scope of required services ... to an otherwise eligible recipient solely because of the diagnosis.”54 Defendants justify this guideline by asserting that the CHMS provider manual, prepared by ADHS, describes CHMS services as multi-disciplinary. I am not persuaded that the term “multi-disciplinary” is sufficient justification for denying required medicaid services to eligible children. Such a rationale-that only those children who are afflicted with the most serious conditions are entitled to medicaid benefits-was rejected by the Third Circuit.55 More importantly, there is nothing in the Medicaid Act which limits EPSDT services to only children with a need for two or more intervention therapies. Therefore, the across-the-board denial of CHMS day treatment services to children with a single impairment raises a reasonable inference that children are being denied their right to
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EPSDT services because of their disorder without consideration of individual medical need. As the court in Pinneke made clear, this is an improper basis for the denial of a statutory right.56 Moreover, a recent opinion issued by the Fifth Circuit strongly advised that EPSDT services cannot, under any circumstances, be limited by state plans. Citing to several other circuit decisions, including the Eighth Circuit opinion issued in the present case, the Fifth Circuit held:

53

Plaintiffs’ original Response Ex. C, Ex. H, p. 42; Ex. G,

p. 25.

54

See also Pinneke, 623 F.2d at 550.

58

Id. at 592.

59

Id.

60

Id.

*9 The evidence strongly indicates that Defendants, by denying EPSDT services to children in need of only one type of therapy, have exceeded their boundaries in the exercise of their responsibilities under the Medicaid Act.

55

White v. Beal, 555 F.2d at 115.

56

Pinneke, 623 F.2d at 550.

Congress did not allow states the discretion to define what types of health care and services would be provided to EPSDT children, and that participating states must provide all services within the scope of § 1396d(a) which are necessary to correct defects, illnesses, and conditions in children discovered by the screening services.57

57

S.D. Dickson v. Hood, 391 F.3d 581 (5th Cir.2004).

In the Dickson, the Fifth Circuit unequivocally stated that the states have very little discretion with regard to the EPSDT provisions: “We reject the notion that Congress made the provision of [EPSDT] treatment mandatory on the states only to cede to the states complete discretion to decide upon the contents of the medical assistance programs available to EPSDT eligible children.”58 The Fifth Circuit held that the twenty seven categories of medical assistance outlined in the EPSDT provisions are not “empty vessels” to be filled according to the state’s discretion.59 The court emphasized that the state must provide all assistance that is necessary to treat or ameliorate conditions in children discovered by the screening process.60

G. Alleged Misconduct within the Prior-Authorization Process: Plaintiffs filed a supplemental response to Defendants’ Motion for Summary Judgment. Plaintiffs’ supplemental response presents the testimony of Ms. Brenda Gassaway, a nurse and former employee of AFMC; and Dr. Whitaker, a board certified pediatrician and contract physician for AFMC. The sworn statements of both these witnesses, if accepted by the trier of fact, implicate the ADHC and the AFMC in widespread abuses that demonstrate a disregard for the medical needs of eligible children as well as a disregard for the objectives of the Medicaid Act, the Orders of this Court, and the Circuit Court.
Ms. Gassaway was employed at AFMC for four years, reviewing charts for personal care, targeted health management, and child health management programs.61 In January 2002, Ms. Gassaway discovered that another nurse reviewer, Ms. Tilerra Coates, had altered files by overriding opinions of reviewing physicians and reducing the scope and duration of approved treatment.62 Ms. Gassaway immediately reported the discrepancies to the department manager, Ms. Amy Carson, who is also a nurse. Thereafter, Ms. Gassaway began to monitor Ms. Coates’s charts, and made frequent reports to Ms. Carson concerning discovered alterations that contravened physician opinions and recommendations.63

61

Plaintiffs’ Supplemental Response Ex. B, p. 8.

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62

Plaintiffs’ Supplemental Response Ex. B, pp. 12-16.

63

Plaintiffs’ Supplemental Response Ex. B, pp. 16-18.

Ms. Gassaway identified several codes that were singled out by general policy and by Ms. Carson that could not be approved under any circumstances.64 According to Ms. Gassaway, the AFMC also developed a system of canned denials65 referred to as “one minute charts.”66 The nurse reviewers are allowed to enter the canned denials that then turned over to Dr. Whitaker for signature. Ms. Gassaway began to monitor Ms. Coates’s charts and discovered that eighty percent (80%) of the “one minute” charts were altered. Although Ms. Gassaway frequently brought these improprieties to Ms. Carson’s attention, nothing was done.67

64

Plaintiffs’ Supplemental Response Ex. B, pp. 19-20.

65

Canned denials are rote rationales used when

authorization for certain designated services are

routinely denied.

savings reports.70 Ms. Gassaway described her general observations of the internal workings of AFMC in the following manner: “I worked there for four years and I saw the patterns of how the programs are worked and it seems like the goal is always to cut services and to make the centers jump through hoops to get the kids approved, so that they will just quit.”71 Ms. Gassaway went on to describe various practices that she observed including capping the scope and duration of recommended services; and making constant changes in authorization criteria.72

68

Plaintiffs’ Supplemental Response Ex. B, pp. 18-19.

69

Plaintiffs’ Supplemental Response Ex. B, p. 21.

70

Plaintiffs’ Supplemental Response Ex. B, pp. 33-35.

71

Plaintiffs’ Supplemental Response Ex. B, p. 36.

72

Plaintiffs’ Supplemental Response Ex. B, pp. 36-37.

66

Plaintiffs’ Supplemental Response Ex. B, pp. 17-19.

67

Plaintiffs’ Supplemental Response Ex. B, p. 18.

The existence of the canned denials were disclosed to separate Defendant AFMC counsel, Mr. Mike Rainwater. Ms. Gassaway testified that Mr. Rainwater advised the nurses “not to bring up” the use of canned denials during the course of their depositions.68 Ms. Gassaway testified that there were no in house guidelines per se, but that each nurse reviewer received frequent memos from Ms. Carson identifying what services could and could not be approved.69 Ms. Gassaway was told by her supervisors, Ms. Kenya Harkin and Ms. Carson, that cost savings was the only basis for renewal of the contract between AFMC and ADHS. Ms. Gassaway indicated that cost savings was the primary incentive for decisions made by AFMC, and further testified that the ADHS required monthly cost

*10 Ms. Gassaway described the response of AFMC administrators to complaints lodged since January 2002 concerning Ms. Coates’ alteration of physician recommendations: “Hide it, get rid of the people that know, lock it up, deny access, cover it up.”73

73

Plaintiffs’ Supplemental Response Ex. B, p. 43.

When asked about the truthfulness of Dr. Moody’s testimony with respect to the assistance given by AFMC to CHMS providers, Ms. Gassaway offered the most stark statement in her deposition: “No, that was not the truth. The truth is no matter what they ask for you don’t give it to them ever until they beg for it ... That’s the truth.”74

74

Plaintiffs’ Supplemental Response Ex. B, p. 22

(emphasis added).

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With respect to the involvement of the ADHC in the decision making processes of AFMC, Ms. Gassaway indicated that Ms. Wilson and Ms. Strickland, both Directors of Utilization for the ADHC, frequently directed Ms. Carson to deny generally the duration and scope of certain recommended services. Ms. Gassaway indicated that when she first began working for AFMC, several memos were issued containing directives from Ms. Wilson, via Ms. Carson.75 Finally, Ms. Gassaway stated that Mr. Rainwater and Mr. Hopkins, counsel for ADHC and AFMC, were aware of the “one minute” charts and the use of canned denials.76

75

Plaintiffs’ Supplemental Response Ex. B, pp. 38-39.

76

Plaintiffs’ Supplemental Response Ex. B, p. 45.

Dr. Whitaker is the only board certified pediatrician working with AFMC. Dr. Whitaker corroborated the testimony of Ms. Gassaway. He stated that he also audited the files and discovered alterations made by Ms. Coates on a large percentage of the “one minute charts.” Like Ms. Gassaway, Dr. Whitaker brought this to the attention of Ms. Carson, yet no action was taken.77 Most of the changes made by Ms. Coates involved the reduction of services for particular codes.78 Dr. Whitaker also reported the discrepancies to the medical director of AFMC, Dr. Moody, and to other physicians, including Dr. Keathley.79

77

Plaintiffs’ Supplemental Response Ex. E, pp. 8-18.

78

Plaintiffs’ Supplemental Response Ex. E, p. 22.

79

Plaintiffs’ Supplemental Response Ex. E, pp. 30-31.

Dr. Whitaker admitted that he was the author of the “canned denials” and that they were composed at the request of Ms. Carson. After the canned denials were created, nurse reviewers were allowed to apply them at their discretion. The canned denials were used to save time and money. The nurse reviewers never received formal training in the proper application of the canned denials.80 Dr. Whitaker testified, as did Ms. Gassaway,

about AFMC practices that intentionally made the application and authorization process as difficult as possible.81 Dr. Whitaker summarized his complaints:

80

Plaintiffs’ Supplemental Response Ex. E, pp. 52-55.

81

Plaintiffs’ Supplemental Response Ex. E, pp. 68-69.

I made the decision ... it’s been altered ... the child services have been reduced, which hurts the child ... that’s what bothers me ... my driving force is ... to serve these kids like they need to be served ... I don’t like it when what I’ve done has been changed and child services reduced ... I certainly don’t like it when rationales that I have done turn up missing from the chart.82

82

Plaintiffs’ Supplemental Response Ex. E, p. 89.

Dr. Whitaker testified that he was always told to deny services for a child with only one diagnosis, that he was to look for two qualifiers, and that units of recommended services were capped despite guidelines to the contrary.83

83

Plaintiffs’ Supplemental Response Ex. E, pp. 75-77,

89-92.

*11 Like Ms. Gassaway, Dr. Whitaker testified that directives were given to Ms. Carson from the ADHS through Ms. Marilyn Strickland-Ms. Wilson’s successor.84 When asked why he has not resigned, Dr. Whitaker responded that if he leaves “things would only get worse.”85

84

Plaintiffs’ Supplemental Response Ex. E, pp. 77,

100-01.

85

Plaintiffs’ Supplemental Response Ex. E, p. 104.

In view of the above referenced testimony, together with the voluminous documentation offered in support, there remains a question of fact as to whether Defendants,
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through its authorized PRO and the application of the prior authorization process-are providing services mandated by federal law and the Constitution. The testimony creates genuine issues from which a reasonable inference could be drawn that AFMC engaged in arbitrary, capricious, and unreasonable conduct designed to deny EPSDT services to qualified recipients, violating the objectives of the Medicaid Act in general, and the equal access clause in particular. Plaintiffs provide sufficient evidence from which an inference may be drawn that Defendants’ certified PRO-AFMC-failed to give proper deference to the recommendations of treating physicians; failed to ensure that medical reviews are performed by qualified independent physicians; failed to ensure that reviews are based on reasonable medical standards; denied authorization for services based upon diagnosis alone; and limited the duration and scope of recommended services without reasonable cause, solely for budget concerns. In short, the evidence raises the inference that AFMC limited the amount of certain services for all children, regardless of the severity of their delays; and without consideration of a child’s diagnosed condition and prescribed treatment, and the accumulated knowledge of the medical community. The testimony further creates the inference that Defendants Ray Hanley and Roy Jeffus were not only aware of the practices, but also given incentives and rewarded for their practices by maintaining its contract with AFMC.
There is testimony that administrative officers with the ADHC issued verbal directives to the AFMC to cap services across the board with respect to certain recommended treatment codes. These officers were in charge of utilization for the Department of Medical Service-Ms. Marilyn Strickland and Ms. Sharon Wilson. There is further testimony that Defendants’ attorneys, Mr. Hopkins and Mr. Rainwater, were aware of the existence of the utilization of “canned denials” and the “one minute reviews.” There is evidence that monthly cost reports and the ability of AFMC continuously to reduce cost by reducing services was the sole basis for AFMC’s contract with the State.
Defendants assert that Plaintiffs are merely complaining that their rights are being violated because they are subject to federally mandated medical necessity criteria. But Plaintiffs have produced sufficient evidence creating an inference that the criteria utilized by Defendants is not based on reasonable medical necessity determinations. Rather, Plaintiffs complain that Defendants violated federal laws by unreasonably depriving eligible children of benefits to which they were entitled.

*12 In their Supplemental Motion for Summary Judgement, Defendants assert that the testimony of Ms. Gassaway and Dr. Whitaker does not render the state defendants liable. Defendants assert that the testimony of these two witnesses shows that a rogue nurse-Ms. Coates-engaged in unsanctioned misconduct. However, for all the reasons set forth above, the testimony of Ms. Gassaway and Dr. Whitaker raise questions that go far beyond Ms. Coates’s activities.

H. Procedural Due Process: Defendants contend that Plaintiffs have not identified a protected property interest entitled to due process protection. This issue was settled by the Eighth Circuit, which held “We find it entirely appropriate for Plaintiffs to base their procedural due process claim on their clearly established right to have equal access to quality medical care as defined by § 1396(a)(30)(A).”86 The Eighth Circuit instructed Defendants to complete a proper study to insure that factors such as quality of care and equal access are not jeopardized by changes in the methods and procedures for payment of these mandatory services.87 Moreover, in their earlier opinion, the Eighth Circuit found that § 1396d(a)13 creates a federal right to day treatment prescribed by a treating physician.88

86

Pediatric, 364 F.3d at 930.

87

Id.

88

Pediatric, 293 F.3d at 480-81.

There is no question that Plaintiffs have provided sufficient evidence from which an inference can be drawn that Defendants have failed to follow the directives of this Court and the Court of Appeals. Defendants engaged in undisclosed practices that jeopardized the ability of eligible children to obtain equal access to quality care and to medically necessary day treatment services. Plaintiffs have offered additional evidence that may lead to the conclusion that the prior authorization process is arbitrarily used with the intent of eliminating all CHMS services. The practices of AFMC as described by Ms.
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Gassaway raise questions about the willingness of Defendants to comply with my last directive: “Nor may Defendants bury requirements or standards for various services so that providers are unable to comply with those requirements.”89

89

Doc.No. 150, p. 13.

Defendants contend that the administrative procedures available to Plaintiffs are more than sufficient to protect the rights of the providers and beneficiaries. They also contend that the remedies provided by the state should have been exhausted before Plaintiffs filed the current action. This is not the law. “The availability of state administrative procedures ... does not foreclose resort to § 1983.”90 Moreover, § 1983 relief is not precluded by the failure to exhaust state administrative and judicial remedies.91

90

Wilder, 496 U.S. at 523.

91

See Monroe v. Pape, 365 U.S. 167,183 (1961) (“The

federal remedy is supplementary to the state remedy,

and the latter need not be first sought and refused

before the federal one is invoked.”); See also

Greenstein by Horowitz v. Bane, 833 F.Supp. 1054,

1068 (S.D.N.Y., 1993).

Plaintiffs, therefore, have a property interest in the provision of quality care equal to that of the general population. Plaintiffs are not required to seek redress for the denial of this interest by exhausting state remedies. Instead, Plaintiffs may appropriately file a § 1983 action alleging the denial of their Constitutional right to procedural due process. However, a consideration of the state administrative process provided to medicaid recipients is clearly part of the analysis of any due process issue.
*13 It is well established that a possessory interest in property invokes procedural due process, consisting of two crucial elements: (1) adequate notice; and (2) a meaningful hearing. Both elements must be met before depriving an individual of his property right.92 The Supreme Court’s definition of adequate notice is “notice [that is] reasonably calculated, under all circumstances, to apprise interested parties of the pendency of the action

and afford them an opportunity to present their objections.”93 The Supreme Court further clarified the standard for adequate notice in Goldberg v. Kelley,94 when it required that notice be reasonably calculated to inform the recipient of the action to be taken; and to also provide an effective opportunity to be heard.

92

Thomas v. Cohen, 304 F.3d 563, 576 (6th Cir.2002)

(citing Fuentes v. Shevin, 407 U.S. 67, 87, 92 S.Ct.

1983, 32 L.Ed.2d 556 (1972)); See also Mathews v.

Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18

(1976) (Holding that a claim of entitlement to social

security benefits triggers due process protection).

93

Mullane v. Cent. Hanover Trust Co., 339 U.S. 306,

314, 70 S.Ct. 652, 94 L.Ed. 865 (1950).

94

397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970).

Plaintiffs in this case have presented sufficient evidence from which it may be inferred that Defendants are responsible for establishing guidelines in violation of these constitutional standards. There is additional evidence from which an inference may be drawn that internal procedures that were designed to further hinder Plaintiffs rights to quality care were formulated with the cooperation and tacit approval of Defendants.95 Finally, Plaintiffs have provided evidence that Defendants failed to notify medicaid beneficiaries that canned denials formulated by AFMC replaced individualized medical necessity reviews. It is reasonable to assume that Plaintiffs would have wanted an opportunity to be heard on these matters.96 The failure to disclose this conduct represents a basis for Plaintiffs’ procedural due process claim. The Sixth Circuit recently found that medicaid recipients had been denied due process because beneficiaries were not given clear indication of the reason for denial. Moreover, the Sixth Circuit noted that procedures were utilized that were designed to delay and complicate the review process in a manner that is very similar to the evidence presented here.97

95

See Plaintiffs’ Supplemental Response Ex. B, pp. 22,

36-38.

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96

See Plaintffs’ Original Response, Ex. C-Affidavit of

Melissa Thomas.

97

Hamby v. Neel, 368 F.3d 549, 560-61 (6th Cir.2004).

Plaintiffs also assert a violation of due process based on Defendants’ refusal to identify and compel the testimony of physicians and any other individuals responsible for making eligibility decisions. The power of the subpoena as well as the ability to gather evidence is an intricate part of the right to a “meaningful hearing.” Citizens must be able to compel the testimony of material witnesses and to have access to all relevant evidence.98 However, my recent decision enjoining Defendants from non-disclosure of the names of physicians and other individuals responsible for making eligibility decisions has rendered this part of Plaintiffs’ due process claim moot. Based on this interpretation of the pertinent provision of the Medicaid Act, recipients may compel the testimony of each member of the PRO responsible for adverse decisions. Accordingly, recipients may compel such testimony and request relevant evidence in connection with state administrative hearings.99

98

See United States v. Valenzuela-Bernal, 458 U.S. 858,

867, 102 S.Ct. 3440, 73 L.Ed.2d 1193 (1982); Wright v.

Lockhart, 854 F.2d 309, 312 (8th Cir.1988).

99

Doc. No. 249.

I. Substantive Due Process: *14 The Eighth Circuit addressed the issue of substantive due process in its second opinion addressing this case and found that “issues may come to light as to whether cutting CHMS services would result in a substantive due process violation.”100 It was further held by the court that this is not a case involving “fundamental rights.” Thus, Plaintiffs must demonstrate either that Defendants’ actions are not rationally related to legitimate government ends or that Defendants’ conduct deprived Plaintiffs of their right to EPSDT services and to equal access to medicaid benefits in a manner that would “shock the conscience.”

100 Pediatric, 364 F.3d at 925.
The core of the substantive due process is protection against arbitrary action and against the exercise of power without any reasonable justification in the service of a legitimate governmental objective. It is conduct that is intended to injure in some way, and that is unjustifiable by any government interest. The threshold question in a due process challenge to abusive conduct by a state actor is “whether the behavior of the governmental officer is so egregious, so outrageous, that it may fairly be said to shock the contemporary conscience.”101
101 County of Sacramento v. Lewis, 523 U.S. 832, 846, n. 8 (1998); See also Rogers v. City of Little Rock, Ark., 152 F.3d 790, 796-97 (8th Cir.1998).
Plaintiffs have presented sufficient evidence from which it can reasonably be inferred that Defendants engaged in conduct that violated Plaintiffs’ right to substantive due process. The Eighth Circuit reminded the ADHS that it was bound to provide CHMS services under the Medicaid Act, and cannot legitimately avoid its responsibility without ensuring that its conduct does not adversely affect Plaintiffs’ equal access to quality care.102 The testimony of Ms. Gassaway and Dr. Whitaker, combined with the other evidence presented, raises an inference that Defendants were aware of and encouraged the alleged denial of benefits in a manner that violated federal medicaid regulation. In sum, Plaintiffs have raised an inference that Defendants’ conduct was not rationally related to a legitimate end and that the conduct also represented an unreasonable and arbitrary exercise of executive power.
102 Pediatric, 364 F.3d at 932.
J. Qualified Immunity: Defendants Ray Hanley, Kirk Knickrehm and Roy Jeffus have plead qualified immunity. Defendants assert that they are not personally responsible for any violation of Plaintiffs clearly established rights. Qualified immunity is also known as “good faith immunity” because the underlying principle for the application of immunity to state actors is “good faith.” An official will not be held liable for conduct that he could not have reasonably
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known was illegal, nor may such an official be held liable for actions of his subordinates without some showing of personal involvement. Therefore, in order to answer the question of qualified immunity, I must consider first whether the rights Defendants are alleged to have violated were clearly established at the time of the violation; and second, whether there is evidence of Defendants’ personal involvement in the violations.
*15 Government officials performing discretionary functions are shielded from liability for civil damages and are entitled to qualified immunity unless their conduct violates clearly established statutory or constitutional rights of which a reasonable person would have known.103 Plaintiffs must assert the violation of a federal right that a reasonable official in Defendants’ position would have recognized as such a violation.104 The right to immunity set forth in the Harlow opinion is a right to immunity from certain claims, not from litigation in general.105 In Harlow, the Supreme Court held: “[W]e emphasize that our decision applies only to suits for civil damages.”106 The claims to which Defendants have a right to immunity are only those claims for civil damages. In this case Plaintiffs have claimed civil damages for violation of a federal statute, not for violation of a constitutional right to due process.
103 Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982); Samuels v. Meriwether, 94 F.3d 1163, 1166 (8th Cir.1996).

104 Walden v. Carmack, 156 F.3d 861, 868-69 (8th Cir.1998); Audio Odyssey, Ltd. v. Brenton First Nat. Bank, 245 F.3d 721, 737 (8th 2001).

105 Behrens v. Pelletier, 516 U.S. 299, 312, 116 S.Ct. 834, 133 L.Ed.2d 773 (1996).

106

Id. at 819.

I am aware that Plaintiffs have requested punitive damages in each count of their complaint-particularly with regard to alleged due process violations. However, Plaintiffs failed to request actual or compensatory damages for any due process violations. Generally speaking, compensatory damages are a prerequisite to

punitive damages.107 The U.S. Supreme Court has found that due process violations are not a basis for presumed damages, but can support claims for nominal damages.108 Plaintiffs have failed to assert any actual injury or request even nominal damages in connection with the due process violations alleged. The Supreme Court has explained that § 1983 damages should be based on general principles of tort law including the doctrine that punitive damages must be prefaced on compensatory or actual damages.109 In view of this, I find that the issue of qualified immunity is only applicable to the Plaintiffs’ claims for actual damages.110
107 Hale v. Ladd, 308 Ark. 567, 826 S.W.2d 244 (Ark.1992).
108 Carey v. Piphus, 435 U.S. 247, 263, 98 S.Ct. 1042, 55 L.Ed.2d 252 (1978).
109 Memphis Community School Dist. v. Stachura, 477 U.S. 299, 308, 106 S.Ct. 2537, 91 L.Ed.2d 249 (1986).
110 Any other claims for punitive damages, that are made without allegations of actual injury, and a request for compensation for the injury, are without substantial merit, and need not be addressed in connection with the issue of qualified immunity.
To receive qualified immunity, a government official first must prove that he was acting within his discretionary authority. A law that fails to specify the precise action that the official must take in each instance creates only discretionary authority; that authority remains discretionary however egregiously it is abused.111 Once Defendants establish that they were acting within their discretionary authority, the burden shifts to Plaintiffs to show that Defendants are not entitled to qualified immunity.
111 Davis v. Scherer, 468 U.S. 183, 196, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984).
A civil action for damages may be brought under § 1983 against anyone who-under color of state statute,
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regulation, or custom-deprives another of any rights, privileges, or immunities secured by the Constitution and federal laws. This encompasses claims based on purely statutory violations.112 In Harlow, the Court acknowledged that officials may lose their immunity by violating clearly established statutory rights.113
112 Maine v. Thiboutot, 448 U.S. 1, 100 S.Ct. 2502, 65 L.Ed.2d 555 (1980) (Holding that § 1983 creates a cause of action against state officials for violating federal statutes).
113 457U.S. at 818, n. 34.
For purposes of § 1983, violating “statutory rights” is separate from violation of the law itself.114 There is no point in explaining the analytical framework concisely described in the Reynolds opinion. Section1396a(a)30 (also known as the equal access provision), and § 1396d(a)13 have already been determined to create “rights” for purposes of § 1983 actions.115 Shortly before the Eighth Circuit filed its first Pediatric opinion, the Sixth Circuit concluded that medicaid providers and recipients had an enforceable right to EPSDT services.116
114 Golden State Transit Corp., Inc. v. City of Los Angeles, 493 U.S. 103, 106, 110 S.Ct. 444, 107 L.Ed.2d 420 (1989). See Reynolds, 6 F.3d 519 at 523.
115 See Reynolds, 6 F.3d at 528 (“the equal access provision involves a federal right”); Pediatric, 293 F.3d at 480; (“a Medicaid-eligible individual has a right to early intervention day treatment when a physician recommends it”); Pediatric, 364 F.3d at 930 (“over ten years ago our court held that § 1396a(a) 30 created enforceable rights for Medicaid recipients and providers”).
116 Westside Mothers v. Haveman, 289 F.3d 852, 863 (6th Cir.2002).
*16 The damages claims in the present action are based upon the equal access provision and, also upon § 1396d(a)13. The equal access provision has been a “clearly established” statutory right for ten years-which

was so recognized in the Reynolds opinion handed down in a case involving the ADHS. Thus, a reasonable official in the position of Defendants should have anticipated that broad reductions in the scope and duration of medicaid services would result in legal actions.117 The statutory right to day treatment and other EPSDT services was recognized by the Sixth Circuit and the Eighth Circuit in 2002. The mandatory language of § 1396d(a)13, the medicaid regulations, and opinions from the Supreme Court and from the Eighth Circuit filed before 2002-should have given rise to a reasonable expectation that at the time Defendants allegedly implemented broad reductions in the duration of recommended treatment, they were taking actions that would raise questions of a violation of the Medicaid Act, its regulations, and the rights that it created for physically and mentally impaired children.118 In sum, the violations alleged by Plaintiffs were, at the time they occurred, clearly established statutory rights enforceable by § 1983. Defendants should have known that any actions adversely affecting equal access to quality care in general-and to EPSDT benefits in particular-would have legal consequences. Even if I were to determine that the right to EPSDT day treatment was not a clearly established right at the time of the alleged violation-any violation of the clearly established equal access provision is sufficient to deny qualified immunity to Defendants on this first ground.
117 Harlow, 457 U.S. 818.
118 See Maine v. Thiboulot, supra; Beal v. Doe, supra; Pinneke v. Preisser, supra; Arkansas Medical Soc’y v. Reynolds, supra; 42 C.F.R. § 440.230(b).
Officials sued for violations of rights conferred by a statute or regulation become liable for damages only to the extent that there is a clear violation of the statutory rights that give rise to the cause of action for damages. If a statute or regulation does give rise to a cause of action for damages, clear violation of the statute or regulation forfeits immunity only with respect to damages caused by that violation.119
119 Davis, 468 U.S. at 94.
Plaintiffs alleged and have offered sufficient evidence that a second layer of the prior authorization process was
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implemented by the individual capacity defendants resulting in an across-the-board reduction in the scope and duration of day treatment recommended by the CHMS providers. Consequently, all medicaid eligible children were allegedly denied their full array of recommended treatment. Plaintiffs contend that this reduction has violated the equal access provision of the Medicaid Act as well as entitlement to day treatment in accordance with § 1396d(a)13. There is sufficient evidence in the record which raise a reasonable inference that the conduct of Defendants reduced the quality of care available to low income children as compared to other children in the general population. Moreover, there is sufficient evidence that costs for the additional hours of care may be borne by the CHMS providers to such an extent that it jeopardizes the future availability of their services. Finally, according to Ms. Gassaway, elimination of such services is goal of the prior authorization practices engaged in by AFMC with the encouragement and tacit approval of Defendants.
*17 Plaintiffs have requested damages based on the reduction in day treatment from the recommended six (6) hours of treatment per day to no more than three and a half (3.5) hours per day. Therefore, the civil damages requested by Plaintiffs arise from the alleged deprivation of statutory rights. Plaintiffs also allege that Defendants reduced the duration of early intervention treatment in an arbitrary manner. As I have emphasized throughout this order-the stated purpose of early intervention day service is maximum reduction of medical and physical disabilities. As stated above, the Eighth Circuit found that a “Medicaid-eligible individual has a right to early intervention day treatment when a physician recommends such treatment.”120 The court unequivocally stated:
120 Pediatric, 293 F.3d 472 at 480.

If a CHMC physician prescribes early intervention day treatment as a service that would lead to maximum reduction of medical and physical disabilities and restoration of the child to his or her best possible functional level, the Arkansas plan must reimburse the treatment.121

121

Id at 481.

In view of the above, Plaintiffs have alleged a violation of an established right and have requested civil damages related to the violation. There is enough evidence

provided by Plaintiffs that the individual capacity Defendants should have been aware that their discretionary actions were in violation of the equal access provision of the Medicaid Act as well as provisions pertaining to rights created by § 1936d(a)(13). No reasonable official would claim to be unaware of the statutory right of medicaid recipients to equal access to quality medical care.122 Therefore, the individual Defendants have failed to show that they are entitled to qualified immunity. This brings me to the second issue in the analysis of Defendants’ entitlement to good faith immunity-the question of their personal involvement in alleged violations.
122 Groh v. Ramirez, 540 U.S. 551, 564, 124 S.Ct. 1284, 157 L.Ed.2d 1068 (2004); Crawford-El v. Britton, 523 U.S. 574, 587, 118 S.Ct. 1584, 140 L.Ed.2d 759 (1998).
K. Vicarious Liability: To establish personal liability in a § 1983 action, a plaintiff must show that the official, acting under color of state law, caused the deprivation of a federal right.123 Causation cannot be based on the concept of imputed liability-there is no supervisory strict liability in § 1983 actions.124 Supervisory officials are not liable under § 1983 for the unconstitutional acts of their subordinates on the basis of respondeat superior or vicarious liability.125 Instead, for a supervisor to be held liable for the acts of a subordinate, something more must be shown than merely the existence of the supervisor-subordinate relationship must be shown.126 Supervisory liability under § 1983 occurs either when the supervisor personally participates in the alleged unconstitutional conduct; or when there is a causal connection between the actions of a supervising official and the alleged constitutional deprivation.127 It must be noted that personal participation is not required for liability to attach.128
123 Kentucky v. Graham, 473 U.S. 159, 160, 105 S.Ct. 3099, 87 L.Ed.2d 114 (1985).
124 Harris v. Greer, 750 F.2d 617, 618 (7th Cir.1984).
125 Hartley v. Parnell, 193 F.3d 1263, 1269 (11th
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Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

Cir.1999).
126 Hahn v. McLey, 737 F.2d 771, 773 (8th Cir.1984) (per curiam).
127 Brown v. Crawford, 906 F.2d 667, 671 (11th Cir.1990).
128 Wilson v. Attaway, 757 F.2d 1227, 1241 (11th Cir.l985); Henzel v. Gerstein, 608 F.2d 654, 658 (5th Cir.1979).
A necessary causal connection can be established when a history of widespread abuse puts the responsible supervisor on notice of the need to correct the alleged deprivation and he fails to do so.129 Once an official is so notified, either actually or constructively, it is reasonable to infer that the failure to take such steps-as well as the actual taking of them-is a choice.130 When supervisory liability is imposed, it is imposed against the supervisory official in his individual capacity for his own culpable choice between action or inaction in the training, supervision, or control of his subordinates.131 In other words, the causal connection may be established where a history of widespread prior abuse puts the official on notice for the need to improve training or supervision.132
129 Braddy v. Fla. Dept. of Labor & Employment, 133 F.3d 797, 802 (11th Cir.1998).
130 Pembaur v. City of Cincinnati, 475 U.S. 469, 483-84, 106 S.Ct. 1292, 89 L.Ed.2d 452 (1986).
131 Clay v. Conlee, 815 F.2d 1164, 1169 -70 (8th Cir.1987); Hahn, 737 F.2d at 773.
132 Bowen v. Watkins, 669 F.2d 979, 988 (5th Cir.1982). See also Clement v. Gomez, 298 F.3d 898, 905 (9th Cir.2002).
*18 Alternatively, the causal connection may be

established when a supervisor’s custom or policy results in deliberate indifference to constitutional or statutory rights; or when the supervisor directed the subordinates to act unlawfully or knew that the subordinates would act unlawfully and failed to stop them from doing so.133 In sum, a state official, sued in his individual capacity, can be held liable for the behavior of his subordinates if (1) the behavior of such subordinates results in a statutory violation; and (2) the officials action or inaction was affirmatively linked to the violation.134 An affirmative link may be inferred from supervisory condonation or acquiescence which tacitly encourages conduct depriving citizens of their rights.
133 Rivas v. Freeman, 940 F.2d 1491, 1495 (11th Cir.1991); Hartley, 193 F.3d at 1263; see also Post v. City of Ft. Lauderdale, 7 F.3d 1552, 1560-61 (11th Cir.1993).
134 See Oklahoma City v. Tuttle, 471 U.S. 808, 823, 105 S.Ct. 2427, 85 L.Ed.2d 791 (1985).
Plaintiffs have provided sufficient evidence from which a reasonable inference can be drawn that the individual capacity defendants, Mr. Hanley and Mr. Jeffus, implemented a policy that reduced the scope and duration of day treatment for beneficiaries of the Medicaid Act. In fact, guidelines issued by Mr. Hanley on behalf of ADHS clearly demonstrate that the policy in 1998 provided for six (6) hours per day for recommended day treatment for the following codes: 99211, 99212, Z1570, Z1571, Z1572, and Z1575.135 However, subsequent guidelines issued to CHMS providers, reduced the time period for 99211 services to five (5) minutes; 99212 services to ten (10) minutes; and Z1575 services to one (1) hour.136
135 Plaintiffs’ original Response to Motion for Summary Judgment, Ex. I.
136 Plaintiffs’ original Response to Motion for Summary Judgment, Ex. J.
Drs. Whitaker, Stewart and Kennedy all testified that there was a threshold prior authorization of three and a half (3.5) hours of day treatment. None of these physicians could explain the “medical necessity”
18

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

foundation for the reduction in hours.137 A reasonable conclusion can be drawn from such evidence that Mr. Hanley and Mr. Jeffus were motivated to reduce benefits in order to save money. This inference is buttressed by the testimony of Ms. Gassaway that cost savings was the primary reason for awarding AFMC the peer review contract. It was also the underlying reason that AFMC was thereafter able to maintain the contract relationship.138 Furthermore, Dr. Whitaker’s testimony confirmed that Marilyn Strickland, with ADHS, gave direct orders to AFMC administrators on how to limit nursing services in the day treatment centers. Dr. Whitaker stated that nursing services were primarily used for catheterized children and children in need of respiratory therapies. According to Dr. Whitaker, when it was discovered that such services could not be capped, Ms. Strickland instructed the nurses to send all requests for more than one unit per day for physician review before further approval. Dr. Whitaker identified the code numbers for nursing services as 99211 and 99212-numbers which, under the new medicare guidelines, were limited to five (5) and ten (10) minutes per unit.139 According to Dr. Whitaker, his approval of more than one (1) unit of nursing services per day for a catheterized child was overridden at the directive of “Medicaid.”140 Finally, Dr. Whitaker’s “canned denials” present substantive evidence of an intent to deny the scope and duration of EPSDT services without a thorough evaluation of individual medical needs.141
137 Plaintiffs’ original Response to Motion for Summary Judgment, Ex. G p. 39, Ex. H, Plaintiffs’ original Response, Ex. K p. 26.
138 Plaintiffs’ Supplemental Response to Motion, Ex. B pp. 33-35.
139 Plaintiffs’ Supplemental Response to Motion, Ex. E pp. 58-59.
140 Plaintiffs’ Supplemental Response to Motion, Ex. E. pp 75-77.
141 Plaintiffs’ Supplemental Response to Motion Exhibit D.

*19 Mr. Knickrehm, is director of the ADHS and has held that position since January, 1999. Mr. Ray Hanley was director of the Division of Medical Services of ADHS from 1994 through January 6, 2003. Roy Jeffus is the current director of Division of Medical Services of the Department of Human Services beginning on January 6, 2003. Before becoming director of the Division of Medical Services, Mr. Jeffus was its senior assistant director.
Consequently, the evidence demonstrates that Mr. Hanley and Mr. Jeffus have been deeply involved in the administration of the state medical services program for many years. Mr. Hanley states that he was responsible for implementing the prior authorization process to curtail payment of unnecessary medical services.142 It is the prior authorization process that is the focus of the controversial testimony of Ms. Gassaway and Dr. Whitaker. Mr. Jeffus states that the AFMC was awarded the state contract as a result of a bidding process and a review AFMC’s proposals.143 The contract entered into between the ADHS and the AFMC gave the Director of Medical Services oversight power as well as disciplinary power.144 The testimony of Ms. Gassaway raises a reasonable inference that the bidding process and proposals included an evaluation of AFMC’s willingness to make cost reduction its primary goal. Moreover, according to Ms. Gassaway, the only periodic information gathered by ADHC from AFMC related to cost savings, and not meeting the medical needs of eligible children.
142 Defendants’ Motion for Summary Judgement Ex. 4.
143 Defendants’ Motion for Summary Judgement Ex. 3.
144 Plaintiff’s Response to Summary Judgement Ex. 24 pp. 24-26.
Plaintiffs’ presented evidence that Mr. Hanley and Mr. Jeffus-as key administrators of the division of medical services-either actually or constructively knew that the prior authorization process was being manipulated in a fashion that did not comport with the dictates of the Medicaid Act; and that abuses within the AFMC were condoned and overlooked.145 In other words, the inference can be drawn that these two defendants acted
19

Pediatric Specialty Care, Inc. v. Arkansas Dept. of Human..., Not Reported in...

affirmatively to reduce EPSDT services based on cost savings alone, without regard to medical need. There is evidence that the attorney for the individual capacity defendants was aware of the canned denials created and implemented by AFMC. It is a fair assumption that attorneys would, in turn, make their clients aware of material facts. There is evidence that administrators with Utilization-namely Ms. Wilson and Ms. Strickland-were instrumental in formulating AFMS undisclosed prior authorization guidelines. It is also a reasonable assumption that these two women were acting with the knowledge and support of their direct supervisors-Mr. Hanley and Mr. Jeffus.
145 Pembaur, 475 U.S. 483-84.
In sum, Plaintiffs have presented evidence reasonably indicating that the individual Defendants knew that reducing the scope and duration of EPSDT services would adversely affect equal access to quality medical services for eligible children. There is sufficient evidence that equal access to these services was a clearly established right at the time Defendants implemented the policies in question here. Finally, Plaintiffs have come forward with enough evidence to create an inference that Mr. Hanley and Mr. Jeffus made affirmative choices that resulted in injury to Plaintiffs. However, Plaintiffs have failed to make a sufficient showing that Mr. Knickrehm, was in a position to know or take part in the conduct of Ms. Strickland and Ms. Wilson-or was aware of the alleged misconduct of individuals associated with AFMC. Consequently, Mr. Knickrehm is not liable for the actions of his subordinates in reducing medical care at the day treatment clinics.

CONCLUSION
*20 In view of the above, Defendants’ Motion for Summary Judgement and Supplemental Motion for Summary Judgment is DENIED. I find, as a matter of law, Plaintiffs have standing to bring this action. Genuine disputes of material fact exist with respect to the motive for Defendants’ implementation of the prior authorization process; with respect to the legitimacy of Defendants’ medical necessity determinations; and with respect to the legitimacy of the manner in which the prior authorization process is applied. There are facts in dispute raising inferences pertinent to the violation of Plaintiffs’ procedural and substantive due process rights; and that Ray Hanley and Roy Jeffus are not entitled to qualified immunity. There is not sufficient evidence to support liability against Kurt Knickrehm for civil damages.
It is therefore CONSIDERED, ORDERED AND ADJUDGED that Defendants’ Motion for Summary Judgement and Supplemental Motion for Summary Judgment are DENIED (Doc. Nos. 162 and 253). The individually named Defendants-Ray Hanley and Roy Jeffus-are not entitled to qualified immunity. Kurt Knickrehm is entitled to immunity from civil damages. Finally, the Motion to Rule on the Issue of Qualified Immunity is DENIED as MOOT.
IT IS SO ORDERED.
	  

20

 
 Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 1 of 25
CLOSED, DISC, HDY
U.S. District Court Eastern District of Arkansas (Little Rock) CIVIL DOCKET FOR CASE #: 4:01−cv−00830−BSM

Pediatric Specialty, et al v. Arkansas Human Svc, et al Assigned to: Judge Brian S. Miller Demand: $0 Case in other court: USDC E/D AR, 4:99CV00810JMM Cause: 42:1983 Other Civil Rights
Plaintiff

Date Filed: 12/06/2001 Date Terminated: 11/13/2008 Jury Demand: Both Nature of Suit: 440 Civil Rights: Other Jurisdiction: Federal Question

Pediatric Specialty Care Inc

represented by Martin Wayne Bowen Bowen &Taylor Law, PLLC Post Office Box 30383 Little Rock, AR 72210 501−455−2331 Fax: 501−455−2214 Email: bowen@bowenlaw.us TERMINATED: 08/15/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Philip E. Kaplan Williams &Anderson, PLC 111 Center Street Suite 2200 Little Rock, AR 72201−2413 501−372−0800 Fax: 501−376−6453 Email: pkaplan@williamsanderson.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Plaintiff
Child &Youth Pediatric Day Clinics Inc

represented by Martin Wayne Bowen (See above for address) TERMINATED: 08/15/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Philip E. Kaplan (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Plaintiff
Family Counseling &Diagnostic Clinic Inc TERMINATED: 01/04/2005

represented by Martin Wayne Bowen (See above for address) TERMINATED: 01/04/2005 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Philip E. Kaplan (See above for address) TERMINATED: 01/04/2005 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Plaintiff

represented by

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 2 of 25

Tomorrow's Child Learning Center LLC TERMINATED: 11/12/2008

Tomorrow's Child Learning Center LLC PRO SE

Martin Wayne Bowen (See above for address) TERMINATED: 08/15/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Philip E. Kaplan (See above for address) TERMINATED: 11/12/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Charles A. Banks Banks Law Firm, PLLC Post Office Box 251310 Little Rock, AR 72225−1310 501−280−0100 Fax: 501−280−0166 Email: cbanks@bankslawfirm.us TERMINATED: 11/12/2008 ATTORNEY TO BE NOTICED

Plaintiff
D &D Family Enterprises Inc TERMINATED: 01/04/2005

represented by Martin Wayne Bowen (See above for address) TERMINATED: 01/04/2005 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Philip E. Kaplan (See above for address) TERMINATED: 01/04/2005 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Plaintiff James Swindle

represented by Martin Wayne Bowen (See above for address) TERMINATED: 08/15/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Philip E. Kaplan (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Plaintiff
Stacey Swindle as parents and next best friends of Jacob and Noah Swindle, Minors unknown Jacob Swindle unknown Noah Swindle

represented by Martin Wayne Bowen (See above for address) TERMINATED: 08/15/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED
Philip E. Kaplan (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 3 of 25

Plaintiff
Susann Crespino as parent and next best friend of Michael Crespino, a minor unknown Michael Crespino

represented by Martin Wayne Bowen (See above for address) TERMINATED: 08/15/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED
Philip E. Kaplan (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

V. Defendant Arkansas Department of Human Services
Defendant Kurt Knickrehm in his individual capacity and in his official capacity as Director of The Arkansas Department of Human Services

represented by Breck G. Hopkins Arkansas Department of Human Services − LR Office of Chief Counsel Post Office Box 1437 Slot S−260 Little Rock, AR 72203−1437 (501) 682−8598 Email: breck.hopkins@arkansas.gov LEAD ATTORNEY ATTORNEY TO BE NOTICED
Lee S. Thalheimer Attorney at Law 5005 Crestwood Drive Little Rock, AR 72207 501−663−1151 TERMINATED: 08/18/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED
Lori Freno−Engman Arkansas Attorney General's Office Catlett−Prien Tower Building 323 Center Street Suite 200 Little Rock, AR 72201−2610 (501) 682−1314 Email: lori.freno@arkansasag.gov TERMINATED: 08/26/2004 LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Breck G. Hopkins (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
Lee S. Thalheimer (See above for address) TERMINATED: 08/18/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED
Lori Freno−Engman (See above for address)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 4 of 25

TERMINATED: 08/26/2004 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Defendant
Ray Hanley in his individual capacity as director of the Division of Medical Services of The Arkansas Department of Human Services

represented by Breck G. Hopkins (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Lee S. Thalheimer (See above for address) TERMINATED: 08/18/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Lori Freno−Engman (See above for address) TERMINATED: 08/26/2004 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Defendant Arkansas Foundation for Medical Care

represented by Michael R. Rainwater Rainwater, Holt &Sexton P.A. Post Office Box 17250 Little Rock, AR 72222−7250 (501) 868−2500 Email: rainwater@rainfirm.com LEAD ATTORNEY ATTORNEY TO BE NOTICED

Defendant
Roy Jeffus in his official capacity as Interim Director of Arkansas Department of Human Services Division of Medical Services

represented by Breck G. Hopkins (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Lee S. Thalheimer (See above for address) TERMINATED: 08/18/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Lori Freno−Engman (See above for address) TERMINATED: 08/26/2004 LEAD ATTORNEY ATTORNEY TO BE NOTICED

ThirdParty Plaintiff
Arkansas Department of Human Services TERMINATED: 03/07/2005

represented by Breck G. Hopkins (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED

Lee S. Thalheimer (See above for address) TERMINATED: 08/18/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Case: 4:01-cv-830
ThirdParty Plaintiff Kurt Knickrehm TERMINATED: 03/07/2005
ThirdParty Plaintiff Roy Jeffus TERMINATED: 03/07/2005

As of:03/31/2011 04:26 PM CDT 5 of 25
Lori Freno−Engman (See above for address) TERMINATED: 08/26/2004 LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Breck G. Hopkins (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
Lee S. Thalheimer (See above for address) TERMINATED: 08/18/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED
Lori Freno−Engman (See above for address) TERMINATED: 08/26/2004 LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Breck G. Hopkins (See above for address) LEAD ATTORNEY ATTORNEY TO BE NOTICED
Lee S. Thalheimer (See above for address) TERMINATED: 08/18/2008 LEAD ATTORNEY ATTORNEY TO BE NOTICED
Lori Freno−Engman (See above for address) TERMINATED: 08/26/2004 LEAD ATTORNEY ATTORNEY TO BE NOTICED

V. ThirdParty Defendant Mark McClellan Administrator, CMS, in his official capacity TERMINATED: 03/07/2005
ThirdParty Defendant Department of Health and Human Services Tommy Thompson, Secretary of the Department of Health and Human Services in his official capacity

represented by Richard M. Pence , Jr. U. S. Attorney's Office − Little Rock Eastern District of Arkansas Post Office Box 1229 Little Rock, AR 72203−1229 (501) 340−2626 Email: richard.pence@usdoj.gov TERMINATED: 03/07/2005 LEAD ATTORNEY ATTORNEY TO BE NOTICED
represented by Richard M. Pence , Jr. (See above for address) TERMINATED: 03/07/2005 LEAD ATTORNEY ATTORNEY TO BE NOTICED

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT TERMINATED: 03/07/2005

6 of 25

Date Filed 12/06/2001 12/06/2001 12/06/2001 12/12/2001 12/12/2001 12/12/2001 12/12/2001 12/13/2001 12/14/2001 12/17/2001 12/18/2001 12/18/2001 12/19/2001
12/19/2001 12/19/2001 12/21/2001 12/21/2001 12/21/2001

# Docket Text
1 COMPLAINT with jury demand; summons issued and returned to attorney; filing fee of $150.00 pd, receipt #99398 (kjp) (Entered: 12/06/2001)
2 MOTION by plaintiffs for temporary injunctive relief (kjp) (Entered: 12/06/2001)
3 BRIEF by plaintiff in support of motion for temporary injunctive relief [2−1] (kjp) (Entered: 12/06/2001)
4 ANSWER by defendants (former empl) (Entered: 12/13/2001)
4 MOTION by defendants to dismiss for failure to state a cause of action, purs to FRCP 12(b)(6) (former empl) (Entered: 12/13/2001)
5 RESPONSE by defendants to motion for temporary injunctive relief [2−1] (former empl) (Entered: 12/13/2001)
6 BRIEF by defendants in support of answer &response to pltfs mot for temporary injunctive relief &motion to dismiss for failure to state a cause of action purs to FRCP 12(b)(6) [4−1] [5−1] (former empl) (Entered: 12/13/2001)
CLERK'S MINUTES: Court trial began before Judge Wilson; parties make opening statements; pltf begins testimony (C. Newburg) (maj) (Entered: 12/14/2001)
CLERK'S MINUTES: Court trial − 2nd day; pltf rests; deft motions denied; deft begins evidence (C. Newburg/L. Lambert) (maj) (Entered: 12/14/2001)
CLERK'S MINUTES: Court trial − 3rd day (C. Newburg) (maj) (Entered: 12/18/2001)
CLERK'S MINUTES: Court trial − 4th day (C. Newburg) (maj) (Entered: 12/18/2001)
7 CLERK'S MINUTES: Court trial ended before Judge Wilson; findings of fact and conclusions of law announced from bench in favor of pltfs; judgment to be entered (C. Newburg) (maj) (Entered: 12/18/2001)
8 JUDGMENT by Judge William R. Wilson in accordance with the ruling announced from the bench today, I find that a categorically needy individual under 21 who requests medical assistance &early intervention day treatment, and treatment is recommended by a physician for that individual, the individual has a federal right to early intervention day treatment; DHS may not cut funding or provision of early intervention day treatment in the CHMS plan; declaratory judgment is entered in favor of pltfs to this effect; defts are enjoined from eliminating day treatment services from the CHMS program; the motion for temporary injunctive relief is denied as moot [2−1] [4−1] (cc: all counsel) (former empl) (Entered: 12/19/2001)
9 NOTICE of appeal by defendants from District Court decision [8−2] (fees paid) (2 certified copies to Clerk 8USCA), (cc: counsel) (dac) (Entered: 12/20/2001)
10 MOTION by defendants for order to suspend or modify injunction pending appeal (dac) (Entered: 12/21/2001)
11 ORDER by Judge William R. Wilson denying motion for order to suspend or modify injunction pending appeal [10−1] (cc: all counsel) (dac) Modified on 09/17/2002 (Entered: 12/21/2001)
12 TRANSCRIPT ( 1 volume) of proceedings for the following date: 12/18/01 hearing ( [9−1] ) (dac) (Entered: 12/21/2001)
CLERK'S MINUTES: Telephone conference w/parties (C. Newburg) (maj) (Entered: 01/07/2002)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 7 of 25

12/26/2001 12/26/2001 12/27/2001
12/31/2001 01/08/2002 01/09/2002
01/23/2002 01/23/2002
01/25/2002 01/25/2002 01/25/2002 02/06/2002
02/07/2002
02/14/2002
02/14/2002 04/04/2002 06/25/2002 06/27/2002 07/02/2002
07/12/2002 07/12/2002

13 MOTION by defendants Kurt Knickrehm, Ray Hanley to alter judgment , or to amend judgment (dac) (Entered: 01/02/2002)
14 BRIEF by defendants Kurt Knickrehm, Ray Hanley in support of motion to alter judgment [13−1], motion to amend judgment [13−2] (dac) (Entered: 01/02/2002)
15 REPLY by defendants Kurt Knickrehm, Ray Hanley to plaintiff's response to motion to alter or amend judgment (dac) Modified on 08/05/2002 (Entered: 01/02/2002)
16 RESPONSE by plaintiffs to motion to alter judgment [13−1], motion to amend judgment [13−2] (dac) (Entered: 01/02/2002)
DOCKETING LETTER: 8 USCA Number 01−3971; case is referred to a panel of judges for review (dac) (Entered: 01/08/2002)
17 ORDER by Judge William R. Wilson denying motion to alter judgment [13−1], denying motion to amend judgment [13−2] (cc: all counsel) (dac) (Entered: 01/09/2002)
18 MOTION by plaintiffs Pediatric Specialty, and Child &Youth for costs , and for attorney fees (dac) Modified on 01/24/2002 (Entered: 01/24/2002)
19 BRIEF by plaintiffs Pediatric Specialty, and Child &Youth in support of motion for costs [18−1], motion for attorney fees [18−2] (dac) Modified on 01/24/2002 (Entered: 01/24/2002)
20 TRANSCRIPTS ( 4 volume) of proceedings for the following dates: 12/13−14/01 and 12/17−18/01 Trial ( [9−1] ) (dac) (Entered: 01/25/2002)
21 TRANSCRIPT ( 1 volume) of proceedings for the following date: 12/21/01 telephone conf ( [9−1] ) (dac) (Entered: 01/25/2002)
DOCKET NOTE: 4 vols trial transcripts and one volume transcript of telephone conf forwarded to 8USCA (dac) (Entered: 01/25/2002)
22 MOTION by defendants Arkansas Human Svc, Kurt Knickrehm, Ray Hanley to extend time to respond to motion for costs and attorney fees (dac) (Entered: 02/08/2002)
23 ORDER by Mary Johnson, Deputy Clerk granting motion to extend time to respond to motion for costs and attorney fees [22−1] to 2/18/02 (cc: all counsel) (dac) (Entered: 02/08/2002)
24 RESPONSE by defendants Arkansas Human Svc, Kurt Knickrehm, Ray Hanley to motion for costs [18−1], motion for attorney fees [18−2] (dac) (Entered: 02/15/2002)
25 BRIEF by defendants Arkansas Human Svc, Kurt Knickrehm, Ray Hanley in support of motion response [24−1] (dac) (Entered: 02/15/2002)
DOCKET NOTE: original flie forwarded to 8USCA, per telephone request of Scott, Records Manager (dac) (Entered: 04/04/2002)
DOCKET NOTE: original file and 5 vols transcripts returned from Clerk USCA8 (dac) (Entered: 06/25/2002)
26 MOTION by defendants to extend time to respond to motion for costs and attorney fees (dac) (Entered: 06/28/2002)
27 ORDER by Judge William R. Wilson granting motion to extend time to respond to motion for costs and attorney fees [26−1] to 7/15/02 (cc: all counsel) (dac) (Entered: 07/02/2002)
28 RESPONSE by defendants to motion for costs [18−1], motion for attorney fees [18−2] (dac) (Entered: 07/15/2002)
29 BRIEF by defendants in support of motion response [28−1] (dac) (Entered: 07/15/2002)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 8 of 25

07/15/2002
07/15/2002
07/15/2002 07/15/2002 07/16/2002 07/17/2002 07/17/2002 07/18/2002 07/18/2002 07/19/2002 07/23/2002 07/26/2002 07/30/2002
07/30/2002
08/14/2002 08/14/2002

30 Opinion (8USCA) we remand this case to the district court so that it may modify its injunction in accordance with our decision. Because the district court found in favor of the plaintiffs on the federal statutory claim, it did not consider the plaintiffs' procedural due process claim. We remand for appropriate consideration of that claim (dac) Modified on 07/15/2002 (Entered: 07/15/2002)
31 MANDATE from 8 USCA affirming in part and reversing in part and remanded to the District Court for proceedings consistent with the opinion of this court [9−1] Order USCA8−dated 7/19/02− appellees' motion for attorneys' fees is granted in the amount of $40,185.00. Expenses are granted in the amount of $2,503.00 (dac) Modified on 07/26/2002 (Entered: 07/15/2002)
Docket Modification (Utility Event) Case reopened pursuant to USCA8 Mandate (dac) (Entered: 07/15/2002)
32 LETTER/ORDER by Judge William R. Wilson directing counsel to submit their ideas about the status of this case in light of the Eighth Circuit's mandate by 5:00 p.m. on 7/16/02 (cc: all counsel) (bsm) Modified on 07/18/2002 (Entered: 07/18/2002)
33 LETTER/RESPONSE by defendants to Letter/Order [32−1] with attachments 1−9 (bsm) Modified on 07/18/2002 (Entered: 07/18/2002)
34 LETTER to court from Phillip Kaplan for plaintiffs regarding the status of this case in light of the Eighth Circuit's mandate (bsm) (Entered: 07/18/2002)
35 LETTER/ORDER by Judge William R. Wilson that after the telephone conference held on 7/17/02, parties are directed to submit a proposed injunction modified as directed by the Eighth Circuit (cc: all counsel) (bsm) (Entered: 07/18/2002)
36 ORDER by Judge William R. Wilson Telephone conference scheduled for 2:00 7/19/02 (cc: all counsel) (bsm) Modified on 07/22/2002 (Entered: 07/19/2002)
37 ORDER (DOC) Procedural Due Process Hearing scheduled for 9:00 9/12/02 in Little Rock, AR (cc: all counsel) (bsm) (Entered: 07/19/2002)
CLERK'S MINUTES: Telephone conference w/parties (C. Newburg) (maj) (Entered: 11/18/2002)
38 LETTER/ORDER by Judge William R. Wilson to all parties in regard to the enclosed draft of proposed Amended Injunction; parties must fax their brief, or letter brief, by 5:00 p.m. on 7/25/02 if they wish to comment (cc: all counsel) (bsm) Modified on 07/30/2002 (Entered: 07/24/2002)
39 ORDER (8 USCA) Plaintiffs/appellees' motion for attorneys' fees is granted in the amount of $40,185.00. Expenses are granted in the amount of $2,503.00 (dac) (Entered: 07/26/2002)
40 ORDER by Judge William R. Wilson: Court will enter an Amended Injunction in accordance with the mandate that was entered on 7/15/02, affirming in part, reversing in part and remanding this case back to this Court with instructions to modify the Injunction; any application for fees must be filed in accordance with Local Rule 54.1; issues on atty's fees will be decided after the hearing on 9/12/02 and applications need not be filed until after that date (cc: all counsel) (bsm) Modified on 07/30/2002 (Entered: 07/30/2002)
41 AMENDED INJUNCTION by Judge William R. Wilson consistent with the Eighth Circuit's opinion and mandate entered on 7/15/02, the injunction entered on 12/19/02 is amended accordingly; defts do not have to specifically include CHMS early intervention day treatment services, therapies and other treatments, or diagnostic and evaluation services, by name, in the State Plan but they do have to pay for these services when prescribed by a physician for the purpose stated in the Medicaid Act; defts must inform potential Medicaid recipients about these available services (bsm) (Entered: 07/30/2002)
42 MOTION by defendants for summary judgment (bsm) (Entered: 08/15/2002)
43 BRIEF by defendants in support of motion for summary judgment [42−1] (bsm) (Entered: 08/15/2002)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 9 of 25

08/19/2002 08/27/2002 09/03/2002 09/03/2002 09/03/2002 09/03/2002 09/10/2002 09/12/2002
09/13/2002
09/13/2002
09/13/2002
09/19/2002
10/08/2002 11/18/2002 11/18/2002 11/22/2002 11/26/2002 11/27/2002

44 STATEMENT OF UNDISPUTED MATERIAL FACTS by defendants [42−1] (bsm) (Entered: 08/20/2002)
45 RESPONSE by plaintiffs to motion for summary judgment [42−1] (bsm) (Entered: 08/28/2002)
46 ORDER by Judge William R. Wilson denying motion for summary judgment [42−1]; telephone conference scheduled for 9/3/02 is cancelled (cc: all counsel) (bmt) (Entered: 09/03/2002)
47 MOTION by defendants to alter or amend order denying summary judgment (tjj) (Entered: 09/04/2002)
48 ORDER by Judge William R. Wilson denying motion to alter or amend order denying summary judgment [47−1] (cc: all counsel) (tjj) (Entered: 09/04/2002)
49 BRIEF by defendants in support of motion to alter or amend order denying summary judgment [47−1] (bmt) (Entered: 09/04/2002)
50 ORDER by Judge William R. Wilson that parties are directed to commence 9/12/02 hearing with brief opening statements (cc: all counsel) (bsm) Modified on 09/12/2002 (Entered: 09/11/2002)
CLERK'S MINUTES: Due Process Hearing before Judge Wilson; parties make opening statements; pltf presents evidence; pltf rests; deft oral motion to dismiss denied; deft presents no evidence; parties to submit simultaneous proposed orders by 5:00 p.m. 9/20/02; simultaneous responses due by 5:00 p.m. 9/27/02; motion for attys fees and costs granted; pltf to submit Order by 9/13/02; Order to be entered (C. Newburg) (maj) (Entered: 09/12/2002)
51 ORDER by Judge William R. Wilson granting pltfs' motion for atty fees and costs [18−1][18−2]; Court approves the agreement of the parties to deduct $2,137.50 in fees from the total requested by pltfs; Court also finds that pltfs are entitled to 85 percent of their requested attys' fee; defts shall promptly pay to pltfs' atty fees and costs in the total amount of $36,979.50 (cc: all counsel) (bsm) Modified on 09/17/2002 (Entered: 09/16/2002)
52 ORDER by Judge William R. Wilson that defts are ordered to pay to pltfs their atty fees awarded by the Eighth Circuit Court of Appeals in the amount of $40,185.00 and expenses in the amount of $2,503.00 (cc: all counsel) (bsm) (Entered: 09/16/2002)
53 ORDER by Judge William R. Wilson directing the parties to submit a proposed Order by 5:00 p.m. on 9/20/02; parties are also directed to file any objections to the proposed Order with the Court by 5:00 p.m. on 9/27/02 (cc: all counsel) (bsm) (Entered: 09/16/2002)
54 ORDER by Judge William R. Wilson giving the parties until 5:00 p.m. on 9/27/02 to submit a proposed Order which includes citations of the authority upon which the parties rely; parties are directed to file any objections to the proposed Order with the Court by 5:00 p.m. on 10/4/02 (cc: all counsel) (bsm) Modified on 09/20/2002 (Entered: 09/19/2002)
55 TRANSCRIPT of Evidentiary Hearing before The Honorable William R. Wilson on 9/12/02 (bsm) (Entered: 10/08/2002)
56 MOTION by plaintiffs for further relief (bsm) (Entered: 11/19/2002)
57 BRIEF by plaintiffs in support of motion for further relief [56−1] (bsm) (Entered: 11/19/2002)
58 ORDER (DOC) setting hearing on motion for further relief [56−1] at 9:00 12/2/02 in Little Rock, AR (cc: all counsel) (bsm) (Entered: 11/25/2002)
CLERK'S MINUTES: Telephone conference w/parties re Monday, December 2 Hearing (C. Newburg) (maj) Modified on 12/03/2002 (Entered: 12/02/2002)
59 ORDER by Judge William R. Wilson that claims I,II and III are dismissed as set out in this Order and the pltfs are the prevailing parties; motion for costs and atty fees may be filed within the time provided under the applicable rules of procedure;

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 10 of 25

11/27/2002 11/27/2002 11/27/2002
12/02/2002
12/06/2002 12/06/2002 12/06/2002 12/09/2002 12/11/2002 12/13/2002 12/13/2002 12/13/2002
12/16/2002 12/18/2002 12/18/2002

judgment will be entered accordingly after the hearing to be held on 12/2/02 (cc: all counsel) (bsm) (Entered: 11/27/2002)
60 RESPONSE by defendants to motion for further relief [56−1] (bsm) (Entered: 11/27/2002)
61 BRIEF by defendants in support of response to motion for further relief [60−1] (bsm) (Entered: 11/27/2002)
62 LETTER/ORDER by Judge William R. Wilson to counsel wanting to know if the hearing scheduled for 12/2/02 is still needed; parties are to fax a letter to the court today or Friday by 2 p.m. with original to the clerk (cc: all counsel) (bmt) (Entered: 12/02/2002)
CLERK'S MINUTES: Status hearing w/parties after Court ruling of 11/27/02; deft motion for reconsideration/clarification to be filed 12/6/02 by 5:00 p.m.; response by pltf due 12/11/02 by 12:00 p.m.; hearing set before Court on defts' motion 12/16/02 at 9:00 a.m. (C. Newburg) (maj) Modified on 12/03/2002 (Entered: 12/02/2002)
63 MOTION by defendants to alter , or amend order (bsm) (Entered: 12/09/2002)
64 BRIEF by defendants in support of motion to alter [63−1] or amend order [63−2] (bsm) (Entered: 12/09/2002)
65 TRANSCRIPT of Hearing before The Honorable William R. Wilson, Jr. on 12/2/02 (bsm) (Entered: 12/09/2002)
66 AMENDED BRIEF by defendant in support of motion to alter [63−1] or amend order [64−1] (bsm) (Entered: 12/10/2002)
67 RESPONSE by pltfs to defts' motion to alter [63−1] or amend judgment [63−2] (vjt) (Entered: 12/12/2002)
68 MOTION by defendants to exclude evidence , or, in the alternative, for a continuance (bsm) (Entered: 12/16/2002)
69 BRIEF by defendants in support of motion to exclude evidence [68−1], or in the alternative, for a continuance [68−2] (bsm) (Entered: 12/16/2002)
70 LETTER/ORDER by Judge William R. Wilson to Martin Bowen, Breck Hopkins and Philip Kaplan; granting motion to exclude evidence [68−1] and mooting the motion for a continuance [68−2]; Court will hear oral argument only at hearing scheduled for 12/16/02; if it appears that witnesses will be needed, Court will take that under active consideration (cc: all counsel) (bsm) (Entered: 12/16/2002)
CLERK'S MINUTES: In−court Hearing regarding deft's motion for reconsideration/clarification; parties argue motion; order to be entered (C. Newburg) (maj) (Entered: 12/16/2002)
71 NOTICE of appeal by defendants from District Court decision [59−1], (fees paid) (2 certified copies to Clerk 8USCA), (cc: counsel) (dac) (Entered: 12/18/2002)
72 ORDER by Judge William R. Wilson granting in part and denying in part defts' motion to alter or amend judgment [63−1] [63−2]; Order of 11/27/02 is not inconsistent with the Opinion issued in this case by the Eighth Circuit Court of Appeals or the Amended Injunction issued by the District Court on 7/30/02 and in this respect the motion is denied; Order of 11/27/02 extends and applies to the CMS, the federal agency charged with administration of the Medicaid program and the decision issued by CMS on 11/4/02 is subject to the District Court's Order dated 11/27/02 and is enjoined CMS is ordered to continue to provide Federal Financial Participation for CHMS early intervention day treatment and therapy services; the district court is not willing at this time to supervise the CHMS program as pltfs request; pltfs shall file their amended complt within 10 days from the date of this Order; defts are enjoined from implementing the changes they have previously announced regarding CHMS services; defts are enjoined to continue to provide and pay for early intervention day treatment and associated therapies under the State Plan (cc: all counsel) (bsm) Modified on 12/30/2002 (Entered: 12/19/2002)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 11 of 25

12/23/2002 12/30/2002 12/31/2002 12/31/2002 01/06/2003
01/06/2003 01/06/2003 01/13/2003 01/13/2003
01/13/2003 01/16/2003 01/21/2003 01/21/2003 01/31/2003 02/06/2003 02/14/2003
03/03/2003 03/04/2003
03/11/2003 03/11/2003 03/14/2003 03/14/2003

73 TRANSCRIPT ( 1 volume) of proceedings for the following date: 12/16/02 ( [71−1] ) (dac) (Entered: 12/30/2002)
Docket Modification (Utility Event) finding the motion for further relief [56−1] moot due to entry of Order 12/18/02 (maj) (Entered: 12/30/2002)
74 SUPPLEMENTAL MOTION by plaintiffs for costs , and for attorney fees (dac) (Entered: 01/02/2003)
75 BRIEF by plaintiffs in support of supplemental motion for costs [74−1], motion for attorney fees [74−2] (dac) (Entered: 01/02/2003)
76 AMENDED complaint [1−1] by plaintiffs Pediatric Specialty, Child &Youth, Tomorrow's Child, James Swindle, Stacey Swindle, Susann Crespino; adding Arkansas Foundation for Medical Care; summons issued (dac) (Entered: 01/06/2003)
SUMMONS issued as to defendant Arkansas Foundation (dac) (Entered: 01/06/2003)
DOCKETING LETTER: 8 USCA Number 03−1015; counsel to proceed on appendix (dac) (Entered: 01/06/2003)
77 RETURN OF SERVICE executed upon defendant Arkansas Foundation on 1/7/03 (dac) (Entered: 01/13/2003)
RESPONSE by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc to motion for costs [74−1], motion for attorney fees [74−2] (dac) (Entered: 03/26/2003)
BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc in support of motion response [0−1] (dac) (Entered: 03/26/2003)
78 ANSWER by defendants Arkansas Human Svc, Kurt Knickrehm, Ray Hanley to amended complaint (dac) (Entered: 01/17/2003)
79 MOTION by defendant Arkansas Foundation to dismiss complaint (dac) (Entered: 01/22/2003)
80 BRIEF by defendant Arkansas Foundation in support of motion to dismiss complaint [79−1] (dac) (Entered: 01/22/2003)
81 RESPONSE by plaintiffs to motion to dismiss complaint [79−1] (dac) (Entered: 02/18/2003)
82 REPLY by defendant Arkansas Foundation to response to motion to dismiss complaint [79−1] (dac) (Entered: 02/06/2003)
83 NOTICE of appeal by Centers For Medicare and Medicaid Services, and U. S. Department of Health and Human Services from District Court decision [72−1], [59−1] (2 certified copies to Clerk 8USCA), (cc: counsel) (dac) Modified on 03/14/2003 (Entered: 02/19/2003)
DOCKETING LETTER: 8 USCA Number 03−1483; counsel to proceed on appendix (dac) (Entered: 03/03/2003)
84 ORDER by Judge William R. Wilson re motion to dismiss, parties are to file simultaneous briefs by 3/11/03 with simultaneous response briefs by 3/18/03 [79−1] Brief ddl 3/11/03 , (cc: all counsel) (dac) (Entered: 03/05/2003)
85 BRIEF filed by defendants Arkansas Human Svc, Kurt Knickrehm, Ray Hanley regarding order [84−3] (dac) (Entered: 03/11/2003)
86 BRIEF filed by plaintiffs regarding order [84−3] (dac) (Entered: 03/11/2003)
87 TRANSCRIPT ( 1 volume) of proceedings for the following dates: 7/17/02 &7/19/02 telephone conference (dac) (Entered: 03/14/2003)
UTILITY EVENT: Add attorneys Colette G. Matzzie, William R. Kanter for objector HHS (dac) (Entered: 03/14/2003)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 12 of 25

03/18/2003 03/18/2003 04/08/2003 06/02/2003
06/05/2003 06/16/2003 06/18/2003 06/18/2003 06/23/2003 06/26/2003 07/01/2003 07/03/2003 07/03/2003 07/25/2003
09/22/2003 09/25/2003 10/08/2003
10/21/2003 10/21/2003

88 REPLY BRIEF On Jurisdiction Issue by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc re order [84−3], re brief [85−1], re brief [86−1] (dac) (Entered: 03/19/2003)
89 REPLY BRIEF On Jurisdictional Issue by plaintiff re order [84−3], re brief [85−1], re brief [86−1], re reply [88−1] (dac) (Entered: 03/19/2003)
CLERK'S MINUTES: TRO Hearing before Judge Wilson − 5th day; Hearing ended; case taken under advisement; exhibits retained by Court (C. Newburg) (maj) (Entered: 04/12/2004)
90 ORDER by Judge William R. Wilson granting motion for costs to Kaplan in the amount of $181.73, and costs to Armstrong Allen in the amount of $2,950.45 [74−1], granting motion for attorney fees to Kaplan in the amount of $20,696.25 and attorney fees to Armstrong Allen in the amount of $45,994.00 [74−2] (cc: all counsel) (dac) (Entered: 06/02/2003)
91 ORDER by Judge William R. Wilson granting motion to dismiss without prejudice amended complaint [79−1] Plaintiffs are granted leave to file a Second Amended Complaint (cc: all counsel) (dac) (Entered: 06/05/2003)
92 NOTICE of appeal by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc from District Court decision [90−1] (fees paid) (2 certified copies to Clerk 8USCA), (cc: counsel) (dac) (Entered: 06/17/2003)
93 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc to stay pending appeal (dac) (Entered: 06/19/2003)
94 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc in support of motion to stay pending appeal [93−1] (dac) (Entered: 06/19/2003)
95 SECOND AMENDED, complaint [76−1], [1−1] by plaintiffs Stacey Swindle, Tomorrow's Child, Child &Youth, James Swindle, Susann Crespino, Pediatric Specialty (dac) (Entered: 06/23/2003)
DOCKETING LETTER: 8 USCA Number 03−2616; counsel to proceed on appendix (dac) (Entered: 06/26/2003)
96 ORDER by Judge William R. Wilson granting motion to stay 5/30/03 Order awarding costs &attorneys' fees pending appeal [93−1] (cc: all counsel) (dac) (Entered: 07/01/2003)
97 ANSWER by defendant Arkansas Fdn Medical (jap) (Entered: 07/08/2003)
98 ANSWER to second amended complaint by defendants Kurt Knickrehm and Arkansas Human Svc (jap) (Entered: 07/08/2003)
99 INITIAL SCHEDULING ORDER (DOC) Rule 26(f) Conference set September 12, 2003; Rule 26(f) Report due 9/26/03; Jury trial set for 9:00 a.m. 8/23/04 in Little Rock; Rule 16(b) Conference set 10/3/03 (cc: all counsel) (maj) (Entered: 07/25/2003)
100 RULE 26(f) REPORT (dac) (Entered: 09/22/2003)
101 FINAL SCHEDULING ORDER (CRD Johnson) ; Jury trial 9:00 8/23/04 ; Discovery ddl 5/24/04 ; Pretrial Info Sheet 7/23/04 (cc: all counsel) (dac) (Entered: 09/29/2003)
102 ATTORNEY APPEARANCE for Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, and Roy Jeffus (Pursuant to FRCP 25(d)(1), Mr Jeffus automatically substitutes as an official−capacity defendant in the place of Mr. Hanley who has left DHS) ; attorney Lori L Freno (dac) Modified on 10/09/2003 (Entered: 10/09/2003)
103 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc for summary judgment (dac) (Entered: 10/21/2003)
104 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc in support of motion for summary judgment [103−1] (dac) (Entered: 10/21/2003)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 13 of 25

10/29/2003 10/31/2003 11/03/2003 11/04/2003 11/17/2003 11/26/2003 11/26/2003 12/02/2003 12/08/2003 12/11/2003 12/17/2003 01/21/2004 02/12/2004
02/27/2004 02/27/2004 02/27/2004 02/27/2004 03/10/2004 03/10/2004 03/10/2004

105 STATEMENT OF FACTS (Local Rule 56.1) by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc in support of motion for summary judgment [103−1] (dac) (Entered: 10/30/2003)
106 MOTION by plaintiff to extend time to file response to motion for summary judgment (dac) (Entered: 10/31/2003)
107 RESPONSE by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc to motion to extend time to file response to motion for summary judgment [106−1] (dac) (Entered: 11/04/2003)
108 ORDER by Judge William R. Wilson granting pltfs' motion to extend time until 11/17/03 to file response to motion for summary judgment [106−1] [103−1] (cc: all counsel) (bsm) (Entered: 11/05/2003)
109 RESPONSE by defendants Arkansas Human Svc, Kurt Knickrehm, Ray Hanley to motion for summary judgment [103−1] (dac) (Entered: 11/18/2003)
110 MOTION by defendants Arkansas Human Svc, Kurt Knickrehm, Ray Hanley to substitute party Roy Jeffus for Ray Hanley (dac) (Entered: 12/01/2003)
111 MOTION by defendants Arkansas Human Svc, Kurt Knickrehm, Ray Hanley for leave to file reply to plaintiffs' response to defendants' motion for summary judgment (dac) (Entered: 12/01/2003)
112 RESPONSE by plaintiffs to motion to substitute party Roy Jeffus for Ray Hanley [110−1] (dac) (Entered: 12/02/2003)
113 REPLY by defendants Roy Jeffus, Arkansas Human Svc, Kurt Knickrehm, Ray Hanley to response to motion for summary judgment [103−1] (dac) (Entered: 12/09/2003)
114 ORDER by Judge William R. Wilson granting motion for leave to file reply to plaintiffs' response to defendants' motion for summary judgment on or before 12/8/03 [111−1] (cc: all counsel) (dac) (Entered: 12/11/2003)
115 SUPPLEMENT TO REPLY by defendant Arkansas Human Svc to response to motion for summary judgment [103−1] (dac) (Entered: 12/18/2003)
DOCKET NOTE: 4 volumes of original files and 4 volumes transcripts forwarded to USCA8, per telephone request of Scott, Records Manager (dac) (Entered: 01/21/2004)
116 ORDER by Judge William R. Wilson granting motion to substitute party Roy Jeffus for Ray Hanley in his official capacity as Director of the Division of Medical Services of the Ark Services of the ADHS [110−1] (cc: all counsel) (dac) (Entered: 02/12/2004)
117 MOTION by plaintiff Tomorrow's Child for temporary restraining order (dac) (Entered: 03/01/2004)
118 BRIEF by plaintiff Tomorrow's Child in support of motion for temporary restraining order [117−1] (dac) (Entered: 03/01/2004)
119 MOTION by plaintiff Tomorrow's Child for order to show cause (dac) (Entered: 03/01/2004)
120 BRIEF by plaintiff Tomorrow's Child in support of motion for order to show cause [119−1] (dac) (Entered: 03/01/2004)
121 RESPONSE by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to motion for order to show cause [119−1] (dac) (Entered: 03/10/2004)
122 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion response [121−1] (dac) (Entered: 03/10/2004)
123 RESPONSE by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to motion for temporary restraining order [117−1] (dac) (Entered: 03/10/2004)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 14 of 25

03/10/2004 03/10/2004
03/11/2004
03/11/2004 03/12/2004 03/16/2004 03/16/2004
03/18/2004
03/23/2004 03/25/2004 03/29/2004 04/05/2004 04/14/2004
04/14/2004
04/16/2004 04/19/2004
04/19/2004
04/19/2004
04/22/2004 04/27/2004 05/04/2004

124 BRIEF by Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion response [123−1] (dac) (Entered: 03/10/2004)
125 FIRST ADDENDUM filed by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to Statement of Undisputed Facts Support of Motion For Summary Judgment (dac) (Entered: 03/10/2004)
126 RESPONSE by defendant Arkansas Fdn Medical to motions for temporary restraining order [117−1], and for order to show cause [119−1] (dac) (Entered: 03/12/2004)
CLERK'S MINUTES: TRO Hearing before Judge Wilson − 1st day (C. Newburg) (maj) (Entered: 03/15/2004)
CLERK'S MINUTES: TRO Hearing before Judge Wilson − 2nd day (C. Newburg) (maj) (Entered: 03/15/2004)
127 LETTER/ORDER by Judge William R. Wilson regarding post−hearing briefs (cc: all counsel) (dac) (Entered: 03/16/2004)
128 OBJECTIONS by DHS defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to a court−appointed expert witness [0−0] (dac) (Entered: 03/16/2004)
129 HEARING BRIEF filed by plaintiff Tomorrow's Child regarding motion for order to show cause and motion for temporary restraining order [0−0], [127−1] (dac) (Entered: 03/19/2004)
130 HEARING BRIEF filed by Arkansas Department of Human Services defendants [127−1] (dac) (Entered: 03/23/2004)
131 RESPONSE by plaintiff Tomorrow's Child to, ADHS brief on court appointed expert [130−1] (dac) (Entered: 03/26/2004)
CLERK'S MINUTES: TRO Hearing − 3rd day (C. Newburg) (maj) (Entered: 03/30/2004)
CLERK'S MINUTES: TRO Hearing − 4th day (C. Newburg) (maj) (Entered: 04/06/2004)
132 MOTION by plaintiffs Stacey Swindle, Tomorrow's Child, Child &Youth, James Swindle, Susann Crespino, Pediatric Specialty for leave to amend second amended complaint (dac) (Entered: 04/14/2004)
133 BRIEF by plaintiffs Stacey Swindle, Tomorrow's Child, Child &Youth, James Swindle, Susann Crespino, Pediatric Specialty in support of motion for leave to amend second amended complaint [132−1] (dac) (Entered: 04/14/2004)
134 RESPONSE by defendant Arkansas Fdn Medical to motion for leave to amend second amended complaint [132−1] (dac) (Entered: 04/16/2004)
135 ORDER by Judge William R. Wilson ; Brief ddl 4/22/04; reply brief is due 4/28/04 advising the court as to the 8th Circuit's opinion and related appeals (cc: all counsel via fax from Judge Wilson's office) (dac) (Entered: 04/20/2004)
136 RESPONSE by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to motion for leave to file third amended complaint [132−1] (dac) Modified on 04/20/2004 (Entered: 04/20/2004)
137 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion response [136−1] (dac) Modified on 04/20/2004 (Entered: 04/20/2004)
138 BRIEF filed by plaintiffs regarding order [135−2] (dac) (Entered: 04/22/2004)
139 REPLY by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus re brief [138−1] (dac) (Entered: 04/27/2004)
140 ORDER by Judge William R. Wilson granting motion for leave to amend second amended complaint by no later than 5/7/04 132 Defendants are to respond by

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 15 of 25

05/14/2004 05/14/2004 05/14/2004
05/14/2004
05/14/2004 05/14/2004
05/21/2004 05/24/2004 05/24/2004
05/28/2004
05/28/2004 06/02/2004
06/07/2004 06/07/2004 06/08/2004 06/14/2004 06/14/2004 06/23/2004 06/23/2004 06/23/2004 06/24/2004

5/14/04. (cc: all counsel) (dac) (Entered: 05/04/2004)
141 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to extend discovery deadline (dac) (Entered: 05/17/2004)
142 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to compel discovery (dac) (Entered: 05/17/2004)
143 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion to compel discovery [142−1] (dac) Modified on 09/17/2004 (Entered: 05/17/2004)
144 THIRD AMENDED, complaint [95−1], complaint [76−1], complaint [1−1] Pediatric Specialty, Child &Youth, Tomorrow's Child, Stacey Swindle, James Swindle, Susann Crespino (dac) (Entered: 05/17/2004)
145 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus for leave to bring in third party defendant (dac) (Entered: 05/17/2004)
146 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion for leave to bring in third party defendant [145−1] (dac) (Entered: 05/17/2004)
147 RESPONSE by plaintiffs to motion to extend discovery deadline [141−1] (dac) (Entered: 05/24/2004)
148 ANSWER To Third Amended Complaint by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus (dac) (Entered: 05/24/2004)
149 SUPPLEMENTAL BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion for summary judgment [103−1] (dac) (Entered: 05/24/2004)
150 ORDER by Judge William R. Wilson granting in part and denying in part motion for temporary restraining order [117−1], denying motion for order to show cause [119−1] (cc: all counsel) (dac) (Entered: 05/28/2004)
151 ANSWER by defendant Arkansas Fdn Medical to third amended complaint with jury demand (jap) (Entered: 06/03/2004)
152 ORDER by Judge William R. Wilson by agreement of all parties, the discovery deadline [141−1] is extended to and including 6/30/04 (cc: all counsel) (jap) (Entered: 06/03/2004)
153 RESPONSE by plaintiffs to motion to compel discovery [142−1] (dac) (Entered: 06/08/2004)
154 RESPONSE by plaintiffs to motion for leave to bring in third party defendant [145−1] (dac) (Entered: 06/08/2004)
155 WAIVER of Demand For Jury Trial by plaintiffs (dac) (Entered: 06/14/2004)
156 MOTION by defendants to alter or amend order filed 5/28/04 (dac) (Entered: 06/15/2004)
157 BRIEF by defendants in support of motion to alter or amend order filed 5/28/04 [156−1] (dac) (Entered: 06/15/2004)
158 MOTION by defendant Arkansas Fdn Medical for summary judgment (dac) (Entered: 06/23/2004)
159 BRIEF by defendant Arkansas Fdn Medical in support of motion for summary judgment [158−1] (dac) (Entered: 06/23/2004)
160 STATEMENT OF FACTS (Local Rule 56.1) by defendant Arkansas Fdn Medical in support of motion for summary judgment [158−1] (dac) (Entered: 06/23/2004)
161 WAIVER by defendant Arkansas Fdn Medical for jury trial (dac) (Entered: 06/24/2004)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 16 of 25

06/24/2004 06/24/2004
06/24/2004
06/28/2004 06/29/2004 06/29/2004 07/01/2004
07/01/2004 07/01/2004 07/02/2004
07/02/2004 07/06/2004 07/06/2004 07/06/2004 07/07/2004 07/07/2004 07/07/2004 07/09/2004 07/12/2004 07/13/2004 07/13/2004 07/13/2004

162 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus for summary judgment (dac) (Entered: 06/24/2004)
162 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion for summary judgment [162−1] (dac) (Entered: 07/20/2004)
162 STATEMENT OF FACTS (Local Rule 56.1) by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion for summary judgment [162−1], [162−1] (dac) (Entered: 07/20/2004)
163 MOTION by plaintiffs to amend third amended complaint (dac) (Entered: 06/29/2004)
CLERK'S MINUTES: Telephone conference w/parties re pending motions; order to be entered (C. Newburg) (maj) (Entered: 06/30/2004)
164 RESPONSE by plaintiff Tomorrow's Child to motion to alter or amend order filed 5/28/04 [156−1] (dac) (Entered: 07/01/2004)
165 SCHEDULING ORDER;(MJ) trial set for 9:00 11/16/04 in Little Rock; discovery due 9/1/04; pretrial info sheet due 10/18/04; mtn filing ddl 9/16/04 (cc: all counsel) (dac) (Entered: 07/01/2004)
166 BRIEF by plaintiffs in support of motion to amend third amended complaint [163−1] (dac) (Entered: 07/06/2004)
167 REPLY by plaintiffs to response to motion to amend third amended complaint [163−1] (dac) (Entered: 07/06/2004)
168 ORDER by Judge William R. Wilson granting motion for leave to bring in third party defendant. The Third−Party Complaint must be filed by 7/9/04 [145−1], granting motion to amend third amended complaint. The Fourth Amended Complaint must be filed by 7/9/04 [163−1] ; Trial 9:00 11/16/04 is continued (cc: all counsel) (dac) (Entered: 07/06/2004)
172 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to withdraw attorney Lori Freno (dac) (Entered: 07/07/2004)
169 THIRD−PARTY complaint by defendants Arkansas Human Svc, Kurt Knickrehm, Roy Jeffus (dac) Modified on 09/17/2004 (Entered: 07/06/2004)
170 RESPONSE by defendant Arkansas Fdn Medical to motion for leave to amend third amended complaint (dac) (Entered: 07/06/2004)
171 BRIEF by defendant Arkansas Fdn Medical in support of motion response [170−1] (dac) (Entered: 07/06/2004)
173 FOURTH AMENDED COMPLAINT [1−1], [76−1], [95−1] [144−1] by plaintiffs (dac) (Entered: 07/07/2004)
SUMMONS issued as to third−party defendants Tommy Thompson, and Mark McClellan (dac) Modified on 08/18/2004 (Entered: 07/08/2004)
174 MEMO TO FILE: by Breck Hopkins attorney for 3rd party plaintiffs regarding service of summons (dac) (Entered: 07/08/2004)
175 RESPONSE by defendants to motion for leave to amend third amended complaint (dac) (Entered: 07/09/2004)
176 ANSWER by defendant Arkansas Fdn Medical to fourth amended complaint (dac) (Entered: 07/13/2004)
177 TRANSCRIPT ( 1 volume) of proceedings for the following date: 3/11−12/04 motions hearing ( [92−1] ) (dac) (Entered: 07/13/2004)
178 TRANSCRIPT ( 1 volume) of proceedings for the following date: 3/29/04 motions hearing ( [92−1] ) (dac) (Entered: 07/13/2004)
179 TRANSCRIPT ( 1 volume) of proceedings for the following date: 4/5/04 motions hearing ( [92−1] ) (dac) (Entered: 07/13/2004)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 17 of 25

07/13/2004 07/16/2004 07/16/2004 07/19/2004 07/20/2004 07/20/2004 07/20/2004 07/23/2004 07/26/2004 07/26/2004 07/26/2004 07/26/2004
07/26/2004
07/26/2004
07/26/2004 07/26/2004 07/28/2004 08/10/2004 08/10/2004 08/11/2004

180 TRANSCRIPT ( 1 volume) of proceedings for the following date: 4/8/04 motions hearing ( [92−1] ) (dac) (Entered: 07/13/2004)
181 ANSWER by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to Fourth Amended Complaint (dac) (Entered: 07/16/2004)
182 RETURN OF SERVICE executed upon Bud Cummins counsel for third−party defendant HHS on 7/12/04 (dac) (Entered: 07/16/2004)
183 RETURN OF SERVICE executed upon third−party defendant Mark McClellan on 7/12/04 (dac) (Entered: 07/20/2004)
184 RESPONSE by plaintiffs to motions for summary judgment [158−1], [162−1] (dac) (Entered: 07/20/2004)
185 RESPONSE by plaintiffs to statement [160−1] (dac) (Entered: 07/20/2004)
186 RESPONSE by plaintiffs to statement [162−1] (dac) (Entered: 07/20/2004)
187 RETURN OF SERVICE executed upon Tommy Thompson, agent for third−party defendant HHS on 7/13/04 (dac) (Entered: 07/29/2004)
188 MOTION by defendant Arkansas Fdn Medical to extend time to reply to plaintiffs' response to motions for summary judgment (dac) Modified on 07/29/2004 (Entered: 07/27/2004)
189 BRIEF by defendant Arkansas Fdn Medical in support of motion to extend time to reply to plaintiffs' response to motions for summary judgment [187−1] (dac) Modified on 07/29/2004 (Entered: 07/27/2004)
190 MOTION by defendant Arkansas Fdn Medical for order requiring plaintiff to file a statement of material facts as to which plaintiff contends a genuine issue exists to be tried (dac) Modified on 07/29/2004 (Entered: 07/27/2004)
191 BRIEF by defendant Arkansas Fdn Medical in support of motion for order requiring plaintiff to file a statement of material facts as to which plaintiff contends a genuine issue exists to be tried [189−1] (dac) Modified on 07/29/2004 (Entered: 07/27/2004)
192 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus for order requiring plaintiff to file a statement of material facts as to which plaintiff contends a genuine issue exists to be tried (dac) Modified on 07/29/2004 (Entered: 07/27/2004)
193 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion for order requiring plaintiff to file a statement of material facts as to which plaintiff contends a genuine issue exists to be tried [191−1] (dac) Modified on 07/29/2004 (Entered: 07/27/2004)
194 MOTION by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus to extend time to reply to plaintiffs' response to motions for summary judgment (dac) Modified on 07/29/2004 (Entered: 07/27/2004)
195 BRIEF by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus in support of motion to extend time to reply to plaintiffs' response to motions for summary judgment (dac) Modified on 07/29/2004 (Entered: 07/27/2004)
196 RETURN OF SERVICE executed upon John Ashcroft, agent for third−party defendant HHS on 7/13/04 (dac) (Entered: 07/29/2004)
197 RESPONSE by plaintiff to motion of ADH defendants for order requiring plaintiff to file a statement of material facts as to which plaintiff contends a genuine issue exists to be tried [192−1] (dac) (Entered: 08/11/2004)
198 RESPONSE by plaintiffs to motion of AFMC for order requiring plaintiff to file a statement of material facts as to which plaintiff contends a genuine issue exists to be tried [190−1] (dac) (Entered: 08/11/2004)
199 STATEMENT OF MATERIAL FACTS as to which the plaintiffs contend a genuine issue exists to be tried (dac) (Entered: 09/02/2004)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 18 of 25

08/17/2004 08/17/2004
08/20/2004 08/26/2004
08/26/2004
08/30/2004 08/30/2004 09/01/2004 09/10/2004 09/10/2004 09/13/2004 09/13/2004 09/13/2004
09/20/2004 09/21/2004 09/22/2004 09/22/2004

200 Opinion (8USCA) (dac) Modified on 09/02/2004 (Entered: 08/17/2004)
201 MANDATE from 8 USCA affirming in part, reversed in part the decision of the district court and remanded to the district court in accordance with the opinion of this Court [92−1] [83−1] [71−1] (dac) Modified on 09/02/2004 (Entered: 08/17/2004)
202 REPLY by defts Arkansas Human Svc, Kurt Knickrehm, Ray Hanley, Roy Jeffus to response to motion for summary judgment [162−1] (bmt) Modified on 09/02/2004 (Entered: 08/23/2004)
203 ORDER by Judge William R. Wilson that defts' motion to compel discovery is denied as moot [142−1]; granting defts' motion to withdraw attorney Lori Freno [172−1]; pltfs have submitted a Statement of Material Facts as to which they contend a genuine issue exists, therefore, defts' motions for a Statement under Local Rule 56.1 are denied as moot [190−1] [192−1]; defts' motions for extension of time to file a reply to plaintiffs' response to motions for summary judgment are granted and brief replies must be filed by 5:00 8/30/04 [188−1] [194−1]; denying defts' motion to alter or amend judgment to the extent that defts ask the Court to modify its previous Order of 5/28/04 [156−1] (cc: all counsel) (bsm) Modified on 09/02/2004 (Entered: 08/27/2004)
204 ORDER by Judge William R. Wilson finding the motion for summary judgment filed by defts AR Dept of Human Services, Kurt Knichrehm, and Ray Hanley denied as moot [103−1] (cc: all counsel) (bsm) Modified on 09/02/2004 (Entered: 08/27/2004)
205 REPLY by Arkansas Fdn Medical to pltf's response to motion for summary judgment [158−1] (bsm) Modified on 09/02/2004 (Entered: 08/31/2004)
206 RESPONSE by defendant Arkansas Fdn Medical to statement [199−1] (dac) (Entered: 09/02/2004)
207 ORDER (8 USCA), The court grants in part appellees' motion for attorneys' fees in the amount of $48,000.00 and grants costs in the amount of $3,805.39 (dac) Modified on 09/02/2004 (Entered: 09/01/2004)
208 MOTION by third−party defendants to dismiss (bsm) (Entered: 09/13/2004)
209 MEMORANDUM of points and authorities by third−party defendants in support of motion to dismiss [208−1] (bsm) (Entered: 09/13/2004)
210 MOTION by deft Arkansas Fdn Medical for bifurcation of the damages phase of the trial from the liability phase of this case (bsm) (Entered: 09/14/2004)
211 BRIEF by deft Arkansas Fdn Medical in support of motion for bifurcation [210−1] (bsm) (Entered: 09/14/2004)
212 MOTION by pltfs Stacey Swindle, Tomorrow's Child, James Swindle, Susann Crespino, Pediatric Specialty and Child &Youth to extend discovery deadline , to reduce the time in which the defts may answer interrogatories and respond to requests for production of documents , and to allow the pltfs to supplement their response to the pending motions for summary judgment (bsm) (Entered: 09/14/2004)
213 RESPONSE by plaintiffs to motion for bifurcation [210−1] (bsm) (Entered: 09/21/2004)
214 LETTER/MOTION by counsel for the HHS to withdraw attorney Colette G. Matzzie and William R. Kanter (bsm) Modified on 09/22/2004 (Entered: 09/21/2004)
215 RESPONSE by third−party plaintiffs to third party defts' memorandum of points and authorities in support of third party defts' motion to dismiss [209−1] (bsm) (Entered: 09/22/2004)
216 ORDER by Judge William R. Wilson granting deft AFMC's motion for bifurcation [210−1] (cc: all counsel) (bsm) (Entered: 09/22/2004)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 19 of 25

09/23/2004
09/23/2004 09/23/2004
10/04/2004 10/04/2004 10/08/2004 10/12/2004 10/13/2004 10/13/2004 10/15/2004 10/15/2004 10/15/2004 10/18/2004 10/18/2004 10/18/2004 10/19/2004 10/21/2004 10/25/2004

217 MOTION by deft AFMS in limine in re to limiting pltf's presentation of proof to the one Medicaid recipient identified in pltfs' answer to defts' second interrogatories and request for production , and alternative to compel discovery (bsm) Modified on 09/24/2004 (Entered: 09/23/2004)
218 BRIEF by deft AFMC in support of motion in limine [217−1] and alternative motion to compel discovery [217−2] (bsm) (Entered: 09/23/2004)
219 ORDER by Judge William R. Wilson granting pltfs' motion to extend until 10/1/04 disc deadline [212−1]; granting pltf's motion to reduce the time in which the defts may answer interrogatories and respond to requests for production of documents [212−2]; defts' responses to the written disc is due no later than 5:00 9/24/04; granting pltf's motion to allow the pltfs to supplement their response to the pending motions for summary judgment [212−3]; supplement must be filed by 5:00 10/15/04 (cc: all counsel) (bsm) Modified on 09/28/2004 (Entered: 09/24/2004)
220 MOTION by defts Kurt Knickrehm, Ray Hanley and Roy Jeffus for ruling on the issue of qualified immunity , or, in the alternative to continue (bsm) (Entered: 10/05/2004)
221 BRIEF by defts Kurt Knickrehm, Ray Hanley and Roy Jeffus in support of motion for ruling on the issue of qualified immunity [220−1] or, in the alternative, to continue [220−2] (bsm) (Entered: 10/05/2004)
222 ORDER by Judge William R. Wilson granting letter/motion to withdraw attorneys Colette G. Matzzie and William R. Kanter as counsel of record for HHS [214−1] (cc: all counsel) (bsm) Modified on 10/18/2004 (Entered: 10/08/2004)
223 LETTER/ORDER by Judge William R. Wilson that the parties are directed to file a short letter brief addressing the questions raised in this letter by 10/18/04 (cc: all counsel) (bmt) (Entered: 10/13/2004)
224 MOTION by pltfs Stacey Swindle, Tomorrow's Child, Child &Youth, James Swindle, Pediatric Specialty and Susann Crespino for leave to amend fourth amended complt (bsm) Modified on 10/14/2004 (Entered: 10/14/2004)
225 BRIEF by pltfs Stacey Swindle, Tomorrow's Child, Child &Youth, James Swindle, Pediatric Specialty and Susann Crespino in support of motion for leave to amend fourth amended complt [224−1] (bsm) (Entered: 10/14/2004)
226 MOTION by defts Arkansas Human Svc, Kurt Knickrehm, Ray Hanley and Roy Jeffus to compel discovery (bsm) (Entered: 10/18/2004)
227 BRIEF by defts Arkansas Human Svc, Kurt Knickrehm, Ray Hanley and Roy Jeffus in support of motion to compel discovery [226−1] (bsm) (Entered: 10/18/2004)
228 SUPPLEMENT TO RESPONSE by plaintiffs to motions for summary judgment [162−1] [158−1] (bsm) (Entered: 10/18/2004)
229 RESPONSE/Letter brief by defendant Arkansas Fdn Medical to the Court's Letter/Order filed 10/12/04 [223−1] (rjh) (Entered: 10/19/2004)
231 RESPONSE by plaintiffs to motion for ruling on the issue of qualified immunity [220−1] (rjh) (Entered: 10/19/2004)
232 RESPONSE by plaintiffs to motion in limine, or in the alternative, motion for continuance [217−1] [220−2] (rjh) (Entered: 10/19/2004)
230 PRETRIAL DISCLOSURE SHEET by state defts Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, &Roy Jeffus; estimated length of trial, five to seven days (rjh) (Entered: 10/19/2004)
233 AMENDED FINAL SCHEDULING ORDER; trial set for 9:00 7/18/05 in Little Rock, AR before Judge William R. Wilson, Jr.; discovery due 5/3/05; pretrial info sheet due 6/20/05 (cc: all counsel) (bsm) (Entered: 10/22/2004)
234 REPLY by defendants to response to motion for ruling on the issue of qualified immunity [220−1] (bsm) (Entered: 10/26/2004)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 20 of 25

10/25/2004 11/01/2004 11/02/2004 11/10/2004 11/10/2004 11/17/2004
11/23/2004 11/23/2004 11/29/2004
11/30/2004 12/06/2004 12/09/2004 12/09/2004 12/15/2004 12/28/2004 12/28/2004 12/29/2004

235 SUPPLEMENT TO RESPONSE by third party pltfs to third party defts' memorandum of points and authorities in support of third party defts' motion to dismiss [215−1] (bsm) Modified on 10/27/2004 (Entered: 10/27/2004)
236 LETTER/RESPONSE by defts Ray Hanley, Kurt Knickrehm, and Arkansas Human Svc to Order [223−1] (bsm) (Entered: 11/02/2004)
237 RESPONSE by plaintiffs to motions to compel discovery filed by ADHS [226−1] [217−2] (rjh) (Entered: 11/03/2004)
Docket Modification (Utility Event) finding the motion to continue [220−2] moot due to new Scheduling Order (doc #223) being entered (maj) (Entered: 11/10/2004)
238 MOTION by defts Kurt Knickrehm, Ray Hanley, Arkansas Human Svc, Roy Jeffus to amend injunction (bsm) (Entered: 11/12/2004)
239 MOTION by Arkansas Human Svc and third party defts to extend time to file a reply in support of their pending motion to dismiss the third party complt and to file a response to the state defts' motion to amend injunction (bsm) Modified on 11/30/2004 (Entered: 11/18/2004)
240 RESPONSE by pltfs to motion to amend injunction [238−1] (bsm) Modified on 11/24/2004 (Entered: 11/24/2004)
241 RESPONSE by pltfs Stacey Swindle, D &D Family Ent, Tomorrow's Child, Child &Youth, James Swindle, Susann Crespino, Pediatric Specialty to motion to extend time [239−1] (bsm) (Entered: 11/24/2004)
242 ORDER by Judge William R. Wilson that the Order of 5/28/04 addressed several issues and after parties have filed letter briefs on this issue, Court finds that the 5/28/04 Order addressing this issue was not correct and in view of this, pltf's motion seeking an order to compel or enjoin defts to reveal the names or peer reviewers responsible for determination when and whether services are medically necessary is granted [117−1]; pltfs may utilize all formal disc tools provided by the FRCP; pltfs may discover the name, qualifications, and identity of each peer review physician and advisor who participated in the denied of medical benefits; pltfs may discover any other relevant material produced by the PRO in making medical necessity determination in their case; pltfs may not discover any patient records of non−parties, nor may pltfs discover any material produced by the PRO that evaluated the failure of a particular medical provided to follow professional standards of care (cc: all counsel) (bsm) (Entered: 11/30/2004)
243 SUPPLEMENT TO MOTION by defts Arkansas Human Svc, Kurt Knickrehm, Ray Hanley and Roy Jeffus to amend injunction (bsm) (Entered: 12/01/2004)
244 MOTION by Arkansas Human Svc, Kurt Knickrehm and Roy Jeffus for additional extension of time to file a consolidated reply in support of their motion to dismiss third party complt (bsm) (Entered: 12/07/2004)
245 RESPONSE by third−party defendants to motion to amend injunction [238−1] (bsm) (Entered: 12/10/2004)
245 REPLY by Mark McClellan and HHS in support of motion to dismiss [208−1] (bsm) (Entered: 12/13/2004)
246 RESPONSE by third−party plaintiffs to third−party defts' reply in support of motion to dismiss and response to state's motion to amend the injunction [245−1] (bsm) (Entered: 12/16/2004)
247 NOTICE of appeal by defendant Arkansas Fdn Medical from District Court decision [242−1] (fees paid) (dac) (Entered: 01/04/2005)
248 NOTICE of appeal by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus from District Court decision (fees paid) (2 certified copies to Clerk 8USCA), (cc: counsel) (dac) (Entered: 01/04/2005)
249 ORDER by Judge William R. Wilson granting pltfs' motion for leave to amend the complt [224−1]; pltfs are directed to immediately file an Amended Complaint and

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 21 of 25

01/04/2005
01/12/2005 01/12/2005 01/12/2005 01/14/2005 01/19/2005 02/07/2005
03/03/2005 03/07/2005
03/07/2005 03/07/2005 03/08/2005 03/16/2005 04/04/2005
04/07/2005 04/07/2005 04/18/2005

defts will have 20 days from the date of service to respond to the amended complt; denying motion and supplement to the motion to amend injunction [238−1] [243−1] (cc: all counsel) (bsm) Modified on 01/05/2005 (Entered: 12/30/2004)
250 FIFTH AMENDED complaint [173−1] [144−1] [95−1][76−1] [1−1] by pltfs Stacey Swindle, Susann Crespino, James Swindle, Child &Youth, Tomorrow's Child, Pediatric Specialty; terminating Family Counseling, D &D Family Ent as pltfs in this case (bsm) (Entered: 01/05/2005)
DOCKETING LETTER: 8 USCA Number 05−1115 as to Ar Foundation; counsel to proceed on appendix (dac) (Entered: 01/12/2005)
DOCKETING LETTER: 8 USCA Number 05−1116 as to Ar Dept of HHS et al; counsel to proceed on appendix (dac) (Entered: 01/12/2005)
251 ANSWER to Fifth Amended Complaint by defendants Ray Hanley, Kurt Knickrehm, Arkansas Human Svc, Roy Jeffus (dac) (Entered: 01/13/2005)
252 ANSWER by defendant Arkansas Fdn Medical to Fifth Amended Complaint (dac) (Entered: 01/18/2005)
253 SUPPLEMENT MOTION by state defendants for summary judgment (dac) (Entered: 01/20/2005)
254 ORDER by Judge William R. Wilson denying motion for summary judgment [162−1], and supplemental motion for summary judgment [253−1] except with respect to the individual liability of separate defendant Kirk Knickrehn for civil damages; denying as moot motion for ruling on the issue of qualified immunity [220−1] (cc: all counsel) (dac) (Entered: 02/07/2005)
255 ORDER by Judge William R. Wilson denying Ark Foundation for Med Care's motion for summary judgment [158−1] (cc: all counsel) (dac) (Entered: 03/07/2005)
256 ORDER by Judge William R. Wilson granting motion to dismiss [208−1] dismissing the third−party complaint terminating party HHS, Mark McClellan, Roy Jeffus, Kurt Knickrehm, and Arkansas Human Svc all counsel) (dac) Modified on 03/07/2005 (Entered: 03/07/2005)
257 JUDGMENT: by Judge William R. Wilson dismissing with prejudice the third−party complaint [169−1] (cc: all counsel) (dac) Modified on 03/07/2005 (Entered: 03/07/2005)
Docket Modification (Utility Event) terminating party HHS (dac) (Entered: 03/07/2005)
258 NOTICE of appeal by defendants Ray Hanley, Arkansas Human Svc, Roy Jeffus from District Court decision [254−1] (appeal fees paid) (2 certified copies to Clerk 8USCA), (cc: counsel) (dac) (Entered: 03/08/2005)
DOCKETING LETTER: 8 USCA Number 05−1668; counsel to proceed on appendix (dac) (Entered: 03/16/2005)
Docket Modification (Utility Event) finding the motion for additional extension of time to file a consolidated reply in support of their motion to dismiss third party complt [244−1] moot; finding the motion to extend time to file a reply in support of their pending motion to dismiss the third party complt and to file a response to the state defts' motion to amend injunction [239−1] moot due to doc #245 (maj) (Entered: 04/04/2005)
259 MOTION by defendants Ray Hanley, Roy Jeffus to continue trial (dac) (Entered: 04/07/2005)
260 BRIEF by defendants Ray Hanley, Roy Jeffus in support of motion to continue trial [259−1] (dac) (Entered: 04/07/2005)
Docket Modification (Utility Event) Court trial canceled 9:00 a.m. 7/18/05; Discovery ddl canceled 5/3/05; Pretrial Info Sheet canceled 6/20/05 (maj) (Entered: 04/18/2005)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 22 of 25

04/19/2005 04/19/2005 06/08/2005
08/16/2005
08/16/2005
08/26/2005 09/06/2005 09/09/2005 09/14/2005 09/14/2005 02/07/2006 02/08/2006 03/27/2006 05/05/2006 06/05/2006
06/28/2006 07/05/2006

261 ORDER by Judge William R. Wilson granting motion to continue trial [259−1] the matter is removed from the Court's 7/18/05 docket (cc: all counsel) (dac) (Entered: 04/19/2005)
Docket Modification (Utility Event) ; Jury trial 9:00 8/23/04 continued (dac) (Entered: 04/19/2005)
Docket Modification (Utility Event) finding the motion to compel discovery [226−1] moot; finding the motion in limine in re to limiting pltf's presentation of proof to the one Medicaid recipient identified in pltfs' answer to defts' second interrogatories and request for production [217−1] moot; finding the motion to compel discovery [217−2] moot due to matter being on appeal (maj) (Entered: 06/08/2005)
262 MOTION to Compel by Pediatric Specialty Care, Inc., Child &Youth Pediatric Day Clinics, Inc., Family Counseling &Diagnostic Clinic Inc, Tomorrow's Child Learning Center, LLC, D &D Family Enterprises, Inc., James Swindle, Stacey Swindle, Susann Crespino. (Attachments: # 1)(Bowen, Martin) (Entered: 08/16/2005)
263 BRIEF IN SUPPORT filed by Pediatric Specialty Care, Inc., Child &Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James Swindle, Stacey Swindle, Susann Crespino re 262 Motion to Compel,. (Bowen, Martin) (Entered: 08/16/2005)
264 RESPONSE to Motion re 262 MOTION to Compel filed by Arkansas Foundation for Medical Care. (Rainwater, Michael) (Entered: 08/26/2005)
265 RESPONSE to Motion re 262 MOTION to Compel filed by Pediatric Specialty Care, Inc., Tomorrow's Child Learning Center, LLC, James Swindle, Stacey Swindle. (Attachments: # 1 Exhibit)(Brenner, Benjamin) (Entered: 09/06/2005)
266 RESPONSE to Motion re 262 MOTION to Compel Defendant's Response to Plaintiff's Reply 265 to AFMC's Response to Motion to Compel filed by Arkansas Foundation for Medical Care. (Rainwater, Michael) (Entered: 09/09/2005)
267 ORDER denying 262 Motion to Compel . Signed by Judge William R. Wilson Jr. on 9/14/05. (dac ) (Entered: 09/14/2005)
268 CERTIFICATE OF MAILING by the Clerk re 267 Order on Motion to Compel (dac, ) (Entered: 09/14/2005)
269 NOTICE of Appearance by Martin Wayne Bowen on behalf of all plaintiffs (Bowen, Martin). MODIFICATION: Signed version of document added as an attachment on 2/27/2006 (thd). (Entered: 02/07/2006)
270 Deficiency Letter from Clerk notifying party that 269 Notice of Appearance Lacks Signature. (jph, ) (Entered: 02/08/2006)
271 Transmitted Record on Appeal to US Court of Appeals, in accordance with telephone request, re 247 Notice of Appeal, 258 Notice of Appeal, 248 Notice of Appeal (Attachment: # 1 Transmittal Sheet 2(dac, ) (Entered: 03/27/2006)
272 Appeal Record Returned: 11 volumes of original files and 8 volumes of transcripts 247 Notice of Appeal, 258 Notice of Appeal, 248 Notice of Appeal (dac, ) (Entered: 05/05/2006)
273 ORDER of USCA as to 258 Notice of Appeal filed by Arkansas Department of Human Services, Ray Hanley, Roy Jeffus. Plaintiff−Appellees' motion for attorneys' fees is granted in the amount of $23, 890 and costs in the amount of $1,535.90 (dac, ) (Entered: 06/06/2006)
274 NOTICE of Appearance by Charles A. Banks on behalf of Tomorrow's Child Learning Center, LLC (Banks, Charles) (Entered: 06/28/2006)
275 MOTION for Attorney Fees by Pediatric Specialty Care, Inc., Child &Youth Pediatric Day Clinics, Inc., Family Counseling &Diagnostic Clinic Inc, Tomorrow's Child Learning Center, LLC, James Swindle, Stacey Swindle, Susann Crespino. (Attachments: # 1 Exhibit A# 2 # 3 Exhibit C# 4 Exhibit D# 5 Exhibit

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 23 of 25

07/05/2006
07/05/2006
07/13/2006 07/13/2006 07/24/2006
08/14/2006
10/06/2006 11/02/2006 03/08/2007 03/16/2007 07/03/2007 09/17/2007 09/17/2007 09/17/2007 09/19/2007 09/24/2007 09/24/2007

E)(Bowen, Martin) (Entered: 07/05/2006)
276 BRIEF IN SUPPORT filed by Pediatric Specialty Care, Inc., Child &Youth Pediatric Day Clinics, Inc., Family Counseling &Diagnostic Clinic Inc, Tomorrow's Child Learning Center, LLC, James Swindle, Stacey Swindle, Susann Crespino re 275 Motion for Attorney Fees,. (Bowen, Martin) (Entered: 07/05/2006)
277 MANDATE of USCA as to 258 Notice of Appeal filed by Arkansas Department of Human Services, Ray Hanley, Roy Jeffus. Judgment of the district court is affirmed in part and remanded in accordance with the opinion of this Court. (Attachment: # 1 Opinion)(dac, ) Additional attachment: Order Awarding Costs, added on 8/14/2006 (dac, ). Modified on 8/14/2006 (dac, ). (Entered: 07/05/2006)
278 RESPONSE to Motion re 275 MOTION for Costs and Attorney Fees filed by Arkansas Department of Human Services. (thd) (Modified on 7/13/2006 to correct typographical error.) (thd) (Entered: 07/13/2006)
279 BRIEF IN SUPPORT of 278 Response to Motion for Costs and Attorneys Feesfiled by Arkansas Department of Human Services. (thd) (Entered: 07/13/2006)
280 MANDATE of USCA as to 247 Notice of Appeal filed by Arkansas Foundation for Medical Care, 248 Notice of Appeal filed by Arkansas Department of Human Services, Kurt Knickrehm, Ray Hanley, Roy Jeffus.The district court's order compelling disclosure of the identities of peer reviewers conflicts the applicable enforceable regulations, and is reversed in accordance with the opinion of this court (Attachment: # 1 Opinion)(dac, ) (Entered: 07/25/2006)
281 ORDER of USCA as to 258 Notice of Appeal filed by Arkansas Department of Human Services, Ray Hanley, Roy Jeffus. Appellees shall recover from the appellant's $5,399.80 as taxable costs on appeal. The clerk of the district court is directed to place these costs in the 277 Mandate (dac, ) (Entered: 08/14/2006)
282 Letter from Clerk USCA8, Petition for a Writ of Certiorari Was Filed on September 20, 2006 With The United States Supreme Court and Placed On The Docket September 25, 2006 as No. 06−415 (dac, ) (Entered: 10/06/2006)
283 Letter from Clerk USCA8, Petition For Writ of Certiorari Has Been Filed In The U. S. Supreme Court, Case #06−419 (dac, ) (Entered: 11/02/2006)
284 Letter from U. S. Supreme Court, the petition for a writ of certiorari is denied (dac) (Entered: 03/08/2007)
285 ORDER denying 275 Motion for Attorney Fees w/o prejudice and may be refiled after the Supreme Court renders a decision on the other issues before the Court. Signed by Judge William R. Wilson Jr. on 3/16/07. (mkf) (Entered: 03/16/2007)
287 Letter from USCA8 with notification from the U.S. Supreme Court that the petition for certiorari is granted. (thd) (Entered: 07/05/2007)
288 ORDER of USCA in consideration of the Supreme Court judgment, dated 6/25/07, the mandate is recalled and the case is reopened (dac) (Entered: 09/17/2007)
289 USCA JUDGMENT in accordance with the judgment of the United States Supreme Court dated 6/25/07 the 258 appeal is dismised as moot (dac) (Entered: 09/17/2007)
290 MANDATE of USCA in accordance with the judgment of 9/17/07 as to 258 Notice of Appeal (dac) (Entered: 09/17/2007)
291 Letter to Counsel from Judge Wm. R. Wilson, Jr. directing counsel for each party to advise the Court by fax (original to the Clerk) by noon, Monday, September 24, 2007. (mkf) (Entered: 09/19/2007)
292 RESPONSE re 291 Letter by Arkansas Foundation for Medical Care (Rainwater, Michael) (Entered: 09/24/2007)
293 RESPONSE re 291 Letter by Pediatric Specialty Care, Inc., Child &Youth Pediatric Day Clinics, Inc., Tomorrow's Child Learning Center, LLC, James Swindle, Stacey Swindle, Susann Crespino (Bowen, Martin) (Entered: 09/24/2007)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 24 of 25

05/13/2008 08/14/2008 08/15/2008 08/18/2008 08/18/2008 10/02/2008 10/03/2008
10/03/2008 10/08/2008 10/10/2008 10/22/2008 10/22/2008 10/22/2008 10/22/2008 10/22/2008 10/22/2008

294 ORDER OF REASSIGNMENT. Case reference reassigned to Magistrate Judge H. David Young. Signed at the Direction of the Court on 5/13/2008. (thd) (Entered: 05/13/2008)
296 MOTION to Withdraw as Attorney by Tomorrow's Child Learning Center LLC (Bowen, Martin) (Entered: 08/14/2008)
297 (This is a TEXT ENTRY ONLY. There is no pdf document associated with this entry.) ORDER granting 296 Movant's Motion to Withdraw as Counsel. Accordingly, Mr. Martin Wayne Bowen is relieved as counsel for Plaintiffs. Signed by Judge William R. Wilson, Jr on 08/15/08. (dmm) (Entered: 08/15/2008)
298 MOTION for Relief Relieve Counsel by Arkansas Department of Human Services (Hopkins, Breck) (Entered: 08/18/2008)
299 (This is a TEXT ENTRY ONLY. There is no pdf document associated with this entry.) ORDER granting 298 Defendants' Motion to Withdraw Counsel. Accordingly, Mr. Lee Thalheimer is relieved as counsel. Signed by Judge William R. Wilson, Jr on 08/18/08. (dmm) (Entered: 08/18/2008)
301 ORDER REASSIGNING CASE to Judge Brian S. Miller for all further proceedings. Judge William R. Wilson Jr. no longer assigned to case.(bfw) (Entered: 10/02/2008)
302 FINAL SCHEDULING ORDER: Jury Trial set for sometime during the week of 11/17/2008 at 09:30 AM in Little Rock Courtroom #2D before Judge Brian S. Miller. Pretrial Disclosure Sheets and an Agreed set of Jury Instructions and Statement of the Case are due by 11/3/2008. Signed at the Direction of the Court on 10/3/08. (Attachments: #(1) Guideline for Jury Trials, #(2) Exhibit and Witness List, #(3) Exhibit and Witness list − continuation)(bmt) (docket entry modified on 10/3/2008 to attach main document with correct case number) (bfw). (Entered: 10/03/2008)
303 NOTICE OF DOCKET CORRECTION: 302 Scheduling Order − (entry modified to attach main document with correct case number) (copy attached hereto for service on counsel) (bfw) (Entered: 10/03/2008)
304 MOTION to Continue by Tomorrow's Child Learning Center LLC (Banks, Charles) (Entered: 10/08/2008)
305 ORDER denying 304 Motion to Continue. Signed by Judge Brian S. Miller on 10/10/08. (bmt) (Entered: 10/10/2008)
306 MOTION for Summary Judgment Defendant AFMC's Motion for Summary Judgment on Issue of Procedural Due Process by Arkansas Foundation for Medical Care (Rainwater, Michael) (Entered: 10/22/2008)
307 BRIEF IN SUPPORT filed by Arkansas Foundation for Medical Care re 306 Motion for Summary Judgment Brief in Support of Defendant AFMC's Motion for Summary Judgment on Issue of Procedural Due Process (Rainwater, Michael) (Entered: 10/22/2008)
308 MOTION for Summary Judgment Arkansas Foundation for Medical Care's Motion for Summary Judgment on the Issue of Damages by Arkansas Foundation for Medical Care (Rainwater, Michael) (Entered: 10/22/2008)
309 BRIEF IN SUPPORT filed by Arkansas Foundation for Medical Care re 308 Motion for Summary Judgment Brief In Support of Separate Defeendant's Motion for Summary Judgment on Issue of Damages (Attachments: # 1 Exhibit 1)(Rainwater, Michael) (Entered: 10/22/2008)
310 MOTION for Summary Judgment by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services (Attachments: # 1 Exhibit)(Hopkins, Breck) (Entered: 10/22/2008)
311 BRIEF IN SUPPORT filed by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services re 310 Motion for Summary Judgment (Hopkins, Breck) (Entered: 10/22/2008)

Case: 4:01-cv-830 As of:03/31/2011 04:26 PM CDT 25 of 25

10/22/2008 10/22/2008 10/22/2008 10/22/2008 10/22/2008 10/23/2008 10/23/2008 10/23/2008 10/23/2008 10/30/2008 11/03/2008 11/03/2008 11/03/2008 11/03/2008 11/04/2008
11/07/2008 11/07/2008 11/12/2008 11/13/2008

312 STATEMENT OF FACTS (Local Rule 56.1) re 310 Motion for Summary Judgment filed by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services. (Hopkins, Breck) (Entered: 10/22/2008)
313 MOTION in Limine by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services (Hopkins, Breck) (Entered: 10/22/2008)
314 BRIEF IN SUPPORT filed by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services re 313 Motion in Limine (Hopkins, Breck) (Entered: 10/22/2008)
315 MOTION in Limine by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services (Attachments: # 1 Exhibit)(Hopkins, Breck) (Entered: 10/22/2008)
316 BRIEF IN SUPPORT filed by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services re 315 Motion in Limine (Hopkins, Breck) (Entered: 10/22/2008)
317 MOTION in Limine Defendant AFMC's Motion in Limine − Recipient Evidence by Arkansas Foundation for Medical Care (Rainwater, Michael) (Entered: 10/23/2008)
318 MOTION for Summary Judgment Motion to Join ADHS Motion for Summary Judgment by Arkansas Foundation for Medical Care (Rainwater, Michael) (Entered: 10/23/2008)
319 MOTION in Limine Defendant AFMC's Motion in Limine re Dr. Sharon Ramey by Arkansas Foundation for Medical Care (Rainwater, Michael) (Entered: 10/23/2008)
320 BRIEF IN SUPPORT filed by Arkansas Foundation for Medical Care re 319 Motion in Limine Brief in Support of AFMC's Motion in Limine regarding Dr. Sharon Ramey (Rainwater, Michael) (Entered: 10/23/2008)
321 Witness List by Arkansas Foundation for Medical Care(Rainwater, Michael) (Entered: 10/30/2008)
322 MOTION to Extend Time by Tomorrow's Child Learning Center LLC (Banks, Charles) (Entered: 11/03/2008)
323 RESPONSE to Motion re 322 MOTION to Extend Time Defendant AFMC's Response to Motion to Extend Time filed by Arkansas Foundation for Medical Care. (Rainwater, Michael) (Entered: 11/03/2008)
324 RESPONSE to Motion re 322 MOTION to Extend Time filed by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services. (Attachments: # 1 Exhibit)(Hopkins, Breck) (Entered: 11/03/2008)
325 Witness List by Kurt Knickrehm, Ray Hanley, Roy Jeffus, Arkansas Department of Human Services(Hopkins, Breck) (Entered: 11/03/2008)
326 ORDER granting 322 Motion to Extend Time until November 10, 2008 for plaintiff to submit its pretrial disclosures, a statement of the case and its responses to defts' pending motions; court trial will be on November 17, 2008. Signed by Judge Brian S. Miller on 11/4/08. (bkp) (Entered: 11/04/2008)
327 Exhibit List Defendant AFMC's Exhibit &Witness List by Arkansas Foundation for Medical Care.(Rainwater, Michael) (Entered: 11/07/2008)
328 PRETRIAL DISCLOSURE SHEET AFMC's Prehearing Information Filing by Arkansas Foundation for Medical Care. (Rainwater, Michael) (Entered: 11/07/2008)
329 STIPULATION of Dismissal by Tomorrow's Child Learning Center LLC. (Banks, Charles) (Entered: 11/12/2008)
330 ORDER DISMISSING CASE with prejudice. Signed by Judge Brian S. Miller on 11/13/08. (bkp) (Entered: 11/13/2008)

 
 United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 01-3971 ___________

Pediatric Speciality Care, Inc.; Child & *

Youth Pediatric Day Clinics, Inc.;

*

Family Counseling & Diagnostic

*

Clinic, Inc.; Tomorrow’s Child

*

Learning Center, LLC; D&D Family *

Enterprises, Inc.; James Swindle;

*

Stacey Swindle; as parents and next *

best friends of Jacob and Noah Swindle, *

Minors; Susann Crespino, as parent and *

next best friend of Michael Crespino, *

a minor,

*

*

Appellees,

*

*

v.

*

*

*

Arkansas Department of Human

*

Services; Kurt Knickrehm, in his

*

individual capacity and in his official *

capacity as Director of the The

*

Arkansas Department of Human

*

Services; Ray Hanley, in his individual *

capacity and in his official capacity as *

Director of the Division of Medical *

Services of The Arkansas Department *

of Human Services,

*

*

Appellants.

*

Appeal from the United States District Court for the Eastern District of Arkansas.

___________
Submitted: March 14, 2002
Filed: June 10, 2002 ___________
Before McMILLIAN, HEANEY and RILEY, Circuit Judges. ___________
HEANEY, Circuit Judge.
The Arkansas Department of Human Services (“ADHS”) appeals the district court’s decision to permanently enjoin it from repealing certain Arkansas State Medicaid Plan (“State Plan”) provisions relating to services provided under the Child Health Management Services program (“CHMS”). We affirm in part, reverse in part and remand for proceedings consistent with this opinion.
I. Background
CHMS is the health care model that Arkansas currently uses to provide early intervention diagnostic and therapy services to Medicaid-eligible children between the ages of six months and six years in order to help make them ready for school. It is designed to serve children who “have or are at increased risk for chronic physical, developmental, behavioral, or emotional conditions and who require health and related services of a type or amount beyond that required by children generally.”1
1Children are eligible for the program if they have a medical diagnosis such as AIDS, cystic fibrosis, child maltreatment syndrome (victim of abuse and neglect), Down syndrome, lead poisoning, congenital heart disease, cerebral degeneration, or macroephaly. See Arkansas Medicaid Manual at II-20. Children may also be eligible if they have a developmental diagnosis such as autism, blindness or visual impairment, cerebral palsy, cognitive disorders, deafness or hearing impairment,
-2-

Arkansas Medicaid Manual at II-19. The services are provided under the State Plan as part of the early and periodic screening, diagnosis, and treatment [“EPSDT”] mandate in Title XIX of the Social Security Act [“Medicaid Act”], codified at 42 U.S.C. §§ 1396a(a)(10), 1396a(a)(43), 1396d(a) and 1396d(r) (1994).
CHMS services may be divided into three categories: (1) diagnostic and evaluation services; (2) pediatric day treatment; and (3) therapies and other treatments. After a referral by a physician, CHMS clinic staff, including nurses, social workers, therapists, and psychologists, perform a diagnostic evaluation consisting of audiology, medical, behavioral, speech, language, and psychological assessments. Using the results of these evaluations, a CHMS physician prepares an individual treatment plan and prescribes services and treatments for the child. These therapies and treatments are provided at the CHMS clinics and include: nutrition services, behavior therapies, occupational and physical therapies, speech and language pathology services, psychological therapies, and early intervention day treatment. The model, in its current state, facilitates EPSDT by providing the evaluation and therapies in multi-disciplinary clinical settings that allow children to receive all their therapies in one location. Furthermore, the model provides an early intervention day treatment program to reinforce the skills children learn in individual therapies.2 There are approximately thirty-nine CHMS clinics in the state, serving
developmental delay, motor skills disorder, learning disabilities or mental retardation. See id. at II-21. CHMS care is required for children who are diagnosed with three or more medical, developmental, behavioral or environmental conditions/traumas. Id. at II-22.
2 The early intervention day treatment program is a type of day care program run by early childhood specialists and overseen by medical staff. The curriculum is structured to ameliorate conditions discovered by the EPSDT evaluations and to strengthen the skills children learn in therapy. The teachers work closely in conjunction with the therapists, and medical personnel are on hand for emergency situations. Early intervention day treatment serves children who are not able to
-3-

thirty of Arkansas’s seventy-five counties. On any given day, approximately 1500 Arkansas children are eligible to receive CHMS services.
Due to a budget shortfall, Arkansas decided to reduce its Medicaid expenditures by $12 million. In November 2001, ADHS issued a press release that outlined suggested changes to the State Plan and announced its intention to cut some of the services available under the CHMS program. With regard to EPSDT services, the press release stated:
The department will amend the Medicaid State Plan to redefine the [CHMS]. This will change how treatment services are delivered to children who don't have a serious medical problem, but are considered at risk. The department will continue to pay for diagnostic services, but will no longer pay for CHMS daycare and therapy services. Programs such as Head Start and Arkansas Better Chance are already providing day care services, and will continue to provide this service, in a more cost efficient manner than is available at CHMS. Therapies that have been provided by CHMS are available from private providers . . . . It is estimated this action will save the Medicaid program between $4.9 million and $5.7 million annually. Arkansas is the only state that has been covering CHMS through the Medicaid program.
Appellant’s App. at 371.3 As we understand the state’s proposal, it would leave the diagnostic and evaluation leg of CHMS intact, meaning that a physician would still refer a child to a CHMS clinic for an evaluation, the staff at the CHMS clinic would perform the evaluation, and a CHMS physician would recommend the needed therapies. However, the therapies and the early intervention day treatment services
function or learn in a normal day care setting such as Head Start.
3Ray Hanley, the director of the Division of Medical Services at ADHS, testified that the Department planned to cut day treatment services. Trial Tr. Vol. 2 at 198.
-4-

would no longer be part of the CHMS program; thus, they would no longer be listed specifically in the State Plan.4
Shortly after the state announced these cutbacks, Pediatric Specialty Care, Inc., a provider of CHMS services, along with other CHMS providers (“provider plaintiffs”) and the parents of three recipients of CHMS services (“recipient plaintiffs”) filed suit under 42 U.S.C. § 1983 seeking temporary and permanent injunctive relief on the basis that the ADHS’s proposed cutbacks would violate their federal right to EPSDT services.
After a full hearing, the district court agreed with the plaintiffs and found that the Medicaid Act gives them an enforceable right to early intervention day treatment services. In its findings of fact, the court noted that the only early intervention day treatment services provided to children under the current State Plan are those provided to children enrolled in CHMS. The court also found that even though therapy services would be provided by other sources if the budget cuts took place, therapy services “not provided in conjunction with CHMS day treatment services will not result in the maximum reduction of their developmental disabilities or restoration of their best possible functional level, as mandated by [§] 1396d(a)(13).” Pediatric Specialty Care, Inc., etc. v. Arkansas Dep’t of Human Servs., No: 4:01CV00830WRW, slip op. at 10 (E.D. Ark Dec. 18, 2001). In its conclusions of law, the district court held that CHMS day treatment is a rehabilitative service, with both medical and remedial components under § 1396d(a)(13). The court further stated that the day treatment provided through CHMS is “treatment for the maximum reduction of disability and for a restoration of [a developmentally delayed child] to the best possible functional level.” Id. at 14
4The press release indicates that CHMS clinics would no longer be reimbursed for providing therapies or early intervention day treatment. ADHS clarified at oral argument, however, that CHMS therapists could enroll as Medicaid therapists under the new state plan. Therefore, the decision not to reimburse CHMS early intervention day treatment services has the biggest practical impact of the proposed changes.
-5-

(quoting 42 U.S.C. § 1396d(a)(13)). The court ultimately held that categorically needy children who request medical assistance under § 1396d(a)(13), and for whom a physician recommends early intervention day treatment, have a federal right to the treatment. The court then granted a permanent injunction enjoining the CHMS cutbacks, reasoning that because early intervention day treatment is not provided for elsewhere in the State Plan, the ADHS may not cut its funding of CHMS day treatment. ADHS appeals.
II. Discussion
We consider three issues on appeal: (1) whether the district court erred in determining that the appellees may bring a § 1983 cause of action; (2) whether the district court’s factual findings regarding day treatment services are clearly erroneous; and (3) whether the district court erred in determining that the Medicaid Act creates an enforceable right to CHMS day treatment services.
First, ADHS argues that the Medicaid Act does not create a federal right that appellees may enforce through a § 1983 action. Section 1983 provides a federal cause of action against anyone who, acting pursuant to state authority, violates any “rights privileges or immunities secured by the Constitution and laws” of the United States. 42 U.S.C. § 1983. A remedy is available under § 1983 for violations of federal statutory and constitutional law. Maine v. Thiboutot, 448 U.S. 1, 4 (1980). In order to bring a § 1983 claim, however, a plaintiff must assert a violation of a federal right, not just a violation of a federal law. Blessing v. Freestone, 520 U.S. 329, 340 (1997) (citation omitted). To determine whether the statute in question gives rise to a federal right, we consider three factors: (1) whether the provision in question was “intend[ed] to benefit” the putative plaintiff; (2) whether the interest the plaintiff asserts is not so “vague and amorphous” that it is beyond the competence of the judiciary to enforce; and (3) whether the provision in question creates a binding obligation on the governmental unit. Id. (citations omitted).
-6-

The district court found that the plaintiffs met these requisites and properly asserted a federal right enforceable in a § 1983 action. ADHS now challenges the court’s holding that the provider plaintiffs are intended beneficiaries of the EPSDT provisions. ADHS concedes, however, that the recipient beneficiaries are intended beneficiaries of the statute. Given this admission, even if we were to find that the provider plaintiffs are not the intended beneficiaries, the recipient plaintiffs may still enforce the federal statute. Furthermore, ADHS does not argue with the proposition that even without individual standing, the provider plaintiffs in this case have standing to assert the rights of their CHMS patients. See Singleton v. Wulff, 428 U.S. 106, 115-117 (1976) (noting that “where the relationship between the litigant and the third party [is] such that the former is fully, or very nearly, as effective a proponent of the right as the latter,” there may be an exception to the third party standing rules). Therefore, we find no error in the district court’s holding that the plaintiffs satisfied the “intended beneficiary” prong of the § 1983 test.
Next we turn to the issue of whether the Medicaid Act creates a binding obligation on the states with regard to EPSDT services and whether that obligation is so vague and amorphous that its enforcement is beyond judicial competence. Medicaid is a cooperative federal-state program designed to provide medical assistance and rehabilitation services to low-income individuals. See 42 U.S.C. § 1396. The federal government grants funds to the states for the provision of health care services, and the states act as administrators of those funds. Id.; Smith v. Rasmussen, 249 F.3d 755, 757 (8th Cir. 2001). States are not required to participate in the Medicaid program, but if they do they must comply with the requirements of the Medicaid Act and its regulations. Id. (citation omitted). “To qualify for federal funds, a state must submit a plan to the Secretary of Health and Human Services (HHS) which complies with [the] fifty-eight subsections outlined in 42 U.S.C. § 1396a(a).” Arkansas Med. Soc’y, Inc. v. Reynolds, 6 F.3d 519, 522 (8th Cir. 1993).
-7-

To determine whether the Medicaid Act imposes a binding obligation on the State of Arkansas, we must determine whether the statutory language is “couched in mandatory, rather than precatory, terms.” Blessing, 520 U.S. at 340. The language in § 1396a is mandatory language. Section 1396a(a)(10)(A) states that the provision of EPSDT services “must” be included in the state plan.5 Section 1396a(a)(43) also articulates that a state plan “must” include the provision of EPSDT services.6 These EPSDT services are defined as: screening services, which must include a comprehensive health and development history, a comprehensive unclothed physical exam, appropriate immunizations, laboratory tests, and health education; vision services; dental services; hearing services; and “such other necessary health care, diagnostic services, treatment, and other measures . . . to correct or ameliorate defects and physical and mental illnesses and conditions discovered by the screening services, whether or not such services are covered under the State plan.” 42 U.S.C. §1396d(r). We find that this statutory language creates a binding obligation upon ADHS to create a state plan that includes the provision of EPSDT services as they are defined in § 1396d(r). Furthermore, we find that this obligation is not so ambiguous or amorphous that its enforcement strains judicial competence. Therefore, we hold that the plaintiffs have an federal right to EPSDT services that is enforceable in a § 1983 action.
5Section 1396a(a)(10)(A) mandates that a state plan provide medical assistance, “including at least the care and services listed in paragraphs (1) through (5), (17) and (21) of section 1396d(a).” 42 U.S.C. § 1396a(a)(10)(A). Section 1396d(a) defines the term “medical assistance,” and subpart 4(B) of that subsection includes “early and periodic screening, diagnostic, and treatment services (as defined in subsection (r) of this section).” 42 U.S.C. § 1396d(a)(4)(B). Because § 1396a(a)(10)(a) states that a state plan must provide at least the medical assistance provided in § 1396d(a) (1)(5), (17), (21), EPSDT services must be included in a state plan.
6Section 1396a(a)(43) mandates that a state plan provide for screening services, arrange corrective treatment for disorders uncovered by the screening services, and inform all eligible recipients of the availability of EPSDT services.
-8-

Next we turn to the issue of whether the district court’s factual findings regarding ADHS’s CHMS program are clearly erroneous. See Love v. Reed, 216 F.3d 682, 687 (8th Cir. 2000) (noting that we review a district court’s findings of fact for clear error). A finding of fact is clearly erroneous when “the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948). In the present case, the district court found that:
[T]he day treatment services currently being provided to children enrolled in the CHMS program, in conjunction with their therapy services result in the maximum reduction of their physical and mental disabilities, and restoration of their best possible functional level . . . . According to the testimony of Mr. Tom Dalton, Dr. Michael Prince, and Dr. Pat Casey, which I credit, even though the therapy services may still be available to CHMS children from other sources if the decision . . . is implemented, therapy services not provided in conjunction with CHMS day treatment services will not result in the maximum reduction of their developmental disabilities or restoration of their best possible functional level, as is mandated by § 1396d(a)(13).
Pediatric Specialty Care, Inc., etc., No: 4:01CV00830WRW, slip op. at 10. Furthermore, the district court found that “early intervention day treatment is a rehabilitative service, with both medical and remedial components.” Id.
The evidence presented at trial demonstrated that early intervention day treatment services provide numerous benefits to children, including increased IQ levels, reduction in developmental disabilities, and a decreased chance of being placed in special education classes. There was evidence that the American Academy of Pediatrics urges pediatricians to consider early intervention as a beneficial service and
-9-

to make appropriate diagnostic evaluations and referrals.7 Upon review of the entire record, we find that the district court’s factual findings regarding CHMS services are not clearly erroneous.
Next, we must decide whether the Medicaid Act requires Arkansas to provide early intervention day treatment services. We believe that this question encompasses two distinct issues. First, whether the Medicaid Act requires Arkansas to specifically provide for CHMS early intervention day treatment services in the State Plan, and second, whether the State Plan must reimburse early intervention day treatment services when a physician determines that they are medically necessary for the maximum reduction of a disability. The district court resolved these issues by holding that:
[A] categorically needy individual under 21 who requests medical assistance under 1396d(a)(6) and 1396d(a)(13), and [for whom] early intervention day treatment is recommended by a physician . . . has a federal right to early intervention day treatment. Because early intervention day treatment is not provided for elsewhere in the State Plan, [A]DHS may not cut funding or provision of early intervention day treatment in the CHMS plan.
Pediatric Specialty Care, Inc., etc., No: 4:01CV00830WRW, slip op. at 14.
We reverse the district court’s holding to the extent that it requires that CHMS early intervention day treatment services be specifically included in the State Plan. As stated, the State Plan must include the provision of EPSDT services as those services
7We also note that the Medicaid Act itself contemplates that medical assistance for children with disabilities may have an educational component. See 42 U.S.C. § 1396b(c) (noting that Medicaid may cover services that are also part of a child’s individual education program or individualized family service plan adopted pursuant to the Individuals with Disabilities Education Act).
-10-

are defined in §1396d(r). See §§ 1396a(a)(10)(A), 1396d(a)(4)(B); see also 1396a(a)(43). Section 1396d(r) lists in detail the screening services, vision services, dental services, and hearing services that the State Plan must expressly include, but with regard to treatment services, it states that EPSDT means “[s]uch other necessary health care, diagnostic services, treatment, and other measures described in subsection (a) of this section to correct or ameliorate defects and physical and mental illnesses and conditions discovered by the screening services, whether or not such services are covered under the State plan.” 42 U.S.C. § 1396d(r)(5) (emphasis added). Reading § 1396a, § 1396d(a), and § 1396d(r) together, we believe that the State Plan need not specifically list every treatment service conceivably available under the EPSDT mandate.
The State Plan, however, must pay part or all of the cost of treatments to ameliorate conditions discovered by the screening process when those treatments meet the definitions set forth in § 1396a. See § 1396d(r)(5); see also §§ 1396a(a)(10), 1396a(a)(43), and 1396d(a)(4)(B). The Arkansas State Plan states that the “State will provide other health care described in [42 U.S.C. 1396d(a)] that is found to be medically necessary to correct or ameliorate defects and physical and mental illnesses and conditions discovered by the screening services, even when such health care is not otherwise covered under the State Plan.” See State Plan Under Title XIX of the Social Security Act Medical Assistance Program, State of Arkansas at § 4.b. This provision meets the EPSDT mandate of the Medicaid Act.
We affirm the district court’s decision to the extent that it holds that a Medicaideligible individual has a federal right to early intervention day treatment when a physician recommends such treatment. Section 1396d(r)(5) states that EPSDT includes any treatments or measures outlined in § 1396d(a). There are twenty-seven sub-parts to § 1396d(a), and we find that sub-part (a)(13), in particular, when read with the other sections of the Medicaid Act listed above, mandates that early intervention day treatment be provided when it is prescribed by a physician. See 42
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U.S.C. § 1396d(a)(13) (defining medical assistance reimbursable by Medicaid as “other diagnostic, screening, preventive, and rehabilitative services, including any medical or remedial services . . . recommended by a physician . . . for the maximum reduction of physical and mental disability and restoration of an individual to the best possible functional level”). Therefore, after CHMS clinic staff perform a diagnostic evaluation of an eligible child, if the CHMS physician prescribes early intervention day treatment8 as a service that would lead to the maximum reduction of medical and physical disabilities and restoration of the child to his or her best possible functional level, the Arkansas State Plan must reimburse the treatment. Because CHMS clinics are the only providers of early intervention day treatment, Arkansas must reimburse those clinics.
Finally, we remind the state that it has a duty under 42 U.S.C. § 1396a(43) to inform Medicaid recipients about the EPSDT services that are available to them and that it must arrange for the corrective treatments prescribed by physicians. The state may not shirk its responsibilities to Medicaid recipients by burying information about available services in a complex bureaucratic scheme.
III. Conclusion
We remand this case to the district court so that it may modify its injunction in accordance with our decision today. Because the district court found in favor of the plaintiffs on the federal statutory claim, it did not consider the plaintiffs’ procedural due process claim. We remand for appropriate consideration of that claim as well.
8A day treatment program operated by medical and childhood development specialists who are familiar with the children’s diagnoses and therapies and structure the curriculum to help ameliorate each child’s condition.
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A true copy. Attest: CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
-13-

 
 United States Court of Appeals
FOR THE EIGHTH CIRCUIT
____________________

Nos. 03-1015 & 03-2616 ____________________

Pediatric Specialty Care, Inc.; Child *

& Youth Pediatric Day Clinics, Inc.; *

Family Counseling & Diagnostic

*

Clinic, Inc.; Tomorrow’s Child

*

Learning Center, LLC; D&D Family *

Enterprises, Inc.; James Swindle;

*

Stacey Swindle, as parents and next *

best friends of Jacob and Noah

*

Swindle, Minors; Susann Crespino, *

as parent and next friend of Michael *

Crespino, a minor,

*

*

Appellees,

*

* Appeals from the United States

v.

* District Court for the

* Eastern District of Arkansas.

Arkansas Department of Human

*

Services; Kurt Knickrehm, in his

*

individual capacity and in his official *

capacity as Director of the Arkansas *

Department of Human Services; Ray *

Hanley, in his individual capacity and *

in his official capacity as director of *

the Division of Medical Services of *

the Arkansas Department of Human *

Services,

*

*

Appellants,

*

___________

No. 03-1483 ___________

Pediatric Specialty Care, Inc.; Child *

& Youth Pediatric Day Clinics, Inc.; *

Family Counseling & Diagnostic

*

Clinic, Inc.; Tomorrow’s Child

*

Learning Center, LLC; D&D Family *

Enterprises, Inc.; James Swindle;

*

Stacey Swindle, as parents and next *

best friends of Jacob and Noah

*

Swindle, Minors; Susann Crespino, *

as parent and next friend of Michael *

Crespino, a minor,

*

*

Appellees,

*

*

v.

*

*

Arkansas Department of Human

*

Services; Kurt Knickrehm, in his

*

individual capacity and in his official *

capacity as Director of the Arkansas *

Department of Human Services; Ray *

Hanley, in his individual capacity and *

in his official capacity as director of *

the Division of Medical Services of *

the Arkansas Department of Human *

Services,

*

*

Defendants,

*

*

Centers for Medicare and Medicaid *

Services, a component of the United *

-2-

States Department of Health and

*

Human Services,

*

*

Appellant.

*

___________

Submitted: January 15, 2004

Filed: April 16, 2004 ___________

Before BYE, HEANEY, and SMITH, Circuit Judges. ___________

HEANEY, Circuit Judge.

This case concerns proposed revisions to Arkansas’s state Medicaid plan that would affect programs for special needs children. Arkansas has provided services to special needs children under its Child Health Management Services (CHMS) program, a comprehensive program that provides evaluation and therapy in a multidisciplinary clinical setting. In November of 2001, the Arkansas Department of Human Services (ADHS) announced that it would significantly alter the program, removing its therapeutic and early intervention day treatment services. The district court1 previously enjoined Arkansas from making such changes, and we affirmed in part, reversed in part, and remanded for further proceedings. See Pediatric Specialty Care, Inc. v. Ark. Dep’t of Human Servs., 293 F.3d 472 (8th Cir. 2002). On remand, the district court found that the proposed changes would result in a denial of procedural and substantive due process, and ordered the services to continue without any changes. ADHS now appeals the district court’s adverse rulings on these claims.

1The Honorable William R. Wilson, Jr., United States District Judge for the Eastern District of Arkansas.
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We affirm the district court’s ruling that ADHS may not alter the CHMS program until it conducts an impact study to ensure that the changes are consistent with the principles of economy, efficiency, quality of care, and access to care. On the basis of the record before us, however, we reverse the district court’s ruling as to the substantive due process claim.
The federal Centers for Medicare & Medicaid Services (CMS) was not a party to the suit below. Nonetheless, the district court ordered it to continue to subsidize the services that ADHS was providing. CMS appeals, and we reverse.
BACKGROUND
Much of the historical background to this case was detailed in our prior decision. See Pediatric Specialty Care, Inc., 293 F.3d at 475-77. As part of its state Medicaid plan,2 Arkansas has provided medical services to special needs children under the CHMS program. The program extends diagnostic and evaluative services, pediatric day treatment, and various therapies to children from six months to six years of age. In November of 2001, ADHS issued a press release announcing its intention to restructure the CHMS program, terminating day treatment and therapeutic services from the plan.
In response to this decision, Pediatric Specialty Care, Inc., a provider of CHMS services, along with other CHMS providers and parents of recipients of CHMS services (collectively the Plaintiffs), brought suit seeking to bar ADHS from changing
2Medicaid has been defined as “a cooperative federal-state program through which the Federal Government provides financial assistance to States so that they may furnish medical care to needy individuals.” Wilder v. Va. Hosp. Ass’n, 496 U.S. 498, 502 (1990). While participation in Medicaid is voluntary, states that choose to participate must comply with the requirements for state plans as outlined in 42 U.S.C. § 1396a. Ark. Med. Soc’y v. Reynolds, 6 F.3d 519, 522 (8th Cir. 1993).
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the CHMS program. The district court found that the Medicaid Act3 entitled children to an enforceable right to early intervention day treatment services, and that such services were currently provided under the CHMS program. It further found, that although such services would still be available if recommended by a physician, cutting the CHMS program would inhibit the ability of children to readily receive the treatment they needed. Accordingly, the district court enjoined ADHS from changing the program and ordered it to continue to include CHMS early intervention day treatment services in its state Medicaid plan.
On appeal, our court agreed that children are entitled to day treatment under the Medicaid Act. Pediatric Specialty Care, Inc, 293 F.3d at 480. We reversed, however, the district court’s holding “to the extent that it requires CHMS early intervention day treatment services be specifically included in the State Plan.” Id. We reasoned that although the Medicaid Act required early and periodic screening, diagnosis, and treatment (EPSDT) services to be provided as part of the participating state’s plan, id. at 479, those services need not be specifically or expressly listed, id. at 480. Rather, it was sufficient that ADHS continue to provide CHMS-like services when prescribed by a physician, without keeping the actual CHMS program. Id. at 480-81. We remanded the case for modification of the injunction and consideration of the Plaintiffs’ procedural due process claim. Id. at 481.
On remand, the district court held further proceedings to consider the Plaintiffs’ procedural and substantive due process claims. By order dated November 27, 2002, the district court found that by seeking to terminate elements of the CHMS program, ADHS made a decision affecting payment of services. According to the district court, this invoked 42 U.S.C. § 1396a(a)(30)(A), which mandates that changes in methods and procedures of payment must be consistent with the principles of economy, efficiency, quality of care, and equal access. Since ADHS had done nothing to
342 U.S.C §§ 1396-1396v.
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determine the effect that terminating elements of the CHMS program would have on these principles, the district court enjoined ADHS from terminating the program until it completed an impact study. The district court further found that for a number of years, Arkansas had been trying to curtail its early intervention day treatment services program. The court noted that the decision seemed to be based on improper motivations, and would result in a loss of medical services for needy children. Finding that such conduct shocked the conscience, the court enjoined ADHS from restructuring the CHMS program or moving CHMS-like services “off-plan.”4 On December 18, 2002, the district court extended its injunction to CMS, specifically requiring CMS to continue to provide federal funding for the CHMS program.
ADHS appeals, arguing that they should not be required to complete any study before changing the CHMS program. With regard to the substantive due process matter, ADHS notes that this issue was not remanded to the district court, and suggests that our prior opinion permitting ADHS to terminate elements of the CHMS program precluded the district court from ordering the plan to continue. It further argues that its decision to restructure the CHMS program is supported by a rational basis and thus no substantive due process violation would arise from the change. CMS appeals the extension of any injunction to it because it was never a party to the underlying action and did not act in concert with ADHS.
ANALYSIS
We review the grant of injunctive relief for an abuse of discretion. Randolph v. Rodgers, 170 F.3d 850, 856 (8th Cir. 1999). We must necessarily consider the
4“Off-plan” and “off-planning” are terms used by the parties to refer to termination of the CHMS program from the state Medicaid plan, recognizing that the state would still be obligated to pay for CHMS-like services even though the services are not specifically listed in the state plan. (See, e.g., Tr. of Sept. 12, 2002, Evidentiary Hr’g at 84-85.)
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predicate facts and law to determine if the district court abused its discretion by ordering relief at all. See, e.g., FDIC v. Bell, 106 F.3d 258, 262-63 (8th Cir. 1997). A district court abuses its discretion if it issues an injunction based on an incorrect understanding of the law or reliance on clearly erroneous factual determinations. Randolph, 170 F.3d at 856.
I. PROCEDURAL DUE PROCESS
On remand, the district court held that ADHS violated the tenets of 42 U.S.C. § 1396a(a)(30)(A), often referred to as the “equal access provision” of the Medicaid Act, see Ark. Med. Soc’y Inc. v. Reynolds, 6 F.3d 519, 522 (8th Cir. 1993), by attempting to alter the CHMS program without first considering how efficiency, economy, quality of care, and access to care would be affected. It enjoined ADHS from changing the program until an impact study considering these principles was completed.
At the outset, we dispose of ADHS’s argument that the equal access provision of the Medicaid Act cannot support the Plaintiffs’ procedural due process claim because it does not create any constitutionally-recognized property interest. It is well established that “[t]he Fourteenth Amendment’s procedural protection of property is a safeguard of the security interests that a person has already acquired in specific benefits.” Board of Regents v. Roth, 408 U.S. 564, 576 (1972). “Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law–rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.” Id. at 577; accord Goldberg v. Kelly, 397 U.S. 254, 261-62 (1970) (recognizing that federal and state regulatory frameworks had created a constitutional property interest in continued receipt of welfare benefits). Over ten years ago, our court held that § 1396a(a)(30)(A) created enforceable rights for Medicaid recipients and providers.
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Ark. Med. Soc’y, 6 F.3d at 528. We find it entirely appropriate for the Plaintiffs to base their procedural due process claim on their clearly established right to have equal access to quality medical care as defined by § 1396a(a)(30)(A).
Section 1396a(a)(30)(A) requires that state Medicaid plans employ “methods and procedures relating to the utilization of, and the payment for, care and services” as necessary to “assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.” ADHS suggests that this statute does not apply since the rate it will pay each provider will remain the same. While the particular rate of payment for each provider may remain the same, § 1396a(a)(30)(A) concerns not only the rate, but also the method and process of payment for services.5 The district court found that termination of parts of the CHMS program would result in a change in the level and method of payment for some services. We agree. In fact, it is difficult to discern how a decision to eliminate components of the CHMS program, but continue to pay for CHMS-like services, is anything but a change in the methods and procedures for payment of such services.
“[T]he remedy for a procedural due process violation is defined by the extent of the injury that resulted from the denial of constitutionally required process.” Hopkins v. Saunders, 199 F.3d 968, 979 (8th Cir. 1999) (citing Carey v. Piphus, 435 U.S. 247, 263-64 (1978)). Since this case involves a prospective due process violation, we look to whether the injunction adequately addresses what would
5ADHS directs us to 42 C.F.R. § 447.205 in support of its position. We recognize that this regulation requires state Medicaid agencies to provide public notice of proposed changes in its methods for setting payment rates. We fail to see how this is inconsistent with our view that changes to the methods and procedures related to payment, as opposed to payment rates, also implicate the principles detailed in the equal access provision of the Medicaid Act.
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otherwise be a denial of the Plaintiffs’ constitutional rights. The district court held that “[b]efore the Defendants can terminate Medicaid payment for [CHMS] services, they must conduct a proper study and assure the citizens of Arkansas that the factors of economy, efficiency, quality of care and equal access will not be jeopardized.” (Dist. Ct. Order of November 27, 2002, at 12.) Such an order permits the procedural due process issue to be revisited following completion of the study while remaining true to the Medicaid Act’s equal access provision. We find no error in the injunction as so limited.
II. SUBSTANTIVE DUE PROCESS
The district court found that ADHS sought to terminate portions of the CHMS program for improper reasons and that this decision would result in a loss of service for developmentally delayed children. ADHS’s consistent attempts to neglect the needs of developmentally delayed children and its proposed restructuring of the CHMS program “shock[ed] the conscience of the court” (Dist. Ct. Order of Nov. 27, 2002, at 15) (internal quotation marks omitted)), resulting in a substantive due process violation. It thus enjoined ADHS from changing the CHMS program, or moving CHMS-like services “off-plan” at all.
We must first determine whether the district court’s substantive due process ruling has exceeded the contours of our remand. In our earlier opinion, we “reverse[d] the district court’s holding to the extent that it require[d] that CHMS early intervention day treatment services be specifically included in the State [Medicaid] Plan.” Pediatric Specialty Care, Inc., 293 F.3d at 480. We permitted ADHS to terminate the CHMS program because it was obligated to keep paying for CHMS-like services under the Medicaid Act. Id. We then remanded the matter to the district court with instructions to “consider the plaintiffs’ procedural due process claim.” Id. at 481. We did not provide any direction to the district court as to the Plaintiffs’ substantive due process claim.
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It is well settled that when a matter is decided by this court, it becomes the law of the case; the district court is not free on remand to reconsider any question finally disposed of by the court of appeals. Klein v. Arkoma Prod. Co., 73 F.3d 779, 784-85 (8th Cir. 1996). The district court remains free, however, to decide any issue “not expressly or impliedly disposed of on appeal.” In re Usery, 242 B.R. 450, 457 (B.A.P. 8th Cir. 1999) (citing Paull v. Archer-Daniels-Midland Co., 313 F.2d 612, 617 (8th Cir. 1963)). In our prior opinion, the issue presented was whether “the Medicaid Act requires Arkansas to provide early intervention day treatment services,” Pediatric Specialty Care, Inc., 293 F.3d at 480, since the district court had specifically limited its earlier ruling to the question of the Plaintiffs’ rights under the Medicaid Act, see Pediatric Specialty Care, Inc., v. Ark. Dep’t of Human Servs., No. 4:01CV00830WRW, slip op. at 14 (E.D. Ark. Dec. 18, 2001) (“Because I find in favor of the plaintiffs on the federal statutory claim, I do not need to address the procedural and substantive due process claims made by the plaintiff.”). Our instruction to the district court to consider the Plaintiffs’ procedural due process claim on remand did not restrict its decision to only that matter. The Plaintiffs’ substantive due process claim remained unresolved, and it was within the province of the district court to entertain that claim on remand.
Under the rubric of the substantive due process clause, the Constitution prohibits “‘the government from engaging in conduct that shocks the conscience or interferes with rights implicit in the concept of ordered liberty.’” Moran v. Clarke, 296 F.3d 638, 643 (8th Cir. 2002) (quoting Weiler v. Purkett, 137 F.3d 1047, 1051 (8th Cir. 1998) (en banc)).
Thus, substantive due process claims are analyzed under two tests. First, the state is forbidden from infringing certain “fundamental” liberty interests at all–no matter what process is provided–unless the infringement is narrowly tailored to serve a compelling state interest. Second, the state’s conduct must shock the conscience or otherwise
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offend our judicial notions of fairness, or must be offensive to human dignity.
Brown v. Nix, 33 F.3d 951, 953 (8th Cir. 1994) (citations omitted).
The Plaintiffs’ claim does not fall within the first of these categories, for such claims are typically limited to rights that are constitutionally rooted and considered fundamental. See Putnam v. Keller, 332 F.3d 541, 548 (8th Cir. 2003) (detailing the rights recognized by the Supreme Court as giving rise to substantive due process claims). The question then is whether ADHS engaged in such egregious conduct that it rightly shocked the district court’s judicial conscience. The district court found that for years ADHS had been trying to curtail the services to special needs children for unsound reasons. We share the district court’s concern about such conduct, and reiterate that “[t]he state may not shirk its responsibilities to Medicaid recipients” by making services difficult for recipients to access. Pediatric Specialty Care, Inc., 293 F.3d at 481. In our prior opinion, however, we recognized that ADHS was seeking to restructure the CHMS program in part “[d]ue to a budget shortfall.” Id. at 476. Testimony and exhibits established that Arkansas expected to realize a four to six million dollar savings by cutting the program. ADHS has unequivocally stated that it would keep paying for CHMS-like services “off-plan.” In fact, it is specifically required to keep providing these services pursuant to our prior opinion. See id. at 480-81 (holding that ADHS must continue to provide CHMS-like services, including day treatment therapeutic services, under the Medicaid Act’s early and periodic screening, diagnosis, and treatment mandate). Given these circumstances, we simply cannot affirm an injunction based on the Plaintiffs’ substantive due process claim, and reverse the district court on that point. We stress that this decision is independent of our prior ruling that the Plaintiffs enjoyed a right to CHMS-like services under the Medicaid Act; ADHS remains bound by that ruling, and this opinion should not be read to absolve ADHS of that responsibility. We further note that if ADHS chooses to perform the impact study required by the district court and affirmed herein, new
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issues may come to light as to whether cutting CHMS services would then result in a substantive due process violation. That issue is not before us now, and this opinion should not be read as precluding the Plaintiffs from raising such matters at the appropriate time.
III. CMS’S APPEAL
Following issuance of its order granting the Plaintiffs’ request for an injunction, the district court issued a second order extending the injunction to CMS. The order required CMS to continue providing Federal Financial Participation6 for CHMS services. CMS was never a party to the underlying action and did not file any documents with the district court seeking to void the order. Instead, it appealed directly to us. The Plaintiffs moved to dismiss the appeal because CMS did not intervene below, and this court denied the motion by order dated March 28, 2003. The Plaintiffs have moved for reconsideration. Having fully considered the matter, we again deny the motion to dismiss because although CMS did not intervene below, it is directly and adversely affect by the injunction. In re Piper Funds, Inc., 71 F.3d 298, 300-01 (8th Cir. 1995); see also Jenkins v. Missouri, 967 F.2d 1245, 1247 (8th Cir. 1992) (stating “a non party may appeal an injunction that purports to bind the non party”).
The district court extended its earlier injunction regarding the CHMS program to CMS pursuant to Federal Rule of Civil Procedure 65. But this rule merely binds injunctions on parties and “those persons in active concert or participation with them.” Fed. R. Civ. P. 65(d). We fail to see how CMS could be considered to have worked in concert with ADHS to terminate the CHMS program. CMS is the federal
6According to CMS, Federal Financial Participation equates to “essentially federal matching funds” for state programs. (CMS Br. at 19.) For a detailed description of the method by which states receive such payment, see 42 U.S.C. § 1396b.
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regulatory authority for the Medicaid program, and is in charge of assuring that states comply with the requirements of the Medicaid Act. In that capacity, CMS and ADHS corresponded about ADHS’s desire to change its state Medicaid plan, and CMS eventually agreed to allowed that CHMS-like services be moved “off-plan.” The fact that CMS approved termination of the CHMS program, however, does not transform it into an active participant in the decision. Rather, CMS’s role as federal administrator of the Medicaid program appears supervisory. This conclusion is buttressed by CMS’s ability to withhold Federal Financial Participation in the event of a state’s noncompliance with the requirements of the Medicaid Act.7 Since CMS was not a party to the underlying action and did not actively participate in the decision to terminate the CHMS program within the meaning of Rule 65, we reverse the injunction as it extends to CMS.8
CONCLUSION
The district court enjoined Arkansas, through its Department of Human Services, from restructuring its Child Health Management Services program, due to procedural and substantive due process concerns. We affirm the district court insofar as it ordered Arkansas to continue the program until a full impact study on the effect of terminating the program is completed. Because the Plaintiffs remain the prevailing parties in their action against ADHS, we affirm the district court’s award of costs and
7We note that if the injunction were to stand against CMS, the district court would have usurped CMS’s authority to deny payment for CHMS services, even if ADHS were not entitled to the money due to noncompliance.
8The practical effect of this ruling may be nominal, since at oral argument the parties agreed that CMS had always paid its share for CHMS services, and CMS affirmed that it had no intention to cut off Federal Financial Participation for state claims.
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attorney fees.9 On the basis of the current record, we reverse the district court’s injunction as it related to the Plaintiffs’ substantive due process claim and as it extended to the Center for Medicare & Medicaid Services. We remand for proceedings consistent with this opinion.
BYE, Circuit Judge, concurring.
I fully endorse our analysis and conclusions in resolving this appeal. I write to reiterate the district court's findings of fact which Pediatric I left undisturbed and which therefore continue to inform the law of the case. See Pediatric Specialty Care, Inc. v. Ark. Dep't of Human Servs., 293 F.3d 472, 479 (8th Cir. 2002) ("Upon review of the entire record, we find that the district court's factual findings regarding CHMS services are not clearly erroneous.").
First, CHMS clinics are the sole providers of early intervention day treatment services in the state of Arkansas. Id. at 481. Second, "therapy services not provided in conjunction with CHMS day treatment services will not result in the maximum reduction of [recipients'] developmental disabilities or restoration of their best functional level, as is mandated by § 1396d(a)(13)" of the Medicaid Act. Id. at 479. It follows non-CHMS providers lack the capacity to provide the combination of day treatment and therapy services so as to satisfy the statutory mandate.
On the other hand, CHMS clinics do provide such a combination of services. Id. Consequently, while the Arkansas Department of Human Services (ADHS) can theoretically comply with its statutory mandate by providing CHMS-like services through any provider, in practice ADHS must continue using CHMS clinics
9ADHS did not challenge the amount awarded by the district court, but rather sought an order vacating the award in its entirety in the event that it prevailed on appeal.
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themselves, at least until such a time as other similarly equipped providers become available. See id. at 481 ("Because CHMS clinics are the only providers of early intervention day treatment, Arkansas must reimburse those clinics."). In turn, any study of ADHS's proposal to shift services off-plan will necessarily evaluate the impact on CHMS clinics and their ability to continue providing day treatment and therapy services in a manner that complies with the statutory mandate.
In summary, § 1396d(a)(13) imposes certain requirements on ADHS, and only CHMS clinics provide day treatment and therapy services meeting those requirements. To comply with the injunction here affirmed and also stay within its statutory mandate, therefore, ADHS must study the impact of its proposal on CHMS clinics.
______________________________
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 United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________

No. 05-1668 ___________

Pediatric Specialty Care, Inc.; Child & Youth Pediatric Day Clinics, Inc.; Family Counseling & Diagnostic Clinic; Tomorrow’s Child Learning Center, LLC; D&D Family Enterprises, Inc.; James Swindle; Stacey Swindle, as parents and next best friends of Jacob and Noah Swindle, Minors; Susann Crespino, as parent and next best friend of Michael Crespino, a minor;
Plaintiffs-Appellees,
v.
Arkansas Department of Human Services;
Defendant-Appellant,
Kurt Knickrehm, in his individual capacity and in his official capacity as Director of the Arkansas Department of Human Services;
Defendant,
Ray Hanley, in his individual capacity as Director of the Division of Medical Services of The Arkansas

* * * * * * * * * * * * * * Appeal From the United States * District Court for the * Eastern District of Arkansas. * * * * * * * * * * * * * * *

Department of Human Services;

*

*

Defendant-Appellant,

*

*

Arkansas Foundation for Medical

*

Care;

*

*

Defendant,

*

*

Roy Jeffus, in his official capacity

*

as Interim Director of Arkansas

*

Department of Human Services

*

Division of Medical Services;

*

*

Defendant-Appellant.

*

___________

Submitted: February 15, 2006 Filed: April 17, 2006 ___________

Before SMITH, HEANEY, and BENTON, Circuit Judges. ___________

HEANEY, Circuit Judge.

This case, which involves disputes about the medical services that Arkansas provides to needy children, returns to this court following two prior appeals and remands for further proceedings. In its first appeal, the Arkansas Department of Human Services (ADHS) challenged a district court injunction that forced it to keep its Child Health Management Services (CHMS) program as part of its state Medicaid plan. We held that, pursuant to the Medicaid Act, children had an enforceable right to early and periodic screening, diagnosis, and treatment (EPSDT) services. Pediatric Specialty Care, Inc. v. Ark. Dep’t of Human Servs., 293 F.3d 472, 478-79 (8th Cir.

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2002) (hereinafter Pediatric I). We reversed the injunction, however, to the extent that it required ADHS to continue the CHMS program as part of its state plan. Id. at 480. So long as the state continued to pay for CHMS-type services when prescribed by a doctor, we reasoned, the state fulfilled its obligations under the Medicaid Act. Id. at 480-81. We then remanded for further proceedings.
On remand, the district court considered the plaintiffs’ procedural and substantive due process claims. The district court held that ADHS violated the procedural due process rights of the plaintiffs by attempting to change the CHMS program without first conducting a study about the effect such a change would have on the efficiency, economy, quality of care, and access to care, as required by 42 U.S.C. § 1396a(a)(30)(A). It further held that ADHS had engaged in “conscience shocking” behavior by trying to reduce medical services to needy children based on political and fiscal motivations. On appeal, we affirmed the district court’s ruling on the plaintiffs’ procedural due process claim. Pediatric Specialty Care, Inc. v. Ark. Dep’t of Human Servs., 364 F.3d 925, 929-31 (8th Cir. 2004) (hereinafter Pediatric II). As to the substantive due process claim, however, we held that ADHS’s attempt to move CHMS services “off-plan” for cost savings was not conscience shocking, and thus reversed the district court’s contrary holding. Id. at 932. We again remanded for further proceedings.
On remand, the district court considered, among other things, damages claims against Kurt Knickrehm, Ray Hanley, and Roy Jeffus, all current or past high-level supervisors of ADHS.1 Knickrehm, Hanley, and Jeffus moved for summary judgment, asserting they were entitled to qualified immunity. ADHS contended that it was entitled to absolute immunity under the Eleventh Amendment because it was
1Knickrehm has been director of ADHS since January of 1999; Hanley was director of the Division of Medical Services of ADHS from 1994 through January 6, 2003; Jeffus has been director of the Division of Medical Services from January 6, 2003 to the present.
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an agency of the state of Arkansas. The district court granted the motion as to Knickrehm, but denied it as to Hanley and Jeffus. Although its order expressly disposed of all of the defendants’ other summary judgment claims, it was silent regarding ADHS’s Eleventh Amendment argument.
On appeal, Hanley and Jeffus contend that the district court erred in denying their claim for summary judgment based on qualified immunity. ADHS argues that the district court erred in failing to grant it summary judgment based on Eleventh Amendment immunity. We find no error in the district court’s conclusion that Hanley and Jeffus are not entitled to summary judgment on this basis. On ADHS’s Eleventh Amendment claim, we agree that it must be dismissed from the suit as an agency of the state. Our review of the record, however, indicates that the plaintiffs have sought prospective injunctive relief from ADHS by suing its directors, and ADHS has admitted that its officials can be sued for the purpose of seeking prospective injunctions. Thus, we affirm in part, but direct the district court on remand to dismiss ADHS from the suit.
BACKGROUND
Much of the background of this dispute has been recounted in our prior opinions of Pediatric I and Pediatric II, and will not be fully restated here. The plaintiffs include medical clinics that provide EPSDT services to special needs children in Arkansas and recipients of those services. The services are provided for the purpose of increasing the functional levels of developmentally impaired children. These services have been offered in Arkansas through the CHMS model, which “extends diagnostic and evaluative services, pediatric day treatment, and various therapies to children from six months to six years of age.” Pediatric II, 364 F.3d at 928.
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Over the past several years, ADHS has tried to curtail its payments for CHMS services. In November of 2001, ADHS issued a press release stating that it would restructure the CHMS program, terminating day treatment and therapeutic programs, resulting in a savings of several million dollars. As relevant to this appeal, the plaintiffs have alleged2 that Hanley, Jeffus, and the ADHS employed a system requiring prior authorization for CHMS services solely for budget-related reasons without consideration of the medical necessity of the services.
The prior authorization regime was operated by Arkansas Foundation for Medical Care (AFMC), an independent organization that contracted to provide this service to ADHS. Beginning in July of 2001,3 AFMC was presented with applications for CHMS services, and was tasked with determining whether the requested services were medically necessary based on a review of the child’s medical records. First, a nurse reviewer received a CHMS provider’s request for prior authorization. If the nurse reviewer did not approve the plan, it was sent to a physician reviewer. If the physician reviewer denied the services, the provider could ask for reconsideration, and the plan would be reviewed by a second physician. Nurse reviewers may not override a doctor’s decision to recommend services.
At some point while Hanley was director, he changed the prior authorization process so that the AFMC would review not only whether the service requested was of a medically necessary type, but also inquire as to the medically necessary amount of the service. This essentially led to a wholesale reduction in CHMS services from six hours per day, per child to no more than three and one-half to four hours per day, per child.
2These allegations were made through an amended complaint that was filed after the appeal in Pediatrics II was already pending.
3ADHS entered into two contracts with AFMC, one extending from July 1, 2001 through June 30, 2003, and another from July 1, 2003 through June 30, 2005.
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The plaintiffs presented evidence from their expert, Dr. Sharon Ramey. Dr. Ramey testified that six hours per day of services is most effective for needy children. The district court believed that Dr. Ramey’s testimony, taken in the light most favorable to the plaintiffs, raised an inference that the prior authorization procedure’s reduction in CHMS services was based on considerations other than the medical necessity of the children.
Dr. John Whitaker was a doctor reviewer who worked for AFMC. He testified that AFMC used guidelines that only permitted nurses to approve up to three and onehalf hours of CHMS services for children. He stated that he would not generally approve six hours of CHMS services for a child because, in his view, a child could not be expected to get beneficial results for more than four hours per day of a CHMS program. He further testified that, at the request of nurse supervisor Amy Carson, he had developed what he termed “rote denials” or “canned denials,” which were prescripted denial letters4 that nurses were supposed to use for certain types of claims that were easily disposed of.
According to Dr. Whitaker, it came to his attention in December of 2003 that one of AFMC’s nurse reviewers, Tilerra Coats, was reducing CHMS services far greater than she should have been, and misusing his denial codes. Whitaker began to institute quality control on Coats’s work, randomly checking the entire file in which she would recommend reduced services. On each occasion, Dr. Whitaker subsequently approved the child for more care than Coats had. In some instances, despite Dr. Whitaker’s direction, the ultimate decision was not changed, and the child would receive less care than Dr. Whitaker had authorized. Dr. Whitaker also discovered that Coats was often altering his approvals to provide less service to the
4Dr. Whitaker clarified in his deposition that although they termed these denial letters, they were actually partial approvals of services, but in an amount or to a degree less than requested.
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children. Dr. Whitaker brought this problem to the attention of Carson, Coats’s supervisor, but nothing was done to correct matters. In fact, when Dr. Whitaker audited some of his past charts, he noticed that Carson had actually signed off on charts that Coats had altered. On further inquiry, Carson had written on a number of these files what she believed was the rationale for the files not accurately reflecting the services approved by Dr. Whitaker. Most often her explanation was merely her own opinion stating that she did not believe the services were necessary, or supporting Coats’s opinion to that effect. Neither Coats, Carson, nor any other nurse, however, is permitted to change a physician’s recommendations for CHMS services. Dr. Whitaker also discovered that some of his charts had been altered in a manner that made the children under review appear not to qualify for either the extent or degree of services he approved. When Dr. Whitaker sought an explanation for this, written notes on at least one of his charts indicated that his authorized service was not given because “the directive I5 received from [ADHS] was to only approve 1 unit of 992116 per day.” (Whitaker Dep. at 77.)
Dr. Whitaker was also informed that Coats was re-reviewing other nurses’ work, and would often change the recommendations to approve fewer services for the children. In these instances, Coats would typically erase the prior nurse’s review so that it looked like hers was the only review. Dr. Whitaker was not aware of any instance in which a nurse reviewer, either intentionally or mistakenly, increased the amount of services approved over what a physician had recommended. Dr. Whitaker eventually reported this wrongdoing to Dr. Susan Keathley, who brought it to the attention of Dr. Moody, the medical director for AFMC.
5It is unclear from the deposition if the “I” in this sentence is Coats or Carson.
699211 is a procedure code used for CHMS services. It refers to an office visit of an established patient for some reason. One unit is five minutes. In this instance, Dr. Whitaker had approved 40 units per month for a child’s catheterization needs, but that had been reduced by a nurse to 20 units per month.
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Brenda Gassaway is a registered nurse who was formerly employed as a nurse reviewer by AFMC. She began working for AFMC on April 10, 2000, and was fired on July 19, 2004. Gassaway stated that she knew about the problem of Coats changing doctors’ files as early as January of 2002. Gassaway had been passing on this information to her supervisor, Carson, for a year and a half. Carson told Gassaway that they would have to handle matters carefully because Coats and Kenya Harbin, director of the review department, were close friends.
In early July of 2004, Gassaway was called into a meeting with Harbin and Susie Moore, the director of human resources. The meeting concerned Dr. Whitaker’s claims of nurse wrongdoing. According to Gassaway, Dr. Moody sent the matter back to Harbin for investigation, and she then interviewed each of the nurse reviewers to determine who had helped Whitaker discover the altered files. Gassaway denied involvement, but told Harbin that she knew Coats was altering doctors’ decisions. Harbin responded that they had reviewed the matter and found those allegations unsubstantiated. At that point, Gassaway concluded that the sole purpose of the meeting was to determine if Dr. Whitaker had acted inappropriately in auditing Coats’s work and if anyone had helped him. Eventually, Harbin accused Gassaway of copying charts for Dr. Whitaker, which Gassaway continued to deny. As the meeting concluded, Gassaway again told Harbin to correct AFMC’s wrongdoings. Harbin’s response was to tell Gassaway not to discuss the meeting with anyone else.7 Gassaway was fired a week later for insubordination and failure to follow the chain of command.
7Similarly, Brenda Gassaway testified in her deposition that she told Michael Rainwater, attorney for AFMC, about AFMC’s canned-denial procedure, and he instructed her “don’t bring it up” at her deposition. (Gassaway Dep. at 18.) Breck Hopkins, attorney for ADHS, was also present.
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When asked at his deposition about how AFMC interacts with CHMS providers, Dr. Moody stated that AFMC regularly puts out memos to assist CHMS providers in knowing what kind of documentation is required. Gassaway disagreed:
No, that was not the truth. The truth is no matter what [CHMS providers] ask for you don’t give it to them ever until they beg for it, and then you show up with someone who doesn’t know so that you can say, “The person you need is not here.” That’s the truth.
(Gassaway Dep. at 22.)
Gassaway believed that Coats was not only changing doctors’ charts, but also altering other nurses’ work to reduce approved services. When asked what might motivate Coats to alter doctors’ and nurses’ files, Gassaway stated, “[b]ecause she’s crazy.” (Id. at 27.) She elaborated that Coats had stated that she did not think that any child deserved any services whatsoever, and that the CHMS program was just expensive daycare. When asked again what incentive Coats had to illegally reduce the services, Gassaway speculated that it was because of the cost savings attributable to AFMC’s reviews. Gassaway stated that both Carson (her direct supervisor) and Harbin (an AFMC vice president) had stated that AFMC’s cost-savings reports, which were reports generated and published to ADHS about the amount of money AFMC had saved ADHS through the review process, justified ADHS renewing AFMC’s contract. Gassaway termed this as the general sentiment at AFMC, which every employee is aware of. As she stated, “I worked there for four years and I saw the patterns of how the programs are worked and it just seems that the goal is always to cut services and to make [CHMS] centers jump through hoops to get the kids approved so that they’ll just quit.” (Id. at 36.) She also testified that she received written and oral directives from Carson, which Carson had in turn received from Shirley Wilson, a former director of ADHS, that they should generally deny certain requests for services, such as those requested for children with only a single disability.
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Based in large part upon the deposition testimony of Gassaway and Dr. Whitaker, the district court determined that individual defendants Hanley and Jeffus were not entitled to qualified immunity. The court noted that the plaintiffs sought damages for the violation of clearly established rights to Medicaid services. As to whether the evidence supported the inference that such a violation occurred, the court stated
Plaintiffs alleged and have offered sufficient evidence that a second layer of the prior authorization process was implemented by the individual capacity defendants resulting in an across-the-board reduction in the scope and duration of day treatment recommended by the CHMS providers. Consequently, all medicaid eligible children were allegedly denied their full array of recommended treatment. Plaintiffs contend that this reduction has violated the equal access provision of the Medicaid Act as well as entitlement to day treatment in accordance with [42 U.S.C.] § 1396d(a)(13). There is sufficient evidence in the record [to] raise a reasonable inference that the conduct of Defendants reduced the quality of care available to low income children as compared to other children in the general population. Moreover, there is sufficient evidence that costs for the additional hours of care may be borne by the CHMS providers to such an extent that it jeopardizes the future availability of their services. Finally, according to Ms. Gassaway, elimination of such services is the goal of the prior authorization practices engaged in by AFMC with the encouragement and tacit approval of Defendants.
(Dist. Ct. Order of Feb. 7, 2005 at 34-35.)
The court did not specifically rule on the issue of whether ADHS, as an agency of the state, was entitled to summary judgment on the basis of Eleventh Amendment immunity. This interlocutory appeal by Hanley, Jeffus, and ADHS followed.
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ANALYSIS
I. QUALIFIED IMMUNITY OF HANLEY AND JEFFUS.
“Ordinarily, a party cannot appeal from a denial of summary judgment.” Pool v. Sebastian County, Arkansas, 418 F.3d 934, 937 (8th Cir. 2005). There is an exception to this rule for government officials whose motion for summary judgment based on qualified immunity is denied. Id. Under this exception, we may immediately review the issue of whether the defendants engaged in conduct that violated the plaintiffs’ clearly established rights. Id.; see also Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982) (holding that “government officials performing discretionary functions generally are shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known”).
We must first consider whether the Medicaid Act confers any federally enforceable rights upon the plaintiffs. This question has been largely answered by our prior opinions in this case. The claims for damages made by the plaintiffs here relate only to two subsections of the Medicaid Act: 42 U.S.C. § 1396d(a)(13) (Count Four of the Complaint), and 42 U.S.C. § 1396a(a)(30)(A) (Count Three of the Complaint). In Pediatrics I and Pediatrics II, respectively, we specifically held that each of these subsections created enforceable federal rights. Pediatrics I, 293 F.3d at 480-81 (holding that § 1396d(a)(13) created enforceable rights for recipient beneficiaries, which CHMS providers could assert on behalf of the beneficiaries); Pediatrics II, 364 F.3d at 930 (“Over ten years ago, our court held that § 1396a(a)(30)(A) created enforceable rights for Medicaid recipients and providers. We find it entirely appropriate for the Plaintiffs to base their procedural due process claim on their clearly established rights to have equal access to quality medical care as defined by § 1396a(a)(30)(A).” (Citation omitted)). Thus, the argument that there
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is no federally enforceable rights here is at odds with both the law of the case doctrine and the principle of stare decisis.8
“The law of the case doctrine prevents the relitigation of a settled issue in a case and requires courts to adhere to decisions made in earlier proceedings,” except where the result would be manifestly unjust. Kan. Pub. Employees Ret. Sys. v. Blackwell, Sanders, Matheny, Weary & Lombardi, L.C., 114 F.3d 679, 687 (8th Cir. 1997). Stated another way, when our court considers a case on appeal, every issue disposed of on appeal has thus been finally decided. Klein v. Arkoma Prod. Co., 73 F.3d 779, 784 (8th Cir. 1996). The doctrine is intended to “‘insure uniformity of decisions, protect the expectations of the parties and promote judicial economy.’” In re Just Brakes Corp. Sys., Inc., 293 F.3d 1069, 1072 (8th Cir. 2002) (quoting Klein, 73 F.3d at 784). The doctrine does not apply, however, where an intervening decision of a higher tribunal clearly demonstrates that the prior decision is wrong. Madison v. IBP, Inc., 330 F.3d 1051, 1059 (8th Cir. 2003).
42 U.S.C. § 1396d(a)(13) entitles Medicaid eligible children to
diagnostic, screening, preventive, and rehabilitative services, including any medical or remedial services (provided in a facility, a home, or other setting) recommended by a physician or other licensed practitioner of the healing arts within the scope of their practice under State law, for the maximum reduction of physical or mental disability and restoration of an individual to the best possible functional level.
8Under the doctrine of stare decisis, one panel may not overrule an earlier decision of the court. United States v. Mosby, 101 F.3d 1278, 1279 n.3 (8th Cir. 1996). Because the analysis of the stare decisis issue on this matter is rendered unnecessary by operation of the law of the case doctrine, we have not separately addressed it. See id.
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In Pediatrics I, we affirmed the district court’s holding that this subsection of the Medicaid Act created an enforceable federal right to early intervention day treatment when recommended by a physician. Pediatrics I, 293 F.3d at 477-78. No petition for rehearing was filed by the ADHS. Cf. Klein, 73 F.3d at 784 n.7 (“Generally, parties must bring any perceived errors in a panel opinion to the court’s attention through a petition for rehearing.”)
Similarly, 42 U.S.C. § 1396a(a)(30)(A), commonly referred to as the “equal access provision” of the Medicaid Act, requires state Medicaid plans to employ methods and procedures related to use and payment of care and services as necessary to ensure that the state’s payments are “consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.” Relying in part on our earlier opinion in Arkansas Medical Society, Inc. v. Reynolds, 6 F.3d 519 (8th Cir. 1993), we held that this part of the Medicaid Act created a clearly established federal right to equal access to quality medical care. Pediatrics II, 364 F.3d at 930. ADHS petitioned for rehearing en banc from this decision, but nowhere in the petition did ADHS suggest that it was error to find that the equal access provision created an enforceable federal right.
Given our clear prior panel holdings, the question of whether §§ 1396d(a)(13) and 1396a(a)(30)(a) confer enforceable federal rights upon the plaintiffs appears settled in the affirmative. Although ADHS suggests that Pediatrics I did not finally answer whether CHMS providers had an enforceable right under § 1396d(a)(13), we explicitly stated that the providers have “standing to assert the rights of their CHMS patients.” 293 F.3d at 478. Thus, there is little merit to that argument.
ADHS invites us to overturn our prior decisions based on the view that they are inconsistent with the Supreme Court’s decision in Gonzaga University v. Doe, 536
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U.S. 273 (2002). According to ADHS, Gonzaga clarified that an enforceable right is only created where the statute explicitly states as much, and is only enforceable by the person or entity that the statute states is the beneficiary.
At the outset, we note that Gonzaga was issued on June 20, 2002. Our decision in Pediatrics I was filed ten days earlier, but the mandate did not issue until July 1, 2002, with no petition for rehearing before that time. See Fed. R. App. P. 40(a) (granting a party fourteen days from the entry of judgment to file a petition for rehearing). Likewise, our decision in Pediatrics II was not issued until April 16, 2004. Thus, Gonzaga is not an intervening decision of a superior tribunal, as is required before we may overturn matters previously settled as the law of the case. Madison, 330 F.3d at 1059.
Perhaps more importantly, we do not read Gonzaga to require a different result than we reached in our earlier decisions. In Gonzaga, the question presented was whether a student could bring a damages claim pursuant to 42 U.S.C. § 1983 for a University’s violation of the Family Educational Rights and Privacy Act of 1974 (FERPA). 536 U.S. at 276. FERPA was enacted pursuant to Congress’s spending power, and directed the Secretary of Education to withhold funds from institutions that released students’ private information without their consent. Id. at 278. A student at Gonzaga’s school of education sued the school under FERPA when he found out that the school’s teacher certification specialist disclosed allegations of sexual misconduct to Washington’s teacher certification agency without his permission. Id. at 277.
Writing for the majority, Chief Justice Rehnquist first recognized that there was some circuit and district court discord and confusion about what type of statutory rights were enforceable by a § 1983 damages action. Id. at 278. The Court noted that the starting point must be an inquiry into whether Congress intended to create a federal right. Id. To determine this, one must consider the benefit conferred by the
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statute, the intended beneficiary, and whether the statute provides for some type of enforcement action short of a private cause of action. Id. at 285-90. The Court stated that the creation of such rights must be done “in clear and unambiguous terms.” Id. at 290. The Court ultimately held that FERPA provisions failed to create privately enforceable rights, since it had no explicit “rights-creating language,” spoke in terms of aggregate as opposed to individual privacy protections, and directed the Secretary of Education to enforce it. Id.
ADHS would have us read Gonzaga in a manner that forecloses private causes of action based on the Medicaid Act. However, an earlier case, Wilder v. Virginia Hospital Association, 496 U.S. 498 (1990), has already considered whether (nowrepealed) provisions of the Medicaid Act, which required the state to reimburse hospitals for costs of certain services, conferred a § 1983 right of action on behalf of health care providers. The Court first held that “[t]here can be little doubt that health care providers are the intended beneficiaries” of the provision, since it was about payment of services provided by them. Id. at 510. The Court then concluded that the mandatory language of the provision–requiring some level of payment for the health care providers’ services even though the ultimate amount was left mostly to the state’s discretion–created an enforceable right to payment under § 1983. Id. at 51213. Although Gonzaga takes a more restrictive view of rights-creating statutes, it did not overrule Wilder. Thus, the proposition that the Medicaid Act may create enforceable rights, even for health care providers, is far from novel.
Secondly, the plaintiffs still prevail within the terms of the Gonzaga analytical framework. As to § 1396d(a)(13), the statute calls for state payment of part or all of the costs of diagnostic, screening, preventive, and rehabilitative services when recommended by a doctor “for the maximum reduction of physical or mental disability and restoration of an individual to the best possible functional level.” The intended beneficiaries of this subsection are, obviously, the needy child, and by corollary, those who incur costs in providing those services. Moreover, this portion
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of the statute does not speak in terms of amorphous concepts; it requires therapeutic services for “an individual.” Id. We acknowledge that the federal government is charged with responsibility for supervising a state’s participation in the Medicaid program, a factor that Gonzaga holds indicative of no private right being created. This, however, cannot overcome the fact that the statute itself indicates positively both the scope of the provision and who is the intended beneficiary. Thus, a private cause of action lies for enforcement of § 1396d(a)(13).
Similarly, 42 U.S.C. § 1396a(a)(30)(A), is intended to benefit both CHMS recipients and providers, and creates enforceable rights for both groups. That subsection requires states to provide methods and procedures for payment of care and services in a manner that ensures equal access to quality care for needy children. Id. The beneficiaries are both the recipients of the services and the recipients of the state’s payment, who are the CHMS providers. The statute is clear on its scope: to ensure payments are not too high, but yet high enough to secure the participation of enough clinics so that needy children receive equal access to quality health care.
In sum, as our prior cases have held, the rights conferred by §§ 1396d(a)(13) and 1396a(a)(30)(A) are clearly established federal rights. Moreover, even accepting ADHS’s invitation to reconsider prior established precedent, we find no error in the district court’s holding that these provisions of the Medicaid Act are enforceable by both CHMS recipients and providers through a § 1983 private cause of action.
We must now consider whether the evidence, viewed in the light most favorable to the plaintiffs, Plemmons v. Roberts, 439 F.3d 818, 822 (8th Cir. 2006), supports the view that Hanley and Jeffus violated the plaintiffs’ Medicaid Act rights. The district court found that, taking all evidence and inferences in the plaintiffs’ favor, they could show that Jeffus and Hanley manipulated the prior authorization system in a way that denied children essential medical services solely because they
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wanted to cut costs. After carefully reviewing the record, we agree with the district court.
The evidence presented to the district court is recounted fully above, and will be merely summarized here. There is certainly evidence that documented AFMC’s wrongdoing: Dr. Whitaker testified about how his approvals had been altered by a nurse, and Brenda Gassaway, a nurse, testified consistently with that. When brought to the attention of supervisors, nothing was done to correct this misconduct. To the contrary, Gassaway herself was fired.
The more difficult question is whether ADHS’s directors can be tied to this wrongdoing. Although disputed and certainly not proven, the inference of wrongdoing is supported by the plaintiffs’ evidence. Deposition testimony indicated that AFMC’s primary concern was to save ADHS money, and Gassaway stated that her superiors told her that this was the reason they were able to maintain the contract with ADHS. In other words, AFMC won and kept the contract as ADHS’s prior authorization agent because it would deny or reduce a significant number of claims when compared to the services paid prior to AFMC’s arrival. There was also testimony that ADHS worked overtly to ensure that claims were denied by sending directives to AFMC about the extent of services that AFMC could approve. As recognized by the district court, Hanley and Jeffus “implemented a policy [of prior authorization] that reduced the scope and duration of day treatment for beneficiaries of the Medicaid Act.” (Dist. Ct. Order of Feb. 7, 2005 at 38.) Taking the evidence in the plaintiffs’ favor, one could infer that their primary motivation was to save money, although the statutes require them to act in the best interest of the needy children. That is a violation of the rights clearly established under the §§ 1396d(a)(13) and 396a(a)(30)(A) and our prior caselaw, and thus neither defendant is entitled to summary judgment on the issue of qualified immunity. The district court properly so held.
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II. STATE IMMUNITY FROM SUIT
ADHS argues that it must be dismissed from this suit because it is an agency of the state, and thus enjoys Eleventh Amendment immunity from suits by private individuals.9 The Eleventh Amendment protects states and state agencies from suit by private citizens. Doe v. Nebraska, 345 F.3d 593, 597 (8th Cir. 2003). According to the doctrine of Ex Parte Young, 209 U.S. 123 (1908), however, state officials may still be sued for prospective injunctive relief without violating the Eleventh Amendment. Heartland Acad. Cmty. Church v. Waddle, 427 F.3d 525, 530 (8th Cir. 2005).
In this case, ADHS has asserted Eleventh Amendment immunity as a branch of the state. ADHS therefore claims that the district court erred in allowing damages claims to go forward against it. The plaintiffs responded by stating that they were not suing ADHS for damages, only for prospective injunctive relief. ADHS argues that it is nonetheless entitled to immunity because only state officials, as opposed to state agencies, can be sued for prospective injunctive relief. While that is true, Allen, 5 F.3d at 1153 (affirming dismissal of a state agency on Eleventh Amendment grounds), the plaintiffs sued not only ADHS, but also Knickrehm and Jeffus in their official capacities as director of ADHS and director of the Division of Medical Services for ADHS, respectively. To the extent the plaintiffs’ claims are against ADHS, they must be dismissed, but claims against the directors in their official capacity are not barred by the Eleventh Amendment.
9The district court’s order contains no ruling on this issue, raising a question of whether it is properly presented to us. That said, we review Eleventh Amendment issues de novo, Allen v. Purkett, 5 F.3d 1151, 1153 (8th Cir. 1993) (per curiam), and neither party has raised a factual dispute related to this issue. Particularly given the lengthy history of this case, which has yet to be tried on its merits, we see no use in returning this matter to the district court for a decision that we would again review with no deference.
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CONCLUSION The current and former directors of the Arkansas Department of Human Services appeal the denial of qualified immunity on the plaintiffs’ claims relating to their clearly established rights under the Medicaid Act. Because the evidence supports an inference that they violated the plaintiffs’ clearly established rights to provide and receive medically necessary health care, we affirm the denial of summary judgment on that basis. We agree that claims against ADHS, as an agency, must be dismissed on Eleventh Amendment grounds. Because the plaintiffs have also asserted claims seeking prospective injunctive relief against state officials, such claims are not barred by the Eleventh Amendment. Accordingly, we affirm in part, and remand with directions to dismiss ADHS from the suit.
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