Opinion ID: 2226377
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Heading: Background of Medicaid and the Boren Amendment.

Text: Medicaid is 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. See 42 U.S.C. § 1396 (1994); Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455, 462 (1990). Although participation in the program is voluntary, participating states must comply with certain requirements imposed by the Act and regulations promulgated by the Secretary of the United States Department of Health and Human Services (Secretary). Wilder, 496 U.S. at 502, 110 S.Ct. at 2513, 110 L.Ed.2d at 462. To qualify for federal assistance, a state must formulate a plan and submit it to HCFA for approval. Id. ; Kansas Health Care Ass'n v. Kansas Dep't of Soc. & Rehabilitation Servs., 31 F.3d 1536, 1538 (10th Cir.1994). Among other things, the state plan is required to establish a scheme for reimbursing health care providers for the medical services provided to needy individuals. Wilder, 496 U.S. at 502, 110 S.Ct. at 2513, 110 L.Ed.2d at 462. After the plan is approved, the federal government then reimburses the state for a percentage of the program's expenses, including administrative costs and other program-related expenses. Connecticut Hosp. Ass'n v. Weicker, 46 F.3d 211, 213 (2d Cir. 1995). Until 1980, states reimbursed providers for the reasonable cost of services actually provided to Medicaid patients. Wilder, 496 U.S. at 505, 110 S.Ct. at 2515, 110 L.Ed.2d at 464; Weicker, 46 F.3d at 213. In other words, providers were paid for their actual costs incurred, regardless of disparities in costs or efficiencies among providers. New Jersey Hosp. Ass'n v. Waldman, 73 F.3d 509, 511 (3d Cir.1995). This retrospective process of payment proved over time to be inherently inflational and contained no incentives for efficient performance. Weicker, 46 F.3d at 213. In 1980, Congress enacted the Boren Amendment to the Social Security Act, which changed the standard for reimbursement of nursing and intermediate care facilities. See 42 U.S.C. § 1396a(a)(13)(A); Wilder, 496 U.S. at 502 n. 2, 110 S.Ct. at 2513 n. 2, 110 L.Ed.2d at 462 n. 2. Since its passage, the Amendment has also been made applicable to hospitals and intermediate care facilities for the mentally retarded. Wilder, 496 U.S. at 502 n. 2, 110 S.Ct. at 2513 n. 2, 110 L.Ed.2d at 462-63 n. 2. The Boren Amendment provides: A state plan for medical assistance must. . . provide for payment . . . of the hospital services, nursing facility services, and services in an intermediate care facility for the mentally retarded provided under the plan through the use of rates (determined in accordance with methods and standards developed by the State . . .) which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and Federal laws, regulations, and quality and safety standards and to assure that individuals eligible for medical assistance have reasonable access . . . to inpatient hospital services of adequate quality. 42 U.S.C. § 1396a(a)(13)(A). HCFA has issued regulations to implement this Amendment. See 42 C.F.R. §§ 447.250-.280 (1995). While Congress affirmed its desire that state rates be reasonable, it afforded states greater flexibility in developing Medicaid reimbursement methodologies. Wilder, 496 U.S. at 506, 110 S.Ct. at 2516, 110 L.Ed.2d at 465. In other words, in passing the Boren Amendment, Congress sought to decentralize the method for determining rates, but not to eliminate a state's fundamental obligation to pay reasonable rates. Wilder, 496 U.S. at 515, 110 S.Ct. at 2520, 110 L.Ed.2d at 470-71. Under the Amendment, states now have significant discretion to establish statewide or classwide rates, rates based on a prospective cost, or incentive provisions to encourage efficiency. Id. at 506-07, 110 S.Ct. at 2516, 110 L.Ed.2d at 465. Flexibility is ensured by limiting federal oversight. Id. Currently, a state's Medicaid plan must provide reimbursement to providers at rates which the state finds are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities. . . . 42 U.S.C. § 1396a(a)(13)(A); see Wilder, 496 U.S. at 507, 110 S.Ct. at 2516, 110 L.Ed.2d at 465. In order to receive HCFA's approval and qualify for federal financial support, a state must submit a state plan or a change in payment methods or standards to HCFA. Waldman, 73 F.3d at 512. Compliance with the Boren Amendment involves both procedural and substantive components, and each creates rights enforceable by 42 U.S.C. § 1983. Kansas Health Care, 31 F.3d at 1539; see Wilder, 496 U.S. at 509-10, 110 S.Ct. at 2517, 110 L.Ed.2d at 467. Under the procedural component, the state must (1) make findings and (2) give assurances to HCFA that its program comports with federal requirements. Wilder, 496 U.S. at 507, 110 S.Ct. at 2516, 110 L.Ed.2d at 465; Waldman, 73 F.3d at 512. A state is required to make a finding, at least annually, that its rates are reasonable and adequate. See 42 C.F.R. § 447.253(b); Wilder, 496 U.S. at 507, 110 S.Ct. at 2516, 110 L.Ed.2d at 466. However, a state is only required to submit assurances to HCFA when it makes a change in its reimbursement rate. See 42 C.F.R. § 447.253(a); Wilder, 496 U.S. at 507, 110 S.Ct. at 2516, 110 L.Ed.2d at 466. With the findings requirement, a state must, at a minimum, make findings which identify and determine (1) efficiently and economically operated [facilities]; (2) the costs that must be incurred by such [facilities]; and (3) payment rates which are reasonable and adequate to meet the reasonable costs of the state's efficiently and economically operated [facilities]. Kansas Health Care, 31 F.3d at 1539 (quoting AMISUB (PSL), Inc. v. Colorado Dep't of Soc. Servs., 879 F.2d 789, 796 (10th Cir. 1989)); see Weicker, 46 F.3d at 217; Folden v. Washington State Dep't of Soc. & Health Servs., 981 F.2d 1054, 1057 (9th Cir.1992). While a state is free to create its own method for arriving at the required findings, the requirement is not a mere formality. See Wilder, 496 U.S. at 514, 110 S.Ct. at 2520, 110 L.Ed.2d at 470; Kansas Health Care, 31 F.3d at 1539. When assurances are submitted to HCFA, they are reviewed to determine their reasonableness. Wilder, 496 U.S. at 507, 110 S.Ct. at 2516, 110 L.Ed.2d at 466. The findings are not reviewed by HCFA. Id. The Boren Amendment also contains a substantive component, which requires a state to find that its rates are reasonable and adequate to meet the costs of an efficiently and economically operated facility. See id. at 510, 110 S.Ct. at 2517, 110 L.Ed.2d at 467. To satisfy this component, a state's Medicaid payments must fall within a zone or range of reasonableness. Kansas Health Care, 31 F.3d at 1536; Folden, 981 F.2d at 1058. In fact, HCFA has declined to prescribe a precise number for the term reasonable and adequate. It stated that the term is a rate which falls within a range of what could be considered reasonable and adequate. 48 Fed.Reg. 56,049 (1983); see also Waldman, 73 F.3d at 515; Folden, 981 F.2d at 1058. Thus, a state must merely show a rational basis for its Medicaid program, which requires a rational connection between the facts found and the choices made. Waldman, 73 F.3d at 515; Kansas Health Care, 31 F.3d at 1540.