Opinion ID: 744060
Heading Depth: 2
Heading Rank: 2

Heading: New York's Plan for Medical Assistance

Text: 8 This case arises from New York's attempt to amend its state plan for medical assistance to change the method of reimbursing medical providers for their wage costs. On January 1, 1986, New York adopted the Resource Utilization Group-II (RUG-II) Medicaid reimbursement system for nursing facilities. Under RUG-II, reimbursement rates were set prospectively based on the degree of care required by patients. The facilities were classified in peer groups and the reimbursement rate was calculated based on the historical costs, adjusted for inflation, incurred by the peer group. 9 The RUG-II system adjusted for the variation in wage costs across New York by incorporating a Regional Input Price Adjustment Factor (RIPAF). The initial RIPAF methodology included in the RUG-II system based the reimbursement for wage costs on the average wage rate of the region of New York where the facility was located. See Pinnacle, 928 F.2d at 1310. Facilities with wage costs below the average wage rate received payments exceeding the actual cost they incurred for wages, whereas facilities with higher than average wage costs received payments below the actual cost they incurred for wages. 10 Publicly owned facilities complained that they were hurt by the RIPAF methodology because labor costs at public facilities were generally above the average rate as a result of various factors, including a unionized workforce and pension contributions mandated by state law. After public notice and comment, New York modified the RIPAF methodology, effective January 1, 1987, to accommodate the concerns of the higher wage facilities. See 10 N.Y.C.R.R. § 86-2.10; Regional Input Price Adjustment Factors, N.Y. St. Reg. 16 (Oct. 22, 1996). Under this modified RIPAF methodology, a range or corridor of wage costs was established for each region. If a facility in the region paid more or less than the average wage for the region, its reimbursement rate would be adjusted accordingly within the upper and lower limits of the corridor. For clarity, we refer to this modified RIPAF methodology adopted by New York in 1987 as the corridor adjustment. 11 To amend New York's plan for medical assistance to reflect the corridor adjustment, New York, on March 31, 1987, submitted Medicaid State Plan Amendment (SPA) 87-7 to the Health Care Financing Administration (HCFA), the federal agency charged by the Secretary with reviewing state plans for medical assistance, see 42 C.F.R. § 430.10. New York requested an effective date of January 1, 1987 for SPA 87-7. On February 21, 1989, HCFA approved SPA 87-7 with an effective date of January 1, 1987. Pinnacle, 928 F.2d at 1311. 12 In June 1989, a group of nursing homes adversely affected by the corridor adjustment filed suit in federal court against New York and the Secretary alleging that the corridor adjustment violated the procedural and substantive requirements of the Medicaid Act and the equal protection guarantees of the state and federal constitutions. Id. On August 15, 1989, the district court issued a preliminary injunction barring the application of the corridor adjustment, and partially granted the nursing homes' motion for summary judgment on the ground that the corridor adjustment was enacted without complying with federally-mandated procedures because the state's findings and assurances were inadequate. Id. On October 5, 1990, the district court entered final judgment on all claims. The court reaffirmed its order enjoining New York from implementing the corridor adjustment because of the inadequacy of the findings submitted to HCFA, dismissed the nursing homes' substantive challenges to the corridor adjustment, and declined to address the nursing homes' constitutional challenges. Id. at 1312. 13 The nursing homes appealed the district court's decision to dismiss their substantive challenges and leave their constitutional claims unresolved, and the state appealed the district court's decision to enjoin the corridor adjustment. On March 25, 1991, this court held in Pinnacle that the corridor adjustment was enacted without complying with the procedural requirements of the [Medicaid Act] based on the inadequate findings and assurances submitted to HCFA by New York. Id. at 1318. We vacated the district court's dismissal of the nursing homes' substantive and constitutional claims because if the state were to remedy the procedural defects in the enactment of the corridor adjustment, the nursing homes would be forced to initiate an entirely new action. Id. at 1317-18. 14 While the appeal was pending in Pinnacle, New York pursued administrative action through two separate avenues in an attempt to reimplement the corridor adjustment by curing the deficiencies found in Pinnacle.
15 New York attempted to gain reapproval from HCFA for SPA 87-7, with an effective date of January 1, 1987, by submitting additional assurances and findings. New York argued that the Pinnacle decision permitted the state to seek federal approval of SPA 87-7 if the state cured the procedural defects identified in the Pinnacle litigation. On January 28, 1992, HCFA took the position that the Pinnacle decision did not permit the state to seek reapproval of SPA 87-7. On February 10, 1992, the Administrator of HCFA confirmed that HCFA believed that Pinnacle precluded the approval of SPA 87-7. On June 23, 1992, HCFA rejected New York's request for reconsideration of HCFA's position that the state could not submit supplemental assurances and findings to cure the defects in SPA 87-7. On August 20, 1992, New York filed a petition in this court for review of HCFA's rejection of New York's submissions with respect to SPA 87-7. The parties agreed to place the petition on the inactive docket pending the decision of HCFA on SPA 90-11.
16 On March 30, 1990, the state submitted a new amendment, labeled SPA 90-11, reflecting the original corridor adjustment and supported by additional assurances. New York requested an effective date for the SPA of January 1, 1987 or January 1, 1990. On May 22, 1990, HCFA informed New York that its review of SPA 90-11 was complete and requested, among other things, the deletion of the January 1, 1987 proposed effective date since 42 CFR 447.256(c) of the Federal regulations specifies that the effective date of an amendment may not be earlier than the first day of the quarter during which it is submitted. HCFA stated that a January 1, 1990 effective date may be retained as it satisfies the Federal regulation. 17 On January 28, 1992, HCFA informed New York that the public notice provided for SPA 87-7 in 1986 could not satisfy the public notice required for SPA 90-11. HCFA concluded that implementation of the corridor adjustment through SPA 90-11 required a new public notice and rejected New York's reliance on a notice published in 1986. Thus, on May 26, 1993, HCFA approved the corridor adjustment contained in SPA 90-11, but rejected the effective dates proposed by New York. Instead, HCFA approved SPA 90-11 effective April 2, 1992, the day following the publication of a new public notice by New York. Upon reconsideration, the agency hearing officer recommended upholding the decision of HCFA. On November 28, 1995, the Administrator of HCFA, acting for the Secretary, affirmed the hearing officer's recommendation that HCFA disapprove the proposed 1987 and 1990 effective dates for SPA 90-11. 18 This appeal followed and was consolidated with New York's earlier appeal of the Secretary's refusal to reapprove SPA 87-7.