Opinion ID: 503529
Heading Depth: 1
Heading Rank: 3

Heading: Federal Statutory Requirements

Text: A. Congressional Intent 24 Our first inquiry is whether the payment to the appellants after DSS suspended one component, the incentive allowance, resulted in noncompliance with the federal statute and regulations. This issue is ultimately determinative of all the appellants' claims. This is our first occasion to determine whether a change in one component of compensation to providers causes a violation of the Medicaid statute. 25 Title XIX of the Social Security Act, as amended, provides: 26 A state plan for medical assistance must ... provide ... for payment of the skilled nursing facility services 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 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; and such State makes further assurances, satisfactory to the Secretary, for the filing of uniform cost reports by each skilled nursing or intermediate care facility and periodic audits by the State of such reports. 27 42 U.S.C. Sec. 1396a(a)(13)(A); P.L. 96-499, Sec. 962(a) (1980); P.L. 97-35, Sec. 2173(a)(1)(B)(C) (1981). The Boren Amendment provisions are underlined. HHS subsequently promulgated regulations implementing the new federal statutory standard. See 42 C.F.R. Sec. 447.250 to .280. 28 The Boren Amendment of the Omnibus Reconciliation Act of 1980 (OBRA), incorporated into the statute quoted above, had two purposes: first, that the states set their own reimbursement rates without stifling and expensive federal oversight of the methodology used; and, second, that Medicaid expenses be reduced by allowing the states to develop payment systems which would encourage efficiency. Nebraska Health Care Association v. Dunning, 575 F.Supp. 176, 178 (D.Neb.1983). The Congress moved away from payments determined by the reasonable cost-related basis, also called the medicare standard, to rates which would be determined in accordance with methods and standards to be developed by the states. 6 The statute mandated a significant change in the basis for payment as well as the procedures to be followed by the state and federal agencies. The states would no longer be required to follow complex procedures of review and approval by the Secretary of HSS. See Mississippi Hospital, 701 F.2d at 515 (states to freely experiment with methods and standards which would be simpler and less expensive than complex Medicare reasonable cost formula). 29 The judicial interpretation of congressional intent regarding the Boren and OBRA amendments has generally focused on the two purposes of the legislation outlined above. Probing beyond this bottom line to the underlying rate setting methodology is not required under the new standard. Coalition of Michigan Nursing Homes, Inc. v. Dempsey, 537 F.Supp. 451, 459 (E.D.Mich.1982); accord Mississippi Hospital, 701 F.2d at 521; Nebraska Health Care, 575 F.Supp. at 178; Illinois Hospital Association v. Illinois Department of Public Aid, 576 F.Supp. 360, 369 (N.D.Ill.1983); Children's Hospital of Philadelphia v. Secretary of Department of Public Welfare, 568 F.Supp. 1001, 1007 (E.D.Pa.1983). In contrast to earlier provisions in the law that required the States to adopt inflationary and complex methods of reimbursement, [the Boren Amendment] permits and encourages States to develop simpler, more efficient ways of paying for nursing home care, including budget-based and negotiated rates. Nebraska Health Care, 575 F.Supp. at 178 (citing 126 Cong.Rec. S8927 (daily ed. June 30, 1980) (statement of Senator Boren)); Alabama Hospital Association v. Beasley, 702 F.2d 955, 958 (11th Cir.1983); see also Illinois Hospital, 576 F.Supp. at 368 n. 11 (OBRA standard also applies to hospitals providing services to Medicaid recipients). 30 The State submitted its overall Medicaid plan to the Secretary, received approval, and thereafter was bound to follow the regulations which prescribe how a state operates its plan. When a state wishes to make a significant change in its methods and standards for determining the reimbursement rate, it must submit assurances and related information to HHS. 42 C.F.R. Sec. 447.253 and .255. The related information includes the amount of the average proposed payment rate for each type of provider and the amount that payment will be increased or decreased, the estimated effects, short-term and long-term of rate changes on availability of services, type of care furnished and extent of provider participation. Id. at (a), (b). 31 If HSS does not notify the state within 60 days that its assurances regarding a proposed payment rate are unacceptable, then the assurances will be deemed accepted. 42 C.F.R. Sec. 256(b). Where the state's proposed rate has been accepted or deemed accepted by HHS, the rate will be effective on the date specified in the agency's assurances. However, the effectiveness date cannot begin before the first day of the calendar quarter in which the agency submits the assurances and related information. Id. at (c). B. Appellees' Amendment of Payment Plan 32 At issue is whether the State complied with the procedures for amending and whether the result of the amending procedures kept the State's overall reimbursement within the requirements of a reasonable and adequate payment which promotes efficiency and economy in the providers' operations. The district court found that DSS had submitted the first and third rules suspending the incentive payment as amendments, with assurances, to the Secretary who accepted and approved these changes. 33 The Secretary's approval was not required before the State's agency, DSS, could implement the change. See 42 C.F.R. Sec. 256; Illinois Council, 579 F.Supp. at 1145. This expedited approach implements the congressional intent that the Secretary and HHS will not overburden the states and facilities with unnecessary and burdensome paperwork requirements. See S.Rep. No. 139, 97th Cong., 1st Sess. 478, reprinted in 1981 U.S.Code Cong. & Ad.News 396, 744; Mississippi Hospital, 701 F.2d at 520. The record supports the district court's finding that procedurally and substantively the appellee complied with the requirements of the Social Security Act. 34 The appellants argue that deference should be denied to the HHS determination that the State's proposed amendments met statutory requirements because HHS failed to provide a record of the scope and nature of its review. Appellants' Brief at 29-33. Appellants say that since the State failed to provide either proper or adequate assurances to HHS, the federal agency review failed to consider the requisite factors and to explain its determination which, therefore, precludes a meaningful judicial review. Id. at 32. We disagree. 35 The district court did not merely rely on deference to the HHS determination but, in fact, considered whether DSS submitted the amendment as procedurally required by the regulations and whether the approved resulting payment structure is substantively in accord with the requirements of the social security law. It is undisputed that the State twice submitted the proposed rules to the HHS, which approved the change. We need not delve into the deliberative process of the federal agency in giving the approval. See Illinois Hospital, 576 F.Supp. at 369. We do consider whether the resulting rules complied with the basic standard of rates reasonable and adequate to meet costs incurred by efficiently and economically operated facilities. But, as noted, probing beyond this bottom line to the underlying rate-setting methodology is not required. Coalition of Michigan Nursing Homes v. Dempsey, 537 F.Supp. 451, 459 (D.D.Mich.1982). 7 36 The appellants argue too narrowly that the change in one component of the overall payment, due to state budgetary constraints, rendered the resulting payment unreasonable and inadequate. To terminate or affect one component, even if only for reasons of budgetary consideration, does not automatically produce a noncompliant payment. It is the resulting overall payment which is evaluated for statutory compliance. See Wisconsin v. Reivitz, 733 F.2d 1226, 1233 (7th Cir.1984) (prior medicaid reimbursement rate is not, per se, the only reasonable and adequate rate); accord Illinois Council on Long Term Care v. Miller, 579 F.Supp. 1140, 1147 (N.D.E.D.Ill.1983). Reasonableness has been characterized as a zone, not a pinpoint. Reivitz, 733 F.2d at 1233 (citing Federal Power Commission v. Conway Corp., 426 U.S. 271, 96 S.Ct. 1999, 48 L.Ed.2d 626 (1976)); accord Friedman v. Perales, 668 F.Supp. 216 (S.D.N.Y.1987). Here we construe it as a zone or range in which a State may consider the relevant factors and data and determine a valid reimbursement rate which is reasonable and adequate. The state must articulate a rational connection between the facts found and the choice made. Baltimore Gas, 462 U.S. at 105, 103 S.Ct. at 2256. 37 The record demonstrates that the State considered the relevant factors and data so that a rational relationship exists between these elements and the conclusion that the incentive payment should be terminated. Baltimore Gas, 462 U.S. at 105, 103 S.Ct. at 2256; Overton Park, 401 U.S. at 416, 91 S.Ct. at 823; Reivitz, 733 F.2d at 1231; California Hospital Ass'n v. Schweiker, 559 F.Supp. 110, 116 (C.D.Cal.1982), aff'd 705 F.2d 466 (9th Cir.1983); see also Mary Washington, 635 F.Supp. at 898 (relevant factors to be considered for economy and efficiency standard). Here the DSS reviewed information on the entire range of Medicaid services which had to be covered under the State's appropriation for all Medicaid services. The documents show the DSS considered some forty (40) different options for cutting the program costs, including elimination or reduction of some services such as elective surgery, psychiatric services, payment for prescription drugs; closing the children's unit at the Ft. Logan facility, as well as the termination of the incentive allowance to nursing homes. III R. at 34; Plaintiff's Exh. 15. Insofar as quantifiable, the State computed its projected shortfall and available appropriations for the time periods involved. 8 This analysis by the State included consideration of the savings in Medicaid and General Fund appropriations, client and provider impact, comments on immediate and long term implications, and potential for success in implementation. Plaintiffs' Exh. 15; see also Exh. 11, 16, 22, 28. 38 The appellants' argument that state budgetary limits are an inappropriate factor has been rejected. See Coalition of Michigan, 537 F.Supp. at 463 and n. 41. The providers argue that the State is precluded from reducing payment solely on the basis of budgetary appropriations. Conference Agreement, the Boren Amendment, Sec. 9, OBRA of 1980, P.L. 96-499 (1980), 1980 U.S.Code Cong., & Ad.News 5526, 5944. States must accommodate the overlap and conflict among (1) the 1980 federal mandate to reduce Medicaid costs, (2) their own state law limitations on deficit spending, (3) the reality of shrinking state revenues, and (4) the history of reduced federal Medicaid funding subsequent to the Boren Amendment. The language, supra, and the strict interpretation urged by the appellants has been rejected by the courts which say it should be taken with a grain of salt. Coalition of Michigan, 537 F.Supp. at 463. n. 41; Reivitz, 733 F.2d at 1236; (see also Mary Washington, 635 F.Supp. at 894 (states in intractable position where legislative intent to discourage reductions adversely affecting quality of care is concurrent with OBRA mandate to contain Medicaid costs). We concur in the district court's rejection of this argument. 39 States can consider their budgetary constraints as a factor in amending their medicaid payment method so long as the result complies with the federal requirement for a reasonable and adequate payment. Reivitz, 733 F.2d at 1236 (citing Illinois Council, 579 F.Supp. at 1148); United Hospital Center, Inc. v. Richardson, 757 F.2d 1445, 1450 (4th Cir.1985) (Secretary states that service provider may be subject to overall state revenue limit, if provider continues to receive reimbursement in conformance with Medicaid statutes and regulations). The appellants' argument against state budgetary constraints is derived from Alabama Nursing Home Association v. Harris, 617 F.2d 388 (5th Cir.1980). However, because of the statutory changes, the Fifth Circuit has now recognized that budgetary constraints can be considered by states in determining the reimbursement to medicaid service providers. Mississippi Hospital, 701 F.2d at 518, 521. 40 Here the reimbursement rate represents the State's considered judgment of what rates will both reflect the actual costs incurred, and also allow the State to comply with its appropriation limitations. See Coalition of Michigan, 537 F.Supp. at 463. The State has considered more than just the amount of money to be saved. In fact, it formulated and reviewed multi-layered options so that fairness to the parties affected was considered. See Plaintiffs' Exhs. 11, 15, 16, 22 and 28. The resulting payment falls within range of what could be considered reasonable and adequate, as Congress mandated. Mary Washington, 635 F.Supp. at 901 (quoting 48 Fed.Reg. 56049 (December 19, 1983)). The quantified data and descriptive analysis suffice as the appropriate data on the relevant factors; the appellees made a good faith examination of the impact of the options available. Id. at 899; see Plaintiffs' Exhs. 12, 17 through 21, 31 and those last cited above. The State is not statutorily required to produce the data and analysis of special studies which the appellants desire. Cf. Mary Washington, 635 F.Supp. at 897 (state not required to make written findings under federal regulations so long as it makes necessary findings which are reasonable). 41 The wide latitude given to the states under the Boren Amendment and OBRA extends to the mechanisms used to promote participation by efficiently and economically operated facilities. The payment of an incentive allowance for service providers who contain their costs below a specific standard or percentile is not required by the federal legislation nor by HSS regulations. The thrust of the 1980 amendment was to shift the federal concern away from the method used by each state to determine reimbursement to the quality of care while containing costs. Nebraska Health, 575 F.Supp. at 178 (quoting Senator Boren that the amendment would allow states to implement budget-based and negotiated rates). The states are not required to reimburse providers for costs they actually or even reasonably incur. Wilmac Corp., 633 F.Supp. at 1007; Friedman, 668 F.Supp. at 223. 9 42 The states can set a benchmark rate for efficient costs by establishing fixed ceilings or caps. Friedman, 668 F.Supp. at 223. Here it is the ninetieth percentile of allowable administration costs incurred by Colorado nursing homes participating in the state Medicaid plan. This ceiling is not proscribed by the federal legislation as a procedural or substantive result of the State's efforts to achieve statutory compliance. 43 The amending of the state Medicaid plan so as to remove the incentive allowance and provide only reimbursement limited by a ceiling does not remove the payment plan from federal compliance. Coalition of Michigan, 537 F.Supp. at 454, 459-460. The courts have found rates below the ninetieth percentile to be in compliance. E.g., Id. (eightieth percentile ceiling); Mississippi Hospital, 701 F.2d at 517-518 (eightieth percentile ceiling): compare Nebraska Health Care Association v. Dunning, CV 82-L-472, slip op. (D.C.Neb. July 4, 1984) (state plan was federally approved for payment at sixty-fifth percentile, but was no longer in compliance when state subsequently imposed pro rata cut). It is not necessary that we determine what ceiling would be noncompliant so as to affect detrimentally the services provided to Medicaid patients. Here we find no basis to conclude that the ninetieth percentile ceiling, in and of itself, fails to meet the statutory requirements. 44 In view of the Congressional intent to move away from the costs-incurred as the basis for payment and to contain the costs of Medicaid, this Colorado ceiling based on the allowable costs incurred by providers is a reasonable and adequate payment and serves to promote efficiency and economy. Because favorable budgetary conditions previously allowed the State to include the incentive allowance based on allowable administration costs does not mean the State cannot respond to changing financial conditions while complying with state and federal law. The appellants would have the State and the courts give priority to a single component for service providers. This approach would disregard the needs of the significant population which qualifies for and relies on Medicaid services because of low income or indigency, e.g., the elderly, children, pregnant women, psychiatric patients, disabled persons, etc. See Colo.Rev.Stat. Sec. 26-4-103(2) (definition of categorically needy); Sec. 26-4-105 (list of fifteen services provided under Medicaid). 45 We do not believe that the federal law requires the appellees to disregard responsibilities to the population served by Medicaid and the State's fiscal obligations under Colorado law. In the implementation of the repeated suspensions of the incentive allowance, the State reasonably conformed with the federal statutory requirements. The State's factual foundation and conclusions therefrom are rationally related. The evidence before us fails to reveal arbitrary and capricious actions. To the contrary, it demonstrates a responsive effort by the State to use appropriate facts and rationale to cope with the various needs of Medicaid patients in the face of increasing costs and limited state revenues. Accordingly, we sustain the district court's determination that the appellees complied with the federal statutes and regulations governing Medicaid payments to nursing home operators.