Opinion ID: 757255
Heading Depth: 2
Heading Rank: 1

Heading: State Action Doctrine

Text: 18 The Secretary appeals the district court's holding that HMO denials of medical services to enrolled Medicare beneficiaries constitute state action and therefore invoke constitutional due process protections. 2 19 The actions of private parties are not subject to the requirements of constitutional due process unless they can fairly be considered government action. See Shelley v. Kraemer, 334 U.S. 1, 13, 68 S.Ct. 836, 92 L.Ed. 1161 (1948). We use the same standards to attribute the actions of private actors to the federal government under the Fifth Amendment as we do to attribute private actions to state governments under the Fourteenth Amendment. See Kitchens v. Bowen, 825 F.2d 1337, 1340 (9th Cir.1987). 20 The actions of private entities constitute state action under particular circumstances. In order to show that a private action is in fact state action, the plaintiff must show that  'there is a sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself.'  Blum v. Yaretsky, 457 U.S. 991, 1004, 102 S.Ct. 2777, 73 L.Ed.2d 534 (1982) (quoting Jackson v. Metropolitan Edison Co., 419 U.S. 345, 351, 95 S.Ct. 449, 42 L.Ed.2d 477 (1974)). The government's regulation of the private actor is insufficient alone to show federal action. See Blum, 457 U.S. at 1004, 102 S.Ct. 2777; Jackson, 419 U.S. at 350, 95 S.Ct. 449. Government action exists if there is a symbiotic relationship with a high degree of interdependence between the private and public parties such that they are joint participant[s] in the challenged activity. See Burton v. Wilmington Parking Auth., 365 U.S. 715, 725, 81 S.Ct. 856, 6 L.Ed.2d 45 (1961). Government action exists if the challenged private action occurs under government compulsion. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 170-71, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). The government must do more, however, than merely acquiesce in the challenged action. See Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 164, 98 S.Ct. 1729, 56 L.Ed.2d 185 (1978) (holding that government inaction is insufficient for state action). A detailed inquiry into the facts of the particular case may be necessary to determine whether there is state or federal action. See Jackson, 419 U.S. at 351, 95 S.Ct. 449. 21 In this case, the question is whether the challenged action--HMO denials of services to Medicare beneficiaries with inadequate notice--may fairly be treated as that of the federal government. We agree with the district court's cogent analysis and conclusion that, in the circumstances of the Secretary's regulation of and delegation of Medicare coverage decisions to HMOs, HMO denials of services to Medicare beneficiaries with inadequate notice constitute federal action. 22 We find that HMOs and the federal government are essentially engaged as joint participants to provide Medicare services such that the actions of HMOs in denying medical services to Medicare beneficiaries and in failing to provide adequate notice may fairly be attributed to the federal government. The Secretary extensively regulates the provision of Medicare services by HMOs. HMOs are required, by the Medicare statute and their contracts with the Secretary, to comply with all federal laws and regulations. The Secretary is required to ensure, inter alia, that HMOs provide adequate notice and meaningful appeal procedures to beneficiaries. The Secretary pays HMOs for each enrolled Medicare beneficiary (regardless of the services provided). The federal government has created the legal framework--the standards and enforcement mechanisms--within which HMOs make adverse determinations, issue notices, and guarantee appeal rights. Medicare beneficiaries enrolled in HMOs may appeal an HMO's adverse determination to the Secretary, who has the power to overturn the HMO's decision. Each of these factors alone might not be sufficient to establish federal action. Together they show federal action. See Catanzano v. Dowling, 60 F.3d 113, 117-120 (2d Cir.1995) (similar analysis in Medicaid context); J.K. v. Dillenberg, 836 F.Supp. 694, 697-99 (D.Ariz.1993) (same). 23 The Secretary argues that the Supreme Court case of Blum v. Yaretsky, 457 U.S. 991, 102 S.Ct. 2777, 73 L.Ed.2d 534 (1982), mandates a finding that HMO adverse determinations are not state action. We disagree. 24 In Blum, the Supreme Court held that nursing home decisions made by doctors and administrators to transfer patients to other facilities, thereby terminating their Medicaid benefits, did not constitute state action. The Court held that the decisions at issue in the case turned on medical judgment made by private parties according to professional standards that are not established by the State. 457 U.S. at 1008, 102 S.Ct. 2777. Because state officials did not have the power to approve or disapprove the nursing home decisions, but just altered the level of Medicaid benefits accordingly, the Court held that the decisions were not state action. See id. at 1010, 102 S.Ct. 2777. 25 Unlike the nursing home doctors and administrators in Blum, the HMOs in this case are not making decisions to which the government merely responds. HMOs are following congressional and regulatory orders and are making decisions as a governmental proxy--they are deciding that Medicare does not cover certain medical services. In Blum, by contrast, the nursing homes decided that certain medical services were no longer medically necessary. While such an inquiry may occur in HMO service denials, the decisions in the case at hand are more accurately described as coverage decisions--interpretations of the Medicare statute--rather than merely medical judgments (particularly when no reason for the denial is given other than that the service does not meet Medicare guidelines ... based upon [the HMO's] understanding and interpretation of Medicare ... coverage policies and guidelines, to quote a typical notice provided by Plaintiffs). 26 The district court's reasoning and holding that HMO service denials are federal action therefore do not run counter to Blum. As noted by the district court, the government cannot avoid the due process requirements of the Constitution merely by delegating its duty to determine Medicare coverage to private entities. See 946 F.Supp. at 752; see also Burton, 365 U.S. at 725, 81 S.Ct. 856 (But no State may effectively abdicate its responsibilities by either ignoring them or by merely failing to discharge them whatever the motive may be.). 27 We hold, therefore, that, when denying medical services to enrolled Medicare beneficiaries, HMOs are federal actors.