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October 21, 1969

CATHOLIC MEDICAL CENTER OF BROOKLYN AND QUEENS INC., DIVISION OF ST. MARY'S HOSPITAL; the Niagara Falls Memorial Hospital; and other hospitals similarly situated, Plaintiffs,
Nelson A. ROCKEFELLER, Governor of the State of New York; Hollis S. Ingraham, Commissioner of Health of the State of New York; George K. Wyman, Commissioner of Social Services of the State of New York; and T. Norman Hurd, Director of the Budget of the State of New York, Defendants

The opinion of the court was delivered by: JUDD


JUDD, District Judge.

This case presents another aspect of the involvement of Federal courts in the expanding responsibility of government for areas of health and welfare which were previously occupied largely by private charity.

 The Basic Issue

 The basic issue is whether the charitable hospitals of New York have valid objections, under either the Constitution or the Social Security Act, to a 1969 New York statute temporarily freezing the rates for inpatient hospital services provided to Medicaid patients regardless of the actual reasonable costs of such services.

 For the reasons hereinafter stated, we are deferring a decision until the United States Secretary of Health, Education and Welfare has an opportunity to express his views.

 The Basic Statutes

 1. The provisions of the Social Security Act involved in this case are contained in Title XIX, which makes sums available to states which are operating under state plans for medical assistance to the medically indigent that have been approved by the Secretary of Health, Education and Welfare. 42 U.S.C. § 1396. Inpatient hospital services constitutes one of the types of care and services which may be included in approved state plans under 42 U.S.C. § 1396a(a)(13)(C), and 42 U.S.C. § 1396d(a)(1) - and must be included with respect to families with dependent children and the aged, blind and disabled who lack income and resources. 42 U.S.C. § 1396a(a)(13)(B).

 The requirement of payment for hospital services offered under a state plan is contained in 42 U.S.C. § 1396a(a)(13)(D), which states that the state plan must provide:

"(D) for payment of the reasonable cost (as determined in accordance with standards approved by the Secretary and included in the plan) of inpatient hospital services provided under the plan;"

 Hospital costs are also dealt with in the Handbook of Public Assistance Administration (Supplement D) prepared by the Department of Health, Education and Welfare (H.E.W.) which states (D-5362) that state plans for medical assistance

 "must provide that:

"1. The State agency will pay the reasonable cost of inpatient hospital services provided under the plan."

 Adjustments must be made of rates for reimbursement of current reasonable costs either by annual retroactive adjustments or, in states where this is not feasible, by adjusting current payments "in the light of anticipated current reasonable costs * * * as nearly as they can be estimated in advance." D-5364.3.

 2. The 1969 New York statute which is under current attack modifies a plan of payment for hospital services which was previously provided by statute and regulation. The duty to submit a plan for medical assistance under Title XIX of the Social Security Act was imposed on the New York Department of Social Welfare (now Social Services) in 1966 (Social Services Law, McKinney's Consol. Laws, c. 55, § 363-a). Only one copy of the plan as approved by H.E.W. is in existence in New York State, but it is undisputed that the plan provided for the state to furnish inpatient hospital services. The duty to determine rate schedules for payments to hospitals, and to certify those rates to the Director of the Budget, was imposed upon the Commissioner of Health, by Section 2807 of the New York Public Health Law, McKinney's Consol.Laws, c. 45.

 The method of making hospital rate determinations is specified in Section 770.1 of the State Hospital Code, adopted by the State Hospital Review and Planning Council. Section 770.1(b) provides that:

"Hospital inpatient rates shall be individually determined for each hospital, be related to the reasonable cost of providing services to patients, be established on an all-inclusive basis for hospital service, be computed as an average daily cost of providing inpatient care, and be no greater than posted charges."

 Detailed directions are given for what elements of cost shall be included in the rate computation and what shall be excluded. To comply with the requirement of the Federal regulation that current payments be adjusted in the light of anticipated current reasonable costs (D-5364.3b), the state regulation provides that:

"(6) The per patient day cost of care shall be adjusted to reflect current costs by multiplying such cost of care by one and one-half times the lesser of the following:
"(i) the percent rate of change computed for each hospital by the use of a three-year moving average; or
"(ii) 15 percent above the three-year moving average percent rate of change for the group and classification of the hospital;"

 A purpose to obtain conformity between state practices and the requirements of Title XIX of the Social Security Act is expressed in the final paragraph of Section 770.1 of the Hospital Code, which states:

"(g) The methods of determining rates for care in hospitals specified in this section and the rates certified pursuant thereto shall be consistent with the requirements of, and subject to such adjustments by the commissioner as may be required by, the Federal Secretary of Health, Education and Welfare pursuant to the provisions of Titles V and XIX of the Social Security Act to the extent required to reasonably assure that federal reimbursement for such care and service is not impaired."

 The 1969 amendment under attack in this proceeding added a proviso that "rates of payment for hospital and health-related service made by government agencies, approved by the state director of the budget and in effect March thirty-first, nineteen hundred sixty-nine shall continue in effect for the period ending December thirty-first, nineteen hundred sixty-nine." L.1969, Chs. 184, 957, amending Pub.Health L. § 2807(2).

 The Posture of the Present Action

 By the amended complaint in this action two hospitals, claiming to act on behalf of other hospitals similarly situated, seek a declaratory judgment that the 1969 New York statute described above is unconstitutional either because of its conflict with the Federal statute and regulations (first cause of action), or because it is unconstitutionally vague and therefore contravenes the due process clause of the Fourteenth Amendment to the United States Constitution (second cause of action). They also allege that their property is taken without due process of law because two new statutes (L.1969, Chs. 419, 672) mandate the treatment of emergency cases, and the freeze statute compels them to render services in such cases below the reasonable cost (third cause of action). Defendants' answer puts in issue the basic allegations of the complaint and attacks the subject matter jurisdiction of the court and the sufficiency of the causes of action stated in the complaint. It also alleges as a defense that the Secretary of Health, Education and Welfare has not found that the New York statute is in conflict with any Federal law or regulation.

 In response to a motion by the plaintiffs to convene a three-judge court and obtain a temporary restraining order, and a counter-motion by defendants to dismiss the complaint for lack of subject matter jurisdiction, the district judge issued a memoradum and order which held that there was jurisdiction of the subject matter, and that the third cause of action alleged a constitutional claim which was not wholly insubstantial, and directed the Clerk to notify the Chief Judge of the Circuit that a three-judge court ought to be convened pursuant to 28 U.S.C. § 2284. The motion for a temporary restraining order was denied and the motion for a preliminary injunction was referred to the three-judge court.

 The case is before the three-judge court on three motions, plaintiffs' motion for a preliminary injunction, a second motion by plaintiffs for summary judgment, and a motion by defendants to dismiss for failure to state a cause of action. Voluminous affidavits and pretrial depositions are before the court. The parties have stipulated that these may be given the same effect as oral testimony.

 Class Action

 During the oral argument, the court ordered that the case could be maintained as a class action under Rule 23(b)(2) of the Federal Rules of Civil Procedure as one where the defendants have acted "on grounds generally applicable to the class," so that injunctive relief or declaratory relief should appropriately apply to the class as a whole. Since the parties and their counsel purportedly speak for the Hospital Association of New York State, Inc., and substantially all the hospitals in New York State are members of that association and familiar with the institution of the present action, it was determined that adequate notice to members of the class existed. It is therefore unnecessary to decide whether there is any constitutional requirement for notice to class members in situations where F.R.Civ.P. 23(c)(2) does not presently require it. See Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 70 S. Ct. 652, 94 L. Ed. 865 (1950); Note, Constitutional and Statutory Requirements of Notice under Rule 23(c)(2), 10 Boston Coll.Ind. and Comm.L.Rev. 571 (1969).


 The matter in controversy clearly exceeds the sum of $10,000. Therefore, jurisdiction exists under Section 1331(a) of the Judicial Code, relating to controversies arising under the constitution or laws of the United States. In this respect the case differs from Rosado v. Wyman, 414 F.2d 170 (2d Cir. July 16, 1969), where the Court of Appeals found that no individual plaintiff had as much as $10,000 at stake.

 Most prior cases brought by welfare beneficiaries have relied on 42 U.S.C. § 1983 and 28 U.S.C. § 1343 for jurisdiction. Having more than $10,000 at stake, the plaintiffs in this case do not need to invoke Sections 1983 or 1343. Therefore, it is not necessary to deal with the problem cited in the footnote in King v. Smith, 392 U.S. 309, 312 n. 3, 88 S. Ct. 2128, 2130-2131, 20 L. Ed. 2d 1118 (1968), concerning jurisdiction of suits challenging state AFDC provisions only on the ground that they are inconsistent with the Federal statute. See also McCall v. Shapiro, 292 F. Supp. 268, 275 n. 6 (D.Conn.1968), aff'd, 416 F.2d 246 (2d Cir., August 11, 1969).

 The constitutional provisions invoked by the plaintiffs in this case are the supremacy clause in Article VI concerning the first cause of action, and the due process clause of the Fourteenth Amendment ...

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