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August 4, 1977.

HOSPITAL ASSOCIATION OF NEW YORK STATE, INC., Misericordia Hospital Medical Center, Buffalo General Hospital, the Genesee Hospital, and the Mount Sinai Hospital on behalf of themselves and all other nonprofit hospitals which are members of the Hospital Association of New York State, Inc. and which are reimbursed for Medicaid services rendered to hospital patients, Plaintiffs,
Philip L. TOIA, as Commissioner of Social Services of the State of New York, Robert P. Whalen, as Commissioner of Health of the State of New York, Peter Goldmark, as Director of the Budget of the State of New York, Hugh L. Carey, as Governor of the State of New York, and David Mathews, as Secretary of the U.S. Department of Health, Education & Welfare, Defendants.

The opinion of the court was delivered by: LASKER

LASKER, District Judge.

On March 16, 1977 the Court of Appeals remanded for this court's consideration the question whether Congressional repeal of 42 U.S.C. § 1396a(g) (a provision requiring states participating in the federal Medicaid program to waive their immunity to suit in federal courts with respect to certain claims made by hospital providers of services) as of its effective date subsequent to the entry of final judgment by this court against the State but before the appeal was decided affects the validity of that judgment, and if so whether the statute is constitutional. For reasons set forth below, it is concluded that both such questions must be answered in the affirmative and that therefore (1) the judgment of August 2nd, 1976 insofar as it grants monetary relief against the State of New York, must be vacated and (2) the State defendants' motion to dismiss plaintiffs' claims for monetary relief against the State must be granted.


 In 1966 Congress enacted Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., commonly known as the Medicaid program. Under this program, administered by the states pursuant to the statute and to regulations promulgated by the federal Department of Health, Education and Welfare (HEW), providers of medical services are reimbursed by local, state and federal governments for services rendered to eligible patients. The statutory provision of the Medicaid Act at issue in this suit is 42 U.S.C. § 1396a(a)(13)(D) which requires that providers of inpatient hospital services be reimbursed by the states for the "reasonable cost" of providing such services, and that the "reasonable cost" must be determined in accordance with "methods and standards... approved by the Secretary [of HEW] and... included in the [official state Medicaid plan]."

 Since 1970 New York State has utilized a prospective methodology of reimbursing hospitals for inpatient services. Based on predicted costs for the forthcoming year rather than a retrospective formula, the prospective reimbursement methodology is part of the State Medicaid plan. Ordinarily, at the end of each calendar year the State publishes the reimbursement rates for each group of hospitals for the forthcoming year, on the basis of the "methods and standards" contained in the existing State plan.

 At the end of 1975, however, New York issued "interim" rates consisting essentially of a "freeze" at the 1975 rates. On May 5, 1976, plaintiffs - a class consisting of all of the approximately 270 voluntary and public hospitals in New York State - sued the Secretary of HEW and various other State officials. They claimed that the "freeze" was illegal in two important respects: (1) it amounted to an amendment of the State plan which had not been, as required by 42 U.S.C. § 1396a(a)(13)(D) approved by the Secretary prior to implementation, and (2) the "freeze" deprived the hospitals of reimbursement for their "reasonable costs" of treating Medicaid patients to which the statute entitled them.

 Two months after this suit commenced, the State promulgated a revised formula for determining the 1976 rates. The formula changed several important aspects of the reimbursement methodology: in particular, it lowered the ceiling on reimbursable costs for routine inpatient services from 110% to 100% of the average group costs, and for the first time imposed a ceiling (of 100% of average) on reimbursement for ancillary inpatient costs. *fn1" On July 16, 1976 plaintiffs amended their complaint and moved for a preliminary injunction against implementation of rates calculated according to the new formula. The amended complaint raised essentially the same objections to the revised methodology as had been raised in the original complaint against the freeze: namely, that the revised formula had not been approved by HEW and thus could not lawfully be implemented, and that reimbursement rates calculated according to the new formula would not reimburse plaintiffs their reasonable costs of providing services.

 On July 20th and 28th, 1976 hearings were held on the motion for a preliminary injunction. At this time, the State argued that any grant of monetary relief against it was barred by the Eleventh Amendment. Plaintiffs argued, however, that New York's "consent to suit," executed on March 30, 1976 and incorporated in the State plan, removed any jurisdictional bar to such relief. Effective January 1, 1976, (42 U.S.C. § 1396a(g)) Congress had required states participating in the Medicaid program to consent to suit in federal court by hospitals claiming that the state was not in compliance with § 1396a(a)(13); states which failed to comply with this waiver provision were penalized 10% of the total federal Medicaid funds to which they would otherwise have been entitled, 42 U.S.C. § 1396b(l). Pursuant to the new law, but under protest, New York had executed a consent to suit.

 Defendants responded to plaintiffs' argument by urging that the consent to suit was not voluntary, and had for all practical purposes been coerced by the new legislation, which imposed severe financial penalties on states which failed to waive their immunity. They urged that we find the waiver of immunity to be ineffective and the legislation requiring the waiver to be unconstitutional. After briefing and argument on this question, we held, on the authority of Employees of Department of Public Health & Welfare of Missouri v. Missouri Public Health Dept., 411 U.S. 279, 93 S. Ct. 1614, 36 L. Ed. 2d 251 (1973), that Congress could constitutionally require such a waiver and that the State's consent to suit was valid. We went on to find that § 1396a(a)(13) required prior Secretarial approval of the changes made in the reimbursement methodology, and that such approval had not been given. On August 2, 1976 final judgment on certain counts of the amended complaint was entered for the plaintiffs, and the defendants were permanently enjoined from implementing the challenged regulations until they were approved by HEW. Defendants were directed to recalculate the amounts owed members of the class under the previously approved methodology and to the extent that any hospitals had been underpaid by the State, to pay over the difference. A twelve day stay was granted.

 Defendants filed a notice of appeal from the judgment. On August 16th, the Secretary of HEW approved the major regulations which had been found invalid for lack of prior HEW approval. On August 17th, the Court of Appeals remanded the case to the district court to consider whether the Secretary's approval authorized retroactive application of the revised methodology to January 1, 1976. While this matter was sub judice, the State applied for a further stay of the August 2nd judgment. On the State's agreement to pay interest as of September 28, 1976 on any monies ultimately found to be owing plaintiffs, a further stay pending decision on the issue remanded was granted.

 On October 18, 1976 the President signed Pub.L. 94-552, by which the mandatory waiver of immunity provisions of the Medicaid Act were repealed "effective January 1, 1976." Neither party brought this matter to the court's attention until after it had decided, on November 5, 1976, that the Secretary's approval was prospective only, and that the revised formula could not be implemented as of January 1, 1976 but only from August 16, 1976 (the date of HEW's approval) forward. On November 9th, an order was entered directing defendants to recompute the rates for plaintiffs' class for the period January 1st - August 16th, 1976 and to properly reimburse any members of the class who had received less than their due under the only existing approved methodology.

 Defendants applied for a stay of this order, and a further stay of the August 2nd judgment; the application was denied by this court on November 22nd and by the Court of Appeals on December 14th. Subsequently, defendants began and have now substantially completed making the payments required by the court's order to plaintiffs; approximately $40 million is involved.

 On the defendants' second appeal from the judgment of August 2nd and order of November 9th, they argued that the repealer legislation deprived the district court of subject matter jurisdiction to award monetary relief against the State and urged that the judgment be vacated. At the same time, defendants moved in this court to dismiss the claims for monetary relief against the State. On January 25, 1977, we denied the motion to dismiss on the ground that since the matter was then pending on appeal, we lacked jurisdiction to consider it. Subsequently, on March 16, 1977 the Court of Appeals remanded the case for us to determine the effect and constitutionality of the repealer legislation.

 Two questions are now before us on the remand and the defendants' motion to dismiss: (1) was the repealer legislation intended to affect the jurisdiction of federal courts in pending cases to grant or enforce awards of monetary relief against the State; (2) if so, is the repealer legislation constitutional.


 The Repealer Statute

 By Pub.L.No.94-182, § 111, effective January 1, 1976, Congress provided that:

 "Sec. 111. (a) Section 1902 of the Social Security Act is amended by adding at the end thereof the following new subsection:

 (g) Notwithstanding any other provision of this title, a State plan for medical assistance must include a consent by the State to the exercise of the judicial power of the United States in any suit brought against the State or a State officer by or on behalf of any provider of services (as defined in section 1861(u)) with respect to the application of subsection (a)(13)(D) to services furnished under such plan after June 30, 1975, and a waiver by the State of any immunity from such a suit conferred by the 11th amendment to the Constitution or otherwise."

 42 U.S.C. § 1396a(g). The penalty for noncompliance, that is, for failure of a state plan to include a consent to suit in federal court, was contained in 42 U.S.C. § 1396b(l):

 "Notwithstanding any other provision of this section, the amount payable to any State under this section with respect to any quarter beginning after December 31, 1975, shall be reduced by 10 per centum of the amount determined with respect to such quarter under the preceding provisions of this section if such ...

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