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NEW YORK CITY HEALTH & HOSPS. CORP. v. CALIFANO

June 12, 1979

NEW YORK CITY HEALTH AND HOSPITALS CORPORATION, Plaintiff,
v.
Joseph A. CALIFANO, Jr., as Secretary of the Department of Health, Education and Welfare, et al., Defendants



The opinion of the court was delivered by: DUFFY

OPINION AND ORDER

Plaintiff, New York City Health and Hospitals Corporation, (hereinafter referred to as "HHC"), brings this action against the Secretary of the Department of Health, Education and Welfare, (hereinafter referred to as "the Secretary"), the New York State Commissioners of Social Services and Health, the Director of the Budget and the Governor of New York State, (hereinafter collectively referred to as "the State defendants"). Plaintiff challenges New York State's Plan for Medical Assistance, (hereinafter referred to as "the Plan"), which is submitted by the state and approved by the Secretary and which calculates the reimbursement rates to hospitals for inpatient medical services rendered pursuant to the Medicaid Act (42 U.S.C. §§ 1396 Et seq.). Jurisdiction is founded upon 28 U.S.C. §§ 1331, 1343, 1361, 2201-02.

Congress by enacting the Medicaid Act, (hereinafter referred to as "the Act"), sought to make quality health services available to both indigent and low-income persons. To this end the Act makes federal funds available to those states electing to participate in the Medicaid program. Although participation in the program is optional, New York has elected to participate.

 In particular, the Act provides that those hospitals in participating states which provide care for medicaid-eligible patients are to receive reimbursement for such services from a reserve funded jointly by federal and state authorities. The participating states are required to adopt a Plan for Medical Assistance which is required to set forth a formula pursuant to which the state will reimburse its hospitals. Under the Act, all such plans are to be approved by the Secretary prior to their implementation by the state. It is the submission of this Plan by New York and the approval thereof by the Secretary which is the subject of the instant suit.

 HHC is a public benefit corporation that operates the 15 municipal hospitals in the City of New York. It is also the primary source of medical services to the indigent in the City as well as the largest provider of Medicaid services in the country.

 The defendants are the Secretary, who is charged with approving the various plans submitted by participating states under the Act, and the state defendants who are responsible for the operation of the Medicaid program in New York State.

 As long as New York has been participating in the Medicaid program the New York Plan has, from time to time, been amended with the requisite approval of the Secretary. Three such amendments are relevant to the case at bar:

 (1) In August and October of 1976, New York State submitted and the Secretary approved several major amendments to the Plan which directly effected the reimbursement rates to New York hospitals. These amendments acted to freeze those payments to be made for hospital services rendered in 1976 to the rates paid for services rendered in 1975. They were unsuccessfully attacked by the Hospital Association of New York as not reimbursing the hospitals for the "reasonable costs" of services as provided under the Act. The case, Hospital Association of New York State, Inc. v. Toia, 473 F. Supp. 917, (hereinafter referred to as "HANYS"), was recently decided by Judge Lasker of this Court in a particularly well reasoned opinion;

 (2) In March and April of 1977, New York submitted and the Secretary approved substantial amendments to those which were the subject of the HANYS litigation. These amendments are the subject of the instant suit;

 (3) In November, 1977 and January, 1978 further amendments were submitted by New York and approved by the Secretary whereby the amendments at bar were substantially revised.

 In HANYS, virtually identical in principle to the case at bar, the plaintiffs challenged certain amendments to New York's Plan. The challenged amendments, however, subsequently underwent major revisions in the form of further amendments of the Plan. In light of these amendments, the state defendants in HANYS moved to dismiss the entire case as moot or, in the alternative, to dismiss the complaint solely as to them while the Court retain the case with respect to the issue of whether the Secretary, a co-defendant in the action, employed improper or inadequate procedures in approving the Plan. The Secretary also moved to dismiss the entire case as moot in light of the recent amendments.

 Judge Lasker granted the state defendants' alternative motion stating that:

 
Since the complaint relates only to provisions of the State's 1976 methodology for reimbursing hospitals, a methodology which has undergone substantial revision in 1977, the record before us is both incomplete and stale.
 
The plaintiffs' claim that the State's 1976 methodology for determining reimbursements of hospital Medicaid expenses violates the federal statute, involves a matter of substantial public importance and, at least prospectively, could involve large sums of public money. "Adjudication of such problems, certainly by way of resort to a discretionary declaratory judgment, should rest on an adequate and full-bodied record. The record before us is woefully ...

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