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Connecticut v. Heckler

decided: March 30, 1984.

STATE OF CONNECTICUT, DEPARTMENT OF INCOME MAINTENANCE, PLAINTIFF-APPELLEE,
v.
MARGARET M. HECKLER, SECRETARY, AND THE UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, DEFENDANTS-APPELLANTS



Appeal from an order of the United States District Court for the District of Connecticut (M. Joseph Blumenfeld, Judge), reversing a decision by the United States Department of Health and Human Services which disallowed federal Medicaid payments to the State of Connecticut for services provided to patients at Middletown Haven Rest Home.

Mansfield, Kearse and Winter, Circuit Judges.

Author: Winter

WINTER, Circuit Judge:

The United States Department of Health and Human Services ("HHS") appeals from Judge Blumenfeld's decision that HHS improperly disallowed Medicaid payments to the State of Connecticut Department of Income Maintenance ("Connecticut") for services provided patients at Middletown Haven Rest Home ("Middletown Haven"). Judge Blumenfeld held that the statutory provisions relied on by HHS only preclude Medicaid payments for services rendered at "mental hospitals," which are "facilities which . . . provide total care to mental patients." Connecticut v. Schweiker, 557 F. Supp. 1077, 1090-91 (D. Conn. 1983). Because Middletown Haven, a duly certified intermediate-care facility ("ICF"), does not provide total care to such patients, Judge Blumenfeld concluded that HHS wrongfully had disallowed Medicaid payments for services provided there.

We reverse.

BACKGROUND

This case arises under the Medicaid legislation, Title XIX of the Social Security Act, enacted as part of the Social Security Amendments of 1965, Pub. L. No. 89-97, § 121, 79 Stat. 286, 343-52 (codified as amended at 42 U.S.C. § 1396 et seq.). Congress established Medicaid "for the purpose of providing federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons." Harris v. McRae, 448 U.S. 297, 301, 65 L. Ed. 2d 784, 100 S. Ct. 2671 (1980). Medicaid provides federal financial assistance for certain categories of medical treatment, including "inpatient hospital services (other than services in an institution for . . . mental diseases)," 42 U.S.C. § 1396d(a)(1), "skilled nursing facility services (other than services in an institution for . . . mental diseases)," id. at § 1396d(a)(4A), and "intermediate care facility services (other than such services in an institution for . . . mental diseases)," id. at § 1396d(a)(15). This assistance is also subject to two blanket provisions, one forbidding federal financial assistance "with respect to care or services for any individual who has not attained 65 years of age and who is a patient in an institution for . . . mental diseases," id. at § 1396d(a)(18)(B), and the other authorizing federal financial assistance for "inpatient hospital services, skilled nursing facility services, and intermediate care facility services for individuals 65 years of age or over in an institution for . . . mental diseases," id. § 1396d(a)(14).

The statute defines ICF's as

licensed under State law to provide, on a regular basis, health-related care and services to individuals who do not require the degree of care and treatment which a hospital or skilled nursing facility is designed to provide, but who because of their mental or physical condition require care and services (above the level of room and board) which can be made available to them only through institutional facilities.

Id. § 1396d(c). The term "institution for mental diseases" ("IMD") is not defined in the statute but has been interpreted by HHS to mean any institution "primarily engaged in providing diagnosis, treatment or care of persons with mental diseases." 42 C.F.R. § 435.1009. The parties agree that the dispositive issue in the instant case is whether an ICF such as Middletown Haven can be deemed an IMD, given the foregoing statutory and regulatory framework.

Because the statutory provisions at issue here were enacted in a piecemeal fashion, the sequence as well as the substance of the various parts of the statutory scheme is significant. The original Medicaid statute authorized federal financial assistance for inpatient hospital services and skilled nursing facility services except when rendered in an IMD, Pub. L. No. 89-97, § 121(a), 79 Stat. 286, 351 (1965) (codified as amended at 42 U.S.C. § 1396d(a)(1), (4)(A)). The original statute also contained the blanket provisions authorizing financial assistance for those services to patients 65 or older in IMD's, id., 79 Stat. at 352 (codified as amended at 42 U.S.C. § 1396d(a)(14)), but precluding it for those services to patients under age 65 in an IMD, id. (codified as amended at 42 U.S.C. § 1396d(a)(18)(B)). The original Medicaid statute made no provision for financial assistance for ICF services.

In 1967, Congress authorized federal assistance for ICF services under special programs for the aged, the blind and the disabled. Social Security Amendments of 1967, Pub. L. No. 90-248, § 250, 81 Stat. 821, 920 (repealed 1971). ICF coverage to those eligible under the Medicaid program was authorized in 1971, Pub. L. No. 92-223, § 4, 85 Stat. 802, 809 (1971), when Congress repealed the 1967 legislation and brought ICF coverage under the Medicaid program. However, in doing so, Congress expressly excluded ICF services rendered in an IMD.*fn1 Id. § 4(a)(1)(C), 85 Stat. 802, 809 (codified as amended at 42 U.S.C. § 1396d(a)(15)). The ICF definition adopted in the 1971 Medicaid legislation, which is quoted supra, resembled that used in the 1967 legislation, except that the 1971 definition explicitly stated that "the term 'intermediate care facility' shall not include . . . any public institution or distinct part thereof for mental diseases or mental defects." Id. § 4(a)(2) (codified at 42 U.S.C. § 1396d(c)). An exception to this general exclusion was made for public institutions treating the mentally retarded. Id. (codified at 42 U.S.C. § 1396d(d)). The 1971 definition is the one at issue in the instant case.

From the time that Middletown Haven began operation as an ICF in 1977, Connecticut received federal Medicaid funds to help defray the costs of services provided patients at the facility. The legality of this arrangement came under scrutiny in December, 1979, when an audit team from HHS undertook a study of patient records at Middletown Haven. The study was conducted as part of an investigation by HHS to determine whether certain states were discharging patients from mental hospitals and arranging their placement in ICF's in order to circumvent the Medicaid exclusion for patients under age 65 in IMD's. Applying internal criteria developed by HHS and intended to supplement the IMD definition set forth in the regulations,*fn2 the audit team concluded that Middletown Haven was an IMD. In drawing this conclusion, it found, inter alia, that 77% of the patients treated from January, 1977 through December, 1979 were suffering from a major mental disease that was responsible in substantial part for their need of ongoing care, that more than 50% of the patients had been admitted directly from state mental hospitals, and that Middletown Haven hired professional staff, including three psychiatrists, who specialized in the care of the mentally ill. Following the audit team's report, HHS disallowed all Medicaid payments made for services provided patients at Middletown Haven between January, 1977 and September, 1979 -- an amount totalling $1,634,655.*fn3

Connecticut then sought agency review of the disallowance. Its appeal, consolidated with appeals from similar disallowances by the states of Minnesota, Illinois and California, was heard before the Departmental Grant Appeals Board of HHS. On November 30, 1981, the appeals were denied in all respects, a decision which constituted the final administrative agency action in this matter. Each state then sought judicial review. Connecticut petitioned for direct appellate review -- an action we earlier dismissed for want of jurisdiction, Connecticut v. Schweiker, No. 82-4023 (2d Cir. Apr. 20, 1982) -- and also filed a complaint in district court seeking reversal of the disallowance.*fn4 Ruling on cross motions for summary judgment, Judge Blumenfeld reversed ...


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