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July 10, 1984

ARLENE KESSLER, RICHARD ARENA, and MARGERITHA CAMERON, individually and on behalf of all others similarly situated, Plaintiffs, against BARBARA BLUM, individually and in her capacity as Commissioner of the New York State Department of Social Services, RUSSELL SCHWARTZ, individually and in his capacity as Deputy Commissioner for the Medical Assistance Division of New York State Department of Social Services, ROBERT CRANE, individually an in his capacity as Director of the Office of Health Systems Management of the New York State Department of Health, JAMES A. KRAUSKOPF, individually and in his capacity as Commissioner of the New York City Department of Social Services, Defendants.

The opinion of the court was delivered by: SWEET


This is a class action for declaratory and injunctive relief pursuant to 42 U.S.C. § 1983. The plaintiffs and the proposed plaintiff-intervenors are all New York State Medicaid recipients. The defendants are New York State and City officials charged with administrating the prior approval program for providing certain medical care and services for Medicaid recipients.

 Plaintiffs have moved for partial summary judgment under Fed.R.Civ.P. 56 and for class certification under Fed.R.Civ.P. 23(a). Plaintiffs have also moved to add additional defendants pursuant ot Fed.R.Civ.P. 20 and 21. The parties are in agreement that no factual issues are presented by the pending motions, but they seek relief supported by sharply opposing views of the result required by the relevant authorities as a consequence of the facts presented. The plaintiffs seek reform of certain practices in connection with the prior approval program for certain services and supplies provided to Medicaid recipients, the defendants seek dismissal.

 On the facts and conclusions stated below, the motion for intervention is denied; the motions for class certification and joinder of additional defendants are granted. Plaintiffs' motion for partial summary judgment is granted on certain claims, others will be dismissed.

 The Issues

 These motions present a "systemic" challenge to the "prior approval process" operated by the New York State Department of Health ("DOH") under the general supervision of the New York State Department of Social Services ("DSS"). The plaintiffs and plaintiff-intervenors seeks declaratory determination that the defendants have violated federal and state statutes and regulations and the United States Constitution by (1) prohibiting applicants and recipients of Medicaid from directly requesting prior approval, (2) failing to give notice to Medicaid applicants and recipients of the filing of requests for prior approval by providers, (3) failing to give notice of decisions approving or modifying prior approval requests and of the right to appeal modified requests, (4) failing to include in the notice of decision notification of the right to a conference and the right to request a consultative examination, (5) failing to mail to individuals requesting hearings on prior approval issues copies of the exhibits on which the agency intends to rely at the hearing, (6) failing to promulgate and comply with time limits within which decisions must be made on requests for prior approval, (7) failing to promulgate and comply with procedures for expedited approval of emergency prior approval requests, and (8) failing to make and to publish written procedures for making and appealing requests for prior approval. Appropriate relief is requested.

 According to the defendants, the plaintiffs and proposed intervenors do not have standing, the interventions should be denied, and the class is overbroad and fails to meet the requirements of Fed.R.Civ.P. 23(a)(2) and (3). The defendants also contend that the prior approval procedures meet all federal and state requirements, the applied standards are appropriate, notice is not required, conference rights and consultative examinations and copies of state exhibits are not required, the response time for complying with requests under the current system meets all relevant requirements, and no change in the emergency procedures is mandated by the authorities.

 The State defendants have signed a stipulation of partial settlement under which DOH has agreed to provide notices of decisions and fair hearing rights to recipients when prior approval requests are denied or are modified by DOH in such a manner that the recipient will not receive the service or supply requested. Those modifications which generate a notice pursuant to the stipulation are modifications which:

 1. Approve less costly alternative (e.g., same service, but made of different materials; generic versus brand name).; 2. Approve different service than requested (e.g., dentures versus multiple reconstruction; manual wheelchair versus electric); 3. Approve part of mix of services (e.g., certain dental care); 4. All out-of-state modifications; 5. Different amount of service approved within time period requested; 6. Approve service, but change reimbursement level and are not confident service will be delivered.

 The Statutory and Regulatory Scheme

 The Medicaid program, 42 U.S.C. § 1396 et seq., is a joint federal and state medical assistance program for needy people. It is administered by the states pursuant to state plans which have been approved by the Secretary of the Department of Health and Human Services as complying with 42 U.S.C. § 1396(a), which requires that state medicaid plans:

 provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan (including but not limited to utilization review plans as provided for in section 1396(i)(4) of this title) as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with efficiency, economy, and quality of care.

 DSS had been designated as the "single state agency", 42 U.S.C. § 1396(a)(5), to supervise the administration of New York's state plan. See New York Social Services Law § 363-a(1).

 The first area of Medicaid administration is the determination of those persons who are eligible to receive Medicaid. The eligibility standards, which are based on factors such as age, receipt of public assistance, and income, are set forth in New York Social Services Law § 366 and in 18 NYCRR § 360.1 et seq. New York's 58 local social services districts (one for New York City an one for each remaining county in the State), which are supervised by DSS, are responsible for making the above eligibility determinations.

 All persons who apply for Medicaid at their local social services district are given an informational pamphlet, published by DSS, which provides a general explanation of New York's Medicaid program and answers the questions most frequently asked by persons applying for Medicaid. The pamphlet explains that Medicaid covers "necessary services provided by physicians, dentists, optometrists, and other professional personnel," that dental services paid for by Medicaid are "ordinarily limited to essential treatment, such as extraction of teeth, filling of cavities, and routine preventive dental care," but that other dental services "required to alleviate a serious health condition" will be paid for if prior approval has been obtained, that Medicaid pays the provider of medical services or supplies and does not pay cash benefits to recipients, and that Medicaid will pay only for services and supplies not covered by third party payers, such as Medicare. The pamphlet advises anyone who wants guidance in his own situation or additional information to contact his local social services department.

 The second area of Medicaid administration is the payment of claims for medical services rendered to persons who have been determined to be Medicaid eligible. Pursuant to federal law, payments must be made to the person or entity providing the service or supplies (e.g., physicians, optometrists, vendors or medical equipment, etc.) unless, in the case of physicians' and dentists' services, the state plan permits payment directly to the recipient. In all cases, payment for medical services provided to Medicaid recipients who also received assistance under other titles of the Social Security Act, e.g., the Supplemental Security Income Program ("SSI"), Title XVI; Aid to Families with Dependent Children ("AFDC"), Title IV-A, may only be made to the providers of those services and supplies. New York's state plan requires that payment be made only to providers.

 Pursuant to New York Social Services Law § 367-b, DSS has contracted with Mc Auto Systems Group, Inc. ("Mc Auto") to process and pay claims for medical services and supplies provided to Medicaid recipients. In order to receive payment for services rendered to Medicaid recipients, the provider enrolls in New York's Medicaid program, and receives a provider number, a provider manual, and claim forms. The provider manuals, supplied to the local social services districts, instructs providers how to operate within New York's Medicaid program. There are separate manuals for different types of services and supplies.

 When an in-state providers, or out-of-state provider who has enrolled in New York's Medicaid program, renders a service or provides equipment or supplies, he/she submits a claim to Mc Auto. If the form is properly completed, and the service or supply was rendered to a Medicaid recipient, Mc Auto then pays the provider, subject to post-payment review. If an out-of-state providers who is not enrolled in New York's Medicaid program renders a service or supply to a New York Medicaid recipient, he/she submits the bill to the DSS out-of-state billing office.

 The third general area of Medicaid administration is the setting of standards for the medical care and services provided. The general standard for the medical services and supplies reimbursable under Medicaid are those "which are necessary to prevent, diagnose, correct or cure conditions in the person that cause acute suffering, endanger life, result in illness or infirmity, interfere with his capacity for normal activity, or threaten some significant handicap." New York Social Services Law § 365-a(2). Pursuant to New York Social Services Law § 364-a, DSS has entered into a cooperative agreement with DOH under which DOH has the responsibility for developing standards for the medical care and services provided under Medicaid. The agreement requires DSS to approve and promulgate regulations embodying the standards for non-institutional medical care certified to DSS by DOH. The agreement further provides that DOH is responsible for enforcing the standards promulgated in the DSS regulations. The standards certified by DOH have been promulgated as regulations by DSS, and are published at 18 NYCRR § 505.1 et seq. The standards are also set forth in the provider manuals.

 The cooperative agreement between DSS and DOH also requires DOH, subject to consultation and periodic review and evaluation by DSS, to establish, maintain, and implement a plan for continuing review of the utilization, appropriateness and quality of care and services furnished to New York Medicaid recipients. Pursuant to this requirement, DOH, in consultation with DSS, has determined that certain medical services and supplies provided to Medicaid recipients by non-institutional providers require "prior approval."

 The Prior Approval System

 "Prior approval" is a pre-service determination that services and supplies proposed to be provided to Medicaid recipients come within the standards set forth in the New York Social Services law, DDS regulations and provider manuals. If approval was not obtained before the service or item was supplied to a recipient, a provider may not be reimbursed. A general description of the services and suppliles which require prior approval is set forth in 18 NYCRR § 505.1 et seq. and in the provider manuals.

 The specific items in each provider category which require prior approval are indicated in the billing section of the provider manuals. Every item or service provided under Medicaid has a five or six digit billing code, and if an item or service requires prior approval, the fact is noted at its billing code. Each provider manual contains an identical "inquiry" section, which contains the telephone numbers and addresses for requesting prior approval and general medical review information, and has a section containing detailed instructions concerning the information required to obtain prior approval.

 Although a service may normally require prior approval, there is no prior approval requirement in emergency situations. As defined in the general policy sections of the provider manuals, an "emergency" is "care for patients with severe, life-threatening, or potentially disabling conditions that require immediate intervention." Whether an emergency exists is decided by the recipients provider, as the provider is the only person who sees the patient. Additionally, in the dental area, which has many services requiring prior approval, palliative treatment of dental pain while awaiting a required prior approval for other treatment of the affected tooth does not require prior approval (for example, opening into root canals for sedation or drainage prior to approval for root canal therapy does not require prior approval).

 There are many reasons why prior approval is required for a given item or service, all of which are related to quality of care considerations and/or cost control. Some items require prior approval because they also have non-medical uses. Other items and services require approval to ensure that they are medically necessary and that there is no equally effective less expensive alternative. In some instances, prior approval is required because a medically necessary item may be inappropriate or harmful to the patient in certain situations. In some cases, the necessity for prior approval depends on the professional qualifications of the provider describing it.

 The Bureau o Ambulatory Care Services of the Surveillance Group, DOH Division of Health Facilities Standards and Control, is responsible for overseeing the staff in the six DOH area offices which make prior approval determinations for medical services (except personal care services) and supplies to be provided to Medicaid recipients in non-institutional settings, and for prior approval of private duty nurses at home or in the hospital. DSS has general supervisory responsibility but becomes directly involved with the prior approval process only when a problem is brought to its attention by a provider a recipient, or DOH.

 Prior approval requests for medical supplies and equipment require a statement of the primary and secondary diagnoses, a detailed description of the equipment or supply ordered an the medical reason why the item is necessary. Prior approval requests for physicians' services require a description of the primary diagnosis or illness requiring treatment, a description of any secondary diagnosis or illness requiring treatment, a description of any secondary diagnosis or illness which may affect the course of treatment, and a treatment plan describing the nature of the illness, prognosis, treatment goals, as well as supporting documentation when appropriate. Prior approval requests for dental services require a dental chart showing the recipient's present dental condition and the needed treatment.

 DOH has issued an Area Office Procedures Manual. The manual describes the "flow" of prior approval requests within the area office and establishes record-keeping requirements. New York City, which was the first district to come under DOH prior approval authority, has significantly higher volume of prior approval requests than the other DOH offices and has developed its own DOH-approved procedures manual. The DOH area offices have developed their own variations on the DOH Procedures Manual based on their own experience and needs. The area offices also have in-house procedures, where necessary, for anything beyond what is covered by the Procedures Manual.

 In some DOH area offices prior approval requests may be granted by non-medical administrative personnel. However, all prior approval requests must be reviewed by a professional peer reviewer (e.g., a dentist reviews dental requests, an optometrist reviews optometry requests) before they are modified or denied. Each area office has a lead physician and a lead dentist who answer questions the professional peer reviewers may have about a particular request. If the lead physician or dentist is unable to answer the reviewer's questions, he/she contacts the DOH Bureau of Standards Development in Albany. The Bureau employes physicians and dentists who have established contats with outside professionals and recognized experts in the various medical fields.

 The standards to be used in making prior approval determinations are the same standards used for the provision of all supplies and services under Medicaid. The determination of what proposed services or supplies are or are not "medically necessary" in a given care case is based on the totality of the factual circumstances, including the diagnosis, prognosis, and what has previously been tried. If the information submitted by the provider does not contain sufficient information concerning the recipient's condition to allow the reviewer to determine whether the requested item is medically necessary, the reviewer requests additional information from the provider. In reaching their determination of whether an individual prior approval request falls within the general Medicaid standards, DOH professional peer reviewers are expected to rely on their professional expertise, relevant guidelines of the American Medical Association and other recognized professional standards.

 Compared to other areas of Medicaid coverage, the dental services for which Medicaid reimbursement is available are limited, whether or not the dental service requires prior approval. The detailed standards used in reviewing dental requests are set forth in the Dental Provider Manual, and leave little discretion with the DOH reviewing dentists.

 In addition to determining whether the requested services should be approved, denied, or modified, the DOH reviewer also reviews the requested price to make sure that it conforms to the allowable price set forth in the provider manuals and determines whether rental or purchase of equipment is appropriate. Additionally, DOH reviewers determine whether the time period for which a service or supply is prescribed is approrpriate, and they may initially approve the service or supply for a shorter period than requested, subject to extension by a renewed prior approval request.

 The usual procedure for initiating requests (except in the pharmacy and dental areas) is the submission, by the requesting provider, of a prior approval form. (There is no form for out-of-state services; written prior approval requests for such services are made by letter). In all non-dental cases (except some out-of-state cases) DOH prior approval determinations are based soley on medical information supplied by the provider and the information contained in the recipient's Medicaid file.

 A second opinion is sometimes sought on requests for out-of-state physicians' services to determine whether the recipient can receive all necessary medical services within New York. In the New York City Area Office, the second opinion is requested from a physician who, at a minimum, holds the rank of assistant professor at one of New York City's medical teaching institutions and who is board certified in the relevant medical specialty area. The consulting physician either reviews the recipient's medical record or, if necessary, examines the recipient at DOH expense.

 Prior approval examinations for dental requests are held in dental clinics operated by DOH solely for that purpose (the DOH clinics do not provide dental treatment). The New York City Area Office currently requires a DOH dental examination for approximately 90% of all dental requests. Beginning in April 1984, at the request of the DOH Bureau of Ambulatory Care Services in Albany, about 35% of the dental requests will no longer require a DOH examination and will be reviewed solely on the basis of medical information supplied by the recipient's dentist and in the recipient's Medicaid case file.

 Under the procedures followed by the New York City Area Office, if a recipient does not appear for a scheduled DOH examination, the provider is notified of that fact and advised to call for a new appointment. If the provider had sent a prior approval form to DOH, it is returned to him. Re-evaluations are available, at the provider's request, for recipients whose prior approval request is denied or modified by the New York City Area Office on the basis of a DOH examination. The recipient is re-examined by a DOH dentist other than the one who originally examined him/her.

 Although a written prior approval form must be submitted to Mc Auto for payment purposes, each DOH area office makes prior approval determinations by telephone on all requests from pharmacies. Decisions on telephone prior approval requests are made on the day the request is received. Because Mc Auto (the DSS Medicaid billing agent) must receive a completed prior approval form before it will pay the provider for an in-state service, drug, or equipment requiring prior approval all in-state providers must submit a prior approval form for the reviewer's signature after a verbal prior approval has been given. The New York City Area Office has a standard procedure for expedited telephone approvals for medical equipment and supplies. In addition, out-of-state providers often make telephone prior approval requests for non-emergency surgical procedures which must be performed within a limited period of time.

 If an in-state prior approval request is approved, the DOH area office notifies the provider and Mc Auto. The provider knows that reimbursement will be paid for the service or equipment provided. At that point DOH has no further pre-service involvement. Once prior approval has been granted, the procedure is the same as if prior approval had not been necessary, i.e., it is up to the medical profession or vendor to provide the service or supply to the recipient.

 DOH requires the area offices to submit monthly reports to the DOH Bureau of Ambulatory Care Services in Albany. The monthly reports must contain such information as the number of prior approvals received in each provider category, their dispositions, and the average turn-around time from the date the request is received until the date it is approved, denied, modified, or returned to provider for additional information. For the year July 1, 1981 -- June 30, 1982, the average turn-around time for prior approval requests submitted to the five upstate DOH area offices ranged from 1 day for pharmacy requests to 10.4 working days for dental requests. For the same year, the average turn-around time for prior approval requests received by the New York City Area Office ranged from 1 day for pharmacy requests to 15 calendar days for requests for physicians services. In the first eight months of 1983, the average turn-around time for all DOH area offices ranged from 1 day for pharmacy requests to 9.1 days for dental requests.

 Unlike the five upstate area offices, the New York City Area Office does not report turn-around time for podiatry requests as a separate category but includes the podiatry statistics with the turn-around time reported for durable medical equipment. Because the New York City Area Office receives few prior approval requests from podiatrists, its podiatry reviewer is retained to review requests at the area office on a monthly basis. However, the New York City Area Office, in consultation with the DOH Bureau of Ambulatory Care Services in Albany, is scheduled to implement a new procedure in mid-April 1984 to ensure that podiatry requests are reviewed in a more timely manner.Under the new procedure, all podiatry prior approval requests received during a given week will be sent to podiatry consultants at the end of week.

 DSS provides fair hearing for recipients aggrieved by DOH prior approval determinations. DSS does not require DOH to provide conferences with recipients aggrieved by DOH prior approval determinations. DOH area offices are not staffed in such manneras to handle such conferences, and a meeting between recipients and DOH professional reviewers would significantly lengthen the time the reviewer takes to render determinations on pending prior approval requests.

 Defendants do no allow individual patients to apply directly for prior approval; they provide no notice to applicants of approval or denial of requests for prior approval. There are no notice of appeal rights for denials, and there are no published rules or procedures or standards by which the defendants make decisions on requests for prior approval. Moreover, there are no time limits within which such ...

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