commenced this action to enjoin the defendants from
implementing changes in the New York State Medicaid program
that have the effect of reducing the amount of exempt resources
available to certain Medicaid recipients. Pending before me is
plaintiffs' application for an order restraining defendants
from taking any immediate steps to implement the changes
pending the court's decision on plaintiffs' motion for a
Unlike most applications for temporary restraining orders
under Federal Rule of Civil Procedure 65, the proceedings to
date in this case have been on full notice to all parties. On
February 26, 1991, the Court met at length with counsel in
chambers, heard brief statements from all parties and set down
a briefing schedule for argument on the preliminary injunction,
which is scheduled for March 13, 1991. In addition, the Court
has received written submissions from plaintiffs and defendant
Perales, and has heard further oral argument from all parties
in open court on March 1, 1991.
Plaintiffs urge that they will suffer irreparable harm from
defendants' actions before the Court hears argument on the
preliminary injunction. Thus, they have asked the Court to
issue temporary relief, enjoining the state from implementing
its decision until that time.
The three named plaintiffs are all elderly residents of
nursing homes in Rochester who are dependent on Medicaid for
their care. The plaintiffs allege that in January, 1991 the New
York State Department of Social Services ("NYSDSS") determined
that Chapter 938, § 38 of the laws of 1990, enacted by the New
York legislature on December 21, 1990, required a reduction of
permissible exempt resource levels allowed to Medicaid
recipients. Whereas, previously, individual recipients could
maintain exempt resources of $3,350 in a given month, the new
limit became $3,000.
Plaintiffs further contend that on January 28, 1991, NYSDSS
first notified nursing home care providers of this change in a
form letter. The letter briefly announced the change in the
resource limit and directed the provider to distribute an
enclosed form "notice" to residents of the facility to whom the
new changes applied. The letter delegates to the provider the
function of determining which residents should receive the
notice on the basis of the provider's calculation of the
residents' change in net available monthly income (NAMI) from
January to February 1991.
Finally, both the form letter and enclosed notice for
distribution to residents state that the reduction in resource
limit was effective as of February 1, 1991. The notice for
distribution informs the recipient that "excess resources,"
i.e., those exceeding the $3,000 limit would be applied toward
the cost of the recipient's medical care.
A party is entitled to preliminary injunctive relief if it
can show irreparable harm and a likelihood of success on the
merits or sufficiently serious questions going to the merits to
make them a fair ground for litigation with the balance of
hardships tipping decidedly in its favor. See Plaza Health v.
Perales, 878 F.2d 577 (2d Cir. 1989); Jackson Dairy, Inc. v.
H.P. Hood & Sons, Inc., 596 F.2d 70 (2d Cir. 1979).
Plaintiffs challenge defendants' actions on essentially four
grounds. First, plaintiffs maintain that defendants have
reduced Medicaid benefits without giving recipients prior
notice and the opportunity for a fair hearing as mandated by
federal regulations and federal caselaw. Second, it is alleged
that defendants failed to give public notice, also required by
federal regulation, of the proposed changes in the method for
determining benefits. Third, plaintiffs assert that defendants
have violated the Medicaid statute itself by failing to base
the determination of plaintiffs' eligibility for benefits on
the resources actually available to the recipient. Finally,
plaintiffs allege that defendants have improperly delegated to
the nursing facilities the responsibility for the
administration and supervision of the Medicaid program.
Because the regulations relied upon by the plaintiffs mandate
the giving of notice to Medicaid recipients before benefits are
suspended or reduced, it is necessary in the first instance to
determine whether defendants' actions constitute a reduction in
benefits. For purposes of this application, it seems clear that
the state's proposed action constitutes a sufficient
"reduction" of benefits to implicate the applicable federal
regulations. To put it simply, Medicaid recipients whose
resources in February exceeded the new limit must pay up to
$350 more for that month's care than they would have had to pay
under the previous limit. To give an example, a recipient
owning $3500 in available resources in February would have paid
$150 to the provider under the old limit, but now owes $500 to
the facility under the new one.
The care provided costs more to the recipients under the new
plan. The recipients' resources must be used to pay for care
that was previously covered by Medicaid. The creation of a new
resource limit has a direct and immediate impact on many
recipients, forcing them to spend more of their meager assets
on medical care and, therefore, in effect reducing the amount
of care covered by Medicaid.
Assuming then that the state's action has caused a reduction
in benefits, the question becomes whether plaintiffs are likely
to succeed on their claims that defendants have violated
federal law or federal regulations.
Plaintiffs cite three separate regulations in support of
their claims that defendants have failed to give proper notice
of their actions. These include:
— 42 C.F.R. § 435.919, which requires that an agency give a
recipient "timely and adequate notice" of proposed
discontinuance, suspension or reduction in benefits;
— 42 C.F.R. § 431.211, which specifically requires that an
agency mail a notice at least 10 days before the date of
— 42 C.F.R. § 447.205, which requires that an agency publish
public notice prior to the effective date of any significant
proposed change in statewide methods and standards for setting
payment rates for services.
Addressing first the latter regulation, there is no evidence
on this record that defendants published public notice of the
proposed resource limit changes that are to be applied
statewide. The newly enacted law does not directly require the
$350 reduction in the exempt resource limit. Rather, the
defendants in this case have interpreted the legislation to
require that reduction. At this juncture anyway, plaintiffs
challenge defendants' construction of the statute rather than
the statute itself, and I find that § 447.205 appears to
require publication of defendants' intent to alter its methods
of computing payment rates on the basis of the new legislation.
See Claus v. Smith, 519 F. Supp. 829 (N.D.Ind. 1981); Morabito
v. Blum, 528 F. Supp. 252 (S.D.N.Y. 1981).
Plaintiffs have also established a likelihood of success on
their claim that the failure to provide proper notice of the
change to each recipient violated federal law. There is simply
no question on the record before me that the individual notice
of defendants' action given to nursing home residents receiving
Medicaid was not timely. Notices were mailed January 28 and the
reduction in benefits took effect February 1. The state's
failure to comply with the applicable regulation deprives
recipients of the meaningful opportunity for a hearing prior to
a reduction in benefits that is required as a matter of due
process. See Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25
L.Ed.2d 287 (1970).
Plaintiffs too are likely to succeed on their claim that the
notices were not adequate under § 435.919, which incorporates
by reference § 431.210. Section 431.210 requires notice of
agency action to include several specific pieces of
information, including a statement of the proposed action, the
reasons for the intended action, and the specific change in law
or regulation requiring the change. From a review of the
notices intended for distribution to nursing facility
residents, the court finds them to be deficient in many
I therefore find that plaintiffs are likely to succeed on
their claim that defendants have violated federal regulations
by failing to provide nursing home residents receiving Medicaid
with timely and adequate notice of the change in the applicable
It is too well established to require citation that the
states must comply with all applicable federal regulations in
administering the Medicaid program. There is certainly ample
authority that a court may enjoin a threatened reduction in
benefits of which there has not been timely notice. See e.g.,
Morabito, 528 F. Supp. at 272-76 (failure to conform with public
notice requirement); Becker v. Toia, 439 F. Supp. 324 (S.D.N Y
B. Evaluation of Resources
Plaintiffs complain that, by calculating recipients'
resources for purposes of determining whether those resources
exceed the new $3000 limit on the basis of stale financial
data, defendants have violated specific provisions of the
Medicaid statute. The statute, at 42 U.S.C. § 1396a(a)(17)(B),
requires state Medicaid agencies in determining benefits to
"tak[e] into account only such income and resources as are . .
. available to the applicant or recipient." Section
1396a(a)(17)(C) compels the state Medicaid agency to "provide
for [the] reasonable evaluation of the [recipient's] income or
Plaintiffs contend that, to determine whether a given
recipient's resources in February exceeded the $3,000 limit,
defendants turned to a January NAMI roster, itself completed on
December 23, 1990. Plaintiffs have submitted affidavits that
NAMI information is obtained from financial data collected
during the course of a recipient's annual recertification. This
process could have been completed many months previously; i.e.,
it is as current as the recipient's last recertification.
Plaintiffs claim, and I agree, that they are therefore likely
to succeed on their claim that defendants have failed to
determine their eligibility for benefits on the basis of
resources actually available.
Although it is perhaps unreasonable to expect state agencies
to keep up-to-the-minute records on recipients' financial
resources, the spirit of the statute clearly would be violated
if the states evaluated eligibility on the basis of information
that is over a year old. The legislative history of the
Medicaid Act specifically states that the cited provisions "are
designed so that the states will not assume the availability of
income which may not, in fact, be available." S.Rep. 404, 89th
Cong., 1st Sess. (1965), reprinted in 1965 U.S.Code Cong. &
Admin.News 1943, 2018.
A more thorough analysis of whether the state has met its
burden as defined by the Act will have to await further factual
development. For purposes of this application, I find that
plaintiffs have shown a likelihood of success.
C. Irreparable Harm/Balance of Hardships
Whether the plaintiffs in this case will suffer irreparable
harm if the defendants are allowed to go forward with the
implementation of the changes in the state plan is a matter of
some dispute between the parties. Plaintiffs take the position
that any reduction in a nursing home resident's Medicaid
benefits constitutes irreparable harm, regardless of the
prospects for reimbursement.