The opinion of the court was delivered by: Goettel, District Judge.
Plaintiff Rye Psychiatric Hospital Center ("Rye
Psychiatric") originally commenced this action against
defendants Richard C. Surles and Cesar A. Perales to challenge
New York's Medicaid reimbursement system as applied to private
psychiatric hospitals as violative of the Boren Amendment to
the Medicaid Act. Plaintiff presently seeks injunctive relief
from this court directing defendants to commence specific
actions designed to implement the court's prior decision which
rendered the minimum utilization adjustment to New York's
Medicaid reimbursement rates null and void.
The facts of this case were fully detailed in this court's
prior opinion of July 2, 1991. While it is unnecessary to
repeat the court's explanation of the Medicaid system and the
enactment of the Boren Amendment, we must provide an overview
of the background and subsequent procedural history of the
case to allow for a full understanding of the context and
disposition of plaintiff's motion.
Rye Psychiatric, a private psychiatric hospital located in
New York, originally brought this action under 42 U.S.C. § 1983
(1988) against the respective department heads of the Office of
Mental Health of the State of New York and the State of New
York Department of Social Services. Plaintiff challenged New
York's state plan for Medicaid as insufficient under the Boren
Amendment to the Social Security Act and its corresponding
federal regulations.*fn1 To promote increased rate-setting
flexibility and efficiency for states, the Boren Amendment's
implementing regulations require states to make at least annual
findings that its reimbursement rates are reasonable and
adequate. See Pinnacle Nursing Home v. Axelrod, 928 F.2d 1306,
1310 (2nd Cir. 1991).
Specifically, plaintiff claimed that the state's method of
calculating Medicaid reimbursement rates which included a
minimum utilization adjustment violated the procedural
requirements of the Boren Amendment as well as the equal
protection and due process clauses of the United States
Constitution. Additionally, plaintiff claimed that New York's
reimbursement rates did not meet the Boren Amendment's
substantive requirements. Although state participation is
optional, once a state elects to take part in the Medicaid
program it must comply with federal statutory requirements.
See Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680,
65 L.Ed.2d 784 (1980). On July 2, 1991, this court declared the
minimum utilization adjustment included in New York's
reimbursement formula for private psychiatric hospitals as
codified at 14 N.Y.C.R.R. § 577.7(g) to be null and void since
state officials failed to conduct any formal findings as
required by the Boren Amendment to support the rate
adjustments. See Rye Psychiatric Hosp. Center, Inc. v. Surles,
768 F. Supp. 82 (S.D.N.Y. 1991). The court declined to resolve
any of plaintiff's substantive claims under the Boren Amendment
regarding New York's Medicaid reimbursement rate schedule until
the procedural violations were cured by the state. See id. at
Plaintiff presently contends that defendants, despite this
court's holding the minimum utilization adjustment to be null
and void, continue to use it in calculating Rye Psychiatric's
current Medicaid reimbursement rates and have failed to revise
the provisional rates of prior fiscal years to exclude the
voided adjustment. In short, plaintiff states that the
defendants have done nothing to implement the court's prior
decision. Plaintiff further notes that it remains in a
precarious financial position because of the insufficient
reimbursements it has been receiving from the state.
Plaintiff has submitted this order to show cause seeking a
court order compelling defendants to commence reimbursing Rye
Psychiatric at its 1990 Medicaid rate absent the minimum
utilization adjustment — i.e. a rate of $423.18 per patient
per day — and to complete within ninety days a final audit of
its rates between January 1, 1987 and July 2, 1991 (the date of
this court's prior decision on the minimum utilization
adjustment). Furthermore, plaintiff requests the court to order
defendants to pay them the difference between reimbursement
rates calculated without factoring in the minimum utilization
adjustment and the rates actually received by plaintiff during
this period. Plaintiff also asks the court to compel defendants
to increase its reimbursement rates an additional five percent
to reflect its proper status as a disproportionate share
hospital under 42 U.S.C. § 1396r-4(b) of the Boren Amendment.
By separate motion plaintiff requests attorney's fees from
On October 3, 1991, plaintiff received from New York's
Office of Mental Health ("OMH") the Proposed 1991 Medicaid
Rates for private psychiatric hospitals. The estimated rates
chart specifies Rye Psychiatric's 1990 Medicaid reimbursement
rate as $432.18 and its proposed 1991 rate as $448.80.
Plaintiff calls attention to a notation below the chart which
states that the 1989 Capital Costs figures reflect some
preliminary audit adjustments.
According to defendants, plaintiff's reimbursement rate has
been revised from July 2, 1991 through the present to exclude
the improperly adopted minimum utilization adjustment.
Defendants also state that revised reimbursement payments to
plaintiff have already commenced effective July 2, 1991.
Plaintiff, in its amended Article 78 petition, admits that OMH
has made Medicaid reimbursement payments without the minimum
utilization factor as of July 2, 1991.
The principal issue raised by defendants in opposition to
plaintiff's motion for injunctive relief is the immunity
afforded to states under the eleventh amendment. Before the
court can grant plaintiff's motion and issue the requested
relief it must satisfy itself that the types of relief at
issue do not run afoul of the eleventh amendment's
restrictions on the power of federal courts to grant relief
against a state.
The eleventh amendment to the Constitution of the United
States provides that:
"The judicial power of the United States shall
not be construed to extend to any suit in law or
equity, commenced or prosecuted against one of
the United States by Citizens of another State,
or by Citizens or Subjects of any Foreign State."
U.S. CONST. amend. XI. Generally, this provision is viewed as
an explicit limitation to the subject matter jurisdiction of
the federal courts. See Ford Motor Co. v. Department of
Treasury, 323 U.S. 459, 467, 65 S.Ct. 347, 352, 89 L.Ed. 389
(1945). While the amendment's language expressly confines its
application to the diversity jurisdiction of federal courts to
hear suits against states by citizens of other states or
foreign nations, the Supreme Court has extended its meaning to
also preclude suits in federal court against a state by its own
citizens. See Hans v. Louisiana, 134 U.S. 1, 10 S.Ct. 504, 33
L.Ed. 842 (1890).
Although the evolution of eleventh amendment doctrine has
often been marked by inconsistency and, to many, disarray,
some basic principles may be gleaned from the caselaw. The
eleventh amendment not only protects states from suit but may
also shield state officials with immunity. "[W]hen the action
is in essence one for the recovery of money from the state,
the state is the real, substantial party in interest and is
entitled to invoke its sovereign immunity ...