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April 6, 1993

KENNETH CONRAD; ALICE LISMAN, on behalf of the Estate of GLADYS VAIL; OLGA BELOTE, on behalf of the Estate of HAROLD BELOTE; and all others similarly situated, Plaintiffs,


The opinion of the court was delivered by: JOHN T. CURTIN

The primary issue in this motion to dismiss is whether trade associations invited by the State to help formulate a policy can be liable for civil rights violations if the policy deprives persons of their constitutional rights and benefits the clients of the associations. Plaintiffs Kenneth Conrad, et. al., are or are acting on behalf of Medicare patients at skilled nursing facilities in New York State who qualified for supplemental Medicaid benefits in 1989. They bring this action under 42 U.S.C. §§ 1983 and 1985(3) against the New York State Department of Social Services and three associations representing the nursing home industry in New York state: the New York Association of Homes and Services for the Aging, Inc.; the New York State Health Facilities Association, Inc.; and the Hospital Association of New York State, Inc. ("the Associations") for conspiracy to deprive plaintiffs of money under the Medical Catastrophic Coverage Act of 1988 ("MCCA"), P.L. 100-360, codified at 42 U.S.C. § 1395. Plaintiffs also bring claims under New York State Public Health Laws §§ 2805-f(4) for illegal collection of funds and under State common law for fraud.

 Defendant Associations filed a Fed. R. Civ. P. 12(b)1 motion seeking to dismiss all claims against them.


 Plaintiffs are, and seek to represent as a class, *fn1" Medicare patients in skilled nursing facilities in New York State who qualified for supplemental Medicaid coverage in 1989. In New York, supplemental coverage is paid through the State Medical Assistance Program ("MA"), a combination of Federal Medicaid, State funding through the Department of Social Services ("DSS"), and local funds. Unlike Medicare, Medicaid requires skilled nursing facility patients to contribute most of their monthly income toward the cost of their care. This dispute centers on the retention of plaintiffs' net available monthly contribution ("NAMI") by the nursing facilities.

 In 1976, New York State instituted a Medicare optimization program ("MOP I"). L. 1976, ch. 76; Social Services Law § 366(2)(b). The intent of this program was to encourage nursing homes to exhaust possible Federal Medicare coverage for their patients before seeking Medicaid reimbursement. The Federal government pays 100 percent of Medicare, while Medicaid involves a 40 percent State contribution for nursing home services. Thus, for patients eligible for both Medicare and Medicaid, it was in the State's interest to have the patients' nursing home service paid to the greatest extent possible by Medicare.

 In 1984, the State attempted to modify MOP I by sending a letter to all nursing home administrators warning that failure to comply fully with MOP I procedures would subject the facility to sanctions. Responding to heavy protests from nursing facilities, the State established a Medicare Maximization Task Force in 1985 to explore better ways of increasing Medicare coverage of nursing home care for qualified patients.

 As a result of the efforts of this Task Force, the DSS adopted MOP II in January 1987. MOP II was voluntary and designed to address the problems nursing facilities faced in attempting to maximize Medicare coverage. Because the facilities encountered long delays in Medicare reimbursement, those which elected to participate in the MOP II plan were permitted to bill both Medicare and Medicaid for each qualifying patient, keep the higher payment, and return the lower payment to DSS.

 The dispute between the parties in this case centers on the distribution of the patients' NAMIs, or net available monthly income. The NAMI is the monthly payment an MA recipient is required to contribute to his or her health care costs. Limited deductions from gross income are allowed in determining NAMI. They are a personal needs allowance, certain support for the MA recipient's spouse, a family member allowance, and certain health care costs. See 18 NYCRR Part 360.

 If Medicare coverage is available, a patient is not responsible for this contribution. However, when Medicaid is billed, the NAMI is automatically deducted. Pursuant to MOP II, when the facilities billed Medicaid and Medicare simultaneously for the same service, they also required the plaintiffs to pay their NAMIs. The NAMIs were retained even when the ultimate reimbursement came from Medicare and the Medicaid payment was reimbursed to DSS.

 MOP II made little difference to nursing home patients in 1987 and 1988 because Medicare only covered their care in very limited circumstances. However, in 1988, Congress passed the Medical Catastrophic Coverage Act (MCCA), expanding the availability of Medicare coverage for skilled nursing facility patients. In January 1989, nursing facilities began simultaneous billing for thousands of its patients, retaining the NAMIs for all of them, whether the reimbursement ultimately came from Medicare or through the MA. This policy continued until the end of 1989, when Congress repealed MCCA.

 Plaintiffs claim that retention of their NAMIs when their bills were paid by Medicare under MCCA violated Federal and State law and their constitutional right to equal protection. They also claim that the Associations either conspired with the State or formed a joint state-industry plan which they promulgated as state actors to deprive plaintiffs. They seek both compensatory and punitive damages.

 Defendant Associations concede that they participated in discussions with a New York State Task Force to formulate a plan to optimize Medicare coverage of nursing home patients but that the State alone, through DSS, was responsible for adopting and implementing MOP II. The Associations agreed to advise the State, but were never in a position to force either the State or their own member nursing facilities to implement or follow policy. The Associations further argue that as trade associations representing the interests of various types of nursing care facilities, they never collected Medicare, Medicaid, or private payment from any nursing ...

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