The opinion of the court was delivered by: ROBERT J. WARD
Plaintiffs are members of a certified class of "all New York City Medicaid recipients or their representatives who, as a result of agency error or delay, have incurred out-of-pocket expenses for authorized Medicaid services and have not been provided full reimbursement for those expenses." Greenstein v. Perales, No. 89 Civ. 1038 (RJW), 1989 U.S. Dist. LEXIS 6872 at *15-16 (S.D.N.Y. June 20, 1989). In this action brought pursuant to 42 U.S.C. § 1983, plaintiffs challenge the policies and practices of defendants Mary Jo Bane, Commissioner of the New York State Department of Social Services ("DSS"), Barbara Sabol, Administrator of the New York City Human Resources Administration ("HRA"), and Donna E. Shalala, Secretary of the United States Department of Health and Human Services ("HHS") (collectively the "defendants").
In particular, plaintiffs allege that defendants misinterpret 42 C.F.R. § 431.246 (the "corrective action regulation") by adopting a policy of not providing full reimbursement for expenses incurred on account of erroneous denials and delays in Medicaid payments and by limiting corrective payments to a state's predetermined Medicaid rate. As a result, plaintiffs also question the validity and constitutionality of N.Y. Comp. Codes R. & Regs. tit. xviii § 360-7.5(a)(1) (the "reimbursement regulation") which codifies defendants' reimbursement policy. Alternatively, plaintiffs argue that, even if the corrective action regulation does not provide for full reimbursement, the Court should invalidate the DSS and HRA practice of limiting reimbursement for personal home care services at the Medicaid rate, and should direct DSS and HRA to make additional reimbursements to plaintiffs.
Plaintiffs now move for an order granting summary judgment, pursuant to Rule 56, Fed. R. Civ. P. Both DSS and HRA cross-move for an order granting summary judgment in their favor. In addition, HRA argues that the action should be dismissed, because plaintiffs' claims are not enforceable under 42 U.S.C. § 1983. For the reasons that follow, plaintiffs' motion is granted and DSS and HRA's cross-motions are denied.
A. Medicaid's Statutory Scheme
Medicaid, enacted in 1965 as Title XIX of the Social Security Act, 79 Stat. 343 (codified as amended at 42 U.S.C. §§ 1396, 1396a-u (1988)), is a joint federal-state program providing medical assistance to eligible low-income individuals. States are not required to establish a Medicaid plan, but any plan they create must comply with the Medicaid statute and HHS regulations. 42 U.S.C. § 1396a; see Himes v. Shalala, 999 F.2d 684, 686 (2d Cir. 1993). If the Health Care Financing Administration ("HCFA") of HHS approves the state's plan, the state is eligible to receive federal matching funds. Sweeney v. Bane, 996 F.2d 1384, 1385 (2d Cir. 1993) (citing 42 U.S.C. § 1396).
States that institute Medicaid plans must furnish medical assistance to the "categorically needy." 42 U.S.C. § 1396a(a)(10)(A). The "categorically needy" are persons eligible for cash assistance through either of two programs: (1) Supplemental Security Income for the Aged, Blind and Disabled ("SSI"), 42 U.S.C. § 1381 et seq. or (2) Aid to Families with Dependent Children ("AFDC"), 42 U.S.C. § 601 et seq. Atkins v. Rivera, 477 U.S. 154, 157, 91 L. Ed. 2d 131, 106 S. Ct. 2456 (1986). Because SSI and AFDC cover only assistance for basic necessities, Congress determined that recipients of those programs were especially deserving of medical assistance through Medicaid. Id. (citing Schweiker v. Gray Panthers, 453 U.S. 34, 37, 69 L. Ed. 2d 460, 101 S. Ct. 2633 (1981)).
In addition to the "categorically needy," a participating state may elect to provide medical benefits to the "medically needy." Atkins v. Rivera, 477 U.S. at 157. "Medically needy" persons are those who satisfy the eligibility requirements of SSI or AFDC but whose income or resources exceed the financial eligibility standards of those programs. Id. "Medically needy" persons only qualify for Medicaid benefits after they have engaged in "spend down" by incurring expenses that reduce their income to the eligibility level of a "categorically needy" person. Id. at 158 (citing 42 U.S.C. § 1396a(a)(17)).
While states must comply with all applicable federal requirements in implementing Medicaid, they have considerable discretion in the design and operation of their plans. "Within broad federal rules, each State decides eligible groups, types and range of services, and administrative and operating procedures." 42 C.F.R. § 430.0. In New York, DSS supervises the State's Medicaid plan while HRA administers the program in New York City. See N.Y. Social Services Law § 363-a(1). New York State has opted to provide medical benefits to the "medically needy" through a form of "step down" known as the "surplus income program." N.Y. Comp. Codes R. & Regs. tit. xviii §§ 360-4.8(b) and (c). Individuals in this program receive Medicaid coverage in any month in which they incur medical expenses exceeding an income allowance known as the "monthly surplus."
When a recipient becomes eligible for Medicaid, the program pays for approved medical supplies and services rendered as of the first day of the month in which eligibility was established. Id. § 360-2.4(c). The recipient is also deemed retroactively eligible for Medicaid on "expenses incurred during the three months prior to the month of application for Medicaid, provided the applicant was eligible in the month in which the medical care and services were received." Id. Retroactive payments for medical bills are made directly to the recipient, but reimbursement is limited to a fee established by the state known as the Medicaid rate. Id.
Generally, however, payments for Medicaid are made directly to the individual or entity providing the services rather than to the recipient of the services (the "vendor payment principle"). 42 C.F.R. § 447.10(d); N.Y. Comp. Codes R. & Regs. tit. xviii § 360-7.5(a). The purpose of the vendor payment principle is to ensure that providers will be reimbursed for services they furnish recipients, thereby eliminating disincentives in providing such services based on the fear of nonpayment. Here too, the provider obtains reimbursement at the state's predetermined "Medicaid rate." See, 42 U.S.C. § 1396a(a)(30)(A); 42 C.F.R. § 447.200 et seq. The Medicaid rate is not a single fee but a range of fees which varies depending on the type of services and supplies being provided. Once the provider has been paid by the state, the state is entitled to reimbursement from HCFA for a specified portion of payments referred to as the "federal financial participation" rate ("FFP").
2. Personal Care Providers and Services
The number of hours provided through personal care services varies based on factors including the recipient's medical condition and whether he or she has family members or friends who can serve as informal caregivers. Id. § 505.14. Some recipients require "continuous twenty-four-hour personal" service in which they are provided with uninterrupted care by two personal care aides who serve consecutive twelve-hour shifts ("continuous care"). Id. § 505.14(a)(3). Other recipients may need "live-in" care in which there is only one personal care aide, who lives in the recipient's home. Finally, there are Medicaid recipients who need personal home care but for fewer hours than is provided by either continuous care or live-in care.
As with other Medicaid payments, personal care providers are paid for their services at the Medicaid rate. However, whereas the Medicaid rates for most supplies and services are explicitly established by local social services districts, the Medicaid rates for personal care services are negotiated by contract with personal care providers. N.Y. Comp. Codes R. & Regs. tit. § 505.14(c)(6). The local social services district contracts with personal care providers from one or more specified entities. These include: (1) not-for-profit or voluntary agencies ("voluntary providers"); (2) for-profit or proprietary agencies ("proprietary providers"); and (3) individual contractors not employed by an agency ("individual providers"). Id. § 505.14(d)(2).
B. Corrective Payments Under Medicaid
1. Corrective Payments Regulations
Individuals, whose claims for medical assistance are denied or not acted upon with reasonable promptness, are entitled to a "fair hearing" before the state agency supervising the Medicaid program. 42 U.S.C. § 1396a(a)(3). If the agency decides in favor of the applicant, it must make corrective payments retroactive to the date of the incorrect determination, pursuant to the federal corrective action regulation. 42 C.F.R. § 431.246. This regulation reads in full:
The agency must promptly make corrective payments, retroactive to the date an incorrect action was taken, if -
(a) The hearing decision is favorable to the applicant or recipient; or
(b) The agency decides in the applicant's or recipients favor before the hearing.
Although the federal corrective action regulation itself does not define its scope, New York has its own regulation, known as the reimbursement regulation, which specifies to whom and how much payments should be made for erroneous denials. The reimbursement regulation states in relevant part:
(a) Payment for medical care provided under the MA program will be made to the person or institution supplying the care. However, payment for services or care may be made, at the MA rate or fee in effect at the time such services or care were provided, to the following:
(1) a recipient or his/her representative when an erroneous determination by the social services district of ineligibility is reversed. The erroneous decision must have caused the recipient or his/her representative to pay for medical services which should have been paid under MA. Direct reimbursement to the recipient or the recipient's representative will be made whether the decision to reverse is due to the district discovering its own error, or as the result of a fair hearing decision or court order.
N.Y. Comp. Codes R. & Regs. tit. xviii § 360-7.5(a)(1) (emphasis added). In New York, payments for erroneous denials are made directly to recipients but payments are limited to the State's applicable Medicaid rate.
2. Reimbursement for Personal Care Services
N.Y. Comp. Codes R. & Regs § 505.14(h) sets forth the manner in which DSS determines Medicaid rates for personal care providers.
In general, DSS selects the lower of the providers' charge to the public for personal care services and a payment rate determined by DSS for each provider. Id. § 505.14(h)(7).
Local social services districts may request exemptions from DSS and substitute their own methodologies in determining Medicaid rates for personal care services. Id. HRA has developed a methodology for New York City whereby each provider submits fiscal and statistical data representing its cost of doing business. Berberich Aff. P 31.
Through this data, HRA calculates a unique rate for each personal care provider. Id. The HRA methodology also provides for the calculation of a "weighted average." The weighted average is determined by calculating the average cost of providing one hour of home care services in New York City.
When HRA determines that a Medicaid recipient is eligible for reimbursement, DSS calculates the amount of corrective payment depending on which personal care provider was used. For recipients receiving personal care from voluntary or proprietary providers that contract directly with HRA ("contract providers"), DSS authorizes HRA to reimburse the recipient at the rate specified in the contract. Recipients who purchase personal care services from a voluntary or proprietary provider that does not have a contract with HRA ("non-contract providers") are reimbursed at the weighted average. Finally, when recipients secure personal care from an individual provider, HRA reimburses the recipient at the rate the individual provider would have been paid had it been employed by a voluntary or proprietary provider.
HRA has contractual arrangements for the provision of personal care with seventy-four voluntary providers, five proprietary providers, and one hundred individual providers. Berberich Aff. P 27. Most of the voluntary providers HRA contracts with serve only Medicaid recipients. Voluntary providers with whom HRA has contracts, generally, service at least 200 recipients. However, some providers may serve as many as 1,000 recipients. Id. P 29. By serving a large Medicaid caseload, these providers often benefit from the economies of scale that reduce their cost of doing business. For example, the administrative costs of voluntary providers serving groups of Medicaid recipients will be less than providers that serve no Medicaid recipients.
C. The Representative Plaintiffs
1. Benjamin and Anna Greenstein
Benjamin and Anna Greenstein are an elderly couple suffering from Parkinson's disease and Alzheimer's disease respectively. Through the Medicaid program, the Greensteins were first provided with twelve hours of daily home care, which was later increased to twenty-four hours of live-in service. The Greenstein's physician requested that the personal home care services be increased to continuous service provided in two daily shifts, and an HRA social assessment concluded that the request be granted. After HRA did not issue a determination or provide any additional care, the Greensteins filed an order to show cause on October 20, 1988 seeking an order increasing their home care services. At the same time, the Greenstein's received emergency funding from a charitable organization with the understanding that they would seek full reimbursement for all sums expended. Plaintiffs' Rule 3(g) statement PP 81-91.
The Greensteins were incapable of obtaining home-care from a Medicaid provider because it would not accept private-pay clients. After inquiring with a number of providers, the Greensteins finally used a provider that offered the lowest rate of all at $ 12.75 per hour or $ 153 for each twelve hour shift. On November 4, 1988, the State Supreme Court granted the Greenstein's motion, pending a decision to be rendered after a state fair hearing conducted by DSS. Id. at PP 92-93.
The state fair hearing held on December 22, 1988 resulted in a favorable decision for the Greensteins. In the decision, DSS directed HRA to provide reimbursement for monies expended in providing a twelve hour shift for the period from October 21, 1988 to November 3, 1988 at a rate up to the Medical Assistance rate or fee at the time the services were rendered. As a result, although the Greensteins needed to pay $ 12.50 an hour to ...