Opinion
Civil Action No. 03-68-JMH
March 25, 2004
MEMORANDUM OPINION AND ORDER
This action is before the Court on several motions. Defendants have filed a motion to dismiss or for summary judgment [Record No. 7]. Plaintiffs have responded [Record No. 25], requesting oral argument on the motion, and Defendants have replied [Record No. 31]. Plaintiffs have filed a motion for preliminary injunction [Record No. 36]. Defendants have responded [Record No. 42], and Plaintiffs have replied [Record No. 44]. Defendants have also filed a notice of change in administrative regulation [Record No. 39]. Plaintiffs have filed a response [Record No. 41], and Defendants have replied [Record No. 45]. These matters are now ripe for decision.
Plaintiffs have requested oral arguments in their response to Defendants' motion to dismiss or for summary judgment [Record No. 25]. Having reviewed the pleadings, the Court does not believe that oral arguments would be helpful or are necessary in resolving the matters contained therein and shall deny Plaintiffs' motion.
I. FACTUAL BACKGROUND
Plaintiffs are residents of Kentucky and Medicaid recipients who have had their necessary level of care determined by the Department for Medicaid Services (hereinafter, "Department") through a medical review completed under contract by a Peer Review Organization (hereinafter, "PRO"). Defendants are the administrators of the Cabinet for Health Services ("Cabinet") and the Department. The Department is a single state agency designated pursuant to 42 U.S.C. § 1396a(a)(5) and KRS Chapters 194A and 205 for the administration of the Kentucky Medical Assistance Program (hereinafter, "Medicaid") in the Commonwealth of Kentucky. The Department is located within the Cabinet pursuant to KRS 194A.030(3).
Defendants administer the Medicaid level of care provisions through a state law contract with a PRO, a contract subject to a competitive bid process. The contract is administered in accordance with the provisions of KRS § 205.6315. Reviews are conducted periodically to make certain that a Medicaid recipient is receiving only those services that are medically necessary as the term is defined by 907 KAR 3:130.
When PRO determines that the level of care does not meet the criteria for services, it sends a notice to the Medicaid recipient. Recipients, like Plaintiffs in this matter, are then afforded an opportunity to a hearing. Plaintiffs in this matter have requested hearings. The cases are then forwarded to the Administrative Hearings Branch of the Cabinet. Hearing Officers, attorneys licensed in Kentucky, are appointed pursuant to KRS Chapter 13B and are specifically trained to deal with the complex nature of the programs administered by the Cabinet, although the Court understands that they do not have the authority to evaluate the lawfulness of the regulations.
All provisions of the Medicaid program are to be operated pursuant to 42 U.S.C. § 1396(a), an approved Medicaid State Plan and State Plan Amendment, or a waiver to the Medicaid State Plan. Approval is made by the United States Department of Health and Human Services (hereinafter, "HHS") and the Center for Medicare and Medicaid Services (hereinafter, "CMS"). At all times relevant to this matter, the Department's State Plan and all State Plan Amendments have been approved by CMS although the state has withdrawn its request for approval of the 2003 regulations as an amendment of the State Plan upon advice from the CMS that no approval was required.
The parties have described how a record number of Kentuckians have become participants in the Medicaid program just as huge budget shortfalls have hit the state and while medical and pharmacy costs have increased. Plaintiffs allege that the Commonwealth responded to the budget crunch by adopting an "emergency regulation" that redefined eligibility for Medicaid long-term care and rendered ineligible persons previously certified as eligible for nursing facility (hereinafter, "NF") and other long-term care. The emergency regulations described in the complaint, 907 KAR l:O22E, were replaced by virtually identical permanent regulations, 907 KAR 1:022 on October 30, 2003 (hereinafter, collectively, "2003 regulations"). As a result, there have been determinations that some Medicaid recipients residing in nursing homes and others receiving Home and Community Based Services (hereinafter, "HCBS"), all previously acknowledged by the state as needing these services, were no longer eligible for long-term care under Kentucky's Medicaid program.
A new emergency regulation, also 907 KAR l:O22E, was promulgated on January 30, 2003 (hereinafter, "2004 regulation"), changing, yet again, the standards by which the necessity of NF and HCBS service benefits will be determined.
On April 4, 2003, Plaintiffs were receiving services under the Kentucky Medicaid program based on determinations that they were entitled to receive long-term care. Some resided in nursing homes, and others participated in the HCBS waiver program. With the adoption of the 2003 regulations and the alteration of the level-of-care criteria for mandatory federal Medicaid nursing facility services, it was projected that the Commonwealth would save some $45 million. When Plaintiffs' needs were reconsidered under the 2003 regulations and information obtained by the PRO from Plaintiffs' physicians, care givers, and health care practitioners, none of the plaintiffs remained eligible for NF services even though they had previously been recognized as having medical need of those services. The PRO recommended and the Department accepted the PRO's recommendation that Plaintiffs did not meet the standards for the level of care in a NF or HCBS as set out in Kentucky administrative regulations. There has been no finding or suggestion that Plaintiffs' conditions have changed or that they are less in need of long-term care services than they were before April 4, 2003.
If a Medicaid recipient has need of a level of care that meets the NF standards, they are entitled to care in a licensed and regulated NF or can participate in Kentucky's approved HCBS waiver program. Medicaid recipients participating in the HCBS waiver program receive a variety of services (adult day care, homemaker services, home health care, etc.) in their home or the home of another individual.
Plaintiffs allege that they are being deprived of mandatory services by the implementation of the new regulations. They complain that the administrative redefinition of the need for NF services and HCBS is not based upon new medical knowledge "providing a more enlightened understanding of who actually needs nursing facility services, or indeed upon any medical or health-related considerations at all . . ." and that Defendants have not even suggested that the amendments are in the best interest of Kentucky Medicaid recipients or that the new regulations are consistent with the objectives of the Medicaid Act or in accord with federal Medicaid law. [Response at 1.]
Plaintiffs seek relief from the Cabinet's determination of the level of care under the 2003 regulations by alleging that the level of care standard is contrary to the provisions of federal law and that subject to preemption under the Supremacy Clause of the United States Constitution. Plaintiffs also allege that the level of care standard in the 2003 regulations is unreasonable. Further, Plaintiffs claim that the notices sent to them are insufficient under the Medicaid Act and the Due Process Clause of the Fourteenth Amendment. Finally, Plaintiffs allege a violation of state law because, allegedly, Defendants are not assuring that PRO complies with state law, that hearings are conducted properly, or that services are continued pending completion of the appeal process.
II. APPLICABLE STANDARDS OF REVIEW
Defendant has moved this Court to dismiss Plaintiff's claims pursuant to Fed.R.Civ.P. 12(b)(1), arguing that the Court does not have subject matter jurisdiction in this case, and pursuant to Fed.R.Civ.P. 12(b)(6), arguing that Plaintiff has failed to state a claim upon which relief may be granted. When considering a 12(b)(1) motion, the Court may consider matters outside of the record, without converting the motion to a motion for summary judgment, as the Court must determine whether or not the Court is even allowed to reach the merits of the case. Rogers v. Stratton Ind., Inc., 798 F.2d 913, 915-917 (6th Cir. 1986). Plaintiff bears the burden of demonstrating that subject matter jurisdiction exists. Hedgepath v. Kentucky, 215 F.3d 608, 611 (6th Cir. 2000). With regard to the 12(b)(6) motion, this Court must accept all factual allegations in Plaintiff's complaint as true. Broyde v. Gotham Tower, Inc., 13 F.3d 994, 996 (6th Cir. 1994). The complaint may be dismissed only if it is clear that no relief could be granted on any set of facts that could be proven consistent with the allegations, and this Court's review amounts to a determination of whether it is possible for the plaintiff to prove any set of facts in support of its claims that would entitle it to relief. Sistrvnk v. City of Strongsville, 99 F.3d 194, 197 (6th Cir. 1996); Miller v. Currie, 50 F.3d 373, 377 (6th Cir. 1995). This Court must ignore all outside evidence submitted by the parties in ruling on the motion to dismiss pursuant to 12(b)(6).
Defendants have asked, in the alternative, for summary judgment in this matter. Under Fed.R.Civ.P. 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no issue as to any material fact, and that the moving party is entitled to judgment as a matter of law." The moving party may discharge its burden by showing "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The nonmoving party, which in this case is the plaintiff, "cannot rest on [her] pleadings," and must show the Court that "there is a genuine issue for trial." Hall v. Tollett 128 F.3d 418, 422 (6th Cir. 1997). In considering a motion for summary judgment the court must construe the facts in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Finally, Plaintiffs have made a motion for preliminary injunction in this matter. In order to succeed, they must show that (1) there is a substantially likelihood that they will succeed on the merits of this litigation, (2) that there is a serious risk of irreparable harm if the injunction is not issued, (3) that the balance of hardships favors Plaintiffs, and (4) that an injunction would be in accordance with the public interest. United States v. Detroit Int'l Bridge Co., 7 F.3d 497, 503 (6th Cir. 1993). Of these factors, no one is determinative to the appropriateness of the relief sought, rather there is a balancing of the factors. Roth v. Bank of the Commonwealth, 583 F.2d 527, 536 (6th Cir. 1978).
III. DISCUSSION
A. STANDING AND PRIVATE RIGHT OF ACTION
Parties invoking a court's jurisdiction must establish their standing in a case or controversy under Article III of the United States Constitution, a matter turning on the parties' personal stake in the dispute. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992); Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 72 (1978). In order to meet the "irreducible constitutional minimum" of Article III standing, Plaintiffs must demonstrate three elements: (1) an injury in fact, (2) a causal connection between the injury and the conduct of which they complain, and (3) redressability of the injury by the relief sought. In the instant matter, Defendants argue that Plaintiffs have not been injured because there is no individual right that may be enforced under 42 U.S.C. § 1983 with regard to the Medicaid Act because that legislation was enacted pursuant to Congress' spending power and that Plaintiffs, thus, do not have standing to bring those claims.
42 U.S.C. § 1983 prohibits the deprivation of a person's "rights, privileges, or immunities" secured by the laws or the constitution of the United States under color of state law. 42 U.S.C. § 1983. It is true that, "[i]n legislation enacted pursuant to the spending power [such as the Medicaid Act], the typical remedy for State noncompliance with federally imposed conditions is not a private cause of action for noncompliance but rather action by the Federal Government to terminate funds to the State." Pennhurst State School Hosp. v. Halderman, 451 U.S. 1, 28 (1981). Nonetheless, in some circumstances, federal Medicaid provisions can create a right privately enforceable against state officers through § 1983. See Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 511-12 (1990) (holding that the Boren Amendment to the Medicaid Act created a right enforceable under § 1983); Westside Mothers v. Haveman, 289 F.3d 852, 862-863 (6th Cir. 2002) (applying test set out in Wilder to determine of private right of action existed under 42 U.S.C. § 1983 for noncompliance with screening and treatment provisions of Medicaid Act).
Provisions of the Medicaid Act create an enforceable right under § 1983 if, after a particularized inquiry, the court concludes that:
(1) the statutory section was intended to benefit the putative plaintiff, (2) it sets a binding obligation on a government unit, rather than merely expressing a congressional preference, and (3) the interests the plaintiff asserts are not so "`vague and amorphous' that [their] enforcement would strain judicial competence." Blessing v. Freestone, 520 U.S. 329, 341 (1997) (quoting Wright v. Roanoke Redevel. and Housing Auth., 479 U.S. 418, 437. . . . (1987)).Westside Mothers, 289 F.3d at 862-863. "If these conditions are met, [the Court] presume[s] the statute creates an enforceable right unless Congress has explicitly or implicitly foreclosed this." Id. at 863 (citing Blessing, 520 U.S. at 341; Wood v. Tompkins, 33 F.3d 600, 605 (6th Cir. 1994)). As Congress has not foreclosed the possibility of private enforcement of rights under 42 U.S.C. § 1396a(a)(1)(A)(i), 1396d(a)(3) and (4), and 1396a(a)(17), the Court will presume that the Medicaid statute creates an enforceable right unless Plaintiffs fail to meet the conditions set out above.
Under the terms of the Act, Kentucky must:
. . . provide (A) for making medical assistance available, including at least the care and services listed in paragraphs (1) through (5), (17) and (21) of section 1396d(a) of this title, to (i) all individuals [who] meet the age and financial requirements of a categorical population.42 U.S.C. § 1396a(a) (10) (A). 42 U.S.C. § 1396d(a)(4)(A) specifies "nursing facility services (other than services in an institution for mental diseases) for individuals 21 years of age or older" as among the required care or services. 42 U.S.C. § 1396d(a)(4)(A). This is to say that NF services are a mandatory service under Medicaid. See Westside Mothers, 289 F.3d at 856 ("The Medicaid Act and related regulations set out a detailed list of services every state program must provide.") Further, the "nursing facility services" of § 1396d(a)(4)(A) are specifically defined as services required for "an individual who needs or needed on a daily basis nursing care (provided directly or requiring the supervision of nursing personnel) or other rehabilitation services which as a practical matter can only be provided in a nursing facility on an inpatient basis." 42 U.S.C. § 1397d(f). The same may be said of those long-term care services available under the HCBS waiver program, an alternative to the services otherwise to be provided under auspices of NF services, to those who would otherwise require the level of care provided in a hospital, nursing facility, or intermediate care facility which would be reimbursed under Medicaid. 42 U.S.C. § 1396a(a)(10)(A)(ii)(VI) and § 1396n(c)(1); 42 C.F.R. § 430.25.
Thus, this Court is persuaded that the NF services and the long-term care services available under the HCBS waiver program are clearly intended to benefit Plaintiffs, all within the class of persons eligible for NF services and HCBS. In fact, there is a binding obligation on the Commonwealth to provide these services as they "are couched in mandatory rather than precatory language, stating that Medicaid services " shall be furnished" to eligible persons and that the NF services " must be provided." 42 U.S.C. § 1396a(a)(8) and 1396a(a) (10) (A) (emphasis added). These provisions are not so vague or amorphous as to defeat judicial enforcement because the statute carefully details the services to be provided. See 42 U.S.C. § 1396d(a)(4)(A) and 1396r(a). Thus, Plaintiffs have a private right of action to enforce these provisions.
Similarly, the Court is persuaded that Plaintiffs have a private right of action for alleged violations of 42 U.S.C. § 1396a(a)(17), requiring that a "state plan for medical assistance must . . . include reasonable standards . . . for determining eligibility for and the extent of medical assistance under the plan . . . which are consistent with the objectives of [the Act.]" Specifically, this portion of the Act is "by its terms . . . intended to provide standards upon which individual applicants can rely in the determination of their benefit eligibility by state officials. It is intended to benefit the plaintiffs, and it is a binding obligation on the state agency." Markva v. Haveman, 168 F. Supp.2d 695, 711 (E.D. Mich. 2001), aff'd, 317 F.3d 547 (6th Cir. 2002). The requirement that these standards be consistent with the objectives of the Act is not so vague and amorphous as to defeat this Court's review of the situation. Plaintiffs may bring an action to remedy this perceived wrong.
Finally, Plaintiffs also have the right to pursue claims for violations of the requirement for a "fair hearing before the State agency." 42 U.S.C. § 1396a(a)(3). This is a binding obligation on the state to provide a fair hearing and is clearly "intended to benefit [a] putative plaintiff." Gean v. Hattaway, 330 F.3d 758, 772-773 (6th Cir. 2003) ( quoting Wilder, 496 U.S. at 509). It is not "congressional preference" for certain conduct nor an interest "too vague and amorphous" to be enforced by a competent judiciary, particularly in light of the judiciary's regular review of matters to determine whether an individual has been afforded appropriate procedural due process by a state entity, a claim also raised by Plaintiffs under the Fourteenth Amendment to the United States Constitution. Id. Thus, it is proper for those affected by that obligation to bring a suit for its breach under § 1983.
No doubt, each Plaintiff has a personal stake in the outcome of this controversy and can claim an injury due to Defendants' decision to terminate certain Medicaid benefits through their application of the 2003 regulations and their alleged failure to provide Plaintiffs with adequate procedural due process. Specifically, they have lost NF and HCBS services under the Medicaid program, a concrete and particularized injury, and they seek to vindicate interests falling within the "zone of interests" protected and regulated by the Medicaid Act, as described above. Defendants allegedly caused their injury by adopting and implementing the regulations, and that the relief sought, an injunction preventing the use of the regulations to bar the provision of the services they seek, would redress or prevent their alleged loss of mandated services under the Medicaid Act. This is sufficient for standing in this matter, and Plaintiffs may pursue their claims. Defendants' motion to dismiss this action for lack of standing shall be denied.
B. RIPENESS
Defendants have also suggested that this claim is not yet ripe for adjudication as Plaintiffs have failed to exhaust their administrative remedies with the state administrative agency. However, "exhaustion is not a prerequisite to an action under § 1983," especially where plaintiffs raise federal constitutional issues and Congress has not carved out an exception requiring exhaustion as is the case in this matter. Patsy v. Board of Regents, 457 U.S. 496, 501 and 507 (1982). While Plaintiffs may seek a hearing before state ALJ's on the application of the new criteria to their case, the state hearing officers will not address the federal questions raised here. Accordingly, this matter is ripe for adjudication, and Plaintiffs' claims shall not be dismissed on these grounds.
C. DUE PROCESS
The Act requires states to provide a fair hearing when a Medicaid agency takes action to suspend, terminate, or reduce eligibility or covered services. 42 U.S.C. § 1396a(a)(3); 42 C.F.R. § 431.200, et seq.; § 431.210. In fact, it is explicitly required that Kentucky's Medicaid hearing system meet the constitutional due process standards set forth in Goldberg v. Kelly, 42 C.F.R. § 431.205(d); 907 KAR 1:563; Goldberg v. Kelly, 397 U.S. 254 (1970). At the time of application or any action affecting their claims, a state agency must inform applicants or recipients in writing of their right to a hearing, the method by which they may obtain a hearing, and that they may be represented by legal counsel, a relative, a friend, or other spokesperson. 42 C.F.R. § 431.206. A notice of adverse action must contain a statement of what action is intended, the reasons for the intended action, the specific regulation supporting or changing the law that requires the action, an explanation of the right to request hearing, and an explanation of the circumstances under which Medicaid is continued if a hearing is requested. 42 C.F.R. § 431.210.
The initial notices to Plaintiffs explaining that they were no longer eligible for NF or HCBS services under the 2003 criteria failed to give any reasons for the denial, stating only that:
Healthcare Review Corporation, having reviewed your medical case with your physician or having made an effort to contact your physician, has determined that the case as presented, deos not meet payor criteria for: continued stay in a facility.
[Complaint, Exh. A-J.] Notices for five of the plaintiffs added ". . . documentation was insufficient to support level of care for conitnued stay in a nursing facility." Notices for the other five read "documentation does not support medical necessity/approrpiateness for further stay in a nursing facility level of care as outlined in 907 KAR 1:022."
The Court agrees that these notices lack specificity as to why Plaintiffs no longer met the level of care criteria, as required by 42 C.F.R. § 431.210(b) and 907 KAR 1:563 § 2(3)(b); see Moffitt v. Austin, 600 F. Supp. 295, 297-98 (W.D. Ky. 1984) (notices prvoiding that "further stay at the intermediate care facility not necessary" and "after due consideration of the medical data . . . the adverse decision should be upheld" are inadequate to allow individuals to prepare defense and violate due process regulations). Further, none of the original notices accurately cited a specific regulation supporting the decisions. One cited 907 KAR 1:022, not the then newly enacted emergency regulation 907 KAR l:O22E, and none cited a particular section or subsection of the long, complicated regulations. In fact, five of the notices failed to cite any level of care regulation, whether in force or not, at all. The notices were insufficient "to protect claimants from proposed agency action resting on a misapplication of the rules [or] policies [to] the facts of particular cases" and may well have denied them the process due under the Act. Goldberg v. Kelly, 397 U.S. at 268, cited in Oritz v. Eichler, 794 F.2d 889, 893 (3rd Cir. 1986).
Adverse notices must explain circumstances under which Medicaid will be continued if a hearing is requested. 42 C.F.R. § 431.210 (e); 907 KAR 1:563 § 5. The original adverse notices sent to Plaintiffs in this matter explained that:
If the request for an administrative hearing is postmarked or received within ten (10) calendar days of the adverse advance notice date of the denial specified on the notice for denial of level of care, Medicaid vendor payments shall continue until the date the hearing decision is rendered.
[Complaint, Exh. A-J.] While the Court is not convinced that this portion of the adverse notice is confusing, the Court is more concerned that, of the two dates on the notice, no date is specified as the adverse advance notice date. Again, the notices are insufficient.
Finally, certain Plaintiffs complain that self-contradicting and sometimes separate but inconsistent notices created confusion in the recipients about whether they are entitled to a hearing and how to communicate a wish to be heard. Such notices have been held to "unreasonably discourage the exercise of a recipient's established right." Ward v. Thomas, 895 F. Supp. 401, 404 (D. Conn. 1995). For example, Plaintiff Hannah received her initial adverse notice on April 11, 2003, advising that she no longer met payor criteria for continued stay in a facility. On April 21, 2003, she received two notices, one advising that she no longer qualified for Medicaid and another advising that she still qualified for Medicaid. This type of confusing, contradictory notice is insufficient and denies Plaintiffs' appropriate notice.
Notwithstanding Defendants lengthy explanation of the law on this subject, they have not demonstrated any lack of material issue of fact that would decide this matter in their favor. Accordingly, their motion to dismiss or, in the alternative, to dismiss Plaintiff's claims for due process violations shall be denied. Turning to Plaintiffs' motion for a preliminary injunction on these grounds, the Court finds that they have demonstrated a likelihood of success on the merits.
D. NF AND HCBS BENEFITS
Plaintiffs have also claimed, pursuant to 42 U.S.C. § 1983, that they have been illegally denied necessary long-term care services to which they are entitled under the Medicaid Act, 42 U.S.C. § 1396a(a) (10) and § 1396d (a)(4)(A), by virtue of the promulgation and application of the 2003 Regulations. Plaintiffs next allege that Defendants have violated the Medicaid Act, 42 U.S.C. § 1396, 1396a(a)(17), 1396d(f), and 1396n(c)(1), by failing to use reasonable standards to determine Plaintiffs' medical need for long-term care services and by terminating payments for Plaintiffs' long-term care services by and through the 2003 Regulations. Specifically, they argue that the regulations do not permit elderly and disabled persons with genuine medical needs access to the level of care required by the Medicaid Act.
As discussed above, NF services are a mandatory service under Medicaid, which is to say that they are services which any state participating in the Medicaid program must provide. See Westside Mothers, 289 F.3d at 856 ("The Medicaid Act and related regulations set out a detailed list of services every state program must provide."). 42 U.S.C. § 1396a (a) (10) (A) requires that a state "must . . . provide . . . for . . . medical assistance . . . at least the care and services listed in paragraphs (1) through (5), (17) and (21) of section 1396d(a)" for all individuals meeting the eligibility requirements. § 1396d(a)(4)(A) specifies "nursing facility services (other than services in an institution for mental diseases) for individuals 21 years of age or older" as among the required care or services. 42 U.S.C. § 1396d (a)(4)(A). The "nursing facility services" of § 1396d(a)(4)(A) are defined as services required for "an individual who needs or needed on a daily basis nursing care (provided directly or requiring the supervision of nursing personnel) or other rehabilitation services which as a practical matter can only be provided in a nursing facility on an inpatient basis." 42 U.S.C. § 1397d(f).
Accordingly, Plaintiffs argue that individuals within the population identified in § 1396a(a)(10), needing nursing care on a daily basis which can, as a practical matter, be delivered only in a nursing facility on an inpatient basis, must be provided with coverage for nursing care facilities. They argue that the state Medicaid program must also provide, similarly, for long-term care services under the HCBS waiver program, available to those who would otherwise require the level of care provided in a hospital, nursing facility, or intermediate care facility which would be reimbursed under Medicaid. 42 U.S.C. § 1396a(a) (10) (A) (ii) (VI) and § 1396n(c)(1); 42 C.F.R. § 430.25. The Court agrees.
The Court is, thus, left to consider whether or not Defendants, by virtue of the 2003 Regulations, allegedly enacted to reduce state expenses by restricting the medical eligibility criteria of its Medicaid program, act to deny the long-term care services required of the Commonwealth by the Act in violation of the terms of the Medicaid Act. Effectively, the Court must determine whether or not the state may expand or contract their eligibility standards, thus denying services to eligible individuals, solely to conform to constraints on the state budget.
There is great appeal to the idea that a state may limit services in order to avoid shortfalls in the face of a budget crisis, and certainly states may exercise discretion in choosing the "proper mix" of Medicaid coverage. Alexander v. Choate, 469 U.S. 287, 303 (1985). Nonetheless, states must also assure that they are providing care and services in the recipients' "best interests." 42 U.S.C. § 1396a(a) (19); see Beal v. Doe, 432 U.S. 438, 444 (1977); Weaver v. Reagan, 886 F.2d 194 (8th Cir. 1989). Thus, it is clear that:
In fact, 42 U.S.C. § 1396a (a) (30) (A) requires that state Medicaid agencies provide methods and procedures relating to utilization and payment for care and services given by Mediciad providers, including but not limited to NF, to safeguard against unnecessary utilization of care and services and to assure that the care and services are provided in with quality, efficiency, and economy. State law also requires that Defendants review reimbursement systems for appropriateness and cost-effectiveness. Defendants argue that it was by pursuant to these laws and through the medical review process that it was discovered in 2003 that its contracting agent peer review organization had incorrectly applied the standard for medical necessity for nursing facility services. Thus, Defendants claim to have worked with the PRO to correct the misapplication of the standard and, pursuant to KRS Chapter ISA, lawfully promulgated the 2003 regulations to clarify the standard to be used in determining need for nursing facility or long-term HCBS waiver care. Certainly, the Court appreciates the need to clarify and refine standards in order that they may be applied properly, but the Court does not appreciate how the apparent sea change in eligibility standards in Kentucky could be understood as a mere clarification or refinement to correct a misapplication of standards by a PSO.
[T]he discretion of the state is not unbridled: "[A state] may not arbitrarily deny or reduce the amount, duration, or scope of a required service to an otherwise eligible recipient solely because of the diagnosis, type of illness or condition." 42 C.F.R. § 440.230(c). "[A]ppropriate limits [may be placed] on a service based on such criteria as medical necessity or utilization control procedures." Id. at §§ 440.230(d). Moreover, the state's plan for determining eligibility for medical assistance must be " `reasonable' and `consistent with the objectives' of the Act." Beal v. Doe, 432 U.S. 438, 444, 53 L.Ed.2d 464 (1977) (quoting 42 U.S.C. § 1396a (a) (17)). This provision has been interpreted to require that a state Medicaid plan provide treatment that is deemed "medically necessary" in order to comport with the objectives of the Act. See id. at 444-45, ("serious statutory questions might be presented if a state Medicaid plan excluded necessary medical treatment from its coverage"); Pinneke v. Preisser, 623 F.2d 546, 548 n. 2 (8th Cir. 1980).Weaver, 886 F.2d at 197-98 (8th Cir. 1989)
Plaintiffs are correct that there is no precedent for the proposition that an a state can alter eligibility for a mandatory Medicaid service simply because the state does not wish to pay the price required to provide the service to all eligible recipients. Alexander, 469 U.S. at 303; Ark. Med. Soc'y v. Reynolds, 6 F.3d 519, 522 (9th Cir. 1993) (invalidating state Medicaid reimbursement scheme "set solely on the basis of budgetary considerations, and without regard to the requirements of the federal Medicaid statute"); Ala. Nursing Home Ass'n v. Harris, 617 F.2d 388, 396 (5th cir. 1980) ("Inadequate appropriations do not excuse noncompliance."); Thomas v. Johnston, 557 F. Supp. 879, 914 (W.D. Mich. 1990) ("If a state could evade the requirements of the Act simply by failing to appropriate sufficient funds to meet them, it could rewrite the congressionally imposed standards at will. That obviously is not the case."); see also Beno v. Shalala, 30 F.3d 1057, 1069 (9th Cir. 1994) (rejecting budget cutting as grounds for waiver of federal AFDC requirements). Rather, as Congress recognized that those eligible for Medicaid "are the most needy in the country . . .[,] it is appropriate for medical care costs to be met, first for these people." Scweiker v. Hogan, 457 U.S. 569, 590 (1982) (quoting H.R. Rep. No. 213 89th Conf. 1st Sess., 66 (1965)).
The Medicaid Act requires states to establish "reasonable standards . . . for determining eligibility for and the extent of medical assistance under the [Medicaid] plan which . . . are consistent with the objectives of [the Medicaid Act. . . .]" in this case to provide services for an "individual who needs or needed on a daily basis nursing care. . . . or other rehabilitation services which as a practical matter can only be provided in a nursing facility or on an inpatient basis" or long-term care services available under the HCBS waiver program as an alternative to the services otherwise to be provided under auspices of NF services. 42 U.S.C. § 1396a(a) (17), 1396a(a) (10) (A) (ii) (VI), 1396d(f), and 1396n(c)(1); 42 C.F.R. § 430.25. Plaintiffs allege that the only goal of the new regulation was to reduce the state's expenditures for health care in Kentucky's Medicaid program by excluding recipients that the state had already recognized as having medical need of nursing facility services.
The parties do not dispute that the plaintiffs in this matter have medical need for long-term care, whether in nursing facilities or HCBS. In fact, the named Plaintiffs have used Medicaid benefits for these purposes in the past.
Medicaid regulations adopted for the wrong reasons, i.e., without a Medicaid-related or a health-related purpose, are contrary to the purposes of the Act because they are inherently arbitrary, unreasonable, and invalid. See Stephens v. Childers, 1994 WL 761466, *5 (E.D. Ky. 1994) ("State agencies must consider, on the basis of a reasonably principled analysis, the substantive requirements of 42 U.S.C. § 1396a."); see also Orthopaedic Hosp. v. Belshe, 103 F.3d 1491, 1499 (9th Cir. 1997); Weaver, 886 F.2d at 200 ("Missouri Medicaid's approach to its coverage of the drug AZT is unreasonable and inconsistent with the objectives of the Medicaid Act."). Thus, reducing mandatory benefits to qualified recipients by manipulating eligibility standards in order to make up for budget deficits is unreasonable and inconsistent with Medicaid objectives because it exposes recipients to "whimsical and arbitrary" decisions which the Act seeks to avoid. Focusing solely on budgetary concerns simply does not rise to the level of a reasonable standard for determining eligibility for long-term care services and is inconsistent with Medicaid objectives. If the Court accepts Plaintiff's allegations as true, Kentucky has inappropriately chosen to use cost-savings as the sole touchstone in its determination, focusing on how much money it wants to save rather than upon the medical needs of Medicaid recipients or the Medicaid statutory requirements. Defendants' motion to dismiss or, in the alternative, for summary judgment shall be denied. As with their due process claims, the Court is of the opinion that Plaintiffs have demonstrated a likelihood of success on the merits of their claims for violations of 42 U.S.C. § 1396a(a)(1)(A)(i), 1396d(a)(3) and (4), and 1396a (a) (17), pursuant to 42 U.S.C. § 1983.
E. PRELIMINARY INJUNCTION
1. REMAINING FACTORS
Finally, the Court turns to the three remaining requirements for a preliminary injunction. No doubt, there is a serious risk of irreparable harm if the injunction is not issued. One of the original named plaintiffs in this matter, Kerr, has died since the filing of this suit. She and the other named plaintiffs all require long-term care and all suffer from multiple serious medical conditions. The physical and mental deterioration that can from lack of appropriate care upon the loss of health care services are obvious. See Morris v. North Hawaii Community Hospital, 37 F. Supp.2d 1181, 1188 (D. Haw. 1999) (preliminary injunction appropriate where "lack of home health care [because of termination of Medicaid home services] poses a serious risk to plaintiff's physical and psychological well-being. . .").
Additionally, the balance of hardships favors Plaintiffs for the harm that the Defendants will suffer if an injunction is entered against them, in the form of financial costs, is clearly less than the harm that the Plaintiffs will suffer if their request is denied and they are denied medical treatment, perhaps facing more serious illness or death as a result. See Schalk v. Teledyne, 751 F. Supp. 1261, 1268 (W.D. Mich. 1991). Plaintiffs are all aged or disabled, requiring either institutional care or are homebound. By way of example, Plaintiff Barnett has been institutionalized for four and a half years, Plaintiff Nauer has been disabled since the age of two and receiving HCBS services for four years, Plaintiff Garmon has had three heart attacks and suffers from post-polio syndrome. No doubt, the Commonwealth's spending concerns are outweighed by the Plaintiffs' need for appropriate health care access, and Defendants' speculation that such an injunction will result in cuts in services to other individuals is simply not enough to overcome the relatively greater hardship on Plaintiffs in this matter.
Finally, the Court finds that an injunction would be in accordance with the public interest, for no doubt the benefit that would accrue to the public interest in granting the injunction versus the benefit to the public interest that would accrue from a denial militates in favor of the award of the injunction. United Food and Commercial Workers Union, Local 1099 v. Southwest Ohio Reg'l Transit Auth., 163 F.3d 341, 363 (6th Cir. 1998). No doubt the public's interest lies in the "preservation of a healthy population." Schalk, 751 F. Supp. at 1268. Accordingly, all factors being satisfied and balanced, this Court shall grant Plaintiffs' motion for preliminary injunction.
2. BOND
The Court notes, as well, that as the Plaintiffs in this matter are all low-income individuals in need of medical services. Exercising that discretion afforded it, this Court shall not require the posting of a bond upon the grant of the preliminary injunction. Simon Property Group, Inc. v. Taubman Centers, Inc., 261 F. Supp.2d 919, 944 (E.D. Mich. 2003) (citing USACO Coal Co. v. Carbomin Energy, Inc., 689 F.2d 94, 100 (6th Cir. 1982)); Sluiter v. Blue Cross and Blue Shield of Michigan, 979 F. Supp. 1131 (E.D. Mich. 1997).
3. TERMS AND SCOPE OF PRELIMINARY INJUNCTION
While a new regulation has supplanted those of which Plaintiffs complain, the new regulation alone cannot undo the damage allegedly done by the 2003 regulations. Certainly, Plaintiffs describe the standard for eligibility for NF and HCBS services under the new 2004 Emergency Administrative Regulation as "less severe" than that in the challenged 2003 Regulations. Their concern with the new regulation is, in the context of this case, not with the standard but with the proposed actions by Defendants on behalf of Plaintiffs and others like them in order to remedy the harm allegedly caused by actions taken under the 2003 Regulations.
Defendants are voluntarily attempting to notify those individuals who were terminated from or denied coverage by application of the 2003 regulations. For those individuals with pending appeals, Defendants will instead order that their cases be remanded for the hearing officers for an amended agency review based on the 2004 Regulation. Plaintiffs contend that this is insufficient and argue that, because any termination of long-term care coverage based on an application of the challenged regulations is arguably illegal, those who had previously attained eligibility — a group that includes all named Plaintiffs — should have their NF or HCBS immediately reinstated while their reapplication for benefits or any pending appeals are considered under the newest regulations. The Court agrees.
According to Defendants, individuals who did not previously have Medicaid coverage and were denied coverage on the basis of the 2003 Regulations will receive notices informing them of the new emergency regulation and their right to reapply. While Plaintiffs agree that this is arguably within the range of relief sought, they propose, instead, that this reassessment for eligibility should be done within thirty days without requiring these individuals to reapply. The Court notes that reassessment is no doubt due in short order, but any ruling on this portion of the preliminary injunction would address those individuals that are part of the putative class and not named Plaintiffs. Accordingly, any decision on this portion of the motion for summary judgment must await an order certifying the class.
IV. CONCLUSION
For the reasons stated above, the Court has determined that this Plaintiffs have standing to pursue their claims. Dismissal or summary judgment in favor of Defendants would be inappropriate at this time. A preliminary injunction, however, is in order.
Accordingly, IT IS ORDERED:
(1) that Plaintiffs' motion for oral arguments on Defendants' motion to dismiss or, in the alternative, for summary judgment [Record No. 25] be, and the same hereby is, DENIED;
(2) that Defendants' motion to dismiss or, in the alternative, for summary judgment [Record No. 2] be, and the same hereby is, DENIED;
(3) that Plaintiff's motion for preliminary injunction be, and the same hereby is, GRANTED IN PART;
(4) that Defendants are enjoined from failing to fully reinstate within fifteen days of entry of this order, Medicaid benefits for nursing facility or HCBS services to Plaintiffs whose benefits for said services were terminated based on Defendants' determination that the recipient did not meet the eligibility criteria set forth in either 907 KAR l:022E or 907 KAR 1:022, as in effect from April 4, 2003, to January 30, 2004; and
(5) that Defendants are enjoined from providing notices of action that do not comply the requirements of 42 C.F.R. § 431.206, 431.210, and 431.211.