Amicus Curiae Brief — Belshe v. Orthopaedic Hospital

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Supreme Court, U.S.

FRiW.E D

NOV 26 1997

No. 96-1742 : ’ @LERK

In the Supreme Court of the Gnited States

OcTOBER TERM, 1997

KIMBERLY BELSHE, DIRECTOR, CALIFORNIA

DEPARTMENT OF HEALTH SERVICES, PETITIONER

Vv.

ORTHOPAEDIC HOSPITAL, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

SETH P. WAXMAN

Solicitor General

FRANK W. HUNGER

Assistant Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

LISA SCHIAVO BLATT

Assistant to the Solicitor

General

ANTHONY J. STEINMEYER

JEFFREY CLAIR

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTIONS PRESENTED

1. Whether hospital providers may bring an action

under 42 U.S.C. 1983 to challenge a State’s Medicaid plan

on the ground that it fails to consider providers’ costs, in

purported violation of 42 U.S.C. 1396a(a)(30)(A).

2. Whether 42 U.S.C. 1396a(a)(30)(A) requires State

Medicaid agencies to set hospital outpatient reimburse-

ment rates that bear a reasonable relationship to efficient

and economical hospital costs of providing quality serv-

ices.

(I)

TABLE OF CONTENTS

Page

i sessabateiblecealt caddie l

(RIESE SOE MNT Oe PORE Cee NPE TOO ETD 6

SPUN (id i tesiig ta tithid nindeniaeddondanncaiedbasbiaibaiieauaadwiuielabauietabeseudun 20

TABLE OF AUTHORITIES

Cases:

Adickes v. S.H. Kress & Co., 398 U.S. 144 (1970) ... 16

Alexander v. Choate, 469 U.S. 287 (1985) ................ 9

Arkansas Medical Society, Inc. v. Reynolds, 6 F.3d

a on cancwubtnnaes 12, 14, 18

Atkins v. Rivera, 477 U.S. 154 (1986) ..................... 2

Auer v. Robbins, 1175S. Ct. 905 (1997) ................0006 18

Barney v. Holzer Clinic, Ltd., 110 F.3d 1207 (6th

RUE MINE T sannid iets ndided aveanasdibcieesudsanbaicsidinnincubeseiociecness 10

Blessing v. Freestone, 117 S. Ct. 1353 (1997) .... 18-14, 15

18, 20

Citizens Bank of Maryland v. Strumpf, 516 U.S.

I a nicabens 16

Delta Air Lines, Inc. v. August, 450 U.S. 346

1 BRE RSS GREE aOR I al ona Oe Oe 16

Field v. Mans, 516 U.S. 59 (1995) ....................00000.. s

Fulkerson v. Comm’r, Maine Dep't of Human

Servs., 802 F. Supp. 529 (D. Maine 1992) ............... 13

Golden State Transit Corp. v. Los Angeles, 493 U.S.

I i ie ac etitaedesaests 15

Illinois Hospital Ass’n v. Edgar, 765 F. Supp. 1343

SE TE ccc. dance uacasnccuaobenatpitusinsenstesabtptuemnceonccas 13

Methodist Hospitals, Inc. v. Sullivan, 91 F.3d 1026

PI cc tsecichrsencheeeinacanune 9, 12, 17

Minnesota Homecare Ass’n v. Gomez, 108 F.3d 917

Se ED conhsensncisckebainiddlsnciniendenseigabiiseamddecaires 9,17

(IIT)

Cases—Continued: Page

New England Health Care Employees Union v.

Mount Sinai Hospital, 65 F.3d 1024 (2d Cir.

IQGD ic isciviinéiuiccéditeentinepenievissbuedsebataaibadlaeisdbatinbadenieives 11

New York Conf. of Blue Cross & Blue Shield Plans

v. Travelers Ins. Co., 514 U.S. 645 (1995) .............. 11

Northwest Airlines, Inc. v. County of Kent,

Bit ee I ircssisstecckvcie cee 15

Sobky v. Smoley, 855 F. Supp. 1123 (E.D. Cal.

SOD) sisintsesdaoinsuscsgisdincarnteubinidaposamnmiaplasiaabans seit 13

Suter v. Artist M., 503 U.S. 347 (1992) .........cccccccees 4

Visiting Nurse Ass’n of North Shore, Inc. v. Bullen,

93 F.3d 997 (1st Cir. 1996), cert. denied, 117 S. Ct.

FO CRITE eccisccthierisinrsackatvonpnssvdcsanrtnihicenicnsnnss 12-13, 18

Wilder v. Virginia Hospital Ass’n, 496 U.S. 498

CSOD) sncictnsonisuiniiistenteneceatenminmedaiens 2, 4, 8, 13, 14, 15

Wright v. Roanoke Redevelopment and Housing

Authority, &7O USS. GIB GGT) scsvcsssccbssssccoscovesnensece 15

Youakim v. Miller, 425 U.S. 231 (1976) ..........scseesees 16

Statutes and regulations:

Balanced Budget Act of 1997, Pub. L. No. 105-33,

Omnibus Reconciliation Act of 1981, Pub. L. No.

07-35, $ 21 74(e), BG Stat. BOO cnccecsesesvccssscecsvescccdsconns 9-10

Social Security Act, 42 U.S.C. 301 et seq.:

AS 17 FAs, Be sitivsisssinicisepececiiaeenrensnntls 4, 18

GE TF FARs: SE cccnatuichigassdnctobiviniscdiniinkaghinbites 4,18

SE UA), SE iestinciesncisnncsinpecagnns 5, 10

Tit. BER, CE Ue. 10 0 OG, cscssinceeecastnsictenene 1

GD URS Fe tase vedntssniacsatieainsccceaprenaion 2, 19

OE UT Ee PUN ccsisenssevicacscksavacevesnecotsnshsceetavnnas 2

4S U BAL. TRPBIOMA) cccsnscntassecorcscsaceansvass 8, 11, 13

42 U.S.C, TRBGAAKIGNE) cvccccccsccsssescescissssvccssesooss 8

GB TEES i, SI) si sn cinchscaciiccrsrecenrcapeciereintness 9

BS UBER snkéccitisornictnetiticrscotctittesenes 10

42 U.S.C. 1396a(a)(SO)(A) ..........ccccerecesssessccees passim

GD UA TD chrtnensctepernrcheisssscresiouguacenestonrenes 7

Statutes and regulations—Continued: Page

Se ais DT hcnbnsshiictkacatntmnccievecoccccsdisénssinats 1

ee Bes MII ichinsbiicisinarbehisasvoecinicusinesadesdanns 11

Oe SA AIEEE. sapeicevedicnsédecbatisdeidnsadiucetansoniaces passim

Social Security Amendments of 1967, Pub. L. No.

Se 6 Ts FE Ns DEE: atacckcccddeoctigicacesasécacocsine 9g

Social Security Amendments of 1994, Pub. L. No.

Osh Bi hg FO ee BO cree ccsesctestscsctzcccosecssensene 4

42 C.F.R. (1996):

TE ESOS Dalat RRR AE TAR ca RRA 2

RRND ME UREN ENED) «cin cccccacevocccocectecdisccesriacovecence 10

RINE MIE ie ocean cncs sac cnaidesdseedebacodacbonmane 3

I IE ik ccties cdancnerveiadntneciiabachoadisbinbuniekecoenins 3

I i is aalenes i)

Miscellaneous:

H.R. Conf. Rep. No. 1030, 90th Cong., Ist Sess.

ERODED stbicciasieuchsitinedscihesciaecvicieieiaductesidasenveinioeconis 9

H.R. Rep. No. 158, 97th Cong., Ist Sess. (1981) ....... 9, 10

H.R. Rep. No. 247, 101st Cong., Ist Sess. (1989) ........ 14

H.R. Rep. No. 149, 105th Cong., Ist Sess. (1997) ........ 19

H.R. Conf. Rep. No. 217, 105th Cong., 1st Sess.

CRIED sinkocbisuicnsasevecisbelss osbibctinccasekstivsavaiibeerviesarssieds 19

Health Care Financing Admin., Dep’t of Health and

Human Services, Medicaid Financial Management

Report Fiscal Year 1996 (1997) .........ccccccccscccesccseeees 1

D. Lewis-Idema, Increasing Provider Participation

(National Governors’ Association 1988) ................... 11

National Governors’ Association Policy, EC-8

Medicaid § 8.3.3 (February 1997) .............ccccesecceeeeee 19

In the Supreme Court of the United States

OCTOBER TERM, 1997

No. 96-1742

KIMBERLY BELSHE, DIRECTOR, CALIFORNIA

DEPARTMENT OF HEALTH SERVICES, PETITIONER

Vv.

ORTHOPAEDIC HOSPITAL, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is submitted in response to the Court’s order

inviting the Solicitor General to file a brief expressing the

views of the United States.’

STATEMENT

1. The Medicaid program established in 1965 by Title

XIX of the Social Security Act, 42 U.S.C. 1396 et seq., is a

cooperative federal-state program to provide medical care

1 The United States has a significant financial stake in the

interpretation of 42 U.S.C. 1396a(a)(30)(A). By law, the federal gov-

ernment provides between 50% and 83% of a State’s cost of patient

care, as determined by a formula keyed to per capita income in the

State. See 42 U.S.C. 1396d(b). In fiscal year 1996 alone, the federal

contribution to the Medicaid program for medical assistance totalled

approximately $88 billion, making Medicaid one of the largest items in

the federal budget. Of that amount, some $8 billion was provided to

California. See Health Care Financing Admin., Dep’t of Health and

Human Services, Medicaid Financial Management Report Fiscal Year

1996 (1997).

(1)

to needy individuals. Wilder v. Virginia Hospital Ass’n,

496 U.S. 498, 502 (1990); Atkins v. Rivera, 477 U.S. 154,

156 (1986). State participation in Medicaid is voluntary,

but those States that elect to participate must comply

with requirements imposed by the Medicaid Act and by the

Secretary of Health and Human Services in her admini-

stration of the Act. See 42 U.S.C. 13896a; Wilder, 496 U.S.

at 502; Rivera, 477 U.S. at 157. Within those basic limits,

however, each State enjoys great flexibility in both de

signing and administering its own program.

To qualify for federal funds, participating States must

submit to the Secretary, and receive approval of, “a plan

for medical assistance” detailing the nature and scope of

the State’s Medicaid program. 42 U.S.C. 1396a(a); 42

C.F.R. 430.10 (1996); Wilder, 496 U.S. at 502. Among other

requirements, a State’s plan must

provide such methods and procedures relating to the

utilization of, and the payment for, care and services

available under the plan * * * as may be necessary to

safeguard against unnecessary utilization of such care

and services and to assure that payments are consis-

tent with efficiency, economy, and quality of care and

are sufficient to enlist enough providers so that care

and services are available under the plan at least to the

extent that such care and services are available to the

general population in the geographic area.

42 U.S.C. 1396a(a)(30)(A).

In implementing Section 1396a(a)(30)(A), the Secretary

has not required States to adopt any particular

methodology or rate-making procedures to provide for

payments for services under the Act. The Secretary has,

instead, sought to preserve maximum flexibility for the

States to set Medicaid payment rates. Accordingly, the

Secretary does not dictate what level of payments will

“assure * * * efficiency, economy, and quality of care” or

be sufficient to provide for equal access to such care and

services. See 42 C.F.R. 447.204. Nor does the Secretary

require the States to adopt any particular procedure or

methodology for determining whether payments are

“necessary” to meet the general criteria in 42 U.S.C.

1396a(a)(30)(A), or require that the payments be made at

rates that will enable providers to recover their full costs

of furnishing covered services. Rather, the Secretary

requires States to achieve the desired outcomes of equal

access and quality of care.

2. In August 1990, respondents, a hospital and an asso-

ciation of health care providers, filed suit against peti-

tioner in the United States District Court for the Central

District of California, alleging that the State of Califor-

nia’s Medicaid rates for outpatient services furnished by

hospitals do not meet the requirements of Section

1396a(a)(30)(A).” California’s Medicaid plan provides that

hospitals rendering such outpatient services will be paid

the lower of their usual charges or a prospectively-

determined flat rate for the particular type of outpatient

service. Pet. App. A7, B3-B4.

On October 6, 1992, the district court entered its order

on the parties’ motions for summary judgment. Pet. App.

B5. The district court first ruled that respondents had a

federal cause of action under 42 U.S.C. 1983. Jd. at BY.

The court also held that California had failed adequately

to consider whether its payments for certain outpatient

hospital services were consistent with the statutory stan-

dards of “efficiency, economy, and quality of care,” and the

court therefore remanded the matter to petitioner for

further consideration of its Medicaid rates. Jd. at B5-Bé6.

2 Outpatient hospital services are “preventive, diagnostic, thera-

peutic, rehabilitative, or palliative services that are furnished to out-

patients” under the direction of a physician or dentist by an institution

licensed as a hospital. See 42 C.F.R. 440.20(a).

On remand, the State conducted a study of its existing

rate structure and held a public hearing. On April 15,

1994, the State readopted its previous reimbursement

levels. Respondents thereafter refiled suit in the district

court to challenge the readopted rates. On March 20, 1995,

the district court held that California’s payment rates

complied with Section 1396a(a)(30)(A). Pet. App. B1-B26.

As an initial matter, the court reaffirmed its earlier hold-

ing that respondents have a cause of action under Section

1983 to enforce Section 1396a(a)(30)(A). Id. at B7-B9.*

On the merits, the court rejected respondents’ conten-

tion that the “efficiency, economy, and quality of care”

criteria in Section 1396a(a)(30)(A) require California to

base reimbursement of hospitals on their costs of provid-

ing services. The court concluded that “[pJayments do not

have to be sufficient to reimburse hospitals for their costs,

but need only be sufficient to ensure access.” Pet. App.

B14. Noting that “(t]he statute was enacted as a cost-

containment measure,” the court concluded that as long as

Medicaid recipients have access to quality care, “it is

irrelevant whether hospitals make or lose money treating

[Medicaid] beneficiaries.” Jd. at B15, B16. Finally, the

court ruled that petitioner had adequately considered the

factors of “efficiency, economy, and quality of care” in set-

ting its payment rates for outpatient services, and that its

3 The court reconsidered the cause-of-action issue in light of this

Court’s intervening decision in Suter v. Artist M., 503 U.S. 347 (1992),

and Congress’s subsequent enactment of Section 211 of the Social

Security Act Amendments of 1994, Pub. L. No. 103-432, 108 Stat. 4460,

which addresses the enforceability of Social Security Act provisions

that specify the contents of a “State plan.” See 42 U.S.C. 1320a-2 and

1320a-10. Reasoning that Section 211 requires courts to assess the

enforceability of “State plan” provisions under the standards articu-

lated in Wilder v. Virginia Hospital Association, 496 U.S. 498 (1990),

the court “disregard[ed] Suter” and reaffirmed its earlier holding. Pet.

App. B9.

rates were rationally related to those statutory criteria.

Id. at B16-B25. The Court therefore entered summary

judgment in favor of petitioner. Jd. at B25.

3. The court of appeals reversed. Pet. App. Al-A22. It

held that petitioner “must set hospital outpatient reim-

bursement rates that bear a reasonable relationship to

efficient and economic hospitals’ costs of providing quality

services, unless [the State] shows some justification for

rates that substantially deviate from such costs.” Jd. at

Al13. The court reasoned that the State “cannot set rates

consistent with efficiency and economy in the health care

system without considering the costs to the hospitals that

provide most of the services.” Jd. at Al4.

The court of appeals recognized that “[s]ome of the ser-

vices provided by hospital outpatient departments could be

provided more economically by non-hospital providers such

as freestanding clinics or doctors’ offices because those

providers have lower fixed costs than do hospitals.” Pet.

App. A6. The court nonetheless rejected the State’s argu-

ment that it would be neither efficient nor economical to

set payment rates that compensate hospitals for the

higher costs they incur in providing the same services.

Observing that the Medicare Act requires hospitals par-

ticipating in that program to provide emergency room ser-

vices, id. at Al7 (citing 42 U.S.C. 1395dd), the court rea-

soned that “the majority of outpatient services are in fact

provided in hospitals, and that the majority of hospital

outpatient services are in the emergency room.” /d. at

A20. The court also pointed out that, “[w]ith no incentive

to use the most economical provider, [Medicaid] benefi-

ciaries frequently choose the more accessible and conven-

ient hospital outpatient departments over less costly fa-

cilities, some of which may be entirely unavailable or less

available to them.” Jd. at A6-A7.

Against this background, the court concluded that the

State “cannot ensure access by relying on regulations re-

quiring hospitals to treat patients in the emergency room,

and then refuse to pay the cost of such treatment because

theoretically it could have been provided more efficiently

elsewhere.” Pet. App. A20-A21. Thus, in the court’s view,

notwithstanding the fact that “[iJn this case there has

been no assertion of a provider participation problem,” id.

at Al7, the State “must undertake to determine what it

costs an efficient hospital economically to provide quality

care,” id. at Al8.

Because the State “did not base its readoption of exist-

ing rates on the conclusion that they adequately reim-

burse provider costs,” the court of appeals concluded that

the readopted rates were arbitrary and capricious. Pet.

App. A22. The court therefore remanded the case to peti-

tioner to “undertake responsible cost studies that will pro-

vide reliable data as to the hospitals’ costs in providing

outpatient services,” with the State “bearing the burden of

justifying any rate that substantially deviates from such

determined costs.” Ibid.

DISCUSSION

We agree with pet.tioner that the court of appeals erred

in reading Section 1396a(a)(30)(A) as imposing on States

an obligation to set payment rates for outpatient services

that “substantially reimburse providers their costs.” Pet.

App. Al9. We also agree with petitioner that the respon-

dent hospitals do not have a cause of action under 42

U.S.C. 1983 to challenge reimbursement rates as incon-

sistent with Section 1396a(a)(30)(A). Those two issues are

interrelated and raise important questions regarding the

flexibility of the States in designing their Medicaid reim-

bursement rates. Although there is no square conflict on

those issues, they may well warrant review by this Court

at some point. Petitioner, however, did not preserve below,

and the court of appeals therefore did not address, the

threshold question of whether respondents have a right

of action under 42 U.S.C. 1983. Accordingly, and because

of other developments, this case would not be an ap

propriate vehicle for plenary consideration of whether

hospitals have a right of action under Section 1983 or

whether the court of appeals correctly interpreted Section

1396a(a)(30)(A).

1. The court of appeals construed Section

1396a(aX(30)(A) to require States to make Medicaid

payments for outpatient services so that a particular class

of providers of those services—hospitals—are reimbursed

for their costs. In our view, that interpretation misreads

the plain language of Section 1396a(a)(30)(A) and

frustrates that Section’s purpose of giving States wide

discretion to set Medicaid payments that are consistent

with efficiency, economy, and access to quality care.

a. The Medicaid Act defines the “medical assistance”

provided under the Act to mean “payment of part or all of

the cost” of the covered service. See 42 U.S.C. 1396d(a)

(emphasis added). Thus, there is no general mandate

under Medicaid to reimburse providers for all or substan-

tially all of their costs. Moreover, in directing States to

make Medicaid payments that “are consistent with effi-

ciency, economy, and quality of care and are sufficient to

enlist enough providers so that care and services are

available under the plan at least to the extent that such

care and services are available to the general population in

the geographic area,” the text of Section 1396a(a)(30)(A)

does not require States to set rates that reimburse hospi-

tals in particular for their costs of providing outpatient (or

other) services. The focus of the Section is instead on the

availability of services generally. The court of appeals’

contrary holding, that States must reimburse providers at

rates that essentially ensure recovery of their costs, is

therefore incorrect.

Indeed, when Congress has intended to require States

to base Medicaid reimbursement rates on the costs

incurred in providing a particular service, it has said

so expressly in the text of the Act. For example, the

Boren Amendment to the Medicaid Act (42 U.S.C.

1396a(a)(13)(A)), which was at issue in Wilder v. Virginia

Hospital Ass’n, 496 U.S. 498 (1990), but has recently been

repealed (see pages 19-20, infra), required States to make

payments based on rates that “are reasonable and adequate

to meet the costs which must be incurred by efficiently and

economically operated facilities” providing inpatient hos-

pital, skilled nursing, and other institutional services. 42

U.S.C. 1396a(a)(13)(A) (emphasis added); Wilder, 496 U.S. —

at 502-503. See also 42 U.S.C. 1396a(a)(13)(E) (requiring

Medicaid plan to pay 100 percent of the reasonable costs of

providing covered services in a rural health clinic or

federally qualified health center) (emphasis added). By

contrast, Section 1896a(a)(30)(A) does not set forth any

requirement that a State consider costs in making pay-

ments for outpatient or other services, much less that a

State fully reimburse a hospital’s higher costs in furnish-

ing such services. That omission is persuasive evidence

that Section 1396a(a)(30)(A) does not require a State to do

so. See Field v. Mans, 516 U.S. 59, 67 (1995) (“an express

statutory requirement here, contrasted with statutory

silence there, shows an intent to confine the requirement

to the specified instance”).

In accord with the text and structure of the Medi-

caid Act, the Secretary has not construed Section

1396a(a)(30)(A) to require the States to base reimburse-

ment rates for outpatient or other services on the costs

incurred by hospitals or other categories of providers.

Rather, implementing regulations leave the States broad

discretion to set rates, provided that they do not exceed

the rates that would be paid by Medicare for comparable

services or the prevailing charges for comparable services

within the pertinent locality. 42 C.F.R. 447.304(a). Those

regulations reflect the Secretary’s view that Section

1396a(a)(30)(A) gives States substantial flexibility to set

Medicaid payments that are efficient and economical, and

enlist sufficient providers for Medicaid recipients to have

access to quality care. See Methodist Hospitals, Inc. v.

Sullivan, 91 F.3d 1026, 1080 (7th Cir. 1996) (Section

1396a(a)(30)(A) “requires each state to produce a result,

not to employ any methodology for getting there,” and

absent proof that a rate structure results in inadequate

access, States “may say what they are willing to pay and

see whether this brings forth an adequate supply”); Min-

nesota Homecare Ass’n v. Gomez, 108 F.3d 917, 918 (8th

Cir. 1997) (Section 1396a(a)(30)(A) “does not require the

State to utilize any prescribed method of analyzing and

considering [the statutory] factors”); cf. Alexander v.

Choate, 469 U.S. 287, 303 (1985) (“The [Medicaid] Act gives

the States substantial discretion to choose the proper mix

of amount, scope, and duration limitations on coverage, as

long as care and services are provided in ‘the best interest

of the recipients.’”) (quoting 42 U.S.C. 1396a(a)(19)).*

4 The decision below also is inconsistent with the history of Section

1396a(aX(30A). As originally enacted, it directed the States to “assure

that payments * * * are not in excess of reasonable charges con-

sistent with efficiency, economy, and quality of care.” Social Security

Amendments of 1967, Pub. L. No. 90-248, § 237(b), 81 Stat. 911

(emphasis added). See also H.R. Conf. Rep. No. 1030, 90th Cong., Ist

Sess. 66-67 (1967). In 1981, Congress deleted the “reasonable charge”

limitation, in response to complaints that it imposed burdensome

administrative requirements on state Medicaid agencies and hampered

their ability to try innovative, more cost-effective approaches to pro-

vider reimbursement. See Omnibus Reconciliation Act of 1981, Pub. L.

No. 97-35, § 2174(c), 95 Stat. 809; H.R. Rep. No. 158, 97th Cong., Ist

b. The court of appeals based its decision that Section

1396a(a)(30)(A) mandates States to consider providers’

costs on its apparent understanding that the Medicare

Act, in 42 U.S.C. 1395dd, effectively requires hospitals to

provide outpatient services to Medicaid beneficiaries who

request them. Pet. App. A6, Al7. That is incorrect. The

Medicare Act requires only that a hospital participating in

the Medicare program determine whether a patient has an

emergency condition, and that the hospital treat or stabi-

lize the patient if an emergency condition is diagnosed.

42 U.S.C. 1395dd. It does not require hospitals to provide

any patients with non-emergency care, such as diagnostic,

therapeutic, or rehabilitative services, that is provided on

an outpatient basis.”

The court below similarly erred in assuming that hospi-

tals generally cannot participate in the program in num-

bers sufficient to ensure adequate access to quality care

Sess. Pt. 2, 312 (1981). The deletion was intended to “allow States to

be more creative and offer incentives for improved delivery of care

under their programs.” Jd. at 313. Congress, moreover, intended that

the amendment would “reduce Federal outlays in Medicaid * * * ina

manner which * * * provides the States with flexibility to institute a

number of measures in their programs to reduce cost and make them

more efficient.” Jd. at 279. Indeed, the court below recognized (Pet.

App. Al6) that “Congress intended payments to be flexible within a

range; payments should be no higher than what is required to provide

efficient and economical care, but still high enough to provide for

quality care and to ensure access to services.”

5 Hospitals are not required by federal law to provide the full

range of Medicaid-covered services to any beneficiary who seeks

treatment. Barney v. Holzer Clinic, Ltd., 110 F.3d 1207, 1211-1212 (6th

Cir. 1997). Rather, participation in the Medicaid program is voluntary,

and providers are obligated to offer only such non-emergency care to

Medicaid recipients as they are willing to undertake. See 42 U.S.C.

1396a(a)(23); 42 C.F.R. 431.51(b)(1)(ii). Thus, to the extent respondents

are providing access to outpatient care under the rates they challenge,

it is not because they are compelled by federal law to do so.

unless payment rates meet the full costs incurred by

efficient hospitals. Pet. App. Al4-A17. To be sure, reim-

bursement levels affect provider participation rates. See

generally D. Lewis-Idema, Increasing Provider Partici-

pation 11-17 (Nat’l Governors’ Ass’n 1988). There is no

clear evidence, however, that Medicaid must assume all or

substantially all of the costs incurred by hospitals in order

to ensure reasonable access to quality care. Factors other

than a State’s basic Medicaid payment rates significantly

affect provider participation.® Moreover, a hospital may

have a sufficient economic incentive to provide care to

Medicaid recipients as long as its marginal revenue from

treating additional Medicaid patients offsets its marginal

costs of doing so, even if the hospital does not fully recover

a pro rata portion of its total costs. Recognition of that

reality in establishing reimbursement rates for outpatient

services under Medicaid is fair and reasonable, because the

higher costs incurred by hospitals may be attributable to

services other than non-emergency outpatient services—

such as furnishing inpatient and emergency care, the core

mission of most hospitals.

This case in fact confirms that reimbursement of sub-

stantially all of providers’ fully allocated costs is not nec-

essary to ensure adequate access to quality care. Al-

though California does not fully reimburse such costs of

6 For example, Medicaid requires that hospitals that serve a dispro-

portionate number of low-income patients receive additional payments

to compensate for the added costs incurred in serving such populations.

42 U.S.C. 1396a(a)(13)(A), 1896r-4(a). Similarly, some States have

established special funds to compensate providers for the costs of pro-

viding uncompensated or undercompensated care. See, e.g, New Eng-

land Health Care Employees Union v. Mount Sinai Hospital, 65 F.3d

1024 (2d Cir. 1995). Some providers may also be able to defray uncom-

pensated costs by increasing charges to paying patients who have

private insurance. See, ¢.g., New York Conf. of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 658-660 (1995).

ES EE eT

outpatient services for a majority of hospitals partici-

pating in its Medicaid program, Pet. App. A10, it has not

been demonstrated that recipients lack adequate access to

providers of outpatient services. Indeed, the court of

appeals acknowledged that “(ijn this case there has been

no assertion of a provider participation problem.” Jd. at

Al7.

ce. The decision below also conflicts with Congress’s

clear intent to encourage cost-efficient provision of cov-

ered Medicaid services. The court of appeals did not

dispute that “[s]ome of the services provided by hospital

outpatient departments could be provided more economi-

cally by non-hospital providers.” Pet. App. A6. Thus, in

holding that petitioner must set rates sufficient to

reimburse costs incurred specifically by hospitals, the

decision below effectively requires petitioner to establish

rates of payment that perpetuate inefficient patterns of

utilization merely because such inefficiencies have become

entrenched in the marketplace. That conclusion is incon-

sistent with Section 1396a(a)(30)(A)’s directive that States

set payments that are “consistent with efficiency [and]

economy.”

2. Petitioner also requests the Court to consider

whether providers have a cause of action under 42 U.S.C.

1983 to challenge rates as inconsistent with Section

1396a(a)(30)(A). Although we agree with petitioner that

providers have no such right, that issue does not warrant

plenary review in its own right, especially in this case.

a. Every court that has considered the issue has held

that providers have a right of action under Section 1983

to enforce 42 U.S.C. 1396a(a)(30)(A). Methodist Hospitals,

Ince. v. Sullivan, 91 F.3d at 1029; Arkansas Medical

Society, Inc. v. Reynolds, 6 F.3d 519, 528 (8th Cir. 1993);

Visiting Nurse Ass’n of North Shore, Inc. v. Bullen, 93

F.2d 997, 1002-1006 (1st Cir. 1996), cert. denied, 117 S. Ct.

955 (1997).’ Those decisions have relied on this Court’s

decision in Wilder, which held that the Boren Amendment,

42 U.S.C. 1396a(a)(13)(A), “create[d] a right enforceable by

health care providers under [Section] 1988 to the adoption

of reimbursement rates that are reasonable and adequate

to meet the costs of an efficiently and economically oper-

ated facility that provides care to Medicaid patients.” 496

U.S. at 509-510.

We do not believe, however, that this Court’s decision in

Wilder resolves the question whether Congress, in en-

acting Section 1396a(a)(30)(A), similarly intended to create

rights enforceable under Section 1983. The Boren Amend-

ment mandated that a State provide for payments “through

the use of rates * * * which * * * are reasonable and

adequate to meet the costs which must be incurred by

efficiently and economically operated facilities.” 42 U.S.C.

1396a(a)(13)(A) (emphasis added), In contrast, Section

1396a(a)(30)(A) does not specifically require that the State

consider providers’ costs in setting Medicaid payments,

much less “meet” those costs; it simply requires that a

State provide for “methods and procedures relating to the

* * * payment for care and services * * * as may be

necessary * * * to assure that payments are consistent

with efficiency, economy, and quality of care” and “suf-

ficient to enlist enough providers” so that there will be

equal access to care and services for Medicaid patients.

In order for an Act of Congress to create rights enforce-

able under Section 1983, “Congress must have intended

7 See also Sobky v. Smoley, 855 F. Supp. 1123, 1137-1138 (E.D. Cal.

1994); Illinois Hospital Ass'n v. Edgar, 765 F. Supp. 1343, 1349 (N.D.

Ill. 1991). Cf. Fulkerson v. Comm’r, Maine Dep't of Human Servs.,

802 F. Supp. 529, 533-585 (D. Maine 1992) (concluding that Medi-

caid recipients have right under 42 U.S.C. 1988 to enforce Section

1396a(a)(30)(A)'s equal access provision, but not its requirement that

payments be consistent with “efficiency, economy and quality of care”).

SEES ee

that the provision in question benefit the plaintiff.” Bless-

ing v. Freestone, 117 S. Ct. 1353, 1859 (1997). Here, Sec-

tion 1396a(a)(30)(A) does not confer benefits on providers.

It therefore is unlike the Boren Amendment, which re-

quired a “system for reimbursement of providers.”

Wilder, 496 U.S. at 510. As the district court below prop-

erly observed (Pet. App. B15), Section 1396a(a)(30)(A) “was

enacted as a cost-containment measure” to limit Medicaid

payments. Indeed, respondents conceded below that Sec-

tion 1396a(a)(30)(A)’s requirements that payments be con-

sistent with “economy” and “efficiency” serve to limit

Medicaid payments and do not confer on providers a right

to a minimum payment. See Appellants’ C.A. Reply Br. 3.

Respondents instead argue that the requirement that

payments be sufficient to ensure “quality care” confers on

hospitals a right to cost-based Medicaid payments. Br. in

Opp. 14-16. The more natural reading of the statutory re-

quirement that payments be “consistent with * * *

quality care,” however, is that it is intended to benefit the

needy individuals who qualify under the Medicaid program.

Cf. Arkansas Medical Society, Inc., 6 F.3d at 526 (“The

equal access provision is indisputably intended to benefit

the recipients by allowing them equivalent access to

health care services.”)." Compare Blessing, 117 S. Ct. at

1360-1361 (statutory requirement that State be in sub-

stantial compliance with child-support enforcement pro-

gram requirements was not intended to benefit individual

children or confer rights on them).

8 The history of Section 1396a(a)(30)(A) supports the conclusion that

the equal access provision was intended to benefit Medicaid beneficiar-

ies, not providers. See H.R. Rep. No. 247, 101st Cong., Ist Sess. 391

(1989) (“The question which the Secretary must ask is whether Medi-

eaid beneficiaries have access to provider services that is at least

as great as that of others in the area.”).

Moreover, by reading Section 1396a(a)(30)(A) to confer

enforceable rights on providers to payments that are “con-

sistent with efficiency, economy, and quality of care,” the

court below (Pet. App. A19) has created a right that is

“beyond the competence of the judiciary to enforce.”

Wilder, 496 U.S at 509 (quoting Golden State Transit

Corp. v. Los Angeles, 493 U.S. 108, 106 (1989)). Neither the

Act nor any regulation promulgated by the Secretary

“gives any guidance” (Blessing, 117 S. Ct. at 1862) as to

what portion of costs must be reimbursed by States for

how many of the providers, or gives more specific content

to the statutory criteria of “efficiency, economy, and qual-

ity of care” so that those general criteria could be en-

forced by a court. Accordingly, “the right assertedly pro-

tected by the statute is * * * go ‘vague and amorphous’

that its enforcement would strain judicial competence.”

Id. at 1359 (quoting Wright v. Roanoke Redevelopment

and Housing Authority, 479 U.S. 418, 431-432 (1987)).

b. Despite _ petitioner’s position that Section

1396a(a)(30)(A) does not confer rights on providers that

may be enforced under 42 U.S.C. 1983, petitioner did not

preserve that issue in the court of appeals. Although

petitioner argued to the district court that respondents

could not bring suit under Section 1983, petitioner did not

raise the issue as an alternative ground for affirmance in

the court of appeals after prevailing on the merits of the

Statutory question. See Northwest Airlines, Inc. v.

County of Kent, 510 U.S. 355, 364 (1994). The court of

appeals therefore did not address that threshold question.

Petitioner contends (Reply Br. 3) that she argued in the

court of appeals that Section 1396a(a)(30)(A) was not

intended to benefit providers, and that that provision lacks

sufficient guidance to create judicially enforceable stan-

dards. Petitioner advanced those contentions, however, in

support of her arguments on the merits regarding the

proper interpretation of Section 1396a(a)(80)(A). Peti-

tioner did not further argue that, in light of those factors,

Section 1396a(a)(30)(A) does not even create rights en-

forceable under 42 U.S.C. 1983. In circumstances such as

these, the Court would ordinarily decline to review the

issue. See, e.g., Youakim v. Miller, 425 U.S. 231, 234

(1976) (“{o}rdinarily, this Court does not decide questions

not raised or resolved in the lower court”); accord Citi-

zens Bank of Maryland v. Strumpf, 516 U.S. 16, 21 n.*

(1995); Delta Air Lines, Inc. v. August, 450 U.S. 346, 362

(1981); Adickes v. S.H. Kress & Co., 398 U.S. 144, 147 n.2

(1970).

3. a. The statutory question at issue in this case—

whether States must reimburse hospital providers for

their costs of providing outpatient care—could have sig-

nificant consequences for the Medicaid program. By

ordering a system of cost-based reimbursement for out-

patient services, the decision below frustrates the intent

of Congress to accord States flexibility in encouraging

efficient and economical care. In addition, depending upon

what measure of “costs” the court of appeals meant to be

reimbursed, the decision below could increase substan-

tially the expense of the Medicaid program to the States

and the federal government, without any corresponding

finding that, under the current system, needy individuals

lack access to quality care. See Pet. App. Al7. Similarly,

whether respondents may bring suit under Section 1983 is

an important question that could have a significant impact

on the Medicaid program. If providers such as respondents

could routinely bring suit in federal court alleging that a

State has failed to make adequate reimbursement to them

for particular outpatient services, the cost of the Medicaid

program could substantially increase, to the detriment of

both the state and federal governments, and the ultimate

detriment of Medicaid recipients. Thus, at some point, the

questions presented in this case may warrant this Court’s

review.

In our view, however, this case would be an inappropri-

ate vehicle for plenary review of the court of appeals’ deci-

sion on the merits, because the substantial threshold issue

of the availability of a cause of action under 42 U.S.C. 1983

has not been addressed below or preserved for the Court’s

review. That conclusion is particularly warranted here,

since many of the issues underlying a determination of

whether 42 U.S.C. 1983 confers a right of action on pro-

viders, such as whether providers are the intended

beneficiaries under Section 1396a(a)(30)(A) and the degree

of flexibility conferred on the States by that Section,

overlap with the statutory question of whether Section

1396a(a)(30)(A) confers on hospitals a right to Medicaid

payments that reimburse all or substantially all of their

costs. Thus, in our view, it would be appropriate for

this Court to defer review until there is a case that ade-

quately presents both the merits question under Section

1396a(a)(30)(A) and the threshold right-of-action question

under 42 U.S.C. 1983.

b. This Court’s ultimate review of both questions

presented will likely benefit from further consideration by

the lower courts. Although petitioner and her amici are

correct in observing (Pet. 11-12; States’ Amici Br. 6-7)

that the Ninth Circuit’s decision is in considerable ten-

sion with the decisions of two other courts of appeals

regarding whether Section 1396a(a)(30)(A) requires States

to adopt a particular methodology in setting Medicaid

payment rates, those decisions did not squarely confront

the question whether States must reimburse providers’

costs in order to comply with that Section. See Methodist

Hospitals, Inc., 91 F.3d at 1030; Minnesota Homecare

Ass’n, 108 F.3d at 918. The courts below did not have the

benefit of the views of the Secretary of Health and Human

Services set forth in this brief concerning the interpreta-

tion of Section 1396a(a)(30)(A) on that question. Compare

Auer v. Robbins, 117 S. Ct. 905, 911-912 (1997). And the

precise scope of the Ninth Circuit’s decision in this case is

uncertain, for it is not clear what meas...e of “costs” the

court intended that petitioner must allow the hospitals to

recover. See Pet. App. A13-A15, Al8, A19, A21-A22; page

15, supra.

Similarly, those courts of appeals that have construed

Section 1396a(a)(30)(A) as conferring rights enforceable

under 42 U.S.C. 1983 have not considered the issue in the

specific context of a challenge to a State’s plan based on its

lack of consideration of providers’ costs. See, e.g. Visiting

Nurse Ass’n of North Shore, Inc., 93 F.3d at 1000 n.3 (pro-

viders challenged State’s proposed rate changes as violat-

ing “equal access” provision); Methodist Hospitals, Inc., 91

F.3d at 1029 (providers argued that State could not change

rates without demonstrating effect on access to care);

Arkansas Medical Society, Inc., 6 F.3d at 531 (providers

and recipients challenged proposed reimbursement rate

reductions as based on budgetary concerns without con-

sidering reduction’s impact on efficiency, economy, and

quality of care, as well as equality of access).

The courts of appeals also have not explored new author-

ity bearing on a plaintiffs right to enforce “state plan”

requirements set forth in the Social Security Act through

an action under 42 U.S.C. 1983. The Court has recently

clarified those standards in Blessing, 117 S. Ct. at 1359-

1362. In addition, Congress recently enacted legislation

concerning the scope of 42 U.S.C. 1983 actions under 42

U.S.C. 1983 to enforce provisions of the Social Security

Act. See 42 U.S.C. 1320a-2, 1320a-10; Pet. App. B7-B9, note

3, supra. Neither the decision below nor any of the other

appellate decisions construing Section 1396a(a)(30)(A) has

addressed that new provision.

Finally, since the decision below was rendered, Con-

gress, in the Balanced Budget Act of 1997, has repealed the

Boren Amendment (which required States tc =‘ ~ates

that “meet” the costs that must be incurred by reasonably

efficient hospitals for inpatient services and was found in

Wilder to confer rights on hospitals enforceable under 42

U.S.C. 1988) and replaced it with a more limited require-

ment that States provide for public notice-and-comment

participation in their ratemaking processes. See Pub. L.

No. 105-33, § 4711, 111 Stat. 507-508. The legislative his-

tory of that recent enactment establishes Congress’s firm

determination both to free the States from federal regula-

tion and increased rates and to eliminate a basis for causes

of action by hospitals to challenge reimbursement rates.

Thus, the House Report on the repeal of the Boren

Amendment noted that “[a] number of Federal courts have

ruled that State systems failed to meet the test of

‘reasonableness’ and some States have had to increase pay-

ments to these providers as a result of these judicial inter-

pretations.” H.R. Rep. No. 149, 105th Cong., Ist Sess. 590

(1997); accord H.R. Conf. Rep. No. 217, 105th Cong., Ist

Sess. 867 (1997).? The House Report further stated that

“ijt is the committee’s intention that, following enact-

ment of this Act, neither this nor any other provision of

Section 1902 [of the Social Security Act, 42 U.S.C. 1396a]

will be interpreted as establishing a cause of action for

hospitals and nursing facilities relative to the adequacy of

the rates they receive.” H.R. Rep. No. 149, supra, at 591.

Yet under the decision below, Section 1396a(a)(30)(A)—

® States had sought repeal of the Boren Amendment on the ground

that “courts have interpreted [it] to embody a restrictive and

unrealistic set of requirements in setting reimbursement rates and

have in effect given judges the power to establish reimbursement rates

levels and criteria.” National Governors’ Association Policy, EC-8

Medicaid § 8.3.3 (February 1997).

which applies to medical services generally—would re-

quire States to conform to federal standards of reasonable

costs and would subject them to causes of action that could

lead to increased costs, not only for the outpatient ser-

vices involved in this case, but also for the very same

inpatient services that were previously covered by the

Boren Amendment. The lower courts should be afforded

the opportunity in the first instance to consider the sig-

nificance of this recent enactment for the interpretation of

Section 1396a(a)(30)(A) and for the availability of a cause of

action under 42 U.S.C. 1983 to enforce it.

CONCLUSION

The petition for a writ of certiorari should be denied. In

the alternative, the Court may wish to grant the petition,

vacate the judgment below, and remand the case to the

court of appeals for further consideration in light of

Blessing v. Freestone, 117 S. Ct. 13853 (1997); Section 4711

of the Balanced Budget Act of 1997, Pub. L. No. 105-33, 111

Stat. 507-508; and the position taken by the Secretary of

Health and Human Services in this brief.

Respectfully submitted.