Christ the King Manor, Inc. v. Secretary United States Department of Health & Human Services
730 F.3d 291
| 3rd Cir. | 2013Background
- Pennsylvania’s Department of Public Welfare (DPW) used a cost-based “case-mix” methodology to set annual Medicaid per-diem rates for nursing facilities since 1996; beginning in 2005 it applied a budget adjustment factor (BAF) — a legislative budget-driven multiplier less than 1.0 — to cap growth.
- For FY 2008–09 DPW adopted SPA 08-007, which applied a BAF (0.90891) that reduced case-mix rates by ~9.109%; DPW published limited public notices and submitted the SPA to CMS with minimal analytical support and a spreadsheet comparing overall payment totals to the prior year.
- CMS (HHS) reviewed the sparse record, accepted DPW’s assurances, approved SPA 08-007 (retroactive to July 1, 2008), and certified compliance with 42 U.S.C. §§ 1396a(a)(30)(A) (Section 30(A)) and 1396a(a)(13)(A) (Section 13(A)).
- Several private nursing facilities challenged the approval and the State’s implementation, alleging (1) CMS approval violated the Administrative Procedure Act (agency action arbitrary and capricious) because the record lacked evidence DPW considered effects on quality of care under Section 30(A), and (2) DPW failed to satisfy Section 13(A)’s public-process notice requirements.
- The district court granted summary judgment to Defendants; on appeal the Third Circuit affirmed on Section 13(A) but reversed on Section 30(A) as to the Federal Defendants, concluding HHS’s approval was arbitrary and capricious for lack of evidence that quality-of-care and access were considered. The Supremacy-Clause claims against the State Defendant were held barred by the Eleventh Amendment and therefore the district court’s judgment for the State was affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HHS’s approval of SPA 08-007 violated the APA as arbitrary and capricious under Section 30(A) (quality, efficiency, economy, access) | CMS approved the SPA on a record lacking studies, analyses, or reasoned explanation showing the ~9.1% BAF would preserve quality and access; bare assertions and a year-to-year aggregate-payment comparison are insufficient | HHS could rely on (1) the modest absolute increase in aggregate payments from prior year, (2) prior use of BAFs without reported quality problems, and (3) other statutory quality-assurance regimes; substantial deference to agency interpretation applies | Reversed for Federal Defendants: approval set aside as arbitrary and capricious because the administrative record lacked adequate evidence or explanation that payments under SPA 08-007 would be consistent with quality of care and access (Section 30(A)) |
| Whether DPW satisfied Section 13(A)’s public-process/notice requirements before the SPA’s effective date | June notice was too late, incomplete (no dollar aggregate estimate, did not identify local offices), and thus failed to provide a reasonable opportunity to comment | June notice gave numeric BAF percentage estimate, explained methodology and timing, provided a comment period, and later notices supplemented information; CMS reasonably accepted substantial compliance | Affirmed for Federal Defendants on Section 13(A): CMS’s acceptance of DPW’s assurances was not arbitrary or capricious |
| Whether Plaintiffs’ Supremacy-Clause / injunction claims against the State Defendant may proceed in federal court | Plaintiffs seek injunctive/ declaratory relief to require DPW to pay pre-SPA rates or provide corrective payments for FY 2008–09 | State invokes Eleventh Amendment sovereign immunity; any relief sought is retroactive or would effectively award money from the state treasury | Affirmed for State Defendant: Eleventh Amendment bars relief here because plaintiffs seek past-rate recalculation/monetary-equivalent relief rather than prospective injunction to stop an ongoing violation |
| Whether Chevron deference applies to CMS approval of State Plan Amendments (SPAs) | Plaintiffs argue court precedent still controls or that deference is limited | Defendants assert CMS interpretations of the Medicaid Act in SPA approvals merit Chevron deference under Mead and Supreme Court guidance | Court: Chevron deference applies to SPA approvals; nonetheless the agency must have a reasoned record to support approval; deference does not excuse absence of evidence or analysis |
Key Cases Cited
- Douglas v. Independent Living Ctr. of So. Cal., 132 S. Ct. 1204 (2012) (acknowledging weight of agency SPA approvals and relevance of agency expertise)
- Rite Aid of Pa. v. Houstoun, 171 F.3d 842 (3d Cir. 1999) (Section 30(A) requires substantive compliance; process must be reasonable and budgetary concerns cannot be the sole basis)
- Pa. Pharmacists Ass’n v. Houstoun, 283 F.3d 531 (3d Cir. 2002) (Section 30(A) focuses on recipients’ needs; HHS enforcement role)
- Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) (arbitrary and capricious standard; agency must examine relevant data and articulate satisfactory explanation)
- Ex parte Young, 209 U.S. 123 (1908) (permits suits against state officials for prospective relief to end ongoing federal-law violations)
- Green v. Mansour, 474 U.S. 64 (1985) (distinguishes permissible prospective injunctive relief from barred retroactive relief against states)