ResCare Health Services, Inc., Appellant (Plaintiff below), –v– Indiana Family & Social Services Administration – Office of Medicaid Policy and Planning, Appellee (Defendant below).
No. 21S-MI-372
Indiana Supreme Court
April 5, 2022
Opinion by Justice Massa; Chief Justice Rush and Justices Slaughter and Goff concur. Justice David concurs in result.
Argued: October 21, 2021 | Corrected | Appeal from the Marion Superior Court, No. 49D03-1908-MI-32821, The Honorable Gary Miller, Judge |
Massa, Justice.
After being denied Medicaid reimbursement for over-the-counter medicines prescribed to its patients, ResCare Health Services, Inc. unsuccessfully sought administrative and judicial review, including a request for declaratory judgment. But the trial court concluded the request was insufficiently pleaded and ResCare’s patients needed to be added to the litigation. Without determining whether the issue was sufficiently pleaded, the Court of Appeals affirmed, agreeing that the patients needed
While we summarily affirm the disposition of ResCare’s other arguments, we disagree that its declaratory judgment request should not be considered on the merits. Under Indiana’s notice pleading standards, ResCare sufficiently pleaded its declaratory judgment request. And its patients need not be sued for ResCare to seek declaratory relief blocking a government enforcement action. We reverse and remand for the trial court to consider the declaratory judgment request on the merits.
Facts and Procedural History
ResCare operates private intermediate care facilities across Indiana for individuals with intellectual disabilities. These facilities are reimbursed for the care provided to Medicaid recipients at a per diem rate, which “includes all services provided to patients by the facility.”
ResCare then petitioned for administrative review of the adjustment and “asked for a determination that it could charge patient accounts if the agency determined that [over-the-counter] drugs could not be included in the per diem rate.” Appellant’s App. Vol. II, p.8. After both parties moved for summary judgment, the administrative law judge, or ALJ, found that only pharmacy providers may seek reimbursement under Medicaid for over-the-counter medicines, and even they may not seek reimbursement for drugs not included on the Drug Formulary. And because the ALJ concluded that over-the-counter medicines are not included in the list of services that may be covered by the per diem rate under
ResCare petitioned for judicial review, arguing it should be reimbursed for the over-the-counter medicines through the per diem rate, and it would be subject to an unconstitutional taking if the costs are not included in that rate unless it is permitted to charge its patients’ personal accounts for these costs. The trial court affirmed the agency’s final decision, concluding that non-Formulary, over-the-counter medicines are not reimbursable
ResCare appealed, and the Court of Appeals affirmed. The panel found that “state-run facilities are explicitly authorized to be reimbursed for pharmaceutical products,” while the authorization for private facilities like ResCare only has the “broad-sweeping encompassing language of ‘all medical and nonmedical supplies and equipment’ without further differentiation.” ResCare Health Servs., Inc. v. Ind. Fam. & Soc. Servs. Admin., 169 N.E.3d 864, 870 (Ind. Ct. App. 2021). If the term had been intended to include pharmaceutical products like over-the-counter medicines, “there would be no need to separately include these as a permissible per diem component for state-owned facilities.” Id. at 871. Thus, the over-the-counter medicines were excluded from the per diem rate of private facilities like ResCare. Id. The panel also rejected ResCare’s takings claim because it “voluntarily undertook the obligations and costs of participating in Indiana’s Medicaid program.” Id. at 873. And finally, “[w]ithout deciding whether ResCare’s request for declaratory judgment was sufficiently pleaded,” the panel affirmed the trial court’s denial, because ResCare “did not join the [patients] as parties to the current litigation.” Id. at 874.
ResCare sought transfer, which we granted. ResCare Health Servs., Inc. v. Ind. Fam. & Soc. Servs. Admin., 172 N.E.3d 275 (Ind. 2021). Indiana Mentor, another healthcare provider for individuals with intellectual disabilities, filed an amicus brief supporting ResCare.
Standard of Review
“We may set aside an agency action only if, relevant here, it is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’” Culver Cmty. Tchrs. Ass’n v. Ind. Educ. Emp. Rels. Bd., 174 N.E.3d 601, 604 (Ind. 2021) (quoting
Discussion and Decision
While we summarily affirm the Court of Appeals on the first two issues, see
I. ResCare did not need to file a separate complaint for a declaratory judgment.
The trial court denied ResCare’s declaratory judgment request, in part, because ResCare did not file a separate complaint for a declaratory judgment. The FSSA argued the trial court’s review in a “judicial action is limited to a review of the administrative proceedings,” and the trial court does not have the authority to issue relief, like a declaratory judgment, that “the agency was not authorized to issue.” Appellant’s App. Vol. III, pp. 231–32. Under that argument, ResCare could never obtain a declaratory judgment without filing a separate complaint, which would likely be consolidated with its judicial review petition. While the FSSA is correct that it cannot issue a declaratory judgment, it is incorrect that the trial court cannot. See
Indiana generally disfavors multiple lawsuits involving similar issues. Farm Bureau Gen. Ins. Co. of Mich. v. Sloman, 871 N.E.2d 324, 332 (Ind. Ct. App. 2007) (citing Ind. Ins. Co. v. Noble, 148 Ind. App. 297, 323, 265 N.E.2d 419, 435 (1970)), trans. denied. Parties and trial courts should “join actions when at all possible.” Carpenter v. Campbell, 149 Ind. App. 189, 199, 271 N.E.2d 163, 169 (1970). “[T]he intent behind many of our Rules of Trial Procedure is the avoidance of multiple lawsuits,” which, along with judicial economy and efficiency, has “always been of significant concern in the development of our legal principles.” Sloman, 871 N.E.2d at 332–33. In furtherance of these principles, our Trial Rules encourage liberal joinder of claims and remedies. This philosophy is evidenced by the broad scope of
While a party typically can only obtain judicial review of issues raised before an agency, ResCare was not seeking judicial review of this issue—it was seeking a declaratory judgment. A petition for review is analogous to a complaint and allows a party to include other claims that were previously unavailable on administrative review. See Ind. Dep’t of Highways v. Dixon, 541 N.E.2d 877, 880 (Ind. 1989); Midwest Ent. Ventures, Inc. v. Town of Clarksville, 158 N.E.3d 787, 792 (Ind. Ct. App. 2020), trans. denied. Nothing in the Administrative Orders and Procedures Act suggests parties seeking judicial review are barred from adding additional claims that were previously unavailable on administrative review. See
Indiana is a notice-pleading state and only requires that pleadings contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”
“The purpose of notice pleading is to inform a defendant of a claim’s operative facts so the defendant can ‘prepare to meet it.’” Id. (quoting Noblesville Redevelopment Comm’n v. Noblesville Ass’n Ltd. P’ship, 674 N.E.2d 558, 564 (Ind. 1996)). “A complaint’s allegations are sufficient if they put a reasonable person on notice as to why a plaintiff sues.” ARC Constr. Mgmt., LLC v. Zelenak, 962 N.E.2d 692, 697 (Ind. Ct. App. 2012). Within the context of pleading declaratory judgments, our Court of Appeals’ decision in Myers v. Deets is instructive. 968 N.E.2d 299 (Ind. Ct. App. 2012). “While not expressly seeking a declaratory judgment,” the plaintiff “sufficiently stated facts that would support a declaratory judgment action.” Id. at 303. The panel found this complaint sufficient to seek relief by way of a declaratory judgment, and the adequacy of the notice was evinced by the defendant refuting the issue in its answer. Id.
Unlike the Myers plaintiff, ResCare has expressly requested a declaratory judgment at every stage of these proceedings. During the administrative proceedings, ResCare requested this declaratory judgment from the ALJ, who declined to rule on the issue.1 ResCare appealed the ALJ’s decision to the final agency authority, and the FSSA concluded it could not rule on the issue because it was not ripe and issuing a declaratory judgment “was beyond the authority of the ALJ and agency review.” Appellant’s App. Vol. II, pp. 22–23. In response to ResCare’s objections to the ALJ’s order, the FSSA argued this issue was “more akin to a declaratory judgment request, which is well beyond the purview of this administrative forum.” Id., p.92. Then in ResCare’s petition for judicial review, it stated one of the two issues raised during administrative review was “whether ResCare could charge the unreimbursed costs for such drugs to the personal funds account of the client.” Id., p.17. ResCare argued the FSSA erred in concluding the issue was not ripe, and to the extent the agency’s order rested on the concern that it “could not issue a declaratory judgment regarding the reimbursement from personal funds accounts, this Court does have the authority to do so.” Id. at 18–20 (citing
In their briefing before the trial court, both parties argued over the merits of the declaratory judgment. ResCare again argued
While explicitly referencing the declaratory judgment in ResCare’s prayer for relief may have been “highly desirable,” it was not necessary under our notice pleading standards. Rankin, 260 Ind. at 606, 294 N.E.2d at 606. All that was required was pleading the operative facts necessary to set forth an actionable claim, which ResCare did, in addition to its express requests for a declaratory judgment and legal arguments about why it deserved one. Trail, 845 N.E.2d at 135. This express request is evinced by the trial court itself referencing ResCare’s “request[]” for the declaratory judgment. Appellant’s App. Vol. II, p.12. Indeed, ResCare pleaded its declaratory judgment request far more expressly and thoroughly than the plaintiff in Myers, who still sufficiently pleaded a declaratory judgment request because he “sufficiently stated facts that would support a declaratory judgment action.” 968 N.E.2d at 303. Compared to the pleadings in Myers, and under our notice pleading standards, we have no trouble concluding the FSSA was sufficiently notified of ResCare’s request for a declaratory judgment. At every level of these proceedings, ResCare argued for and requested the declaratory judgment, and the FSSA has argued against it. Like the defendants in Meyers, the adequacy of the notice was shown by the defendants’ pleadings. Id. Here, the FSSA consistently refuted the issue in its responsive pleadings, proving it was on notice.
Notice pleading developed “as a reaction to the archaic and overly technical pleading standards of the common law” and code pleading regimes. James V. Bilek, Twombly, Iqbal, and Rule 8(C): Assessing the Proper Standard to Apply to Affirmative Defenses, 15 Chap. L. Rev. 377, 379 n.20 (2011). Indeed, our notice pleading system mandates that all pleadings be “construed as to do substantial justice, lead to disposition on the merits, and avoid litigation of procedural points.”
III. ResCare’s patients do not have to be joined to the litigation before ResCare’s declaratory judgment request can be considered.
The trial court also declined to issue the requested declaratory judgment “because the issue of whether or not ResCare may bill its [patients’] personal accounts
The purpose of the Uniform Declaratory Judgment Act is to “settle and to afford relief from uncertainty and insecurity with respect to rights, status and other legal relations.”
“When declaratory relief is sought, all persons shall be made parties who have or claim any interest that would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding.”
Examples of required parties are helpful, and show these parties have some legally cognizable interest or right at issue. Our Court of Appeals concluded a father was a necessary party to the name change proceeding of his minor child, as both parents shared equal legal rights in naming their child. In re Change of Name of Fetkavich, 855 N.E.2d 751, 755 (Ind. Ct. App. 2006). The Court of Appeals also concluded injured motorists, who had a legally vested interest in automobile insurance policy proceeds, were required parties that should have been joined to a declaratory judgment action between the insurance
However, joinder is not required when a party is tangential to the dispute. Our decision in Ball State University v. Irons is illustrative; there, a woman sought to join Ball State University as a necessary party in a dispute with her former husband over college expenses for their daughter. 27 N.E.3d at 722. But Ball State was not necessary to resolve the amount of unpaid fees owed to it, nor was it necessary to determine future education expenses, especially considering the daughter had already transferred universities. Id. Here, the patients’ joinder is not necessary to determine whether ResCare violates Medicaid regulations by directly charging the patients for non-covered, over-the-counter medicines. ResCare’s concern is with the FSSA, and it “only seeks protection from a later enforcement action by the FSSA.” Pet. to Trans. at 19. Requiring ResCare to sue its patients before it can obtain “relief from uncertainty and insecurity” about the legality of its proposed solutions is inapposite to the purpose of declaratory judgments. Watson, 181 Ind App. at 159, 390 N.E.2d at 1085. Adding ResCare’s patients, who are individuals of limited means with intellectual disabilities, to the litigation when they have no legally cognizable interest at issue, nor any role in a potential enforcement action by the FSSA for Medicaid violations, is neither “just” nor “economical.” Id. at 160, 390 N.E.2d at 1085. We conclude the FSSA did not carry its burden to prove joinder was required, and the trial court abused its discretion in declining to issue the declaratory judgment on this basis.2
Conclusion
While we summarily affirm the Court of Appeals on the statutory interpretation and takings issues, we reverse and remand for the trial court to consider ResCare’s declaratory judgment request on the merits.
Rush, C.J., and Slaughter and Goff, JJ., concur.
David, J., concurs in result.
ATTORNEY FOR APPELLANT
Mark J. Crandley
Barnes & Thornburg LLP
Indianapolis, Indiana
ATTORNEYS FOR APPELLEE
Theodore E. Rokita
Attorney General of Indiana
Aaron T. Craft
Benjamin M. L. Jones
Office of the Attorney General
Indianapolis, Indiana
ATTORNEY FOR AMICUS CURIAE INDIANA MENTOR
Paul L. Jefferson
McNeelyLaw, LLP
Indianapolis, Indiana