The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Children's Memorial Hospital ("Children's Memorial") sues the
Illinois Department of Public Aid ("IDPA") and its Director
Jeffrey Miller ("Miller") for declaratory and injunctive relief
under 42 U.S.C. § 1983 ("Section 1983"),*fn1 alleging Illinois'
Medicaid reimbursement plan and formula, Ill.Rev.Stat. ch. 23, §
5-5.11 ("Section 5-5.11") and IDPA Rule 4.13.8 ("Rule 4.13.8"),
6 Ill.Reg. 8187 (1982), violate the Social Security Act ("SSA"),
42 U.S.C. § 1396a(a)(13)(A) ("Section 13(A)") and applicable
federal regulations.*fn2 Children's Memorial has moved for a
preliminary injunction prohibiting enforcement of Section 5-5.11
and rule 4.13.8. For the reasons stated and on the terms
specified in this memorandum opinion and order, that motion is
granted as to enforcement of Section 5-5.11 and Rule 4.13.8
against Children's Memorial itself.*fn3
IDPA administers and supervises the administration of Illinois'
Medicaid program, Ill.Rev.Stat. ch. 23, § 1-1, §§ 5-1 et seq., §
12-1; ch. 127, § 48a; 42 U.S.C. § 1396a(a)(5). Under Medicaid the
United States provides funds to reimburse states in part for
programs of public assistance to persons "whose income and
resources are insufficient to meet the costs of necessary medical
services." Id. § 1396 ("Section 1396"). Although a state is not
required to participate in the Medicaid program, if it chooses to
do so and therefore to qualify for federal funds it must comply
with SSA and
applicable regulations. Harris v. McRae, 448 U.S. 297, 301, 100
S.Ct. 2671, 2680, 65 L.Ed.2d 784 (1980); Smith v. Miller,
665 F.2d 172, 175 (7th Cir. 1981).
Before October 1, 1981 SSA required a state to reimburse
hospitals for "the reasonable cost of inpatient hospital services
provided under" the state Medicaid plan.
42 U.S.C. § 1396a(a)(13)(D) ("Section 13(D)"), repealed by Pub.L. 97-35, §
2173(a)(1)(A), 95 Stat. 808, Aug. 13, 1981. In effect hospitals
were allowed to recover from states their full actual cost of
providing inpatient care to Medicaid patients.
In 1981 Congress found "reasonable cost" reimbursement was
"inherently inflationary and contain[ed] no incentives for
efficient performance." S.Rep. No. 139, 97th Cong., 1st Sess.
478, reprinted in 1981 U.S.Code Cong. & Ad.News 396, 744; see
also 2 H.R. Rep. No. 158, 97th Cong., 1st Sess. 293, reprinted in
4 Medicare & Medicaid Guide (CCH) ¶ 24,486, at 8799-33 (1981).
Congress therefore enacted Section 13(A), under which a state
plan for medical assistance must provide:
for payment . . . of the hospital, skilled nursing
facility, and intermediate care facility services
provided under the plan through the use of rates
(determined in accordance with methods and standards
developed by the State) and which, in the case of
hospitals, take into account the situation of
hospitals which serve a disproportionate number of
low income patients with special needs and provide,
in the case of hospital patients receiving services
at an inappropriate level of care . . . for lower
reimbursement rates reflecting the level of care
actually received . . . which the State finds, and
makes assurances satisfactory to the Secretary, are
reasonable and adequate to meet the costs which must
be incurred by efficiently and economically operated
facilities in order to provide care and services in
conformity with applicable State and Federal laws,
regulations, and quality and safety standards and to
assure that individuals eligible for medical
assistance have reasonable access (taking into
account geographic location and reasonable travel
time) to inpatient hospital services of adequate
quality; and such State makes further assurances,
satisfactory to the Secretary, for the filing of
uniform cost reports by each hospital, skilled
nursing facility, and intermediate care facility and
periodic audits by the State of such reports.*fn4
As Section 13(A) itself indicates, state efficiency under the
Medicaid program was not to be accomplished at the cost of
quality and safe care for the needy. As the Senate Report put it,
the desired state fiscal flexibility would not justify "arbitrary
reductions in payment that would adversely affect the quality of
care." S.Rep. No. 139 at 478, reprinted in 1981 U.S.Code Cong. &
Ad.News at 744. And the House Report too expressed its concern
2 H.R.Rep. No. 158 at 293-94, reprinted in 4 Medicare & Medicaid
Guide ¶ 24,486 at 8799-33.
Illinois' General Assembly responded to Congress' complex
directive by enacting Section 5-5.11, subsection (f)(1) of which
imposed a $797.5 million ceiling on total Medicaid payments to
hospitals for inpatient, outpatient and clinic services in fiscal
year 1983 (ending June 30, 1983).*fn5 In an effort to carry out
that legislative mandate, IDPA adopted and promulgated two new
1. IDPA Rule 4.13.7 ("Rule 4.13.7"), 6 Ill.Reg.
15029 (1982), set out a new method for calculating
hospitals' daily Medicaid reimbursement rate.*fn6
2. Rule 4.13.8 stated a mechanism for determining
the maximum number of days of inpatient care a
hospital could provide Medicaid recipients in fiscal
Though Rule 4.13.8 is typical of complex administrative
regulations, its basic outline is nevertheless intelligible:
1. It lists 214 "primary diagnosis groups." ¶ A(1),
6 Ill.Reg. at 8189-94. Those groupings identify
various ailments requiring medical treatment,
although the groupings vary in specificity (for
example, "Disorders of the thyroid gland," "Acute
tonsillitis" and "Burn").
2. Hospitals are told they will be classified in
three groups: Rehabilitative, Major Teaching, and
Other. ¶ A(2), id. at 8194-95.
3. IDPA announces it will develop (a) a sample of
lengths of stay for each primary diagnosis group for
each hospital category and (b) a sample
representative of the mix of Medicaid recipient
diagnoses as treated in major teaching and "other"
hospitals. ¶¶ A(3)-(4), id. at 8195.
Based on that structure, the crux of Rule 4.13.8 is that, with
certain immaterial exceptions, the maximum number of reimbursable
Medicaid days is set at the statewide 80th percentile of length
of stay by primary diagnosis groups and hospital classification.
¶¶ A(5)-(9), id. at 8195-97.*fn7 Rule 4.13.8 thus is essentially
an effort to reduce over-utilization of hospitals by denying
reimbursement to those that, on average, retain their patients
for lengths of stay falling in the highest 20 percentile
statewide for specified diagnosed ailments.
Children's Memorial is classified as a Major Teaching Hospital.
It is a highly specialized facility, treating only pediatric
patients and providing care for many rare or complex
conditions.*fn8 Approximately 25% of its patients receive ...