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ILLINOIS HEALTH CARE ASSN. v. BRADLEY

October 28, 1991

ILLINOIS HEALTH CARE ASSOCIATION, et. al, Plaintiffs,
v.
PHILIP BRADLEY, in his official capacity as Director of the Illinois Department of Public Aid, Defendant



The opinion of the court was delivered by: SHADUR

 MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 In this official-capacity lawsuit, Illinois Health Care Association ("IHCA") and Heartland Manor Nursing Center, Inc. ("Heartland") sue Director Philip Bradley ("Bradley") of the Illinois Department of Public Aid ("IDPA") *fn1" under 42 U.S.C. § 1983, *fn2" charging violations of the Medicaid Act ("Act"), Sections 1396-1396u. *fn3" Plaintiffs now move for summary judgment under Fed. R. Civ. P. ("Rule") 56. For the reasons stated in this memorandum opinion and order, plaintiffs' motion is granted and this action is dismissed in its entirety.

 Factual and Statutory Background4

 Federal Medicaid Program

 Medicaid is a joint federal-state program under which 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" (Section 1396). *fn5" Although participation in the program is voluntary, states that choose to participate must comply with the Act and its implementing regulations ( Wilder, 110 S. Ct. at 2513; Harris v. McRae, 448 U.S. 297, 301, 65 L. Ed. 2d 784, 100 S. Ct. 2671 (1980); Wisconsin Hosp. Ass'n v. Reivitz, 820 F.2d 863, 864 (7th Cir. 1987)). To qualify for federal reimbursement, a state must submit for the approval of the Secretary of the United States Department of Health and Human Services ("HHS") a plan for medical assistance (Section 1396a(a) and (b)). Each such plan must contain a comprehensive statement describing the nature and scope of the state's Medicaid program (42 C.F.R. ["Reg."] § 430.10 (1990)).

 When originally adopted in 1965, the Act required states to reimburse nursing homes for the "reasonable cost" of services provided under a state's Medicaid plan ( Wilder, 110 S. Ct. at 2515, citing Pub.L. 89-97, § 1902(a)(13)(B)). In 1980 Congress decided that the "reasonable cost" reimbursement was "inherently inflationary and contained no incentives for efficient performance" (S. Rep. No. 139, 97th Cong., 1st Sess. 478 (1981) (hereafter cited simply "S. Rep. No. 139 at -- "); see also 2 H.R. Rep. No. 158, 97th Cong., 1st Sess. 293 (1981)(hereafter cited simply "2 H.R. Rep. No. 158 at -- ")). It therefore replaced that approach with the Boren Amendment, *fn6" which in its current form requires a state plan for medical assistance to provide (Section 1396a(a)(13)(A)):

 
for payment . . . of the hospital services, nursing facility services, and services in an intermediate care facility for the mentally retarded provided under the plan through the use of rates (determined in accordance with methods and standards developed by the State [here the statute sets out factors to be taken into account in developing those methods and standards]) 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. . . . *fn7"

 Congress enacted the Boren Amendment with two specific purposes in mind: (1) to provide states with greater flexibility in developing reimbursement plans and (2) to reduce Medicaid costs by allowing states to develop plans that would encourage greater efficiency ( Pinnacle Nursing Home v. Axelrod, 928 F.2d 1306, 1309-10 (2d Cir. 1991); Wilder, 110 S. Ct. at 2515-16, citing 2 H.R. Rep. No. 158 at 292-93, S. Rep. No. 471, 96th Cong., 1st Sess. 28-29 (1979), and S. Rep. No. 139 at 478). Congress was clear, however, that "the flexibility given states [was] not intended to encourage arbitrary reductions in payment that would adversely affect the quality of care" (S. Rep. No. 139 at 478). Thus Congress stressed adequacy of payments so long as the providers of services were efficient ( IHCA I, 719 F. Supp. at 1421). *fn8"

 Parties

 IHCA is an Illinois not-for-profit corporation whose membership comprises 270 not-for-profit and proprietary Illinois nursing homes, most of whom participate in the Illinois Medicaid program. Heartland is an Illinois not-for-profit corporation and a member of IHCA. Heartland has participated as a provider of nursing home services in the Medicaid program since 1964 (P. Compl. and D. Ans. paras. 4, 5). Bradley, as Director of IDPA, is responsible for the development of the Illinois Medicaid State Plan (D. Mem. 2).

 Illinois Reimbursement Plan for Nursing Homes

 Illinois' Medicaid reimbursement plan for nursing homes employs a "prospective, cost-based, case-mix methodology" (D. Mem. 2). In other words, the rates for a given period are based on projections of what the rate is expected to be during that period. Those projections are based on past cost reports, updated to the current rate year, which include some measure of each facility's particular case mix (D. Ex. 10 at 2). *fn9" Three components -- capital rate, support rate, and nursing rate -- are calculated separately for each facility and are then combined into a per diem rate, which is paid to that facility for each day of nursing home care it provides to Medicaid beneficiaries (Ill. Rev. Stat. ch. 23, paras. 5-5.4, 5-5.5; see also P. 12(m) and D. 12(n) paras. 25, 26 and D. Ex. 10). *fn10"

 First, the capital component covers ownership and rental costs for buildings and equipment (89 Ill. Admin. Code ["Code"] §§ 140.571-.574). That element accounts for a relatively minor portion of the overall reimbursement rate (P. Ex. 6).

 Second, the support rate covers costs such as food, housekeeping, maintenance, utilities, insurance and office expenses. For purposes of determining the support rate, IDPA divides nursing facilities into seven Health Service Area ("HSA") groups. Based on the array of per diem allowable support costs of the facilities within each HSA group, IDPA identifies the 75th percentile for each group. If a facility's per diem allowable support costs are below the 75th percentile for its HSA group, the facility receives its costs plus a certain proportion of the difference between its costs and the 75th percentile as an incentive profit. All facilities whose per diem allowable support costs exceed the 75th percentile for their group receive only the 75th percentile rate (Code § 140.561(a)).

 Finally, the nursing rate (which covers direct care costs, including staff salaries, consultant and therapy fees and nursing supply costs) makes the greatest contribution to the overall reimbursement rate *fn11" and is the main focus of plaintiffs' action (see P. Mem. 36-57). That rate is calculated based on a complex formula. One of the factors in the formula is "variable time," which purportedly accounts for the varying service needs of the particular residents in each facility (Code § 147.150(b)). Variable time is calculated for each facility based on individual patient assessments conducted by IDPA nurse surveyors during what are known as "Inspections of Care" ("IOC")(Code § 147.150(c)). Nurse surveyors assign to each patient a level of care (e.g., 1, 2 or 3) for each of a list of various functional needs (e.g., eating or bathing) and service needs (e.g., injections or tracheostomy care)(see Code § 147.25 and P. Exs. 8, 9). Each level of care for each functional or service need correlates to a particular number of minutes and particular staff level (licensed or unlicensed) required to provide for that need (Code § 147 Table A). Then the total number of minutes assigned to all Medicaid patients in a facility is multiplied by the average regional wage per minute and divided by the number of Medicaid patients to yield an average per diem per patient cost. That number is then multiplied by a factor to account for the costs of the director of nursing ("DON"), consultants and supplies, and thus to yield the final nursing rate (P. Ex. 4, Hunter Dep. 9; P. Ex. 11, Christie Dep. 52-60; and D. Ex. 10, Part I). Hence for each facility the nursing rate is calculated in these terms: (Total minutes)(regional wage/minute) Factor reflecting DON, (Number of Medicaid patients) x supplies, consultants

 Plaintiffs' Position

 Plaintiffs contend mainly that the Illinois reimbursement plan violates the requirements of the Boren Amendment. *fn12" In particular, plaintiffs assert that IDPA has (Motion for Summary Judgment 1-2):

 
1. failed to make findings and assurances that its reimbursement rates are "reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities," as required by Section 1396a(a)(13)(A) and its implementing Reg. § 447.253(b);
 
2. relied "solely" on budgetary considerations in determining its Medicaid nursing home reimbursement rates; and
 
3. implemented an "arbitrary and capricious" reimbursement scheme that results in inadequate payments and therefore violates ...

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