Catanzano by Catanzano v. Wing

Page 223

103 F.3d 223

36 Fed.R.Serv.3d 1507, 52 Soc.Sec.Rep.Ser. 400,

Medicare & Medicaid Guide P 44,971

Michele CATANZANO, by her parent and next friend, Sam CATANZANO, Francine Catanzano, and Sarah Trafton on behalf of herself and all persons similarly situated, Plaintiffs-Appellees Jannie Wilson, Mary Jane Smith, and Charles Smith Intervenors-Plaintiffs-Appellees Andrew Doniger, M.D., as Director of the Monroe County Department of Health, and Richard F. Schauseil, as Acting Director of the Monroe County Department of Social Services, Defendants-Third-Party-Plaintiffs, v. Brian WING, as Acting Commissioner of the New York State Department of Social Services, Defendant-Appellant, Visiting Nurse Service of New York Home Care, Metropolitan Jewish Geriatric Center, and Home Care Association of New York State, Inc., Movants-Appellants, Mary Jo Bane, Defendant-Third-Party-Defendant, Mark Chassin, as Commissioner of the State of New York Department of Health, Third-Party-Defendant, W. Burton Richardson and Joel Nitzken, Defendants.

Nos. 24, 427, 68, 70 and 69, Dockets 95-9037L, 95-9243,

95-9255, 95-9257 and 95-9277.

United States Court of Appeals, Second Circuit.

Argued Sept. 13, 1996.

Decided Dec. 23, 1996.

Peter G. Crary, Assistant Attorney General of the State of New York, Albany, NY (Dennis C. Vacco, Attorney General of the State of New York, Peter H. Schiff, Deputy Solicitor General, Patrick Barnett-Mulligan, Assistant Attorney General, of counsel), for Defendant-Appellant.

Peter G. Bergman, Cadwalader, Wickersham & Taft, New York City (Eileen M. Considine, Hinman, Straub, Pigors & Manning, P.C., Albany, NY, of counsel), for Movants-Appellants VNS and MJGC.

Thomas F. Gleason, Gleason, Dunn, Walsh & O'Shea, Albany, NY, for Movant-Appellant HCA.

Ellen Yacknin, Greater Upstate Law Project, Inc., Rochester, NY (Bryan D. Hetherington, Susan Ann Silverstein, Public Interest Law Office of Rochester, Rochester, NY, of counsel), for Plaintiffs-Appellees and Intervenors-Plaintiffs-Appellees.

Before: OAKES and CALABRESI, Circuit Judges, and CONNER, ^* District Judge.

CALABRESI, Circuit Judge:

Complex regulatory schemes produce complex cases. And the interplay between complex state and federal statutory and regulatory schemes produces very complicated cases. This is just such a case. In it, we consider the scope of our prior decision, Catanzano v. Dowling, 60 F.3d 113 (2d Cir.1995), and the extent to which it already decided various issues of federal and state statutory and regulatory law brought to us in this appeal.

BACKGROUND

A. Statutory and Regulatory Framework

The Medicaid program is controlled by Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. Medicaid is a joint federal and state program designed to provide medical assistance to the financially needy. It is subsidized by the federal government, but administered by the states. Participation by a state in the program is voluntary, but once a state chooses to participate, it must comply with the federal Medicaid Act. See, e.g., Harris v. McRae, 448 U.S. 297, 301, 100 S.Ct. 2671, 2680, 65 L.Ed.2d 784 (1980). A participating state must submit a "state plan" to the Secretary of Health and Human Services. 42 U.S.C. § 1396. That plan must, among other things, include provisions for "home health services" to qualified recipients. 42 U.S.C. § 1396d(a)(7). Home health services, which are prescribed by the patient's physician, are provided in the recipient's home, and include anything from assisting in dressing and preparing meals to administering medication and monitoring the recipient's medical condition. 42 C.F.R. § 440.70.

Under New York law, home health services in New York must be provided by Certified Home Health Agencies ("CHHAs"). N.Y. Public Health Law §§ 3602(3), 3614(1). CHHAs employ professional nurses who make their own determinations as to the medical necessity and appropriateness of home health services. In 1991 and 1992, New York amended its laws governing home health care to create a four-step process by which a CHHA must determine whether or not home health services should be provided. N.Y. Social Services Law § 367-j; N.Y.COMP.CODES R. & REGS. tit. 18, § 505.23. Once a patient's physician has ordered home health services, and periodically thereafter, a CHHA must make a "fiscal assessment," the form of which differs depending upon the expected length of the period of care. If the period of care is expected to be less than 60 days, the CHHA makes only a two-step determination: 1) is home health care medically necessary and can it be safely provided? 2) are there less expensive ways to deliver the same amount of care? If the period of care is longer than 60 days, the CHHA must make two additional determinations: 3) will the cost of home health care exceed 90 percent of the cost of institutionalization? 4) if so, does the patient meet one of the statutory exceptions to mandatory institutionalization? When a CHHA makes a decision pursuant to steps 3 and 4, it must inform the local Department of Social Services ("DSS"). If the DSS and the CHHA disagree on the amount (if any) of care to be provided, the matter is referred to the "local professional director," whose decision is binding on the CHHA and the recipient. A recipient who is unhappy with this decision is allowed a full due-process "fair hearing" before an administrative law judge. The statute and regulation do not allow for "fair hearings" when the CHHA denies benefits pursuant to steps 1 or 2, or when the CHHA and the DSS agree to deny benefits under steps 3 and 4.

B. The Instant Case

This case has a long history. It began in 1989 when the CHHA operated by defendant Monroe County Department of Health decided to reduce the amount of Medicaid-funded home health care services that had been prescribed by plaintiff Michele Catanzano's physician. Catanzano was thirteen years old at the time, and was recovering from spinal fusion surgery. Judge Larimer preliminarily enjoined the reduction in services because Catanzano had not been provided with notice, hearing rights, or "aid-continuing." ¹ In an unpublished opinion, this court affirmed that preliminary injunction. Catanzano v. Richardson, 902 F.2d 1556 (2d Cir.1990). Shortly thereafter, Judge Larimer certified the plaintiff class, which now consists of "[a]ll New York State recipients and applicants of Medicaid-funded home health care who receive less home health care than most recently ordered by their treating physician or who have had their home health care suspended, denied, terminated, or reduced without prior notice, right to a fair hearing and aid-continuing." Catanzano v. Dowling, 847 F.Supp. 1070, 1079 (W.D.N.Y.1994).

The following year, New York amended its health care law to create the four-step decision-making process discussed above. Catanzano promptly amended her complaint to challenge the amended law. In 1994, finding that "serious violations of federal law have occurred, and continue to occur," Judge Larimer preliminarily enjoined the operation of the amended laws because, in each of the four steps, recipients' benefits could be reduced, terminated, or denied without due process "fair hearing" rights. Catanzano, 847 F.Supp. at 1074. The defendants appealed, arguing that the decisions made by the CHHAs in the first two steps of the process are decisions of private parties exercising professional judgment, and therefore are not actions of the state implicating fair hearing rights.

We rejected that argument and affirmed the decision of the district court. Catanzano v. Dowling, 60 F.3d 113 (2d Cir.1995). We noted that the Medicaid statute requires state plans to "provide for granting an opportunity for a fair hearing" whenever an applicant's requested services are denied, 42 U.S.C. § 1396a(a)(3), and that federal regulations make clear that benefits may not be denied, terminated, or reduced without granting the applicant a fair hearing that meets the due process standards promulgated in Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970). See Catanzano, 60 F.3d at 115 (citing 42 C.F.R. §§ 431.200, 431.205). We further noted, however, that due process rights are only implicated when the adverse action can be attributed to the state, and therefore that the claimants are only entitled to fair hearings if the CHHA's decisions to deny benefits pursuant to steps 1 and 2 are decisions of the state. We held that they are. "CHHAs are not simply regulated by the State; rather, they are deeply integrated into the regulatory scheme set up by section 367-j...." Id. at 119. We elaborated:

[T]he decisions made by the CHHA are not purely medical judgments made according to professional standards. Instead, section 367-j(2)(a)(i) requires the CHHAs to determine whether the health and safety of the recipient can be maintained "as defined by the department of health in regulation." Furthermore, the statute provides the specific alternatives that the CHHA is to consider in making the "efficiency" determinations mandated in step two.... [Finally,] the State has delegated its responsibility for "prior approval" to CHHAs. Prior approval ... is the general term for the process by which it is determined whether requested services are medically necessary.... For benefits other than home health care, patients adversely affected by prior approval determinations are entitled to a fair hearing. The state may not circumvent this requirement by delegating prior approval to CHHAs. Accordingly, the CHHAs are not independent actors doing business with the state, but are entities that have assumed the responsibility for the State's mandated health care duties.

Id. at 119-20 (citations and internal quotation marks omitted); see also Grijalva v. Shalala, 946 F.Supp. 747, 751-53 (D.Ariz.1996) (applying the analysis in Catanzano ).

Following this court's decision, the district court ordered the parties to prepare a final plan...