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Unity Service Coordination, Inc v. Richard Armstrong

April 15, 2011


The opinion of the court was delivered by: Honorable B. Lynn Winmill Chief U. S. District Judge


The Court conducted a hearing on April 11, 2011, to address what remedy to apply in light of its decision granting summary judgment to Plaintiffs and denying as to Defendants. Order, Dkt. 48. The Court has considered the parties' oral argument and briefing, including supplemental memoranda submitted at the Court's request. Being familiar with the record, pleadings, and argument of counsel, the Court now enters the following order.


Plaintiffs are six Idaho service coordination agencies who filed this action againstDirector of Idaho Department of Health and Welfare (IDHW) Richard Armstrong, and Administrator of IDHW's Medicaid Division Leslie Clement. Plaintiffs seek to enjoin Defendants from continuing to implement a change in Medicaid reimbursement rates for service coordination benefits provided to developmentally disabled adults and children, which became effective on July 1, 2009. Compl.,Dkt. 1. Before July 1, 2009, IDHW reimbursed service coordination agencies on a flat, monthly rate per Medicaid participant. Simnitt Aff., Dkt. 14, ¶10. Since July 1, 2009, IDHW requires service coordination agencies to bill in fifteen-minute increments. IDHW reimburses agencies accordingly. Id. ¶ 11.

The 2009 rate change "was the result of a multi-year analysis and collaborative process . . .." Pugatch Aff., Dkt. 15, ¶ 6. From 2005 to 2009, IDHW conducted its own cost studies, contracted with the consulting firm Johnston-Villegas-Grubbs and Associates, LLC (JVGA) to develop surveys, compile and analyze data, and develop a reimbursement methodology, and hired another consulting firm to compare Idaho reimbursement rates with those of other states. See id. ¶¶ 8, 9, 12, 14, 16, 20, 21. In April 2008, IDHW prepared draft calculations and sought and used feedback from service coordination agencies. Id. ¶ 20.

Despite its efforts, IDHW ultimately used little if any of the cost studies in revising reimbursement rates, due at least in part to the small sample size of providers who responded to its surveys. Instead, IDHW used data from the Bureau of Labor Statistics (BLS) for Idaho professional and para-professional wages. For general and administrative costs, IDHW used the maximum percentage allowed (10%) without further supporting data, noting that there was insufficient data to justify using a different percentage. Id. ¶ 23. IDHW submitted State Plan Amendments for the new reimbursement rates to the Centers for Medicare & Medicaid Services (CMS)*fn1 , which determined that the plans complied with federal regulations. Id. ¶ 24; see Simnitt Aff., Dkt. 14-1, Exhs. D-20 and D-21.

Plaintiffs moved for a preliminary injunction, which this Court denied, finding -- on the evidence before it -- that Plaintiffs were unlikely to prevail. Order, Dkt. 32. But later, on consideration of Plaintiffs' motion for summary judgment, the Court agreed that the record failed to support that IDHW's reimbursement rate for indirect costs satisfied the Ninth Circuit's requirement to reasonably relate to efficient and economical (indirect) costs of providing quality services. See Indep. Living Ctr. of S. Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644,651-52 (9th Cir.2009); Orthopaedic Hosp. v. Belshe, 103 F.3d 1491, 1496 (9th Cir.1997).

Defendants moved for, and were denied reconsideration. Order, Dkt. 55. The Court requested and was provided briefing from the parties concerning what remedy to impose, in light of the Court's ruling on summary judgment for Plaintiffs. Specifically, the Court asked the parties to address: (1) the need for and appropriateness of injunctive relief until the cost study can be completed and new rates established; (2) the parameters of the cost study; and (3) the issue of provider cooperation.


1. Injunctive Relief Pending Completion of Cost Study

Pending completion of a new cost study per the Court's Order (Dkt. 48), Plaintiffs request an Order changing the rate back to the July 1, 2009 pre-adjustment rate. Pl. Br., Dkt. 49 at 2, citing Indep. Living Ctr. Of So. Cal, Inc. v. Shewry, 543 F.3d 1050, 1065 (9th Cir. 2008). Alternatively, Plaintiffs suggest using the rate of 79% of costs and services -- the high figure that IDHW collected in its own studies. Id. at 3. Plaintiffs agree with Defendants that the same rate should be applied to all providers, and not just Plaintiffs.

Defendants expressed concern that implementation of rates without first seeking approval from CMS through a State Plan Amendment (SPA) could trigger the loss of federal matching funds. Plaintiffs counter that withholding of federal financial participation would not occur until after the state receives notice and an opportunity for hearing. Pl. Resp., Dkt. 53 at 3, citing 42 CFR § 430.35(a). According to Plaintiffs, so long as IDHW submits a new SPA for the temporary rate change, CMS will continue to provide federal financial participation, retroactive to the first day of the quarter in which the SPA is submitted. Id. at 2, citing 42 CFR § 430.20.

At hearing, Defendants suggested that IDHW was able to commit resources to conduct a valid cost study on an expedited time-line for submission of a SPA to CMS. According to counsel for Defendants, IDHW could complete the cost study and have a new calculated rate by June 17, 2011. IDHW Br., Dkt. 57 at 2. Defendants suggest a schedule whereby notice would be published on June 24, 2011. Id. (citing 42 C.F.R. § 447.205). Citing to the requirement for publication of a rate change notice, Defendants assert that the earliest effective date for IDHW's plan under the proposed time-line would be June 25, 2011. IDHW Br., Dkt. 57 at 3 (citing 42 C.F.R. § 447.205(d)). However, the regulations also provide that notice is not needed where "[t]he change is required by court order." 42 C.F.R. § 447.205(b). Because the Court is ordering IDHW to conduct the proposed cost study and submit a new SPA, the effective date for an approved plan would be retroactive to April 1, 2011, under 42 C.F.R. § 430.20.

Plaintiffs assert that immediate injunctive relief, pending the cost study, is warranted given the Court's ruling in Plaintiffs' favor on the merits of this action, and its finding that Plaintiffs have been irreparably harmed. However, the Court is loath to impose a remedy that would pull resources away from efforts to complete a valid, expedited cost study, or that might otherwise result -- indirectly or inadvertently -- in the depletion of funds intended for the benefit of Medicaid recipients or service providers. Also, where -- as proposed by Defendants -- IDHW is able to complete ...

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