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KLEIN v. MATHEWS

March 31, 1977

Ann KLEIN, Commissioner, New Jersey Department of Institutions and Agencies, et al., Plaintiffs,
v.
David MATHEWS, Secretary, Department of Health, Education and Welfare, and William Toby, Acting Commissioner, Region II, Social and Rehabilitative Services, Department of Health, Education and Welfare, Defendants



The opinion of the court was delivered by: BROTMAN

 This case involves the efforts of the State of New Jersey and four hundred fifty Medicaid patients to block the termination of federal financial participation for services provided at the Shore Manor Nursing Home under Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq.1 The Commissioner of New Jersey's Department of Institutions and Agencies and three Shore Manor patients filed this class action upon the Department of Health, Education and Welfare's determination that Shore Manor is not a qualified Medicaid provider and that, therefore, New Jersey can no longer claim federal financial participation for services rendered at that facility. This court has jurisdiction under 28 U.S.C. § 1331(a), § 1361.

 Shore Manor is the largest provider of skilled nursing and intermediate care services in New Jersey's Medicaid program. Its patients, who are dependent on the continued availability of Medicaid benefits, sought a hearing before HEW to contest HEW's determination that the facility is not in compliance with the federal standards for provider participation. Such request was denied and federal financial participation was terminated thirty days subsequent to this court's vacating the preliminary injunction it had issued on July 13, 1976. New Jersey has pursued its only remedy, seeking reconsideration of HEW's decision pursuant to 42 U.S.C. § 1316(d). Such reconsideration is pending.

 Presently before the court, on motion for summary judgment, is the patients' claim that due process entitled them to notice and a hearing before HEW can terminate federal financial participation for a Medicaid facility deemed to be an unqualified provider. *fn2" The patients seek to enjoin the termination of federal funds pending a hearing where they could challenge HEW's determination that Shore Manor is not in compliance with the standards of provider participation set forth in 42 U.S.C. § 1395x(j) as incorporated by 42 U.S.C. § 1396a(a)(28) and the regulations promulgated thereunder. The court will reach the merits of the patients' claim as the relevant facts discussed herein are not in dispute. Fed.R.Civ.P. 56.

 Before proceeding to a discussion of the merits of the patients' claim, it is essential to present the framework of the Medicaid program. Medicaid is a joint federal-state program under which benefits are provided to eligible recipients who are unable to purchase medical services in the marketplace. Under Title XIX of the Social Security Act, Congress provided for federal reimbursement of a percentage of state expenditures for the cost of medical services provided to eligible recipients by qualified providers. Primary administration of the program is left to the individual states through the state plan required by 42 U.S.C. § 1396a(a). Included in that plan is the responsibility to determine whether a provider of services is qualified under the applicable federal standards, 42 U.S.C. § 1396a(a)(33)(B). Facilities determined to be out of compliance with the applicable standards of participation are decertified by the state agency which administers the state plan, 42 U.S.C. § 1396a(a)(5), rendering such facilities ineligible to participate in the Medicaid program.

 If in administering the plan, state action results in the suspension, reduction, discontinuance or termination of assistance, recipients have a right to a hearing prior to the effectuation of that state action, 45 C.F.R. § 205.10(a)(5), and federal financial participation is available pending such a hearing, 45 C.F.R. § 205.10(b)(1). *fn3" As will be discussed later, the determination that a Medicaid facility is not in compliance with the applicable federal standards and the decertification of the facility would constitute the kind of state action within the scope of 45 C.F.R. § 205.10(a)(5). However, this case presents a factual setting which deviates from that which would be expected from the statutory design. In this case HEW, rather than the state agency, determined that Shore Manor is not in compliance with the applicable federal standards, and that, therefore, federal financial participation should be terminated. Neither Title XIX nor the regulations promulgated thereunder expressly allow the patients the right to contest that decision at any time. The issue presented is whether the Fifth Amendment's procedural due process protections require that the patients have the right to a hearing before the termination of federal financial participation.

 The impacts of HEW's decision to terminate a facility's provider status are many. *fn4" No longer eligible to receive federal reimbursement for the cost of the services rendered at the terminated facility, the state is compelled to transfer the patients to available beds in other qualified Medicaid providers. At best the patients are faced with involuntary transfer to another facility that has comparable services. *fn5" As will be detailed below such an involuntary transfer causes the patients to endure the rigors of "transfer trauma." However, if, due to a lack of available beds the patients cannot be transferred to a facility which provides the same level of care, they would suffer a loss of benefits to which they are entitled under Title XIX. *fn6"

 Considering the massive impact termination of a facility's provider status has upon the well being of Medicaid patients and their right to receive benefits under Title XIX, it is surprising that more case law dealing with these issues has not developed. Perhaps it is a function of the nursing home patients' isolation from the services of lawyers, lay advocates, family and friends. That is not to say no law has developed, *fn7" but simply that there is a paucity of opinions exploring what the court considers difficult and important issues which affect the lives of many.

 As has been previously noted, the patients claim that under the procedural due process protections of the Fifth Amendment they are entitled to a hearing prior to the termination of federal financial participation. Under the Due Process Clauses of the Fifth and Fourteenth Amendments it has been consistently recognized that government may not deprive citizens of statutorily created property interests without providing notice and some opportunity to contest the decision. E.g., Board of Regents v. Roth, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972); Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287 (1970). The threshold question here is whether the termination of federal financial participation for services rendered by a Medicaid provider works a deprivation cognizable under due process. If procedural due process protections are triggered, then a balancing of the competing interests determines what process is due. It is to this two-prong analysis that the court now turns.

 Although the court received testimony concerning the acute shortage of Medicaid beds and the impossibility of placing all of Shore Manor's patients in qualified facilities providing the same level of care within the thirty day grace period allowed under 45 C.F.R. § 249.10(b)(4)(i)(C), the patients do not urge that HEW's termination of federal financial participation will cause a termination of the patients' Medicaid benefits. This position is apparently premised on the state's willingness to bear the full cost of the patients' care until space is available at other providers. However, the state has no obligation under Title XIX indefinitely to maintain Medicaid patients at a facility deemed by HEW to be ineligible to render reimbursable Medicaid services. *fn8" Without space available in qualified providers the patients cannot receive the benefits of participation in the Medicaid program. Therefore, although not urged by the patients, it seems that given the size of the patient population at Shore Manor and the acute nature of New Jersey's bed shortage, the termination of federal financial participation is tantamount to a denial of benefits. The deprivation of benefits under the Social Security Act has repeatedly been held to trigger procedural due process protections. E.g., Mathews v. Eldridge, 424 U.S. 319, 332, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976). However, the court need not find that the termination of federal funds works such a denial in order to conclude that due process rights are implicated.

 The thrust of the patients' argument is that their forced relocation is a denial of a legitimate legal expectancy in continued occupancy at Shore Manor. Under the applicable regulations, a nursing home patient may be

 
"transferred or discharged only for medical reasons, or for his welfare or that of other patients, or for nonpayment for his stay . . ."

 While the patients do not contend they have a right to remain at a facility that does not comply with the applicable federal standards they do urge that the above quoted regulations do give them a legitimate entitlement to continued occupancy in a complying facility, and therefore, a right to a hearing on the issue of compliance. This regulation does vest the patients with a property interest in their continued occupancy under Board of Regents v. Roth, supra. The regulation constitutes an existing rule that secures and supports the patients' claim of continued occupancy. See Bishop v. Wood, 426 U.S. 341, 96 S. Ct. 2074, 48 L. Ed. ...


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