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New York Health and Hospitals Corp. v. Blum

decided: May 4, 1982.


Interlocutory appeal pursuant to 28 U.S.C. § 1292(b) of an order of the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., J., denying a motion by New York City Health and Hospitals Corp. (HHC) for summary judgment. By order dated December 11, 1981, this court granted HHC leave to appeal on one of four questions certified by the district court. That question concerned HHC's standing to assert a conflict between the New York State Plan for Medical Assistance for 1980 on the one hand, and the Medicaid Act, 42 U.S.C. § 1396 et seq., and the Professional Standards Review Organizations Act, 42 U.S.C. § 1320c et seq., on the other hand. Order granting leave to appeal vacated as improvidently granted, and case remanded to the district court.

Before Feinberg, Chief Judge, Winter, Circuit Judge, and Mishler, District Judge.*fn*

Author: Feinberg

This appeal concerns one in a long series of challenges to the methodology chosen by the State of New York, with the approval of the Secretary of the United States Department of Health and Human Services, for computing Medicaid reimbursement under the Medicaid Act, 42 U.S.C. §§ 1396 et seq. (1976). This particular challenge was brought by the New York City Health and Hospitals Corporation (HHC), a public benefit corporation that operates many health care facilities, including municipal hospitals, and alleges a conflict between the State's 1980 Plan for Medical Assistance, N.Y.Admin.Code tit. 10, § 86 (approved Jan. 1, 1980) on the one hand, and the Medicaid Act and the Professional Standards Review Organizations (PSRO) Act, 42 U.S.C. §§ 1320c et seq., on the other hand. It comes to us as an interlocutory appeal pursuant to 28 U.S.C. § 1292(b) of an order of the United States District Court for the Southern District of New York, Charles L. Brieant, Jr., J., denying a motion by HHC for summary judgment on the first of five counts in HHC's complaint against three state officials and the Secretary. We also have before us a motion by appellees to dismiss the appeal on the ground that it is moot and that § 1292(b) certification was improvidently granted. Because we agree that this case is not properly in this court, we grant the motion to dismiss and remand the case to the district court for further proceedings.


The complicated procedural context in which we find ourselves arose as follows. On September 29, 1980, HHC filed a complaint against appellees for declaratory and injunctive relief, claiming that the State improperly calculated the rate at which HHC hospitals were reimbursed for the treatment of 1980 Medicaid patients.*fn1 In the challenged plan, the State sought to control the costs of Medicaid by basing reimbursement rates on how economically the hospitals that claimed reimbursement were run. To do that, a complicated plan, described in greater detail in Judge Brieant's memorandum and order of July 6, 1981, was employed. For purposes of this appeal, it is sufficient to note that the State did not reimburse a hospital for its actual 1980-incurred costs. Rather, the State calculated a per diem reimbursement rate for 1980 based on each hospital's performance in 1978. Hospitals were divided into "peer groups" according to their size, location, and other characteristics. The State then set ceilings for per diem costs for hospitals in each peer group based on the average actual costs of running the hospitals in that group in 1978. In order to determine the 1980 reimbursement rate for a given hospital, the State used that hospital's actual 1978 costs, but disallowed all 1978 costs over its peer group's ceiling. The State also took factors other than costs into account in determining the 1980 rate. Critical to this appeal is the fact that the State set ceilings on the number of days that it was appropriate to keep a patient in the hospital. Patients were categorized into 493 treatment groups and hospitals were categorized into four hospital groups. The State then calculated the average length of stay (LOS) of a patient in each treatment group in each hospital group for the year 1978. As with the cost ceilings, per diem rates for 1980 were lowered if, in 1978, a hospital kept its patients longer than the LOS ceiling allowed.

In the first count of the complaint, which is in issue here, HHC contends that a reimbursement rate that is based on a LOS factor conflicts with the PSRO Act. In the PSRO Act, Congress placed authority to oversee certain aspects of health care reimbursement under Medicaid and Medicare into the hands of special review boards composed of licensed doctors. Under the Act that was in effect in 1978 and 1980, if a hospital had a PSRO, then the PSRO was given conclusive authority to determine how many days' worth of services would be reimbursed under Medicaid, §§ 1320c-4(a)(1)(A) and 1320c-7(c), Greater New York Hospital Association v. Blum, 634 F.2d 668, 671 (2d Cir. 1980). HHC argues that the conclusiveness of the PSRO determination of an appropriate length of stay is undermined if the State can penalize a hospital for what the State considers an excessive LOS by simply lowering the per diem rate for each PSRO-approved day.

Both sides moved for summary judgment on this count and, in addition, the Secretary moved for dismissal for failure to state a claim upon which relief can be granted. Judge Brieant denied all motions by order dated July 6, 1981. He reasoned that since the Medicaid Act only gives the HHC the right to its "reasonable cost of inpatient hospital services," § 1396a(a)(13)(D), HHC would have standing to challenge the reimbursement formula only if the formula served to deny HHC's hospitals a reasonable cost. He therefore concluded that HHC's standing was a factual issue to be determined by a full trial, and that summary judgment was inappropriate. Subsequently, on July 24, 1981, Judge Brieant certified four questions as involving controlling questions of law, in substantial dispute, whose resolution would advance the ultimate termination of litigation. HHC petitioned this court for leave to appeal under 28 U.S.C. § 1292(b), and on December 11, 1981, a panel of this court accepted the following question for review:

(Assuming the length of stay provision in the New York State Medical Assistance Plan conflicts with the requirements of the PSRO Act) whether HHC has standing to assert injury, or is entitled to relief, based on the use of the "length of stay" factor in calculating the Medicaid per diem reimbursement rates in the absence of a showing that use of the calculated per diem rate has denied HHC reimbursement of its reasonable cost as required by the Medicaid Act, 42 U.S.C. § 139a(a)(13)(D).*fn2

In August 1981, however, an important change was made in the relevant federal law: PSRO determinations were eliminated from Medicaid, 42 U.S.C.A. § 1320c-4(a)(1)(A) and 1320c-7(c) (West Supp. 1975-81), and the states, which had formerly been required to get federal approval for their payment plans, were given plenary authority to determine "reasonable and adequate" reimbursement rates, compare § 1396a(a)(13)(D) (1976) with 42 U.S.C.A. § 1396a(a)(13)(D) (West Supp. 1975-1981). Contending that this case was made moot, and, in any event, was not appropriate for interlocutory appeal, appellees moved to have the certification vacated as improvidently granted. On February 9, 1981, a panel of the court referred the motions to the panel hearing the appeal and recommended that the parties apply to the district judge to see whether he was inclined to modify or withdraw his certification. This application resulted in a memorandum and order dated February 11, 1982, in which Judge Brieant declined to decertify the question, although he did offer the modification set out in the margin.*fn3


We can easily understand how this question came to be appealed in this manner. Standing "generally is a matter dealt with at the earliest stages of litigation, usually on the pleadings...." Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 115 n.31, 99 S. Ct. 1601, 1615 n.31, 60 L. Ed. 2d 66 (1979). Since a litigant cannot maintain his cause of action without demonstrating his standing, disposition of that issue often presents the type of controlling question suitable for interlocutory review. Nonetheless, upon careful consideration, we find that the certified question is not now ripe for review.

There are a number of fundamental problems with the appeal as now presented to us. Thus, there is no district court ruling on the overall issue of HHC's standing to bring the claim alleged in count one of the complaint. The district judge refused to hold that HHC had standing as a matter of law; but neither did he rule that HHC did not have standing. The trial judge was of the view that HHC's standing was a factual issue to be determined after a full trial on the question whether the reimbursement formula denied HHC reimbursement of its "reasonable cost" under 42 U.S.C. § 1396a(a)(13)(D). But HHC's first cause of action-the only one before us-does not allege that it was denied reasonable costs under that section. The crux of that cause of action is that the LOS penalty provision conflicts with the PSRO Act. Although the district court expressed a belief that the LOS ceiling "may conflict" with the PSRO Act and certified that issue, the judge did not decide the issue. Nor did the district court discuss whether the PSRO Act provides a private cause of action to a hospital, a question that was specifically left open by this court in Greater New York Hospital Association v. Blum, 634 F.2d at 672 n.8. Indeed, if such a cause of action exists, plaintiff would seem the logical party to seek to enjoin an alleged conflict between the LOS provision and the PSRO Act.

Appellant argues that that even if the PSRO Act does not provide it with a cause of action, it nonetheless has the right to challenge the LOS penalty under the Medicaid Act. This is true, HHC claims, because § 1396a(a)(13)(D) defines "reasonable cost" as that "determined in accordance with methods and standards, consistent with section 1320a-1 of this title, which shall be ... approved by the Secretary ...." Since the Secretary is required to apply the PSRO Act, any violation of that Act necessarily reduces HHC's reimbursement below the statutory reasonable costs, giving HHC the right to sue. Put in this way, a key question again becomes whether the LOS provision violates federal law, an issue not decided by the district court.

Section 1292(b) was not designed to bring up the merits without prior adjudication in the trial court; the section allows interlocutory appeal of orders-not interlocutory appeal of issues. Consequently, there has to be an order to appeal from that decides the merits of the "controlling question" certified. Fed. R. App. P. 5(b) states "The petition shall contain a statement of the facts necessary to an understanding of the controlling question of law determined by the order of the district court ...." (Emphasis added). While it is true that, as already indicated, the district judge denied summary judgment on the ground that HHC lacked standing as a matter of law, the certified question is based on an assumed conflict between the LOS penalty and federal law, and the district judge has not decided whether the conflict in fact exists. Appellant is therefore apparently asking us for an advisory decision based on a premise that may be destroyed. This we should not do, see Oneida Indian Nation of New York State v. County of Oneida, 622 F.2d 624, 628 (2d Cir. 1980). See also Nickert v. Puget Sound Tug & Barge Co., 480 F.2d 1039 (9th Cir. 1973) (per curiam). In the latter case, the trial court's order stated that if at the trial on the merits, it is found that X is true, then partial summary judgment will be entered in favor of the defendant. It then certified to the circuit court the question whether a finding of X required ...

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