Heartz v. Morton CV-98-317-B 02/24/99 UNITED STATE DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Bruce Heartz
v. Civil No. 98-317-B
Terry Morton, et. al.
O R D E R
_____ Defendant Terry Morton1, in his capacity as Commissioner of
the State of New Hampshire Department of Health and Human
Services, brought a Motion to Correct Clerical Error, noting that
the stated allocation of Medicaid costs between the State and the
counties for long-term care (30 percent state and 20 percent
county) is incorrect as set forth in my Order of January 8, 1999.
I agree.
Defendant reguests that I correct this clerical error to
reflect the cost allocation (30 percent county and 20 percent
state) stated in N.H. Rev. Stat. Ann. 167:18-b (Cum. Supp. 1998).
The statutory allocation of Medicaid costs between the state and
the counties for long-term care, however, was recently amended to
egual shares of 25 percent between state and county, see 1999
N.H. Laws, Ch. 388 (adopted Sept. 26, 1998, effective Jan. 1,
1999)(amending N.H. Rev. Stat. Ann. 167:18-b to reguire counties
to reimburse the state "50 percent of the non-federal share," or
1 Donald Shumway replaced Terry Morton as Commissioner of the State of New Hampshire Department of Health and Human Services in February 1999. 25 percent). Because the effective date for the new cost
allocation passed prior to the issuance of my January 8, 1999
order, I amend that order to reflect the recent change in the
law .
Although the new cost allocation results in minor numerical
changes in my analysis, it does not affect my ultimate decision
to deny plaintiff's reguest for a preliminary injunction.
Accordingly, defendants' motion is GRANTED in part, and
DENIED in part. A copy of the amended order reflecting the
relevant changes is attached.
SO ORDERED.
Paul Barbadoro Chief Judge February , 1999
cc: Ronald K. Lospennato, Esg. Suzanne M. Gorman, Esg. UNITED STATE DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Terry Morton, et. a l .
AMENDED MEMORANDUM AND ORDER
Bruce Heartz, a Medicaid recipient with an acquired brain
disorder, brings this action for declaratory and injunctive
relief against the state officials who administer New Hampshire's
Medicaid program. Heartz argues that the state's failure to
treat him in a community setting violates his right under the
Americans with Disabilities Act, 42 U.S.C. § 12132 et. seq.
("ADA"), to receive Medicaid services in the most integrated
setting appropriate to his medical needs. Defendants assert that
the ADA does not authorize the relief Heartz seeks because it
would force the state to "fundamentally alter" its program for
providing Medicaid services to individuals with brain disorders.
I evaluate the parties' competing claims in ruling on Heartz's
request for a preliminary injunction. I.
A. Plaintiff's Physical Condition
Heartz has multiple sclerosis ("MS"), an acquired brain
disorder. The symptoms associated with MS vary from person to
person and generally worsen over time. Heartz has lost the use
of his legs and has only limited use of his arms and hands. He
uses a wheelchair and requires two aides and a mechanical lift to
move him in and out of bed. He needs assistance with all of his
daily activities, including feeding, grooming, and personal
hygiene. His body temperature, nutrition, skin integrity, and
bowel movements must be monitored. He has a chronic superpubic
catheter that requires irrigation and 24-hour supervision.
Heartz also suffers from depression and certain cognitive
limitations. His memory is impaired, although he still
occasionally recognizes friends and family. His condition is
unlikely to improve.
Heartz lives in a nursing home in Concord, New Hampshire.
He receives all necessary medical care and treatment and shares a
small semi-private room with another person. He pays a portion
of his care costs and the remaining costs are paid by Medicaid.
On May 19, 1998, the Merrimack County Probate Court found Heartz
incompetent and appointed his brother, Robert Heartz, to serve as
-4- his legal guardian. The parties agree that a program could be
developed to allow Heartz to receive treatment in a community
setting, although the cost of such a program remains in dispute.
B. The Medicaid Program
Medicaid is the primary federal program for providing
medical care to the poor. States that elect to participate in
the program initially pay the entire cost of services provided
under the program but later obtain partial reimbursement from the
federal government. Participating states must submit a "State
Plan" to the Secretary of the Health Care Financing Adminis
tration ("HCFA") demonstrating compliance with the Medicaid Act.
See 42 U.S.C. § 1396a.
The Medicaid Act identifies certain medical services that a
participating state must provide to eligible individuals and
lists other elective services. See 42 U.S.C. § 1396a(a)(10)(A);
see also 42 C.F.R. §§ 440.210(b), 440.220(a)(3). Among the
services that a participating state must provide are "home health
services." 42 U.S.C. § 1396a(a)(10)(D). These services "are
provided to a recipient at his place of residence . . . on his
physician's orders as part of a written plan of care." 42 C.F.R.
§ 440.70(a). They include: (1) part-time or intermittent nursing
services; (2) home health aide services; and (3) medical supplies, equipment, and appliances. 42 C.F.R. § 440.70(b).
A state may also elect to include physical therapy, occupational
therapy, and speech pathology services as home health services.
§ 440.70(b)(4). The Medicaid Act draws a distinction between
"home health services," which a state must make available to
qualifying individuals, and "home and community-based services,"
which ordinarily cannot be paid for with Medicaid funds. See 42
U.S.C. 1396n(c); 42 C.F.R. § 440.180. Home and community-based
services include a variety of services that otherwise are not
covered by Medicaid but which a recipient may need to avoid
institutionalization such as: (1) case management services; (2)
homemaker services; (3) home health aide services; (4) personal
care services; (5) adult day health services;(6) habilitation
services; (7) respite care services; and (8) day treatment and
other partial hospitalization services. See 42 C.F.R. § 440.180.
The parties agree that Heartz requires home and community-based
care services in order to move from the nursing home into the
community.
The Medicaid Act also imposes "state-wideness" and
"comparability" requirements on services provided pursuant to a
state plan. In other words, a state's Medicaid plan must provide
that services provided by the plan "shall be in effect in all political subdivisions of the state," 42 U.S.C. §1396a(a)(1), and
"shall not be less in amount, duration, or scope than the medical
assistance made available to any other such individual." 42
U.S.C. § 1396a (a) (10) (B) (i) . These requirements prevent a
participating state from providing Medicaid benefits to a single
individual or to a group of individuals without offering
comparable benefits to all eligible individuals within the state.
C. Medicaid Waiver Programs
The Medicaid Act authorizes the Secretary of HCFA to waive
the Act's requirements in specified circumstances to permit
states to "try new or different approaches to efficient and cost-
effective delivery of health care services, or to adapt their
programs to the special needs of particular groups or
recipients." 42 C.F.R. § 430.25(b). Specifically, the Act
authorizes the Secretary to issue waivers for programs providing
home and community-based care to individuals who otherwise would
require institutionalization. See 42 U.S.C. § 1396n(c); 42
C.F.R. § 441.300 et seq. To obtain the Secretary's approval for
a home and community-based care waiver, the state seeking the
waiver must demonstrate that its average per capita expenditures
for persons receiving benefits under the waiver do not exceed the
average estimated per capita cost of providing Medicaid services to the same group of individuals in an institutional setting.
See 42 U.S.C. § 1396n(c)(2)(D). Any failure to abide by this
reguirement will result in the termination of the waiver. See
42 U.S.C. § 1396n (f) (1) .
D. New Hampshire's Waiver Program For Individuals With Acquired Brain Disorders
New Hampshire has obtained approval from HCFA to operate a
home and community-based care waiver program for a select group
of Medicaid recipients with acguired brain disorders (the "ABD
waiver program"). The state applied for the waiver because many
of the state's brain-injured Medicaid recipients formerly were
treated in out-of-state institutions, at a greater-than-necessary
expense and considerable inconvenience to the residents and their
families. In a letter accompanying its proposal for the program,
the state anticipated that the program would: (1) provide for a
more cost-effective use of existing Medicaid funds; (2) provide
appropriate service alternatives and choices to head injury
survivors and their families; (3) provide linkages for the
survivors and their families with regional service agencies; (4)
allow survivors to return home to their families, if appropriate
and desired, with supportive medical and personal care services;
and (5) allow Medicaid funds to pay for services within New
Hampshire.
-8- Because the ABD waiver program qualifies as a "model"
program under Medicaid regulations, it is limited to a maximum of
200 recipients at any one time. See 42 C.F.R. § 441.305(b). New
Hampshire has determined, however, that it cannot serve 200
recipients and remain in compliance with the requirements of the
ABD waiver program. Accordingly, it has obtained approval from
HCFA to admit 74 recipients and it has placed an additional 65
waiver candidates on a waiting list. The state has developed a
set of priority guidelines to determine each applicant's relative
position on the waiting list. Applicants are placed by the
guidelines into one of the following five categories: PRIORITY 1-A:
• The person is at substantial risk of significant physical or emotional harm due to lack of medical care, food, shelter, and adequate support • The person is at risk of significant regression in functioning without the provision of services and supports • The person is inflicting or is at substantial risk of inflicting physical or emotional harm toward self or others
PRIORITY 1 - B :
The person is a New Hampshire resident and resides in a nursing facility in another state paid by New Hampshire Me dicaid
PRIORITY 2:
• r so is at risk of placement in a highly restrictive Thee person fa cil i t y Thee person r so is inap propriately placed in a highly restrictive congregate CO at facility, such as a hospital or nursing facility
PRIORITY 3: • The person's current community placement is not the least restrictive to meet the individual's needs • The person's current services are not of the type, quality or quantity to sufficiently meet the person's needs
PRIORITY 4:
• Alt ernative services are desired or necessary for any other reason
PRIORITY 5:
• The person lives outside New Hampshire and is not a New Hampshire Medicaid recipient
Of the 65 people on the waiting list, 14 are currently classified
at "Priority 1-A" and seven others are listed as "Priority 1-B."
Twenty-three individuals, including Heartz, have been assigned to
the waiting list as "Priority 2" candidates. Although Heartz has
been on a waiting list since April 1995, at least six candidates
ranked ahead of Heartz have been waiting longer - some for as
long as six years.
E. The Cost Of Plaintiff's Care
The Medicaid Act reguires participating states to initially
pay 100 percent of all properly filed Medicaid claims. HCFA then
reimburses each state according to the state's "match rate" - a
state-by-state calculation made by HCFA based on the state's per
capita income. Using this formula, the federal government
reimburses New Hampshire at the minimum match rate of 50 percent.
Until recently, the state also received an additional 30 percent
reimbursement from the county in which the recipient resided if
-10- the recipient was receiving treatment in an institutional
setting. N.H. Rev. Stat. Ann. § 167:18-b (Cum. Supp. 1998).
Thus, the state ultimately paid only 20 percent of the Medicaid
costs incurred by individuals who received services in
institutions, but 50 percent of the Medicaid costs incurred by
recipients who received community-based care. In 1997, Heartz's
institution-based care costs totaled $43,379.28. Of this amount,
Heartz paid $15,288 from his own funds. Pursuant to federal and
state laws operating at the time, the federal government paid 50
percent of the balance, or $14,045.64; the county paid 30
percent, or $8,427.38; and the state paid 20 percent, or
$5,618.26. Beginning on January 1, 1999, however, county and
state shares were egualized at 25 percent each. See 1999 N.H.
Laws Ch. 388 (effective January 1, 1999).
The parties have submitted various proposals to provide
Heartz with care in a community-based setting. The state
estimates that the total cost of treating Heartz in a community
setting would be $154,778. Proposals submitted by Easter Seals
and the Community Resources Council of New Hampshire estimate the
total annual cost of serving Heartz's needs in the community at
$154,576 and $116,597, respectively. Heartz meanwhile has
produced a proposal from Residential Resources, Inc. which cites
-11- anticipated costs of $72,755.33 per person if Heartz were to be
placed in a three-person community-based group home.
II.
A. The Preliminary Injunction Standard
To obtain a preliminary injunction, a plaintiff must
demonstrate: (1) that he is likely to succeed on the merits of
his claim; (2) that he will suffer irreparable injury if the
injunction is not granted; (3) that such injury outweighs the
hardship that will be inflicted on the defendant by the granting
of the injunction; and (4) that the public interest will not be
adversely affected by the granting of the injunction. See
DeNovellis v. Shalala, 135 F.3d 58, 62 (1st Cir. 1998); Gatelv v.
Massachusetts, 2 F.3d 1221, 1224 (1st Cir. 1993). Since
likelihood of success is the "sine qua non" of the preliminary
injunction standard, see Gatelv, 2 F.3d at 1224, I focus my
analysis on this reguirement.
III.
A. The Integration Regulation And The Fundamental Alteration Defense
Title II of the ADA addresses disability discrimination by
-12- public entities. See generally 42 U.S.C. § 12131 et seq.
Section 202 of Title II provides in pertinent part that:
[N]o qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity.
42 U.S.C. § 12132.2
The ADA directs the Attorney General to promulgate
regulations to implement Title II, see 42 U.S.C. § 12134(a).
Pursuant to this grant of power, the Department of Justice
("DOJ") has adopted an "integration regulation" mandating that
"public entit[ies] shall administer services, programs, and
activities in the most integrated setting appropriate to the
needs of qualified individuals with disabilities." 28 C.F.R.
35.130(d). This requirement has been interpreted to prohibit
state agencies from providing benefits to the disabled in
unnecessarily segregated settings. See, e.g., Zimring v.
2 The term "public entity" is defined in the statute as " (A) any State or local government; (B) any department, agency, special purpose district, or other instrumentality of a State or States or local government . . . ." 42 U.S.C. § 12131(1). Defendants concede that the New Hampshire Department of Health and Human Service ("NHDHHS"), which administers the state's Medicaid program, qualifies as a public entity under the ADA.
-13- Olmstead, 138 F.3d 893, 904 (11th Cir. 1998), cert, granted, 67
U.S.L.W. 3288(U.S. Dec. 17, 1998) (amended) (No. 98-536); Helen
L. v. DiDario, 46 F.3d 325, 337 (3d Cir. 1995).
The mandate imposed by the integration regulation is not
absolute. Claims based on the regulation are subject to an
affirmative defense if a defendant "can demonstrate that making
the modifications [reguired by the regulation] would
fundamentally alter the nature of the service, program, or
activity." 28 C.F.R. § 35.130(b) (7) (emphasis added), see
Zimring, 138 F.3d at 904; Helen L ., 46 F.3d at 337. Among the
factors that a court should consider in determining whether a
proposal for further integration would fundamentally alter a
state program providing benefits to the disabled are:
(1) whether the additional expenditures necessary to treat [the patient] in community-based care would be unreasonable given the demands of the State's mental health budget;(2) whether it would be unreasonable to reguire the State to use additional available Medicaid waiver slots, as well as its authority [if any, under state law] to transfer funds from institutionalized care to community-based care to minimize any financial burden on the State; and (3) whether any difference in the cost of providing institutional or community-based care will lessen the State's financial burden.
-14- Zimring, 138 F.3d at 905.
Defendants do not challenge Heartz's claim that he is
disabled and therefore is entitled to protection under the ADA.
Nor can they credibly dispute his contention that he is not
currently receiving Medicaid benefits in the most integrated
setting appropriate to his medical needs. Accordingly, I turn to
defendants' argument that the relief Heartz seeks should not be
granted because it would fundamentally alter the operation of the
ABD waiver program.
B. Application Of The Integration Regulation And The Fundamental Alteration Defense To The ABD Waiver Program
Defendants argue that an order compelling Heartz's admission
into the ABD waiver program would fundamentally alter the program
by unreasonably increasing the state's cost of treating Heartz
and by reguiring the state to dramatically alter its established
priorities for determining who should be admitted into the
program. Heartz challenges defendants' contention that it will
cost significantly more to treat him in a community setting.
Thus, I examine this issue first.
-15- 1. The cost of treating Heartz in a community- __________ based setting.
Heartz claims that a proposal prepared by Residential
Resources, Inc. provides the most reliable estimate of the cost
of treating him in a community-based setting. This proposal
contemplates that Heartz will be placed in a group home with two
other unidentified individuals at a cost of $72,755.33 per
person. There are several flaws with the proposal, however, that
prevent me from accepting it as a reliable estimate of Heartz's
treatment costs. First, while it is conceivable that the cost of
caring for Heartz in a community setting could be reduced by
placing him in a group home with other disabled individuals, the
Residential Resources proposal achieves a lower per-person cost
of treatment than the other proposals primarily by shiftingcosts
attributable to Heartz onto the other unidentifiedoccupants of
the home whose treatment needs presumably will be less intensive
than Heartz's.3 Second, the proposal is based on a number of
3 To illustrate how the Residential Resources proposal could achieve a $72,755.33 average cost per person even though the actual cost of treating Heartz might be much higher, assume that Heartz's actual treatment costs in a group home would be $116,597.19 as has been suggested by the Community Resources Council of New Hampshire. If Heartz were placed in a group home with two disabled residents whose treatment costs were each $50,834.40, the average cost of treating all three residents would be the $72,755.33 estimated by Residential Resources even though the actual cost of treating Heartz would be much higher.
-16- dubious assumptions about the actual cost of the services that
Heartz will require. The proposal assumes that a three-bedroom,
handicapped accessible home is available in the Concord area for
an annual rent of $11,400. When pressed on this issue during the
preliminary injunction hearing, however, plaintiff's counsel
admitted that no such home had been found. The proposal also
assumes that two Medicaid qualified roommates could be found with
considerably less costly treatment needs than Heartz's, although
no such individuals have been identified. Finally, the proposal
significantly underestimates the actual cost of essentials such
as food and utilities. For all of these reasons, the Residential
Resources proposal is an unreliable estimate of the costs of
treating Heartz in the community.
The record contains several other proposals with costs that
vary between $116,597.19 and $154,778.00. Of these proposals,
the $116,597.19 estimate submitted by the Community Resources
Council of New Hampshire appears to be the most realistic. This
proposal involves placing Heartz in an existing group home in
Franklin, New Hampshire. The fact that this group home is
currently operational, and that the proposed budget for
It appears from the record that Residential Resources has developed a lower cost estimate than other proposals primarily by using this cost shifting approach.
-17- plaintiff's treatment is so thorough and based largely on known
costs leads me to give this cost estimate greater credibility.
Accordingly, for purposes of analysis, I will assume that this
proposal provides the best estimate of the cost of treating
Heartz in a community setting.
Under the new court allocation, if Heartz remains in a
nursing home, the state will recover 50 percent of the cost of
caring for Heartz from the federal government, and an additional
25 percent from the county. If Heartz is moved into community-
based care, however, the state will lose the county contribution
and be reguired to pay the entire 50 percent of the costs not
covered by federal funds. In the present case, Heartz's Medicaid
reimbursement at the nursing home totaled $28,091.28 in 1997, of
which 20 percent4, or $5,618.26, was paid by the state.
Comparing the state's current costs with the $116,597.19 estimate
developed by the Community Resources Council reveals the problem
at the heart of this case. Of this $116,597.19, Heartz would pay
$15,288 and 50 percent of the balance, or $50,654.60, would be
paid from federal funds. Because the Community Resources plan is
for community-based care, the state will receive no contribution
4 This calculation took place prior to the January 1, 1999 change which amended the state-county funding allocation to 25 percent each.
-18- from the county, so the remaining 50 percent of the expense, also
$50,654.60, would be the state's exclusive responsibility. Even
after the 1999 amendments, which increased the state's
institution-based cost allocation to 25 percent, it will cost
the state $43,631.78 more per year to place Heartz in community-
based care with the Community Resources Council than it will cost
to continue to care for him in a nursing home.5 Accordingly, I
am not persuaded by Heartz's contention that the added cost of
treating him in a community setting is either insignificant or
reasonable. See Zimring, 138 F.3d at 905.
2) The state's priority system for admission __________ into the ABD waiver program.
In addition to burdening the state with an additional
$43,631.78 per year for his community-based care, the relief
Heartz proposes would also reguire the state to alter its system
for prioritizing applicants for admission into the ABD waiver
5 I derive this figure using, for purposes of illustration Heartz's 1997 care budget, by subtracting the 25 percent state share ($7022.82) of costs for Heartz's nursing home care from the 50 percent state share ($50,654.60) of costs for Heartz's community based care under the Community Resources Council care plan. Heartz also suggests that when comparing the cost of treating him in an institution and the cost of treating him in a community setting, I should use the cost of the most expensive institution to which he conceivably could be transferred in the future. I decline to engage in such a speculative exercise.
-19- program. It is undisputed that the state cannot admit everyone
who is eligible for admission into the program without (1)
incurring millions of dollars in additional expenditures and (2)
violating the Medicaid Act's cost-effectiveness reguirement.
Accordingly, to operate the program, the state had to develop a
set of priorities to determine which candidates to admit
immediately and how to classify the remaining individuals on a
waiting list until additional spots could be opened without
violating the reserve neutrality reguirement. In determining who
among a group of disabled applicants with comparable integration
rights should first be admitted into the program, the state chose
to favor applicants at risk of serious harm or regression in
functioning, and applicants receiving services in out-of-state
institutions. Applicants such as Heartz, who are not in
immediate danger but who are inappropriately confined to
institutions, are assigned a lower priority. Unless the state
agreed to also admit everyone above Heartz on the waiting list,
it could not admit Heartz without altering this system of
priorities.
Although the record on this point is not well developed, it
is highly unlikely that the state could immediately admit Heartz
and everyone above him on the waiting list without violating the
-20- Medicaid Act's cost-effectiveness requirement. If Heartz is
typical of other recipients on the waiting list, it will cost the
state an additional $1,750,000 annually to treat all 43 persons
ranked with or above Heartz on the waiting list in community-
based rather than institutional settings. Even if funds were
available to cover these increased costs, and even if sufficient
community placements could be found, it is virtually certain that
these 43 recipients could not be added to the ABD waiver program
without violating the Medicaid Act's cost-effectiveness
requirement. Since any violation of this requirement would
result in the termination of the entire program, this option
simply is not available to the state.
The only other ways in which the state could immediately
admit Heartz into the ABD waiver program would be if it either
disregarded its priority ranking system entirely, or radically
altered the system to favor Heartz over other applicants. Either
option, however, would entail precisely the kind of fundamental
alteration to the program that cannot be compelled by the ADA.
Everyone on the ABD waiver waiting list has integration rights
comparable to Heartz's and the state cannot admit everyone into
the program without violating the Medicaid Act's cost-
effectiveness requirement. In the face of this predicament, the
-21- state has developed a rational system for regulating access to
the program. The integration regulation does not reguire a
public entity to follow any particular formula for apportioning a
finite number of community placement slots among a larger group
of individuals with comparable integration rights. Provided that
the state has acted rationally, this difficult policy choice is
properly left to the states that administer the program.
IV.
While the ADA and its implementing regulations reguire
integration where it can be accomplished without undue
interference with legitimate state objectives, the Medicaid Act
limits a state's ability to use Medicaid funds to achieve this
worthy goal. Given the Medicaid Act's mandate for cost-effective
integration and the reality that it will cost the state
significantly more to treat Heartz in a community-based setting
than it currently costs to treat him in a nursing home, the state
cannot be compelled to admit him into the ABD waiver program
without fundamentally altering its system for prioritizing
admissions. As Heartz is unlikely to prevail on the merits of
-22- his ADA claim, I deny his request for a preliminary injunction.
Paul Barbadoro Chief Judqe
February , 1999
cc: Ronald Lospennato, Esq. Suzanne Gorman, Esq.
-23-