Kelly Kare, Ltd. v. O'Rourke

930 F.2d 170, 1991 WL 45594
CourtCourt of Appeals for the Second Circuit
DecidedApril 5, 1991
DocketNo. 1106, Docket 90-9107
StatusPublished
Cited by17 cases

This text of 930 F.2d 170 (Kelly Kare, Ltd. v. O'Rourke) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Kelly Kare, Ltd. v. O'Rourke, 930 F.2d 170, 1991 WL 45594 (2d Cir. 1991).

Opinion

McLAUGHLIN, Circuit Judge:

The Westchester County Department of Social Services (“WCDSS”) decided — without giving any reason — to terminate the Medicaid reimbursement contract of plaintiff Kelly Kare, Ltd. (“Kelly Kare”), a provider of health-care services to individuals who require medical assistance in their homes. Kelly Kare assails this as an unconstitutional deprivation of property and liberty because it limits Kelly Kare’s status as a qualified Medicaid provider and because it stains Kelly Kare’s professional reputation, without due process. Because it is clear that plaintiffs were afforded no process by WCDSS, we are squarely confronted with the issue of whether a provider of Medicaid-sponsored health-care services has a right to continued and uninterrupted participation in the Medicaid program.

BACKGROUND

Medicaid is a medical assistance program created by Titles XIX and XX of the federal Social Security Act to provide indigents and the disabled with subsidized medical care. 42 U.S.C. § 1396 et seq. (1988). Although funding comes primarily from the federal government, it also comes from the individual states and, to a lesser degree, from municipalities and counties. Congress has delegated the authority to administer the Medicaid program to the states. As such, the states are responsible for licensing health-care providers and qualifying them for participation in the program.

The day-to-day administration of the Medicaid program is performed by local social services districts. Each district has the option to render the services directly or to contract with a qualified provider of Medicaid services to furnish the necessary medical assistance. N.Y.Soc.Serv.Law § 365(l)(d). If a district chooses the second alternative, the chosen provider is then entitled to be reimbursed for the legitimate health-care services that it renders to Medicaid-eligible patients.

Westchester County, a local social services district, has opted to provide Medicaid services through contracts with qualified providers. Kelly Kare, a qualified provider of home health care, renders housekeeping and other personal-care services.

In 1987, Kelly Kare entered into the first of a series of one-year contracts with WCDSS for reimbursement of Medicaid services. From year to year, the only salient difference in the contracts was the rate at which the providers would be reimbursed. The County’s health-care providers would gather annually where WCDSS presented them with the proposed rate schedule for the following year. Once the providers assented to the proposed rates, [173]*173the contracts were sent off to WCDSS for approval.

At his deposition, John Allen, Commissioner of WCDSS, testified that if healthcare providers agreed to the proposed rate schedules and kept their “filings” up to date — e.g., liability insurance, references, insurance coverage for their workers — they were usually awarded a new contract. Nothing in the record, however, indicates that simply because a party acceded to the proposed rates it became entitled to a contract with the County. In fact, the record establishes that several further steps had to be executed for the contract to become binding.

One clause in the reimbursement contract provides that the contract is terminable, without cause, upon thirty days’ notice. This clause is authorized by a regulation of the New York State Department of Social Services, which states:

A provider’s participation in the program may be terminated by either the provider or the department upon thirty days’ written notice to the other without cause.

18 N.Y.C.R.R. § 504.7(a). Neither the contract clause nor section 504.7(a) affords a hearing to the terminated provider.

On October 26, 1990, WCDSS invoked this contractual option and informed Kelly Kare that the 1990 reimbursement contract would be cancelled, without cause, effective November 30, 1990. Defendants then began informing Kelly Kare’s patients and employees that the contract had been terminated and that, after November 30, 1990, Kelly Kare would no longer be reimbursed for any Medicaid-related services it rendered.

Defendants’ decision to terminate Kelly Kare’s contract was reached soon after Kelly Kare had agreed to the proposed rate schedule for 1991. Defendant Joseph Campanella, Program Coordinator for WCDSS, requested proof from Kelly Kare that its employees were covered by a health-insurance plan. The record indicates that this was not the first request made for such information. Apparently, Joan Kelly, president of Kelly Kare, had been delinquent in providing this information in the past. Nevertheless, on September 16, 1990, Ms. Kelly visited Mr. Campanella’s office and handed him a copy of a collective-bargaining agreement that had recently been negotiated between Kelly Kare and its employees. The agreement contained an employee health-insurance clause. Mr. Campanella told Ms. Kelly that he was unfamiliar with this type of agreement and that he would pass it along to the “legal department” to assure that Kelly Kare’s employees were being afforded proper coverage. Just over one month later, Kelly Kare was informed that its Medicaid contract was being terminated, without cause. This, claims Kelly Kare, demonstrates that anti-union animus impermissibly motivated WCDSS to cancel the contract.

Upon commencement of this action, plaintiffs moved to enjoin defendants from terminating the contract without cause. Kelly Kare argued, as it does now, that New York’s Social Services Law creates a property interest in those health-care providers that the state deems qualified to participate in the Medicaid program. See N.Y.Soc.Serv.Law § 364(2)(b). As such, Kelly Kare asserted that it was entitled to due process prior to being terminated from participation in Medicaid. Additionally, Kelly Kare contended that the without-cause termination stigmatized its reputation, thereby depriving it of a liberty interest without the requisite due process.

A separate group of plaintiffs, the “McNulla plaintiffs,” several Kelly Kare patients, claimed, as they do now, that they had been deprived of their rights under the Medicaid program’s so-called “freedom of choice” provision. See 42 U.S.C. § 1396a(a)(23)(A). They argued that since the Medicaid statute gives them the right to choose any qualified Medicaid provider, they must be allowed to choose Kelly Kare.

A third group of plaintiffs, the “Cohen plaintiffs,” several Kelly Kare employees, contended, as they do now, that, along with Kelly Kare, their rights under the National Labor Relations Act (“NLRA”) were violated by defendants’ anti-union animus. See 29 U.S.C. § 158.

[174]*174The district court denied plaintiffs’ motion for a preliminary injunction. Judge Goettel dismissed Kelly Kare’s property right claim as a basis for injunctive relief, citing the contract provision allowing for termination without cause.

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Kelly Kare, Ltd. v. O'rourke
930 F.2d 170 (First Circuit, 1991)

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Bluebook (online)
930 F.2d 170, 1991 WL 45594, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kelly-kare-ltd-v-orourke-ca2-1991.