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AMERICAN NURSING HOME ASSN. v. THE COST OF LIVING

December 5, 1973

AMERICAN NURSING HOME ASSOCIATION, Plaintiff,
v.
The COST OF LIVING COUNCIL et al., Defendants


Gasch, District Judge.


The opinion of the court was delivered by: GASCH

GASCH, District Judge.

This cause is before the Court on plaintiff's motion for a preliminary injunction and a declaratory judgment and defendants' motion to dismiss.

 I. Background.

 Principally, plaintiff seeks to enjoin the implementation and enforcement of 6 C.F.R. § 300.18 of the Cost of Living Council (hereinafter referred to as COLC) regulatory scheme applicable to nursing homes. *fn1" This regulation generally limits price increases to nursing homes to those which can be justified by cost increases, and then only to the extent that the price increases do not increase aggregate annual revenues of the preceding year by more than six percent.

 Plaintiff, the American Nursing Home Association (hereinafter referred to as ANHA) is a nonprofit corporation and the nation's largest nursing home association with 7,000 members representing 500,000 patient beds. The prime objection of ANHA to the COLC regulatory scheme is that it treats all Medicare and Medicaid reimbursement as a price thus prohibiting the homes from receiving any reimbursement under these programs if that reimbursement, albeit approved by State and Federal governments, increases aggregate annual revenues of the preceding year by more than the six percent ceiling allowed by the COLC unless an exception is granted pursuant to 6 C.F.R. § 300.18(c) (2).

 A. Medicare.

 Title XVIII of the Social Security Act, commonly referred to as "Medicare", establishes a Federal health insurance program which, under the strict and careful supervision of the Secretary of Health, Education, and Welfare, provides medical care for the aged. Under Medicare, posthospital extended care is available to an eligible beneficiary in a skilled nursing facility. To participate in this program as a skilled nursing facility, a nursing home must be certified by the state agency, an administrator of the program along with a private organization known as the "fiscal intermediary," as being in compliance with various health, safety, and environmental standards, and have executed a provider agreement with the Secretary of HEW.

 Payments to skilled nursing homes for services under Title XVIII are to be the reasonable cost of such services determined in accordance with 42 U.S.C. §§ 1395f and 1395x(v), as amended by the Social Security amendments of 1972. *fn2" In determining reasonable cost of reimbursement it is significant that the government stringently examines the nursing home expenses. Providers of these services are required to prepare cost analysis reports annually on prescribed forms and the "fiscal intermediary" performs a careful examination of financial and statistical records of the nursing homes. *fn3" In addition, to promote the most efficient use of available beds, patient services, and professional staff time, the law requires the nursing home to have a utilization review plan. The utilization plan provides for review by an outside group to assure maintenance of high quality patient care and the effective use of facilities (42 U.S.C. § 1395x(k)). *fn4" One final control shows just how comprehensively the government scrutinizes the factors of "reasonable cost." Under the prudent buyer/operator concept, 20 C.F.R. § 405.451, the provider is required to take advantage of discounts, bulk buying, and other group practices which will insure lower costs. If a provider fails to take advantage of these practices, the amount of his allowable cost may be reduced accordingly. *fn5"

 B. Medicaid.

 "Medicaid," Title XIX of the Social Security Act, is a cooperative Federal-State program which was enacted for the purpose of enabling states to furnish medical assistance for the aged, blind, and disabled, as well as for families with dependent children and other individuals whose economic resources are insufficient to meet the costs of necessary medical services. In order to participate, a state submits to the Secretary of HEW a plan for medical assistance which comports with certain statutory requirements, one of which is to provide skilled nursing home services for eligible beneficiaries.

 Federal matching funds are used to finance state plans for medical assistance. Payments under such a plan are disbursed by an appropriate state agency to nursing homes and other providers of medical assistance.

 The precise amount of such payments is established by the state, subject only to a ceiling imposed by 42 U.S.C. § 1396a(a) (30), which provides that a state plan must make provision to ensure that payments for medical care and services "are not in excess of reasonable charges consistent with efficiency, economy, and quality of care." In implementing 42 U.S.C. § 1396a(a) (30), the Secretary of HEW promulgated regulations establishing that the upper limits on state payments with regard to various types of medical services under Medicaid (45 C.F.R. § 250.30) cannot exceed the reasonable cost reimbursement made by the Secretary to such facilities for comparable medical services under Medicare. (45 C.F.R. § 250.30(b) (3) (ii). *fn6" Section 1396a(a) (27) of 42 United States Code requires that states enter into written agreements with every person or institution providing services under the state plan. Under these agreements the state agrees to pay the provider for skilled nursing home services, and the provider, in accordance with the method of reimbursement contained in the state plan, agrees to accept this as payment in full for the care of the patient. In a number of states, it was found by Congress that many rates were less than the providers' costs for the patient. *fn7" To correct this disparity, many states have raised their reimbursement rates, but are unable to pass along these increases due to COLC regulations at issue in this case. *fn8"

 II. Motion to Dismiss.

 Before the Court addresses plaintiff's prayer for a preliminary injunction and declaratory judgment, it is appropriate first to examine defendants' argument that for various reasons this Court ...


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