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ALABAMA v. BOWEN

November 26, 1986

State Of Alabama, et al., Plaintiffs,
v.
Otis R. Bowen, et al., Defendants



The opinion of the court was delivered by: OBERDORFER

Plaintiffs are twenty nine states, *fn1" the District of Columbia, and four counties in California. *fn2" Defendants are the Secretary of the Department of Health and Human Services ("HHS"), HHS itself, and other government health agencies and administrators responsible for administration of the Medical Assistance ("Medicaid"), 42 U.S.C. § 1396 et seq., and Aid to Families with Dependent Children ("AFDC"), 42 U.S.C. § 601 et seq., programs.

 Plaintiffs have filed a motion for summary judgment seeking a declaration invalidating regulations designed to recover from states part of the federal share of Medicaid and AFDC disbursements to ineligible recipients. See 42 C.F.R. § 431.802 (Medicaid) and 45 C.F.R. § 205.42 (AFDC). Plaintiffs' Motion for Summary Judgment (filed June 25, 1986). Defendants have moved to dismiss the complaint primarily on the grounds that the matter is not yet ripe for review and that if it is ripe, plaintiffs' claim is barred by laches. Defendants' Motion to Dismiss (filed June 18, 1986). While there is a great deal of recent and thoughtful analysis on issues of ripeness and pre-enforcement review, *fn3" there has been little discussion of the specific issue raised here. Able counsel for both parties have briefed the issue and the Court has heard oral argument. Upon consideration of defendants' motion to dismiss and plaintiffs' opposition thereto, and for reasons stated below, the Court concludes that plaintiffs' challenge is not ripe. Accordingly, defendants' motion to dismiss is granted.

  I.

 The federal government contributes matching funds for all payments under AFDC and Medicaid programs. These programs are administered by the states. In an effort to reduce fraud and waste in the administration of these programs, the federal government has implemented a succession of systems to recover from states the share of federal matching funds attributable to payments to ineligible recipients in excess of a certain percentage of the total disbursement. In 1979, the federal government determined the effective "error rate" to be the national average of such errors. This average rate was 6.4 percent for AFDC and 15.7 percent for Medicaid. 44 Fed. Reg. 12578, 12579 (March 7, 1979). If a state's payments to ineligible recipients exceeded the national average, it was required to reimburse the federal government's share of that payment unless it could show that it was making significant efforts to reduce its level of erroneous payments. That scheme, based on the floating national average error rate, is not challenged by plaintiffs here. The focus of plaintiffs' challenge is that scheme's successor.

 In 1980, HHS replaced the floating national average error rate with a standard 4 percent rate. Under this scheme, states were liable for the federal share of any payments in excess of the 4 percent rate of error. *fn4" The 4 percent standard was incorporated by reference into the Michel Amendment, which was part of the FY 1980 Appropriations Bill, H.R. No. 4389. Departments of Labor and Health, Education, and Welfare and Related Agencies Appropriations bill, 1980, H.R. 4389. This bill was not enacted. However, a Continuing Resolution for Fiscal Year 1980 provided for appropriations to HEW "to the extent and in the manner, provided for" in the unenacted FY 1980 Appropriations Bill (H.R. 4389). Pub. L. 96-123, § 101(g), 93 Stat. 925 (1979).

 In January, 1980, HEW adopted the regulations here at issue. 45 Fed. Reg. 6326 (Jan. 25, 1980). *fn5" HEW explained its reasoning as follows:

 
The Department is required to implement the Michel Amendment directive. Even though the FY 1980 Appropriations Bill, which includes the Michel Amendment directive in section 201 has not been enacted, imposition of the directive is law by virtue of the provisions in the Continuing Resolution (Pub. L. 96-123) which appropriates funds for HEW for FY 1980. Section 101(g) provides funds for HEW "to the extent and in the manner" provided for in the Labor-HEW Appropriation Bill. . . . Since the Appropriations Bill includes the Michel Amendment directive, we are obligated to issue regulations in implementation of that directive.

 Id. at 6329. Although the 1980 regulations were the subject of comment and were eligible for judicial review, none of the plaintiffs challenged it in court until they filed this complaint.

 Since 1980, Congress has enacted additional legislation with respect to error rates for recovery of payments to the ineligible. The Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), *fn6" reduced the allowable error rate for AFDC payments to 3 percent, effective for fiscal year 1984. TEFRA specifically provided that the 1980 AFDC regulations

 
shall remain in effect with respect to erroneous payments made by States until new regulations reflecting the changes made by . . . [TEFRA] are promulgated and placed in effect.

 § 156(e), 96 Stat. 399.

 More recently, the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), *fn7" provided for studies by the Secretary of HHS and the National Academy of Sciences to recommend ways to control excessive levels of erroneous AFDC and Medicaid payments. Of special relevance here, COBRA provided for a two-year moratorium during which the Secretary is barred from reducing AFDC payments to States because of erroneous payments. § 12301(b). Finally, COBRA requires the Secretary to amend the AFDC and Medicaid error rate regulations retroactively so that any ultimate adjustments for all years subsequent to 1980 will be made on principles to be established as a result of the COBRA studies. § 12301(c).

 Despite the COBRA studies, moratorium, and prospect of new regulations, HHS has undertaken to enforce the 4 percent error rate regulations for fiscal year 1981, and has indicated an intention to enforce the regulations for 1982 as well. *fn8" Those states which have been notified of possible liability and which have been denied waivers have taken administrative appeals to the Grant Appeals Board created for this purpose by 42 U.S.C. § 1316(d). Discovery and other preliminaries to a Board decision on the merits are in progress. Those challenges primarily concern the method by which liability is determined under the regulations. In plaintiffs' motion for summary judgment, however, they challenge the validity of the regulations themselves. Plaintiffs argue that the 4 percent regulations as applied to 1981 and 1982 have no statutory basis and are an impermissible ...


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