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April 20, 1990

MILDRED LEA LINTON, by her next friend KATHY ARNOLD, on her own behalf and on behalf of all other persons similarly situated Plaintiff
BELLE CARNEY, by her next friend MARY KIMBLE, on her own behalf and on behalf of all other persons similarly situated Plaintiff-Intervenor VS. COMMISSIONER OF HEALTH AND ENVIRONMENT, STATE OF TENNESSEE

The opinion of the court was delivered by: JOHN T. NIXON

 Plaintiffs are before the Court seeking to enjoin a Tennessee policy through which only a portion of the beds in Medicaid participating nursing homes are certified to be available for Medicaid patients. Plaintiffs allege that this policy artificially limits the accessibility of nursing home care to indigent Medicaid patients and fosters discrimination against indigent patients by nursing homes. Plaintiffs claim that, as a result of the challenged policy, they and other individuals similarly situated face delay or outright denial of needed nursing home care, as well as displacement from current residency in nursing home facilities. Plaintiffs bring this action under 29 U.S.C. § 794, the Rehabilitation Act of 1973; 42 U.S.C. § 1396 (Supp. 1987), et seq., Title XIX of the Social Security Act, and 42 U.S.C. § 2000d (1982 and Supp. 1987) et seq., Title VI of the Civil Rights Act of 1964, and the Due Process Clause of the Fourteenth Amendment.

 Final argument in this action was held on January 27, 1989. The parties subsequently requested an opportunity to settle the due process claim, and that claim is therefore not addressed in this Memorandum. By agreement of the parties, all proof previously submitted to the Magistrate in this case was introduced into evidence, including proof introduced in Jane Doe v. Mid South Nursing Home, Inc., et al, No. 3-87-0760.

 The Court, having considered the record in this case, including the pleadings, the stipulations of the parties, the exhibits and the statements of counsel, hereby makes, pursuant to Rule 52 of the Federal Rules of Civil Procedure, the following Findings of Fact and Conclusions of Law as a final adjudication of this matter.


 The present case was initiated on December 1, 1987 on behalf of Mildred Lea Linton. *fn1" Ms. Linton suffers from rheumatoid arthritis and has been a patient for four years at Green Valley Health Care Center in Dickson, Tennessee [hereinafter "Green Valley"]. A Medicaid patient who had been receiving skilled nursing facility (SNF) level care throughout her stay, the plaintiff received notice from State Medicaid officials that she no longer qualified for such care. The same notice advised her that she would have to move to another nursing home, an intermediate care facility (ICF), to receive the level of care to which the State believed she should be downgraded. Green Valley provides ICF care, and in fact the bed occupied by Ms. Linton was dually certified for Medicaid purposes for provision of both SNF and ICF levels of care. However, Green Valley was unwilling to care for Ms. Linton at an ICF level of reimbursement. The nursing home, which had directed the State to certify only part of its ICF beds as available to Medicaid patients, reserved the right to decertify the plaintiff's bed for Medicaid ICF participation. This decertification would have compelled the plaintiff's involuntary transfer to another facility.

 On December 11, 1989, plaintiff Belle Carney, an 89 year old black woman, requested intervention. She had been diagnosed in July 1987 as requiring nursing home treatment due to Alzheimer's disease, however, no nursing home placement was found for her. Plaintiff Carney asserts that the State's limited bed certification policy, which the State refers to as distinct part certification, creates an artificial restriction on the number of available Medicaid beds and that it fosters discrimination against Medicaid patients by nursing homes. Plaintiff Carney's health deteriorated over a period of several months as she was moved from one inadequate placement to another. Finally, Carney's condition declined to the point than she required emergency hospitalization. Carney filed a motion to intervene at this time, and the Court affirmed the Magistrate's determination that plaintiff Carney possessed the requisite standing.

 Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq. authorizes the expenditure of federal funds to enable states to furnish medical assistance to indigent individuals who are aged, blind or disabled, or who are members of families with dependent children. Tennessee participates in Title XIX for the purpose of operating such a medical assistance program ("Medicaid"), pursuant to T.C.A. § 71-5-101 [previously § 14-23-101 et seq.] Approximately, seventy per cent of the cost of the Tennessee Medicaid program is paid by the Health Care Financing Administration (HCFA) of the United States Department of Health and Human Services. In return for receipt of federal subsidies, the State of Tennessee is required to administer its Medicaid program in conformity with a state plan which satisfies the requirements of Title XIX and regulations promulgated pursuant thereto, and which has been submitted to, and approved by the Secretary of Health and Human Services. 42 U.S.C. §§ 1396, 1396a.

 Under the terms of Tennessee's approved State Medicaid plan, and pursuant to T.C.A. § 71-5-104, the Tennessee Department of Health and Environment (TDHE) is the single state agency responsible for administration of the Medicaid program. See 42 U.S.C. § 1296(a)(1) and (5). (1082 and Supp. 1987). The Department is administered under the direction of the defendant Commissioner.

 Tennessee's Medicaid program covers nursing home treatment at both the intermediate care and skilled nursing levels of services. ICF services, as defined in 42 U.S.C. § 1396d(c) and (d), include institutional, health-related services above the level of room and board, but at a level of care below that of hospital or SNF care. See also 42 C.F.R. § 440.150. SNF care consists of institutional care above the level of ICF services but below the level of a hospital. 42 U.S.C. § 1296d(i); 42 C.F.R. § 440.40.

 An individual's eligibility for coverage under the Tennessee Medicaid Program is determined on the basis of certain personal characteristics relating to need such as old age, disability or blindness, and on the basis of the person's indigency, measured by certain State and federal financial standards. To obtain Medicaid coverage for nursing home care the patient must first establish financial eligibility and then meet additional medical need requirements demonstrating eligibility for ICF or SNF services. The medical requirements, established by the State pursuant to 42 U.S.C. § 1396a(a)(30), are for the purpose of safeguarding against unnecessary treatment.

 In order to determine a patient's medical eligibility, Tennessee requires that each Medicaid recipient's need for admission to a nursing home be evaluated prior to the recipient's admission to the institution or, if the patient has already been admitted, prior to an authorization of Medicaid reimbursement for his or her care. See 42 C.F.R. §§ 456.271 and 456.372; and THDE §§ 1200-13-1-10 and 1200-13-1-13. This process is referred to as the pre-admission evaluation (PAE) process.

 Once a patient has been admitted to a nursing home, his or her continued need for ICF or SNF care is annually reviewed by State Medicaid officials pursuant to a process referred to as utilization review which is required pursuant to 42 U.S.C. § 1396a(a)(30).

 Pursuant to 42 U.S.C. § 1396a(a)(33), TDHE is responsible for establishing a plan, consistent with federal regulations, for:

 (A) . . . the review by appropriate personnel of the appropriateness and quality of care and services furnished to recipients of medical assistance . . .; and [for]

 (B) the function of determining whether institutions and agencies meet the requirements for participation in the program [as health care providers] . . .

 42 U.S.C. § 1296a(a)(3); see also 42 C.F.R. § 442.

 Federal law authorizes State agencies who perform this survey and certification function to certify facilities for either SNF or ICF reimbursement. Such certification may be of a "distinct part of an institution." See 42 U.S.C. § 1396x (federal Medicare statute recognizing "distinct part" certification) and 42 U.S.C. § 1396a(a)(28) (applying "distinct part" certification to Medicaid SNF certification). The Department of Health and Human Services, Health Care Financing Administration in its "Medicare/Medicaid State Operations Manual" has defined "distinct part" certification as follows:

 The term "distinct part" denotes that the unit is organized and operated to give a distinct type of care within a larger organization which otherwise renders other types or levels of care. "Distinct" denotes both organizational and physical distinctness. A distinct part SNF must be physically identifiable and be operated distinguishably from the rest of the institution. It must consist of all the beds within that unit such as a separate building, floor, wing or ward. Several rooms at one end of a hall or one side of a corridor may be accepted as a distinct part SNF.

 In each case, however, all the patients of the distinct part would have to be located in units which are physically separate from those units housing all other patients of the institution. Various beds scattered throughout the institution would not comprise a unit operated distinguishably for purposes of being certified as a SNF.

 HCFA Medicare/Medicaid State Operations Manual, § 2110, Exhibit 19 (emphasis added) [hereinafter State Operations Manual].

 On September 7, 1989 the Health Care Financing Administration (HCFA) of the Department of Health and Human Services, which administers the Medicare and Medicaid programs at the federal level issued an interim final rule revising current Medicare regulations relating to "swing beds." Swing beds are beds operated by acute care hospitals but providing intermediate or skilled level nursing facility, rather than inpatient hospital, care.

 The new interim rule is irrelevant to this litigation. However, the supplementary information which accompanies the regulation provides an instructive reaffirmation of federal policies on "distinct part" certification under Medicaid. The explanatory material provided by HCFA confirms that Tennessee's lassiez faire approach to certifying any beds, and only those beds, which a nursing home operator directs it to certify, is squarely at odds with federal "distinct part" requirements:

 Hospitals participating in Medicare and Medicaid, in addition to providing an inpatient hospital level of care, may also provide SNF or ICF levels of care through the establishment of a separately participating "distinct part" unit. Among health, safety and other requirements, a distinct part SNF or ICF must be an entire separately identifiable unit consisting of all the beds within that unit (such as, a separate building, floor, wing, or corridor). A distinct part SNF or ICF unit is paid as an entity separate from the rest of the institution [ 54 FR 37, 270 (September 7, 1989)] (emphasis added).

 Furthermore, by regulation, an ICF distinct part can only be certified as "part of a facility other than an intermediate care facility [and] if the distinct part:

 (1) Meets all requirements for an intermediate care facility;

 (2) Is an identifiable unit, such as an entire ward or contiguous ward, a wing, floor, or building;

 (3) Consists of all beds and related facilities in the unit;

 (4) Houses all recipients for whom payment is being made for intermediate care facility services . . .;

 (5) Is clearly identified; and

 (6) Is approved in writing by the ...

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