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April 25, 1978

FRANK S. BEAL, et al.

The opinion of the court was delivered by: LORD, III


 This class action challenges a reduction in the availability of orthopedic shoes and shoe accessories under the Pennsylvania Medical Assistance Program. Plaintiffs seek to enjoin the elimination of these benefits on the grounds that the cutbacks violate federal statutory and regulatory requirements under the Medical Assistance Program ("Medicaid"), 42 U.S.C. § 1396 et seq., and the Due Process Clause of the Fourteenth Amendment to the United States Constitution. A final hearing was held on the request for an injunction, from which I make the following findings and conclusions.


 1. Pennsylvania has elected to participate in the Medicaid program, 42 U.S.C. § 1396 et seq., which provides medical assistance to low income people under a state and federal cost-sharing system.

 2. Before April 9, 1977, the Pennsylvania Medical Assistance ("MA") program provided to only categorically needy recipients, i.e., individuals receiving cash assistance under one of the federally aided public welfare programs, "orthopedic shoes, braces and repairs to braces" as well as "shoe accessories (anterior laces, arch supports, foot pads, heel elevations, metatarsal pads) and orthopedic corrections to shoes." Pa. DPW-PA Manual §§ 9411.434 and 9413 Appendix I.

 3. On April 9, 1977, by publication in 7 Pennsylvania Bulletin 1002 (April 9, 1977), the Department of Public Welfare ("DPW") adopted a regulation, § 9435.431, significantly limiting the availability of orthopedic shoes and shoe accessories. Section 9435.431 took effect April 15, 1977, and provided in part:

"The Department will pay for custom-made molded and orthopedic shoes under the following conditions:
A. Custom-made molded shoes when prescribed for severe foot and ankle conditions and deformities resulting from congenital or acquired trauma or peripheral vascular or neuropathic disorders. The severity of the foot condition or deformity must be of sufficient degree that the patient is unable to wear ordinary sturdy shoes with or without corrections and modifications.
B. Orthopedic shoes when prescribed as an attachment to a leg brace. When orthopedic shoes are attached to a leg brace, the Department will pay for the necessary corrections to these shoes, such as arch supports, spur pads or metatarsal insoles as described in the fee schedule.
Except for A and B above, payment will not be made for space or molded shoes, orthopedic shoes or corrections to these shoes whether or not they are prescribed by a practitioner."

 4. Plaintiffs are categorically needy MA recipients in need of orthopedic shoes or shoe accessories and an unincorporated association which includes members who are such MA recipients. Defendants are state officials responsible for administering the MA program.

 5. The reason given by defendants for the reduction in the orthopedic shoe program was that MA officials concluded there was "gross misutilization" of the program, including fraud by MA recipients, podiatrists and shoe stores. In particular, podiatrists were prescribing orthopedic shoes to MA recipients who had no medical need for these shoes and stores were selling recipients ordinary shoes but charging the MA program for more expensive orthopedic shoes. DPW officials maintain that because the state was unable to require prior authorization before the recipient could purchase these shoes, DPW officials could not exert the necessary controls to halt these misuses. Prior authorization was not permitted under the terms of a consent decree entered into by the state in Turner v. Beal, Civil Action No. 74-1680 (E.D. Pa. 1975).

 The overutilization of the program is demonstrated by the fact that in fiscal year 1976, when the MA program had a requirement of prior authorization, all medical supplies and equipment, including orthopedic shoes, cost $809,000. In the next year, when there was no such requirement, these same items cost $2.8 million, with $2.4 million expended for orthopedic shoes. The abuse was most apparent in Philadelphia County where in fiscal year 1977 $2.1 million was spent on orthopedic shoes. Although there have been some investigations of particular cases of abuse, civil suits for reimbursements and criminal prosecutions, these actions did not eliminate the abuse. DPW did not implement, however, other controls suggested in an internal memorandum by DPW employee John Kauker and in a Department of Health, Education and Welfare ("HEW") memorandum of November 7, 1977. The expenditure for orthopedic shoes in fiscal year 1977 placed a substantial burden on the state's MA finances.

 6. DPW did not send any notice of the reduction in the orthopedic shoe program to any MA recipients.

 7. Pursuant to federal regulations, Pennsylvania has established a Medical Assistance Advisory Council ("Council") which is intended, inter alia, to "give professional advice to the Office of Medical Programs on the development of sound policies and standards of medical assistance." Pa. DPW-OMP-MA Manual § 9100 Part IV B. Before the April 9, 1977, modification, the Council was neither adequately advised of the proposed change in the availability of orthopedic shoes nor given an adequate opportunity to participate in that decision. However, since the hearing in this case, Council has been notified of the reduction through notice sent to each Council member on January 6, 1978. A meeting of Council was held on January 19, 1978, in which the orthopedic shoe program was discussed extensively. As a result of that discussion Council unanimously accepted a recommendation to be presented to the Chief Administrator of the MA program concerning the orthopedic shoe reduction.

 8. MA recipients have suffered and will continue to suffer serious harm as a result of the reduction in the availability of orthopedic shoes. If some recipients are not supplied with orthopedic shoes, they will experience severe pain and can become non-ambulatory. Additionally, orthopedic shoes for children can correct abnormalities which otherwise might become permanent disabilities without such medical intervention. The cost of orthopedic shoes is high, approximately $40-50 per pair, and the shoes generally must be replaced every six months to one year.


 Plaintiffs object to the reduction in the availability of orthopedic shoes on four grounds: (1) defendants have violated federal statutes and regulations in reducing the orthopedic shoe program without timely and adequate notice and without affording plaintiffs an opportunity for a hearing before the reduction; (2) defendants' conduct also violates the Due Process Clause of the Fourteenth Amendment because the reduction was effected without notice and an opportunity for a hearing; (3) defendants have violated federal statutory and regulatory provisions by failing, before the reduction, to consult with the Medical Assistance Advisory Council and to allow the Council an "adequate opportunity for meaningful participation" in the decision to reduce the program; and (4) defendants have violated 42 U.S.C. § 1396a(a)(19) by failing to act in the recipients' "best interests" in that they reduced the program before adequately pursuing alternative means to halt overutilization of services which would not entail a change in program benefits. Each of these arguments will be addressed in turn.

 A. Statutory Requirement of Notice and Hearing Before Reduction of Benefits:

 Pennsylvania, as a participant in the Medicaid program, must conform its MA program to the requirements of Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., and all the regulations promulgated thereunder. Feld v. Berger, 424 F. Supp. 1356, 1360 (S.D.N.Y. 1976). See generally Shea v. Vialpando, 416 U.S. 251, 253, 40 L. Ed. 2d 120, 94 S. Ct. 1746 (1974); King v. Smith, 392 U.S. 309, 317, 20 L. Ed. 2d 1118, 88 S. Ct. 2128 (1968). Title XIX requires that a state plan provide six general categories of medical services to "categorically needy" individuals, i.e., all individuals receiving cash assistance under one of the federally-aided public welfare programs, 42 U.S.C. § 1396a(a)(10)(A). *fn1" In addition, a state may elect to make available to program recipients optional medical services such ...

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