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LACEY v. COHEN

November 5, 1984

MELBA LACEY, VIOLA SANDERS, BRENDA TRAWICK, PHILADELPHIA WELFARE RIGHTS ORGANIZATION by LOUISE BROOKINS, trustee ad litem, And the Class They Seek to Represent
v.
WALTER COHEN, Secretary of Public Welfare, GERALD RADKE, Deputy Secretary for Medical Assistance, DON JOSE STOVALL, Executive Director, Phila. County Board of Assistance, All Individually and in their Official Capacities



The opinion of the court was delivered by: LUONGO

 LUONGO, Ch. J.

 This is a motion for a preliminary injunction against enforcement of the Commonwealth of Pennsylvania's recently adopted requirement that medicaid recipients bear a portion of the cost of medical services. At issue is the legality of the manner in which the Commonwealth implemented the copayment system as part of its administration of its medicaid ("MA" or "medical assistance") plan. This suit does not challenge the constitutionality or legality of the copayment program itself, nor does it attack the legislative or administrative processes by which copayment was adopted.

 Plaintiffs, three individual medicaid recipients and an association of similarly situated persons, contend that the Commonwealth's advance notice of copayment to individual recipients did not comply with the due process clause of the Constitution or administrative regulations adopted pursuant to the Social Security Act. See 42 U.S.C. § 1396a(a)(3). Specifically, plaintiffs assert that (1) the notice failed adequately to describe the coverage and exclusions of the copayment requirement, (2) the notice did not apprise recipients of their right to a hearing to contest the correctness of application of copayment to a particular case, and (3) the Commonwealth failed to give notice of the imposition of copayment to recipients who receive their medicaid eligibility cards on a quarterly, as opposed to monthly, basis. Plaintiffs seek to enjoin further enforcement of recipient copayment until such time as the Commonwealth gives recipients clear and complete notice at least ten days before reinstitution of the cost-sharing arrangement. An evidentiary hearing was held on September 20, 25, and 26, 1984. After consideration of all the evidence, I conclude that enforcement of copayment does not subject plaintiffs to the threat of irreparable harm, and I will therefore deny the motion.

 I. Background Findings

 Title XIX of the Social Security Act, 42 U.S.C. §§ 1396-1396p, authorizes the appropriation of federal funds under the medicaid program

 42 U.S.C. § 1396. Medicaid is funded jointly by the federal government and each state that elects to participate. Administration of the program rests primarily with a selected state administrative agency, here, Pennsylvania's Department of Public Welfare. See generally Eder v. Beal, 609 F.2d 695 (3d Cir. 1979).

 The individual plaintiffs in this action are persons who currently receive medical assistance as "categorically needy" persons by virtue of their eligibility for benefits under other federal programs. See Crippen v. Kheder, 741 F.2d 102, 103 (6th Cir. 1984); 42 C.F.R. § 435.4. Melba Lacey, who did not testify at the hearing, receives Social Security Disability Insurance Benefits and Supplemental Security Income (SSI) benefits. Viola Sanders also receives SSI benefits. Brenda Trawick and her family receive assistance under the Aid to Families with Dependent Children program (AFDC). Until September 1, 1984, these individuals were entitled to receive prescribed drugs, medical equipment, and other services covered by medical assistance without payment of any part of the fees or charges.

 Defendants are Commonwealth officials whose responsibility includes administration of the copayment system. Defendant Cohen is Secretary of Pennsylvania's Department of Public Welfare ("DPW"). Defendant Radke is Deputy Secretary of DPW. Don Jose Stovall is the Executive Director of the Philadelphia County Assistance Office of DPW.

 In 1982, Congress enacted the Tax Equity and Fiscal Responsibility Act (TEFRA). Pub. L. 97-248, 96 Stat. 324 (1982). In relevant portion, TEFRA increased the power of states to require recipients to share a portion of the cost of most medical assistance goods and services. S. Rep. No. 494, 97th Cong., 2d Sess. 35-36, reprinted in 1982 U.S. Code Cong. & Ad. News 781, 811-12; H.R. Rep. No. 760, 97th Cong., 2d Sess. 434-36, reprinted in 1982 U.S. Code Cong. & Ad. News 1190, 1214-16. As codified at 42 U.S.C. § 1396o, TEFRA permits states to assess recipients a nominal amount (as defined by regulations) for most covered services. Excepted from copayment by federal mandate are services rendered to individuals under 18 years of age, pregnant women, certain residents of medical institutions, and those in need of emergency services. Mandatory exceptions are also established for family planning services and services provided by a health maintenance organization. In order to prevent copayment from posing an absolute barrier to necessary medical care for those unable to pay, TEFRA also requires states that adopt such a system to deny providers the right to refuse care because of an eligible recipient's inability to pay the required portion, but it does provide that persons receiving services without copayment because of their lack of funds are indebted to the provider for the amount of the required copayment.

 On August 11, 1984, the Commonwealth of Pennsylvania Department of Public Welfare published final regulations adopting a cost-sharing requirement for Pennsylvania medical assistance recipients. See 14 Pa. Bull. 2926-36 (Aug. 11, 1984). Hence this lawsuit.

 II. Jurisdiction

 Plaintiffs' suit is properly before this court since they claim that defendants' alleged failure to provide recipients timely and adequate notice of copayment constituted a deprivation under color of state law of rights guaranteed by federal law or the Constitution. 42 U.S.C. § 1983; 28 U.S.C. § 1331.

 III. The Legal Standard

 The burden of a party seeking a preliminary injunction is well-established in this circuit.

 In re Arthur Treacher's Franchisee Litigation, 689 F.2d 1137, 1143 (3d Cir. 1982), quoting, Oburn v. Shapp, 521 F.2d 142, 147 (3d Cir. 1975) (citations omitted). The primary considerations in this inquiry are the risk of irreparable harm to the moving party in the absence of an order maintaining the status quo, and the likelihood of success of that party's case on the merits. As the court of appeals has ruled:

 
Unless both a "reasonable probability of eventual success" and "irreparable harm" are demonstrated, preliminary injunctive relief is not to be granted. Kershner v. Mazurkiewicz, 670 F.2d 440, 443 (3d Cir. 1982) (en banc). Thus, a failure by the moving party to satisfy these prerequisites: that is, a failure to show a likelihood of success or a failure to demonstrate irreparable injury, must necessarily result in the denial of a preliminary injunction.

 In re Arthur Treacher's Franchisee Litigation, 689 F.2d at 1143. See also Moteles v. University of Pennsylvania, 730 F.2d 913, 918-19 (3d Cir.), cert. denied, 469 U.S. 855, 53 U.S.L.W. 3239, 83 L. Ed. 2d 114, 105 S. Ct. 179 (1984); Spartacus, Inc. v. Borough of McKees Rocks, 694 F.2d 947 (3d Cir. 1982); United States v. Price, 688 F.2d 204, 211 (3d Cir. 1982); Doe v. Colautti, 592 F.2d 704, 706 (3d Cir. 1979); Constructors Association of Western Pennsylvania v. Kreps, 573 F.2d 811, 814-815 (3d Cir. 1978); Delaware River Port Authority v. Transamerican Trailer Transport, Inc., 501 F.2d 917, 919-920 (3d Cir. 1974). With these criteria in mind, I now turn to an evaluation of the disputed issues.

 IV. State Action

 Defendants contend that an essential ingredient of a cause of action under 42 U.S.C. § 1983, namely state action, is lacking in this case. *fn2" Relying on the Supreme Court's decision in Blum v. Yaretsky, 457 U.S. 991, 73 L. Ed. 2d 534, 102 S. Ct. 2777 (1982), defendants argue that this suit is an effort to hold Commonwealth officials responsible for anticipated provider abuse or misuse of the copayment system. Defendants claim that under Blum v. Yaretsky, such conduct cannot fairly be attributed to the Commonwealth, and that plaintiffs have therefore failed to establish the requisite state action. Because of the fundamental importance of this issue, I will deal with it at the outset.

 A.

 In Blum v. Yaretsky, the Supreme Court ruled that the decision of a privately owned and operated nursing home summarily to discharge or transfer a patient to a lower level of care did not constitute state action under the Fourteenth Amendment. The plaintiffs in Blum were medicare recipients who sought to avoid involuntary discharge or transfer to less intensive levels of care without notice or an opportunity for a hearing. The plaintiffs premised their claim to the protections of due process on the high percentage of state funding of nursing homes, the extensive state regulation of such institutions, and the state's practice of adjusting recipients' medicare benefits in response to a nursing home's discharge or transfer order. The Court found state action absent, reasoning that transfers initiated by the recipients' attending physicians or nursing home administrators were based on "medical judgments made by private parties according to professional standards that are not established by the State." 457 U.S. at 1008 (footnote omitted).

 B.

 As the Supreme Court noted in Blum v. Yaretsky, "faithful adherence to the 'state action' requirement of the Fourteenth Amendment requires careful attention to the gravamen of the plaintiff's complaint." 457 U.S. at 1003. To determine whether Blum compels a similar result in this case, therefore, it is critical to identify precisely what conduct is assailed as a violation of plaintiffs' federally guaranteed rights, and to decide whether that conduct "may fairly be said to be that of the State." Shelley v. Kraemer, 334 U.S. 1, 13, 92 L. Ed. 1161, 68 S. Ct. 836 (1948).

 Comparison of the allegations of plaintiffs' complaint with the pleading described in Blum establishes that the nature of plaintiffs' claim is decisively at variance with the cause of action stated in Blum. In Blum, the plaintiffs challenged nursing homes' decisions to transfer or discharge recipients without notice and a hearing. Although the plaintiffs named as defendants state officials charged with the administration of medicaid, the complaint did not challenge "particular state regulations or procedures. . . ." 457 U.S. at 1003. Indeed, the plaintiffs conceded that "the decision to discharge or transfer a patient originates not with state officials, but with nursing homes that are privately owned and operated." Id. Thus, the Court observed "their lawsuit . . . seeks to hold state officials liable for the actions of private parties, and the injunctive relief that they have obtained [in the lower courts] requires the State to adopt regulations that will prohibit the private conduct of which they complain." Id.

 By contrast, the gravamen of the present complaint is that recipients have been deprived of their federal statutory and constitutional rights by regulations promulgated by the Commonwealth of Pennsylvania. Plaintiffs do not challenge the action of any medicaid provider in this suit; they attack the adequacy of the process by which the Commonwealth has reduced their entitlement to a government benefit in which they assert a property interest.

 Having so characterized plaintiffs' cause of action, I conclude that there is state action with respect to the conduct now sought to be enjoined. Beyond peradventure the parties charged with deprivation of plaintiffs' rights are state actors by virtue of their public offices and their responsibility for implementing the challenged program. Lugar v. Edmondson Oil Co., Inc., 457 U.S. 922, 937, 73 L. Ed. 2d 482, 102 S. Ct. 2744 (1982). Cf. Rendell-Baker v. Kohn, 457 U.S. 830, 73 L. Ed. 2d 418, 102 S. Ct. 2764 (1982) (where privately operated school was not state actor, it did not act under color of state law). The inquiry thus reduces to whether the alleged deprivation is "caused by the exercise of some right or privilege created by the State or by a rule of conduct imposed by the State or by a person for whom the State is responsible." Lugar v. Edmondson Oil Co., Inc., 457 U.S. at 937. See also Baksalary v. Smith, 579 F. Supp. 218, 229 (E.D. Pa. 1984) (three-judge court). The answer to this question must also be in the affirmative. The gravamen of plaintiffs' complaint is that their federally guaranteed rights have been transgressed by the Commonwealth's regulations themselves. This is not a case in which state action is sought to be predicated upon a private party's utilization of a state-created right or privilege. Cf. Lugar v. Edmondson Oil Co., Inc. (creditor's use of prejudgment attachment procedure); Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 56 L. Ed. 2d 185, 98 S. Ct. 1729 (1978) (creditor's proposed sale of goods pursuant to § 7-210 of the Uniform Commercial Code). Rather, this action attacks the legality of conduct of the State itself.

 My resolution of the state action question does not imply, however, that defendants' arguments on this issue lack relevance to the resolution of this case. The Supreme Court's decision in Blum v. Yaretsky stands for the proposition that state action does not attach to a provider's judgment as to level of care needed by a medicaid recipient -- at least where the provider's decision is not affirmatively mandated by State regulations. Blum v. Yaretsky, 457 U.S. at 1005. The absence of state responsibility for a multitude of provider decisions may affect the analysis of the question whether, on the merits, the Commonwealth must afford recipients notice and an opportunity for a hearing differently than it has thus far. This consideration, nevertheless, relates to the likely strength of plaintiffs' case on the merits, not to whether the challenged regulations are imbued with the color of state law.

 V. Irreparable Harm

 A primary factor in deciding whether a preliminary injunction should issue is the risk of irreparable harm faced by the moving party in the absence of an order preventing such harm before trial of the case on the merits. *fn3" Plaintiffs argue that they face irreparable harm for two reasons: First, relying on Elrod v. Burns, 427 U.S. 347, 49 L. Ed. 2d 547, 96 S. Ct. 2673 (1976), plaintiffs assert that "allegations that constitutional rights have been violated are in and of themselves a sufficient showing of irreparable injury. . . ." Plaintiffs' Memorandum in Support of a Preliminary Injunction at 4. Second, plaintiffs contend that, given their already impoverished state, the burden of copayment will force them to economize on medically necessary services, and thus incur the risk of serious illness.

 A. Alleged Constitutional Deprivation

 In Elrod v. Burns, the Supreme Court established that political patronage dismissal of most non-policymaking state employees violates the First Amendment. Affirming the Seventh Circuit Court of Appeals, the Court also ruled that the appellate court properly directed the district court to enter a preliminary injunction against further enforcement of that practice. The Supreme Court reasoned that "the loss of First Amendment freedoms, for even minimal periods of time, unquestionably constitutes irreparable injury." 427 U.S. at 373.

 In affirming the preliminary injunction, the Elrod Court relied heavily on the principle that exercise of free speech, the most fundamental political freedom, should not be hampered or delayed by governmental action. As the Court has long recognized, the special character of First Amendment freedoms demands that their exercise be timely in order to be effective. Near v. Minnesota, 283 U.S. 697, 75 L. Ed. 1357, 51 S. Ct. 625 (1931); New York Times Co. v. United States, 403 U.S. 713, 29 L. Ed. 2d 822, 91 S. Ct. 2140 (1971) (per curiam).

 Plaintiffs' reliance on Elrod v. Burns to establish irreparable harm in this case, however, fails to take note of the legal and factual differences between Elrod and the case at bar. On a factual level, the predicate for the Supreme Court's constitutional ruling in Elrod -- that public employees were discharged by the Sheriff of Cook County, Illinois because of partisan politics -- was accepted as true because of the procedural posture of that case. See Elrod v. Burns, 427 U.S. at 350 & n.1. The instant case, by contrast, involves conflicting legal interpretations drawn from an incomplete factual record. See Kershner v. Mazurkiewicz, 670 F.2d 440, 443-44 (3d Cir. 1982) (en banc) (despite allegation of constitutional deprivation, preliminary injunction properly denied where prisoners failed to demonstrate foreclosure from access to courts).

 The legal distinction between Elrod and this case is of even greater significance. Elrod rested on the premise that, because of their special character, deprivation of First Amendment rights, without more, constitutes irreparable harm. The same cannot be said for the broad range of economic entitlements, individual or corporate, that have been accorded constitutional protection. See, e.g., Flower Cab Company v. Petitte, 685 F.2d 192, 195 (7th Cir. 1982) (deprivation of taxicab license). This is not to belittle the significance of the deprivation claimed by plaintiffs; the point is that they cannot establish that such harm is irreparable simply by showing that the interest they seek to vindicate is one protected by the Due Process Clause.

 B. Threat to Recipients' Health

 Plaintiffs' claim that they are threatened with irreparable harm thus turns on an evaluation of the health risks posed by the challenged system as it currently operates. *fn4" Plaintiffs contend that defects in, or the absence of, advance notice of the copayment requirement establish the risk of irreparable harm. Plaintiffs also contend copayment will deter utilization of medical services, particularly by those least able to pay, and that medicaid recipients' health status is likely to deteriorate because of their failure to receive preventive care. Defendants respond that safeguards in the copayment program assure the delivery of needed care to those unable to make the nominal payment. In order to resolve this dispute I must make ...


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