Heartz v. Morton CV-98-317-B 02/24/99 UNITED STATE DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Bruce Heartz

v. Civil No. 98-317-B

Terry Morton, et. al.

O R D E R

_____ Defendant Terry Morton1, in his capacity as Commissioner of

the State of New Hampshire Department of Health and Human

Services, brought a Motion to Correct Clerical Error, noting that

the stated allocation of Medicaid costs between the State and the

counties for long-term care (30 percent state and 20 percent

county) is incorrect as set forth in my Order of January 8, 1999.

I agree.

Defendant reguests that I correct this clerical error to

reflect the cost allocation (30 percent county and 20 percent

state) stated in N.H. Rev. Stat. Ann. 167:18-b (Cum. Supp. 1998).

The statutory allocation of Medicaid costs between the state and

the counties for long-term care, however, was recently amended to

egual shares of 25 percent between state and county, see 1999

N.H. Laws, Ch. 388 (adopted Sept. 26, 1998, effective Jan. 1,

1999)(amending N.H. Rev. Stat. Ann. 167:18-b to reguire counties

to reimburse the state "50 percent of the non-federal share," or

1 Donald Shumway replaced Terry Morton as Commissioner of the State of New Hampshire Department of Health and Human Services in February 1999. 25 percent). Because the effective date for the new cost

allocation passed prior to the issuance of my January 8, 1999

order, I amend that order to reflect the recent change in the

law .

Although the new cost allocation results in minor numerical

changes in my analysis, it does not affect my ultimate decision

to deny plaintiff's reguest for a preliminary injunction.

Accordingly, defendants' motion is GRANTED in part, and

DENIED in part. A copy of the amended order reflecting the

relevant changes is attached.

SO ORDERED.

Paul Barbadoro Chief Judge February , 1999

cc: Ronald K. Lospennato, Esg. Suzanne M. Gorman, Esg. UNITED STATE DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Bruce Heartz

v. Civil No. 98-317-B

Terry Morton, et. a l .

AMENDED MEMORANDUM AND ORDER

Bruce Heartz, a Medicaid recipient with an acquired brain

disorder, brings this action for declaratory and injunctive

relief against the state officials who administer New Hampshire's

Medicaid program. Heartz argues that the state's failure to

treat him in a community setting violates his right under the

Americans with Disabilities Act,

et. seq.

("ADA"), to receive Medicaid services in the most integrated

setting appropriate to his medical needs. Defendants assert that

the ADA does not authorize the relief Heartz seeks because it

would force the state to "fundamentally alter" its program for

providing Medicaid services to individuals with brain disorders.

I evaluate the parties' competing claims in ruling on Heartz's

request for a preliminary injunction. I.

A. Plaintiff's Physical Condition

Heartz has multiple sclerosis ("MS"), an acquired brain

disorder. The symptoms associated with MS vary from person to

person and generally worsen over time. Heartz has lost the use

of his legs and has only limited use of his arms and hands. He

uses a wheelchair and requires two aides and a mechanical lift to

move him in and out of bed. He needs assistance with all of his

daily activities, including feeding, grooming, and personal

hygiene. His body temperature, nutrition, skin integrity, and

bowel movements must be monitored. He has a chronic superpubic

catheter that requires irrigation and 24-hour supervision.

Heartz also suffers from depression and certain cognitive

limitations. His memory is impaired, although he still

occasionally recognizes friends and family. His condition is

unlikely to improve.

Heartz lives in a nursing home in Concord, New Hampshire.

He receives all necessary medical care and treatment and shares a

small semi-private room with another person. He pays a portion

of his care costs and the remaining costs are paid by Medicaid.

On May 19, 1998, the Merrimack County Probate Court found Heartz

incompetent and appointed his brother, Robert Heartz, to serve as

-4- his legal guardian. The parties agree that a program could be

developed to allow Heartz to receive treatment in a community

setting, although the cost of such a program remains in dispute.

B. The Medicaid Program

Medicaid is the primary federal program for providing

medical care to the poor. States that elect to participate in

the program initially pay the entire cost of services provided

under the program but later obtain partial reimbursement from the

federal government. Participating states must submit a "State

Plan" to the Secretary of the Health Care Financing Adminis­

tration ("HCFA") demonstrating compliance with the Medicaid Act.

See 42 U.S.C. § 1396a.

The Medicaid Act identifies certain medical services that a

participating state must provide to eligible individuals and

lists other elective services. See 42 U.S.C. § 1396a(a)(10)(A);

see also

(b), 440.220(a)(3). Among the

services that a participating state must provide are "home health

services." 42 U.S.C. § 1396a(a)(10)(D). These services "are

provided to a recipient at his place of residence . . . on his

physician's orders as part of a written plan of care."

(a). They include: (1) part-time or intermittent nursing

services; (2) home health aide services; and (3) medical supplies, equipment, and appliances.

(b).

A state may also elect to include physical therapy, occupational

therapy, and speech pathology services as home health services.

§ 440.70(b)(4). The Medicaid Act draws a distinction between

"home health services," which a state must make available to

qualifying individuals, and "home and community-based services,"

which ordinarily cannot be paid for with Medicaid funds. See 42

U.S.C. 1396n(c);

. Home and community-based

services include a variety of services that otherwise are not

covered by Medicaid but which a recipient may need to avoid

institutionalization such as: (1) case management services; (2)

homemaker services; (3) home health aide services; (4) personal

care services; (5) adult day health services;(6) habilitation

services; (7) respite care services; and (8) day treatment and

other partial hospitalization services. See

.

The parties agree that Heartz requires home and community-based

care services in order to move from the nursing home into the

community.

The Medicaid Act also imposes "state-wideness" and

"comparability" requirements on services provided pursuant to a

state plan. In other words, a state's Medicaid plan must provide

that services provided by the plan "shall be in effect in all political subdivisions of the state," 42 U.S.C. §1396a(a)(1), and

"shall not be less in amount, duration, or scope than the medical

assistance made available to any other such individual." 42

U.S.C. § 1396a (a) (10) (B) (i) . These requirements prevent a

participating state from providing Medicaid benefits to a single

individual or to a group of individuals without offering

comparable benefits to all eligible individuals within the state.

C. Medicaid Waiver Programs

The Medicaid Act authorizes the Secretary of HCFA to waive

the Act's requirements in specified circumstances to permit

states to "try new or different approaches to efficient and cost-

effective delivery of health care services, or to adapt their

programs to the special needs of particular groups or

recipients."

(b). Specifically, the Act

authorizes the Secretary to issue waivers for programs providing

home and community-based care to individuals who otherwise would

require institutionalization. See 42 U.S.C. § 1396n(c);

et seq. To obtain the Secretary's approval for

a home and community-based care waiver, the state seeking the

waiver must demonstrate that its average per capita expenditures

for persons receiving benefits under the waiver do not exceed the

average estimated per capita cost of providing Medicaid services to the same group of individuals in an institutional setting.

See 42 U.S.C. § 1396n(c)(2)(D). Any failure to abide by this

reguirement will result in the termination of the waiver. See

42 U.S.C. § 1396n (f) (1) .

D. New Hampshire's Waiver Program For Individuals With Acquired Brain Disorders

New Hampshire has obtained approval from HCFA to operate a

home and community-based care waiver program for a select group

of Medicaid recipients with acguired brain disorders (the "ABD

waiver program"). The state applied for the waiver because many

of the state's brain-injured Medicaid recipients formerly were

treated in out-of-state institutions, at a greater-than-necessary

expense and considerable inconvenience to the residents and their

families. In a letter accompanying its proposal for the program,

the state anticipated that the program would: (1) provide for a

more cost-effective use of existing Medicaid funds; (2) provide

appropriate service alternatives and choices to head injury

survivors and their families; (3) provide linkages for the

survivors and their families with regional service agencies; (4)

allow survivors to return home to their families, if appropriate

and desired, with supportive medical and personal care services;

and (5) allow Medicaid funds to pay for services within New

Hampshire.

-8- Because the ABD waiver program qualifies as a "model"

program under Medicaid regulations, it is limited to a maximum of

200 recipients at any one time. See

(b). New

Hampshire has determined, however, that it cannot serve 200

recipients and remain in compliance with the requirements of the

ABD waiver program. Accordingly, it has obtained approval from

HCFA to admit 74 recipients and it has placed an additional 65

waiver candidates on a waiting list. The state has developed a

set of priority guidelines to determine each applicant's relative

position on the waiting list. Applicants are placed by the

guidelines into one of the following five categories: PRIORITY 1-A:

• The person is at substantial risk of significant physical or emotional harm due to lack of medical care, food, shelter, and adequate support • The person is at risk of significant regression in functioning without the provision of services and supports • The person is inflicting or is at substantial risk of inflicting physical or emotional harm toward self or others

PRIORITY 1 - B :

The person is a New Hampshire resident and resides in a nursing facility in another state paid by New Hampshire Me dicaid

PRIORITY 2:

• r so is at risk of placement in a highly restrictive Thee person fa cil i t y Thee person r so is inap propriately placed in a highly restrictive congregate CO at facility, such as a hospital or nursing facility

PRIORITY 3: • The person's current community placement is not the least restrictive to meet the individual's needs • The person's current services are not of the type, quality or quantity to sufficiently meet the person's needs

PRIORITY 4:

• Alt ernative services are desired or necessary for any other reason

PRIORITY 5:

• The person lives outside New Hampshire and is not a New Hampshire Medicaid recipient

Of the 65 people on the waiting list, 14 are currently classified

at "Priority 1-A" and seven others are listed as "Priority 1-B."

Twenty-three individuals, including Heartz, have been assigned to

the waiting list as "Priority 2" candidates. Although Heartz has

been on a waiting list since April 1995, at least six candidates

ranked ahead of Heartz have been waiting longer - some for as

long as six years.

E. The Cost Of Plaintiff's Care

The Medicaid Act reguires participating states to initially

pay 100 percent of all properly filed Medicaid claims. HCFA then

reimburses each state according to the state's "match rate" - a

state-by-state calculation made by HCFA based on the state's per

capita income. Using this formula, the federal government

reimburses New Hampshire at the minimum match rate of 50 percent.

Until recently, the state also received an additional 30 percent

reimbursement from the county in which the recipient resided if

-10- the recipient was receiving treatment in an institutional

setting.

-b (Cum. Supp. 1998).

Thus, the state ultimately paid only 20 percent of the Medicaid

costs incurred by individuals who received services in

institutions, but 50 percent of the Medicaid costs incurred by

recipients who received community-based care. In 1997, Heartz's

institution-based care costs totaled $43,379.28. Of this amount,

Heartz paid $15,288 from his own funds. Pursuant to federal and

state laws operating at the time, the federal government paid 50

percent of the balance, or $14,045.64; the county paid 30

percent, or $8,427.38; and the state paid 20 percent, or

$5,618.26. Beginning on January 1, 1999, however, county and

state shares were egualized at 25 percent each. See 1999 N.H.

Laws Ch. 388 (effective January 1, 1999).

The parties have submitted various proposals to provide

Heartz with care in a community-based setting. The state

estimates that the total cost of treating Heartz in a community

setting would be $154,778. Proposals submitted by Easter Seals

and the Community Resources Council of New Hampshire estimate the

total annual cost of serving Heartz's needs in the community at

$154,576 and $116,597, respectively. Heartz meanwhile has

produced a proposal from Residential Resources, Inc. which cites

-11- anticipated costs of $72,755.33 per person if Heartz were to be

placed in a three-person community-based group home.

II.

A. The Preliminary Injunction Standard

To obtain a preliminary injunction, a plaintiff must

demonstrate: (1) that he is likely to succeed on the merits of

his claim; (2) that he will suffer irreparable injury if the

injunction is not granted; (3) that such injury outweighs the

hardship that will be inflicted on the defendant by the granting

of the injunction; and (4) that the public interest will not be

adversely affected by the granting of the injunction. See

DeNovellis v. Shalala,

(1st Cir. 1998); Gatelv v.

Massachusetts,

(1st Cir. 1993). Since

likelihood of success is the "sine qua non" of the preliminary

injunction standard, see Gatelv,

, I focus my

analysis on this reguirement.

III.

A. The Integration Regulation And The Fundamental Alteration Defense

Title II of the ADA addresses disability discrimination by

-12- public entities. See generally

et seq.

Section 202 of Title II provides in pertinent part that:

[N]o qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity.

The ADA directs the Attorney General to promulgate

regulations to implement Title II, see

(a).

Pursuant to this grant of power, the Department of Justice

("DOJ") has adopted an "integration regulation" mandating that

"public entit[ies] shall administer services, programs, and

activities in the most integrated setting appropriate to the

needs of qualified individuals with disabilities." 28 C.F.R.

35.130(d). This requirement has been interpreted to prohibit

state agencies from providing benefits to the disabled in

unnecessarily segregated settings. See, e.g., Zimring v.

2 The term "public entity" is defined in the statute as " (A) any State or local government; (B) any department, agency, special purpose district, or other instrumentality of a State or States or local government . . . ."

(1). Defendants concede that the New Hampshire Department of Health and Human Service ("NHDHHS"), which administers the state's Medicaid program, qualifies as a public entity under the ADA.

-13- Olmstead,

, 904 (11th Cir. 1998), cert, granted,

(U.S. Dec. 17, 1998) (amended) (No. 98-536); Helen

L. v. DiDario,

(3d Cir. 1995).

The mandate imposed by the integration regulation is not

absolute. Claims based on the regulation are subject to an

affirmative defense if a defendant "can demonstrate that making

the modifications [reguired by the regulation] would

fundamentally alter the nature of the service, program, or

activity."

(b) (7) (emphasis added), see

Zimring, 138 F.3d at 904; Helen L .,

. Among the

factors that a court should consider in determining whether a

proposal for further integration would fundamentally alter a

state program providing benefits to the disabled are:

(1) whether the additional expenditures necessary to treat [the patient] in community-based care would be unreasonable given the demands of the State's mental health budget;(2) whether it would be unreasonable to reguire the State to use additional available Medicaid waiver slots, as well as its authority [if any, under state law] to transfer funds from institutionalized care to community-based care to minimize any financial burden on the State; and (3) whether any difference in the cost of providing institutional or community-based care will lessen the State's financial burden.

-14- Zimring, 138 F.3d at 905.

Defendants do not challenge Heartz's claim that he is

disabled and therefore is entitled to protection under the ADA.

Nor can they credibly dispute his contention that he is not

currently receiving Medicaid benefits in the most integrated

setting appropriate to his medical needs. Accordingly, I turn to

defendants' argument that the relief Heartz seeks should not be

granted because it would fundamentally alter the operation of the

ABD waiver program.

B. Application Of The Integration Regulation And The Fundamental Alteration Defense To The ABD Waiver Program

Defendants argue that an order compelling Heartz's admission

into the ABD waiver program would fundamentally alter the program

by unreasonably increasing the state's cost of treating Heartz

and by reguiring the state to dramatically alter its established

priorities for determining who should be admitted into the

program. Heartz challenges defendants' contention that it will

cost significantly more to treat him in a community setting.

Thus, I examine this issue first.

-15- 1. The cost of treating Heartz in a community- __________ based setting.

Heartz claims that a proposal prepared by Residential

Resources, Inc. provides the most reliable estimate of the cost

of treating him in a community-based setting. This proposal

contemplates that Heartz will be placed in a group home with two

other unidentified individuals at a cost of $72,755.33 per

person. There are several flaws with the proposal, however, that

prevent me from accepting it as a reliable estimate of Heartz's

treatment costs. First, while it is conceivable that the cost of

caring for Heartz in a community setting could be reduced by

placing him in a group home with other disabled individuals, the

Residential Resources proposal achieves a lower per-person cost

of treatment than the other proposals primarily by shiftingcosts

attributable to Heartz onto the other unidentifiedoccupants of

the home whose treatment needs presumably will be less intensive

than Heartz's.3 Second, the proposal is based on a number of

3 To illustrate how the Residential Resources proposal could achieve a $72,755.33 average cost per person even though the actual cost of treating Heartz might be much higher, assume that Heartz's actual treatment costs in a group home would be $116,597.19 as has been suggested by the Community Resources Council of New Hampshire. If Heartz were placed in a group home with two disabled residents whose treatment costs were each $50,834.40, the average cost of treating all three residents would be the $72,755.33 estimated by Residential Resources even though the actual cost of treating Heartz would be much higher.

-16- dubious assumptions about the actual cost of the services that

Heartz will require. The proposal assumes that a three-bedroom,

handicapped accessible home is available in the Concord area for

an annual rent of $11,400. When pressed on this issue during the

preliminary injunction hearing, however, plaintiff's counsel

admitted that no such home had been found. The proposal also

assumes that two Medicaid qualified roommates could be found with

considerably less costly treatment needs than Heartz's, although

no such individuals have been identified. Finally, the proposal

significantly underestimates the actual cost of essentials such

as food and utilities. For all of these reasons, the Residential

Resources proposal is an unreliable estimate of the costs of

treating Heartz in the community.

The record contains several other proposals with costs that

vary between $116,597.19 and $154,778.00. Of these proposals,

the $116,597.19 estimate submitted by the Community Resources

Council of New Hampshire appears to be the most realistic. This

proposal involves placing Heartz in an existing group home in

Franklin, New Hampshire. The fact that this group home is

currently operational, and that the proposed budget for

It appears from the record that Residential Resources has developed a lower cost estimate than other proposals primarily by using this cost shifting approach.

-17- plaintiff's treatment is so thorough and based largely on known

costs leads me to give this cost estimate greater credibility.

Accordingly, for purposes of analysis, I will assume that this

proposal provides the best estimate of the cost of treating

Heartz in a community setting.

Under the new court allocation, if Heartz remains in a

nursing home, the state will recover 50 percent of the cost of

caring for Heartz from the federal government, and an additional

25 percent from the county. If Heartz is moved into community-

based care, however, the state will lose the county contribution

and be reguired to pay the entire 50 percent of the costs not

covered by federal funds. In the present case, Heartz's Medicaid

reimbursement at the nursing home totaled $28,091.28 in 1997, of

which 20 percent4, or $5,618.26, was paid by the state.

Comparing the state's current costs with the $116,597.19 estimate

developed by the Community Resources Council reveals the problem

at the heart of this case. Of this $116,597.19, Heartz would pay

$15,288 and 50 percent of the balance, or $50,654.60, would be

paid from federal funds. Because the Community Resources plan is

for community-based care, the state will receive no contribution

4 This calculation took place prior to the January 1, 1999 change which amended the state-county funding allocation to 25 percent each.

-18- from the county, so the remaining 50 percent of the expense, also

$50,654.60, would be the state's exclusive responsibility. Even

after the 1999 amendments, which increased the state's

institution-based cost allocation to 25 percent, it will cost

the state $43,631.78 more per year to place Heartz in community-

based care with the Community Resources Council than it will cost

to continue to care for him in a nursing home.5 Accordingly, I

am not persuaded by Heartz's contention that the added cost of

treating him in a community setting is either insignificant or

reasonable. See Zimring, 138 F.3d at 905.

2) The state's priority system for admission __________ into the ABD waiver program.

In addition to burdening the state with an additional

$43,631.78 per year for his community-based care, the relief

Heartz proposes would also reguire the state to alter its system

for prioritizing applicants for admission into the ABD waiver

5 I derive this figure using, for purposes of illustration Heartz's 1997 care budget, by subtracting the 25 percent state share ($7022.82) of costs for Heartz's nursing home care from the 50 percent state share ($50,654.60) of costs for Heartz's community based care under the Community Resources Council care plan. Heartz also suggests that when comparing the cost of treating him in an institution and the cost of treating him in a community setting, I should use the cost of the most expensive institution to which he conceivably could be transferred in the future. I decline to engage in such a speculative exercise.

-19- program. It is undisputed that the state cannot admit everyone

who is eligible for admission into the program without (1)

incurring millions of dollars in additional expenditures and (2)

violating the Medicaid Act's cost-effectiveness reguirement.

Accordingly, to operate the program, the state had to develop a

set of priorities to determine which candidates to admit

immediately and how to classify the remaining individuals on a

waiting list until additional spots could be opened without

violating the reserve neutrality reguirement. In determining who

among a group of disabled applicants with comparable integration

rights should first be admitted into the program, the state chose

to favor applicants at risk of serious harm or regression in

functioning, and applicants receiving services in out-of-state

institutions. Applicants such as Heartz, who are not in

immediate danger but who are inappropriately confined to

institutions, are assigned a lower priority. Unless the state

agreed to also admit everyone above Heartz on the waiting list,

it could not admit Heartz without altering this system of

priorities.

Although the record on this point is not well developed, it

is highly unlikely that the state could immediately admit Heartz

and everyone above him on the waiting list without violating the

-20- Medicaid Act's cost-effectiveness requirement. If Heartz is

typical of other recipients on the waiting list, it will cost the

state an additional $1,750,000 annually to treat all 43 persons

ranked with or above Heartz on the waiting list in community-

based rather than institutional settings. Even if funds were

available to cover these increased costs, and even if sufficient

community placements could be found, it is virtually certain that

these 43 recipients could not be added to the ABD waiver program

without violating the Medicaid Act's cost-effectiveness

requirement. Since any violation of this requirement would

result in the termination of the entire program, this option

simply is not available to the state.

The only other ways in which the state could immediately

admit Heartz into the ABD waiver program would be if it either

disregarded its priority ranking system entirely, or radically

altered the system to favor Heartz over other applicants. Either

option, however, would entail precisely the kind of fundamental

alteration to the program that cannot be compelled by the ADA.

Everyone on the ABD waiver waiting list has integration rights

comparable to Heartz's and the state cannot admit everyone into

the program without violating the Medicaid Act's cost-

effectiveness requirement. In the face of this predicament, the

-21- state has developed a rational system for regulating access to

the program. The integration regulation does not reguire a

public entity to follow any particular formula for apportioning a

finite number of community placement slots among a larger group

of individuals with comparable integration rights. Provided that

the state has acted rationally, this difficult policy choice is

properly left to the states that administer the program.

IV.

While the ADA and its implementing regulations reguire

integration where it can be accomplished without undue

interference with legitimate state objectives, the Medicaid Act

limits a state's ability to use Medicaid funds to achieve this

worthy goal. Given the Medicaid Act's mandate for cost-effective

integration and the reality that it will cost the state

significantly more to treat Heartz in a community-based setting

than it currently costs to treat him in a nursing home, the state

cannot be compelled to admit him into the ABD waiver program

without fundamentally altering its system for prioritizing

admissions. As Heartz is unlikely to prevail on the merits of

-22- his ADA claim, I deny his request for a preliminary injunction.

SO ORDERED.

Paul Barbadoro Chief Judqe

February , 1999

cc: Ronald Lospennato, Esq. Suzanne Gorman, Esq.

-23-