D.N.J.: Denies Motion to Dismiss Claim Against State Medicaid Regulations

A district court denied the State of New Jersey’s motion to dismiss a class action suit filed by Providence Pediatric Medical Daycare, Inc..  The suit alleged that the State’s regulations violated statutory Medicaid law as well as the plaintiff’s equal protection and due process rights under the federal constitution.  Providence Pediatric Medical Daycare, Inc., et al., v. Alaigh, 2011 WL 2600701 (D.N.J.)(Slip Copy)( No. 10–cv–2799 (NLH)(KMW)).  Judge Noel Hillman (Bush) delivered the opinion.

Providence operates facilities that provide pediatric medical daycare services (PMDC) to Medicaid-eligible children under the age of six who are technology-dependant or medically needy.  In 2003, with the State’s approval, Providence expanded one existing facility and purchased another that would also provide PMDC services.  However, the State rejected Providence’s expansion licenses, citing a 2003 moratorium which precluded the application of new PMDC facilities or the expansion of existing facilities.  The State selectively enforced its moratorium, allowing other facilities to open or expand. During the same time period, the state began to selectively enforce a regulation that capped the enrollment in PMDC services at facilities and refused to reimburse Providence for services it performed above the cap.  After the state promulgated regulations in 2009 concerning the eligibility for PMDC services and new requirements for service facilities, Providence filed suit, along with the parents of children who received services from Providence, alleging the State’s conduct was unconstitutional.

The State argued that, pursuant to abstention doctrines, the court should not exercise jurisdiction of the case.  The court declined, finding the claims did not satisfy either the Pullman or Burford doctrines.  See, Railroad Commission of Texas v. Pullman Company, 312 U.S. 496 (1941); Burford v. Sun Oil Company, 319 U.S. 315 (1943). New Jersey did not satisfy the first prong of Pullman which requires “uncertain issues of state law underlying the federal constitutional claims” Afran v. McGreevey, 115 F. App’x 539, 542 (3d Cir.2004).  The state did not explain how its regulations were “uncertain” or amenable to an interpretation that would vitiate the allegations of federal law violations.  The court refused to abstain pursuant to Buford, adopting the reasoning of other federal courts that Medicaid law, which necessarily involves federal policies and questions, requires no specialized expertise of state law that would make federal jurisdiction inappropriate. See, Meachem v. Wing, 77 F.Supp.2d 431, 443–44 (S.D.N.Y.1999).

The State did not challenge whether the defendants could make a §1983 challenge, asserting only that the plaintiffs’ claims lacked merit.  Plaintiffs claimed that the regulations promulgated by the state “harmed the efficiency and economy of and accessibility to the PMDC program while also diminishing the quality of care it provides to eligible children” in violation of 42 U.S.C. 1396a(a)(8); a(a)(10)(B) and a(a)(30)(A).  Noting that the defendant’s arguments focused on the merits of the plaintiffs’ claims rather than their facial plausibility, the court held that the plaintiffs stated a plausible cause of action under the Medicaid law sufficient to satisfy Twombly/Iqbal.

The court also refused to dismiss the plaintiffs’ claim that the defendants violated their equal protection rights by selectively and arbitrarily enforcing regulations against certain facilities and not others such that children in certain counties receive medical services denied to children in other counties.  While the defendants asserted a rational basis for its policies, the court found that a defendant’s disagreement with a complaint cannot undermine the sufficiency of the plaintiffs’ complaints at the motion to dismiss stage.

The State contended that Providence did not meet the requirements for a due process claim because a service provider cannot have property interests in its provision of services or receipt of reimbursement in the Medicaid program.  Citing similar cases, the Court held that it is plausible that Providence has a property interest in their PMDC licenses or the ownership and use of their physical properties. See Sea Girt Rest. and Tavern Owners Assoc., Inc. v. Borough of Sea Girt, 625 F.Supp. 1482, 1488 (D.N.J.1986) (finding that a liquor license constitutes “an interest in property for purposes of federal due process analysis”).  Because the court could not be sure, with absolute certainty, that no property rights existed that could warrant due process of law, Judge Hillman found that the state had not carried its burden in its motion.

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