In July 2011, Plaintiffs filed this lawsuit in the U.S. District Court for the Eastern District of North Carolina to prevent reductions in Medicaid waiver services. Plaintiffs are individuals with developmental disabilities who receive home-based Medicaid-funded services through the North Carolina "Innovations Waiver." On July 1, 2011, it was announced that the Plaintiffs' services would be reduced because Piedmont Behavioral Health (PBH), a contractor of the state health department, implemented a new system to determine which services are "medically necessary." The Plaintiffs claim that although their medical conditions remain constant, their services have been unreasonably and arbitrarily reduced by PBH's "Support Needs Matrix" and that they have not been offered an avenue to appeal their service reductions. The complaint alleges that this new reduction of services violates the U.S. Constitution's guarantee of due process and the federal Medicaid statute.

The Plaintiffs filed a motion for class certification and for a preliminary injunction on August 29, 2011. After a period of discovery and a controversy regarding the disqualification of counsel and a motion in intervention, the plaintiffs moved for a temporary restraining order on December 20, 2011. The court (Judge Louise Wood Flanagan) denied this motion on December 28, 2011, but noted that the motion for preliminary injunctive relief was still pending. After resolving the disqualification issue, the court held a hearing on the motion for preliminary injunction in March 2012. On March 29, the court granted the Plaintiffs' motion for preliminary injunction and certified the class. The court found that Plaintiffs had demonstrated a likelihood of success on the merits, in part because federal Medicaid provides that adequate notice and a fair hearing process be made available before denying benefits, and there was no notice or available appeal here. Such a process is also required by the Constitution. Plaintiffs had also demonstrated irreparable harm.

The Defendants appealed the grant of preliminary injunction to the U.S. Court of Appeals for the Fourth Circuit, which affirmed the District Court. It upheld the district court's conclusion that the plaintiffs were likely to succeed on the merits of their ADA/Section 504 claims, and held that the district court had not abused its discretion in concluding that the new eligibility standards placed them at a significant risk of institutionalization. The state argued that the ADA does not prohibit placing people with disabilities at risk of institutionalization. The Fourth Circuit, deferring to the views of the Department of Justice, disagreed: "We are especially swayed by the DOJ's determination that 'the ADA and the Olmstead decision extend to persons at serious risk of institutionalization or segregation and are not limited to individuals currently in institutional or other segregated settings.' U.S. Dept. of Justice, Statement of the Department of Justice on the Integration Mandate of Title II of the ADA and Olmstead v. L.C., http://www.ada.gov/olmstead/q & a_ olmstead.htm. The state also argued that adult care homes are not institutions. But the Fourth Circuit, again deferring to the views of the Department of Justice, disagreed. And the state argued that "continuing to offer in-home PCS to the class members and named Appellees constitutes a fundamental alteration due to the administrative and financial burdens it entails." The Fourth Circuit rejected that argument, too. The court "join[ed] the Third, Ninth, and Tenth Circuits in holding that, although budgetary concerns are relevant to the fundamental alteration calculus, financial constraints alone cannot sustain a fundamental alteration defense." The Fourth Circuit also concluded that the plaintiffs satisfied the other three requirements for a preliminary injunction (irreparable harm, balance of hardships, and the public interest), so it agreed that a PI was warranted. The court remanded, however, because it concluded that the preliminary injunction issued by the district court failed to satisfy Rule 65's specificity requirement. It thus directed the district court to describe the enjoined conduct in greater detail. Pashby v. Delia, --- F.3d ----, 2013 WL 791829 (4th Cir., Mar. 5, 2013).

Beth Kurtz - 03/05/2013


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