In July 2011, a group of minor children with developmental disabilities filed this civil rights class action in the U.S. District Court for the Eastern District of North Carolina to prevent reductions in Medicaid waiver services. The plaintiffs sued the Secretary of the North Carolina Department of Health and Human Services (NCDHHS) and Piedmont Behavioral Healthcare (PBH). The plaintiffs had received 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 were "medically necessary." The plaintiffs claimed that although their medical conditions remained constant, essential health services had been unreasonably and arbitrarily reduced by PBH's "Support Needs Matrix" and that they had not been offered an avenue to appeal their service reductions. They alleged that some plaintiffs would be threatened with placement in institutional settings far from their communities if the services needed to remain at home were not reinstated. According to the plaintiffs, this new reduction of services violated the U.S. Constitution's guarantee of due process and the federal Medicaid statute. They requested class certification, declaratory relief, preliminary relief, permanent injunctive relief, and attorneys' fees.
The plaintiffs filed 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 to intervene, the plaintiffs moved for a temporary restraining order on December 20, 2011. District 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 relief in March 2012. On March 29, the court granted the plaintiffs' motion and certified the class. The court found that the 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 and the plaintiffs had also demonstrated irreparable harm.
PBH appealed the preliminary injunction to the U.S. Court of Appeals for the Fourth Circuit, which affirmed the District Court's decision on May 10, 2013. K.C. ex rel. Africa H. v. Shipman, 716 F.3d 107 (4th Cir. 2013). The Fourth Circuit held that it was speculative at best whether a decision in the appeal would enable PBH to engage in the conduct that the District Court enjoined. The Court explained that, because the NCDHHS had not appealed the grant of the preliminary injunction, the NCDHHS would remain obligated to obey the injunction, thus making PBH bound to comply with the injunction regardless of any appellate decision. The Court cited two reasons why PBH would still be required to follow the injunction. First, Federal Rule of Civil Procedure 65(d)(2) requires that any injunction binding named parties also binds the parties' agents. Because PBH was an agent of the NCDHHS due to its contract to administer plaintiffs’ Medicaid services on behalf of the state, it would be bound to follow the injunction under Rule 65(d)(2). Second, the Medicaid statute requires each state to designate a single state agency to administer its Medicaid plan, which is the NCDHHS in this case. Therefore, the NCDHHS's decision not to appeal the preliminary injunction controls.
Following the Fourth Circuit's decision in May 2013, the parties engaged in extensive efforts to reach a settlement agreement. On December 12, 2014, the parties submitted a settlement agreement to the court for preliminary approval, notice to class members, scheduling of a fairness hearing, and clarification of the class definition. On January 2, 2015, the court preliminarily approved the proposed settlement agreement pending an opportunity for class members to object. Following a fairness hearing, the court approved the settlement agreement on April 6, 2015. Pursuant to the terms of the settlement agreement, the court dismissed the action with prejudice on December 31, 2015.
The settlement agreement provided for improved notification and grievance-filing procedures with respect to changes or reductions in services. Additionally, the defendants agreed not to reduce any participant's base budget for one year after the implementation of the agreement and before dismissal of the case. For the two-year period following dismissal of the case, the defendants agreed to notify participants of any base budget reduction. The agreement also provided for increased procedural protections for individuals requesting an authorization of services. The defendants agreed to pay the plaintiffs $375,000 for attorneys' fees, expenses, and costs incurred during the litigation.
The agreement remained in effect for a two-year monitoring period following the dismissal of the case in December 2015. After the monitoring period, no further litigation had taken place and the case is now closed.
Beth Kurtz - 03/05/2013
Eva Richardson - 01/10/2019
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