Legal E-Bulletin - July 2003

Court Allows People with Disabilities to Continue Fight against Oklahoma’s Disparate Medicaid Prescription Plan

In a victory for people with disabilities that choose to remain in the community, a federal appellate court allowed an ADA claim to continue against Oklahoma’s disparate Medicaid prescription plan in Fisher v. Oklahoma Health Care Authority.1

In an attempt to address the state budget shortfall, Oklahoma placed a five-prescription cap on Medicaid recipients living in the community, irrespective of medical necessity. Medicaid recipients in nursing facilities, on the other hand, would continue to receive unlimited prescriptions. This scenario would force Oklahoma citizens that are living out in the community into nursing homes so they can continue to receive unlimited prescription benefits.

Three plaintiffs, faced with this threat, sued the Oklahoma Health Care Authority (HCA) in district court to enjoin the prescription cap for violating the Americans with Disabilities Act (ADA). ADA regulations require that a public entity provide its services, programs, and activities in the most integrated setting appropriate to the needs of qualified individuals with disabilities. In Olmstead v. L.C.2, the U.S. Supreme Court ruled that discrimination under the ADA included unjustified isolation of people with disabilities. Under Olmstead, states are required to place individuals in community settings rather than institutions when treatment professionals determine it is appropriate, the individuals are not opposed to such placements, and the provision of these services would not result in a fundamental alteration of the state program, activities, and services.

The Court of Appeals for the 10th Circuit reversed a summary judgment by a lower district court that favored the defendants and ordered the court to consider whether reasonable modifications to the plan were possible and if those modifications fundamentally altered the nature of the plan.

Olmstead does not require the plaintiffs to already be institutionalized

The district court had ruled against the plaintiffs by distinguishing their situation from Olmstead — the plaintiffs were not living in an institution and were free to remain in the community. In rejecting this ridiculous argument, the 10th Circuit pointed out that the ADA’s integration mandate doesn’t just protect people in institutions. Nothing in the language of the regulations, nor the Olmstead decision, requires that a person must first be institutionalized in order to be integrated. It would be absurd to require individuals to first place themselves in institutions before being able to challenge a law that threatened to put them there.

Oklahoma further argued that the plaintiffs in the case would not be harmed by the imposition of a prescription cap because all three plaintiffs had stated that they would rather die than be placed in a nursing home. In doing so, the state pointed out that the plaintiffs would not be segregated and isolated from the community if they never agree to be institutionalized. The 10th Circuit disagreed noting that given the plaintiffs’ health and meager finances, the cap would put them at a high risk to be put in a nursing home. This high risk was enough reason for an ADA claim to proceed to examine the evidence. What this holding means is that plaintiffs can pursue an Olmstead lawsuit in court if the changed state policy puts them at high risk of being institutionalized.

The complicated “fundamental alteration” defense

As the 10th Circuit noted under Olmstead , Oklahoma’s obligation to provide community-based treatment to qualified people with disabilities is not unlimited. The state is allowed to reject any modifications that would fundamentally alter its programs and services. The 10th Circuit viewed Olmstead as requiring courts to consider, in allocating resources, whether immediate relief for the plaintiff would be inequitable, given the responsibility of the state to care for and treat a large diverse population of people with disabilities.3

The lower district court had ruled for the defendants by pointing out that providing pharmacy benefits is an optional program under Medicaid and that Oklahoma had made a “reasonable move to reduce the optional program rather than eliminate it altogether as it could” given its budget situation. The 10th Circuit rejected the “optional” argument ruling that states cannot amend optional programs in such a way that would violate the ADA’s integration mandate. This holding reaffirms that Title II of the ADA applies to all programs and that states do not have the right to limit the scope of a program in such a way that would discriminate against people with disabilities simply because they have the discretion of not providing the service at all.

The lower court had also made a mistake in viewing Oklahoma’s decision to reduce the optional program as being “reasonable” in light of the budget. This excuse does not present a defense in the “fundamental alteration” analysis according to the 10th Circuit. The proper inquiry is whether the plaintiff’s proposed modifications would fundamentally alter the state’s program, services, or activities. Just because Oklahoma has a budget problem does not automatically mean that preserving unlimited medically necessary prescription benefits for people in community settings would result in a fundamental alteration to its services. The district court thought reducing the optional program as being reasonable because the alternative was to eliminate Medicaid’s Waiver program that allows qualified individuals to receive their care in the community instead of an institution. The 10th Circuit rejected this argument since forcing everyone into institutions would worsen Oklahoma’s budget crisis as the cost of institutional care is double that of community-based care.

The plaintiffs had presented some alternatives that the state could use that would save money yet still allow unlimited prescription benefits. Some of the ways that Oklahoma could have saved money was requiring prior authorization or reducing nursing home payments per patient in order to maintain the benefits for people who choose to stay in the community. The 10th Circuit viewed these alternatives as evidence that the choice of maintaining the benefits does not necessarily compel cutbacks in services to other Medicaid patients. The 10th Circuit wanted to know why the preservation of a program as it has existed for years and approved by the federal government would fundamentally alter the nature of the program. The plaintiffs are just requesting a benefit for which they already eligible for under an existing state program to be provided in a community-based setting instead of in an institution. The higher court agrees that the plaintiffs are not demanding a separate service but one that is already provided by the state. The plaintiffs had presented genuine issues of fact that the district court must reexamine.

Surprise! Found money

Complicating things for the district court proceedings when they re-examine the fundamental alteration issue is the recent news that Oklahoma disbursed $51 million in previously unallocated state funding to its starving state agencies.4 This unexpected windfall is the result of a rally in state revenue at the end of the 2003 fiscal year, which ended June 30. The Oklahoma Health Care Authority, which disburses Medicaid, will receive $4.2 million out of this windfall. Oklahoma Governor Brad Henry touted, "Because they can attract additional federal matching money, the OHCA funds will be a great help to Oklahoma's health care efforts…. Those dollars will make it easier to deliver medical services to Oklahoma children, the elderly and the disabled."5

How this affects the court case is not clear. The prescription cap was anticipated to save the state $3.2 million. How this $4.2 million (along with any additional federal funds) will be applied is not known at this time but it would allow the OHCA to continue to provide unlimited prescription benefits to those who wish to stay in the community. It would also weaken any fundamental alteration argument that maintaining the prescription plan would compel cutbacks in services to other Medicaid recipients.

Endnotes:

2003 WL 21652637 (10th Cir. July 15, 2003).
527 U.S. 581 (1999).
The 10th Circuit decided to accept Part III-B of Justice Ginsburg’s opinion in Olmstead that discusses how to analyze the “fundamental alteration” defense even though that portion of the opinion was only joined by three other Justices, falling short of a majority. Part III-B is technically not binding and lower courts were free to disregard this portion of Olmstead. The 10th Circuit acceptance of Part III-B makes that portion binding throughout that region.
Murphy, Sean. “Found Money.” Norman Transcript. Retrieved July 23, 2003, from http://news.mywebpal.com/partners/899/public/news476288.html
“Education Gets Lion’s Share of $51 Million.” Channeloklahoma.com. Retrieved July 23, 2003, from http://www.channeloklahoma.com/news/2349932/detail.html

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