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Masterman v. Goodno

January 8, 2004


The opinion of the court was delivered by: John R. Tunheim United States District Judge

As amended January 9, 2004


This lawsuit involves the reallocation (or reduction) of Medicaid money to individuals with mental retardation or a related condition who receive services under Minnesota's Home and Community-Based Waiver Program for individuals with Mental Retardation or Related Conditions (the "MR/RC waiver" or "waiver"). In late 2002 and early 2003, the Minnesota Department of Human Services ("DHS"), under the direction of defendant Commissioner Kevin Goodno ("Goodno"), began attempting to implement a cost-saving plan, called the rebase or rebasing plan. The rebase was to impact the way MR/RC waiver funds are distributed. Two groups of plaintiffs brought lawsuits challenging the rebase, and the cases have been consolidated before the Court. The Court has twice enjoined implementation of the rebase; first in March of 2003, the Court issued a Temporary Restraining Order in the companion case, The Association of Residential Resources in Minnesota v. Minnesota Commissioner of Human Services, Civil No. 03-2438 (D. Minn. March 14, 2003). That TRO was later dissolved because the Court found that the ARRM plaintiffs had not established that the Dataphase factors favored continued injunctive relief. Almost immediately following that denial, the second group of plaintiffs (the "Masterman plaintiffs") requested a preliminary injunction. The Court granted a Temporary Restraining Order to preserve the status quo pending full briefing. In the interim, defendant moved to dismiss plaintiffs' complaint.

The Court heard argument on defendant's motion to dismiss, and at the same time the parties argued plaintiffs' motion for a preliminary injunction. For the reasons discussed below, the Court denies in part and grants in part defendant's motion to dismiss. Similarly, the Court denies in part plaintiffs' motion for a preliminary injunction. As set forth in more detail below, the Court enjoins the defendant from authorizing or allowing cuts in the budgets of the named plaintiffs, but the Court cannot continue to enjoin the entire rebase program.



The Court discussed the Medicaid Act at some length in its order dissolving the injunction in the companion ARRM case. See Op. & Order Den. Plfs' Mot. for a Temp. Inj., Dated Aug. 29, 2003 ("Aug. 29 Order"). The Court will again summarize the relevant aspects of the Medicaid Act, and in the interest of completeness, the Court also incorporates its previous discussion by reference. The Court will also discuss additional information highlighted by the parties regarding the specific program at issue.

Medicaid is a jointly funded cooperative program between states and the federal government that provides medical assistance to low-income persons and individuals with disabilities. 42 U.S.C. §§ 1396-1396v; see generally Arkansas Medical Soc'y v. Reynolds, 6 F.3d 519, 521-22 (8th Cir. 1993). State participation in Medicaid is voluntary, but once a state chooses to participate it is bound by Medicaid statutory and regulatory requirements. Arkansas Medical Soc'y at 522 (citing Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502 (1990)). A prerequisite to participation is the creation and approval of a detailed plan, referred to as the "State Plan" which must comply with extensive Medicaid rules. 42 U.S.C. § 1396a(a); Arkansas Medical Soc'y, 6 F.3d 519.

All state Medicaid plans must include some services, and states can elect to offer additional optional services. Once states offer such optional services, however, the state "is bound to act in compliance with the Act and the applicable regulations in the implementation of those services." Weaver v. Reagen, 886 F.2d 194, 197 (8th Cir. 1989).


Defendant Goodno administers Minnesota's Medicaid program, which is known as "Medical Assistance." Minn. Stat. §§ 256B.01; 256B.02, subd. 5; 256B.04, subd 1. Medical Assistance offers individuals with mental retardation and related conditions both intermediate care facilities for the mentally retarded ("ICF/MR services") and individuals eligible for ICF/MR services may also be eligible for the MR/RC waiver.

A. Waivers

Since the early 1980s, the federal government has allowed states to apply for waivers to provide developmentally disabled persons with home and community-based care. 42 U.S.C. § 1396n; see also Margaret K. Feltz, Note: Playing the Lottery: HCBS and Other Medicaid Litigation on Behalf of the Developmentally Disabled, 12 Health Matrix 181 (2002). "Waivers are intended to provide the flexibility needed to enable States to try new or different approaches to the efficient and cost-effective delivery of health care services, or to adapt their programs to the special needs of particular areas or groups of recipients." 42 U.S.C. § 1396n; see also Wood v. Tompkins, 33 F.3d 600, 602 (6th Cir. 1994) ("waiver[s] save[] both the state and the federal government money, because home care is often less expensive than institutional care"). Waivers, by definition, allow exceptions to the State Plan, but "the Secretary may not waive any requirements that protect the well-being of Medicaid recipients." Wood, 33 F.3d at 602.

B. Minnesota's MR/RC Waiver

Minnesota has participated in the waiver program since 1983 and receives federal funds to pay providers of in-home support or supported living services. The MR/RC waiver is an alternative to ICF/MR services. ICF/MR are residential institutions providing health or rehabilitative services to eligible persons with mental retardation in need of specific services. The waivers typically include an array of home- and community-based services and allow individuals to live in a more integrated setting than an ICF/MR. To be eligible for MR/RC waivers, individuals must be assessed as requiring an ICF/MR level of care.

Defendant emphasizes that waiver services, unlike services they describe as "mandatory" and "optional" services, are not required nor specifically defined, and states have broad latitude in administering waiver services. Services available under the regular Medical Assistance program include services provided in home such as nursing services, private duty nursing, home health services, personal care services, respiratory therapy, rehabilitative and therapeutic services, medical supplies and equipment and other benefits.

C. MR/RC Waiver Expansion and the Funding Problem

Defendant Goodno and DHS are ultimately responsible for the operation of the MR/RC Waiver program. The day-to-day administration, however, is largely left to individual counties. DHS allocates money to each county, and the county is then responsible for meeting the needs of all current waiver recipients for whom the county is the county of financial responsibility. Minn. Stat. §§ 256B.0916, subd. 2 and 256B.092, subd. 1.

Before the "rebase" at issue, DHS funded the waiver program by providing counties with a "line of credit." The counties assessed each waiver recipient, and assigned one of four profiles to each individual. Each profile was assigned a specific dollar amount that was based on the historic cost of providing appropriate services to individuals with similar needs.

In 1999, enrollment in the MR/RC Waiver increased after the Minnesota Legislature mandated that DHS spend "all resources budgeted" for the waiver program in each fiscal year. Minn. Laws 1999, ch. 245, Art. 4 § 61. Over 5,000 additional individuals were enrolled in the waiver program. In 2002, the Minnesota Legislature repealed the requirement that DHS spend all forecasted funds. Minn. Laws. 2002, ch. 220, Art. 14 § 20.

Unfortunately, this increase in waiver enrollees coincided with a statewide budget shortfall. Beginning in December 2002, DHS sent a series of memoranda to county human service directors that described the DHS plan to "rebase" the budget for home and community-based care waivers. The rebase eschews the profile system of funding and replaces it with a funding formula based on counties actual expenditures for the fiscal year 2002, with a slight adjustment for annualization, acuity and cost of living increases. Defendant also claims that it will review paid waiver claims for calendar year 2003, and make upward adjustments to particular counties' allocations if needed. In fact, defendant claims that since this lawsuit was filed, DHS has added over $39,000,000 to the waiver budgets of individual counties.*fn1 Defendant suggests that with the new infusion of money, the program will be adequate to meet the needs of all recipients, and drastic cuts to individual budgets will not be necessary.


Plaintiff Ken Masterman is a 46-year-old man who lives with his sister (who is also his guardian) and brother-in-law.*fn3 Masterman has autism and mental retardation, and his health and care needs are so extensive as to require nearly around-the-clock care to ensure his safety, and the safety of those around him. Masterman's sister has had to forego outside employment to care for him. She is reimbursed for some of the care she provides her brother, but much of the time she spends caring for him goes uncompensated. Masterman's health and behavioral issues have improved dramatically since his placement with his sister. Masterman received a notice in February that his waiver budget was to be reduced drastically reduced. His guardian negotiated with the County and Masterman's budget was increased somewhat, however, the guardian cannot absorb such an extreme budget cut and has begun to research alternatives such as group home settings and other out-of-home placements for Masterman.

Plaintiff Jennifer M. is a twenty-year-old woman who lives with her parents in Ramsey County. Jennifer M. has cerebral palsy and dystonia*fn4, and she also has low vision disability and a seizure disorder. She requires 24-hour care, including substantial assistance with grooming, bathing, eating, dressing, and communication. She is currently in a transitional school-to-work program that will end in June (when she turns 21). Jennifer M. waited 12 years to receive a waiver spot, and once she received the waiver, her family notes that her "life has changed markedly for the better." Jennifer M. received a notice in February that her budget would be cut by over 50%. Jennifer M. claims, "there is no feasible way for her waiver plan to absorb this large a reduction and still ensure her health and welfare."

Plaintiff Benjamin S. is a four-year-old diagnosed with autism, he has "a myriad of problematic behaviors and developmental delays." Benjamin lives with his parents in Scott County and has received waiver services since May 2001. The waiver allows him to receive behavioral therapy (through a program called Partners in Excellence (PIE)), which has improved significantly his behavior. Benjamin's parents received notice that his budget was to be cut to by nearly half. His parents claim that his cut will adversely impact his health and welfare, and it is hard to imagine how such a cut would not have an adverse effect on Benjamin.

Plaintiff Arc Minnesota (Association of Retarded Citizens) is a non-profit corporation that advocates for persons with disabilities. Arc Minnesota has over 5,000 members in 24 local and regional chapters throughout Minnesota. Arc was instrumental in getting the waiver program started, and in pushing for the "open enrollment" period. Many of Arc's members are either waiver recipients or the parents, guardians, or family members of waiver recipients.


Plaintiffs raise several causes of action, as ...

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