Separate pleading not needed in Medicaid reimbursement dispute, Indiana Supreme Court rules

In a lesson to the lower courts about judicial economy, the Indiana Supreme Court has overturned a ruling that had prevented a health care provider from obtaining a declaratory judgment as to whether it could charge patients for the cost of nonformulary over-the-counter medications.

ResCare Health Services Inc., which operates private intermediate care facilities around Indiana for individuals with intellectual disabilities, petitioned for judicial review after the Indiana Family and Social Services Administration blocked it from being reimbursed through Medicaid for the costs of over-the-counter medicines.

Also, the health care provider sought a declaratory judgment as to whether it could charge patients’ personal accounts for the nonreimbursed pharmaceuticals. The Marion Superior Court denied the request, and the Court of Appeals of Indiana affirmed, finding ResCare’s request for declaratory judgment was not sufficiently pleaded because it “did not join [patients] as parties to the current litigation.”

However, the Supreme Court reversed the ruling on the declaratory judgment in ResCare Health Services, Inc. v. Indiana Family & Social Services Administration – Office of Medicaid Policy and Planning, 21S-MI-372.

Justice Steven David concurred in result but did not write a separate opinion.

The justices held ResCare did not have to file a separate complaint for declaratory judgment, noting Indiana “generally disfavors” multiple lawsuits on similar issues. Moreover, ResCare sufficiently pleaded its declaratory judgment claim.

“Compared to the pleadings in (Myers v. Deets, 968 N.E.2d 299 (Ind. Ct. App. 2012)), and under our notice pleading standards, we have no trouble concluding the FSSA was sufficiently notified of ResCare’s request for a declaratory judgment,” Justice Mark Massa wrote for the majority. “At every level of these proceedings, ResCare argued for and requested the declaratory judgment, and the FSSA has argued against it.

“Like the defendants in Meyers, the adequacy of the notice was shown by the defendants’ pleadings,” Massa wrote. “Here the FSSA consistently refuted the issue in its responsive pleadings, proving it was on notice.”

Also, the justices found ResCare did not need to first sue its patients before it sought declaratory judgment on whether it could be penalized for Medicaid violations if it charged the patients directly.

The majority pointed out that while the Uniform Declaratory Judgment Act, Indiana Code § 34-14-1-12, does not open the courts to “resolving hypothetical cases,” the requirement for a justiciable question is satisfied when the “ripening seeds” of a controversy exist.

In addition, the statute holds that relief can be obtained by all persons who would be affected by the outcome, and the rights of persons who are not party to the proceedings shall not be barred.

“Requiring ResCare to sue its patients before it can obtain ‘relief from uncertainty and insecurity’ about the legality of its proposed solutions is inapposite to the purpose of declaratory judgments,” Massa wrote, citing Volkswagenwerk, A.G. v. Watson, 181 Ind. App. at 159, 390 N.E.2d at 1085 (1979). “Adding ResCare’s patients, who are individuals of limited means with intellectual disabilities, to the litigation when they have no legally cognizable interest at issue, nor any role in a potential enforcement action by the FSSA for Medicaid violations, is neither ‘just’ nor ‘economical.’”

The case was remanded for the trial court to consider ResCare’s declaratory judge request on the merits.

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