Grijalva v. Shalala

Grijalva is a nationwide class action challenging the Health Care Financing Administration''s failure to implement and enforce a proper procedure for Medicare managed care appeals. In a decision on March 3, 1997, which the appeals court upheld on all counts, the federal district court ruled that HMO denials of medical services to Medicare beneficiaries constitute state action and that the regulations issued by the Secretary of Health and Human Services fail to provide adequate due process protection. In its 1997 ruling, the district court entered a judgment setting out specific requirements for Medicare HMO procedures covering notice of denials and the reconsideration process.

In upholding the district court''s ruling, the appeals court rejected the Secretary''s argument that the Supreme Court decision in Blum v. Yaretsky, 457 U.S. 991,102 S. Ct. 2777, 73 L.Ed.2d 534 (1882) requires a finding that adverse determinations by HMOs are not state action. In Blum, the appeals court held, the medical providers were making decisions regarding medical necessity, while in Grijalva, the judgemtns are interpretations of the Medicare statute. "HMOs are following congressinal and regulatory orders and are making decisions as a governmental proxy--they are deciding that Medicare does not cover certain medical services," the court wrote.

The court also rejected the Secretary''s analysis of another Supreme Court case, Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976), that addressed when additional due process safeguards are required. The appeals court found that the Grijalva plaintiffs met Mathews'' three-pronged test of 1) a private interest at stake (because of the potential for irreparable harm from the denial of medical services); 2) a risk of erroneous deprivation (created by inadequate notices that undermine the appeals process); and 3) insignificant additional costs to the government ("Adequate notices do not impose a burden on HMOs that outweighs the beneficiaries'' need for them," the court wrote.)

Finally, the court found no abuse of the district court''s discretion in its requirements that, for example, all notices of service denials be in 12-point type, that the notices adequately explain to beneficiaries the reasons for a service denial and their appeal rights, and that any hearings be informal and in person.

The Ninth Circuit rejected the government''s request that it modify the district court''s injunction in light of Medicare HMO appeals regulations issued after the injunction was entered, holding that the district court has continuing jurisdiction over the modification of the injunction.