Hcmf Corporation v. CLAUDE A. ALLEN, Secretary of Health

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 HCMF CORPORATION; HERITAGE
HALL HOLDING LIMITED PARTNERSHIP;
HERITAGE HALL XIII PARTNERSHIP;
HCMF PARTNERSHIP VI; HCMF VI
ADDITION LIMITED PARTNERSHIP;
HCMF XV PARTNERSHIP,
Plaintiffs-Appellants,
v.
CLAUDE A. ALLEN, Secretary of
Health and Human Resources;
ROBERT W. LAUTERBERG, Director of
the Department of Medical
Assistance Services, Commonwealth
of Virginia; H. ALAN BIGLEY, JR.; No. 00-1360 
DANIEL M. BRODY; LA TISHA OWENS
CHATMAN; CATHERINE C. COLGAN;
DENICE KING GARNER; STEVEN L.
MINTER; JAMES T. PARMELEE;
CATHERINE P. SAUNDERS; JAMES R.
SMITH; JAMES L. MASLOFF,
Defendants-Appellees,
and
JAMES GILMORE, The Governor of
the Commonwealth of Virginia; THE
DEPARTMENT OF MEDICAL ASSISTANCE
SERVICES; FRANK MEDICO,
Defendants. 
Appeal from the United States District Court
for the Western District of Virginia, at Roanoke.
Samuel G. Wilson, Chief District Judge.
(CA-98-297-7)

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Argued: November 1, 2000
Decided: January 23, 2001
Before WIDENER, WILKINS, and NIEMEYER, Circuit Judges.
Affirmed by published opinion. Judge Wilkins wrote the opinion, in
which Judge Widener and Judge Niemeyer joined.
COUNSEL
ARGUED: Earle Duncan Getchell, Jr., MCGUIRE, WOODS, BAT-
TLE & BOOTHE, L.L.P., Richmond, Virginia, for Appellants.
Edward Meade Macon, Senior Assistant Attorney General, Rich-
mond, Virginia, for Appellees. ON BRIEF: Robert T. Adams, Robert
L. Hodges, William H. Baxter, II, MCGUIRE, WOODS, BATTLE &
BOOTHE, L.L.P., Richmond, Virginia, for Appellants. Mark L. Ear-
ley, Attorney General, William H. Hurd, Solicitor General, Judith
Williams Jagdmann, Deputy Attorney General, Gregory E. Lucyk,
Assistant Attorney General, Richmond, Virginia, for Appellees.
OPINION
WILKINS, Circuit Judge:
HCMF Corporation and several related corporate entities (collec-
tively, "HCMF") brought this action pursuant to 42 U.S.C.A. § 1983
(West Supp. 2000) alleging that the Virginia Department of Medical
Assistance Services (DMAS), which administers the Medicaid pro-
gram in Virginia, violated HCMF’s asserted statutory federal right to
"reasonable and adequate" rates of reimbursement under the Medicaid
program.1 42 U.S.C.A. § 1396a(a)(13)(A) (West 1992). After the dis-
1The suit named DMAS and several state officials as Defendants. For
convenience, we will refer to Defendants collectively as DMAS.
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trict court dismissed this claim as barred by the Eleventh Amendment,
HCMF moved to amend its complaint to allege a new claim. The dis-
trict court denied the motion to amend, reasoning that the claim
HCMF sought to add to its complaint was indistinct from its original
claim, and thus the amendment was futile. Although we conclude that
the proposed amendment contained a different claim, we nevertheless
agree with the district court that the amendment was futile. Accord-
ingly, we affirm.
I.
HCMF operates several nursing homes in Virginia. The construc-
tion of the nursing homes was financed by bonds authorized by Indus-
trial Development Authorities (IDA). HCMF secured the IDA bonds
by obtaining insured mortgages from the U.S. Federal Housing
Administration (FHA). The FHA mortgages have a slightly higher
interest rate than the IDA bonds.
Medicaid is a joint federal-state program under which federal funds
are made available to states that provide medical services to eligible
recipients. See Mowbray v. Kozlowski, 914 F.2d 593, 595 (4th Cir.
1990). Although states that choose to participate must comply with
certain federal Medicaid requirements, each state administers its own
program. See Cabell Huntington Hosp., Inc. v. Shalala, 101 F.3d 984,
986 (4th Cir. 1996).
The federal Medicaid requirement relevant here was contained in
the Boren Amendment: Each state was required to assure the federal
government that under its Medicaid program the state reimbursed
nursing facilities at rates that were "reasonable and adequate." 42
U.S.C.A. § 1396a(a)(13)(A). Congress repealed the Boren Amend-
ment effective October 1, 1997. See Balanced Budget Act of 1997,
Pub. L. No. 105-33, § 4711, 111 Stat. 251, 507-08 (1997). The new
§ 1396a(a)(13)(A) contains no substantive mandate; it merely requires
that states determine their reimbursement rates via a "public process"
that allows providers notice and an opportunity to comment on the
proposed rates. See 42 U.S.C.A. § 1396a(a)(13)(A) (West Supp.
2000).
Under the Medicaid program in Virginia, DMAS reimburses nurs-
ing facilities that provide care to Medicaid clients for plant costs,
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including incurred interest costs. See 12 Va. Admin. Code 30-90-
30(A) (West 2000). DMAS reimbursed HCMF at the FHA mortgage
interest rate for several years. In 1993, however, DMAS notified
HCMF that henceforth it would reimburse HCMF at the IDA bonds
interest rate and that it would seek a refund from HCMF for the years
that DMAS reimbursed at the higher, FHA-mortgage interest rate.
HCMF filed this action in May 1998, claiming, as is relevant here,
that reimbursement at the bond interest rate violated the Boren
Amendment. The district court dismissed the claim for lack of juris-
diction. The court concluded that the Eleventh Amendment barred
any retrospective relief against the state and that no prospective or
injunctive relief was possible because Congress repealed the Boren
Amendment effective October 1, 1997. The court stated that "[w]ith
the repeal of the Boren Amendment nothing remains that remotely
resembles a federal right to reasonable and adequate rates." HCMF
Corp. v. Gilmore, 26 F. Supp. 2d 873, 880 (W.D. Va. 1998).
HCMF moved to amend its complaint to add a new claim based on
a December 1997 letter from the United States Health Care Financing
Administration (HCFA) that allegedly continued the "reasonable and
adequate" standard from the Boren Amendment. In the letter, HCFA
opined that "states are not required to subject their existing rates to
a public process to the extent that those existing rates were validly
determined in accordance with legal standards in effect prior to Octo-
ber 1, 1997." Children’s Hosp. & Health Ctr. v. Belshe, 188 F.3d
1090, 1095 (9th Cir. 1999) (internal quotation marks omitted), cert.
denied, 120 S. Ct. 2197 (2000). HCMF urged that because DMAS
had not adopted new rates pursuant to a public process since October
1, 1997, HCFA’s letter effectively continued the "reasonable and ade-
quate" standard of the Boren Amendment for DMAS’ rates. HCMF
alleged that the letter established a "federal policy [that] creates fed-
eral rights enforceable" under § 1983. J.A. 237.
The district court denied HCMF’s motion to amend. The court rea-
soned that the proposed amendment asserted no new legal theory, but
rather amounted to a request for reconsideration of the dismissal of
the previous claim, and that amending the complaint would therefore
be futile.
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II.
Leave to amend "shall be freely given when justice so requires."
Fed. R. Civ. P. 15(a). A motion to amend should be denied "only
when the amendment would be prejudicial to the opposing party,
there has been bad faith on the part of the moving party, or the
amendment would be futile." Edwards v. City of Goldsboro, 178 F.3d
231, 242 (4th Cir. 1999) (internal quotation marks omitted). We
review the decision of a district court to grant or deny a motion to
amend for abuse of discretion. See id.
We agree with HCMF’s contention that the proposed amendment
set forth a new legal theory. HCMF originally claimed that it had a
federal right under the Boren Amendment itself for DMAS to pay rea-
sonable and adequate rates of reimbursement. See Wilder v. Va. Hosp.
Ass’n, 496 U.S. 498, 509-10 (1990) (holding that Boren Amendment
created substantive federal right, enforceable by health care providers,
to reasonable and adequate rates). In the proposed amendment,
HCMF sought to assert that HCFA’s letter created a federal right to
reasonable and adequate rates of reimbursement. Although both of
these claims sought enforcement of the "reasonable and adequate"
standard located in the Boren Amendment, the legal theory in the
motion to amend was distinct—that a federal policy, rather than a fed-
eral statute, created a federal right. Accordingly, the district court was
incorrect to consider the amendment merely a restatement of the orig-
inal claim.
The issue thus becomes whether HCMF’s proposed amendment
was nevertheless futile.2 HCMF asserts that the claim presented in the
proposed amendment was not futile because other federal courts have
permitted enforcement of the federal rights provided in the Boren
Amendment despite its repeal. See Belshe, 188 F.3d at 1095, 1099;
Fla. Ass’n of Rehab. Facilities, Inc. v. Fla. Agency for Health Care
2HCMF contends that if we conclude that the proposed amendment
raises a different legal issue than the original claim we must remand the
action for the district court to consider in the first instance the merits of
the new legal theory. However, the futility vel non of HCMF’s motion
to amend presents a purely legal question which we may now decide. See
Perry v. Bartlett, 231 F.3d 155, 160 (4th Cir. 2000) (per curiam).
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Admin., 47 F. Supp. 2d 1352, 1357 (S.D. Fla. 1999), vacated in part
sub nom. Fla. Ass’n of Rehab. Facilities, Inc. v. Fla. Dep’t of Health
& Rehabilitative Servs., 225 F.3d 1208 (11th Cir. 2000). But cf. Chil-
dren’s Seashore House v. Waldman, 197 F.3d 654, 659 (3d Cir. 1999)
(holding, without addressing the potential impact of HCFA’s letter,
that the repeal of the Boren Amendment "removed a party’s ability
to enforce any substantive right"), cert. denied, 120 S. Ct. 2742
(2000). We conclude that HCFA’s letter does not have the effect
HCMF desires.
In Belshe, the Ninth Circuit held that HCFA’s letter authorizes the
continued application of the Boren Amendment standards, see 188
F.3d at 1095, and implicitly concluded that private parties may
enforce the HCFA letter in a § 1983 action. We respectfully disagree
with the latter conclusion. We have held that a formal regulation can-
not by itself give rise to a federal right enforceable under § 1983. See
Smith v. Kirk, 821 F.2d 980, 984 (4th Cir. 1987); see also King v.
Town of Hempstead, 161 F.3d 112, 115 (2d Cir. 1998) (per curiam)
(noting that the circuits are divided on the question of whether a regu-
lation alone can create a federal right). A policy letter has even less
legal stature than a regulation. See Christensen v. Harris County, 120
S. Ct. 1655, 1662-63 (2000) (holding that agency opinion letters and
policy statements, unlike regulations, are not entitled to deference
under Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467
U.S. 837 (1984)). Thus, HCMF’s claim is not cognizable regardless
of whether the HCFA letter properly authorizes the application of
Boren Amendment standards to the payments at issue here.
III.
We conclude that the district court erred in treating the claim pre-
sented in HCMF’s motion to amend as merely a reiteration of the
claim the court had previously rejected. However, because we deter-
mine that HCMF’s motion to amend was futile, we affirm the deci-
sion of the district court to deny the motion. In light of this
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disposition, we express no opinion about the meaning of the HCFA
letter or the agency’s authority to issue it.3
AFFIRMED
3HCMF also claimed that DMAS’ reimbursement decision violated
HCMF’s equal protection rights because the decision was arbitrary and
irrational. The district court granted summary judgment for DMAS on
this claim because the court determined that there was a rational basis
underlying DMAS’ reimbursement decision. See HCMF Corp. v. Allen,
85 F. Supp. 2d 643, 648 (W.D. Va. 2000). Having reviewed the parties’
briefs and the applicable law, and having had the benefit of oral argu-
ment, we affirm this ruling.
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