M.D.Tenn.: Private Medicaid mgmt. is state actor, not immune

A Tennessee federal district court held that a private entity operating the state’s Medicaid dental program is a state actor for purposes of 42 U.S.C. § 1983, but is not entitled to sovereign immunity. Snodgrass v. Doral Dental of Tennessee, 2008 WL 2718911 (M.D. Tenn. Jul. 10, 2008) (No. 3:08-0107).

 The case highlights the distinction between these two doctrines, which are especially important in this era of privatization. The court also held that a dentist terminated from the program stated a claim for First Amendment retaliation, and that his claim was not time-barred. 

 

            As the court noted, “Since 1998, Dr. Snodgrass has been a vocal opponent of the administration of the TennCare dental program” as administered by Doral Dental. He criticized their contracting processes and reimbursement rates. He started a letter-writing campaign, he wrote to and met with state officials, he was a general gadfly. In 2002, Doral Dental accused him of improper practices, but the complaints didn’t stand up. In 2003, it terminated his provider agreement without explanation, leading to political and media attention. In 2007, Doral Dental denied his application for credentialing without explanation. He then sued under § 1983, claiming retaliation in violation of the First Amendment.

 

            Section § 1983 only applies to state actors, and the Sixth Circuit recognizes three tests used to determinate state-actor status. See Boykin v. Van Buren Township, 479 F.3d 444, 451 (6th Cir.2007). The first is the public function test: whether defendant is performing a function traditionally and exclusively reserved to state government. The second is the state compulsion test: whether defendant is acting on the state’s behalf and under state compulsion. The third is the symbiotic relationship or nexus test, which has no bright-line formula and is “necessarily fact-bound.” See Brentwood Academy v. Tennessee Secondary Sch. Athletic Ass'n, 531 U.S. 288 (2001). Snodgrass invoked the first and third tests.

 

           The court held that the public function test was not met, unsurprisingly since there was no relevant historical evidence before the court: “Based on the record, the Court cannot find that administering a medical program and determining proper providers and claims is a function traditionally and exclusively reserved to the states.”

           

           However, the court held that the nexus text was met. The court noted that under its contract with the state, Doral Dental assumed administration and management of the TennCare dental program, “with authority and responsibility over such things as staffing requirements, access and availability to care, provider network requirements, member services requirements, utilization management, care coordination, network development and management, claim processing, appeals, quality of care, and provider payment, all of which were things previously performed by the State of Tennessee.” This “detailed specificity” indicated that Doral Dental’s role would “mirror” the work previously done by the state. Given this record, “it simply cannot be said that there are insufficient allegations to support a nexus or a symbiotic relationship between Doral Dental and the State of Tennessee.”

 

            It should be noted the Sixth Circuit’s tests are not the only ones circuit courts have recognized based on Supreme Court precedent. For more on this doctrine, see Steve Hitov & Gill Deford, The Impact of Privatization on Litigation, 35 Clearinghouse Review 590, 597-603 (2002).

 

            In addition to arguing it was not a state actor, Doral Dental asserted sovereign immunity. The court noted that “all but the Eleventh Circuit have denied state sovereign immunity to private entities, more or less categorically.” Del Campo v. Kennedy, 517 F.3d 1070 (9th Cir. 2008) (summary here). The Sixth Circuit test for whether private entities are entitled to sovereign immunity considers the state’s obligation to pay judgments against the entity; references by state statutes and state courts to the entity; the state’s degree of control; appointment of board members by state officials; and whether the entity’s functions are akin to traditional state or local functions. Perry v. Se. Boll Weevil Eradication Found’n, 154 Fed. Appx. 467 (6th Cir.2005).

 

            The court noted that the state was not obligated to pay judgments against Doral Dental; and that the state has not appointed its board members. The court said the degree of state control “is not made entirely clear by the record,” but that Doral’s contract with the state specifically described it as an independent contractor and not an employee or agent of the state. (The court compared this to a similar contract in Del Campo for administration of an offender diversion program.) The court held that on this record, Doral Dental was not entitled to sovereign immunity.

           

            Doral Dental argued that it was inconsistent to call it a state actor but deny it state sovereign immunity. The court replied that “this is [no more] incongruous than Doral Dental arguing that it was not a state actor, but alternatively arguing that if it is considered to be a state actor under the law it is entitled to Eleventh Amendment immunity. Regardless, the state action requirement and Eleventh Amendment immunity are analytically separate.” It noted that the Del Campo court also took pains to distinguish the two doctrines.

 

            Doral Dental also asserted the statute of limitations, arguing that Snodgrass could not challenge his termination in 2003 when he failed to file suit until 2007. But the court said that Snodgrass alleged a “continuing violation,” stretching from its false accusations in 2002, to the termination in 2003, to the refusal to credential him anew in 2007. “Such conduct continued to injure the plaintiff [after the initial termination], and the damages could have been avoided or mitigated had Doral Dental decided to reinstate Plaintiff into the provider network.”

 

            On the merits, the court dismissed Snodgrass’s Due Process claim on the basis that there is no property right in being a TennCare provider, but refused to dismiss the First Amendment retaliation claim.