## Facts

- South Carolina administered Medicaid through its Department of Social Services (DSS).
- DSS sought increased state appropriations for Medicaid but received less than requested, including reduced funding for hospital services.
- DSS amended the state Medicaid plan to limit covered hospital services, reducing covered inpatient days per recipient from 40 to 18 per year and capping previously unlimited outpatient hospital visits at 18 per year.
- DSS later reduced the inpatient limit further, from 18 to 12 days per year, based on cost projections.
- DSS continued to reimburse hospitals using existing Medicare-based rates; the amendments changed service coverage limits, not provider payment rates.
- Hospital providers, a hospital association, and Medicaid recipients challenged the amendments as inconsistent with federal Medicaid requirements, including the regulation requiring services to be sufficient in “amount, duration, and scope.”
- Plaintiffs also alleged procedural violations (lack of public notice and implementation before federal approval) and asserted constitutional claims.
- The district court found that the 12-day inpatient limit would meet the needs of about 88% of Medicaid recipients and the 18-visit outpatient cap would meet the needs of about 99% of recipients.
- The district court dissolved a preliminary injunction and denied declaratory and permanent injunctive relief; plaintiffs appealed.

## Issues

1. Whether the inpatient-day and outpatient-visit caps rendered Medicaid hospital services insufficient in “amount, duration, and scope” or otherwise unlawfully restricted medically necessary care under federal Medicaid law.
2. Whether plan amendments motivated by fiscal shortfalls are invalid under federal Medicaid standards.
3. Whether DSS was required to provide public notice and obtain federal approval before implementing the coverage limits.
4. Whether the coverage reductions constituted an unconstitutional taking or violated other constitutional protections.

## Decision

- The Fourth Circuit affirmed the judgment denying relief.
- The court held the service limits complied with federal Medicaid substantive requirements because, as limited, hospital services remained reasonably sufficient for most recipients based on the factual record.
- The court treated the amendments as coverage limitations rather than reimbursement-rate changes, leaving payment methodology provisions inapplicable.
- The court held fiscal considerations could be considered in setting coverage levels so long as federal minimum standards were met.
- The court rejected the procedural challenges, concluding the public-notice rule invoked by plaintiffs applied to significant changes in payment rate-setting methods, not to coverage caps, and that subsequent federal approval of the amendment was sufficient.
- The court rejected the takings and related constitutional claims for lack of proof.

## Legal Principles

- Medicaid service categories, as provided by a state plan, must be sufficient in “amount, duration, and scope” to reasonably achieve their purpose; reasonableness may be assessed using evidence about how many recipients’ needs are met under the limits.
- A state may impose quantitative limits on covered services without violating federal law if the limits do not arbitrarily deny care and the remaining coverage is broadly adequate under federal standards.
- Coverage restrictions (limits on covered days/visits) are analytically distinct from reimbursement changes (methods or rates of provider payment); rules tied to payment-rate changes do not necessarily apply to pure coverage limits.
- Fiscal constraints may justify coverage adjustments when the resulting plan continues to satisfy federal Medicaid requirements.
- Prospective reductions in covered services, without more, do not establish a compensable taking by participating providers.

## Conclusion

The Fourth Circuit upheld South Carolina’s Medicaid amendments limiting inpatient hospital days and outpatient visits, finding the caps reasonable and federally compliant, not subject to the asserted notice and prior-approval requirements, and insufficient to support a constitutional takings claim.


Charleston Mem'l Hosp. v. Conrad, 693 F.2d 324 (4th Cir. 1982)