Blum v. Yaretsky

Rule of Law:

A private entity's decision does not constitute state action under the Fourteenth Amendment merely because the entity is extensively regulated and financially subsidized by the state. For state action to exist, the state must have exercised coercive power or provided such significant encouragement, either overt or covert, that the private choice can be deemed that of the state itself.

Facts:

• Yaretsky and Cuevas were residents of the American Nursing Home, a private facility in New York, and their care was paid for by the joint federal-state Medicaid program.
• The nursing home's Utilization Review Committee (URC), a panel of private physicians required by federal regulations, determined that Yaretsky and Cuevas no longer needed the intensive 'skilled nursing facility' (SNF) level of care.
• Based on the URC's medical assessment, the nursing home administration decided to transfer the patients to a 'health related facility' (HRF), which provides a lower and less expensive level of care.
• This transfer decision, initiated by the private nursing home, would result in the state adjusting the patients' Medicaid benefits to cover only the lower cost of care at the new facility.

Procedural Posture:

• Yaretsky and a class of patients sued the Commissioners of New York's social service agencies in the U.S. District Court for the Southern District of New York.
• The District Court certified the class and issued a preliminary injunction, finding the patients were likely to succeed on their due process claims.
• The District Court later entered a permanent injunction, holding that facility-initiated transfers involved state action and required pre-transfer notice and an evidentiary hearing.
• The state officials, as petitioners, appealed to the U.S. Court of Appeals for the Second Circuit.
• The Court of Appeals affirmed, finding that the state's response of adjusting benefits created a sufficiently close nexus to establish state action.