S. Country Health Alliance v. Minn. Dep't of Human Servs.

994 N.W.2d 904

SOUTH COUNTRY HEALTH ALLIANCE, et al., Appellants, v. MINNESOTA DEPARTMENT OF HUMAN SERVICES, et al., Respondents, Medica Health Plans, Respondent, HMO Minnesota, Respondent, HealthPartners, Inc., Respondent,

UCare Minnesota, Respondent,

UnitedHealthcare of Illinois, Respondent.

A22-1643

Court of Appeals of Minnesota.

Filed August 14, 2023

Charles N. Nauen, David W. Asp, Jennifer L. M. Jacobs, R. David Hahn, Lockridge Grindall Nauen P.L.L.P., Minneapolis, Minnesota (for appellants)

Keith Ellison, Attorney General, Brandon Boese, Scott H. Ikeda, Assistant Attorneys General, St. Paul, Minnesota (for respondent department of health)

Edward B. Magarian, Alex P. Hontos, Anna K. Boyle, Dorsey & Whitney LLP, Minneapolis, Minnesota (for respondent Medica Health Plans)

David M. Wilk, Larson King, LLP, St. Paul, Minnesota (for respondent HMO Minnesota)

Richard C. Landon, Lathrop GPM LLP, Minneapolis, Minnesota (for respondent HealthPartners, Inc.)

Monte A. Mills, Green Espel PLLP, Minneapolis, Minnesota (for respondent UCare Minnesota)

Nate Brennaman, Faegre Drinker Biddle & Reath, LLP, Minneapolis, Minnesota (for respondent UnitedHealthcare of Illinois)

Considered and decided by Reilly, Presiding Judge; Connolly, Judge; and Slieter, Judge.

CONNOLLY, Judge

Appellants, entities created to engage in county-based purchasing for Minnesota's Medicaid program, challenge the summary-judgment dismissal of their claims for declaratory and injunctive relief against respondents Minnesota Department of Human Services (DHS) and Commissioner of Human Services Jodi Harpstead. Appellants claim that the district court erred because (1) under Minn. Stat. § 256B.69, subd. 3a(c), DHS has no authority to implement a prepaid medical assistance program in counties that have elected county-based purchasing; (2) under Minn. Stat. § 256B.692 (2022), DHS must pay a county-based purchasing entity that meets all statutory and regulatory requirements; and (3) under Minn. Stat. § 256B.69, subd. 3a(d), appellants are entitled to mediation. We affirm in part, reverse in part, and remand for consideration of appropriate injunctive relief.

FACTS

Medicaid is a cooperative federal-state program that provides medical assistance for certain persons "whose income and resources are insufficient to meet the costs of necessary medical services." 42 U.S.C. § 1396-1 (2018) ; Alexander v. Choate , 469 U.S. 287, 289 n.1, 105 S.Ct. 712, 83 L.Ed.2d 661 (1985) ; In re Schmalz , 945 N.W.2d 46, 50 (Minn. 2020). A state's participation in Medicaid is voluntary. Choate , 469 U.S. at 289 n.1, 105 S.Ct. 712 ; Schmalz , 945 N.W.2d at 50. Participating states share the costs with the federal government to provide health care to Medicaid enrollees and must comply with the requirements of federal statutes and regulations to receive Medicaid funding. Choate , 469 U.S. at 289 n.1, 105 S.Ct. 712 ; Schmalz , 945 N.W.2d at 50.

Minnesota began participating in Medicaid in 1966. Minnesota's Medicaid program is known as Medical Assistance (MA). Schmalz , 945 N.W.2d at 50. DHS is responsible for administering the MA program. See Minn. Stat. § 256.01, subd. 2(a) (2022) (stating that the DHS commissioner shall "[a]dminister and supervise all forms of public assistance provided for by state law").

Minnesota initially used a fee-for-service model to distribute Medicaid funds, meaning health-care providers would bill the state directly for services rendered to enrollees. Then in the 1980s, Minnesota began using a managed-care model in a handful of counties; the managed-care model is referred to as the prepaid medical assistance program or PMAP. See 1983 Minn. Laws ch. 312, art. 5, § 27, at 1833-36; See also Minn. Stat. § 256B.69 (2022).

Under the managed-care model, Medicaid beneficiaries enroll in a managed-care organization or MCO, which is under contract with the state. The MCO serves enrollees on a prepaid basis, meaning the state pays the MCO a fixed, per-enrollee rate, and the MCO pays providers for costs of care. ¹ In 1990, PMAP was extended statewide. See 1990 Minn. Laws ch. 568, art. 3, § 83, at 1906. Today, most Medicaid beneficiaries in Minnesota receive health-care coverage through an MCO.

In 1997, Minnesota developed an alternative to PMAP known as county-based purchasing or CBP. See 1997 Minn. Laws ch. 203, art 4, § 56, at 1713-16 (codified at Minn. Stat. § 256B.692 (Supp. 1997)). Under the CBP model, county boards or groups of county boards may elect to purchase or provide health-care services on behalf of persons eligible for MA "who would otherwise be required to or may elect to participate in the prepaid medical assistance program." Minn. Stat. § 256B.692, subd. 1.

Appellants South Country Health Alliance (South Country), PrimeWest Rural Minnesota Health Care Access Initiative (PrimeWest), and Itasca Medical Care (IMCare) are CBP entities established by 33 rural Minnesota counties. Under Minn. Stat. § 471.59, subd. 1(a) (2022), governmental units may contract to exercise a common power, and South Country and PrimeWest were established by contract as joint-powers entities for eight and 24 member counties, respectively. IMCare was established and is operated by Itasca County as a division of its Health and Human Services Department.

DHS initially contracted with CBP entities that met program standards. In 2011, DHS began utilizing a competitive bidding procurement process for MCO contracts. DHS began issuing requests for proposals or RFPs prior to contracting with MCOs.

In 2015, competitive bidding was used to select MA plans in all Minnesota counties. That year, DHS informed South Country that, as part of its procurement process, it intended to negotiate contracts to provide prepaid medical assistance services to enrollees in South Country's CBP counties. Section 256B.69, subdivision 3a(c), states, in part: "For counties in which a prepaid medical assistance program has not been established, the commissioner shall not implement that program if a county board submits an acceptable and timely preliminary and final proposal under section 256B.692, until county-based purchasing is no longer operational in that county." Based on that statute, South Country's member counties challenged in mediation DHS's decision to implement PMAP in CBP counties, and a DHS mediation panel concluded that section 256B.69, subdivision 3a(c), precluded DHS "from selecting any prospective vendor other than the CBP." The then-commissioner reversed her initial decision, in part, granting South Country a contract, but requiring it to operate alongside a PMAP plan. The commissioner indicated that her decision was intended to give the legislature "the opportunity to address this issue in a more straightforward manner." The legislature did not act.

In 2019, DHS conducted a new managed-care procurement for contracts beginning in 2020. This time, South Country was not offered a contract for any of its member counties. IMCare was not offered a contract for Itasca County, except as one of several plans for the Minnesota Senior Health Options/Minnesota Senior CarePlus (Seniors) programs. ² PrimeWest, which had recently added 11 member counties to its original 13, was not offered a contract as the single plan for the Seniors programs in any of its member counties and was offered a contract to be the single plan for MA only in its original 13 counties.

South Country, along with member counties for all three CBP entities, requested mediation to challenge these procurement decisions. When DHS refused, South Country challenged the decision in district court. The district court temporarily enjoined DHS from entering into new managed-care contracts in South Country's member counties and granted South Country's request to compel mediation. Rather than proceed with mediation, DHS canceled the procurement and renewed the existing contracts. Once again, the then-commissioner indicated that this result would allow the legislature to "clarify aspects of the contracting process," but again the legislature did not act.

In October 2021, DHS began issuing the RFPs at the heart of this litigation. DHS issued RFPs for both the Seniors and Special Needs BasicCare (SNBC) programs. ³ Proposals were due February 18, 2022. In January 2022, DHS issued an RFP for the Families and Children Medical Assistance (Families and Children) program, ⁴ with proposals due April 1, 2022. The Seniors and SNBC RFPs indicated that DHS intended to select multiple plans for each county and that DHS had predetermined certain additional criteria that a plan would have to meet before DHS would consider a single-plan contract. The Families and Children RFP stated that a minimum of two MCOs would "be selected in each of the 80 counties" covered in the RFP. The RFP also stated that a responding CBP entity would be selected for a contract only "subject to the [c]ommissioner's authority" and after meeting certain requirements. None of the three RFPs indicated that DHS would defer to a county's choice of a CBP plan. Regardless of the mandates of section 256B.692, DHS asserted the authority in all three RFPs to "[r]eject any and all" proposals, to "accept or reject any recommendation of the evaluation team," and to conduct an "audit of the reasonableness" of a proposal.

On February 8, 2022, appellants sent a letter asking the DHS commissioner to convene a mediation panel under Minn. Stat. § 256B.69, subd. 3a(d). ⁵ DHS refused to allow appellants to mediate, taking the position that only appellants’ member counties were entitled to mediate.

On February 17, 2022, appellants filed a complaint with the district court, alleging that DHS had "force[d] PMAP into counties that ha[d] selected CBPs." Count I of the complaint sought a declaration, pursuant to Minn. Stat. § 555.01 (2022), that DHS's procurement process violates appellants’ rights under sections 256B.692 and 256B.69, subdivision 3a(c). Count II sought a declaration that ...