Safe Haven Home Care, Inc. v. U.S. Dep't of Health & Human Servs.

681 F.Supp.3d 195

SAFE HAVEN HOME CARE, INC., et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.

22 Civ. 2267 (JPC)

United States District Court, S.D. New York

Signed July 10, 2023

Derek M. Adams, Susan Baldwin Hendrix, Neil Harris Koslowe, I, Potomac Law Group, PLLC, Washington, DC, for Plaintiffs.

Mollie Melissa Kornreich, DOJ-USAO, New York, NY, David E. Farber, United States Attorney's Office, New York, NY, for Defendants United States Department of Health and Human Services (HHS), Xavier Becerra, United States Centers for Medicare & Medicaid Services, Chiquita Brooks-LaSure.

Seth Jonathan Farber, NYS Office of the Attorney General, New York, NY, for Defendants New York State Department of Health, James V. McDonald, Amir Bassiri.

OPINION AND ORDER

JOHN P. CRONAN, United States District Judge:

Plaintiffs, a group of licensed home care services agencies ("LHCSAs"), challenge a Medicaid payment scheme that was adopted and implemented by New York State and pre-approved by the federal government in the spring of 2022 (the "2022 Disbursement"). First, Plaintiffs claim that by paying out the 2022 Disbursement, a group of New York State entities (the "State Defendants") violated the Medicaid Act, 42 U.S.C. § 1396b(m)(2)(A)(iii), and various provisions of its implementing regulations, 42 C.F.R. § 438.4-.6. Dkt. 55 ("Am. Compl.") ¶¶ 76, 79, 89-91, 96-98. Second, Plaintiffs claim that by pre-approving the 2022 Disbursement, a group of federal entities (the "Federal Defendants") violated the Administrative Procedure Act ("APA"), 5 U.S.C. § 706(2), the Medicaid Act, and various provisions of its implementing regulations. Am. Compl. ¶¶ 74-75, 81-84, 87. Against the State Defendants, who comprise the New York State Department of Health ("DOH"), James V. McDonald in his official capacity as Commissioner of Health, and Amir Bassiri in his official capacity as State Medicaid Director,¹ Plaintiffs seek equitable relief enjoining the disbursement of funds pursuant to the 2022 Disbursement or pursuant to any other scheme directing payment towards the same class of LHCSAs. Id. at 22 (Requested Relief B). Against the Federal Defendants, who comprise the United States Department of Health and Human Services ("HHS"), Xavier Becerra in his official capacity as HHS Secretary, the United States Centers for Medicare and Medicaid Services ("CMS"), and Chiquita Brooks-Lasure in her official capacity as CMS Administrator, Plaintiffs seek an order and judgment that the CMS's March 2022 pre-approval of the 2022 Disbursement was in excess of statutory authority, arbitrary and capricious, an abuse of discretion, and otherwise not in accordance with law, and therefore was in violation of the APA. Id. (Requested Relief A).

Now before the Court are the State Defendants' motion to dismiss the Amended Complaint, Dkt. 61, and the Federal Defendants' motion to dismiss the Amended Complaint or, in the alternative, for summary judgment, Dkt. 63. Just as Plaintiffs seek different kinds of relief from each group of Defendants, based on different sorts of claims, so too does each group of Defendants advance different arguments for why Plaintiffs are not entitled to the relief sought. The State Defendants argue that the claims brought against them must be dismissed because neither the statutory provisions nor the regulations they are alleged to have violated may be enforced through a private right of action, Dkt. 62 ("State Defts. Br.") at 6-12, because the Court must defer to CMS's decision to approve the payment scheme under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), State Defts. Br. at 12-13, and because DOH's disbursement of funds under the payment scheme renders Plaintiffs' claims against the State Defendants moot, id. at 13-14. The Federal Defendants argue first that the claims brought against them must be dismissed because Plaintiffs lack prudential standing under the APA to enforce the statutory provisions and regulations that the Federal Defendants allegedly violated, Dkt. 65 ("Fed. Defts. Br.") at 10-14, and in the alternative that Plaintiffs' claims fail on the merits because CMS's pre-approval of New York's Medicaid payment scheme did not violate federal law, id. at 14-20.

Because the procedural postures of these two motions differ, the factual basis upon which the Court must decide each differs as well. While the State Defendants' motion to dismiss for failure to state a claim may be decided based on the pleadings, the Federal Defendants' motion, which argues in part that CMS's pre-approval of the 2022 Disbursement complied with federal law, requires consideration of a more extensive factual record. In order to evaluate the legality of an action undertaken by a federal administrative agency, a court must review the administrative record documenting the challenged action. Consequently, in support of their motion, the Federal Defendants have filed the certified administrative record from CMS's March 2022 pre-approval of New York's payment scheme. Dkts. 64-2 to 64-14. Judicial review of agency action is presumptively limited to the administrative record. Plaintiffs, however, argue that various exceptions to that presumption apply in this case, and consequently they have moved for the admission of two types of additional evidence—expert testimony from two individuals with experience in the health care field, including an actuary, and two annual rate certifications submitted by DOH to CMS that incorporate the disputed payment scheme. Dkt. 78. The State and Federal Defendants each oppose the admission of this additional evidence. Dkts. 80, 81.

Because both the contested legal issues and certain relevant facts differ between the State Defendants' and Federal Defendants' motions, the Court will bifurcate this Opinion and Order into separate sections addressed to each group of Defendants. And because Plaintiffs' motion for the admission of evidence beyond the administrative record pertains only to the Federal Defendants' motion, the Court will address Plaintiffs' motion in the course of resolving the Federal Defendants' motion. Each part reaches the same conclusion—Plaintiffs' claims fail. Plaintiffs' Amended Complaint fails to state a claim against the State Defendants because no cause of action grants Plaintiffs the right to the relief they seek. The State Defendants' motion to dismiss is therefore granted. Plaintiffs' claims against the Federal Defendants fail on the merits because CMS's pre-approval of the 2022 Disbursement did not violate the APA, the Medicaid Act, or its implementing regulations. The Federal Defendants' motion for summary judgment is therefore granted. Furthermore, because the evidence Plaintiffs seek to admit concerns the actuarial soundness of the 2022 Disbursement—a question that was not properly before CMS during the pre-approval process—Plaintiffs have not overcome the presumption that the Court should consider only the administrative record in reviewing the legality of agency action. Their motion to admit that evidence is therefore denied.

I. The State Defendants' Motion to Dismiss

A. Background²

1. Statutory Background

In the United States, subsidized health care for low-income individuals is provided by Medicaid, a joint initiative between the federal government and the states. Am. Compl. ¶ 36. Medicaid is operated by the governments of the several states, but it is partially funded from the federal treasury and is regulated by federal law. Id. New York, like many other states, operates its Medicaid program through managed care organizations ("MCOs"). Id. ¶ 38. MCOs act as middlemen standing between the state, which pays for medical services provided to low-income individuals, and the health care providers that care for patients. Id. To implement this arrangement, the state and MCOs enter into contracts under which each MCO manages the care of Medicaid-eligible individuals enrolled as its members. Id. In exchange, each MCO is paid a monthly amount for each member enrolled. Id. The MCOs then enter into separate contracts with health care providers, under which each MCO pays for the medical services that its members receive. Id. LHCSAs are one type of provider that MCOs pay to provide such services. Id. ¶ 49. Lastly, the federal government funds such programs by partially reimbursing the state for authorized expenditures, including expenditures made to MCOs. 42 U.S.C. § 1396b(m)(2)(A).

Under the terms of these contracts, financial risk is transferred from the states to the MCOs, which receive a fixed monthly payment per member but must pay the actual cost of the medical services their members in fact consume at prices agreed to by MCOs and service providers. Am. Compl. ¶ 45 (quoting Final Rule Concerning Medicaid and CHIP Programs and Managed Care, 81 Fed. Reg. 27,498, 27,588 (May 6, 2016) (codified at 42 C.F.R. Parts 431, 433, 438, 440, 457, and 495)). The monthly payment each MCO receives, then, should reflect a projection that covers the expected costs of providing the medical services covered by its contract with the state, given the population it enrolls as members. Id. ¶ 41. This concept is known as "actuarial soundness." Id.; see also 42 C.F.R. § 438.4(a) (defining "actuarially sound capitation rates"). Furthermore, as CMS has explained, because MCOs bear the financial risk associated with the provision of medical services, they must also possess the discretion to manage that risk by determining which health care providers to contract with and at what prices: "Inherent in the transfer of risk to the MCO is the concept that the MCO has both the ability and the responsibility to utilize the funding under that contract to manage the contractual requirements for the delivery of services." Final Rule Concerning Medicaid and CHIP Programs and Managed Care, 81 Fed. Reg. at 27,588. For that reason,...