State v. Rettig

987 F.3d 518

STATE of Texas; State of Kansas; State of Louisiana; State of Indiana; State of Wisconsin; State of Nebraska, Plaintiffs - Appellees Cross-Appellants

v.Charles P. RETTIG, in his Official Capacity as Commissioner of Internal Revenue; United States of America; United States Department of Health and Human Services; United States Internal Revenue Service ; Alex M. Azar, II, Secretary, U.S. Department of Health and Human Services, Defendants - Appellants Cross-Appellees

No. 18-10545

United States Court of Appeals, Fifth Circuit.

FILED February 12, 2021

Lanora Christine Pettit, Office of the Attorney General, Office of the Solicitor General, Austin, TX, Thomas A. Albright, Assistant Attorney General, Office of the Attorney General, Financial Litigation & Charitable Trusts Division, Austin, TX, David J. Hacker, Office of the Attorney General of Texas, Environmental Protection Division, Austin, TX, for Plaintiffs - Appellees Cross-Appellants State of Texas, State of Kansas, State of Louisiana, State of Indiana and State of Nebraska.

Corey Francis Finkelmeyer, Assistant Attorney General, Wisconsin Department of Justice, Madison, WI, for Plaintiff - Appellee Cross-Appellant State of Wisconsin.

Alisa Beth Klein, Esq., Mark Bernard Stern, Esq., U.S. Department of Justice, Civil Division, Appellate Section, Washington, DC, for Defendants - Appellants Cross-Appellees.

Benjamin Gross Shatz, Manatt, Phelps & Phillips, L.L.P., Los Angeles, CA, for Amicus Curiae Medicaid Health Plans of America.

Sarah Katherine Hofstadter, Anna-Rose Mathieson, California Appellate Law Group, L.L.P., San Francisco, CA, for Amici Curiae America's Health Insurance Plans, Incorporated and Blue Cross Blue Shield Association.

Before BARKSDALE, HAYNES, and WILLETT, Circuit Judges.

HAYNES, Circuit Judge:

We withdraw our prior opinion of July 31, 2020, Texas v. Rettig , 968 F.3d 402 (5th Cir. 2020), and substitute the following.

This case involves constitutional challenges to Section 9010 of the Affordable Care Act (the "ACA") and statutory and constitutional challenges to a U.S. Department of Health and Human Services ("HHS") administrative rule (the "Certification Rule"). Texas, Kansas, Louisiana, Indiana, Wisconsin, and Nebraska (the "States") sued the United States and its relevant agencies and officials (collectively, the "United States"), claiming that the Certification Rule and Section 9010 were unlawful. Both parties moved for summary judgment, and the district court granted both motions in part. The parties then cross-appealed. On the jurisdictional claims, we AFFIRM the district court's ruling that the States had standing, but we REVERSE the district court's ruling that the States’ Administrative Procedure Act ("APA") claims were not time-barred and DISMISS those claims for lack of jurisdiction. On the merits, we AFFIRM the district court's judgment on the Section 9010 claims; however, we REVERSE the district court's judgment that the Certification Rule violated the nondelegation doctrine and RENDER judgment in favor of the United States. Because we hold that neither the Certification Rule nor Section 9010 are unlawful, we VACATE the district court's grant of equitable disgorgement to the States.

I. Background

A. Regulatory Background

In 1965, the Medicaid Act¹ "established the Medicaid program as a joint Federal and State program for providing financial assistance to individuals with low incomes to enable them to receive medical care." See Medicaid Program; Medicaid Managed Care: New Provisions, 67 Fed. Reg. 40,989, 40,989 (June 14, 2002) [hereinafter "2002 Final Rule"]. The federal government "provid[es] matching funds to State agencies to pay for a portion of the costs of providing health care to Medicaid beneficiaries."² Id.

States have two options for providing care to Medicaid beneficiaries: a "fee-for-service" model and a managed-care model. Id. Under the fee-for-service model, a doctor who treats a Medicaid beneficiary submits a reimbursement request to the state Medicaid agency. Id. The state pays the bill after confirming the individual's eligibility and need for service. See id. Then the state seeks reimbursement from the federal government for a percentage of the cost. See 42 U.S.C. § 1396b(a).

Under the more widely used managed-care model, the state pays a third-party health insurer ("managed-care organization" or "MCO") a monthly premium (the "capitation rate") for each Medicaid beneficiary the MCO covers, and the MCO provides care to the beneficiary. 2002 Final Rule, 67 Fed. Reg. at 40,989. States may receive reimbursement from the federal government for some percentage of the capitation rate so long as the underlying MCO contract is "actuarially sound." See 42 U.S.C. § 1396b(m)(2)(A)(iii).

As states began moving away from the fee-for-service model, HHS recognized that its definition of "actuarial soundness"—based on the cost of services under a fee-for-service model—was untenable. See 2002 Final Rule, 67 Fed. Reg. at 41,000 (stating that "there [was] an increasing number of States that lack[ed] recent [fee-for-service] data to use for rate setting"). It thus promulgated a final rule redefining "actuarial soundness" in 2002. Id. at 41,079 –80 (redefining "actuarial soundness"). Under this new rule, capitation rates must satisfy three requirements to be actuarially sound. First, the rates must "[h]ave been developed in accordance with generally accepted actuarial principles and practices," 42 C.F.R. § 438.6(c)(1)(i)(A) (2002),³ which, as explained by the actuarial office within HHS that reviews state-MCO contracts, requires accounting for all reasonable, appropriate, and attainable costs. Second, the rates must be "appropriate for the populations to be covered, and the services to be furnished under the contract." Id. § 438.6(c)(1)(i)(B). Third, the rates must satisfy the Certification Rule;⁴ that is, they must "[h]ave been certified, as meeting the requirements of this [provision], by actuaries who meet the qualification standards established by the American Academy of Actuaries and follow the practice standards established by the Actuarial Standards Board [(the "Board")]." Id. § 438.6(c)(1)(i)(C).

In 2010, Congress enacted the ACA, comprised by the Patient Protection and Affordable Care Act ("PPACA"), Pub. L. No. 111-148, 124 Stat. 119 (2010), and the Health Care and Education Reconciliation Act of 2010 ("HCERA"), Pub. L. No. 111-152, 124 Stat. 1029 (2010). The ACA made two changes to the regulatory scheme requiring states that requested Medicaid reimbursements for their MCO contracts to provide actuarially sound capitation rates. First, Congress imposed a new cost on certain MCOs: a federal health-insurance provider tax (the "Provider Fee"). See PPACA § 9010, 124 Stat. at 865, amended by PPACA § 10905, 124 Stat. at 1017, amended by HCERA § 1406, 124 Stat. at 1066.⁵ This Provider Fee must be paid annually by covered entities—"any entity which provides health insurance for any United States health risk," excluding governmental entities.⁶ Id. § 9010(c)(1), (c)(2)(B), 124 Stat. at 866. Second, Congress amended the Medicaid Act to expressly require that capitation rates included in state-MCO contracts be actuarially sound. Id. § 2501(c)(1)(C), 124 Stat. at 308; 42 U.S.C. § 1396b(m)(2)(A)(xiii) ("[C]apitation rates ... shall be based on actual cost experience related to rebates and subject to the Federal regulations requiring actuarially sound rates[.]"). What remained unchanged was that actuarially sound capitation rates required accounting for all reasonable, appropriate, and attainable costs. Thus, when the Internal Revenue Service (the "IRS") began collecting the Provider Fee from covered entities in 2014, see PPACA § 9010(a), 124 Stat. at 865, states with MCO contracts were required to account for the Provider Fee to meet the actuarial soundness requirement of the Medicaid Act, see 42 U.S.C. § 1396b(m)(2)(A)(iii).

In 2015, the Board, an independent organization that sets appropriate standards for actuarial practices in the United States, published Actuarial Standard of Practice 49: Medicaid Managed Care Capitation Rate Development and Certification ("ASOP 49"). ACTUARIAL STANDARDS BD., ACTUARIAL STANDARD OF PRACTICE NO. 49: MEDICAID MANAGED CARE CAPITATION RATE DEVELOPMENT AND CERTIFICATION (2015) [hereinafter ASOP 49]. ASOP 49 provides "guidance for actuaries preparing, reviewing, or giving advice on capitation rates for Medicaid programs, including those certified in accordance with 42 CFR 438.6(c)." Id. at iv. Medicaid capitation rates are actuarially sound if they "provide for all reasonable, appropriate, and attainable costs," which "include ... government-mandated assessments, fees, and taxes." Id. at 2.

In summary, for states to receive federal reimbursement under the managed-care model, their MCO contracts must be approved by HHS as actuarially sound. See 42 U.S.C. § 1396b(m)(2)(A)(iii) ; 42 C.F.R. § 438.6(c)(1)(i). To be actuarially sound, the capitation rate must account for all costs MCOs bear when providing care to Medicaid beneficiaries. See 2002 Final Rule, 67 Fed. Reg. at 41,000. When Congress enacted the ACA in 2010, the amount of money states paid MCOs as part of their capitation rate changed: In contracts with MCOs subject to the Provider Fee, states must account for the Provider Fee in their capitation rate to satisfy HHS's actuarial-soundness requirement. ASOP 49 states that the "costs" include government-mandated taxes. ASOP 49 at 2.

B. Procedural Background

The States sued the United States, claiming that the Certification Rule and Section 9010 were unconstitutional and/or unlawful. See Texas v. United States (Texas I ), 300 F. Supp. 3d 810, 820 (N.D. Tex. 2018). Regarding the Certification Rule, they claimed that the rule violated the nondelegation doctrine from Article I, section 1, of the U.S. Constitution and that HHS violated the APA on multiple grounds. See id. at 826. Regarding Section 9010, they...