Tulare Local Health Care Dist. v. Cal. Dep't of Health Care Servs.

328 F.Supp.3d 988

TULARE LOCAL HEALTH CARE DISTRICT, et al., Petitioners,

v.CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES, et al., Respondents.

Case No. 15-cv-02711-PJH

United States District Court, N.D. California.

Signed July 20, 2018

Dean L. Johnson, Dean L. Johnson, Inc., Camano Island, WA, Michael Steven Sorgen, Law Offices of Michael S. Sorgen, Berkeley, CA, Thomas J. Weiss, Law Offices of Thomas J., Los Angeles, CA, for Petitioners.

Carolyn Ortler Tsai, Attorney General of State of California, Susan M. Carson, Deputy Attorney General, San Francisco, CA, for Respondents.

ORDER GRANTING SUMMARY JUDGMENT FOR RESPONDENTS

PHYLLIS J. HAMILTON, United States District JudgePetitioners' motion for summary judgment (Dkt. 64) and respondents' motion for summary judgment (Dkt. 66) came on for hearing before this court on March 21, 2018. Petitioners appeared through their counsel, Thomas Weiss. Respondents appeared through their counsel, Carolyn Tsai and Susan Carson. Having read the papers filed by the parties and carefully considered their arguments and the relevant legal authority, and good cause appearing, the court hereby GRANTS respondents' motion and DENIES petitioners' motion, for the following reasons.

BACKGROUND

A. Procedural History

Petitioners are fourteen California hospitals or health care districts. Amended Petition, Dkt. 60 ("FAP") ¶ 4. They challenge the implementation of statutes enacted by the California Legislature, which reduced payments to certain Medi-Cal (California Medicaid) providers. Id. ¶¶ 12, 19–20. Respondents are the California Department of Health Care Services ("DHCS" or the "Department") and its director, Jennifer Kent, in her official capacity.

This case was originally filed in May 2015 as a petition for writ of mandate under California Code of Civil Procedure § 1085¹ and for declaratory relief under California Code of Civil Procedure § 1060. Dkt. 1, Ex. A at 1, 5, 11, 19. The petition was originally filed in the Superior Court of California, County of San Francisco, and was removed to this court by respondents DHCS and its director, Jennifer Kent, on June 17, 2015, on the basis of federal question jurisdiction, where it was assigned to Judge Conti. Dkt. 1; Dkt. 11. Petitioners filed a motion to remand, arguing that there was no viable claim under federal law. Dkt. 4. They asserted that there is no viable federal claim under 42 U.S.C. § 1396a(a)(30)(A) ("§ 30(A)") because "the hospital petitioners do not have standing to enforce Section 30(A) in the federal courts," although they argued that state courts would have the power to decide the merits under state law. Dkt. 4 at 4 (citing Armstrong v. Exceptional Child Ctr., Inc., ––– U.S. ––––, 135 S.Ct. 1378, 191 L.Ed.2d 471 (2015) ).

On September 9, 2015, Judge Conti issued an order denying the motion to remand, finding (1) that petitioners' petition "raise[d] a number of issues of federal law, including the adequacy of Medi-Cal reimbursements under Section (30)(A)," even though the federal law to be resolved was raised by way of a state-law cause of action; and (2) that the Supreme Court in Armstrong"held that Section (30)(A) does not confer a private right of action and the sole remedy provided by Congress for a State's failure to comply with Section (30)(A) is the withholding of Medicaid funds by the Secretary of Health and Human Services [ (the "Secretary") ]." Dkt. 20 at 4–6.

On November 3, 2015, following Judge Conti's retirement from the court, the case was reassigned to the undersigned. On March 8, 2016, petitioners filed a motion for reconsideration of Judge Conti's order on their motion to remand. Dkt. 32. The court denied the motion, reasoning that "to the extent that petitioners seek a writ of mandamus based on an alleged violation of § 30(A) and related federal regulations, while they will be unable to proceed on the first cause of action in this court, per Armstrong, 135 S.Ct. at 1385, it appears that Sanchez [416 F.3d 1051 (9th Cir. 2005) ] may not bar the second cause of action, which asserts a claim of violation of the Equal Protection Clause of the U.S. Constitution, not a claim under § 30(A)." Dkt. 47 at 8.

On September 27, 2017, petitioners filed an amended petition. See FAP. However, the amended petition does not state a cause of action under the Equal Protection Clause. Id. Petitioners allege two causes of action. In the first cause of action, they seek a "writ of mandate for violation of federal and state statutes and regulations and the state plan." Id. at 11. Petitioners allege violations of two principal federal statutes: 42 U.S.C. § 1396a(a)(30)(A) (§ 30(A) ) and 42 U.S.C. § 1396a(a)(13)(A)(ii) ("§ 13(A)"), in addition to 42 U.S.C. § 1396a(a)(8) and several federal regulations. The second cause of action is for "declaratory relief" in the form of a declaration that the reduced payments to Medi-Cal providers were invalid and unlawful for the reasons alleged in the first cause of action, and it seeks an order requiring that the Department "disgorge and pay the Petitioners the monies collected under" the reduced payments to Medi-Cal providers. FAP ¶¶ 49–51.

On January 31, 2018, petitioners and respondents cross-moved for summary judgment on the action. Dkts. 64, 66.

B. Factual Record

Much of the factual record before the court is not disputed. Rather, the parties' competing motions for summary judgment turn on legal questions. The case is therefore appropriate for adjudication by summary judgment.

1. Medicaid

Congress created the Medicaid program as a voluntary program through which states could elect to receive federal funds in exchange for providing medical services to low-income, elderly, and disabled individuals according to federal parameters. "Like other Spending Clause legislation, Medicaid offers the States a bargain: Congress provides federal funds in exchange for the States' agreement to spend them in accordance with congressionally imposed conditions." Armstrong, 135 S.Ct. at 1382.

To qualify for federal funds, states must submit their state plans and state plan amendments to the Centers for Medicare & Medicaid Services ("CMS"), a division of the federal Health and Human Services ("HHS") agency, to "determine whether they comply with the statutory and regulatory requirements governing the Medicaid program." Douglas v. Indep. Living Ctr. of S. Cal., Inc., 565 U.S. 606, 610, 132 S.Ct. 1204, 182 L.Ed.2d 101 (2012). If a state is unable or unwilling to satisfy the requirements imposed by the Medicaid Act and its governing regulations, it may: (1) voluntarily withdraw from the Medicaid program; (2) seek a waiver from the Secretary of HHS; or (3) risk federal penalties, including the withholding of some or all of its federal funding. See 42 U.S.C. § 1396c.

2. 2008 California State Plan Changes

On February 16, 2008, the California Legislature filed Assembly Bill ("AB") 5 with the Secretary of State. 2008 Cal. Legis. Serv. 3rd Ex. Sess. Ch. 3 (A.B. 5) (West). On September 17, 2008, it filed AB 1183 with the Secretary of State. 2008 Cal. Legis. Serv. Ch. 758 (A.B. 1183) (West). The parties do not dispute that those enactments reduced Medi-Cal payments to petitioner hospitals.

AB 5 reduced certain payments to provider hospitals "by 10 percent ... for dates of service on and after July 1, 2008." 2008 Cal. Legis. Serv. 3rd Ex. Sess. Ch. 3 (A.B. 5) (West); Cal. Welf. & Inst. Code § 14105.19 ; Cal. Welf. & Inst. Code § 14166.245(b) & (c)(3) (repealed in 2011, effective 2013). AB 1183 reduced hospital payments for dates of service on or after October 1, 2008, to the "applicable regional average per diem contract rate ... reduced by 5 percent[.]" 2008 Cal. Legis. Serv. Ch. 758 (A.B. 1183) (West); Cal. Welf. & Inst. Code § 14166.245(b)(2)(A) (repealed in 2011, effective 2013).

In 2011, the California Legislature enacted SB 90, a bill that eliminated both the AB 5 and AB 1183 hospital rate reductions on a prospective basis effective April 13, 2011. 2011 Cal. Legis. Serv. Ch. 19 (S.B. 90) (West); Cal. Welf. & Inst. Code § 14166.245(j) (repealed in 2011, effective 2013). Therefore, the payment reductions set forth in AB 5 and AB 1183 expired on April 13, 2011. Id.

The payment reductions at issue in this case became final when CMS approved the state plan amendments on October 27, 2011, effective July 1, 2008. Dkt. 64-1, Ex. 10; Dkt. 66-4 ("Emery Decl."), Ex. O.

3. Notice

Undisputed evidence indicates that the Department published nine public notices regarding AB 5 and AB 1183, at least four of which sought public comment and eight of which were published prior to the implementation of the relevant payment reductions. Dkt. 66-3 ("Ong Decl.") ¶¶ 9–17; Exs. A–I; see also Dkt. 69 at 6. The Department first published a notice about the AB 5 payment reduction in the California Regulatory Notice Register on March 28, 2008. Ong Decl. ¶ 9, Ex. A. On May 30, 2008, the Department published on its Medi-Cal website a notice describing the 10% reduction and the statutory justifications for the AB 5 payment reduction for non-contract hospital inpatient services. Id. ¶ 10, Ex. B. On June 6, 2008, the Department published another notice about the AB 5 rate reduction for non-contract hospital inpatient services in the California Regulatory Notice Register. Id. ¶ 11, Ex. C. On June 25, 2008, the Department published a fourth notice on its Medi-Cal website that: (1) provided details regarding the upcoming AB 5 payment reductions; (2) advised that the Department had reviewed and considered public comments; and (3) informed the public that the reductions would take effect for services rendered on or after July 1, 2008. Id. ¶ 12, Ex. D. On June 27, 2008, the Department published a fifth notice with the same details in the California Regulatory Notice Register. Id. ¶ 13, Ex. E. All of these notices were published prior to the July 1, 2008 implementation date for the relevant reductions. Id. ¶¶ 9–13, Exs. A–E.

On September 5, 2008, the Department published a notice...