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Dartmouth-Hitchcock v Toumpas 03-02-12 Order

Dartmouth-Hitchcock v Toumpas 03-02-12 Order

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Order of Judge Stephen McAuliffe in Dartmouth-Hitchcock v Toumpas.
Order of Judge Stephen McAuliffe in Dartmouth-Hitchcock v Toumpas.

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UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE Dartmouth-Hitchcock Plaintiffs Clinic, et al., Case No. 11-cv-358-SM Opinion No.

2012 DNH 032 Services,

v.
Nicholas Toumpas, Commissioner, N.H. Dept. of Health and Human Defendant

o
A number an order Health of New Hampshire

RDER

hospitals

and two individuals Commissioner of

seek

prospectively

enjoining

the State's

and Human

Services

from enforcing

significantly under

reduced

reimbursement Medicaid are are

rates

for medical The hospital care,

care provided and health

the State's plaintiffs

Program.

care

system

"providers"

of medical under

and the individual

plaintiffs

"beneficiaries"

the program.

Plaintiffs Commissioner both

complain

that,

in several obligations

respects, under they

the law,

ignored

his clear

federal

procedurally

and substantively. notice

First,

say, he failed before to

to provide the reduced provide

them with rates

and an opportunity Second,

to comment

became

final.

they claim before

he failed the

notice

and an opportunity and Human

to comment

Department setting those

of Health

Services

("DHHS")

employed

ratefrom

methods

and standards

that were materially federally-approved

different Medicaid

established

in the State's

plan.

Finally,

plaintiffs

assert

that the reduced

rates

cannot

and do not satisfy requirements level

substantive

(and preemptive) reimbursement

federal rates be set at a enough

(i.e., that Medicaid to both assure

sufficient

quality

of care and enlist

providers

to deliver

medical

services

to Medicaid

beneficiaries

to the same extent population) (30) (A)").

such care
§

is available

to the general

See 42 U.S.C.

1396a(a) (30) (A) ("Section

At the risk alleges dictated (as well budgetary

of oversimplifying

the complaint,

it generally effectively rates state And, from agreed

that New Hampshire's substantial as other

Legislature

and Governor

reductions

in Medicaid solely

reimbursement to accommodate

Medicaid

funding)

preferences

- that

is, to save the State money. completely that divorced the State

say plaintiffs, the federally to follow when

they acted required

in a manner

rate-setting

process

it voluntarily failure

enlisted

in the Medicaid

program.

The Commissioner's requirements, lawful invalid entitled manner,

to comply

with mandatory

notice rates in a

and his failure plaintiffs

to set reimbursement render those

argue,

reduced

rates they are

and unenforceable. to equitable

Accordingly, relief

say plaintiffs, as necessary law.

injunctive

to obtain

the Commissioner's

compliance

with

federal

2

2

?1 v'

The Commissioner a number of grounds. claims

opposes

the motion

for injunctive

relief

on

He also moves (Counts

to dismiss

plaintiffs' that the Medicaid either

substantive Act

I - IV) on grounds right of action

does not include service

a private

entitling

medical

providers

or beneficiaries Enforcement

to enforce

the Act's Act's that

substantive substantive Congress secretary Moreover, direct

provisions. provisions,

of the Medicaid

says the Commissioner, to the sound discretion

is a matter

has committed of Health

of the federal litigants. of a

and Human

Services,

not private

the Commissioner under

argues,

plaintiffs'

assertion

claim

the Supremacy more

Clause

of the United effort label under

States to end-run is

Constitution Congressional really Act.

is little intent,

than a transparent a different rights

by putting

on what

an effort

to enforce

private

the Medicaid

With

respect

to plaintiffs' that DHHS from those

procedural

claims,

the methods or

Commissioner standards plan denies change

denies

employed described

rate-setting

different

in the State's was required), approval the

Medicaid and he of a

(and so denies

that any public

notice

that he was obligated in rate-setting rates.

to obtain

federal

methodology Moreover,

before

reducing that, were

reimbursement any notice

he contends

to the extent required, the

and opportunity

for public

comment

3

1

1

4

1

I

legislative reductions obligations

and executive were sufficient, federal

processes

associated

with

the rate his

in themselves, law.

to satisfy

under

The parties factual request issues,

have

extensively have

briefed been

the pertinent

legal

and

and hearings

held

on plaintiffs' as well as the

for preliminary motion

injunctive to dismiss

relief, Counts

Commissioner's

I - IV.

Background Medicaid provide they is a cooperative services federal-state members program designed who, to

medical

to those financial

of society cannot provides

because

lack the necessary medical care.

resources,

otherwise medical care

obtain

That

is, the program consisting

to a population dependent 430.0. U.S.C.
§

generally

of the poor,

including 42 C.F.R. Act, 42 that
§

children, Legislation

the disabled, creating

and the elderly.

the program, financial

the Medicaid support

1396 et seq., and administer

"provides

to states

establish with

state Medicaid a state plan

programs approved

in accordance

federal

law through

by the U.S. Long Term 2004). Care

Department Pharm.

of Health

and Human

Services

("HHS")."

Alliance

v. Ferguson,

362 F.3d

50, 51

(1st Cir.

"Although optional,

participation once a State

in the Medicaid elects

program

is entirely comply with

to participate,

it must

4

F

the requirements of [the Act]." 301 (1980).

Harris v. McRae, 448 U.S. 297,

One such requirement is that the state must have

(and adhere to) a federally-approved plan for reimbursing health care providers. 42 U.S.C. §§ 1396a(a), 1396d(a).

New Hampshire participates in the program and has a federally-approved state plan. Under New Hampshire's plan, DHHS

is the single state agency charged with responsibility to administer the Medicaid program. 42 U.S.C. § 1396a(a) (5). DHHS As

is headed by the defendant, Commissioner Nicholas A. Toumpas.

the State agency charged with administering the Medicaid program, DHHS is required to set payment rates for various medical services according to approved methods and standards.

All agree that the present dispute arises from state budget management decisions made by the Governor and Legislature, in 2008, in response to an anticipated decline in general revenues and concomitant looming deficits. Given difficult economic

circumstances and the relatively large expenditures associated with the Medicaid program, DHHS's budget naturally came under increasing scrutiny. Earlier, in 2005, the legislature had

enacted a provision of state law apparently designed to create a specific mechanism for adjusting reimbursement rates for Medicaid

5

outpatient

services,

should

DHHS

think

that claims claims:

might

exceed

appropriations

available

to pay those

If [Medicaid outpatient reimbursement] expenditures are projected to exceed the annual appropriation, the department may recommend rate reduction for providers to offset the amount of any such deficit. The department of health and human services shall submit to the legislative fiscal committee and to the finance committees of the house and the senate, the rates that it proposes to pay for hospital outpatient services. The rates shall be subject to the prior approval of the legislative fiscal committee. N.H. Rev. Stat. Ann. ("RSA") 126-A:3, VII (a) .

A careful statute recommend clear. than

reading

of the provision not mandatory reductions. sets a budget

discloses

that

the "may"

is permissive, provider rate

- the department But the intent for DHHS.

is certainly rather

The Legislature financial

Then,

incur

obligations services,

beyond

the amount

appropriated to

to pay

for outpatient rate

the Commissioner services.

is expected Recommended

recommend reductions is, rates that

reductions

for those the amount

are to "offset are expected paid

of any such deficit" as necessary to make services the

- that certain (even

to be reduced

the amount

to providers services)

for outpatient does not exceed with

dramatically appropriation. statutory

increased

The statute applicable

is silent

respect

to the federal Medicaid set forth

criteria rates

to setting

or changing standards

reimbursement

(i.e., the rate-setting
6

1

,

in Section transferring

(30) (A)). funds

And,

it seemingly budget

precludes

DHHS

from the

from other

sources

to supplement services:

appropriation department

available not

to pay for outpatient expenditures without prior

"The budgets

shall

increase services

in approved

for such outpatient approval." RSA

[fiscal committee]

126-A:3,

VII (a) .

Under outpatient encourages method

this

scheme,

the reimbursement be easily

rate

for Medicaid The statute computation

services reduction

could

manipulated. multi-factor

of the approved, controlling

to a single

element: one would

the State's merely divide the The

appropriation. available resulting outpatient entirely is that important consider, at a level Medicaid

Essentially,

appropriated number

funds by the anticipated the new reimbursement amount

claims. rate for

becomes

services, matters

a rate whose

and stability The problem, irrelevant

are of course,

of legislative threatens federal

grace.

such a scheme factors that

to render

other to be set

law requires

the Commissioner that rates

such as Section sufficient

(30) (A) 's requirement both quality

to assure have

of care and that care.

beneficiaries

equal

access

to medical

In the Fall of 2008, appropriated amount would

DHHS

determined

that

the thenMedicaid

not cover

anticipated

7

2

8

outpatient services claims.

Accordingly, it wrote to the

legislative fiscal committee, seeking authorization to "revise the [Medicaid] reimbursement rate paid to non-critical access hospitals for outpatient services from 81.24 percent of Medicare allowable costs to 54.04 percent of Medicare allowable costs effective retroactive to July 1, 2008." Declaration. Exhibit C, Freyer

The fiscal committee approved the requested rate

reduction on November 21, 2008, as a "budget neutrality" measure - that is, a measure designed to reduce reimbursement rates as necessary to keep total costs within the amount budgeted.

Following fiscal committee approval, the Commissioner reduced the outpatient services reimbursement rate by 33.48%, a rather significant amount. That the outpatient rate reduction

was the result of one fact - the State legislature's desire to reconcile an anticipated shortfall in the amount appropriated to pay for those services - is not seriously disputed. But, it is

not inconceivable that the reduced rates still might have passed muster under Section (30)(A)'s standards, had they been properly considered. And, of course, by reducing outpatient services

rates, the State effectively shifted the financial burden associated with the delivery of increased outpatient medical services away from society as a whole, and onto Medicaid services providers, like the hospital plaintiffs.

8

31

Also Executive providing

on November Order that:

21, 2008, New Hampshire's pursuant to statutory

Governor authority

issued

2008-10,

Notwithstanding any other provision of law, the governor may, with the prior approval of the fiscal committee, order reductions in any or all expenditure classes within any or all departments. . if he determines at any time during the fiscal year that: (a) Projected state revenues will be insufficient to maintain a balanced budget and the likelihood of a serious deficit existsi . RSA 9:16-b. reduce Through that Executive Order, the Governor by 10% sought to

Medicaid access

inpatient hospitals), approved

reimbursement effective the Executive

rates December Order

(for nonThe

critical fiscal was

I, 2008.

committee

on the same day it dispute based that on a

issued.

Again,

the parties reimbursement

do not seriously rates were state

Medicaid singular

inpatient

reduced budget Like also

consideration: as approved

the Governor's

management the outpatient shifted by the a

preferences, rate part

by the legislature. rate reductions previously

reductions,

the inpatient

of the financial from the State

responsibility

borne

State,

to the hospitals.

It appears developed, direction that

from

the record,

though

it is not yet

fully

the Commissioner

followed

the Legislature's rate

and implemented

the inpatient 9

and outpatient

reductions as a matter of course.

It does not appear that the

Commissioner engaged in any effort to notify providers, beneficiaries, or other interested residents of New Hampshire of the impending rate reductions. Nor did he provide them with an

opportunity to be heard before making the reductions final.

To be fair, the Commissioner does not seem to argue that he made any purposeful effort to give notice and an opportunity to be heard, as contemplated by federal law, before implementing the rate reductions. Instead, he argues that, while no formal notice

was published or broadcast, still, providers, beneficiaries, and interested residents were put on fair notice of the impending reductions through the ongoing political and legislative process. The notion seems to be that, because DHHS, the Governor, and various legislative committees were in communication with representatives of a hospital association to which the hospital plaintiffs belong, the hospitals had at least constructive, if not actual notice of the impending rate changes. They also had

an opportunity to lobby against those changes before the legislative fiscal committee and the Governor. That general

public process, says the Commissioner, was a fair substitute for the administrative notice and opportunity to be heard required by the Medicaid Act. The Commissioner makes the same point with

respect to Medicaid beneficiaries and other interested residents
10

'1
I

- they,

too, necessarily

had constructive,

if not actual,

notice

of the doings have voiced if not DHHS, various

of the Governor concerns

and Legislature,

and they too could committee, at

their

to the Governor

and fiscal

by means

of traditional proceedings.

lobbying

or attendance

fiscal

committee

Discussion I. Supremacy Federal unequivocally participating standards States Centers Clause Claims. law and applicable that Medicaid in accordance in a state plan and Human regulations rates be set by

Medicaid require states

reimbursement

with methodologies and approved Services

and

published

by the United the Those alia,

Secretary

of Health

(through

for Medicare

and Medicaid must

Services be adequate

("CMS")). to, inter with

methodologies "assure economy, providers [Medicaid] services geographic that

and standards [Medicaid]

payments

are consistent

efficiency, enough

and quality so that plan

of care and are sufficient are available that

to enlist under

care and services

the

at least

to the extent

such care and in the

are available area."

to the general
§

population

42 U.S.C.

1396a(a) (30) (A).

Substantively, case

the providers Medicaid

and beneficiaries rates

make

a strong by

that the reduced

reimbursement

implemented

11

Q1 ~I

the Commissioner inconsistent rates with

are far below the state's

the actual legal

cost of providing

care,

obligation

to set Medicaid their ability of a and They

at a level

that at least minimally care to the most

supports

to deliver rate-setting standards

medical

needy,

and the product from the methods in setting rates.

process

completely is obligated

untethered to apply

the State argue

also plausibly Medicaid cannot Medicaid reductions accommodate multiple

that the reduced to abandon

rates

are likely

to force they

service continue

providers

the program, subsidize

because

to disproportionately As is likely reimbursement

the State's arbitrary solely to

obligations. in Medicaid state

self-evident, rates,

implemented

budgetary

preferences,

necessarily

collapse

rate-setting

factors

into just one

- state prerogative. based then strictly the be on

It is equally state

self-evident were

that

if rate-setting under

prerogative

permissible

the Act,

purpose

and objectives undermined

of the federal-state by participating intent.

program

could

completely

states, That

in direct

contravention concern reduced when,

of Congressional as here,

is of particular

reimbursement context

rates

are substantially and of

in the larger

of other

significant

contemporaneous Medicaid

withdrawals

of state

financial

support

services.1

In addition to the inpatient and outpatient rate reductions, New Hampshire also implemented a delay in Outpatient Cost settlement Payments, eliminated what are known as UPL payments 12

It should Medicaid rates

not be surprising, set solely

then,

that

courts

have

rejected

on the basis Living Ctr.

of state budget of So. Cal., Inc. v.

considerations. Maxwell-Jolly, concerns regarding cannot

See Indep. 572 F.3d .

644, 659

(9th Cir.

2009) ("State budgetary in decisions 2012 WL 555204 Dep't of Social

. be the conclusive vacated on other

factor grounds

Medicaid."),
i

(Feb. 22, 2012) Services, constraints amending annually

Amisub

(PSL), Inc. v. Colorado (10th Cir.

879 F.2d

789, 800-01

1989) ("While budgetary by a state when the

may be a factor plan,

to be considered

a current mandated

implementing budgetary

a new plan, constraints

or making alone

findings,

can never

be sufficient.").

Plaintiffs show that, outpatient inconsistent

have presented

persuasive

evidence

tending the

to

in all likelihood, and inpatient with

the Commissioner rates

reduced

reimbursement

in a manner obligations

his substantive

and procedural

(discretionary sums paid to reimburse hospitals up to the difference between the amount paid by Medicare and that paid under Medicaid for like services), and eliminated what are known as DSH payments (amounts paid to assist those hospitals that serve a disproportionately high proportion of patients who cannot pay and do not qualify for Medicaid assistance). In addition, the State changed its long-standing practice and converted what had been a hospital tax in name only into a burdensome reality (the Medicaid Enhancement Tax) . Parenthetically, the court notes that plaintiffs also seek to include those reductions as "rate" reductions, but the record, as it stands, does not support that contention. 13

under

applicable

federal employed

law.

It appears

likely, method

as well, (one solely

that

the Commissioner driven by "budget

a rate-setting

neutrality") approved public

that deviated by the Secretary, and without

materially without first

from the first

rate-setting giving CMS's
§

method

appropriate approval

notice plan
§

obtaining

of a state

amendment. 447.205.

See 42 U.S.C.

1396(a) (30) (A) i

42 C.F.R.

But,

as the Commissioner is reasonably a private

correctly

notes,

legal precedent

in

this circuit intend Medicaid directly

clear right

in holding of action

that Congress to enforce the

did not

to create Act's

substantive Section

requirements.

Plaintiffs and,

cannot in all

enforce only

(30) (A) 's requirements can hold

probability, for failing See, e.g., not have they

the Secretary

the State

accountable

to meet Long Term

its substantive Care,

Medicaid

Act obligations. ... (30) (A) i do if

362 F.3d at 59 under

("Providers subsection

a private that

right

of action

think

state

reimbursement

is inadequate

- and cannot their

persuade feet. ") .

the Secretary

to act - they must vote

with

Plaintiffs obligations

readily upon

concede

that they cannot by Section Rather,

enforce

any

imposed

the States to do so. 14

(30) (A), and deny say, they are

that they are attempting

they

1

asserting States State issue

a direct

claim

under

the Supremacy

Clause

of the United those at

Constitution, laws that, - State

seeking

an order

declaring

invalid

in their

view,

mandated

the rate

reductions

laws that contradict,

and are,

therefore,

preempted

by federal

law.

whether maintain

the hospitals

and Medicaid

beneficiaries on that

can legal theory before a the

a suit challenging of some doubt. States answer, Supreme

rate reductions That very Court were

is a matter the United definitive Court

question

was pending expecting

this term. disappointed Living

Those

however,

last week, of Southern

when

decided

Douglas

v. Indep. 09-958,

Center

California, The Court providers invalidate preempted Supremacy the court whether

Inc., No. vacated to bring Medicaid California Clause

2012 WL 555204 decision action

(Feb. 22, 2012). allowing to Medicaid

the Ninth

Circuit's Clause

a Supremacy

seeking

reimbursement statute.

rates

set by an arguably avoided the the case to to consider

But,

the Court instead

question

entirely,

remanding

of appeals

so it might

have remedy

an opportunity under

a likely Act

administrative

the Administrative Supremacy

Procedures Clause

effectively redundant

rendered

the providers'

claim

both

and unnecessary.

15

9

Douglas raises more questions than it answers, and adds a measure of uncertainty to the law applicable in resolving plaintiffs' substantive claims in this case. The Justices split

5 - 4, with the four dissenting Justices unequivocally declaring that the Supremacy Clause cannot be invoked to enforce a state's obligations under Spending Clause legislation like the Medicaid Act. The five Justices in the majority avoided that issue

altogether, noting that after the Court heard oral argument in the case, the Secretary administratively approved California's statutorily-mandated rate reduction. Based upon that intervening

change in circumstances, the majority held that the case should be remanded, rendering it unnecessary to resolve the Supremacy Clause issue:

While the cases are not moot, they are now in a different posture. The federal agency charged with administering the Medicaid program has determined that the challenged rate reductions comply with federal law. That agency decision does not change the underlying substantive question, namely whether California's statutes are consistent with a specific federal statutory provision (requiring that reimbursement rates be "sufficient to enlist enough providers"). But it may change the answer. And it may require respondents now to proceed by seeking review of the agency

16

1

determination under the Administrative Procedure Act (APA) , 5 U.S.C. §701, et seq., rather than in an action against California under the Supremacy Clause. Douglas, 2012 WL 555204 at *5.2

So, a critical plaintiffs' in Douglas, any, federal Supremacy however,

legal

question, claim, here

potentially remains

dispositive

of

Clause

unanswered.

Unlike what, if

the record

does not disclose

administrative

review

of the State's Indeed,

rate-setting the

process hearings that

is available, held before has been

or has occurred. this court, no federal

during

plaintiffs' review

counsel

suggested and that

there

agency

or action,

Prior to implementing the legislatively-mandated rate reductions, California (unlike New Hampshire) submitted several State Plan Amendments to the Centers for Medicare & Medicaid Services. Initially, CMS rejected those proposed amendments on grounds that, among other things, the State failed to demonstrate that the reduced reimbursement rates would meet the conditions set out in Section (30) (A) (specifically, that state plans must assure that payments to providers are sufficient to enlist enough providers to ensure that care and services are available under the State's Medicaid plan at least to the extent that such care and services are available to the general population) . Subsequently, however, California submitted additional documentation to demonstrate that the SPAs complied with Section (30) (A). CMS approved the SPAs, after determining that an analysis of the rates and their likely impact suggested that Section (30) (A) 's requirements could be satisfied, and that ongoing state monitoring, as well as a commitment to promptly change the rates should they prove insufficient, afforded adequate protection to providers and beneficiaries. See Letter from CMS to the Director of California Health Care Programs, dated October 27, 2011. 17

counsel available

was unaware

of any federal

administrative

process

to them to obtain the ambiguity the record

such review. holding without in Douglas, the benefit of

Given and because

of the majority's here was developed briefing Douglas

that decision, here as it was

additional in Douglas.

and argument simply

is as unavoidable too many left are

raises

critical

factual,

administrative,

and legal which

questions

unaddressed unlikely

in this record,

and about

the parties

to agree.

As the Supreme

Court

suggested, procedures,

plaintiffs followed are by

may be limited deferential entitled

to administrative review. on those

review

judicial

In any event, issues before

the parties the court schedule

to be heard

resolves and

the merits specified

of plaintiffs' issues

claims.

A briefing

the parties

are to address

are set out below.

II.

Plaintiffs' That leaves

Procedural plaintiffs'

Claims. procedural claims While under 42 U.S.C.

§

13 96a (a) (13) (A) ("Section concede Section private Section plan that they cannot (30) (A), they right

(13) (A)"). assert

the plaintiffs of action under

private

causes

insist

that Congress

did afford

them a by

of action

to enforce

the procedures

required

(13) (A).

Section

(13) (A) requires

a state's

Medicaid

to provide:

18

(A) for a public process for determination of rates payment under the plan for hospital services . under which (i) proposed rates, the methodologies the establishment of such rates, and justifications for the proposed rates published, underlying are

of

(ii) providers, beneficiaries and their representatives, and other concerned State residents are given a reasonable opportunity review and comment on the proposed rates, methodologies, and justifications,

for

(iii) final rates, the methodologies underlying the establishment of such rates, and justifications for such final rates are published, and (iv) in the case of hospitals, such rates take into account (in a manner consistent with section 1396r-4 of this title) the situation of hospitals which serve a disproportionate number of lowincome patients with special needs; 42 U.S.C. of appeals 1396a(a) (13) (A) (emphasis observed, Section supplied). As the court inter . alia that a

§

(13) (A) "requires

'public process' hospital comment "Broadly order services on

be used .

to set

'rates of payment 'providers,' Term Care,

. for others, can

.,' in which rates./I Long

among

'proposed'

362 F.3d at 53. something on the

speaking,

subsection

(13) (A) requires rule-making of

of notice of rates under

and comment

for states 'hospital

in their

setting provided

for reimbursement Act./I

services' Soc'y of

the Medicaid

Id. at 54

(citing Am.

Consultant

Pharmacists

v. Concannon,

214 F. Supp.

2d 23, 28-29

19

(D. Me. 2002)) F.3d 654, 659

i

accord

Children's 1999).

Seashore

House

v. Waldman,

197

(3d Cir.

As noted, statutes such

plaintiffs

can sue to enforce only when Congress

rights intended

under

funding

(like Medicaid) When

to permit its

litigation. to create

Congress

has not clearly causes

disclosed

intent must

or preclude

private used

of action,

its intent

be inferred with

from the words resort

in the pertinent history as necessary. whether under federal described "the

legislation, Supreme Congress funding Court

to legislative relative

jurisprudence to create requires v. Doe,

to determining of action

meant

private

causes

statutes Univ.

consideration 536 U.S. 273

of the factors (2002). cases

in Gonzaga Supreme rights

In Gonzaga

Court

assimilated

its earlier cases

restricting

implied

of action

in non-state

with

[42 U.S.C. that right short

§ 1983]
1983 just a

precedenti requires federal

it repeated a violation

an earlier

statement federal

section and not of 'an

of a private

law, and it indicated conferred right'

that nothing could

unambiguously section Care,

support

a claim

under

1983 based

on a federal (citations

funding omitted).

statute."

Long Term

362 F.3d at 57

Section providers

(13) (A), by its terms,

seems

to unambiguously of action. The

afford

and beneficiaries

a private

right

20

statutory specified "rights

language

addresses

a narrow including to confer

subject

(rates for services); rights on an uses

sets of services, language"

"hospital" procedural

creating

identified

and discrete their

class

of beneficiaries and other

(providers, concerned State

beneficiaries, residents);

representatives,

and focuses

on the individuals than the entity of appeals Medicaid adopted

protected being

(providers (the

and beneficiaries) State). statute's In fact, language rates

rather

regulated

the court entitles

has recognized

that the on

providers under

to "insist

reimbursement after notice

that were

subsection Long Term

(13) (A) Care, 362

and an opportunity By requiring Medicaid embattled special prior

to comment." notice

F.3d at 55. heard, thought homes before that

and an opportunity "could have

to be

rates care

are set, Congress facilities

like hospitals rates."

and nursing Id. And, for

needed

protection

from arbitrary wanted

"it is easy care

to imagine Their

why Congress sunk-cost

special makes

protection them

facilities.

structure

especially Id.

vulnerable at 56.

to slow destruction of course,

by long-term concern

underfunding." raised

That,

is a major

by plaintiffs

in this case.

In Long Term (13)
(A)

Care,

the court (30)
(A))

of appeals meets

assumed

that Section The those of

(unlike

Section

the Gonzaga

test.

court

contrasted

the attributes

of Section

(13) (A) with

21

Section Section
§

(30) (A) to make

the point

that Section right

(30) (A), unlike of action under the

(13) (A), did not afford Long Term factors, may, Care,

a private

1983.

362 F.3d at 56. that the hospital with seeking

Likewise,

applying

Gonzaga

I find

and beneficiary intent, assert

plaintiffs private rights

consistent of action

Congressional enforcement (13) (A) .

causes afforded

of the procedural

them under

Section

Turning Commissioner opportunity implemented

to the merits, ignored

plaintiffs

argue

that

the and he they

his obligation required

to provide

the notice

to comment

by Section rates.

(13) (A) before Accordingly, with

the significantly both

reduced

seek an injunction (13) (A)'s notice of the reduced

requiring

him to comply

Section enforcement

provisions until

and enjoining those

prospective have

rates

requirements

been met.

Preliminary plaintiffs show that will

injunctive

relief

is generally test.

appropriate Plaintiffs

when must

satisfy (1) they

a familiar are likely harm

four-part to succeed

on the meritsi

(2) they (3)

suffer

irreparable

if an injunction injunctive would

is not enteredi outweighs

injury harm and

to the plaintiffs

absent

relief

any

that granting (4) the public v. Abington

an injunction interest Hous.

impose

on the defendanti relief. See, e.g.,

favors Auth.,

injunctive

Langlois

207 F.3d 43, 47

(1st Cir.

22

1

2000).

A party seeking injunctive relief must independently See Auburn News Co. v.

satisfy each of the four factors.

Providence Journal Co., 659 F.2d 273, 277 (1st Cir. 1981).

Plaintiffs are likely to succeed on the merits of their Section (13)(A) claims. Putting aside the Supremacy Clause

issue, the gravamen of plaintiffs' complaint is that Section (13)(A) notice and an opportunity to be heard were unlawfully denied them before the Commissioner implemented these substantial rate reductions. likely. From the evidence presented, that seems highly

On the other hand, the Commissioner's position - that,

with respect to his rate-setting actions, collateral legislative and other political proceedings served as an adequate substitute for the notice and opportunity to be heard required by the Act is one that is unlikely to succeed on the merits. See generally

Mission Hosp. Regional Med. Ctr. v. Shewry, 168 Cal. App. 4th 460 (Cal. App. 3d Dist. 2008).

In this case, injunctive relief can be properly tailored to both vindicate plaintiffs' important procedural rights and avoid unduly burdening the Commissioner and State. No additional

imposition beyond what the law already requires will flow from an injunction requiring the Commissioner to do his procedural duty as prescribed by federal law. And, requiring the Commissioner to 23

, ,

__.,

I

do now what he should disproportionate injunctive

have

done previously militating

hardly

poses

a risk of of

"injury"

against

the issuance

relief.

Plaintiffs other hand, have

- providers established will

and beneficiaries that they have to suffer

alike suffered

- on the and, absent injury. to be action rights. is See

injunctive They remain

relief,

continue

irreparable right

deprived

of a statutorily-conferred significant affect

notified taken

and heard

before

administrative substantial 500-04 "where

that might Sierra

adversely

their

generally 1989). persons is more easily

Club v. Marsh, of appeals afforded

872 F.2d 497, has observed, an opportunity factors will

(1st Cir. interested . it or too

As the court have not been that

to comment. be overlooked public

likely

significant In contrast assurance

discounted.

. inviting of agency

comment

. provides various

further

exposure post

to the hoc review 619 F.2d Pharma. of

considerations, reasoning (1st Cir.

and militates process." 1980)).

against

the agency's 134, 140 n.5

Kollett

v. Harris,

See also Long Term 2d 282, 293-94

Care

Allicance (failure

v. Ferguson, to give notice

260 F. Supp. in medicaid

(D. Ma. 2003) is (1st

rate-setting grounds

process 50

irreparable Cir. 2004).

injury),

vacated

on other

362 F.3d

24

Although plaintiffs particularly because needed

the reduced entitled respect reduced

rates

have been their harm

in place legitimate likely

for some time, concerns,

remain with

to voice to future

to be suffered access to

of those medical

rates:

increasingly increases

restricted in untreated

care;

significant

illnesses

and injuries significant ability

among

New Hampshire's losses

most vulnerable threaten services; available

citizens; the hospitals' elimination in New medical to of

financial

that might Medicaid currently

to continue medical

providing services

specialized Hampshire; industry, be heard

and significant

job losses

in the State's

to name but a few. is not compensable being denied

Deprivation by money

of the opportunity in this context. and

damages

The rights potentially importance deprivation

are the rights

to participate decision

influence

an administrative

of great continuing

to the plaintiffs constitutes

and the public. harm

That

irreparable

in this

context.

The public injunctive their fairly

interest

also

counsels

in favor

of granting to fulfill meant to

relief.

Public

officials

must

be required processes

important apprise

legal

obligations,

and public

citizens

of important

governmental

decisions out.

and

the reasons

supporting

them must be allowed

to play

25

While it is not possible to turn back the clock, requiring procedural compliance with the Medicaid Act's requirements now will not be futile, and may well prove beneficial to all the parties. The Commissioner, of course, may not respond favorably,

from plaintiffs' perspective, after giving the requisite notice and fair opportunity to be heard. But, plaintiffs are entitled

to the opportunity to persuade him, and they are now better prepared to present relevant information. What previously was

entirely predictive with respect to the likely adverse effects of substantial rate (and other) reductions is now experiential as well. Evidence of the medical community's real-world experience

under the reduced rates could conceivably persuade the Commissioner that the rate reductions were ill-advised and that a change is necessary. But, even if, after sufficient notice and

an opportunity to be heard has been afforded, the Commissioner still determines that the current state of affairs is consistent with State policy and federal requirements, at least the pertinent record will be unambiguous. The Commissioner will have

clearly and publically declared: (1) precisely what methodology was used to set the reduced rates; and (2) the justifications for those rates. That action will, at a minimum, facilitate whatever

federal administrative review is available.

26

.11

Finally, the Commissioner argues that even if plaintiffs make the requisite showing on all other points, the court should still deny injunctive relief on laches grounds plaintiffs simply waited too long to file suit) (i.e., that Certainly,

plaintiffs could have brought suit back in 2009, or at any time since. That they did not would normally weigh heavily against

issuing equitable relief at all, particularly if the delay materially prejudiced the State. great concern here. relief only. But that is not a matter of

Plaintiffs seek prospective injunctive

They are not seeking retroactive relief of any kind And prospective relief can be adequately

(and probably cannot).

tailored to obtain compliance without unduly disrupting the State's administration of its Medicaid program and budget.

Besides, it is difficult to fault the plaintiffs for excessive delay in seeking injunctive relief. Administration of

the Medicaid system is a fairly complex endeavor, requiring no small degree of communication and cooperation among a number of constituencies. The hospitals no doubt expected, in 2009 and

perhaps thereafter, that the reduced rates represented a temporary imposition dictated by unexpected fiscal circumstances, but one likely to be lifted in a reasonable time.

27

Injunctive barring continued

relief

is appropriate,

but not to the extent rates seems pending to hold must

of

enforcement After

of the reduced all, as Douglas administrative seek to enforce Clause

procedural at least exhausted obligations review will

compliance. suggests), before under likely

(or be

available

remedies

plaintiffs

the State's

Medicaid

the Supremacy render Moreover, Services,

and such administrative Clause challenge redundant of

a Supremacy Congress

and unnecessary. Health and Human

has vested

the Secretary

not this court,

with primary

authority

to review rates. comply than

and determine

the adequacy expert sense

of Medicaid of what

reimbursement to

The Secretary's with Section

is sufficient

(30) (A)'s requirements

may well be broader enforcement of

this court's. rates

An injunction
pending

that prohibits

the current Section

the Commissioner's responsibilities

compliance would

with his

(13) (A) procedural

unnecessarily to set rates,

risk usurping rates

the Commissioner's

administrative to review It might of both

authority and approve

and the Secretary's the Act's

authority

and enforce disrupt

requirements.

also unnecessarily program

the State's

administration

its Medicaid

and its overall

budget.

The court falls they short seek.

recognizes

that

the described with

injunctive

relief relief

of providing Nevertheless,

plaintiffs

the substantive

the critical

nature

of the subject

28

matter

- medical militates

care

for the State's of holding to give

most

vulnerable

citizens to his

-

strongly

in favor

the Commissioner adequate affected, notice

federally-mandated fairly Medicaid meaningful petition consider

obligations the views

to, and to he sets

of those most

before

reimbursement relief,

rates.

It may be that, will first have But,

to obtain to put their the Secretary is to

plaintiffs

in the hands

of the Secretary.

not a disinterested enforce compliance

regulator; with Section

she has the authority (30) (A)'s mandate, requiring off federal

necessary by inter

alia of

disapproving the previous Long Term

the reduction rates,

in rates,

reinstatement funding. See

or even cutting

Care,

362 F.3d at 59.

Conclusion For the foregoing preliminary denied injunction reasons, (document plaintiffs' motion for in part, and

no. 3) is granted is enjoined

in part.

The Commissioner order.

as set out in a

separate

contemporaneous

The Commissioner's no. 48) requires five submit (45) days

motion

to dismiss

Counts

I-IV

(document forty-

additional

briefing

and argument.

Within shall

of the date of this order, briefs addressing

the parties

supplemental

at least

the following

questions: 29

91

1.

In light of Douglas, should plaintiffs' Supremacy Clause cause of action be dismissed? Is CMS considering whether the rate reductions for inpatient and outpatient Medicaid services comport with the requirements of applicable federal law and regulations? If so, what is the status of that administrative process? If not, do plaintiffs have available to them any administrative remedy or process by which they can obtain administrative review of the rate reductions at issue, and the state statutory provisions seemingly dictating the Commissioner's implementation of budgetdriven rate reductions, for compliance with the requirements of applicable federal law and regulations? Should the Commissioner be ordered to file a Proposed State Plan Amendment ("SPA") with respect to the methodology used to set the challenged inpatient and outpatient Medicaid rates upon a finding that the rate-setting process employed methods and standards materially different from those contained in the approved State Plan, thereby initiating federal administrative review of that ratesetting process? Are plaintiffs required to exhaust available administrative remedies under the Administrative Procedures Act ("APA"), 5 U.S.C. §701 et seq., before proceeding with their claims under the Supremacy Clause?

2.

3.

4.

5.

SO ORDERED.

lsi Steven J. McAuliffe Steven J. McAuliffe United States District Judge
30

F

2

March cc:

2, 2012 Martha Van Oot, Esq. William L. Chapman, Esq. Anthony J. Galdieri, Esq. Emily Pudan Feyrer, Esq. Gordon J. MacDonald, Esq. W. Scott O'Connell, Esq. John E. Friberg, Jr., Esq. Erica Bodwell, Esq. Mitchell B. Jean, Esq. Nancy J. Smith, Esq. Jeanne P. Herrick, Esq. Laura E. B. Lombardi, Esq. Constance D. Sprauer, Esq.

31

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