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Urban Health Care Coalition, et al v. Kathleen Sebelius

March 29, 2012


The opinion of the court was delivered by: Richard W. Roberts United States District Judge


Plaintiffs Urban Health Care Coalition and fifteen hospitals, medical centers, and health systems (referred to collectively as "the Hospitals") have sued the Secretary of the Department of Health and Human Services*fn1 seeking to enjoin the Secretary from enforcing § 6085 of the Deficit Reduction Omnibus Act of 2005 ("DRA"), codified at 42 U.S.C. § 1396u-2(b)(2)(D), arguing that § 6085 does not apply to Pennsylvania's Medicaid system and is unconstitutional. The Secretary moves to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction and under Rule 12(b)(6) for failure to state a claim upon which relief may be granted. Because the Hospitals do not have standing, the complaint will be dismissed for lack of subject matter jurisdiction.


The Hospitals sue the Secretary, challenging the constitutionality of § 6085 and its applicability to Pennsylvania. In Pennsylvania, Medicaid enrollees can obtain medical services through the state's fee for service ("FFS") program. In the FFS program, service providers, such as the Hospitals, enter into participation agreements with the Pennsylvania agency that oversees Medicaid. The Hospitals all participate in Medicaid and the payments from the FFS program are "below the hospitals' actual costs of providing hospital services." (Am. Compl. ¶¶ 3, 31.)

In addition to the FFS program, Pennsylvania has a managed care program through which it contracts with managed care organizations ("MCOs"). The MCOs provide services to Medicaid enrollees through contracts with "a 'network' of physicians, hospitals[,] and other in-plan medical service providers." (Id. ¶¶ 34, 40.) For the same services, the Hospitals generally receive higher payments from their contracts with MCOs than from the FFS program. (Id. ¶ 75.) However, even if the Hospitals are not providers under contract with a particular MCO, the Hospitals are required by federal law to provide emergency medical services ("EMS") to all Medicaid patients who are in that MCO. (Id. ¶ 62.) Before January 1, 2007, the Hospitals provided EMS to such Medicaid patients and billed those patients' MCOs for "all reasonably necessary costs," as required by 40 Pa. Cons. Stat. § 991.2116.*fn2 (Id. ¶ 78 (internal quotation marks omitted).) These rates under § 991.2116 were higher than the FFS rates. (Id. ¶ 79.) Section 6085 changed the Hospitals' payments from MCOs with whom the Hospitals had not contracted by preempting § 991.2116. (Id. ¶ 81.) Section 6085 states, in relevant part, that [a]ny provider of emergency services that does not have in effect a contract with a Medicaid managed care entity that establishes payment amounts for services furnished to a beneficiary enrolled in the entity's Medicaid managed care plan must accept as payment in full no more than the amounts (less any payments for indirect costs of medical education and direct costs of graduate medical education) that it could collect if the beneficiary received medical assistance under this subchapter other than through enrollment in such an entity.

42 U.S.C. § 1396u-2(b)(2)(D). Section 6085 requires the Hospitals not under contract with an EMS patient's MCO to forego the higher payments under Pennsylvania's "all reasonably necessary costs" standard and instead accept payments based on Pennsylvania's FFS rates. (Am. Compl. ¶¶ 90-92.) The Hospitals complain that this shifts the financial burden from the MCOs to the Hospitals as the FFS rates for EMS are below cost, and affects the Hospitals' "ability to negotiate fair rates of payment from MCOs" in the future. (Id. ¶¶ 102, 105-106.) After Congress enacted the DRA, the Director of the Centers for Medicare and Medicaid Services ("CMS"), an agency within the Department of Health and Human Services, sent a letter to state Medicaid agencies advising them that they must amend their contracts with MCOs to comply with the new limitation of § 6085 and that the Hospitals must accept the FFS rates as payment in full. (Pls.' Corrected Opp'n to Def.'s Mot. to Dismiss ("Pls.' Opp'n"), Ex. B at 1.)

The Hospitals seek to enjoin the Secretary from enforcing § 6085 against them, arguing that the statute does not apply to Pennsylvania and is unconstitutional as applied because it violates the takings clause, due process rights, and equal protection under the law.*fn3 (Am. Compl. ¶¶ 8, 127, 137, 144, 154.) The Secretary has moved to dismiss, arguing that there is no subject matter jurisdiction over the Hospitals' claim and that the complaint fails to state a claim upon which relief can be granted. (Def.'s Mem. in Supp. of Mot. to Dismiss ("Def.'s Mem.") at 11, 26.)


A federal court should first determine that it has jurisdiction over a case before ruling on the merits. Al-Zahrani v. Rodriguez, 669 F.3d 315, 317-18 (D.C. Cir. 2012); Moms Against Mercury v. Food & Drug Admin., 483 F.3d 824, 826 (D.C. Cir. 2007) ("In every case, the jurisdictional requirements of Article III must be present before a court may proceed to the merits."); but see Sinochem Int'l Co. Ltd. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 430-32 (2007) (distinguishing between proceeding to the merits and proceeding to threshold issues such as abstention, forum non conveniens, and prudential standing). "On a motion to dismiss for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of establishing that the court has subject-matter jurisdiction." Larsen v. U.S. Navy, 486 F. Supp. 2d 11, 18 (D.D.C. 2007). "Because subject-matter jurisdiction focuses on the court's power to hear the claim, . . . the court must give the plaintiff's factual allegations closer scrutiny when resolving a Rule 12(b)(1) motion than would be required for a Rule 12(b)(6) motion for failure to state a claim." Jin v. Ministry of State Sec., 475 F. Supp. 2d 54, 60 (D.D.C. 2007). The court may look beyond the complaint, but "must accept as true the allegations in the complaint and consider the factual allegations of the complaint in the light most favorable to the non-moving party." Short v. Chertoff, 526 F. Supp. 2d 37, 41 (D.D.C. 2007). See also Nat'l Ass'n of Home Builders v. U.S. Army Corps of Eng'rs, 539 F. Supp. 2d 331, 337 (D.D.C. 2008) (stating that "the court is not limited to the allegations contained in the complaint" and can consider other undisputed facts on the record).

"[A] showing of standing is an essential and unchanging predicate to any exercise of [a court's] jurisdiction." Fla. Audubon Soc'y v. Bentsen, 94 F.3d 658, 663 (D.C. Cir. 1996) (internal quotation marks omitted). In order for a plaintiff to establish standing to bring a constitutional claim, Article III requires that the plaintiff demonstrate (1) that he has suffered "an injury in fact" that is "(a) concrete and particularized and (b) actual and imminent, not conjectural or hypothetical," (2) that there exists "a causal connection between the injury and the conduct complained of," that is, that the injury is "fairly traceable to the challenged action of the defendant," and (3) that it is "likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal quotation marks and citations omitted).


An injury in fact is "an invasion of a legally protected interest[.]" Lujan, 504 U.S. at 560 (internal quotation marks and citations omitted). At the pleading stage, the "general factual allegations of injury resulting from the defendant's conduct may suffice," since on a motion to dismiss, a court presumes "that general allegations embrace those specific facts that are necessary to support the claim." Bennett v. Spear, 520 U.S. 154, 168 (1997) (internal quotation marks omitted). Here, the Hospitals allege that § 6085 reduces their reimbursements for non-contracted EMS from the level at which they would otherwise be entitled to be paid under Pennsylvania law. (Pl.'s Opp'n at 8.) This constitutes a concrete, actual harm to the Hospitals' financial interests and is sufficient to satisfy the requirement of injury in fact. See Andrews v. U.S. Dep't of Health and Human Srvcs., Civil Action No. 04-307 (JR), 2005 WL 4826342, at *2 (Apr. 13, 2005) ("Economic injury may amount to injury-in-fact for standing purposes.").


"In applying the causation test, . . . 'fair traceability turns on the causal nexus between the agency action and the asserted injury.'" Humane Soc'y of U.S. v. Babbitt, 46 F.3d 93, 100 (D.C. Cir. 1995) (quoting Freedom Republicans, Inc. v. FEC, 13 F.3d 412, 418 (D.C. Cir. 1994)). The plaintiff "need not prove a cause-and-effect relationship with absolute certainty; substantial likelihood of the alleged causality meets the test." Competitive Enter. Insts. v. Nat'l Highway Traffic Safety Admin., 901 F.2d 107, 113 (D.C. Cir. 1990). Standing to challenge the government's regulation of a third party is possible, Nat'l Wrestling Coaches Ass'n v. Dep't of Educ., 366 F.3d 930, 940 (D.C. Cir. 2004), but when a plaintiff is not the object of a government action, standing is "substantially more difficult to establish[.]" Long Term Care Pharmacy Alliance v. Leavitt, 530 F. Supp. 2d 173, 181 (D.D.C. 2008) (internal quotation marks omitted). A plaintiff may satisfy the ...

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