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Stewart v. Azar

United States District Court, District of Columbia

March 27, 2019

RONNIE MAURICE STEWART, et al., Plaintiffs,
v.
ALEX M. AZAR II, et al., Defendants.

          MEMORANDUM OPINION

          JAMES E. BOASBERG United States District Judge.

         This Court again takes up a challenge to the federal approval of Kentucky HEALTH, an experimental project proposed by the Commonwealth of Kentucky intended to “comprehensively transform” its Medicaid program. The Secretary of Health and Human Services has authority to approve such experimental proposals - or “demonstration projects” - as long as they promote the objectives of the Medicaid Act. Kentucky HEALTH, which the Secretary initially approved on January 12, 2018, would condition Medicaid eligibility for a large portion of its beneficiaries on work or community-engagement requirements and impose several additional obligations intended to make Medicaid more like commercial insurance.

         Plaintiffs, Kentucky residents currently enrolled in the Commonwealth's Medicaid program, believed HHS's approval unlawful. In a ruling last summer, this Court agreed. Finding that the “Secretary never adequately considered whether Kentucky HEALTH would in fact help the state furnish medical assistance to its citizens” and thus promote a central objective of the Medicaid Act, the Court concluded that this “signal omission render[ed] his determination arbitrary and capricious.” Stewart v. Azar, 313 F.Supp.3d 237, 243 (D.D.C. 2018). In particular, it found that the Secretary had not grappled with Kentucky's estimate that a substantial number of people were likely to lose coverage under Kentucky HEALTH. Id. at 260. The Court, consequently, vacated the approval and remanded to HHS for further review.

         The bell now rings for round two. Following the Court's remand and an additional notice-and-comment period, the Secretary reapproved the program last November, this time relying on somewhat different reasoning. Plaintiffs now challenge the reapproval, contending principally that the Secretary has not remedied the defects that rendered his prior action unlawful. Specifically, they maintain that he has still not adequately considered Kentucky HEALTH's likelihood to cause significant coverage loss. The Secretary, by contrast, believes that this time around he has cured any critical omission. Defendants now rely primarily on a new argument to that effect - namely that, although Kentucky HEALTH may cause nearly 100, 000 people to lose coverage, that number will be dwarfed by the approximately 450, 000 people who would suffer that fate if Kentucky ends its coverage entirely of those who have joined the Medicaid rolls via the Affordable Care Act, as it has threatened to do if this project is not approved.

         The Supreme Court, in holding that Congress could not require states to adopt that Medicaid expansion by conditioning all their Medicaid funding on a decision to do so, explained that the states could not be compelled to engage in a program they had not bargained for with “a gun to the head.” Nat'l Fed. of Indep. Business v. Sebelius, 567 U.S. 519, 581 (2012). Kentucky, it seems, has now picked up that gun by threatening to de-expand Medicaid. Defendants urge the Court to adopt the proposition that the Secretary need not grapple with the coverage-loss implications of a state's proposed project as long as it is accompanied by a threat that the state will de-expand - or, indeed, discontinue all of Medicaid. By definition, so this argument goes, any number of people covered by an experimental Medicaid program would be greater than the number if there were no Medicaid at all; as a result, any demonstration project that leaves any individual on a state's Medicaid rolls promotes coverage. The Court cannot concur that the Medicaid Act leaves the Secretary so unconstrained, nor that the states are so armed to refashion the program Congress designed in any way they choose. As a consequence, once again finding the reapproval was both contrary to the Act and arbitrary and capricious, the Court will vacate it and remand to HHS for further review.

         I. Background

         The details of the statutory scheme and the facts of the dispute will be familiar to readers of the Court's prior Opinion. See Stewart I, 313 F.Supp.3d 237. The Court nevertheless offers a brief refresher on both before setting out the Secretary's actions on remand.

         A. Statutory Scheme

         Medicaid is a cooperative federal-state scheme that aims to provide medical assistance to certain vulnerable populations. See 42 U.S.C. § 1396-1. Specifically, Congress implemented the program “[f]or the purpose of enabling each state, as far as practicable . . . to furnish (1) medical assistance . . . [to] individuals[] whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence and self-care.” Id. The Centers for Medicare and Medicaid Services (CMS), a federal agency within HHS, has primary responsibility for overseeing the Medicaid program. To receive federal funding, states must submit their “plans for medical assistance” for the HHS Secretary's approval. Id. Currently, all states have chosen to participate in the program.

         The Medicaid Act sets out certain minimum requirements to which all state plans must conform. See 42 U.S.C. § 1396a. Those provisions ensure that individuals receive a minimum level of coverage and stipulate that state plans “mak[e] medical assistance available” to certain sets of low-income individuals. See 42 U.S.C. § 1396a(a)(10)(A). Originally, that group included only pregnant women, children, and their families; some foster children; the elderly; and people with certain disabilities. Id. In 2010, the passage of the Affordable Care Act, colloquially known as Obamacare, gave states a choice to expand their Medicaid coverage to include additional low-income adults under the age of 65 who would not otherwise qualify - a group now commonly referred to as the “expansion population.” 42 U.S.C. § 1396a(10)(A)(i)(VIII).

         The Act also allows states wishing to deviate from either the original or the additional requirements of Medicaid to obtain a waiver from the Secretary of HHS. See 42 U.S.C. § 1315. Section 1115 of the Social Security Act, accordingly, permits the Secretary to approve “experimental, pilot, or demonstration project[s]” in state plans that would otherwise fall outside the Medicaid Act's parameters. The Secretary, however, can approve only those projects that “in [her] judgment . . . [are] likely to assist in promoting the [Act's] objectives.” 42 U.S.C. § 1315(a). If a project, in the Secretary's judgment, passes muster, she can then waive compliance with the terms of § 1396a “to the extent and for the period . . . necessary to enable [the] State . . . to carry out such project.” 42 U.S.C. § 1315(a)(1).

         B. Factual Background

         1. Kentucky HEALTH

         In 2018, CMS released a State Medical Director (SMD) letter that indicated its new commitment to “support[ing] state efforts to test incentives that make participation in work or other community engagement a requirement for continued Medicaid eligibility” and that encouraged states to apply for § 1115 waivers for this purpose. See AR 90. The Commonwealth of Kentucky submitted one such waiver application. As the Court has previously detailed, its application has multiple components. See Stewart I, 313 F.Supp.3d at 246. Relevant here is its Kentucky HEALTH program, which “applies only to adult beneficiaries who do not qualify for Medicaid on the basis of a disability.” Id. (internal quotation marks and citation omitted). That is, it targets primarily - though not exclusively - the ACA expansion population. Id. Kentucky “believed that this project would ‘transform' the state's Medicaid program by, among other things, predicating Medicaid eligibility for most of the expansion population on workforce participation or community service.” Id. (quoting AR 2, 15-16).

         Just one day after releasing the SMD letter, the Secretary approved Kentucky HEALTH, granting the Commonwealth waivers to implement the following six features: first, a community-engagement requirement mandating that beneficiaries spend at least 80 hours per month on qualifying activities (including employment, job-skills training, education, community service, and participation in Substance Use Disorder (SUD) treatment) or lose Medicaid coverage; second, elimination - except for pregnant women and former foster-care youth - of the three-month period of retroactive eligibility for benefits; third, monthly premiums based on income and/or length of time enrolled in Medicaid; fourth, elimination - except for former foster-care youth, pregnant women, or the medically frail - of the Commonwealth's obligation to assure non-emergency medical transportation to and from providers; fifth, reporting requirements; and sixth, lockouts allowing the Commonwealth to deny coverage for up to six months to any beneficiary who failed to meet her premium or reporting requirements and has an income above 100% of the federal poverty line. Id. at 246-47. The Kentucky HEALTH program also includes features similar to health-insurance plans on the commercial market, including “an incentive and savings account called My Rewards.” Id. at 247 (citations omitted).

         2. Stewart I

         Two weeks after the Secretary's approval of Kentucky HEALTH, fifteen Kentuckians headed to Court, filing a nine-count suit seeking declaratory and injunctive relief on behalf of themselves and a “statewide proposed class . . . of all residents of Kentucky who are enrolled in the Kentucky Medicaid program on or after January 12, 2018.” ECF No. 1 (Complaint), ¶ 33. The Court granted Kentucky's Motion to Intervene, see Minute Order of March 30, 2018, and the parties subsequently filed competing Motions for Summary Judgment. See ECF Nos. 33, 50, 51. Because Kentucky HEALTH was slated to take effect on July 1, 2018, the Court operated on an expedited schedule and issued its Opinion on June 29, 2018.

         It found the Secretary's approval, considered as a whole, arbitrary and capricious because he “never adequately considered whether Kentucky HEALTH would in fact help the state furnish medical assistance to its citizens, a central objective of Medicaid.” Stewart I, 313 F.Supp.3d at 243. Specifically, he not only “failed to consider adequately the impact of Kentucky HEALTH on Medicaid coverage, ” but “he entirely failed to consider Kentucky's estimate that 95, 000 persons would leave its Medicaid rolls during the 5-year [demonstration] project.” Id. at 260 (internal quotation marks and citations omitted). The Court rejected the Secretary's contention that “he could properly focus on . . . three alternative criteria” - health and well-being, cost considerations, and beneficiary self-sufficiency - in approving the demonstration project. Id. at 265-66. In light of the Medicaid Act's “clear emphasis on promoting medical assistance, ” the Court found that “the Secretary could not reasonably focus on health and well-being instead.” Id. at 268 (internal quotations omitted). It held similarly that while cost savings may be one result of the demonstration project, they “cannot excuse the Secretary's failure” to consider coverage. Id. at 271. The Court reasoned similarly regarding self-sufficiency after expressing “doubts whether such an objective is proper.” Id. at 271. It consequently “den[ied] Defendants' Motions for Summary Judgment, ” “grant[ed] Plaintiffs' Motion for Summary Judgment . . .[, ] vacate[d] the Secretary's approval of Kentucky HEALTH, and remand[ed] to the agency.” Id. at 274.

         3. Action on Remand

         Following the decision in Stewart I, the Secretary returned to the drawing board and reopened the public-comment period for Kentucky HEALTH. See AR 25, 499. On November 20, 2018, he reapproved Kentucky HEALTH effective on April 1, 2019, for five years. See AR 6718-19. The program has essentially the same features as it did before - namely, a community-engagement requirement; premium payments; a six-month lockout for failure to complete the redetermination process or timely report changes to household circumstances; elimination of retroactive eligibility for most enrollees; elimination of non-emergency medical transport for most enrollees; heightened cost-sharing for non-emergency use of the emergency room; and usage of the My Rewards account for various benefits. See AR 6756-60; 6762; 6764- 65; 6769; 6770-72; 6773-80. Indeed, the new approval letter acknowledges as much, naming only four changes: first, waiving an additional statutory provision of the Act “in an abundance of caution” to ensure the program limits retroactive eligibility as contemplated; second, “[r]evision of the premium requirement for beneficiaries who are eligible for transitional medical assistance”; third, “[u]pdated monitoring and evaluation [provisions]”; and fourth, a “requirement for Kentucky to submit a demonstration implementation plan and . . . monitoring protocol.” AR 6723. Defendants have confirmed that those four changes, plus the “add[ition] [of] certain exemptions for survivors of domestic violence, ” are the only “substantive changes to the project.” See ECF No. 130 (Supplemental Filing) at 1-2.

         In addition to those modest changes in the plan, the Secretary also altered his rationale for approval. In the November 20 approval letter, he acknowledged that he “may approve a demonstration project under section 1115 . . . if, in his judgment, the project is likely to assist in promoting the objectives of [the Act].” AR 6719. He explained that, while the Act “makes clear that an important objective of the Medicaid program is to furnish medical assistance and other services to vulnerable populations, ” “there is little intrinsic value in paying for services if those services are not advancing the health and wellness of the individual receiving them, or otherwise helping the individual attain independence.” Id. The Secretary concluded that his “demonstration authority . . . allow[ed]” him to approve states' experimenting “with different ways of improving health outcomes and strengthening the financial independence of beneficiaries, ” while “at the same time, allow[ing] states to maintain the long-term fiscal sustainability of their Medicaid programs and to provide more medical services to more Medicaid beneficiaries.” AR 6720. He elaborated on the ways in which Kentucky HEALTH would promote beneficiary health and financial independence and improve the sustainability of the safety net. See AR 6723-28. Regarding the “signal omission” the Court identified as the Secretary's failure to “adequately consider[] whether Kentucky HEALTH would in fact help the state furnish medical assistance to its citizens, ” Stewart I, 313 F.Supp.3d at 243, he reasoned this time around that commenters did not understand the nature of the coverage loss, that the program has exemptions and guardrails in place to minimize coverage loss, that Kentucky is not required to cover the expansion population in any event, and that the 95, 000 individuals who may lose coverage are “likely dwarfed by the 454, 000 newly eligible adults who stand to lose coverage” if the state makes good on its threat to terminate its participation in the ACA expansion in the absence of the demonstration project. See AR 6730-32.

         The question here, of course, is whether this second effort gets the Secretary over the line. Plaintiffs, not surprisingly, think not. They have returned to this Court seeking review of the Secretary's reapproval of Kentucky HEALTH. See ECF No. 91 (Plaintiffs' MSJ) at 1. Contending that “the Secretary has failed to remedy the shortcomings identified” in Stewart I, Plaintiffs seek summary judgment on their APA claims and vacatur of the Kentucky HEALTH waiver (and, separately, the SMD Letter). Id. at 1-2. Defendants - federal and state - have cross-moved for summary judgment, maintaining that the reapproval was lawful. See ECF Nos. 108 (HHS MSJ) at 1-5; 110 (Kentucky MSJ) at 1-2. The Court heard oral argument on March 14, 2019, and because Kentucky HEALTH will take effect on April 1, has issued this Opinion on an accelerated basis.

         II. Legal Standard

         The parties have cross-moved for summary judgment on the administrative record. The summary-judgment standard set forth in Federal Rule of Civil Procedure 56(c), therefore, “does not apply because of the limited role of a court in reviewing the administrative record.” Sierra Club v. Mainella, 459 F.Supp.2d 76, 89 (D.D.C. 2006); see also Bloch v. Powell, 227 F.Supp.2d 25, 30 (D.D.C. 2002), aff'd, 348 F.3d 1060 (D.C. Cir. 2003). “[T]he function of the district court is to determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.” Sierra Club, 459 F.Supp.2d at 90 (quotation marks and citation omitted). “Summary judgment is the proper mechanism for deciding, as a matter of law, whether an agency action is supported by the administrative record and consistent with the [Administrative Procedure Act] standard of review.” Loma Linda Univ. Med. Ctr. v. Sebelius, 684 F.Supp.2d 42, 52 (D.D.C. 2010) (citation omitted).

         The Administrative Procedure Act “sets forth the full extent of judicial authority to review executive agency action for procedural correctness.” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 513 (2009). It requires courts to “hold unlawful and set aside agency action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2). Agency action is arbitrary and capricious if, for example, the agency “entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.” Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983).

         In other words, an agency is required to “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” Id. at 43 (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168 (1962)) (internal quotation marks omitted). Courts, accordingly, “do not defer to the agency's conclusory or unsupported suppositions, ” United Techs. Corp. v. Dep't of Def., 601 F.3d 557, 562 (D.C. Cir. 2010) (quoting McDonnell Douglas Corp. v. Dep't of the Air Force, 375 F.3d 1182, 1187 (D.C. Cir. 2004)), and “agency ‘litigating positions' are not entitled to deference when they are merely [agency] counsel's ‘post hoc rationalizations' for agency action, advanced for the first time in the reviewing court.” Martin v. Occupational Safety & Health Review Comm'n, 499 U.S. 144, 156 (1991) (citation omitted). Although a reviewing court “may not supply a reasoned basis for the agency's action that the agency itself has not given, ” a decision that is not fully explained may, nevertheless, be upheld “if the agency's path may reasonably be discerned.” Bowman Transp., Inc. v. Arkansas-Best Freight System, Inc., 419 U.S. 281, 285-86 (1974) (citation omitted).

         III. Analysis

         Plaintiffs' challenge, fortunately, does not require the Court to start from square one; indeed, this round of litigation resembles in many respects the one concluded in Stewart I. Plaintiffs again essentially contend that the Secretary has sought to “rewrite the Medicaid Act in a way that is contrary to the program's purpose.” Pl. MSJ at 1. They elaborate that he has violated the APA because he “failed to remedy the shortcomings identified” in Stewart I in again “ignor[ing]” record evidence that “Kentucky HEALTH's requirements and benefits cuts are antithetical to Medicaid's core purpose”: “furnishing medical assistance to those who are unable to afford the costs of medically necessary care and services.” Id.

         Plaintiffs advance those arguments in challenging both the reapproval as a whole, see ECF No. 88 (Amended Complaint) at 83 (Count VIII under APA), and the individual components of the program. Id. at 77-83 (Counts II through VII). Because, as the Court explained previously, the Secretary must determine under § 1115 “whether a project would promote the Act's objectives, not whether each component, viewed in isolation, would, ” it will again limit its analysis to Count VIII. See Stewart I, 313 F.Supp.3d at 257 (internal quotation marks and citation omitted). As they did last time, Plaintiffs also assert several additional causes of action, including that the Secretary acted in excess of statutory authority, that the SMD Letter ought to be vacated as an improperly promulgated substantive rule, and that Defendants violated the Take Care Clause. See Pl. MSJ at 34, 43; ECF No. 88 (Amended Complaint) at 83. These claims will again remain in limbo, as the Court sidesteps resolving them.

         Before moving to the substance of the dispute, the Court will address two jurisdictional objections - one concerning standing and one on justiciability.

         A. Jurisdiction

         Having addressed these issues in depth previously, see Stewart I, 313 F.Supp.3d at 250- 57, no more than a limited treatment is required here.

         The Court takes standing first. Article III restricts the jurisdiction of federal courts to actual “Cases” and “Controversies.” U.S. Const., art. III, § 2. Not every dispute clears that hurdle. Specifically, a plaintiff must demonstrate that she suffers: 1) an injury-in-fact that is 2) caused by the conduct complained of and is 3) “likely” to be “redressed by a favorable decision.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). Defendants here offer no more than a brief objection. They assert, in a handful of paragraphs, that Plaintiffs lack standing to level specific challenges at particular components of the Kentucky HEALTH program, including the waiver of retroactive eligibility, the lockouts, the waiver of non-emergency medical transportation, and deductions from the MyRewards account. See HHS MSJ at 35, 37, 38, 39. Specifically, they argue that Plaintiffs' injuries-in-fact are too speculative to establish standing as to those particular components of Kentucky HEALTH. Id.

         Because the Court will examine whether the reapproval as a whole - rather than its individual components - violates the APA, it will again consider only whether Plaintiffs have standing to bring that global challenge. See Davis v. Fed. Election Comm'n, 554 U.S. 724, 734 (2008) (“‘[A] plaintiff must demonstrate standing for each claim he seeks to press' and ‘for each form of relief' that is sought.”) (quoting Daimler Chrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006)). Defendants do not dispute that they do. Although they do cite a case for the proposition that standing “is not dispensed in gross, ” HHS MSJ at 35 (citing Davis, 554 U.S. at 734), it is inapposite here. That case held only that a plaintiff's standing to challenge one statutory provision does not necessarily establish her standing to challenge another.

         Of course, Defendants' lack of objections to standing does not end the inquiry, since the Court has an independent obligation to assure itself of its own jurisdiction. See Floyd v. District of Columbia, 129 F.3d 152, 155 (D.C. Cir. 1997). It has no trouble here concluding, as it did previously, that Plaintiffs have established standing to challenge the reapproval of Kentucky HEALTH as a whole. See Stewart I, 313 F.Supp.3d at 250-57. Specifically, it found there that they had established an economic injury stemming from the rise in their premium payments the program would entail. Id. at 251-52. While granting the Government's contention that some of the named Plaintiffs may be exempt from the premium requirement, the Court found that at least some of them would indisputably be required to pay. Id. That is all that is necessary. See Animal Legal Def. Fund, Inc. v. Glickman, 154 F.3d 426, 429 (D.C. Cir. 1998) (holding that in suit brought by multiple plaintiffs, only single plaintiff must possess standing for case to ...


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