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Asante v. Azar

United States District Court, District of Columbia

January 16, 2020

ASANTE, et al., Plaintiffs,



         Plaintiffs Asante, Asante Rogue Valley Medical Center, Asante Three Rivers Medical Center, Asante Ashland Community Hospital, Renown Regional Medical Center, Renown South Meadows Medical Center, Sky Lakes Medical Center, and Yuma Regional Medical Center (collectively, the “Hospitals”), eight hospitals located in Oregon, Nevada, and Arizona, bring this action under the Administrative Procedure Act (“APA”), 5 U.S.C. § 701 et seq., against the federal agencies and personnel responsible for administering Medicaid. The Hospitals seek a preliminary injunction to prevent Defendants from approving California's state plan amendment governing California's supplemental Medicaid payment program, and from providing federal matching funds under the program.

         The Hospitals claim California's Medicaid plan improperly differentiates between instate and out-of-state hospitals to make out-of-state hospitals, like them, ineligible to receive supplemental Medicaid payments. They argue this discriminatory scheme violates the Commerce Clause, Equal Protection, and the Medicaid Act, and that Defendants' approval and funding of the scheme violate the APA. Defendants have moved, pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), to dismiss the Complaint. Upon consideration of the motions and the parties' briefs, and for the reasons set forth below, the court will GRANT Defendants' Motion to Dismiss (ECF No. 19) and therefore will DENY as moot Plaintiffs' Motion for a Preliminary Injunction (ECF No. 2).

         I. BACKGROUND

         The Medicaid program, authorized under Title XIX of the Social Security Act, establishes a cooperative federal-state program that finances medical care for people who cannot afford medical services. See 42 U.S.C. §§ 1396-1396v. Defendants are the federal agencies and officials responsible for administering Medicaid: Department of Health and Human Services (“HHS”); Secretary of HHS, Alex Azar; Centers for Medicare and Medicaid Services (“CMS”); and CMS Administrator, Seema Verma. (ECF No. 1 (“Compl.”) ¶ 10-13.) The HHS Secretary is responsible for the program and has delegated its administration to the CMS, an agency within HHS. See Centers for Medicare & Medicaid Services; Statement of Organization, Functions and Delegations of Authority; Reorganization Order, 66 Fed. Reg. 35, 437 (2001). States participating in Medicaid must submit plans to CMS for approval that detail financial eligibility criteria, covered medical services, and reimbursement methods and standards. 42 U.S.C. §§ 1396a(a), 1396b. Once a state's plan is approved, the federal government provides financial assistance for necessary and proper costs of administering its Medicaid program. §§ 1396b, 1396d(b). States must also amend their plans to reflect changes in law or operation of its Medicaid program. CMS is responsible for reviewing all amendments to state plans to “determine whether the plan continues to meet the requirements for approval.” 42 CFR § 430.12(c)(2).

         California participates in the Medicaid program through Medi-Cal. See Cal. Welf. & Inst. Code § 14000, et seq. At issue here is the Medi-Cal method for paying certain hospitals supplemental Medicaid payments through their Quality Assurance Fee (“QAF”) program. Under the program, California collects fees from certain hospitals, receives matching funds from the federal government, and disburses supplemental Medicaid payments to certain in-state hospitals from the total funds. (Compl. ¶¶ 48-51.) Under past iterations of California's QAF program, certain in-state hospitals received supplemental payments while out-of-state hospitals did not, (Id.), despite the fact that out-of-state hospitals, particularly those near the California border, provide frequent and necessary services to Medi-Cal patients. (Compl. ¶ 2-5.) The Hospitals allege that because of this differential treatment, the previous QAF programs, which ran through June 30, 2019, unlawfully discriminated against out-of-state hospitals. (Id. ¶ 67, 69.) The Hospitals further claim that the currently proposed QAF program, which covers a period starting on July 1, 2019, (“2019 QAF Program”) will do the same. (Id. ¶ 69.) The Hospitals, however, only seek relief from the proposed QAF program, as they have already settled claims with California regarding the QAF program covering 2009 through June 30, 2019. (Id. ¶¶ 19-24, Prayer for Relief ¶¶ 1-4.)

         To operate the QAF program-previous and proposed-CMS must approve California's state plan amendments, which it did for plan amendments for the QAF program through June 30, 2019. (Id. ¶¶ 94-95.) It also granted two tax waivers for California to collect the underlying fee to operate the QAF program. (Id. ¶¶ 89-92.) California now seeks approval for its state plan amendments for the 2019 QAF program, but CMS has not decided whether to grant such approval. (Id. ¶¶ 97-100.)

         The Hospitals assert three claims against the Defendants under the APA. In Count One, they allege that “as it exists as of July 1, 2019, California's methodology for making QAF payments, as reflected in the California State Medicaid Plan, discriminates against interstate commerce and is unconstitutional under the Commerce Clause, ” and therefore CMS's approval violates APA § 706(2)(A), (B). (Compl. ¶¶ 105, 106.) In Count Two, the Hospitals claim that “as it exists as of July 1, 2019, California's differential treatment of in-state and out-of-state hospitals under the QAF program, as reflected in the California State Medicaid Plan, bears no rational relationship to any legitimate state purpose and thus violates the Equal Protection Clause of the Fourteenth Amendment, ” and therefore agency approval also violates the APA. (Compl. ¶¶ 110, 111.) Finally, in Count Three, the Hospitals allege that “California does not provide supplemental QAF monies to the plaintiffs ‘to the same extent' that it provides funds to in-state hospitals” in violation of the Medicaid Act, and therefore agency approval again violates the APA.[1] (Compl. ¶¶ 115-117.) The Hospitals seek declaratory relief and an injunction “as of July 1, 2019” barring “all federal QAF payments, ” and preventing CMS from approving California's state plan amendments that include the allegedly discriminatory 2019 QAF program. (Prayer for Relief ¶¶ 1-4.) Defendants move to dismiss for lack of subject matter jurisdiction and failure to state a claim. (ECF No. 18 (“Defs. Br.”).)


         Federal courts are of limited jurisdiction and “may not exercise jurisdiction absent a statutory basis.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005). “Limits on subject-matter jurisdiction ‘keep the federal courts within the bounds the Constitution and Congress have prescribed,' and those limits ‘must be policed by the courts on their own initiative.'” Watts v. SEC, 482 F.3d 501, 505 (D.C. Cir. 2007) (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583 (1999)). Such limits are especially important in the agency review context, where “Congress is free to choose the court in which judicial review of agency decisions may occur.” Am. Petroleum Inst. v. SEC, 714 F.3d 1329, 1332 (D.C. Cir. 2013) (internal quotation marks omitted) (quoting Watts, 482 F.3d at 505). The law presumes that “a cause lies outside [the court's] limited jurisdiction” unless the party asserting jurisdiction establishes otherwise. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citation omitted). Thus, plaintiffs bear the burden of establishing jurisdiction by a preponderance of the evidence. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992); Shekoyan v. Sibley Int'l Corp., 217 F.Supp.2d 59, 63 (D.D.C. 2002).

         In evaluating a motion to dismiss for lack of jurisdiction under Federal Rule of Civil Procedure Rule 12(b)(1), a court must “assume the truth of all material factual allegations in the complaint and ‘construe the complaint liberally, granting plaintiff[s] the benefit of all inferences that can be derived from the facts alleged.'” Am. Nat'l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011) (quoting Thomas v. Principi, 394 F.3d 970, 972 (D.C. Cir. 2005)). But the court “need not accept factual inferences drawn by plaintiffs if those inferences are not supported by facts alleged in the complaint, nor must the Court accept [plaintiffs'] legal conclusions.” Disner v. United States, 888 F.Supp.2d 83, 87 (D.D.C. 2012) (quoting Speelman v. United States, 461 F.Supp.2d 71, 73 (D.D.C. 2006)). A motion to dismiss under 12(b)(1) “is not limited to the allegations of the complaint.” Hohri v. United States, 782 F.2d 227, 241 (D.C. Cir. 1986), vacated on other grounds, 482 U.S. 64 (1987). And “a court may consider such materials outside the pleadings as it deems appropriate to resolve the question [of] whether it has jurisdiction to hear the case.” Scolaro v. D.C. Bd. of Elections & Ethics, 104 F.Supp.2d 18, 22 (D.D.C. 2000) (citing, inter alia, Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992)).

         Conversely, a motion to dismiss under Rule 12(b)(6) for failure to state a claim “tests the legal sufficiency of a complaint.” Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).[2] A claim is plausible when the factual content allows the court to “draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Plaintiffs' factual allegations need not be “detailed, ” but “the Federal Rules demand more than ‘an unadorned, the-defendant-unlawfully-harmed-me accusation.'” McNair v. District of Columbia, 213 F.Supp.3d 81, 86 (D.D.C. 2016) (citing Twombly, 550 U.S. at 570).

         III. ANALYSIS

         Defendants argue that the Hospitals' claims are not ripe for adjudication, no final agency action has occurred, the Hospitals lack standing, and the Hospitals have failed to state a claim under the ...

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