Arizona Hospital and Healthcare Association v. Betlach et al

Filing 64

ORDER denying 7 Motion for Preliminary Injunction. Signed by Judge David G Campbell on 3/23/2012.(NVO)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9

Arizona
Hospital
and
Healthcare
Association, an Arizona corporation,

No. CV11-2348-PHX-DGC
ORDER

10

Plaintiff,

11

vs.

12

Thomas J. Betlach, Director of the Arizona
Healthcare Cost Containment System;
Kathleen Sebelius, Secretary of the United
States Department of Health and Human
Services,

13
14
15

Defendants.

16
17

Plaintiff Arizona Hospital and Healthcare Association (“Plaintiff”) has filed a

18

motion for a preliminary injunction.

19

Director”) and Defendant Kathleen Sebelius (“the Secretary”) have filed separate

20

responses. Docs. 44, 54. The motion is fully briefed. Docs. 7, 44, 54, 55. The Court

21

heard oral argument on March 1, 2012. For the reasons that follow, the Court will deny

22

the motion.

23

I.

24

Doc. 7.

Defendant Thomas J. Betlach (“the

Background.
The State of Arizona has elected to participate in the federal Medicaid program.

25

Doc. 1, at 6, ¶ 17.

26

Containment System (“AHCCCS”). Id. The Arizona Health Care Cost Containment

27

System Administration (“AHCCCSA”) is the single state agency charged with

28

administering AHCCCS. Id. In order to receive matching federal financial participation,

Arizona has named its program the Arizona Health Care Cost

1

state Medicaid plans must comply with applicable federal Medicaid law and regulations.

2

42 U.S.C. § 1396a(a)(5); 42 C.F.R. §§ 430.10, 431.10. State plans must be submitted to

3

the Secretary for approval. 42 C.F.R. §§ 430.10, 447.201(b). The Ninth Circuit has held,

4

under federal Medicaid law, that changes to state plans may not be implemented by the

5

State prior to approval by the Secretary. Doc. 1, at 5, ¶ 13. The Secretary’s review and

6

approval of any state Medicaid plan amendment is reviewable under the Administrative

7

Procedure Act (“APA”), 5 U.S.C. § 706, et seq.

8

AHCCCS payments are disbursed in two ways. The first is a fee-for-service

9

(“FFS”) process whereby AHCCCSA determines whether the health care services were

10

covered and furnished by a provider to an eligible beneficiary, and, if so, pays the service

11

providers directly. Doc. 1, at 6-7, ¶ 18. The second is through managed care plans

12

operated by public and private entities under contract. Id. Under the managed care

13

model, the State pays a capitation rate to managed care organizations (“MCOs”) who

14

then negotiate contractual managed care rates with hospital providers.

15

AHCCCS program is conducted under a managed care model. Doc. 1, at 8, ¶ 24.

16

Plaintiff alleges, however, that changes to hospital FFS rates have a direct impact on how

17

much hospitals are paid through managed care programs because contracts, federal law,

18

and Arizona law all tie payments under managed care plans to FFS rates. Doc. 1, at 8-9,

19

¶¶ 24-28.

Most of the

20

On April 6, 2011, Senate Bill 1619 (“SB 1619”) was signed into law by Governor

21

Brewer. SB 1619 was intended to balance the State’s health care budget. Doc. 1, at 10,

22

¶ 34. The bill made several changes to AHCCCS’s reimbursement policy. Section 11 of

23

SB 1619 amends A.R.S. § 36-2903.01, which concerns the powers and duties of

24

AHCCCSA, eliminating language concerning reimbursement to hospitals for “claims

25

with extraordinary operating costs per day” or “outliers.” Id. Section 311 of SB 1619

26
1

27
28

Plaintiff’s complaint incorrectly cites Section 32 of SB 1619. Doc. 1, at 10-11,
¶ 34. Section 32 reads, in its entirety: “Notwithstanding any other law, for rates effective
October 1, 2011 through September 30, 2012, the Arizona health care cost containment
system administration may reduce payments for institutional and noninstitutional services
-2-

1

vests AHCCCSA with authority to “reduce payments for institutional and non-

2

institutional services by up to five per cent” for rates effective October 1, 2011 through

3

September 30, 2012. Id. The rates were previously reduced by five percent on April 1,

4

2011, and have not been increased since approximately 2007. Doc. 1, at 9-10, ¶ 29.

5

Under the authority of SB 1619, AHCCCS prepared three state plan amendments

6

(“SPAs”) to Arizona’s Medicaid plan concerning payment reductions for inpatient and

7

outpatient hospital reimbursement. Doc. 1, at 11, ¶ 37. SPA 11-009-A proposed to

8

reduce payment rates for inpatient hospital services provided between October 1, 2011

9

and September 30, 2012 by five percent. Id. SPA 11-009-B proposed the same rate

10

reduction for outpatient hospital services. Id. at ¶ 38. SPA 11-011 proposed a change in

11

the methodology for calculating additional reimbursement paid to hospitals for high cost

12

“outlier” cases. Doc. 1, at 12, ¶ 39. In conjunction with the proposed changes to outlier

13

payment methodology in SPA 11-011, AHCCCSA announced on May 27, 2011 that it

14

was amending two Arizona administrative regulations concerning outlier payments.

15

Doc. 7, at 7; Doc. 7-7 (Ex. F).

16

In June 2011, AHCCCSA released a study by Milliman, Inc. Doc. 7, at 8. The

17

study updated a prior study completed in November 2010, and considered the potential

18

impact of the proposed AHCCCS changes.

19

On June 23, 2011, AHCCCS submitted SPA 11-009-A and SPA 11-009-B to the

20

Secretary’s designated agent, Centers for Medicare and Medicaid Services (“CMS”), for

21

approval. Doc. 1, at 11, ¶ 37. On June 24, 2011, AHCCCS submitted SPA 11-011 to

22

CMS for approval. Doc. 1, at 12, ¶ 39.

23

On July 15, 2011, while the SPAs were pending with CMS, AHCCCSA published

24

a notice in the Arizona Administrative Register that, effective October 1, 2011, AHCCCS

25

would reduce rates by five percent. Doc. 7-8 (Ex. G).

26

On August 24, 2011, Plaintiff provided materials to AHCCCSA and CMS

27

showing that the proposed reimbursement reductions would adversely impact Medicaid

28

up to five per cent.” S.B. 1619, 50th Leg., 1st Sess. (Ariz. 2011).
-3-

1

beneficiary access to hospital services and the quality of care and efficiency. Doc. 1,

2

at 15-16, ¶ 47; Doc. 7, at 8. The information purported to show, among other things, that:

3

(1) the reduced payment rates would not come close to the costs that hospitals incur in

4

treating AHCCCS members; (2) the reduced rates would adversely impact AHCCCS

5

member access to hospital care, particularly in rural areas; and (3) the Milliman study

6

contained methodological and analytical flaws. Doc. 7, at 8. On October 3, 2011,

7

Plaintiff provided CMS with two additional reports by a health care reimbursement and

8

statistics expert. Doc. 16-3 (Ex. B, CMSLTRS 166-189).

9

On September 21, 2011, CMS sent AHCCCSA a request for additional

10

information (“RAI”) that expressed concerns that SPA 11-009-A would negatively

11

impact access to care. Doc. 16-10, at 40-44 (AZ PR 288-292); Doc. 7, at 9. AHCCCSA

12

responded on September 29, 2011. Doc. 16-10, at 50-57 (AZ PR 298-305); Doc. 7, at 9.

13

On October 11, 2011, Plaintiff submitted information to CMS addressing inadequacies in

14

AHCCCSA’s response to the RAI. Doc. 16-4 (AZ PR 191-272). CMS sent AHCCCSA

15

an additional request for information on October 14, 2011.

16

By separate letters dated November 18, 2011, CMS approved SPA 11-009-A and

17

SPA 11-011, retrospective to October 1, 2011. Doc. 7, at 9. On November 21, 2011,

18

CMS approved SPA 11-009-B, retrospective to October 1, 2011.2

19

Plaintiff alleges five claims in its complaint. Doc. 1. The first three claims are

20

against the Director: (1) that the rate reductions were not adopted through a public

21

process, in violation of 42 U.S.C. § 1396a(a)(13)(A) (“Section 13(A)”) and the

22

Supremacy Clause, and that AHCCCSA acted under color of state law to deprive

23

hospitals of their privately enforceable rights in violation of 42 U.S.C. § 1983; (2) that the

24

rate reductions were enacted solely for budgetary reasons, in violation of 42 U.S.C.

25

§ 1396a(a)(30)(A) (“Section 30(A)”) and the Supremacy Clause; and (3) that public

26

notice of the rate reductions was not properly given, in violation of 42 C.F.R. § 447.205

27
2

28

Plaintiff’s complaint incorrectly alleged that CMS approved all three SPAs on
November 18, 2011. Doc. 1, at 16, ¶ 48.
-4-

1

and the Supremacy Clause. The fourth claim is against the Secretary, and alleges that her

2

approval of the SPAs was arbitrary, capricious, an abuse of discretion, and otherwise

3

inconsistent with governing law, in violation of the APA.

4

declaratory relief pursuant to 28 U.S.C. § 2201 and A.R.S. §§ 12-1831, et seq., against

5

both Defendants.

The fifth claim seeks

6

On December 20, 2011, the Director filed a motion to dismiss Plaintiff’s first three

7

claims. Doc. 28. The Court has today, by separate order, dismissed the claim under 42

8

U.S.C. § 1983 for violation of Section 13(A) as well as the claim for violation of 42

9

C.F.R. § 447.405(c). For purposes of the preliminary injunction motion, the Court need

10

only address Plaintiff’s remaining claims.

11

At oral argument on the motion for a preliminary injunction, Plaintiff stated that it

12

is no longer asserting a Supremacy Clause argument with respect to Section 30(A) and

13

that it seeks a preliminary injunction based only on (1) an APA challenge to the

14

Secretary’s decision with respect to Section 30(A), (2) a Supremacy Clause claim with

15

respect to Section 13(A), and (3) a Section 1983 claim with respect to Section 13(A).

16

II.

Legal Standard for Preliminary Injunction.

17

“It frequently is observed that a preliminary injunction is an extraordinary and

18

drastic remedy, one that should not be granted unless the movant, by a clear showing,

19

carries the burden of persuasion.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)

20

(emphasis in original) (citation omitted); see also Munaf v. Geren, 553 U.S. 674, 689

21

(2008). To obtain a preliminary injunction, Plaintiff must show that it is likely to succeed

22

on the merits, that it is likely to suffer irreparable harm in the absence of preliminary

23

relief, that the balance of equities tips in its favor, and that an injunction is in the public

24

interest. Winter v. Natural Res. Def. Council, 555 U.S. 7, 20 (2008). Alternatively, in

25

this circuit, “serious questions going to the merits’ and a balance of hardships that tips

26

sharply towards the plaintiff can support issuance of a preliminary injunction, so long as

27

the plaintiff also shows that there is a likelihood of irreparable injury and that the

28

injunction is in the public interest.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d
-5-

1

1127, 1135 (9th Cir. 2011). A “serious question” is one on which the movant has a fair

2

chance of success on the merits. Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d

3

1415, 1421 (9th Cir. 1984).

4

The Court has considered each of the factors required for a preliminary injunction.

5

As explained below, the Court concludes that Plaintiff has shown the existence of serious

6

questions, but not a likelihood of success on the merits, and has failed to show that it will

7

suffer irreparable harm, that the balance of hardships tips sharply in its favor, and that

8

public policy favors issuance of a preliminary injunction.

9

establish all four prongs to obtain a preliminary injunction, Alliance for the Wild Rockies,

Because Plaintiff must

10

632 F.3d at 1135, its request for a preliminary injunction must be denied.

11

III.

Likelihood of Success on the Merits.

12

A.

13

Plaintiff argues that it is likely to succeed on the merits of its claim against the

14

Secretary because CMS failed to apply controlling law in evaluating the SPAs and

15

therefore acted arbitrarily and capriciously in violation of the APA. Doc. 7, at 9-18.

16

Specifically, Plaintiff argues that the CMS failed to consider relevant factors in approving

17

the rate reductions and that its approval was counter to evidence in the record.

18

Section 30(A) APA Claim.

1.

Standard of Review.

19

Under the APA, a reviewing court must hold unlawful and set aside agency action

20

found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance

21

with law[.]” 5 U.S.C. § 706(2)(A). A decision is arbitrary and capricious if the agency

22

“has relied on factors which Congress has not intended it to consider, entirely failed to

23

consider an important aspect of the problem, offered an explanation for its decision that

24

runs counter to the evidence before the agency, or is so implausible that it could not be

25

ascribed to a difference in view or the product of agency expertise.” O’Keefe’s, Inc. v.

26

U.S. Consumer Prod. Safety Comm’n, 92 F.3d 940, 942 (9th Cir. 1996) (quoting Motor

27

Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)). The

28

standard is deferential. The Court may not substitute its judgment for that of the agency.
-6-

1

River Runners for Wilderness v. Martin, 593 F.3d 1064, 1070 (9th Cir. 2010).
2.

2

Chevron Deference.

3

The parties initially disagree about the degree of deference owed to the Secretary’s

4

interpretation of Section 30(A). Plaintiff argues that the relevant factors that CMS must

5

consider are, at a minimum, the factors set forth in Section 30(A): efficiency, economy,

6

quality of care, and equal access. See 42 U.S.C. § 1396a(a)(30)(A). Plaintiff further

7

argues that CMS is bound by the Ninth Circuit’s interpretation of Section 30(A) in

8

Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir. 1997) (“Orthopaedic II”),

9

requiring states to establish hospital reimbursement rates that “bear a reasonable

10

relationship to efficient and economical hospitals’ costs,” and to “rely on responsible cost

11

studies, its own or others’, that provide reliable data as a basis for its rate setting.” Id.

12

at 1496. Plaintiff argues that such cost analysis must have been part of the Secretary’s

13

decision approving the SPAs.

14

The Secretary responds that she has “consistently taken the position” that

15

Section 30(A) does not require states to base payment rates on costs incurred by

16

providers (Doc. 44, at 15), that this interpretation of Section 30(A) is entitled to Chevron

17

deference, and that she therefore was not required to consider the cost analysis required

18

by Orthopaedic II when she approved the SPAs. Because it is true that federal agencies

19

need not follow circuit law when their analysis is entitled to Chevron deference and when

20

the circuit law is not based on the unambiguous language of the relevant statute, Nat’l

21

Cable & Telecomm. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 982 (2005), the

22

Court must determine whether it is likely to apply Chevron deference to the Secretary’s

23

interpretation of Section 30(A).3

24

The Secretary argues that she has consistently interpreted Section 30(A) as not

25

requiring the consideration of provider costs, and that this interpretation can be seen in

26
3

27
28

The Court need not address the Skidmore deference issue that Plaintiff raises in
its reply brief (Doc. 55, at 5) because the Secretary has not argued that her interpretation
of Section 30(A) is entitled to Skidmore deference, or that such deference would trump
Ninth Circuit case law.
-7-

1

briefs filed with the Supreme Court and a proposed rule promulgated by the Secretary.

2

See Doc. 44, at 15-16, n.12. The Secretary does not point to a formally promulgated rule

3

or generally applicable policy statement as evidence of her interpretation.

4

In response, Plaintiff cites cases suggesting that there is no basis for Chevron

5

deference to informal policies illustrated only in legal briefs or proposed rules. Doc. 55,

6

at 2. These cases, however, do not reach a Chevron analysis. See Indep. Living Ctr. of S.

7

Cal. v. Maxwell-Jolly, 572 F.3d 644, 654 (9th Cir. 2009) (suit by Medi-Cal providers and

8

recipients seeking to enjoin the state Medicaid director from implementing rate

9

reductions, in which the Ninth Circuit clarified that Orthopaedic II remained valid after

10

Sanchez, and cited Christensen v. Harris County, 529 U.S. 576, 586-88 (2000) for the

11

proposition that deference to an agency opinion expressed in the course of litigation is

12

limited to an agency’s interpretation of its own regulations); Tedori v. United States, 211

13

F.3d 488, 492 (9th Cir. 2000) (suit by taxpayers challenging the denial of an interest

14

deduction, in which the Ninth Circuit concluded that proposed regulations carry no more

15

weight than a position advanced in a brief).

16

The Secretary argues that even an implicit agency policy is entitled to Chevron

17

deference if Congress has clearly delegated authority to the agency to interpret the

18

relevant statute – that the more express the delegation of authority, the less formal the

19

agency’s policy must be. The Secretary asserts that Congress has expressly delegated to

20

her the broad discretion to determine whether state Medicaid plans comply with the

21

requirements of federal law. Doc. 44, at 3. Plaintiff does not appear to contest this

22

assertion.

23

This case is similar to Pharmaceutical Research and Manufacturers of America v.

24

Thompson, 259 F. Supp. 2d 39 (D.D.C. 2003), in which appellants challenged the

25

Secretary’s statutory interpretation of another Medicaid statute because it was at best “an

26

informal decision not made in accordance with the rigors of the APA and thus

27

undeserving of Chevron deference” and because it was “formulated in the shadow of

28

impending litigation[.]” Id. at 69. The district court acknowledged that the informal
-8-

1

nature of the letter from CMS to the state Medicaid directors was a marked contrast to the

2

classic Chevron scenario of notice-and-comment rulemaking, but relied on the Supreme

3

Court’s decision in United States v. Mead Corp., 533 U.S. 218, 234 (2001), which

4

clarified that “the absence of ‘administrative formality’ is not dispositive on the question

5

of Chevron deference.” 259 F.Supp.2d at 69 (quoting Mead, 533 U.S. at 231). The letter

6

at issue in Pharmaceutical Research explicitly stated the Secretary’s position that prior

7

authorization programs require the Secretary’s approval, and thus differs from the SPA

8

approval letters in this case. The district court also noted, however, that “[e]ven if the

9

[letter] itself did not ‘carry the force of law,’ Mead, 533 U.S. at 221, the particular

10

applications of the interpretation contained therein – such as the Secretary’s approval of

11

[the proposed amendment] – perhaps do.”

12

position is eminently reasonable.” Pharm. Research, 259 F. Supp. 2d at 72.

Id.

“Most importantly, the Secretary’s

13

The D.C. Circuit affirmed the district court’s decision and rejected appellants’

14

contentions – the same arguments made by Plaintiff here – that the Secretary’s decisions

15

did not qualify for Chevron deference because they were not the result of a formal

16

administrative process, did not involve agency expertise, were inconsistent with previous

17

interpretations, and were developed solely in response to a lawsuit. Pharm. Research &

18

Mfrs. v. Thompson, 362 F.3d 817, 821 (D.C. Cir. 2004). The Court of Appeals found that

19

“[t]his argument overlooks the nature of the Secretary’s authority. This is not a case of

20

implicit delegation of authority through the grant of general implementation authority. In

21

the case of the Medicaid payment statute, the Congress expressly conferred on the

22

Secretary authority to review and approve state Medicaid plans as a condition to

23

disbursing federal Medicaid payments.” Id. at 821-22. See 42 U.S.C. § 1396 (“The sums

24

made available under this section shall be used for making payments to States which have

25

submitted, and had approved by the Secretary, State plans for medical assistance.”). The

26

D.C. Circuit concluded that through this “express delegation of specific interpretive

27

authority,” Mead, 533 U.S. at 229, Congress intended that the Secretary’s determinations,

28

based on interpretation of relevant statutory provisions, should have the force of law.
-9-

1

Pharm. Research, 362 F.3d at 822. It accordingly afforded the determinations Chevron

2

deference. Id.

3

Other circuits have noted that an agency “rule would be preferable” if Chevron

4

deference is to apply, but they have held that a formal rule is not required. Gould v.

5

Shalala, 30 F.3d 714, 720 n.7 (6th Cir. 1994); see also Harris v. Olszewski, 442 F.3d 456,

6

470 (6th Cir. 2006) (“[T]he Supreme Court has already ‘rejected [the] argument’ that

7

when an ‘interpretation was not made after a formal adjudication or notice-and-comment

8

rulemaking, . . . it does not warrant Chevron-style deference.’”) (quoting Cleveland Nat’l

9

Air Show, Inc. v. United States DOT, 430 F.3d 757, 763-64 (6th Cir. 2005)); Georgia v.

10

Shalala, 8 F.3d 1565, 1571 n.8 (11th Cir. 1993) (“A rule would be preferable, but we are

11

not convinced that the agency is required to promulgate rules pursuant to every

12

subsection of the widely-acknowledged complex Medicaid statute.”); Emerson v. Steffen,

13

959 F.2d 119, 122 (8th Cir. 1992) (holding that Chevron does not require “that the

14

agency’s position be stated in a regulation to be entitled to deference”).

15

Additional considerations weigh in favor of reviewing the Secretary’s decision

16

under a Chevron standard. Courts may consider “the interstitial nature of the legal

17

question, the related expertise of the Agency, the importance of the question to

18

administration of the statute, the complexity of that administration, and the careful

19

consideration the Agency has given the question over a long period of time.” Barnhart v.

20

Walton, 535 U.S. 212, 222 (2002). Medicaid is without doubt a “complex and highly

21

technical regulatory program” that the Secretary has “significant expertise” in

22

administering. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994) (quoting

23

Pauley v. BethEnergy Mines, Inc., 501 U.S. 680, 697 (1991)). The Supreme Court has

24

rejected the argument that an agency interpretation advanced against the background of

25

litigation must be disregarded. See Barnhart, 535 U.S. at 221 (listing cases).

26

For these reasons, the Court concludes that the Secretary’s interpretation of

27

Section 30(A), even though not explicitly set forth in a formal rule or decision, likely will

28

be entitled to Chevron deference if it otherwise satisfies the requirements of Chevron.
- 10 -

1

The Court will address those other steps briefly.

2

The first step is to determine whether “Congress has directly spoken to the precise

3

question at issue.” Chevron, 467 U.S. at 842. “If the answer is yes,” then the Court

4

“‘must give effect to the unambiguously expressed intent of Congress’ and the agency’s

5

interpretation receives no deference.” Phoenix Mem’l Hosp. v. Sibelius, 622 F.3d 1219,

6

1225 (9th Cir. 2010) (quoting Chevron, 467 U.S. at 842). No party has argued this

7

position, and Section 30(A) is silent on provider costs.

8

If the statute is silent or ambiguous, the second step under Chevron is to determine

9

“whether the agency’s answer is based on a permissible construction of the statute.”

10

Chevron, 467 U.S. at 843. Section 30(A) requires that state programs “provide such

11

methods and procedures relating to the utilization of, and the payment for, care and

12

services available under the plan . . . as . . . to assure that payments are consistent with

13

efficiency, economy, and quality of care and are sufficient to enlist enough providers so

14

that care and services are available under the plan at least to the extent that such care and

15

services are available to the general population in the geographic area[.]” 42 U.S.C.

16

§ 1396a(a)(30)(A). The Secretary’s determination that this statute requires consideration

17

of efficiency, economy, quality of care, and equal access clearly constitutes a permissible

18

interpretation – it looks directly to the four factors identified by Congress. The Court

19

therefore is likely to conclude that the Secretary’s position that Section 30(A) does not

20

require consideration of provider costs is reasonable and reflects a permissible

21

construction of the statute under Chevron.

22

Once it is determined that the Secretary’s interpretation of Section 30(A) is

23

entitled to deference, the Court must determine whether the interpretation takes

24

precedence over the Ninth Circuit’s rule in Orthopaedic II. The Supreme Court has

25

explained that “[a] court’s prior judicial construction of a statute trumps an agency

26

construction otherwise entitled to Chevron deference only if the prior court decision

27

holds that its construction follows from the unambiguous terms of the statute and thus

28

leaves no room for agency discretion.” Nat’l Cable & Telecomm. Ass’n, 545 U.S. at 982.
- 11 -

1

Orthopaedic II does not claim that its construction of Section 30(A) follows from an

2

unambiguous statute that leaves no room for agency discretion. The Ninth Circuit’s

3

requirement of cost analysis therefore does not trump the Secretary’s interpretation of

4

Section 30(A).

5

In conducting its APA review of the Secretary’s approval of the SPAs, the Court

6

therefore is likely to consider whether there is sufficient evidence in the administrative

7

record that the Secretary considered access, quality of care, efficiency, and economy, see

8

42 U.S.C. § 1396a(a)(30)(A), and to conclude that the Secretary was not bound to apply

9

the cost analysis required by Orthopaedic II.
3.

10

Section 30(A) Factors.
a.

11

Access.

12

The Secretary claims that CMS relied on the following methods and procedures to

13

ensure that equal access to services would be maintained under the SPAs: (1) Arizona’s

14

consultation with tribal stakeholders for affected members of the FFS population,

15

(2) provider hospitals’ historical participation rates in AHCCCS, (3) Arizona’s

16

commitment to provide additional metrics safeguarding FFS enrollment, utilization, and

17

expenditures, and (4) Arizona’s robust monitoring tools for its overall Medicaid program.

18

Doc. 44, at 21-22.

19

American Indians constitute a large majority of the AHCCCS FFS membership.

20

The State accordingly engaged in a consultation process with tribal stakeholders,

21

including Indian Health Service (“IHS”) and “Tribal 638” facilities.4 Doc. 16-8, at 42-43

22

(AZ PR 41-42) (meeting agendas including discussion of inpatient and outpatient

23

payment methodology under the proposed SPAs and references to SPA drafts).

24

response to a question from CMS about its monitoring plan, AHCCCS explained that in

25

regular meetings with IHS and Tribal 638 providers, “AHCCCS has not been made aware

26

of any documented instances that a FFS member did not have access to care at any of

In

27
4

28

IHS and Tribal 638 facilities are the primary providers of hospital services to
American Indians, and are exempt from the rate reductions. Doc. 44, at 12.
- 12 -

1

these facilities or was not able to be referred to another provider as a result of the rate

2

reductions.” Doc. 16-12, at 48-49 (AZ PR 422-23). The Secretary argues that given the

3

exhaustiveness of the State’s engagement with stakeholders, including tribal leaders and

4

health care service providers, and the lack of any past or foreseeable access concerns for

5

FFS American Indians, it was reasonable and appropriate for CMS to rely on the

6

consultation process as a “method and procedure” ensuring that the rate reductions would

7

not impede access. Doc. 44, at 23.

8

The State also provided CMS with information regarding hospitals’ historical

9

participation in Medicaid since a 2007 rate freeze and an April 2011 rate reduction.

10

Doc. 44, at 23. An “Access to Care Monitoring Summary” that the State provided CMS

11

shows that from October 2010 to September 2011, managed care contractors have

12

reported 37 provider terminations due to rate issues, none of which were hospitals.

13

Doc. 16-8, at 119 (AZ PR 118). Compared to the total number of providers in each

14

plan’s network, ranging from the thousands to tens of thousands, the State concluded that

15

the number of terminating providers is insignificant. Id.; Doc. 44, at 23 n.20 (“As of

16

June 30, 2011, this figure would have represented less than one-tenth of one percent . . .

17

of all registered providers participating in Arizona’s Medicaid program.”). The State

18

later clarified for CMS that the 37 providers “continue to be AHCCCS registered

19

providers and available to the FFS population.” Doc. 16-12, at 38 (AZ PR 412).

20

The State also reported that, as of a previous rate reduction in April 2011, the

21

“majority of [MCOs] have actually increased the overall size of their networks since the

22

first quarter of the current contract year ending September 30, 2011.” Doc. 16-8, at 120

23

(AZ PR 119). The Secretary views this increase in MCO network size as a benefit to FFS

24

members “because MCO-contracted hospital providers are also required to provide

25

services on a fee-for-service basis to FFS beneficiaries.”

26

Doc. 16-10, at 60 (AZ PR 308).

27

participation data is by definition unavailable to an agency before an SPA takes effect, it

28

was not arbitrary or capricious for CMS to conclude from historical data that hospitals

Doc. 44, at 23; see also

The Secretary explains that, since actual future

- 13 -

1

would maintain participation rates during the twelve-months when the October 2011 rate

2

reductions would be in effect. Doc. 44, at 24.

3

CMS relied on the State’s commitment to monitoring beneficiary access to care.

4

Doc. 44, at 24.

CMS looked initially to the State’s monitoring of managed care

5

networks. The Secretary suggests that a change in access levels to FFS services can be

6

detected through the State’s monitoring of managed care networks because “AHCCCS-

7

registered hospitals that provide FFS services are also contracted in managed care

8

networks.” Doc. 44, at 25 (citing Doc. 16-12, at 37 (AZ PR 411)).

9

CMS did not, however, rely solely on the State’s assurances of access in the MCO

10

sector alone, because the rate reductions at issue apply only to FFS services. CMS

11

accordingly required the State to “establish and submit . . . a process or plan by which [it]

12

will continue to monitor relevant [FFS] metrics, at least on a quarterly basis, to ensure

13

that there is no adverse impact on access as the rate reductions proposed by the SPAs take

14

effect.” Doc. 16-12, at 38 (AZ PR 412). CMS also required the State to explain how

15

these metrics would be used “to identify access problems and what specific actions [it]

16

would take to address such problems as soon as they are identified.” Id. Arizona

17

responded with a “Quarterly FFS Monitoring Plan” specifically tailored to FFS services,

18

including required quarterly reports on FFS member enrollment, utilization data, and

19

expenditures. See Doc. 16-12, at 48-49 (AZ PR 422-23). The State also recounted past

20

and current efforts to remedy access issues, including its willingness to transport FFS

21

members in isolated rural areas to other providers as necessary. Id. at 49 (AZ PR 423).

22

The Secretary argues that it was well within CMS’s discretion to rely on the State’s FFS

23

monitoring plan and any spillover benefits of managed care monitoring as bases to

24

approve the SPAs under Section 30(A). Doc. 44, at 26.

25

From this and other evidence in the record not recounted in detail here, the Court

26

concludes that it is likely to find that the Secretary considered the effects of the SPAs on

27

access to care.

28
- 14 -

1

b.

Quality of Care.

2

The Secretary argues that, although CMS focused more intently on equal access

3

than on quality of care, efficiency, or economy, Plaintiff’s allegation that CMS entirely

4

ignored these factors is false. Doc. 44, at 27. As to quality of care, CMS asked the State

5

what corrective actions would be taken if its monitoring of provider networks indicates a

6

problem with provider adequacy. Doc. 16-10, at 56 (AZ PR 304). The State responded

7

by discussing its willingness to transport FFS members who live in geographically

8

isolated areas with limited service capacity to another provider who can deliver the

9

services, thus demonstrating a connection between provider adequacy and access to care.

10

Id. In response to CMS inquiries, the State also emphasized its mission of providing

11

“comprehensive, quality health care for all of its members.” Doc. 16-10, at 54 (AZ PR

12

302). The Secretary points to the State’s Quarterly FFS Monitoring Plan, established at

13

CMS’s direction, which provides for reporting and tracking of FFS Medicaid

14

beneficiaries’ grievances, as a measure that helps to ensure quality care. Doc. 44, at 27.

15

FFS patients may also reap benefits from monitoring tools and quality reviews that

16

promote quality of care in MCO networks. Id.; see Doc. 16-8, at 121 (AZ PR 120)

17

(requiring managed care contractors to inform AHCCS within one day of an unexpected

18

material change to its network and to include in this notice the contractor’s “plans for

19

maintaining the quality of member care”). The Secretary argues that this is ample

20

evidence that the State met CMS’s requirement that FFS services be of sufficient quality

21

to satisfy Section 30(A).

22

Although the evidence that CMS considered quality is not as extensive as the

23

evidence that it considered access, there is evidence in the record that CMS addressed

24

quality with the State. The Court therefore cannot conclude that Plaintiff is likely to

25

succeed in showing that the Secretary “entirely failed to consider” quality or reached a

26

Section 30(A) decision that “runs counter to the evidence before the agency.” Motor

27

Vehicle Mfrs. Ass’n, 463 U.S. at 43.

28
- 15 -

c.

1

Efficiency and Economy.

2

With respect to efficiency and economy, CMS asked the State for responses to the

3

agency’s Standard Funding Questions in its original SPA submissions. Doc. 16-8, at 15-

4

17 (AZ PR 14-16). These questions “sought to elicit information regarding whether

5

Arizona is implementing the state plan in a generally efficient and economical manner.”

6

Doc. 44, at 28.

7

establishing upper payment limits, what portion of federal matching funds are distributed

8

to providers, funding sources for the State’s Medicaid expenditures, expenditure levels

9

for supplemental payments to providers, and whether governmental providers are paid in

10

excess of their costs. Doc. 16-8, at 15-17 (AZ PR 14-16). The State’s responses to the

11

Standard Funding Questions “provided useful fiscal context for CMS’s evaluation of the

12

effect of the proposed rate reductions.” Doc. 44, at 28.

Specifically, CMS inquired about the State’s methodology for

13

The State also provided CMS with a copy of the Milliman Report. See Doc. 16-8,

14

at 12 (AZ PR 11) (“AHCCCS also contracted with Milliman to update a review of the

15

potential impact associated with a 5% rate reduction for both inpatient and outpatient

16

services (attached).”).

17

efficiency, AHCCCS payment-to-cost ratios, and Arizona hospital occupancy rates.

18

Doc. 16-1, at 84-88 (CMS LTRS 84-99).

19

operating costs are approximately 12% higher than the nationwide average, and projected

20

that AHCCCS payments would cover approximately 70-72% of costs for Arizona

21

hospitals in 2012. Id. at 86-87. The study also explained that it “does not attempt to

22

independently analyze quality of hospital care among states,” but notes that by defining

23

efficient cost levels as statewide averages rather than isolating the lowest cost hospitals,

24

“it is likely that high quality patient care is achieved at the efficient state cost levels.” Id.

25

at 89.

The Milliman Report analyzed factors such as hospital cost

The study found that Arizona hospital

26

The Secretary logically notes that problems with efficiency and economy

27

generally arise when States increase payments to providers, not when they decrease

28

payments. Id. (citing Penn. Pharmacists Ass’n v. Houstoun, 283 F.3d at 531, 537-38 (3d
- 16 -

1

Cir. 2002) (“What sort of payments would make a program inefficient and

2

uneconomical?

3

‘efficiency’ and ‘economy’ was obviously not intended to benefit providers.”)). The

4

Secretary argues that it is consistent with efficiency and economy to permit a state to

5

implement reasonable measures that it deems appropriate to ensure the long-term

6

integrity – fiscal and otherwise – of its Medicaid program. Doc. 44, at 29. She also

7

suggests that the rate reductions may induce Arizona hospitals to undertake cost-savings

8

measures to bring them closer in line with nationwide cost levels or hospital providers in

9

more cost efficient states, as found by the Milliman Report, and that it was not

10

unreasonable for CMS to conclude that the rate reductions would be consistent with

11

efficient and economical delivery of health care services in view of this possibility. Id.

Payments that are too high.

Accordingly, the directive to achieve

12

The evidence cited by the Secretary to show her consideration of economy and

13

efficiency is thinner than her evidence to show consideration of quality, and substantially

14

less than her evidence on access considerations. The Court concludes that Plaintiff has

15

raised serious questions about whether the Secretary’s consideration of economy and

16

efficiency was sufficient to survive APA review. Given the evidence that is in the record

17

on these subjects, however, the Court cannot conclude that Plaintiff is likely to succeed

18

on the merits of showing that the Secretary “entirely failed” to consider these factors or

19

reached a Section 30(A) decision contrary to the evidence in the record. Motor Vehicle

20

Mfrs. Ass’n, 463 U.S. at 43.

21

B.

Section 13(A).

22

Plaintiff argues that the rate reductions are invalid and conflict with Section 13(A)

23

because the Director failed to comply with the public notice and comment requirements

24

of Section 13(A) and 42 C.F.R. § 447.205. Doc. 7, at 23. In a companion order filed

25

today, the Court has dismissed Plaintiff’s claim under 42 U.S.C. § 1983 for violation of

26

Section 13(A) and Plaintiff’s claim for violation of § 447.205.5

27
5

28

Even if Plaintiff did have a cause of action under § 1983 for a Section 13(A)
violation, the Court would conclude that Plaintiff is not likely to succeed on the merits of
- 17 -

1

Plaintiff also alleges a Section 13(A) violation under the Supremacy Clause. The

2

Court will assume, for purposes of this motion, that a Supremacy Clause claim remains

3

viable after the Supreme Court’s recent decision in Douglas v. Independent Living Center

4

of Southern California, 132 S.Ct. 1204 (2012). Although Douglas provides ample reason

5

to doubt the viability of such a claim, the current state of Ninth Circuit law seems to

6

support such claims under the Supremacy Clause.

7

Maxwell-Jolly, 563 F.3d 847, 851 (9th Cir. 2009) (“[P]rivate parties could enforce the

8

structural relationship between the federal and state governments so long as they had

9

Article III standing as, essentially, private enforcers of the Supremacy Clause”); see also

10

Hart v. Massanari, 266 F.3d 1155, 1171 (9th Cir. 2001) (“Once a panel resolves an issue

11

in a precedential opinion, the matter is deemed resolved, unless overruled by the court

12

itself sitting en banc, or by the Supreme Court.”).

See Cal. Pharmacists Ass’n v.

13

Section 13(A) requires States to provide “for a public process for determination of

14

rates of payment under the plan for hospital services,” which requires (i) publication of

15

proposed rates, methodologies underlying the establishment of the rates, and

16

justifications for the proposed rates, (ii) that providers, beneficiaries and their

17

representatives, and other concerned State residents are given a reasonable opportunity

18

for review and comment, (iii) publication of final rates, methodologies, and justifications,

19

and (iv) that rates take into account the situation of hospitals which serve a

20

disproportionate number of low-income patients with special needs.

21

§ 1396a(a)(13)(A).

42 U.S.C.

22

The Court is likely to conclude that the publication of proposed rates, the

23

methodology underlying the rates, and the justification for the rates was satisfied by the

24

May 24, 2011 posting to the Director’s website. See Doc. 7-6, at 3. That posting advised

25

that claim. Section 1983 requires a plaintiff to “demonstrate that the defendant’s conduct
was the actionable cause of the claimed injury.” Harper v. City of Los Angeles, 533 F.3d
1010 (9th Cir. 2008). As discussed below, the only deficiency Plaintiff has identified
under Section 13(A) is a failure to include in the formal notice some of the technical
details required by the implementing regulation. Plaintiff cannot claim that this omission
caused it any harm. Plaintiff had full notice of the proposed rate changes from the
Director’s website and was actively involved in contesting them.

26
27
28

- 18 -

1

the public that “[e]ffective October 1, 2011, AHCCCS will reduce all provider

2

reimbursements by 5%,” and identified exceptions to the reduction. Id. The website

3

stated that additional details regarding the rate reductions could be obtained by clicking

4

on various links, including links to the SPAs, access to care studies, and other related

5

information. Plaintiff’s counsel stated at oral argument that he is unable to confirm that

6

these links lacked the information on methodology and justification required by

7

Section 13(A)(i). Plaintiff has thus failed to show that it is likely to succeed in proving

8

that the May 24, 2011 website posting was inadequate under Section 13(A).

9

Section 13(A) next requires that providers be given “a reasonable opportunity” for

10

review and comment on the proposed rates. The May 24, 2011 website was posted one

11

month before the Director submitted the SPAs to CMS in June 2011 and more than four

12

months before the rates became effective in October 2011.

13

conclude that this constitutes a reasonable opportunity for review and comment.6

The Court is likely to

14

C.

Likelihood of Success Conclusions.

15

Plaintiff has not shown that it is likely to succeed in showing that the Secretary

16

entirely failed to consider the relevant factors under Section 30(A), although Plaintiff has

17

raised serious questions as to whether the Secretary adequately considered economy and

18

efficiency. Plaintiff has also failed to show a likelihood of succees on its Section 13(A)

19

claims and has raised no serious questions with respect to that claim. Because Plaintiff

20
21
22
23
24
25
26
27
28

6

Plaintiff’s counsel argued for the first time at the March 1, 2012 hearing that the
formal notice did not satisfy the technical content requirements of 42 C.F.R.
§ 447.405(c). This argument is inapposite in light of the Court’s dismissal of the claim
under § 447.405(c). Moreover, even if Plaintiff could assert this alleged violation as part
of its claim under Section 13(A), the Court would not be likely to find that it creates a
Supremacy Clause problem. Plaintiff’s Supremacy Clause claim is based on conflict
preemption. Such preemption arises “when compliance with both federal and state
regulations is a physical impossibility, or where state law stands as an obstacle to the
accomplishment and execution of the full purposes and objectives of Congress.” Indep.
Living Ctr. of S. Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644, 653 (9th Cir. 2009) (citation
omitted). Plaintiff has not shown that the absence of regulation-required content from the
formal notice somehow interfered with implementation of the federal Medicaid program.
To the contrary, notice of the rate reductions had previously been given by the May 24,
2011 website posting. It is undisputed that Plaintiff was fully aware of these developing
rate reductions and was fully engaged in the contesting them from the start.
- 19 -

1

has succeeded in showing only the existence of serious questions, it may obtain a

2

preliminary injunction only if it also shows that its will suffer irreparable harm, that the

3

balance of hardships tips sharply in its favor, and that public policy favors an injunction.

4

IV.

Irreparable Harm.

5

Plaintiff claims that its members are being irreparably harmed by the rate

6

reductions because they cannot recover any unlawfully withheld AHCCCS payments

7

from the State in federal court. Plaintiff asserts that “Arizona hospitals are projecting

8

monetary losses resulting from the Rate Reductions in amounts in the hundreds of

9

thousands, and even millions, of dollars.” Doc. 7, at 26. The Director objects that “the

10

hospital declarants misleadingly cite revenue losses, the huge majority of which are

11

health plan, not fee-for-service, payments.”

12

hospitals Plaintiff uses as examples, the Director claims that Plaintiff overstated the

13

hospitals’ lost revenue, which “represents less than one-half of one percent (.0043%) of

14

the 2010 gross revenues these nine hospitals reported to the Arizona Department of

15

Health Services.” Doc. 54, at 10 (citing Doc. 54-1, at 24-25 (Betlach Decl. ¶¶ 60-62)).

16

Plaintiff does not dispute the Director’s challenges to the accuracy of its lost revenue

17

figures, but instead replies that “a plaintiff need only demonstrate the threat of some type

18

of irreparable harm, the magnitude of which is immaterial.” Doc. 55, at 13 (citing Big

19

Country Foods, Inc. v. Bd. of Educ., 868 F.2d 1085, 1088 (9th Cir. 1989); Newton-

20

Nations v. Rogers, 316 F. Supp. 2d 883, 888 (D. Ariz. 2004)). Plaintiff claims that

21

“regardless of whether any hospitals have ‘overstated’ their monetary losses, as long as

22

hospitals will lose some revenue, they are irreparably harmed.” Id.

Doc. 54, at 10.

Referring to the nine

23

The Ninth Circuit has held that monetary losses may constitute irreparable injury

24

if the plaintiff cannot recover damages from the defendant because a claim would be

25

barred by the Eleventh Amendment. Cal. Pharmacists Ass’n v. Maxwell-Jolly, 563

26

F.3d 847, 851-52 (9th Cir. 2009) (“Cal. Pharm. I”). The Director and the Secretary do

27

not dispute that Plaintiff will be unable to recover monetary damages due to the State’s

28

Eleventh Amendment sovereign immunity.
- 20 -

1

But an inability to recover monetary losses may not alone be sufficient to establish

2

irreparable harm in this case. In California Pharmacists Association v. Maxwell-Jolly,

3

596 F.3d 1098 (9th Cir. 2010) (“Cal. Pharm. II”), the Ninth Circuit explained how

4

claimants in Medicaid cases can establish such harm: “to show a risk of irreparable

5

harm, plaintiffs may show either, as Medicaid beneficiaries, that enforcement of a

6

proposed rule may deny them needed medical care, or, as Medicaid providers, that they

7

will lose considerable revenue through the reduction in payments that they will be unable

8

to recover due to the State’s Eleventh Amendment sovereign immunity.” Id. at 1113-14

9

(citations and quotation marks omitted) (emphasis added). Plaintiff represents Medicaid

10

providers. Thus, to show irreparable harm, Plaintiff must establish not only that it will

11

lose revenues that cannot be recuperated because of the Eleventh Amendment, but also

12

that the lost revenues will be “considerable.”

13

The opinion in Cal. Pharm. II provides no explanation for this requirement of

14

“considerable revenue” loss, but it does cite Cal. Pharm. I as the source.

Id.

15

Cal. Pharm. I, although using the word “considerable,” does not address the requirement.

16

See Cal. Pharm I, 563 F.3d at 850-52. The “considerable revenue” requirement has been

17

repeated in various district court cases in the Ninth Circuit, see Unity Service, CV-09-

18

639-S-BLW, 2010 WL 1138947, at *7 (D. Id. March 20, 2010); California Hospital

19

Association v. Maxwell-Jolly, 776 F. Supp. 2d 1129, 1157 (E.D. Cal. 2011); California

20

Association of Health Facilities v. Maxwell-Jolly, Nos. CV 10-3259 CAS (MANx), CV

21

10-3284 CAS (MANx), 2011 WL 6938438, at *7 (C.D. Cal. May 5, 2011), but none of

22

these cases discuss the source or the meaning of the requirement. The requirement may

23

simply be another form of the longstanding maxim that a preliminary injunction will not

24

issue “‘to restrain an act the injurious consequences of which are merely trifling.’”

25

Weinberger v. Romero-Barcelo, 456 U.S. 305, 311 (1982) (quoting Consol. Canal Co. v.

26

Mesa Canal Co., 177 U.S. 296, 302 (1900)).

27

In support of its contention that the amount of the loss is irrelevant, Plaintiff cites a

28

Ninth Circuit statement that “the moving party must demonstrate a significant threat of
- 21 -

1

irreparable injury, irrespective of the magnitude of that injury.” Big Country Foods, 868

2

F.2d at 1088. The opinion cited contains this statement, but does not hold that the

3

plaintiff had established irreparable harm of even a minor amount. The decision in Big

4

Country instead found no harm because the record was “barren of evidence of lost

5

profits.” Id. Big Country did cite three other cases in support of the proposition that the

6

magnitude of injury is immaterial, but none of these cases applied the principle. See

7

Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 938-39 (9th Cir. 1987) (noting that

8

“temporary economic loss alone generally is not a basis for injunctive relief,” but that the

9

district court erred in concluding that the only injury to plaintiffs was economic injury

10

when the Circuit had recently held that “allegations of retaliation for the exercise of

11

statutorily protected rights represent possible irreparable harm far beyond economic

12

loss.”); Oakland Tribune, Inc. v. Chronicle Pub. Co., Inc., 762 F.2d 137, 1376 (9th Cir.

13

1985) (plaintiff claimed injury in loss of circulation and revenue, but the court concluded

14

that “this involves purely monetary harm measurable in damages” and that the plaintiff

15

had not otherwise shown a likelihood of injury to reputation); American Passage Media

16

Corp. v. Cass Communications, Inc., 750 F.2d 1470, 1473 (9th Cir. 1985) (plaintiff

17

alleged the loss of a substantial amount of business, but Ninth Circuit held that

18

“[m]onetary damages are not usually sufficient to establish irreparable harm” and that

19

plaintiff had failed to show other kinds of injury). None of these cases held that a

20

preliminary injunction may be based on irreparable harm no matter how minimal.

21

The Court will follow the clear language in Cal. Pharm. II. Plaintiff, as a

22

representative of Medicaid providers, must show the likely loss of “considerable

23

revenue” to satisfy the irreparable harm requirement. Cal. Pharm. II, 596 F.3d at 1113-

24

14. To support its assertion that its members will suffer monetary losses in the “hundreds

25

of thousands, and even millions, of dollars,” Plaintiff cites declarations by executives of

26

nine member hospitals. Doc. 7, at 26. The projected losses are: $1.2 million per year as

27

a result of the reduction on inpatient rates for Yavapai Regional Medical Center and

28

Yavapai Regional Medical Center East (Doc. 15, at 3 (Barnett Decl. ¶ 6)); $250,000 per
- 22 -

1

year as a result of the reduction on inpatient and outpatient rates for Southeast Arizona

2

Medical Center (Doc. 14, at 3 (Bickel Decl. ¶ 6)); $110,000 per year as a result of the

3

reduction on inpatient rates for White Mountain Regional Medical Center (Doc. 17, at 3

4

(Campeau Decl. ¶ 7)); $112,000 per year as a result of the reduction on inpatient rates for

5

La Paz Regional Hospital (Doc. 13, at 3 (Clark Decl. ¶ 6)); $340,000 per year as a result

6

of the reduction on inpatient rates for Little Colorado Medical Center (Doc. 12, at 3

7

(Hamblen Decl. ¶ 6)); $250,000 per year as a result of the reduction on inpatient and

8

outpatient rates for Benson Hospital (Doc. 11, at 3 (Hurtado Decl. ¶ 6)); $627,000 per

9

year as a result of the reduction on inpatient and outpatient rates for Summit Healthcare

10

(Doc. 10, at 3 (McArthur Decl. ¶ 6)); $6 million per year as a result of the reduction on

11

inpatient and outpatient rates for the four acute care hospitals in the Carondelet Health

12

Network (Doc. 9, at 3 (Mohesky Decl. ¶ 5)); and $340,000 per year as a result of the

13

reduction on inpatient and outpatient rates for Mt. Graham Regional Medical Center

14

(Doc. 8, at 3 (Peters Decl. ¶ 5)).

15

These loss amounts are summarized in a chart at Doc. 54-2. In that chart, the

16

Director calculates separate figures for MCO inpatient and outpatient claims compared to

17

FFS inpatient and outpatient claims for fiscal year 2011. See Doc. 54-2, at 2. These

18

breakout calculations show that MCO claims account for a much larger portion of the

19

hospitals’ revenue than FFS claims, and that the rate reductions therefore have a much

20

larger impact on MCO revenue than FFS revenue. As noted above, this case concerns

21

only FFS payments, a fact admitted by Plaintiff’s counsel at the March 1, 2012 hearing.

22

The Director’s calculations estimate that the FFS rate reductions would have a

23

total impact of $774,872 for all nine hospitals, in contrast to the higher figures provided

24

by the hospital declarants. This loss constitutes less than three one-hundredths of one

25

percent of the nine hospitals’ combined 2010 revenues of $3,425,790,922.94. Doc. 54-2

26

at 2 (FFS losses represent 0.0226% of 2010 revenues). The highest FFS loss for any of

27

the nine hospitals will be less than two-tenths of one percent for the Little Colorado

28

Medical Center. Id. (FFS losses represent 0.1440% of 2010 revenues for the Medical
- 23 -

1

Center). The Court simply cannot conclude that losses amounting to a small fraction of

2

one percent of revenues constitute “considerable revenues” for these hospitals.

3

Even if these losses were found to satisfy the irreparable harm requirement, either

4

because the statement in Cal. Pharm. II is later determined to be incorrect or because

5

even a small fraction of revenues can be deemed “considerable” in terms of absolute

6

dollars, Plaintiffs has still failed to show that the balance of hardships favors an

7

injunction or that public policy support the request for injunctive relief.

8

V.

Balance of Equities and Public Interest.

9

Plaintiff initially claims that “[t]he only interest that the State or CMS will be able

10

to point to that is potentially implicated by an injunction of the Rate Reductions is

11

Arizona’s budget difficulties.” Doc. 7, at 26. The Director responds that “an injunction

12

would be costly and disruptive to [AHCCCS] and its recipients.”

13

Doc. 54-1, at 26 (Betlach Decl. ¶ 65). The Director estimates that an injunction against

14

the FFS rate reduction from February 1, 2012 through the SPAs’ end date of

15

September 30, 2012 would cost AHCCCS an additional $8.63 million. Doc. 54, at 25;

16

Doc. 54-1, at 32 (Betlach Decl. ¶ 81).

17

18

AHCCCS that may result from an injunction do not outweigh the interest of ensuring

19

legal compliance. “A budget crisis does not excuse ongoing violations of federal law,

20

particularly when there are no adequate remedies available other than an injunction.” See

21

Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly, 572 F.3d 644, 659 (9th Cir. 2009). But in

22

addition to the fact that Plaintiff has not established a likelihood of success in showing

23

that there has been a violation of federal law, the Director claims that an injunction would

24

have an effect beyond creating a financial burden on the State – AHCCCS recipients

25

would also be adversely impacted. Doc. 54, at 28. “[I]f AHCCCS were to lose the

26

savings the existing rates represent, [the Director’s] only alternatives are to seek approval

27

to eliminate eligibility for current beneficiaries from the remaining optional eligibility

28

portions of the Childless Adult program and/or to further restrict coverage of optional

Doc. 54, at 25;

The Court agrees with Plaintiff that financial or administrative burdens on

- 24 -

1

services.” Doc. 54, at 27; Doc. 54-1, at 27-29 (Betlach Decl. ¶¶ 68-73).

2

Plaintiff argues that these effects are too uncertain to warrant tipping the balance

3

of equities in Defendants’ favor, but the Court finds the Director’s assertions to be more

4

than speculative. The Director explains that AHCCCS must operate within the funds

5

appropriated by the State legislature, and that its costs are driven by scope of benefits,

6

eligibility, and provider reimbursement rates. Doc. 54-1, at 27 (Betlach Decl. ¶ 66). The

7

Director states that AHCCCS has already significantly reduced the scope of healthcare

8

coverage to stay within its appropriation. As of October 1, 2010, AHCCCS eliminated

9

coverage for well exams, dental care, podiatrists’ services, and orthodontics, and limited

10

physical therapy services to 15 visits per year. Doc. 54-1, at 27 (Betlach Decl. ¶ 67). In

11

addition, AHCCCS found it necessary to implement additional reductions as of

12

October 1, 2011, including limiting the number of covered inpatient hospital days to 25

13

per year. Id. The Director also states that AHCCCS has recently restricted eligibility in

14

order to operate within its appropriation.

15

coverage for the Medical Expense Deduction group (persons whose income exceeded

16

Medicaid limits but who incurred significant medical expenses), and closed enrollment

17

for persons who did not meet traditional nonfinancial criteria for Medicaid coverage (the

18

Childless Adult group). Doc. 54-1, at 28 (Betlach Decl. ¶71). While the Affordable Care

19

Act prohibits states from imposing more restrictive eligibility requirements than those in

20

place under the state plan as of March 23, 2010, AHCCCS has discretion to withdraw or

21

amend coverage to people in the Childless Adults eligibility group because that category

22

was established after March 23, 2010 and is not subject to the limitations of the

23

Affordable Care Act. Doc. 54-1, at 28-29 (Betlach Decl. ¶¶ 72, 73).

In October 2011, AHCCCS eliminated

24

Plaintiff has not disputed these factual assertions, which show that the prospect of

25

reducing AHCCCS benefits is more than theoretical. It has already occurred in Arizona

26

during the last two years. The fact that a loss of an additional $8.63 million could require

27

further benefit cuts cannot be dismissed as merely speculative. See Harris, 366 F.3d

28

at 754 (finding that plaintiffs’ injuries were not too speculative when they had
- 25 -

1

demonstrated that the county already had difficulty in providing them access to timely

2

care).

3

In sum, Plaintiff has not shown that the balance of equities tips in its favor. The

4

Court simply cannot conclude that the prospect of the Plaintiff’s members losing less

5

than three one-hundredths of one percent of their revenue outweighs the very real

6

possibility that an injunction would result in the Director having to reduce AHCCCS

7

benefits. The loss of medical care for those who depend on AHCCCS is not outweighed

8

by slight reductions in the revenues of Plaintiff’s members. A fortiori Plaintiff has not

9

shown that the balance of hardships tips sharply in its favor, as would be required for an

10

injunction to issue on the basis of serious questions on the merits. See Alliance for the

11

Wild Rockies, 632 F.3d at 1135.

12

Nor can the Court conclude that public policy favors an injunction. The Ninth

13

Circuit has repeatedly emphasized the importance of ensuring that beneficiaries have

14

access to medical services. See, e.g., M.R. v. Dreyfus, 663 F.3d 1100, 1120 (9th Cir.

15

2011) (“We have several times held that the balance of hardships favors beneficiaries of

16

public assistance who may be forced to do without needed medical services over a state

17

concerned with conserving scarce resources.”); Indep. Living Ctr. of S. Cal. v. Maxwell-

18

Jolly, 572 F.3d 644, 659 (9th Cir. 2009) (recognizing “a robust public interest in

19

safeguarding access to health care for those eligible for Medicaid, whom Congress has

20

recognized as ‘the most needy in the country’”) (citation omitted).

21

The Supreme Court has instructed that, “[i]n exercising their sound discretion,

22

courts of equity should pay particular regard for the public consequences in employing

23

the extraordinary remedy of injunction.” Weinberger, 456 U.S. at 312. The Director has

24

established the possibility that an injunction in this case would have the adverse public

25

consequences of reducing AHCCCS benefits.

26

possibility when Plaintiff has not shown that losses to its members from the absence of an

27

injunction would be substantial.

28
- 26 -

Public policy favors avoiding that

1

VI.

Conclusion.

2

Plaintiff has raised serious questions regarding the Secretary’s compliance with

3

Section 30(A), but has not shown a likelihood of irreparable harm, that the balance of

4

hardships tips in its favor, or that public policy supports an injunction. As a result, the

5

Court must deny the request for a preliminary injunction. See Alliance for the Wild

6

Rockies, 632 F.3d at 1135.

7
8
9

IT IS ORDERED that Plaintiff’s request for a preliminary injunction (Doc. 7) is
denied.
Dated this 23rd day of March, 2012.

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
- 27 -