Planned Parenthood Arizona Incorporated et al v. Betlach et al

Filing 78

ORDER that Plaintiffs' Motion for Preliminary Injunction (Doc. 6 ) is GRANTED, conditioned upon Plaintiffs posting a bond in the amount of $100 pursuant to Fed. R. Civ. P. 65(c). FURTHER ORDERED that Defendants' Motion to Dismiss Counts I and II (Doc. 37 ) is DENIED. See order for complete details. Signed by Judge Neil V. Wake on 10/19/12. (NKS)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Planned Parenthood Arizona, Inc.; Jane
Doe #1; Jane Doe #2; Jane Doe #3; Eric
Reuss, M.D.,
Plaintiffs,

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v.

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Tom Betlach, Director, Arizona Health
Care Cost Containment System; Tom
Horne, Attorney General,

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ORDER
AND
FINDINGS OF FACT AND
CONCLUSIONS OF LAW

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No. CV-12-01533-PHX-NVW

Defendants.

TABLE OF CONTENTS

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I.

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BACKGROUND ......................................................................................................... 1
A.

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The Challenged Arizona Act ................................................................................... 1

B.

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The Medicaid Program ............................................................................................ 2
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Waivers for Demonstration Projects ................................................................... 3

C.

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Freedom of Choice Provision ............................................................................. 2

2.

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II.

Arizona’s Medicaid Program .................................................................................. 4
PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION .............................. 4

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Plaintiffs Are Likely to Succeed on the Merits. ...................................................... 5

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1.

Plaintiffs Have a Right to Sue Under 42 U.S.C. § 1983..................................... 5

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2.

Plaintiffs Are Likely to Succeed on Their Claim that the Arizona Act Violates

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the Freedom of Choice Provision. .................................................................... 11

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a.

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The Plain Meaning of the Phrase “Qualified to Perform the Service” Refers
to the Ability of the Provider to Perform Medicaid Services. ...................... 12

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b.

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Section 1396a(p)(1) Does Not Give States Authority to Disqualify Providers
for Reasons Unrelated to the Purposes of the Medicaid Act. ....................... 13

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c.

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Agency Interpretations of § 1396a(a)(23) Are Entitled to Some
Deference. ..................................................................................................... 17

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B.

Plaintiffs Will Suffer Irreparable Harm Without Injunctive Relief. ..................... 20

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The Balance of Equities Favors Plaintiffs. ............................................................ 21

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Temporarily Enjoining Enforcement of the Arizona Act Is in the Public

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Interest. .................................................................................................................. 22

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III. BOND ........................................................................................................................ 23

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IV. DEFENDANTS’ MOTION TO DISMISS COUNTS I AND II............................... 23

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Before the Court is Plaintiffs’ Motion for Preliminary Injunction (Doc. 6) and

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Defendants’ Motion to Dismiss Counts I and II (Doc. 37). For the reasons below, the

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Plaintiffs’ Motion for Preliminary Injunction will be granted, and the Defendants’ Motion

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to Dismiss will be denied. This Order states the Court’s findings of fact and conclusions

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of law under Fed. R. Civ. P. 52(a)(2).

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I.

BACKGROUND
A.

The Challenged Arizona Act

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Plaintiffs brought this action to enjoin the enforcement of Arizona Legislature HB

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2800, 2nd Regular Session, 50th Legislature (2002) (“the Arizona Act”), which prohibits

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any health care provider who performs elective abortions from receiving Medicaid

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funding. A.R.S. § 35-196.05. The challenged portion of the Arizona Act provides:

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This state or any political subdivision of this state may not enter into a
contract with or make a grant to any person that performs nonfederally
qualified abortions or maintains or operates a facility where nonfederally
qualified abortions are performed for the provision of family planning
services.

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A.R.S. § 35-196.05(B). For the purposes of the Arizona Act, “nonfederally qualified
abortion” is defined as “an abortion that does not meet the requirements for federal
reimbursement under title XIX of the social security act.” A.R.S. § 35-196.05(F)(4). In
turn, an abortion that does not meet the requirements for federal reimbursement is any
abortion except where the pregnancy is the result of rape or incest, or threatens the life or
health of the mother. Exec. Order No. 13,535, 75 Fed. Reg. 15, 599 (Mar. 24, 2010).
The Arizona Act therefore prohibits any person or entity that performs abortions, outside
of those exceptions, from participating in Medicaid. On May 4, 2012, Governor Jan
Brewer signed the Arizona Act into law after the Act passed by wide margins in both
houses of the Arizona Legislature. Though the Arizona Act was scheduled to take effect
on August 2, 2012, the parties in this case stipulated to a temporary restraining order that
delayed implementation and enforcement of the Act pending the Court’s ruling on
Plaintiffs’ Motion. (Doc. 26.)

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B.

The Medicaid Program

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The Medicaid program, established by Title XIX of the Social Security Act, 42

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U.S.C. § 1396 et seq., is a cooperative federal-state program created to provide medical

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assistance to needy families and individuals. Under the Medicaid program, the federal

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government provides funds to states to offset some of the expense of furnishing medical

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services to low-income persons. The program is jointly financed by the federal and state

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governments, and states administer the program according to federal guidelines. 42

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U.S.C. § 1396 et seq.; 42 C.F.R. § 430.0. States are not required to participate in the

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federal Medicaid program. Once a state elects to participate in Medicaid, however, it

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must do so in accordance with federal statutes and regulations.

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§§ 1396a(a)(1)-(83); Wilder v. Va. Hosp. Ass’n, 496 U.S. 498, 502 (1990).

42 U.S.C.

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States that participate in the Medicaid program are required to develop a

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comprehensive plan for the provision of services that must be approved by the Secretary

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of Health and Human Services (“the Secretary”). 42 U.S.C. § 1396a(a); Wilder, 496 U.S.

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at 502.

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Administrators of the Centers for Medicare and Medicaid Services (“CMS”). 42 C.F.R.

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§ 430.15(b).

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consistent with federal policy. 42 C.F.R. § 430.14. CMS then exercises its delegated

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authority either to approve the state plan or to disapprove the plan after consulting with

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the Secretary. 42 C.F.R. § 430.15(b)-(c).

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The Secretary delegates power to review and approve plans to Regional

CMS reviews the state plan to determine whether its provisions are

1.

Freedom of Choice Provision

Central to the dispute in this case, among the requirements for states to participate
in the Medicaid program, “[a] State plan for medical assistance must – provide that:”
(A) any individual eligible for medical assistance (including drugs) may
obtain such assistance from any institution, agency, community pharmacy,
or person, qualified to perform the service or services required (including
an organization which provides such services, or arranges for their
availability, on a prepayment basis), who undertakes to provide him such
services, and
(B) an enrollment of an individual eligible for medical assistance in a
primary care case-management system . . . a Medicaid managed care
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organization, or a similar entity shall not restrict the choice of the qualified
person from whom the individual may receive services under section
1396d(a)(4)(C) of this title.
42 U.S.C. § 1396a(a)(23). The Supreme Court has interpreted this freedom of choice
provision to give Medicaid recipients “the right to choose among a range of qualified
providers, without government interference.”

O'Bannon v. Town Court Nursing Ctr.,

447 U.S. 773, 785 (1980).
Subparagraph (B) of § 1396a(a)(23) expands that protection in the context of
family planning services. The services described in 42 U.S.C. § 1396d(a)(4)(C) are
“family planning services and supplies furnished . . . to individuals of child-bearing age
. . . who are eligible under the State plan and who desire such services and supplies.”
Section 1396a(a)(23)(B) therefore provides an additional guarantee of an individual’s
free choice of providers of family planning services; the guarantee applies even in the
context of managed care organizations, where free choice of providers otherwise can be
limited by a state.

42 U.S.C. § 1396a(a)(23)(B); see also 42 U.S.C. § 1396n(b)

(providing that the Secretary may waive free choice of providers in some circumstances
to permit a state to set up a managed care delivery system, but that “[n]o waiver under
this subsection may restrict the choice of the individual” in receiving family planning
services).
Though participating states must comply with all of the requirements of Title XIX,
including the freedom of choice provision, states retain some autonomy and flexibility in
devising Medicaid plans.

Specifically, a state may establish “reasonable standards

relating to the qualifications of providers . . . .” 42 C.F.R. § 431.51(c)(2). A state may
also exclude health care providers under certain circumstances: “[i]n addition to any other
authority, a State may exclude an individual or entity . . . for any reason for which the
Secretary could exclude the individual or entity from participation.”
§ 1396a(p)(1).
2.

Waivers for Demonstration Projects

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42 U.S.C.

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In addition to the state plans approved by CMS, 42 U.S.C. § 1315 authorizes the

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Secretary to approve experimental or demonstration projects with the goal of encouraging

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states to adopt innovative programs that promote the objectives of Medicaid. Portland

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Adventist Med. Ctr. v. Thompson, 399 F.3d 1091, 1093 (9th Cir. 2005). To that end, the

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Secretary may waive certain Medicaid mandates generally applicable to state plans to

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allow a state to participate in these “demonstration projects.” 42 U.S.C. § 1315(a). The

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Secretary may approve such a project when it “is likely to assist in promoting the

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objectives” of the Medicaid program. To do so, the Secretary may waive compliance

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with any of the requirements of § 1396a, which governs state plans for Medicaid, “to the

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extent and for the period [the Secretary] finds necessary to enable [a State] to carry out

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such a project.” 42 U.S.C. §§ 1315(a)-(a)(1).
C.

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Arizona’s Medicaid Program

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Arizona participates in the Medicaid program through both an approved state plan

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under § 1396a and a demonstration project under § 1315. Arizona is therefore bound by

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the requirements of § 1396a unless CMS expressly waives a requirement. The state plan

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and the demonstration project together authorize the Arizona Health Care Cost

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Containment System (“AHCCCS”), the agency responsible for Arizona’s Medicaid

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program. AHCCCS operates a managed care system in which health care providers

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contract with managed care organizations rather than directly with the State. To facilitate

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this demonstration program, CMS waived § 1396a(a)(23)(A) only “[t]o the extent

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necessary to enable the State to restrict freedom of choice of providers through

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mandatory enrollment of eligible individuals in managed care organizations and/or

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Prepaid Inpatient Health Plans.” (Doc. 51 at 6.) CMS did not waive the additional

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guarantee of an individual’s free choice of providers of family planning services in

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§ 1396a(a)(23)(B).

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II.

PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION
Plaintiffs seek a preliminary injunction that would enjoin the implementation of

the A.R.S. § 35-196.05(B).

A preliminary injunction is an extraordinary equitable
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remedy which seeks to “preserve the relative positions of the parties until a trial on the

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merits can be held.” Univ. of Tex. v. Camenisch, 451 U.S. 390, 395 (1981). To be

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entitled to injunctive relief, a movant must demonstrate that: (1) the movant is likely to

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succeed on the merits; (2) the movant is likely to suffer irreparable harm in the absence of

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preliminary relief; (3) the balance of equities tips in the movant’s favor; and (4) an

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injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7,

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that each of the four prongs is satisfied. Mazurek v. Armstrong, 520 U.S. 968, 972 (1997)

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(per curiam).

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A.

Plaintiffs Are Likely to Succeed on the Merits.

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Plaintiffs’ first argument is that the Arizona Act violates a Medicaid patient’s

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right – derived from the § 1396a(a)(23) freedom of choice provision – to receive care

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from the provider of his or her choice. Defendants contend in response that Plaintiffs do

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not have a right of action under 42 U.S.C. § 1983 to enforce the Medicaid freedom of

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choice provision, and that the State cannot violate Medicaid provisions because Medicaid

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is a voluntary program.

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1.

Plaintiffs Have a Right to Sue Under 42 U.S.C. § 1983.

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Under § 1983, persons are liable if they act under color of law to deprive

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individuals of “any rights, privileges, or immunities secured by the Constitution and

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laws” of the United States. 42 U.S.C. § 1983. Although § 1983 authorizes lawsuits to

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enforce federal statutory rights, Maine v. Thiboutot, 448 U.S. 1, 4 (1980), it “does not

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provide an avenue for relief every time a state actor violates a federal law,” City of

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Rancho Palos Verdes v. Abrams, 544 U.S. 113, 119 (2005). To sue under § 1983, then, a

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plaintiff must allege a violation of an individual right, not merely a violation of a federal

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law. See Blessing v. Freestone, 520 U.S. 329, 340 (1997). Moreover, Plaintiffs bear the

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burden of showing that Congress intended for the statute at issue to create an enforceable

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right. Gonzaga Univ. v. Doe, 536 U.S. 273, 283–84 (2002). It is only “rights, not the

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broader or vaguer ‘benefits’ or ‘interests’ that may be enforced under the authority of
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[§ 1983].” Id. at 283. The Supreme Court established a three-factor test in Blessing to

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determine whether a particular federal statute creates an enforceable right. That test

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instructs courts to evaluate whether:

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(1) “Congress intended that the provision in question benefit the plaintiff”;
(2) the plaintiff has “demonstrated that the right assertedly protected by the
statute is not so ‘vague and amorphous’ that its enforcement would strain
judicial competence”; and (3) “the statute unambiguously imposes a
binding obligation on the States,” such that “the provision giving rise to the
asserted right is couched in mandatory, rather than precatory terms.”

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Ball v. Rodgers, 492 F.3d 1094, 1104 (9th Cir. 2007) (quoting Blessing, 520 U.S. at 340-

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41).

If all three elements of the Blessing test are satisfied, a federal right is

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“presumptively enforceable by § 1983, subject only to a showing by the state that

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Congress specifically foreclosed a remedy under § 1983.”

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(internal quotation marks and citation omitted).

Ball, 492 F.3d at 1116

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In Gonzaga, the Supreme Court directed courts to evaluate the first Blessing prong

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by examining whether Congress used “rights-creating” language to create individual

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rights that were “unambiguously conferred.”

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exemplars of statutory provisions that create § 1983 rights, the Court discussed Title VI

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of the Civil Rights Act of 1964 and Title IX of the Education Amendments of 1972, both

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of which use the wording “[n]o person . . . shall . . . be subjected to discrimination.” Id.

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at 284.

Gonzaga, 536 U.S. at 283-84.

As

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The Medicaid freedom of choice provision at issue here reveals congressional

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intent to create an individualized right. Section 1396a(a)(23) is phrased in terms of the

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individual’s right to select among qualified providers and is unmistakably focused on the

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specific individuals the provision is intended to benefit. “A State plan for medical

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assistance must . . . provide that any individual eligible for medical assistance (including

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drugs) may obtain . . . .” 42 U.S.C. § 1396a(a)(23)(A) (emphasis added). Further, in the

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family planning context, “[a] State plan for medical assistance must . . . provide that an

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enrollment of an individual eligible for medical assistance in a primary care case-

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management system . . . shall not restrict the choice of the qualified person from whom
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the individual may receive services . . . .” 42 U.S.C. § 1396a(a)(23)(B) (emphasis

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added). The language Congress used in these provisions includes paradigmatic “rights-

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creating terms” that evince congressional intent to confer individual rights. Gonzaga,

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536 U.S. at 284. Indeed, it is “difficult, if not impossible, as a linguistic matter, to

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distinguish the import of the relevant Title XIX language – ‘A State plan must provide’ –

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from the ‘No person shall’ language of Titles VI and IX,” that the Supreme Court

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identified as an exemplar. Sabree ex rel. Sabree v. Richman, 367 F.3d 180, 190 (3d Cir.

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2004) (citing Blessing, 520 U.S. at 341); see also Watson v. Weeks, 436 F.3d 1152, 1161

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(9th Cir. 2006) (endorsing the Sabree court’s reasoning). The language of the freedom of

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choice provision focuses on individuals and provides clear instructions for what the states

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must do to ensure that eligible individuals receive services to which they are entitled

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under the statute. The provision does not, therefore, focus on the “aggregate services

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provided by the State, rather than the needs of any particular person.” See Gonzaga, 536

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U.S. at 282. Instead, § 1396a(a)(23) confers on eligible individuals the “right to choose

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among a range of qualified providers [ ] without government interference.” O’Bannon,

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447 U.S. at 785. The text of the freedom of choice provision therefore guarantees

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individual patients the right to make health care choices using mandatory, rights-creating

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language. See Planned Parenthood of Ind., Inc. v. Comm'r of Ind. State Dep’t of Health,

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794 F. Supp. 2d 892, 902 (S.D. Ind. 2011).

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But the inquiry into congressional intent to create rights does not end with the text

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of the particular provision at issue. In addition to the plain text, the structure of the

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statute in its entirety must be considered to determine whether Congress intended to

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confer individual rights. Gonzaga, 536 U.S. at 286. Defendants contend that Title XIX

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of the Social Security Act, understood as a whole, does not reflect congressional intent to

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create individual rights because Congress was concerned with systemic rather than

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individual compliance. The best evidence of this purported congressional intent is 42

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U.S.C. § 1396c, which empowers the Secretary to suspend payments to a state when the

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state’s Medicaid plans fails to “comply substantially” with the requirements of Title XIX.
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Arizona is therefore obligated, Defendants argue, only to comply substantially with the

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requirements of § 1396a(a)(23), and the only remedy for its failure to comply

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substantially would be for the Secretary to withhold payments.

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Congress has, however, expressly rejected Defendants’ interpretation of the

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Medicaid Act. In Suter v. Artist M., 503 U.S. 347 (1992), the Supreme Court accepted

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Defendants’ argument and held a Medicaid Act provision unenforceable under § 1983

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because it could be “read to impose only a rather generalized duty on the State, to be

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enforced not by private individuals, but by the Secretary.”

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superseded that interpretation and responded directly to Suter by enacting 42 U.S.C.

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§ 1320a-2, known as the “Suter fix.” The Suter fix clarified that a provision of the Social

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Security Act “is not to be deemed unenforceable because of its inclusion in a section of

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this chapter requiring a State plan or specifying the required contents of a State plan.” By

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enacting 42 U.S.C. § 1320a-2, Congress decreed that the statutory structure of the

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Medicaid Act, which requires states to submit plans to the Secretary for approval,

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“cannot detract from or override the otherwise clear ‘rights-creating language’ Congress

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used in enacting the free choice provisions.” Ball, 492 F.3d at 1112 (finding “like the

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language of . . . [§] 1396a(a)(23) . . . the language of §§ 1396n(c)(2)(C) and (d)(2)(C)

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satisfies the ‘rights-creating’ standard set forth in Gonzaga”). Congress has therefore

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foreclosed Defendants’ argument that § 1396a(a)(23) was “enacted simply to set forth a

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policy or practice upon which the receipt of federal funds is conditioned.” Id.; see also

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Harris v. Olszewski, 442 F.3d 456, 461 (6th Cir. 2006) (holding § 1396a(a)(23) “creates

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enforceable rights that a Medicaid beneficiary may vindicate through § 1983”).

Id. at 363.

Congress

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This conclusion is supported by the fact that Defendants’ interpretation of § 1396c

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would prohibit enforcement of any provision of the Medicare Act through § 1983.

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Binding Ninth Circuit precedent precludes that interpretation. Ball, 492 F.3d 1094; see

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also Watson v. Weeks, 436 F.3d 1152, 1161 (9th Cir. 2006) (holding § 1396a(a)(10)

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enforceable under § 1983). And, in addition to the Ninth, Sixth, and Third Circuit cases

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already cited, other circuits have applied Gonzaga and concluded that a variety of
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Medicaid provisions create enforceable rights that plaintiffs can vindicate under § 1983.

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See Doe v. Kidd, 501 F.3d 348 (4th Cir. 2007); Rabin v. Wilson-Coker, 362 F.3d 190 (2d

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Cir. 2004); S.D. ex rel. Dickson v. Hood, 391 F.3d 581, 604 (5th Cir. 2004). Therefore,

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the Court finds that § 1396a(a)(23) unambiguously evinces Congress’s intent to create

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individual rights that can be enforced under § 1983. Plaintiffs have satisfied the first

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prong of the Blessing test.

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Under the second Blessing prong, a plaintiff must demonstrate that the conferred

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right at issue is not so “vague” that it would “strain judicial competence” to enforce the

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right. 520 U.S. at 340. Though there may be legitimate debate about the scope of

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medical care covered by § 1396a(a)(23), the mandate itself is not so vague that it would

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be difficult for courts to enforce. Harris, 442 F.3d at 462. Rather, the provision sets

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forth an explicit right that guarantees individuals eligible for medical assistance the

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ability to choose from among a range of qualified providers without government

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interference. “A court can readily determine whether a state is fulfilling these statutory

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obligations by looking to sources such as a state’s Medicaid plan, agency records and

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documents, and the testimony of Medicaid recipients and providers.” Ball, 492 F.3d at

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1115.

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difficulty whether a state provides an individual with the free choice guaranteed in the

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provision. Plaintiffs have met their burden of demonstrating the freedom of choice

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provision satisfies the second Blessing prong.

By reviewing this readily available evidence, a court can determine without

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The third prong of the Blessing test requires consideration of whether the statute

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“unambiguously impose[s] a binding obligation on the States.” 520 U.S. at 347. By

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using the language “a State plan . . . must . . . provide” and “shall not restrict the choice,”

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Congress framed the rights it created in § 1396a(a)(23) in mandatory terms. The relevant

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terms in the freedom of choice provision are therefore “mandatory rather than precatory.”

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Sabree, 367 F.3d at 190 (quoting Blessing, 520 U.S. at 341). As a result, the final

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Blessing factor “is perhaps most obviously met by the free choice provisions.” Ball, 492

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F.3d at 1116.
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Defendants argue that the mandatory language of the provision should not control

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because no provision of the Medicaid Act could be mandatory on states that voluntarily

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participate in the program.

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requirements, Defendants contend, the state may lose federal funding but cannot be in

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violation of any federal law.

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argument. The capacity of the Secretary to curtail funding when states are noncompliant

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does not foreclose private remedies. Wilder v. Wilder, 496 U.S. 498 (1990). Although a

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state’s participation in Medicaid is voluntary, once a state elects to participate it “must

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comply with certain requirements imposed by the Act and regulations promulgated by

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[the Secretary].” Id. at 502 (emphasis added). As a result, “the power of [the Secretary]

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to reject state Medicaid plans or to withhold federal funding to States whose plans did not

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comply with federal law cannot foreclose a § 1983 remedy.” Ball, 492 F.3d at 117

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(internal quotation marks and citations omitted). Because the language of the freedom of

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choice provision is a binding obligation for all states that elect to participate in the

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Medicaid program, the third Blessing prong is satisfied. All three prongs of the Blessing

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test are therefore met, and § 1396a(a)(23) confers an individual right that is

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presumptively enforceable by § 1983 .

If a state program is not compliant with Medicaid

The Supreme Court has considered and rejected this

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But even where a right is unambiguously conferred, a state may rebut the

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presumption that § 1983 is available by showing that “Congress specifically foreclosed a

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remedy under § 1983.” Gonzaga, 536 U.S. at 284 n.4 (citation omitted). Title XIX does

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not explicitly preclude individual actions and, as discussed above, the majority of circuits

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have found provisions of the Medicaid Act enforceable under § 1983. The remedial

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component of the Medicaid Act – allowing the Secretary to cut federal funds – “cannot

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be considered sufficiently comprehensive to demonstrate a congressional intent to

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withdraw the private remedy of § 1983.” Ball, 492 F.3d at 1117 (citing Wilder, 496 U.S.

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at 521-22). Therefore, nothing in the statute could foreclose a § 1983 remedy. Medicaid

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beneficiaries thus enjoy individual rights under § 1396a(a)(23) that can be properly

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enforced through a § 1983 cause of action.
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Plaintiffs Are Likely to Succeed on Their Claim that the
Arizona Act Violates the Freedom of Choice Provision.

Because Plaintiffs have a right to sue under § 1983, the Court must consider the
merits of their claim that A.R.S. § 35-196.05 (“the Arizona Act”) violates the freedom of
choice provision in § 1396a(a)(23). Plaintiffs contend that the Arizona Act disqualifies
otherwise qualified providers of medical care from Medicaid solely because of the range
of services they provide, which violates a Medicaid patient’s right to receive care from
the provider of his or her choice. Defendants argue that the Medicaid Act gives Arizona
the authority to determine provider qualifications and that the Arizona Act is merely an
expression of that authority.
Section 1396a(a)(23) “gives recipients the right to choose among a range of
qualified providers, without government interference.” O’Bannon, 447 U.S. at 785. That
right also entails “an absolute right to be free from government interference with the
choice to [receive services from a provider] that continues to be qualified.” Id. at 785.
The emphasis on the term “qualified” in O’Bannon presages the central conflict between
the parties in this case: whether Arizona can limit the range of qualified Medicaid
providers to those providers that do not provide abortions without violating the freedom
of choice provision.
According to Defendants, the inclusion of the term “qualified provider” in
§ 1396a(a)(23) demonstrates that a state retains the authority to limit access to providers
it deems unqualified. The freedom of choice provision grants Medicaid patients the right
to choose, Defendants contend, only among those providers that the State has determined
are qualified for any reason consistent with state law. And the Arizona Act merely
reflects the State’s considered judgment that providers who perform abortions as defined
in the Arizona Act are not qualified to receive Medicaid funding.
In response, Plaintiffs – and the United States in its statement of interest – argue
that the term “qualified” refers only to a provider’s ability to perform and bill properly
for services. Congress has specified several narrow exceptions to the freedom of choice

- 11 -

1

mandate that Plaintiffs contend represent the only permissible limits a state can place on

2

an individual’s access to a qualified provider. Congress could not have intended,

3

Plaintiffs argue, to allow states to subvert the freedom of choice provision simply by

4

labeling providers as unqualified; such an interpretation would render the specific

5

exceptions to the provision in the statute superfluous.

6

After considering these arguments, the Court finds that a state’s determination of

7

whether a provider is qualified must relate to its ability to deliver Medicaid services. The

8

Court’s conclusion is based on an independent review of the plain meaning of the

9

statutory language, a review of the exceptions Congress has delineated to the freedom of

10

choice provision, cannons of statutory construction, and a measure of deference accorded

11

to the relevant agency’s considered interpretation of the provision.

13

The Plain Meaning of the Phrase “Qualified to Perform the
Service” Refers to the Ability of the Provider to Perform
Medicaid Services.

14

The plain language of § 1396a(a)(23) connects the limitation on an individual’s

15

free choice of providers to those providers that are “qualified” to the ability of the

16

provider “to perform the service or services required.” 42 U.S.C. § 1396a(a)(23)(A).

17

That plain language does not support the Defendants’ claim that by using the term

18

“qualified” Congress intended for states to have the authority to exclude whole groups of

19

providers for any state policy reason. A medical service provider that is “qualified” is

20

one “[p]ossessing the necessary qualifications; capable or competent, [e.g.] a qualified

21

medical examiner.” Black’s Law Dictionary (9th ed. 2009). The plain meaning of the

22

phrase “[providers that are] qualified to perform the service or services required” thus

23

limits freedom of choice to those providers that are competent to provide the needed

24

services. Implementing regulations give the states the authority to limit freedom of

25

choice under the provision by “[s]etting reasonable standards relating to the qualifications

26

of the providers.” 42 C.F.R. § 431.51(c)(2). So states unquestionably retain the authority

27

to set qualification standards, but only reasonable standards related to the ability of the

12

a.

28
- 12 -

1

provider to perform the Medicaid services in question. Defendants do not contend that

2

the Plaintiff providers are unfit to perform family planning services under Arizona’s

3

Medicaid plan; indeed, Defendants argue that the providers could continue providing

4

these services if they would stop performing abortions or create a separate entity. Within

5

the plain meaning of the term, the Plaintiff providers are therefore “qualified” to perform

6

Medicaid services. As a result, the plain meaning of the text of § 1396a(a)(23) supports

7

Plaintiffs’ argument that the provision guarantees Medicaid recipients the right to select

8

Plaintiff providers for those services, unless an exception to the provision applies.
b.

10

Section 1396a(p)(1) Does Not Give States Authority to
Disqualify Providers for Reasons Unrelated to the Purposes
of the Medicaid Act.

11

The inquiry is not limited to the text of § 1396a(a)(23), however, because other

12

provisions of Title XIX create exceptions to the general mandate that Medicaid patients

13

have free choice of qualified providers. These exceptions allow both the Secretary and

14

the states to exclude providers in a variety of situations. Within § 1396a(a)(23) itself, for

15

example, Congress clarified that “nothing in this paragraph shall be construed as

16

requiring a State to provide medical assistance for such services furnished by a person or

17

entity convicted of a felony under Federal or State law for an offense which the State

18

agency determines is inconsistent with the best interests of beneficiaries under the State

19

plan.” And the Secretary has discretion to allow states to restrict a Medicaid recipient’s

20

choice of providers to those providers who “meet, accept, and comply with the

21

reimbursement, quality, and utilization standards under the State plan.”

22

§ 1396n(b)(4).

23

providers for a number of enumerated reasons “[i]n addition to any other authority.” 42

24

U.S.C. § 1396a(p)(1). Section 1396a(p)(1) provides:

9

25
26
27
28

42 U.S.C.

Most central to this dispute, § 1396a(p)(1) allows states to exclude

In addition to any other authority, a State may exclude any individual or
entity for purposes of participating under the State plan under this
subchapter for any reason for which the Secretary could exclude the
individual or entity from participation in a program under subchapter XVIII
of this chapter under section 1320a-7, 1320a-7a, or 1395cc(b)(2) of this
title.
- 13 -

1

Defendants argue that § 1396a(p)(1) gives states the authority to determine

2

provider qualifications for any reason that advances state law and policy. Plaintiffs argue

3

that § 1396a(p)(1) does not give states sweeping authority to determine qualification

4

standards; rather, it specifies narrowly drawn exceptions to the freedom of choice

5

guarantee, all of which are related to excluding providers for fraudulent or illegal

6

activities. Both sides cite to the legislative history of § 1396a(p)(1) to support their

7

proposed interpretations. Defendants note the Senate report accompanying the bill states

8

that § 1396a(p)(1) “is not intended to preclude a State from establishing, under State law,

9

any other bases for excluding individuals or entities from its Medicaid program.” S. Rep.

10

No. 100-109, at 20 (1987), reprinted in 1987 U.S.C.C.A.N. 682, 700. Plaintiffs highlight

11

that the same Senate report indicates that Congress intended § 1396a(p)(1) to protect

12

Medicaid programs “from fraud and abuse, and to protect the beneficiaries of those

13

programs from incompetent practitioners and from inappropriate or inadequate care.” Id.

14

at 1-2, 682. And the United States argues that the phrase “[i]n addition to any other

15

authority” is merely a savings clause at the beginning of a specific authorization to the

16

states to exclude providers in a narrow set of circumstances involving fraud and abuse.

17

Whether the Arizona Act violates the freedom of choice provision therefore turns

18

primarily on the scope of the § 1396a(p)(1) exception.

19

The Court is not persuaded that Congress intended § 1396a(p)(1) to be a sweeping

20

grant of authority to the states that would allow them to disqualify any provider from

21

participating in Medicaid for nearly any reason, or for reasons unrelated to the purposes

22

of the Medicaid Act. As an initial matter, Congress’s use of the term “qualified” in

23

§ 1396a(a)(23) is distinct from the term “exclude” as used in § 1396a(p)(1). “Exclude”

24

has a specific meaning as defined in this statute: “the refusal to enter into or renew a

25

participation agreement or the termination of such an agreement.”

26

§ 1396a(p)(3). In order to “exclude” a provider under the statute, a state must give the

27

provider to be excluded notice of the state’s intent to exclude, 42 C.F.R. § 1002.212, and

28

an opportunity to appeal the exclusion before it is imposed, 42 C.F.R. § 1002.213. A
- 14 -

42 U.S.C.

1

state’s authority to exclude providers is not, therefore, coextensive with the state’s

2

authority to set generally applicable provider qualifications. Rather, the state’s power to

3

exclude focuses on individual providers who are excluded on a case-by-case basis after

4

notice and opportunity to appeal.

5

Defendants’ conflation of a state’s power to exclude an individual provider with

6

the state’s authority to set reasonable qualifications for all providers permeates

7

Defendants’ argument.

8

contention that states have authority to define a “qualified” provider however they see fit

9

set forth a state’s authority to “exclude” providers.

All of the provisions on which Defendants rely for their

None discusses a provider’s

10

qualifications.

Indeed, at oral argument Defendants’ counsel repeatedly referred to

11

§ 1396a(p)(1) as the “qualification provision of the Medicaid statute” despite the fact that

12

Congress did not use the word “qualified” or “qualification” anywhere in that provision.

13

If Congress had intended § 1396a(p)(1) to establish states’ authority to determine

14

provider qualifications, it knew how to say so by using the word “qualified” as it did in

15

§ 1396a(a)(23). Therefore, even if the Court were to accept the Defendants’ argument

16

that § 1396a(p)(1) permits a state to exclude a provider for any reason established by state

17

law, the power to exclude would not translate directly to the power to disqualify an entire

18

class of providers based on services it offers outside the Medicaid program.

19

Further, the interpretation of § 1396a(p)(1) that Defendants advance is not

20

plausible because it renders the remainder of the exceptions to the freedom of choice

21

provision superfluous. If a state could rely on § 1396a(p)(1) to exclude a class of

22

providers for any non-arbitrary reason, then the remainder of the exceptions, which

23

carefully set forth circumstances under which the Secretary and states have authority to

24

exclude providers, would be unnecessary.

25

cardinal rule of statutory interpretation that no provision [of a statute] should be

26

construed to be entirely redundant.” Kungys v. United States, 485 U.S. 759, 778 (1988);

27

see also Colautti v. Franklin, 439 U.S. 376, 392 (1979) (“[It is an] elementary canon of

28

statutory construction that a statute should be interpreted so as not to render one part
- 15 -

Such an interpretation undermines “the

1

inoperative.”). Rather, “it is our duty to give effect, if possible, to every clause and word

2

of a statute.” Khatib v. County of Orange, 639 F.3d 898, 904 (9th Cir. 2011) (quoting

3

Duncan v. Walker, 533 U.S. 167, 174 (2001)).

4

The exceptions to the freedom of choice provision are narrow and specific. For

5

example, Congress carefully circumscribed the Secretary’s own authority, set forth in

6

§ 1396n(b)(4), to waive the general requirements of §1396a and allow states to restrict

7

Medicaid beneficiaries’ choice of provider. The Secretary may only grant such a waiver

8

when a state uses standards to limit choice that “are consistent with access, quality, and

9

efficient and economic provision of covered care and services.” 42 U.S.C. § 1396n(b)(4).

10

Further, the Secretary may only allow states to limit choice if “such restriction does not

11

discriminate among classes of providers on grounds unrelated to their demonstrated

12

effectiveness and efficiency in providing those services.” Id. Even when the Secretary

13

has limited the freedom of choice requirement, in other words, a state may not restrict a

14

beneficiary’s choice of provider for reasons unrelated to the provider’s ability to provide

15

Medicaid services. If § 1396a(p)(1) gave states the independent authority to restrict

16

choice of providers for any reason, both the Secretary’s authority to grant states waivers

17

of the freedom of choice requirement and the limitation on that authority in § 1396n(b)(4)

18

would be rendered inoperative. Because Congress would not have drafted the statute to

19

make the specific instances in which the Secretary and a state could restrict choice of

20

providers redundant, Defendants’ proposed interpretation of § 1396a(p)(1) is in error.

21

Finally, if a state’s exclusion authority allowed the state to disqualify an entire

22

class of providers for any reason supplied by state law, the freedom of choice guarantee

23

of § 1396a(a)(23) would be greatly weakened. The guarantee would be subject to state

24

policies and politics having nothing to do with the Medicaid program. It is unlikely that

25

Congress would have included a broad guarantee of free choice among qualified

26

providers, subject to enumerated and well-defined exceptions, and then created in the

27

states authority to circumvent that guarantee for nearly any reason. The legislative

28

history of § 1396a(p)(1) does not, therefore, override the statutory guarantee of free
- 16 -

1

choice in § 1396a(a)(23). Indeed, the Senate report as a whole serves to clarify that the

2

overarching purpose of § 1396a(p)(1) is to grant authority to exclude a provider based on

3

the provider’s quality of services – not to disqualify a provider based on its scope of

4

services outside Medicaid. S. Rep. No. 100-109; see also Planned Parenthood of Ind.,

5

794 F. Supp. 2d at 904.

6

At the preliminary injunction stage, the Court need not define the precise contours

7

of a state’s authority to set reasonable standards for provider qualifications. A state’s

8

power to determine qualifications may not be as narrowly drawn as Plaintiffs suggest.

9

But for the Court to determine that Plaintiffs are likely to succeed on the merits, it is

10

enough to find that a state’s power to set reasonable qualification standards cannot be as

11

broad as Defendants claim. Simply put, a state’s determination of whether a provider is

12

qualified to perform Medicaid services must at least be related to Medicaid services. The

13

fact that the Plaintiff providers perform legally protected abortions does not affect their

14

ability to perform family planning services for Medicaid patients. The language of the

15

Medicaid Act, basic canons of statutory construction, and the legislative history of the

16

provisions involved therefore compel the conclusion that Arizona lacks the authority to

17

disqualify providers from the Medicaid program based solely on their provision of lawful

18

abortion services.

19

unrelated to Medicaid, Plaintiffs are likely to succeed on their claim that the Act violates

20

the freedom of choice provision of § 1396a(a)(23).

21
22
23
24
25
26
27
28

c.

Because the Arizona Act would disqualify providers for reasons

Agency Interpretations of § 1396a(a)(23) Are Entitled to
Some Deference.

To the extent that there is remaining ambiguity about the meaning of
§ 1396a(a)(23) in light of § 1396a(p)(1), persuasive agency interpretations of these
provisions further demonstrate that Plaintiffs are likely to succeed on the merits. The
Department of Health and Human Services (“HHS”), the agency charged with
administering the Medicaid program through its delegee Centers for Medicare and
Medicaid Services (“CMS”), has interpreted the statutes and implementing regulations at

- 17 -

1

issue in this case as this Court does. The most important implementing regulation creates

2

a narrow exception to the freedom of choice provision that permits a state to establish

3

“reasonable standards relating to the qualifications of providers.”

4

§ 431.51(c)(2).

5

qualifications of providers” to refer to standards that are relevant to providers’ ability to

6

render Medicaid services and to properly bill for those services.

7

42 C.F.R.

The Agency has interpreted “reasonable standards relating to the

Most recently, CMS reviewed in 2011 Indiana’s state Medicaid plan, which

8

included a restriction very similar to the Arizona Act.

Indiana’s plan proposed to

9

disqualify health care providers that performed abortions from state contracts and grants,

10

including those that distributed federal Medicaid funds. In its initial review, the CMS

11

Administrator, after consulting with the Secretary, refused Indiana’s plan because the

12

restriction violated § 1396a(a)(23) and its guarantee of free choice of providers. (Doc.

13

51-3.) Following that decision, CMS issued an informational bulletin to all states in

14

which the agency reiterated its interpretation in a “review of longstanding federal law.”

15

(Doc. 51-4.) The bulletin advised the states that they were “not . . . permitted to exclude

16

providers from the program solely on the basis of the range of medical services they

17

provide.” (Id.) CMS further clarified its interpretation that “Medicaid programs may not

18

exclude qualified health care providers . . . from providing services under the program

19

because they separately provide abortion services . . . .” (Id.)

20

Planned Parenthood of Indiana filed an action in the district court seeking a

21

preliminary injunction to prevent Indiana from enforcing its defunding law. In that case

22

Indiana argued, as Defendants do here, that CMS’s interpretation should be accorded no

23

deference by the district court because the CMS decision letter was not final and because

24

there was no statutory gap for the agency to fill in interpreting § 1396a(a)(23). Planned

25

Parenthood of Ind., Inc. v. Comm'r of Ind. State Dep’t of Health, 794 F. Supp. 2d 892,

26

907 (S.D. Ind. 2011). The court rejected Indiana’s argument, finding that “some level of

27

deference is warranted” without deciding whether heightened deference under Chevron v.

28

NRDC, 467 U.S. 837 (1984), was warranted. The court reasoned that “in cases such as
- 18 -

1

those involving Medicare or Medicaid, in which CMS, a highly expert agency,

2

administers a large complex regulatory scheme in cooperation with many other

3

institutional actors, the various possible standards for deference – namely, Chevron and

4

Skidmore – begin to converge.” Id. at 908 (quoting Estate of Landers v. Leavitt, 545 F.3d

5

98, 107 (2d Cir. 2008)).

6

Since the Southern District of Indiana issued its opinion, additional administrative

7

proceedings have further strengthened the case for awarding some deference to the

8

agency’s interpretation. Indiana sought reconsideration of CMS’s initial disapproval of

9

its Medicaid plan, which CMS denied. In its letter of denial, CMS emphasized that

10

Indiana’s restriction was impermissible because it would particularly affect access to

11

family planning providers, which were subject to additional protection for beneficiary

12

choice of providers under § 1396a(a)(23)(B). (Doc. 7-1 at 10.) Indiana then sought an

13

administrative hearing regarding the denial, a hearing which included full briefing and

14

oral argument before two CMS hearing officers. (Id.) Following the argument, the CMS

15

Presiding Officer issued a detailed proposed decision on June 20, 2012. The Officer

16

concluded that Indiana’s restriction was “contrary to the plain language of the freedom of

17

choice provision” and that § 1396a(p)(1) “[did] not apply because it addresses

18

exclusionary powers over specific individuals or entities” rather than provider

19

qualifications. (Id. at 25.)

20

Defendants argue that the Court should award no deference to these interpretations

21

because there is no gap to fill in interpreting § 1396a(a)(23) or § 1396a(p)(1) and because

22

there has been no adjudicatory process resulting in an informed determination of the

23

statute’s meaning. The Court disagrees. Even though the proposed decision of the CMS

24

presiding officer (Doc. 7-1) is subject to final review by the CMS administrator, it is

25

entitled to some deference. It is not necessary to decide at this stage whether full

26

Chevron deference is appropriate because the agency’s interpretation is persuasive

27

authority “upon the thoroughness evident in its consideration, the validity of its

28

reasoning, its consistency with earlier and later pronouncements, and all those factors
- 19 -

1

which give it power to persuade, if lacking power to control.” Skidmore v. Swift & Co.,

2

323 U.S. 134, 140 (1944). The Court finds that CMS’s interpretation was carefully

3

reasoned, decided after thorough consideration of arguments from both sides, and

4

consistent with both prior and subsequent agency pronouncements. Indeed, the agency’s

5

interpretation is persuasive independent of the level of deference it is owed.

6

In addition, ascribing some level of deference to the expert agency’s thoroughly

7

considered interpretation of the Medicaid Act is “squarely in line with a thorough body of

8

case law.” See Planned Parenthood of Ind., 794 F. Supp. 2d at 906 (collecting cases

9

where courts apply Chevron deference to CMS approval or denial of state Medicaid

10

plans). After the agency has further considered the denial, held trial-like proceedings,

11

and issued a carefully reasoned proposed decision, the case for that deference is even

12

stronger. The agency’s persuasive interpretation of the statutes at issue here – consistent

13

with the Court’s independent interpretation – weighs heavily in favor of granting

14

injunctive relief in this case.

15

For all of these reasons, the Court finds that Plaintiffs are likely to succeed on the

16

merits of their claim that the Arizona Act violates the freedom of choice provision of the

17

Medicaid Act. Because Plaintiffs would be successful at trial if they were successful on

18

any one of their claims, the Court need not evaluate whether Plaintiffs are likely to

19

succeed on the merits of their other claims at the preliminary injunction stage.

20

B.

Plaintiffs Will Suffer Irreparable Harm Without Injunctive Relief.

21

If Defendants are permitted to implement the Arizona Act, Plaintiffs Planned

22

Parenthood of Arizona (“PPAZ”) and Dr. Reuss will be unable to provide healthcare

23

services to their patients who are Medicaid beneficiaries, including Doe Plaintiffs, and

24

will lose revenue from those services. Both harms are irreparable.

25

First, PPAZ patients who are also Medicare beneficiaries, including the three Doe

26

Plaintiffs in this case, will be denied their choice of qualified health care providers for

27

family planning services. Should the Court fail to issue a preliminary injunction and later

28

be reversed, these Medicaid patients are virtually certain to be denied the ability to
- 20 -

1

continue to seek care from the provider they have selected because, as a practical matter,

2

PPAZ will be forced to give up its Medicaid services. The denial of that freedom of

3

choice is exactly the injury that Congress sought to avoid when it enacted § 1396a(a)(23).

4

The purpose of the freedom of choice provision is to allow Medicaid recipients the same

5

opportunities to choose among available providers of covered health care services as are

6

normally offered to the general population. A preliminary injunction to preserve the

7

status quo properly avoids the risk that Doe Plaintiffs will needlessly suffer that

8

irreparable injury while this case is pending.

9

Second, PPAZ and Dr. Reuss will immediately lose revenue from Medicaid

10

funding, around $350,000 annually in PPAZ’s case. Plaintiff providers would be unable

11

to recover this lost revenue as damages after a judgment on the merits in their favor

12

because of the Eleventh Amendment’s bar to seeking damages from a state. Therefore,

13

Plaintiffs have met their burden of demonstrating that it is likely they will suffer

14

irreparable harm in the absence of a temporary injunction. Winter, 555 U.S. at 22.

15

C.

The Balance of Equities Favors Plaintiffs.

16

Defendants argue that prohibiting health care providers who perform elective

17

abortions from receiving Medicaid funding will serve the State’s interest by preventing

18

public funding of abortions. As a result, Defendants claim that the State will be harmed

19

by a preliminary injunction as taxpayer funds will be used to subsidize abortions while it

20

is in force. This argument ignores evidence that PPAZ complies with all federal and state

21

requirements to ensure that public funds are not used for abortion services – evidence

22

supported by the fact that PPAZ has participated in Arizona’s Medicaid program without

23

incident for more than twenty years. Because PPAZ is a fee for service provider, PPAZ

24

bills Arizona’s Medicaid program only for the specific services it has provided Medicaid

25

patients. PPAZ does not bill Medicaid for most of the abortion services it provides

26

because federal law prohibits the use of federal funds to pay for most abortions.

27

In order to support their claim that state taxpayer funds are being used by PPAZ to

28

subsidize abortions, Defendants argue that any Medicaid funds paid to PPAZ for other
- 21 -

1

medical services indirectly subsidize abortions by supporting the operation as a whole.

2

Defendants contend that taxpayer money that goes to PPAZ for other services is used to

3

subsidize abortions because the money covers overhead and other shared expenses that

4

allow PPAZ to perform abortions. But the Medicaid reimbursements PPAZ receives

5

cover only about half the cost of providing Medicaid services. As a result, after the

6

Medicaid services that PPAZ provides are paid for, there is no excess funding that could

7

be used to subsidize abortions.

8

Further, if the harm the Arizona Act sought to avoid was indirect subsidization of

9

abortions, the injury could be prevented by reducing the state funding that PPAZ receives

10

for Medicaid services to ensure no excess funds were available to pay for the alleged

11

shared expenses. But at oral argument, Defendants’ counsel contended that even if the

12

reimbursement PPAZ received for Medicaid services were only ten percent of the current

13

rate, the State would still be harmed by subsidizing abortions. By taking this position,

14

Defendants reveal their argument to be untenable; at that rate, PPAZ would lose so much

15

money offering Medicaid services that it would approach the absurd to say that Medicaid

16

funds were used to “subsidize” abortions. The core remaining of Defendants’ argument

17

that the State would be harmed is thus that money is fungible, and that any amount of

18

funding, no matter how small, could be theoretically used by PPAZ to fund abortion

19

services. At that level of abstraction, Defendants’ alleged harm is too tenuous to be given

20

weight in the balancing of equities. If there were any merit – and there is none – to

21

Defendants’ argument that the State suffers some abstract harm from indirectly

22

supporting abortion services, that harm would be outweighed by the direct harm Plaintiffs

23

will suffer if the Arizona Act is enforced. Granting the injunction will simply require

24

Arizona to continue to allow PPAZ to receive Medicaid funds as it has since at least

25

1991. The balance of harms is therefore entirely in Plaintiffs’ favor.

26
27

D.

Temporarily Enjoining Enforcement of the Arizona Act Is in the
Public Interest.

28
- 22 -

1

The public interest is advanced by allocating Medicaid funds consistently with

2

congressional intent to ensure that Medicaid beneficiaries have the freedom to receive

3

family planning services from the qualified health care provider of their choice. PPAZ

4

uses Medicaid funding to provide family planning services to approximately 3,000

5

Medicaid patients each year. Beyond the Doe Plaintiffs in this case, these 3,000 patients

6

would lose the opportunity to receive health care services from the health care provider

7

they have chosen. Congress has made clear its specific intent to protect Medicaid

8

beneficiaries’ freedom of choice in the family planning context, 42 U.S.C.

9

§ 1396a(a)(23)(B), and it is in the family planning context that the Arizona Act would

10

limit the choice of PPAZ’s Medicaid patients.

11

preliminary injunction ensures that those patients are able to continue to select the health

12

care provider of their choice until a trial on the merits can be held. In addition, PPAZ

13

provides health care services to many Medicaid patients in areas underserved by other

14

health care providers who may have difficulty securing alternative care. Ensuring that

15

more than 3,000 Medicaid patients have continuity of health care services during the

16

pendency of this case is in the public interest. For these reasons, enjoining Defendants

17

from enforcing the Arizona Act is in the public interest.

18

III.

Preserving the status quo with a

BOND

19

A preliminary injunction must be conditioned on the plaintiff posting security “in

20

an amount that the court considers proper to pay the costs and damages sustained by any

21

party found to have been wrongfully enjoined or restrained.” Fed. R. Civ. P. 65(c). The

22

amount of the bond is within the Court's discretion. See Save Our Sonoran, Inc. v.

23

Flowers, 408 F.3d 1113, 1126 (9th Cir. 2005). A preliminary injunction in this case will

24

not cause the Defendants to suffer any monetary damages. In the absence of such injury,

25

only a nominal bond is required. A bond will therefore be required in the amount of

26

$100.

27

IV.

DEFENDANTS’ MOTION TO DISMISS COUNTS I AND II

28
- 23 -

1

Defendants moved to dismiss Plaintiffs’ Count I, that the Arizona Act violates

2

§ 1396a(a)(23), and Count II, that the Arizona Act violates the Supremacy Clause of the

3

United States Constitution. When analyzing a complaint for failure to state a claim to

4

relief under Rule 12(b)(6), the well-pled factual allegations “are taken as true and

5

construed in the light most favorable to the nonmoving party.” Cousins v. Lockyer, 568

6

F.3d 1063, 1067 (9th Cir. 2009) (internal quotation marks and citation omitted). To

7

avoid a Rule 12(b)(6) dismissal, the complaint must plead “enough facts to state a claim

8

to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

9

(2007). This plausibility standard “is not akin to a ‘probability requirement,’ but it asks

10

for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal,

11

556 U.S. 662 (2009) (quoting Twombly, 550 U.S. at 556). Dismissal is also appropriate

12

where the complaint lacks a cognizable legal theory or lacks sufficient facts alleged under

13

a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.

14

1990).

15

A motion to dismiss for lack of subject-matter jurisdiction under Rule 12(b)(1) can

16

be based on the face of the Complaint or extrinsic evidence demonstrating lack of

17

jurisdiction on the facts of the case. White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000).

18

In evaluating a facial attack on jurisdiction, the court must accept the factual allegations

19

set forth in the Complaint as true. See Miranda v. Reno, 238 F.3d 1156, 1157 n.1 (9th

20

Cir. 2001). The burden rests with the party asserting jurisdiction. Kokkonen v. Guardian

21

Life Ins. Co. of Am., 511 U.S. 375, 377 (1994).

22

On Count I, Defendants argue there is no right of action to enforce the Medicaid

23

Act under § 1983. Because Plaintiffs do have a private right of action for the reasons

24

stated above, Part II.A.1, Defendants’ Motion to Dismiss Count I will be denied.

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On Count II, Defendants argue that Plaintiffs cannot state a preemption claim

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because there is no state law that conflicts with the Medicaid Act. A state law that

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violates the Medicaid Act does not conflict with federal law, according to Defendants,

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because the state’s participation in Medicaid is voluntary. Even if the Arizona Act does
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not comport with § 1396a(a)(23), the only remedy would be for the Secretary to refuse to

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fund the state’s Medicaid plan. Defendants further argue that Plaintiffs have no private

3

right of action to challenge their disqualification from Medicaid through a federal

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preemption claim. Defendants contend that Plaintiffs may not raise a direct Supremacy

5

Clause challenge under the Medicaid Act statute because the Medicaid Act was enacted

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under the Spending Clause.

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Defendants first argument is not persuasive; once again, though a state’s

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“participation in the Medicaid program is entirely optional, after a State elects to

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participate, it must comply with the requirements of [the Medicaid Act].” Harris v.

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McRae, 448 U.S. 297, 301 (1980). “There is of course no question that the Federal

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Government, unless barred by some controlling constitutional prohibition, may impose

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the terms and conditions upon which its money allotments to the States shall be

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disbursed, and that any state law or regulation inconsistent with such federal terms and

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conditions is to that extent invalid.” King v. Smith, 392 U.S. 309, 333 n.34 (1968). More

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recently, the Supreme Court in PhRMA v. Walsh, 538 U.S. 664 (2003), implicitly rejected

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the contention that a plaintiff could not bring a preemption claim under federal Spending

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Clause legislation. The Ninth Circuit adopted the implicit rejection in PhRMA, and held

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that “[u]nder the well-established law of the Supreme Court, this court, and the other

19

circuits, a private party may bring suit under the Supremacy Clause to enjoin

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implementation of state legislation allegedly preempted by [the Medicaid Act].” Indep.

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Living Ctr. of S. Cal., Inc. v. Shewry, 543 F.3d 1050, 1065 (9th Cir. 2008). Under

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Shewry, Plaintiffs have stated a claim under the Supremacy Clause.

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The Court notes – as have other district courts recently considering the availability

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of a freestanding claim under the Supremacy Clause – that the Supreme Court granted

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certiorari in its October 2011 term “to decide whether Medicaid providers and recipients

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may maintain a cause of action under the Supremacy Clause to enforce a federal

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Medicaid law – a federal law that, in their view, conflicts with (and pre-empts) state

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Medicaid statutes that reduce payments to providers.” Douglas v. Indep. Living Ctr. of S.
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1

Cal., Inc., __ U.S. __, 132 S.Ct. 1204, 1207 (2012). However, the Supreme Court

2

remanded that case to the Ninth Circuit in light of changed factual circumstances without

3

answering the underlying legal question. See Planned Parenthood of Cent. N. C. v.

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Cansler, No. CV11-0531, 2012 WL 2513510 (M.D.N.C. June 28, 2012). Two other

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district courts have conducted a similar Supremacy Clause analysis while awaiting the

6

Supreme Court’s decision in Douglas. Both courts concluded that the present weight of

7

authority allows such a preemption claim under the Spending Clause.

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Parenthood of Cent. N. C. v. Cansler, 804 F. Supp. 2d 482, 488-89 (M.D.N.C. 2011);

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Planned Parenthood of Ind., 794 F. Supp. 2d at 911. The Court finds that reasoning

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persuasive. Further, in the absence of contrary instruction from the Supreme Court, the

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Ninth Circuit’s holding in Shewry remains binding precedent. 543 F.3d at 1065-66.

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Thus, Plaintiffs may bring a preemption claim under the Supremacy Clause, and the

13

claim is within the Court’s federal question jurisdiction under 28 U.S.C. § 1331. Having

14

met their burden to establish jurisdiction, Plaintiffs have alleged sufficient facts to state a

15

claim for relief under the Supremacy Clause that is plausible on its face. For these

16

reasons, Defendants’ Motion to Dismiss Count II will be denied.

Planned

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IT IS THERFORE ORDERED that Plaintiffs’ Motion for Preliminary Injunction

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(Doc. 6) is GRANTED, conditioned upon Plaintiffs posting a bond in the amount of $100

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pursuant to Fed. R. Civ. P. 65(c).

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IT IS FURTHER ORDERED that Defendants’ Motion to Dismiss Counts I and II
(Doc. 37) is DENIED.
Dated this 19th day of October, 2012.

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