Wood et al v. Betlach et al

Filing 88

ORDER denying 5 Motion for Preliminary Injunction. Signed by Judge David G Campbell on 10/5/2012.(NVO)

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1 WO 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE DISTRICT OF ARIZONA 7 8 No. CV-12-08098-PCT-DGC Flint Wood, et al., Plaintiff, 9 10 v. 11 ORDER Thomas Betlach, Director of the Arizona Health Care Cost Containment System, and Kathleen Sebelius, Secretary of the United States Department of Health and Human Services, in their official capacities, 12 13 Defendants. 14 15 Defendant Thomas Betlach is Director of Arizona’s Medicaid program, known as 16 the Arizona Health Care Cost Containment System (“AHCCCS”). Defendant Kathleen 17 Sebelius is Secretary of the United States Department of Health and Human Services 18 (“DHHS”), which approves state Medicaid plans. Plaintiffs represent a class of persons 19 eligible for benefits under the state’s Medicaid program and who are subject to higher 20 copayments under Arizona Administrative Code Rule R9-22-711(F) (the “Copayments 21 Rule”). 22 Plaintiffs have asked the Court to preliminarily enjoin Defendant Sebelius’ 23 approval of higher copayments under the Copayments Rule, and to enjoin Defendant 24 Betlach from imposing higher copayments and allowing medical providers to withhold 25 services from AHCCCS participants who are unable to make the copayments. Doc. 16 at 26 2. 27 Plaintiffs filed corresponding replies. Docs. 61, 47. With the Court’s permission (Doc. 28 63), Defendants filed a joint sur-reply (Doc. 66). The Court heard oral argument on Defendants Betlach and Sebelius filed separate responses (Docs. 28, 39), and 1 September 24, 2012. For the reasons that follow, the Court will deny Plaintiffs’ request 2 for a preliminary injunction. 3 I. Background. 4 A. Overview of the Medicaid Program. 5 Congress created Medicaid in 1965 by adding Title XIX to the Social Security 6 Act, 42 U.S.C. §§ 1396-1396w-5. Medicaid was enacted, in part, to enable states “to 7 furnish . . . medical assistance on behalf of families with dependent children and of aged, 8 blind, or disabled individuals, whose income and resources are insufficient to meet the 9 costs of necessary medical services.” 42 U.S.C. § 1396-1. States that wish to receive 10 federal funds through Medicaid must submit a state plan for approval by the Secretary of 11 DHHS. 12 “categorically needy” (those with dependent children who qualify for welfare, the 13 disabled, children and pregnant women who qualify). 42 U.S.C. § 1396a(a)(10)(A)(i). 14 Pharm. Research & Mfrs. of Am. (“PhRMA”) v. Walsh, 583 U.S. 644, 650-651, 651 n. 4 15 (2003). States may additionally opt to cover the “medically needy” (those who meet the 16 non-financial eligibility requirements of Medicaid, but whose incomes exceed the 17 eligibility limits). 42 U.S.C. § 1396a(a)(10)(C). PhRMA at 651 n. 5. Unless specifically 18 waived, state plans must comply with all provisions of the Medicaid Act. Spry v. 19 Thompson, 487 F.3d 1272, 1273 (9th Cir. 2007); see also Beno v. Shalala, 30 F. 3d 1057, 20 1068 (9th Cir. 1994) (“While states are not required to participate in these federal 21 programs, if they elect to participate, compliance with . . . regulations is mandatory.”) Id. at § 1396a(a)-(b). State Medicaid plans must cover those who are 22 Under Section 1115 of the Social Security Act, the Secretary of DHHS may waive 23 certain Medicaid Act requirements for an approved “experimental, pilot, or 24 demonstration project” that the Secretary finds “is likely to assist in promoting the 25 objectives of” the Medicaid Act. 42 U.S.C. § 1315. Section 1115 demonstration projects 26 may cover Medicaid ineligible populations – known as “expansion populations” – who 27 are not covered under the state plan. Id.; Spry, 487 F.3d at 1274-5. State expenditures 28 for these projects may be counted as expenditures under the state plan for federal -2- 1 reimbursement purposes. 42 U.S.C. § 1315(a)(2)(A). 2 States are permitted, with some exceptions, to impose cost-sharing provisions for 3 both the mandatory (“categorically needy”) and optional (“medically needy”) populations 4 covered by state Medicaid plans. 42 U.S.C. § 1396o(a) and (b). These charges must be 5 nominal in amount. Id. at § 1396o(a)(3) & (b)(3). See Spry, 487 F.3d at 1276. The 6 nominal copay requirements do not apply to expansion populations. Id., Newton-Nations 7 v. Betlach, 660 F.3d 370, 379-80 (9th Cir. 2011). 8 B. Arizona’s Medicaid-Funded Plans. 9 Arizona participates in Medicaid through AHCCCS. Docs. 16 at 11, 39 at 7; 10 A.R.S. §§ 36-2901-2972. AHCCCS administers Arizona’s Medicaid plan, its Medicaid- 11 approved demonstration projects, and certain state-only initiatives. Doc. 39 at 6-7. 12 In November 2000, Arizona citizens passed Proposition 204, which required the 13 state to expand AHCCCS coverage to all persons with incomes below the federal poverty 14 level (“FPL”). Doc. 16 at 13; A.R.S. § 36-2901.01. In 2001, the state received approval 15 from DHHS for a demonstration project under Section 1115. The Secretary’s approval 16 allowed the state to claim expenditures for AHCCCS coverage provided to individuals 17 below the FPL who did not have dependent children living with them – the population 18 referred to as “childless adults” – who were not otherwise eligible for AHCCCS coverage 19 under Arizona’s state Medicaid plan. Docs. 16 at 13; 39 at 7. 20 AHCCCS beneficiaries covered as part of this “expansion population” were 21 charged the same nominal copayments as regular Medicaid recipients – $1.00 per 22 doctor’s visit, $5.00 for nonemergency use of emergency rooms, and $5.00 for 23 nonemergency surgery. Doc. 16 at 13; Ariz. Admin. Code R9-22-711(A). The plan 24 prohibited health care providers from refusing services to those who could not make the 25 copayments. Ariz. Admin. Code R9-22-711(B). 26 In 2003, Arizona implemented the Copayment Rule and increased copayments for 27 those in the expansion population. Doc. 16 at 14, Ariz. Admin. Code R9-22-711(E). The 28 Rule also gave medical providers discretion to refuse services to members of the -3- 1 expansion population for inability to make the increased copayments. Id. Arizona 2 applied for and received approval from the Secretary of DHHS for this modification to its 3 demonstration project. Doc. 39 at 7. The Copayment Rule, which was found at Arizona 4 Administrative Code R9-22-711(E), required members of the expansion population to 5 pay $4.00 for every generic prescription or brand name prescription where no generic 6 drug is available, $10.00 for every brand name prescription when a generic drug is 7 available, $5.00 for every physician office visit, and $30.00 for non-emergency use of an 8 emergency room. Doc. 16 at 14. The Secretary’s approval for the initial demonstration 9 project expired in 2006, but the Secretary approved an additional five-year demonstration 10 project that included the Copayment Rule (renumbered to Rule R9-22-711(F)). Docs. 16 11 at 14; 39 at 7. 12 Because the demonstration project was scheduled to expire on September 30, 13 2011, the State wrote to the Secretary on March 31, 2011, and asked her to approve “a 14 new Section 1115 Research and Demonstration Project Waiver . . . for the period of 15 October 1, 2011, through September 30, 2016.” Doc. 33-9 at 442. The proposed new 16 project covered the childless adult population covered by the previous demonstration 17 project, but with enrollment frozen at lower levels. It also included the Copayment Rule 18 first implemented in 2003 and found in Rule R9-22-711(F), as well as other 19 modifications to the program. Id.; Doc. 34 at 1-34. The Secretary approved the new 20 demonstration project on October 21, 2011. Doc. 32-1 at 4-7. The project was approved 21 until 2016, with the Copayment Rule effective until December 31, 2013. Id. 22 Plaintiffs brought this lawsuit on the basis of the Secretary’s October 21, 2011 23 decision, but they purport to challenge only the Copayment Rule portion of that decision. 24 In other words, Plaintiffs ask the Court to vacate the Copayment Rule and leave the rest 25 of the Secretary’s decision and the demonstration project in place. 26 C. Newton-Nations Litigation. 27 Following the Secretary’s 2003 approval of the Copayment Rule, which modified 28 the 2001 demonstration project by increasing copayments, several plaintiffs who -4- 1 qualified for AHCCCS under the demonstration project brought suit in this district 2 challenging the Secretary’s approval of the increased copayments as arbitrary and 3 capricious and in violation of the Medicaid Act. See Newton-Nations v. Rogers, 221 4 F.R.D. 509, 510 (D. Ariz. 2004). Judge Earl H. Carroll granted the plaintiffs’ motion for 5 class certification, with the class defined as “all Arizona Health Care Cost Containment 6 eligible persons in Arizona who have been or will be charged copayments pursuant to 7 Arizona Administrative Code Amended Rule R9-22-711(E).” Id. at 512. Judge Carroll 8 granted the plaintiffs’ request for a preliminary injunction, enjoining the state from 9 imposing the higher copayments and from allowing medical providers to refuse services 10 for inability to pay. Newton-Nations v. Rogers, 316 F. Supp. 2d 883, 891 (D. Ariz. 11 2004). 12 summary judgment in favor of the defendants. Newton-Nations v. Rogers, No. CV 03- 13 2506-PHX-EHC, 2010 WL 1266827 at *21 (D. Ariz. March 29, 2010). The injunction was lifted on March 29, 2010, when Judge Carroll granted 14 The plaintiffs in Newton-Nations appealed, and the Ninth Circuit affirmed in part 15 and reversed in part. Newton-Nations v. Betlach, 660 F.3d 370, 383-84 (9th Cir. 2011). 16 The Ninth Circuit found that the district court had properly granted summary judgment in 17 favor of the defendants on the claim that the Secretary violated the Medicaid Act and the 18 APA when he determined that a waiver of the copayment requirement was not required 19 for Arizona’s expansion populations. Id. at 379-80. The Court of Appeals found that the 20 Secretary had reasonably interpreted the Medicaid Act to mean that persons not covered 21 by the state Medicaid plan “are expansion populations not protected by the § 1396o cost- 22 sharing limits.” Id. at 379. The Ninth Circuit reversed the grant of summary judgment 23 on the claim that the Secretary’s approval of the increased copayments was arbitrary and 24 capricious, finding that “[t]he administrative record does not demonstrate that the 25 Secretary made the requisite findings required by Beno.” Id. at 381 (citing Beno v. 26 Shalala, 30 F.3d 1057 (2011)). The Ninth Circuit found “no evidence that the Secretary 27 made ‘some judgment that the project ha[d] a research or a demonstration value.’” Id. 28 (quoting Beno, 30 F.3d at 1069). The Ninth Circuit remanded to the district court with -5- 1 instructions to vacate the Secretary’s decision and remand to the Secretary for further 2 consideration. Id. at 382. 3 On remand, Judge Rosslyn O. Silver found the case moot because the Secretary’s 4 2003 approval of the Copayment Rule had expired and “the copayments currently in 5 effect are due to a new program based on a new administrative record.” Newton-Nations 6 v. Betlach, 03-02506-PHX-ROS, Doc. 261 at 4 (emphasis in original). Judge Silver 7 stated that the plaintiffs could file a new suit on the new record. Id. Plaintiffs promptly 8 filed this action. Doc. 1. 9 II. Analysis. 10 Plaintiffs ask the Court to enjoin only the portion of the Secretary’s October 21, 11 2011 decision that approved the increased copayments, leaving in place the rest of the 12 2011 demonstration project and its coverage for childless adults. Docs. 5 at 2, 16 at 25.1 13 This narrow focus raises the preliminary question of whether the copayment provisions 14 are severable from the larger demonstration project that was approved by the Secretary. 15 Courts may set aside part of an agency action only if it is severable from the rest 16 of the agency’s action. See Arizona Pub. Serv. Co. v. EPA, 562 F.3d 1116, 1122 (10th 17 Cir. 2009). 18 permitting a court to affirm it in part and reverse it in part, depends on the issuing 19 agency’s intent.” North Carolina v. FERC, 730 F.2d 790, 795-96 (D.C. Cir. 1984). 20 Thus, “[w]here there is substantial doubt that the agency would have adopted the same 21 disposition regarding the unchallenged portion if the challenged portion were subtracted, 22 partial affirmance is improper.” Id. “Whether an administrative agency’s order or regulation is severable, 23 The Secretary’s October 21, 2011 approval letter made clear that the copayments 24 were an integral part of the larger program’s coverage of childless adults. The letter 25 stated that “[t]he new Demonstration . . . will continue to provide the State authority to 26 cover groups not currently covered under its Medicaid State plan[,]” including the 27 1 28 Plaintiffs’ counsel affirmed at oral argument that they challenge only the copayment provisions in the Secretary’s October 21, 2011 decision. -6- 1 childless adult population the state elected to cover following the expiration of the 2 previous demonstration project. Doc. 32-1 at 5. The letter went on to state: 3 [W]e understand from the State that the imposition of the mandatory copayments on this population is necessary in order to prevent the State from implementing alternatives such as covering this population at a lower percentage of the Federal poverty level (FPL), a result that would jeopardize current coverage levels or result in diminished benefits for this population. Additionally, as your submissions reflect, the imposition of these co-payments is only one element of the Demonstration and is tied to other elements. As a result, the copayments are not viewed in isolation, but are considered in the context of the Demonstration as a whole, which is intended to increase access to care and improve quality of care for the State’s population as a whole and for the expansion populations in particular. 4 5 6 7 8 9 10 11 Doc. 32-1 at 5, AR 3. 12 The Secretary’s letter clearly states that she viewed the copayment provisions as 13 an integral part of the entire demonstration project she was approving under Section 1115 14 on October 21, 2011. She specifically noted that inclusion of the increased copayments 15 was needed to avoid other modifications to the demonstration project such as reduced 16 benefits. Where the express language of an agency’s approval links a particular provision 17 with the larger project, there clearly is “substantial doubt” that the agency would have 18 approved the project without the challenged provision, and the challenged provision 19 therefore cannot be severed and invalidated on its own. North Carolina, 730 F.2d at 795- 20 96. In North Carolina, the D.C. Circuit looked to the “very language used by the 21 Commission,” including such statements as “this disposition . . . is taken only in 22 conjunction with the approval of the overall settlement,” and “this result is a 23 comprehensive settlement which, as a package, appears reasonable,” to determine that 24 “the Commission’s order is a unitary one and cannot be severed [as petitioners request]” 25 730 F.2d at 795-96. 26 More recently, in North Carolina v. EPA, 531 F.3d 896, 929 (D.C. Cir. 2008), the 27 D.C. Circuit vacated and remanded the EPA’s Clean Air Interstate Rule (“CAIR”) in its 28 entirety, even though petitioners had challenged only discrete portions of the rule. The -7- 1 Circuit found that the EPA had been “quite consistent that CAIR was one, integral 2 action” – the EPA had justified separate portions of CAIR as “complementary measures 3 to mitigate . . . pollution.” Id. The Court of Appeals explained that it could not “pick and 4 choose” which portions of the rule to preserve, concluding that because “CAIR is a 5 single, regional program, as EPA has always maintained, . . . all its components must 6 stand or fall together.” Id.; see also, Telephone and Data Systems, Inc. v. FCC, 19 F. 3d 7 42, 50 (D.C. Cir. 1994) (finding vacatur of the whole agency order appropriate where 8 “[t]he intertwined character of the order’s component parts gives rise to a substantial 9 doubt that a partial affirmance would comport with the Commission’s intent.”). 10 Conversely, in Arizona Public Service, the Tenth Circuit vacated and remanded a 11 single provision of the EPA’s larger plan for limiting emissions from power plants 12 because it found that the EPA would have adopted the plan even without the challenged 13 provision. 562 F.3d at 1122. The court found that the plan’s fugitive dust limit operated 14 independently from the plan’s remaining provisions and that “the functionality of the plan 15 does not depend on enforcement of the fugitive dust limit.” 16 Broadcasters Assoc. v. FCC, 236 F.3d 13, 22 (D.C. Cir. 2001) (“Whether the offending 17 portion of a regulation is severable depends upon the intent of the agency and upon 18 whether the remainder of the regulation could function sensibly without the stricken 19 provision.”) (emphasis in original). Id; c.f. MD/DC/DE 20 Here, the Secretary’s October 21, 2011 approval specifically stated that the 21 copayments “are not viewed in isolation, but are considered in the context of the 22 Demonstration as a whole,” and recognized that rejecting the heightened and mandatory 23 copayments as part of the overall plan could result in loss of coverage or diminished 24 benefits for Arizona’s low-income childless adult population. Doc. 32-1 at 5. In light of 25 this clear agency intent, the copayment provisions are not severable from the larger 26 demonstration project and enjoining only those provisions would be improper. 27 This is particularly true where, as here, the Secretary was charged with assessing 28 whether the demonstration project “is likely to assist in promoting the objectives” of the -8- 1 Medicaid Act. 42 U.S.C. § 1315(a). In Fed. Power Comm’n v. Idaho Power Co., 344 2 U.S. 17 (1954), the Supreme Court looked to whether it had authority to eliminate a 3 single challenged provision of the Federal Power Commission’s authorization of a power 4 plant project where the Commission was charged with determining whether the project 5 “will be best adapted to a comprehensive plan . . . for the improvement and utilization of 6 water power development, and for other beneficial public uses.” Id. at 21. The Court 7 found that “[w]hether that objective may be achieved if the contested conditions are 8 stricken from the order is an administrative, not a judicial, decision.” Id. 9 Plaintiffs argue that the Court can set aside the copayment provision on the basis 10 of the Ninth Circuit’s decision to vacate only the challenged copayments in Newton- 11 Nations. Docs. 16 at 21, 47 at 3. But the only issue before the Ninth Circuit in Newton- 12 Nations was the Secretary’s 2003 approval of the increased copayments. The Section 13 1115 demonstration project, which had been approved by the Secretary in 2001, was not 14 at issue. As the Ninth Circuit explained, the challenged administrative action was “a new 15 rule that increased copayments on non-categorically needy participants and made those 16 copayments mandatory.” 660 F.3d at 376. The class in Newton-Nations was defined in 17 terms of the new rule: persons “who have been or will be charged copayments pursuant 18 to Arizona Administrative Code Amended Rule R9-22-711(E).” Id. at 377. Thus, the 19 administrative action being reviewed in Newton-Nations was the Secretary’s approval of 20 the increased copayments only, not the demonstration project itself. 21 Here, by contrast, the copayment provisions have not been approved separately. 22 The Secretary decided on October 21, 2011 to approve a “new Section 1115 23 Demonstration” that included far more than just increased copayment. See Doc. 32-1 at 24 4. As a result, the Court can set aside the copayment provisions and leave the rest of the 25 demonstration project in place, as Plaintiffs ask, only if the copayments provisions are 26 severable. They are not, for reasons explained above. 27 The Court cannot, as Plaintiffs request, “pick and choose” the portions of the 28 Secretary’s action it will vacate. North Carolina, 531 F.3d at 929. “[A]ll its components -9- 1 must stand or fall together.” Id. Thus, if Plaintiffs are correct that the Secretary violated 2 the APA in her October 21, 2011 decision, the Court’s only appropriate order would be a 3 remand of the entire demonstration project to the Secretary for reconsideration. See 4 Florida Power & Light Co., v. Lorion, 470 US 729, 744 (1985) (“[T]he proper course, 5 except in rare circumstances, is to remand to the agency for additional investigation or 6 explanation. The reviewing court is not generally empowered to conduct a de novo 7 inquiry into the matter being reviewed and to reach its own conclusions based on such an 8 inquiry.”). Because Plaintiffs do not request such relief in their preliminary injunction 9 motion, and the more limited relief requested in the motion cannot be granted, the motion 10 will be denied. 11 standards for a preliminary injunction. 12 13 14 The Court need not address whether Plaintiffs otherwise meet the IT IS ORDERED that Plaintiffs motion for preliminary injunction (Doc. 5) is denied. Dated this 5th day of October, 2012. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 10 -

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