Hospital of Barstow Inc et al v. Sebelius

Filing 20

MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: The Court hereby GRANTS Defendant Kathleen Sebelius, Secretary of the U.S. Department of Health and Human Services's Ex Parte Application For Stay of Proceedings 17 pending the outcome of app eals to the Ninth Circuit in the related matters of Cal. Hosp. Ass'n v. Douglas ("CHA"), CV. No. 12-5531; Managed Pharmacy Care v. Sebelius ("MPC"), Nos. 12-55067 & 12-55332; Cal. Med. Transp. Ass'n v. Douglas ("CMTA"), No. 12-55334; and Cal. Med. Ass'n v. Douglas ("CMA"), No. 12-55335. Court Reporter: Not Present. (gk)

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-10638 CAS (MANx)

Title

HOSPITAL OF BARSTOW, INC; ET AL. v. KATHLEEN SEBELIUS

Present: The Honorable

Date

March 13, 2012

CHRISTINA A. SNYDER

CATHERINE JEANG
Deputy Clerk

NOT PRESENT
Court Reporter / Recorder

N/A
Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Not Present

Not Present

Proceedings:

I.

(In Chambers:) Defendant’s Ex Parte Application For Stay of
Proceedings (filed 03/02/12)

INTRODUCTION

On December 22, 2012, plaintiffs Hospital of Barstow, Inc., et al. filed the instant
action against defendant Kathleen Sebelius, Secretary of the U.S. Department of Health
and Human Services (the “Secretary”). The Secretary is responsible for administering the
Medicaid program at the federal level. Through her designated agent, the Centers for
Medicare and Medicaid Services (“CMS”), the Secretary is responsible for reviewing and
approving policy changes that states make to their Medicaid programs.1 Plaintiffs are
numerous corporations and local health care districts that own and operate hospitals
throughout California, which provide outpatient hospital services to Medi-Cal patients.
The gravamen of plaintiffs’ complaint is that the Secretary violated the Administrative
Procedure Act, 5 U.S.C. § 701 et seq., when she approved California’s State Plan
Amendment (“SPA”) 08-009B1, which provided for a reduction in reimbursements for
providers of outpatient hospital services. Compl. ¶ 91.
On March, 2, 2012, the Secretary filed the instant ex parte application to stay the
proceedings pending the outcome of appeals to the Ninth Circuit in the related matters of
Cal. Hosp. Ass’n v. Douglas (“CHA”), CV. No. 12-5531; Managed Pharmacy Care v.
Sebelius (“MPC”), Nos. 12-55067 & 12-55332; Cal. Med. Transp. Ass’n v. Douglas
(“CMTA”), No. 12-55334; and Cal. Med. Ass’n v. Douglas (“CMA”), No. 12-55335.

1

California’s Medicaid program is known as Medi-Cal, and is administered by the
Department of Health Care Services (“DHCS”).
CV–11-10638

CIVIL MINUTES - GENERAL

Page 1 of 5

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-10638 CAS (MANx)

Date

March 13, 2012

Title

HOSPITAL OF BARSTOW, INC; ET AL. v. KATHLEEN SEBELIUS

Plaintiffs’ opposed the application on March 5, 2012. After considering the parties’
arguments, the Court finds and concludes as follows.
II.

Background

In early 2008, the California Legislature enacted Assembly Bill X4 5 (“AB 5”),
which reduced reimbursement rates for many classes of services provided under the
Medi-Cal program. Most significantly for the purposes of the instant action, AB 5
enacted California Welfare and Institutions Code § 14105.19, which reduced fee-forservice payments for hospital outpatient services by 10 percent for services provided on
or after July 1, 2008.
Several provider associations challenged the rate reduction, arguing that it violated,
Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., the statute establishing the
Medicaid program. In particular, the providers maintained that the rate reduction violated
42 U.S.C. § 1396a(a)(30)(A) (“Section 30A”), which requires each state’s Medicaid plan
to:
provide such methods and procedures relating to the utilization and procedures
relating to the utilization of and the payment for, care and services available under
the plan . . . as may be necessary . . . to assure that payments are consistent with
efficiency, economy, and quality of care and are sufficient to enlist enough
providers so that care and services are available under the plan at least to the extent
that such care and services are available to the general public in the geographic
area.
This Court preliminarily enjoined DHCS from applying the rate reduction to most
classes of providers. In Indep. Living Ctr. Of S. Cal., Inc. v. Maxwell-Jolly, 572 F.3d
644 (9th Cir. 2009), the Ninth Circuit affirmed this Court’s holding that the plaintiffs in
that case were likely to prevail on their claim that AB 5 was not enacted in accordance
with, and therefore preempted by, Section 30(A) because State Legislature enacted the
rate cuts without consideration of reliable cost studies or analysis of the potential impact

CV–11-10638

CIVIL MINUTES - GENERAL

Page 2 of 5

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-10638 CAS (MANx)

Date

March 13, 2012

Title

HOSPITAL OF BARSTOW, INC; ET AL. v. KATHLEEN SEBELIUS

on beneficiary access to care.2 Two additional rate reductions were also applied to
hospital outpatient services, each in the amount of 1% that were in effect from March 1,
2009 through April 5, 2009, and from January 1, 2011, through April 5, 2011. The
plaintiffs in this case filed a state court action in 2010 challenging the adequacy of
reimbursement rates for Medi-Cal hospital outpatient rates.
Under the Medicaid Act, changes in a Medicaid state plan must be submitted to,
and approved by, CMS. DHCS submitted the rate cuts at issue in this case to CMS for
approval on or about September 30, 2008, as part of SPA 08-009B1. CMS initially
disapproved of SPA 08-009B1, but on October 27, 2011, CMS granted its approval. This
action followed.
III.

LEGAL STANDARD

A district court has discretionary power to stay proceedings in its own court. See
Landis v. North American Co., 299 U.S. 248, 254 (1936). Accordingly, the court "may,
with propriety, find it is efficient for its own docket and the fairest course for the parties
to enter a stay of an action before it, pending resolution of independent proceedings
which bear upon the case.” Leyva v. Certified Grocers of Cal. Ltd., 593 F.2d 857, 863
(9th Cir. 1979). However, case management concerns alone are not necessarily a
sufficient ground to stay proceedings. See Dependable Highway Express v. Navigators
Ins. Co., 498 F.3d 1059, 1066 (9th Cir. 2007). “‘[I]f there is even a fair possibility that
the stay . . . will work damage to someone else, ‘the stay may be inappropriate absent a
showing by the moving party of ‘hardship or inequity.’” Id. (quoting Landis, 299 U.S. at
255). Further, “being required to defend a suit, without more, does not constitute a ‘clear
case of hardship or inequity’ within the meaning of Landis.” Lockyer v. Mirant Corp.,
398 F.3d 1098, 1112 (9th Cir. 2005).

2

The Court did not enjoin the rate reduction with respect to any class of hospital
service, however, including hospital outpatient services, because it found that hospitals
had failed to demonstrate irreparable harm resulting from the rate reduction. The
reduction was therefore in effect from July 1, 2008 through February 28, 2009, when it
expired.
CV–11-10638

CIVIL MINUTES - GENERAL

Page 3 of 5

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-10638 CAS (MANx)

Title

HOSPITAL OF BARSTOW, INC; ET AL. v. KATHLEEN SEBELIUS

IV.

Date

March 13, 2012

DISCUSSION

The Secretary argues that a stay of this case would promote judicial economy
because the resolution of several cases pending before the Ninth Circuit will substantially
affect the result here. Mot. at 4.
In opposition, plaintiffs argue that a stay of the proceedings would unnecessarily
delay the progress of this lawsuit and of the related state court action seeking to recover
damages from the State. Opp’n at 1. According to plaintiffs, DHCS will likely argue in
the state court action that CMS’ approval means that the rate reductions complied with
federal law. Therefore, plaintiffs contend that this Court’s ruling concerning plaintiffs’
claim for violation of the Administrative Procedure Act is necessary for the state court
action to proceed. Id. Further, plaintiffs maintain that the issuance of a stay at this time
would not aid judicial economy because: (1) this case is in its preliminary stages; (2) the
issues before the Ninth Circuit will not be dispositive in this case; (3) the Ninth Circuit’s
ruling will likely be appealed by the losing party; and (4) there is no reason to believe
that the Ninth Circuit will overrule this Court’s orders in the pending appeals. Id. at 2–3.
The Court agrees with the Secretary that a short stay of the proceedings in this case
pending the outcome of the appeals before the Ninth Circuit will promote judicial
economy and cause only minimal prejudice to plaintiffs. The issues in this
case—including whether the Secretary’s interpretation of Section 30(A) as articulated
through the approval of a state plan amendment is entitled to deference—are substantially
similar to those before the Ninth Circuit in CHA, MPC, CMTA, and CMA. Although the
Ninth Circuit’s decisions may not be dispositive, they are likely to narrow the issues in
this case. Further, the Court does not believe that a stay would significantly prejudice
plaintiffs for two reasons. First, because the cases before the Ninth Circuit are appeals of
preliminary injunctions, consideration is expedited. See Ninth Cir. R. 3-3. Second, and
more fundamentally, as plaintiffs acknowledge, the Medi-Cal reimbursement reductions
at issue in this case have already expired. Compl. ¶ 71. As a result, the only prejudice to
plaintiffs due to a stay is a short delay in the potential recovery of damages from the
State.

CV–11-10638

CIVIL MINUTES - GENERAL

Page 4 of 5

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES - GENERAL
Case No.

CV 11-10638 CAS (MANx)

Title

HOSPITAL OF BARSTOW, INC; ET AL. v. KATHLEEN SEBELIUS

V.

Date

March 13, 2012

CONCLUSION

In accordance with the foregoing, the Court hereby GRANTS the Secretary’s ex
parte application for a stay of proceedings pending the Ninth Circuit’s decisions in CHA,
MPC, CMTA, and CMA.
IT IS SO ORDERED.
00
Initials of Preparer

CV–11-10638

CIVIL MINUTES - GENERAL

:

00

CMJ

Page 5 of 5