Northeast Medical Services, Inc. v. California Department of Health Care Services, Health and Human Services Agency, State of California et al
Filing
45
ORDER by Judge Claudia WilkenGRANTING FEDERAL DEFENDANTS 30 MOTION TO DISMISS ; GRANTING IN PART STATE DEFENDANTS 29 MOTION TO DISMISS. (ndr, COURT STAFF) (Filed on 2/1/2013)
1
IN THE UNITED STATES DISTRICT COURT
2
FOR THE NORTHERN DISTRICT OF CALIFORNIA
3
4
NORTHEAST MEDICAL SERVICES, INC.,
5
6
7
8
9
Plaintiff,
v.
CALIFORNIA DEPARTMENT OF
HEALTHCARE SERVICES, et al.,
Defendants.
________________________________/
No. C 12-2895 CW
ORDER GRANTING
FEDERAL
DEFENDANTS’ MOTION
TO DISMISS (Docket
No. 30); GRANTING
IN PART STATE
DEFENDANTS’ MOTION
TO DISMISS (Docket
No. 29).
10
United States District Court
For the Northern District of California
Plaintiff Northeast Medical Services, Inc. (NEMS) brings this
11
action for declaratory and injunctive relief against Defendants
12
U.S. Department of Health and Human Services (HHS), HHS Secretary
13
Kathleen Sebelius, California Department of Health Care Services
14
(DHCS), DHCS Director Toby Douglas, and California Health and
15
Human Services Agency (HHSA).
Federal Defendants HHS and Sebelius
16
move to dismiss for lack of subject matter jurisdiction and
17
failure to state a claim.
State Defendants DHCS, Douglas, and
18
HHSA move separately to dismiss on the same grounds.
After
19
considering all of the parties’ submissions and oral argument, the
20
Court grants Federal Defendants’ motion to dismiss and grants in
21
part and denies in part State Defendants’ motion to dismiss.
22
BACKGROUND
23
NEMS is a non-profit health center that offers medical care
24
to the “poor and medically-underserved populations of the San
25
Francisco Bay Area.”
Docket No. 1, Compl. ¶¶ 19-20.
It currently
26
serves over thirty-five thousand patients and conducts nearly two27
hundred thousand patient visits per year.
28
Id.
1
For the past four decades, NEMS has received federal funding
2
under § 330 of the Public Health Services Act.
3
Compl. ¶ 19.
4
medical services to communities with limited health care access
5
and may not refuse services to any person based on that person’s
6
inability to pay.
7
further condition of its funding, NEMS must also provide services
8
to any person enrolled in Medicaid.
9
42 U.S.C. § 254b;
Under that provision, NEMS is required to provide
Id. ¶¶ 1-2; 42 U.S.C. § 254b(a)(1).
As a
42 U.S.C. § 254b(k)(3).
Medicaid is a federal program that offers participating
United States District Court
For the Northern District of California
10
states financial assistance to provide medical services to the
11
poor.
12
“do not have to participate in Medicaid, . . . those that choose
13
to do so ‘must comply both with statutory requirements imposed by
14
the Medicaid Act and with regulations promulgated by the Secretary
15
of [HHS].’”
16
at *2 (9th Cir.) (citations omitted).
17
is that participating states reimburse federally-qualified health
18
centers for the services they provide to Medicaid enrollees.
19
U.S.C. § 1396a(a)(15).
20
like NEMS, typically receive funding from both the federal
21
government (under the Public Health Services Act) and the State
22
(under the Medicaid Act).
23
Cal. Welf. & Inst. Code § 10740; Compl. ¶ 22.
While states
Managed Pharmacy Care v. Sebelius, 2012 WL 6204214,
One of these requirements
42
Thus, federally-qualified health centers,
California participates in Medicaid through its Medi–Cal
24
program.
25
therefore required to reimburse NEMS for the organization’s costs
26
in providing care to Medicaid enrollees.
27
Compl. ¶¶ 3-5.
28
“managed care organization” called the San Francisco Health Plan
Cal. Welf. & Inst. Code § 10740; Compl. ¶ 22.
It is
42 U.S.C. § 1396a(bb);
It provides these reimbursements through a
2
1
(SFHP), with which the State has contracted to help administer
2
Medi-Cal in the San Francisco area.
3
provides NEMS with regular payments that are meant to estimate
4
NEMS’s prospective costs for treating Medicaid enrollees for the
5
upcoming fiscal year.
6
year, NEMS is required to report its actual costs to DHCS, the
7
agency tasked with administering Medi-Cal, so that the agency can
8
determine whether the SFHP’s prospective payments fully
9
compensated NEMS for its Medicaid-related costs that year.
Id. ¶¶ 60-61.
Compl. ¶¶ 3, 77-79.
SFHP
At the end of every fiscal
United States District Court
For the Northern District of California
10
Id. ¶¶ 58-59, 85; 42 U.S.C. § 1396a(bb)(5).
11
that SFHP’s prospective payments exceeded NEMS’s actual Medicaid
12
costs for the year, then NEMS must return any excess funding it
13
received to DHCS.
14
SFHP’s payments fell short of NEMS’s actual costs for the year,
15
then DHCS must make up the shortfall by paying NEMS the
16
difference.
17
all federally-qualified health centers to complete, is known as
18
the annual “reconciliation.”
19
20
21
22
23
24
25
26
27
28
Id.
Compl. ¶¶ 58-59.
If the report reveals
If the report shows that
This process, which the Medicaid Act requires
Id. ¶ 85.1
In May 2011, NEMS learned that the U.S. Attorney’s office for
the Northern District of California had opened an investigation
1
The annual reconciliation process is described in the Medicaid
Act as follows:
In the case of services furnished by a Federally-qualified
health center or rural health clinic pursuant to a contract
between the center or clinic and a managed care entity (as
defined in section 1396u-2(a)(1)(B) of this title), the State
plan shall provide for payment to the center or clinic by the
State of a supplemental payment equal to the amount (if any)
by which the amount determined under paragraphs (2), (3), and
(4) of this subsection exceeds the amount of the payments
provided under the contract.
42 U.S.C. § 1396a(bb)(5).
3
1
into whether NEMS had knowingly reported false information to DHCS
2
on its annual reconciliation reports.
3
investigation focused on whether NEMS had violated the federal
4
False Claims Act (FCA), 31 U.S.C. § 3729, by under-reporting the
5
amount of payments it received from SFHP so that it could recoup
6
larger reconciliation payments from DHCS.
7
learned of the investigation when it was served with a Civil
8
Investigative Demand by HHS that month.
Id. ¶¶ 88, 91.
The
Compl. ¶¶ 88-94.
NEMS
Id. ¶ 88.
In response to the Civil Investigative Demand, NEMS has
10
United States District Court
For the Northern District of California
9
produced thousands of documents to the U.S. Attorney’s office and
11
met several times with HHS and DHCS representatives to answer
12
questions about its financial record-keeping.
13
During a conference call with HHS and the U.S. Attorney’s office
14
on February 9, 2012, NEMS learned “for the first time” that the
15
United States was considering intervening in a qui tam action that
16
had previously been filed against NEMS in this district.
17
¶ 93.
18
charges NEMS with violations of both the FCA, 31 U.S.C. § 3729,
19
and the California False Claims Act, Cal. Gov’t Code §§ 12650 et
20
seq., and seeks treble damages and civil penalties.
21
States & State of California ex rel. Trinh v. Northeast Med.
22
Servs., Case No. 10-1904-CW, Docket No. 1, at 1.
23
Id. ¶¶ 89-92.
Id.
That action, which was filed under seal on May 3, 2010,
See United
On April 9, 2012, an Assistant U.S. Attorney (AUSA) sent NEMS
24
a letter stating that the government’s preliminary review of
25
NEMS’s annual reconciliation reports “supports the allegations
26
made in the qui tam action.”
27
letter described how NEMS had apparently received over twenty-
28
seven million dollars in Medicaid-related payments from SFHP
Compl., Ex. 2, at 2.
4
The AUSA’s
1
between 2005 and 2010 but only reported receiving thirteen million
2
dollars from SFHP on its annual reconciliation reports to DHCS.
3
Id.
4
to recoup nearly fifteen million dollars in overpayments from DHCS
5
during that period.
6
liable under the False Claims Act” and invited NEMS to discuss the
7
issue further in settlement negotiations.
8
the federal government would soon be deciding whether or not to
9
intervene in the qui tam action.
This under-reporting, according to the letter, allowed NEMS
United States District Court
For the Northern District of California
10
Id.
The letter concluded that “NEMS could be
Id.
It also noted that
Id.
In addition to describing the results of its initial
11
investigation, the government expressly rejected NEMS’s proffered
12
reasons for declining to report receipt of the full SFHP payments
13
to DHCS.
14
Attorney, NEMS had expressed the view that it was not statutorily
15
obliged to report all of the funds that it received from SFHP to
16
DHCS.
17
permitted it to report only a portion of the funds it received
18
from SFHP.
19
federal government did not agree with NEMS’s interpretation of the
20
Medicaid Act’s financial reporting requirements.
21
1-2.
22
Id.
Previously, in a January 2012 letter to the U.S.
Compl., Ex. 1, at 1-3.
Id.
Rather, it argued, the Medicaid Act
The AUSA’s April 2012 letter explained why the
Id., Ex. 2, at
On April 12, 2012, three days after receiving the AUSA’s
23
letter, NEMS notified the U.S. Attorney that it had not changed
24
its position and “had no settlement to propose.”
25
U.S. Attorney’s office thus ceased its settlement efforts and
26
continued its investigation of NEMS.
27
turn, filed its annual reconciliation report for fiscal year 2011
28
on May 31, 2012.
Id. ¶ 95.
Id. ¶¶ 96-98.
The
NEMS, in
Id. ¶¶ 15, 99. NEMS asserts that it filed the
5
1
report “in a manner consistent with its past practice” but
2
notified DHCS that its interpretation of its reporting
3
requirements differed from the interpretation that the U.S.
4
Attorney had recently articulated in its April 9 letter.
5
¶ 15.
6
Id.
On June 4, 2012, less than a week after filing its
7
reconciliation report, NEMS filed this lawsuit.
8
NEMS requests:
9
(1)
In its complaint,
a judicial declaration that “the legal conclusions and
United States District Court
For the Northern District of California
10
positions (including that of the relator in the above-
11
described qui tam action) expressed in the AUSA’s letter are
12
unsupported by any (properly promulgated) rule or regulation,
13
are a departure from existing policy on the substantive
14
rights of Section 330 health centers, and contrary to law,”
15
id. ¶ 127;
16
(2)
a judicial declaration that NEMS’s own proposed
17
interpretation of the statutory reporting requirements for
18
federally-qualified health centers is correct, id. ¶¶ 128-31;
19
(3)
an order directing Defendants to “implement a payment system
20
(including past and future payments)” that comports with
21
NEMS’s interpretation of federal law, id. ¶ 131;
22
(4)
attorneys’ fees and costs, id. ¶ 133; and
23
(5)
“such other and further relief as the Court deems warranted
24
or just,” id. ¶ 134.
25
On July 25, 2012, the Court related this case to the pending
26
qui tam action against Plaintiff.
27
on August 2, the United States filed its notice of election to
Docket No. 28.
28
6
One week later,
1
intervene in that action.
2
their motions to dismiss in this case.
3
On August 6, 2012, Defendants filed
Five months later, on January 4, 2013, the State of
4
California filed its notice of election to intervene in the qui
5
tam action.
6
of California filed their joint complaint-in-intervention in that
7
case, charging NEMS with “knowingly submitt[ing] false
8
reconciliation reports” to DHCS in violation of the FCA and
9
California False Claims Act.
On January 15, 2013, the United States and the State
United States District Court
For the Northern District of California
10
11
Docket No. 26 in Case No. 10-1904.
LEGAL STANDARDS
I.
Subject Matter Jurisdiction
12
Dismissal is appropriate under Rule 12(b)(1) when the
13
district court lacks subject matter jurisdiction over the claim.
14
Fed. R. Civ. P. 12(b)(1).
15
must exist at the time the action is commenced.
16
Mission Indians v. Cal. State Bd. of Equalization, 858 F.2d 1376,
17
1380 (9th Cir. 1988).
18
issue which goes to the power of the court to hear the case.
19
Therefore, a Rule 12(b)(1) challenge should be decided before
20
other grounds for dismissal, because they will become moot if
21
dismissal is granted.
22
Cir. 1975).
23
Federal subject matter jurisdiction
Morongo Band of
Subject matter jurisdiction is a threshold
Alvares v. Erickson, 514 F.2d 156, 160 (9th
A federal court is presumed to lack subject matter
24
jurisdiction until the contrary affirmatively appears.
25
West, Inc. v. Confederated Tribes, 873 F.2d 1221, 1225 (9th Cir.
26
1989).
27
matter jurisdiction without giving the plaintiff an opportunity to
28
amend unless it is clear that the jurisdictional deficiency cannot
Stock
An action should not be dismissed for lack of subject
7
1
be cured by amendment.
2
637 F.2d 1211, 1216 (9th Cir. 1980).
3
II.
4
May Dep’t Store v. Graphic Process Co.,
Failure to State a Claim
A complaint must contain a “short and plain statement of the
5
claim showing that the pleader is entitled to relief.”
6
Civ. P. 8(a).
7
state a claim, dismissal is appropriate only when the complaint
8
does not give the defendant fair notice of a legally cognizable
9
claim and the grounds on which it rests.
Fed. R.
On a motion under Rule 12(b)(6) for failure to
Bell Atl. Corp. v.
United States District Court
For the Northern District of California
10
Twombly, 550 U.S. 544, 555 (2007).
11
complaint is sufficient to state a claim, the court will take all
12
material allegations as true and construe them in the light most
13
favorable to the plaintiff.
14
896, 898 (9th Cir. 1986).
15
to legal conclusions; “threadbare recitals of the elements of a
16
cause of action, supported by mere conclusory statements,” are not
17
taken as true.
18
(citing Twombly, 550 U.S. at 555).
In considering whether the
NL Indus., Inc. v. Kaplan, 792 F.2d
However, this principle is inapplicable
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
19
When granting a motion to dismiss, the court is generally
20
required to grant the plaintiff leave to amend, even if no request
21
to amend the pleading was made, unless amendment would be futile.
22
Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911
23
F.2d 242, 246-47 (9th Cir. 1990).
24
amendment would be futile, the court examines whether the
25
complaint could be amended to cure the defect requiring dismissal
26
“without contradicting any of the allegations of [the] original
27
complaint.”
28
Cir. 1990).
In determining whether
Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th
8
1
2
DISCUSSION
I.
3
Plaintiff’s Legal Claims
Plaintiff asserts three causes of action in its complaint.
4
The first and third causes of action essentially allege that the
5
AUSA’s letter mischaracterizes Plaintiff’s financial reporting
6
obligations and propounds an invalid interpretation of the
7
Medicaid Act.
8
action alleges that DHCS has violated the Medicaid Act by failing
9
to provide Plaintiff with timely reimbursements for the
Compl. ¶¶ 115-18, 124-26.
The second cause of
United States District Court
For the Northern District of California
10
organization’s costs in serving Medicaid enrollees.
11
¶¶ 119-23.
12
Compl.
Although Plaintiff asserts in its opposition brief that the
13
“allegations in the Complaint are (with certain exceptions obvious
14
from the text) directed toward and applicable to both (federal and
15
State) sets of defendants,” Opp. Fed. Defs.’ Mot. Dismiss 1, its
16
complaint does not delineate clearly which claims are asserted
17
against which Defendants.
18
Plaintiff’s first and third causes of action are directed at both
19
State and Federal Defendants or only at Federal Defendants.
20
e.g., Compl. ¶¶ 124-26 (referring to “defendants” generally
21
without further specification).
22
Court assumes that Plaintiff’s first and third causes of action
23
are directed at both sets of Defendants and that its second cause
24
of action is directed exclusively at State Defendants.
25
II.
In particular, it is not clear whether
In light of this ambiguity, the
Subject Matter Jurisdiction
26
A.
27
Plaintiff seeks a judicial declaration that the federal
28
See,
Claims Against Federal Defendants
government’s interpretation of the financial reporting
9
1
requirements for federally-qualified health centers, as expressed
2
in the AUSA’s letter, is “contrary to law.”
3
It has sought review of the AUSA’s letter under the Administrative
4
Procedure Act (APA), 5 U.S.C. § 704.
5
that the Court lacks subject matter jurisdiction over Plaintiff’s
6
claims because the AUSA’s letter is not subject to judicial
7
review.
Compl. ¶¶ 117, 127.
Federal Defendants argue
8
Under the APA, a federal court may only review an agency
9
action if (1) a statute expressly provides for judicial review of
United States District Court
For the Northern District of California
10
that action or (2) the agency’s action is “final” in nature.
11
5 U.S.C. § 704.
12
authorized, “finality is a jurisdictional requirement to obtaining
13
judicial review under the APA.”
14
U.S. Army Corps of Eng’rs, 543 F.3d 586, 591 (9th Cir. 2009).
15
Thus, unless judicial review is statutorily
Fairbanks Northstar Borough v.
“For an agency action to be final, the action must (1) ‘mark
16
the consummation of the agency’s decisionmaking process’ and
17
(2) ‘be one by which rights or obligations have been determined,
18
or from which legal consequences will flow.’”
19
Desert Ass’n v. U.S. Forest Serv., 465 F.3d 977, 982 (9th Cir.
20
2006) (citing Bennett v. Spear, 520 U.S. 154, 178 (1997)).
21
inquiry requires the court to make a pragmatic consideration of
22
the effect of the challenged action -- not just its label.
23
985.
24
action imposes an obligation, denies a right, or fixes some legal
25
relationship as the consummation of the administrative process.
26
Id. at 986–87.
27
and immediate . . . effect on the day-to-day business’ of the
28
subject party.”
Oregon Natural
This
Id. at
The finality requirement is satisfied only when an agency
“An agency action may be final if it has a ‘direct
Id. at 987 (alteration in original).
10
1
Here, Plaintiff asserts that the AUSA’s letter constitutes a
2
“sufficiently final agency action to be judicially reviewable.”
3
Compl. ¶ 101.
4
view” as to how federally-qualified health centers, like
5
Plaintiff, are supposed to file their annual reconciliation
6
reports.
7
effects are “direct and immediate” because it instilled in
8
Plaintiff the “well-founded fear that the state and/or federal
9
government will enforce the positions and interpretations stated
United States District Court
For the Northern District of California
10
therein.”
It argues that the letter represents “HHS’s current
Id.
In addition, Plaintiff contends that the letter’s
Id. ¶ 112.
11
Even assuming that the AUSA’s letter actually constitutes
12
action by HHS -- something the parties dispute here -- it does not
13
satisfy the APA’s finality requirement.
14
summarizes the preliminary findings of the U.S. Attorney’s FCA
15
investigation, does not affect Plaintiff’s legal rights or
16
obligations.
17
government’s initial review of Plaintiff’s financial records
18
“seems to indicate” that Plaintiff falsified its reconciliation
19
reports and that this conduct “appears to violate” the FCA.
20
Compl., Ex. 2, at 2 (emphasis added); see also id. (“It appears
21
NEMS could be liable under the [FCA].” (emphasis added)).
22
Plaintiff itself acknowledges in its complaint that the letter
23
uses “uncertain language” in describing the potential scope of its
24
FCA liability.
25
The letter, which merely
It uses noncommittal language, noting that the
Compl. ¶ 94.
Furthermore, the letter makes clear that it is an invitation
26
to settlement negotiations rather than a formal declaration of
27
sanctions or penalties.
28
letters: “FOR SETTLEMENT PURPOSES ONLY.”
Indeed, the subject line reads, in bold
11
Id.
The letter also
1
states, again in bold print, that the government’s deadline for
2
intervening in the pending qui tam action is July 2, 2012,
3
indicating that any formal enforcement efforts would not begin, if
4
at all, for another three months.
5
demonstrate that the AUSA’s letter was “of a merely tentative or
6
interlocutory nature” and, thus, not subject to judicial review
7
under the APA.
8
v. United States, 23 F. Supp. 2d 497, 500-01 (D.N.J. 1998)
9
(holding that FCA settlement letters sent by the Department of
Id.
All of these elements
See Bennett, 520 U.S. at 178; cf. N.J. Hosp. Ass’n
United States District Court
For the Northern District of California
10
Justice did not constitute final agency action because the
11
“settlement letters merely indicate a belief by the DOJ that
12
plaintiff’s member hospitals may have violated the Medicare Act”
13
(emphasis added)).
14
Plaintiff seeks to analogize this case to Sackett v. EPA, 132
15
S. Ct. 1367 (2012).
16
pair of residential property owners could challenge a “compliance
17
order” that the EPA issued instructing them to bring their
18
property into compliance with the Clean Water Act.
19
The Court concluded that the order qualified as a “final” agency
20
action because its findings were not subject to further agency
21
review and because the order imposed a binding “legal obligation”
22
upon the plaintiffs -- namely, to comply with the order or face
23
“double penalties in a future enforcement proceeding.”
24
1371-72.
25
In Sackett, the Supreme Court held that a
Id. at 1371.
Id. at
In contrast, the findings in the AUSA’s letter here were not
26
only subject to further agency review but also had no impact on
27
Plaintiff’s legal obligations.
28
that the government was still considering whether or not its
In fact, the letter itself stated
12
1
investigatory findings ultimately justified intervention in the
2
qui tam action.
3
carried no guarantee of future enforcement activity.
4
falls outside the ambit of APA finality and is not subject to
5
judicial review.
6
Consumer Prod. Safety Comm’n, 324 F.3d 726, 732 (D.C. Cir. 2003)
7
(“[T]he Commission’s actions here, which are merely investigatory
8
and clearly fall short of filing an administrative complaint, are
9
not final agency action.
In short, the letter was merely speculative and
As such, it
See Reliable Automatic Sprinkler Co., Inc. v.
No legal consequences flow from the
United States District Court
For the Northern District of California
10
agency’s conduct to date, for there has been no order compelling
11
[the plaintiff] to do anything.”).
12
The Court therefore dismisses all claims against Federal
13
Defendants for lack of subject matter jurisdiction.
14
United States has now filed its complaint in the qui tam action --
15
and thus commenced an actual enforcement proceeding -- Plaintiff
16
may amend its claims for declaratory relief and raise them as
17
counterclaims in that action.
Because the
18
B.
19
State Defendants argue that Plaintiff has failed to establish
Claims Against State Defendants
20
both that it has standing and that its claims are ripe.
21
arguments are addressed in turn.
22
23
1.
These
Standing
Because challenges to standing implicate a federal court's
24
subject matter jurisdiction under Article III of the U.S.
25
Constitution, they are properly raised in a motion to dismiss
26
under Rule 12(b)(1).
27
2000).
28
she has suffered an injury in fact that is concrete and
White v. Lee, 227 F.3d 1214, 1242 (9th Cir.
To establish standing, a plaintiff must show: “(1) he or
13
1
particularized, and actual or imminent; (2) the injury is fairly
2
traceable to the challenged conduct; and (3) the injury is likely
3
to be redressed by a favorable court decision.”
4
Recovery Alliance v. Gutierrez, 545 F.3d 1220, 1225 (9th Cir.
5
2008).
6
Salmon Spawning &
A concrete injury is one that is “‘distinct and palpable
7
. . . as opposed to merely abstract.’”
8
Appeals for 9th Circuit, 279 F.3d 817, 821 (9th Cir. 2002)
9
(quoting Whitmore v. Arkansas, 495 U.S. 149, 155 (1990)).
Schmier v. U.S. Court of
The
United States District Court
For the Northern District of California
10
“injury must have actually occurred or must occur imminently;
11
hypothetical, speculative or other ‘possible future’ injuries do
12
not count in the standings calculus.”
13
(citing Whitmore, 495 U.S. at 155).
14
the facts that exist at the time the complaint is filed.”
15
v. City of Lakewood, 259 F.3d 996, 1006 (9th Cir. 2001).
16
Schmier, 279 F.3d at 821
“Standing is determined by
Clark
In the present case, Plaintiff appears to identify two
17
possible sources of legal harm in its complaint.
18
section of its complaint entitled, “Harm to NEMS,” it asserts,
19
20
21
22
23
First, in a
The harm or hardship that makes this dispute ripe for
review is not that NEMS faces a qui tam action or the
prospect of having to defend itself against some other
enforcement action . . . , but rather the compliance
dilemma it faces as a result of an AUSA’s letter
purporting to give an authoritative interpretation of
statutory and regulatory provisions that have a direct,
immediate, and harmful effect on NEMS’ current and
future operations.
24
25
26
27
28
Compl. ¶ 100 (repeating text almost verbatim from ¶ 14).
Second,
in a later section of its complaint, Plaintiff alleges that State
Defendants have failed to make timely reconciliation payments as
required by the Medicaid Act.
Id. ¶¶ 122-23.
14
Of these two
1
asserted injuries, only the latter is sufficient to confer
2
standing here.
3
The first injury that Plaintiff alleges -- the “compliance
4
dilemma” created by the AUSA’s letter -- is not fairly traceable
5
to State Defendants because Plaintiff has not alleged that DHCS or
6
HHSA played any role in drafting the AUSA’s letter.
7
even if Plaintiff had included such allegations in its complaint,
8
the injury Plaintiff asserts is still too abstract to support
9
standing here.
Moreover,
To establish standing based on a compliance
United States District Court
For the Northern District of California
10
dilemma, a plaintiff must allege that the government’s conduct has
11
presented it with an “immediate dilemma to choose between
12
complying with newly imposed, disadvantageous restrictions and
13
risking serious penalties for violation.”
14
Drug Enforcement Agency, 333 F.3d 1082, 1086 (9th Cir. 2003)
15
(emphasis added; citations and quotation marks omitted).
16
however, Plaintiff has not alleged that it faced any immediate
17
penalties or consequences for noncompliance.
18
expressly denies that any such consequences are the motivating
19
factor behind this lawsuit.
20
“harm or hardship that makes this dispute ripe for review is not
21
that NEMS faces a qui tam action or the prospect of having to
22
defend itself against some other enforcement action.”
23
¶ 100 (repeating text almost verbatim from ¶ 14) (emphasis added).
24
Thus, as currently plead, Plaintiff’s “compliance dilemma” cannot
25
constitute an injury-in-fact because Plaintiff has expressly
26
declined to rely upon whatever harm it might face as a consequence
27
of its noncompliance.
Hemp Indus. Ass’n v.
Here,
In fact, Plaintiff
It states in its complaint that the
28
15
Compl.
1
The second injury that Plaintiff has asserted -- the State’s
2
failure to make timely reconciliation payments -- is more
3
concrete.
4
reimburse federally-qualified health centers every four months for
5
the services they provide to Medicaid enrollees.
6
§ 1396a(bb)(5)(B); see also Three Lower Counties Cmty. Health
7
Servs. v. Maryland, 498 F.3d 294, 301-03 (4th Cir. 2007) (“[T]he
8
statute plainly provides that a State must make fully compensatory
9
supplemental payments no less frequently than every four
The Medicaid Act requires participating states to
42 U.S.C.
United States District Court
For the Northern District of California
10
months.”).
11
“continuously and consistently failed to make fully compensatory
12
supplemental payments on the schedule” required by the Medicaid
13
Act, it has identified a cognizable legal injury here:
14
specifically, that DHCS has “deprive[d] NEMS of its right to full
15
and timely reimbursement.”
16
directly traceable to the conduct of State Defendants, is
17
sufficient to support standing here for Plaintiff’s second cause
18
of action for declaratory relief.2
Because Plaintiff’s complaint alleges that DHCS has
Id. ¶¶ 122-23.
This injury, which is
19
State Defendants contend that DHCS’s practice of making
20
interim prospective payments to NEMS satisfies the Medicaid Act’s
21
four-month payment requirement.
22
however, makes clear that federally-qualified health centers are
23
entitled to fully compensatory payments every four months.
The language of the statute,
42
24
2
25
26
27
28
Plaintiff spends several pages of its opposition brief, which was
filed on September 13, 2012, arguing that it will be injured if State
Defendants fail to make a reconciliation payment by September 30, 2012.
This injury cannot support standing here because it did not exist at the
time the complaint was filed. See Clark, 259 F.3d at 1006.
Nevertheless, because Plaintiff’s complaint alleges that DHCS’s
violation of the Medicaid Act is ongoing, Plaintiff has identified a
cognizable injury-in-fact here.
16
1
U.S.C. § 1396a(bb)(5)(B) (requiring the State to make “a
2
supplemental payment equal to the amount” by which the health
3
center’s actual costs exceed the amount of funding received from
4
the State (emphasis added)).
5
Circuit has specifically rejected State Defendants’ argument here.
6
Three Lower Counties, 498 F.3d at 301, 303 (“Even though the
7
partial interim payment is made with the frequency required by the
8
statute, it does not fulfill the statutory requirement of full
9
compensation because the reconciliation payment comes a full six
United States District Court
For the Northern District of California
10
11
Relying on this language, the Fourth
to nine months after the end of the applicable quarter.”).
Accordingly, State Defendants’ motion to dismiss Plaintiff’s
12
second cause of action is denied.
13
identified an injury-in-fact sufficient to support standing for
14
its first and third causes of action, State Defendants’ motion to
15
dismiss those causes of action is granted.
16
leave to amend those claims by raising them as counterclaims in
17
the pending qui tam action.
Because Plaintiff has not
Plaintiff is granted
18
B.
19
Like standing, ripeness pertains to a federal court’s subject
Ripeness
20
matter jurisdiction and is properly raised in a Rule 12(b)(1)
21
motion to dismiss.
22
598 F.3d 1115, 1122 (9th Cir. 2010) (citations omitted).
23
“‘claim is not ripe for adjudication if it rests upon contingent
24
future events that may not occur as anticipated, or indeed may not
25
occur at all.’”
26
Cir. 2009) (quoting Texas v. United States, 523 U.S. 296, 300
27
(1998)).
Chandler v. State Farm Mut. Auto. Ins. Co.,
A
Bova v. City of Medford, 564 F.3d 1093, 1095 (9th
The Ninth Circuit has recognized that ripeness often
28
17
1
“coincides squarely with standing’s injury in fact prong.”
2
564 F.3d at 1095 (quotations and citations omitted).
3
Bova,
Plaintiff’s first and third causes of action are not ripe
4
because, as explained above, Plaintiff has not identified a
5
cognizable injury-in-fact to support standing for those claims.
6
Plaintiff’s second cause of action, however, is ripe because it is
7
based on an injury that Plaintiff alleges is ongoing -- namely,
8
State Defendants’ failure to make timely reimbursement payments.
9
III. Failure to State a Claim
United States District Court
For the Northern District of California
10
As noted above, the Court lacks subject matter jurisdiction
11
over all of Plaintiff’s claims against Federal Defendants and over
12
Plaintiff’s first and third causes of action against State
13
Defendants.
14
these claims must be dismissed under Rule 12(b)(6).
15
Accordingly, there is no need to address whether
Plaintiff’s only surviving cause of action is its claim
16
against State Defendants for their failure to make timely
17
reimbursement payments as required by the Medicaid Act.
18
two circuits have recognized that a federally-qualified health
19
center can bring such an action under 42 U.S.C. § 1983 to enforce
20
its right to timely reconciliation payments.
21
Counties, 498 F.3d at 303 (“At bottom, we conclude that the
22
Medicaid Act requires Maryland to pay FQHCs fully compensatory
23
supplemental payments not less frequently than four months after
24
Maryland has received the claim for supplemental payment, as
25
required by 42 U.S.C. § 1396a(bb)(5).”); Rio Grande Community
26
Health Ctr., Inc. v. Rullan, 397 F.3d 56, 75 (1st Cir. 2005) (“We
27
conclude that a private action can be brought by an FQHC under
28
section 1983 to enforce 42 U.S.C. § 1396a(bb).”); see also Pee Dee
18
At least
Three Lower
1
Health Care, P.A. v. Sanford, 509 F.3d 204, 210-11 (4th Cir. 2007)
2
(“This court has also allowed a healthcare provider to pursue a
3
§ 1983 action to enforce § 1396a(bb)(5) of the Medicaid Act.”).
4
Other circuits have permitted federally-qualified health centers
5
to bring claims for violations of similar Medicaid Act provisions.
6
See, e.g., Cmty. Health Ctr. v. Wilson–Coker, 311 F.3d 132, 136
7
(2d Cir. 2002) (permitting § 1983 claim against a state agency for
8
failing to provide adequate reimbursement payments in violation of
9
42 U.S.C. § 1396a(bb)(2)).
These cases make clear that Plaintiff
United States District Court
For the Northern District of California
10
has stated a claim here by alleging that State Defendants have
11
violated the Medicaid Act by failing to provide timely
12
reimbursements.3
13
IV.
14
Eleventh Amendment Immunity
State Defendants contend that, under the Eleventh Amendment,
15
DHCS and HHSA are immune from suit and cannot be subject to an
16
injunction or forced to pay monetary damages.
17
contend that DHCS Director Douglas is immune from suit because he
18
“does not have any enforcement authority that potentially could be
19
implicated based on the facts alleged in this lawsuit.”
20
Defs.’ Mot. Dismiss 13.
21
Further, they
State
Plaintiff appears to concede that its claims against DCHS and
22
HHSA are barred and that it may not recover damages for State
23
Defendants’ past conduct.
24
State Defendants’ argument that DHCS and HHSA are immune and, at
25
oral argument, it stated that it is only seeking “compliance going
Its opposition brief does not address
26
27
28
3
Although Plaintiff does not invoke § 1983 in the section of its
complaint alleging violations of the Medicaid Act, it does cite the
provision in an earlier section of the complaint. See Compl. ¶ 18.
19
1
forward” rather than damages for past Medicaid Act violations.
2
Docket No. 44, Hr’g Tr. 14:11-:12.4
3
recognize that its claims against DHCS and HHSA are precluded by
4
the Eleventh Amendment and that damages for past conduct are not
5
available.
6
v. Metcalf & Eddy, Inc., 506 U.S. 139, 146 (1993) (stating that
7
the Ex Parte Young exception to Eleventh Amendment immunity
8
“applies only to prospective relief, does not permit judgments
9
against state officers declaring that they violated federal law in
In short, Plaintiff seems to
See generally Puerto Rico Aqueduct and Sewer Authority
United States District Court
For the Northern District of California
10
the past, and has no application in suits against the States and
11
their agencies, which are barred regardless of the relief sought”
12
(citations omitted)).
13
Plaintiff does, however, claim that Douglas has the requisite
14
authority to ensure DHCS’s future compliance with the Medicaid
15
Act’s reimbursement provisions.
16
sued here in his official capacity as director of DHCS, which is
17
the agency responsible for administering the Medicaid program in
18
California.
19
oversees the agency’s practice of making reconciliation payments
20
to federally-qualified health centers like Plaintiff.
21
& Inst. Code §§ 14001.11; 14132.100.
22
properly sued here and Plaintiff’s claim against him is not barred
23
by the Eleventh Amendment.
It notes that Douglas has been
See Compl. ¶¶ 22-23.
As DHCS director, Douglas
Cal. Welf.
Accordingly, he has been
24
25
4
26
27
28
Plaintiff also noted at the hearing that it is currently
challenging “the way in which the state says the Eleventh Amendment
would apply here” before the Ninth Circuit in another case. Hr’g Tr.
14:15-:21. The Ninth Circuit has yet to hear argument in that case.
See North East Med. Servs., Inc. v. Cal. Dep’t Health Care Servs., Case
No. 11-16795 (9th Cir. appeal filed July 21, 2011).
20
1
CONCLUSION
2
For the reasons set forth above, Federal Defendants’ motion
3
to dismiss (Docket No. 30) is GRANTED and State Defendants’ motion
4
to dismiss (Docket No. 29) is GRANTED in part and DENIED in part.
5
In addition, Plaintiff’s motion to strike (Docket No. 39) is
6
DENIED as moot because the Court does not rely on the sections of
7
State Defendants’ reply brief to which Plaintiff objects.
8
9
Plaintiff is granted leave to amend its claims against
Federal Defendants by raising them as counterclaims in the related
United States District Court
For the Northern District of California
10
qui tam action.
11
first and third causes of action against DHCS Director Douglas by
12
raising them as counterclaims in the qui tam action.
13
Plaintiff may proceed in this action on its remaining claim
14
against Douglas, the Court will consolidate this action with the
15
qui tam action for pre-trial case management purposes, and may
16
consolidate the two cases for trial if it appears that Plaintiff’s
17
claim raises the same issues as the qui tam action.
18
has reason to believe that Douglas’ defense to that claim will
19
raise the same issues as the qui tam action, it must raise the
20
claim as a counterclaim in that action, and may do so voluntarily
21
in any event.
22
Plaintiff is similarly granted leave to amend its
Although
If Plaintiff
Pursuant to the parties’ stipulation in the qui tam action,
23
NEMS must file its responsive pleading to the United States and
24
the State of California’s complaint-in-intervention by March 1,
25
2013.
26
intervention, the motion will be heard at 2:00 p.m. on April 11,
27
2013.
28
both actions, regardless of whether NEMS moves to dismiss in the
If NEMS files a motion to dismiss the complaint-in-
A case management conference will be held on that date in
21
1
qui tam action.
2
statement by April 4, 2013.
3
IT IS SO ORDERED.
The parties shall file a joint case management
4
5
6
Dated: 2/1/2013
CLAUDIA WILKEN
United States District Judge
7
8
9
United States District Court
For the Northern District of California
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
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28
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