Affiliates, Inc. et al v. Armstrong et al

Filing 69

MEMORANDUM DECISION AND ORDER granting 61 Motion for Order to Show Cause pending a decision from CMS regarding IDHW's proposed waiver amendment. Signed by Judge B. Lynn Winmill. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by cjm)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO

AFFILIATES, Inc.; HUMAN SERVICE
CONNECTION, Inc.; H.A.S., Inc.,
ALTERNATIVE NURSING SERVICES,
Inc.; A WAY THROUGH COUNSELING
CENTER, Inc.; CENTRAL IDAHO
AFFILIATES, Inc.; DUNSTAN HALL &
ASSOCIATES, Inc.; PROVIDER
AFFILIATE AGENCY, Inc.; ROBINSON &
AFFILIATES, Inc.; SCOTT COMMUNITY
CARE, PLLC; TOMORROW’S HOPE
SATELLITE SERVICES, Inc.; WILLIAMS &
URALDE, Inc.,
Plaintiffs,
v.
RICHARD ARMSTRONG and LESLIE
CLEMENT, in their official capacities,
Defendants.

RUSSELL KNAPP and SANDRA KNAPP, as
legal guardians of Jason Knapp; and JANA
SCHULTZ, as legal guardian of Toby Schultz,
Plaintiffs,
v.
RICHARD ARMSTRONG and LESLIE
CLEMENT, in their official capacities,
Defendants.

MEMORANDUM DECISION AND ORDER - 1

Case Nos. 1:09-cv-00149-BLW
1:11-cv-00307-BLW
MEMORANDUM DECISION
AND ORDER

INTRODUCTION
Before the Court are Motions for Preliminary Injunction (Dkt. 61) in Affiliates, et
al. v. Armstrong, et al. (Case No. 1:09-cv-00149-BLW), and (Dkt. 2) in Knapp, et al. v.
Armstrong, et al. (Case No. 1:11-cv-00307-BLW). The Court heard oral argument on
July 26, 2011, following an expedited briefing schedule. Having considered the parties’
written and oral arguments, and being familiar with the record, the Court will grant the
Motions for Preliminary Injunction, as more fully expressed below.
BACKGROUND
1.

Legal Background
“Medicaid . . . is a cooperative federal-state program that directs federal funding to

states to assist them in providing medical assistance to low-income individuals.” Cal.
Pharmacists Ass’n v. Maxwell-Jolly, 596 F.3d 1098, 1102 (9th Cir. 2010) (citation
omitted). States that choose to participate in Medicaid must comply with the
requirements under the Medicaid Act, including development of, and adherence to, a
state plan for medical assistance, which must receive approval from the federal Secretary
of Health and Human Services, through CMS. Id.; 42 U.S.C. § 1396 et seq.; 42 C.F.R. §
430.15(b); see § 1396a(a)(1)-(73).
Under the Medicaid Act, requirements of § 1396a(a), in paragraphs (1), (10), and
(23), may be waived such that a state is not deemed out of compliance with the Act. 42
U.S.C. § 1396n. Paragraph (23), known as the “free choice” provision, provides that

MEMORANDUM DECISION AND ORDER - 2

state plans must permit Medicaid participants to receive services “from any institution,
agency, community pharmacy, or person, qualified to perform the service or services
required who undertakes to perform such services.” 42 U.S.C. § 1396a(a)(23). The
IDHW has requested and received two waivers: the Aged and Disabled Home and
Community Based Services Waiver (A&D Waiver), and the Developmental Disabilities
Home and Community Based Services Waiver (DD Waiver). Complaint, Dkt. 1, ¶ 8.
These waivers allow certain types of care to be provided in home and community based,
rather than institutional, settings. Id.
Under Idaho’s DD waiver, residential habilitation services assist eligible
participants to reside in their own homes or in the community with additional support
services, such as in a Certified Family Home. Sanchez v. Johnson, 416 F.3d 1051, 1054
(9th Cir. 2005). The IDHW requires residential habilitation to be provided under the
supervision of a properly licensed Residential Habilitation Agency. IDAPA
16.03.10.705. Where a Medicaid participant chooses a Certified Family Home, then that
Certified Family Home provider must affiliate with a Residential Habilitation Agency.
IDAPA 16.03.10.705.01.
2.

Affiliates, et al. v. Armstrong, et al., Case No. 1:09-cv-00149
Plaintiffs in Affiliates v. Armstrong are providers of Residential Habilitation

Affiliation services who contract with the State of Idaho and its Medicaid program.

MEMORANDUM DECISION AND ORDER - 3

Complaint, (Case No. 1:09-cv-00149)1 Dkt. 1-4, ¶ 1. Plaintiffs work with Certified
Family Home providers in the state of Idaho to provide developmentally disabled
individuals the Medicaid-covered service referred to in Idaho regulations as “affiliation.”
Id. “Affiliation” includes provision of “oversight, training, and quality assurance to the
certified home provider.” IDAPA 16.03.10.705.01; Grooms Dec., ¶ 7, Dkt. 65-1.
Affiliation also includes development and execution of Provider Implementation Plans,
which describe the services provided by the Certified Family Home provider to meet the
Medicaid participant’s needs. Scott Dec., (Case No. 1:11-cv-00307) Dkt. 2-2, ¶ 11.
Affiliation has “historically been provided by Residential Habilitation Agencies.” IDHW
Resp., Dkt. 65 at 2. If a Medicaid participant chooses a Certified Family Home provider,
then that provider must affiliate with a Residential Habilitation Agency. IDAPA
16.03.10.705.01.
In 2009, the Idaho Department of Health and Welfare (IDHW) proposed
modifications to the rate structure and rates paid to the Affiliates Plaintiffs through
Medicaid. Id. Plaintiffs filed suit against Richard Armstrong as Director of IDHW, and
Leslie Clement, as Administrator of the Medicaid Division of IDHW. Id. ¶ 3. Plaintiffs
sought a temporary restraining order, asserting that the proposed changes were preempted
by federal law and prohibited by Idaho law. Id. ¶ 1.
The Honorable Justin L. Quackenbush, sitting by designation for the District of
Idaho, issued an order on April 30, 2009, granting the Temporary Restraining Order (Dkt.
1

References to pleadings in this sub-section of the Background section will refer to the Affiliates v. Armstrong case,
No. 1:09-cv-00149, unless otherwise indicated.

MEMORANDUM DECISION AND ORDER - 4

17). In his decision, Judge Quackenbush noted that nothing in the record before the court
indicated that the reduction in rates was “premised on any concern other than budgetary
ones, in direct contravention of Orthopaedic Hospital v. Belsh, 103 F.3d 1491, 1496 (9th
Cir. 1997).” TRO, Dkt. 17 at 3. Also, “[t]here is no evidence that the Department,
through reasonable cost study and analysis, concluded that the new rates can provide the
quality of medical care and access required by Independent Living Center v. Shewry, 543
F.3d 1050, 1065-66 (9th Cir. 2008).” Id. at 3-4. Finally, the Court found “[t]here is no
evidence that Idaho has fulfilled its statutory obligations under 42 C.F.R. § 430.12 to
submit the substantive amendments of its state plan to the federal [Center for Medicare
and Medicaid Services (CMS)] for approval,” citing Washington State Health Facilities
Ass’n v. Washington Dep’t of Soc. and Health Serv., 698 F.2d 964 (9th Cir. 1982). Id. at
4. The Court concluded that Plaintiffs were likely to succeed on the merits of their claim.
Id.
The parties entered stipulated preliminary injunctions on May 27, 2009 and June
25, 2009 (Dkts. 27, 28). Defendants then filed a Motion for Permanent Injunction and
Judgment (Dkt. 30). Plaintiffs stipulated to entry of a permanent injunction, but asserted
that final judgment was premature.
On January 22, 2010, the Honorable William F. Downes, sitting by designation for
the District of Idaho, issued an order granting in part, and denying in part, Defendants’
motion (Dkt. 45). The Court agreed with Defendants that the Eleventh Amendment bars
claims potentially resulting in retrospective relief, such as declaratory relief sought by
MEMORANDUM DECISION AND ORDER - 5

Plaintiff that the State of Idaho had been in violation of federal law regarding the setting
of [Residential Habilitation Agency] rates since 1995. Id. at 8 (citing Edelman v. Jordan,
415 U.S. 651 (1974) and Green v. Mansour, 474 U.S. 64 (1985)). Agreeing with
Plaintiffs, the Court found Defendants’ exhaustion argument inapplicable to this case. Id.
at 10-11. The Court therefore permitted Plaintiffs to amend their Complaint, and found
that entry of final judgment was inappropriate. Id. at 11.
In 2010 and 2011, the Idaho Legislature directed the IDHW’s Division of
Medicaid to implement selective contracts in order to “provide the appropriate
incentives” and improve the system of payment for health care delivery, “with the
objective of moving toward an accountable health care system that results in improved
health outcomes.” 2011 Idaho Sess. Laws ch. 160 § 12 (codified at Idaho Code § 56261(1)). In response, on February 25, 2011, IDHW sought proposals for a single
contractor to provide all program coordination services in Certified Family Homes.
Dunagan Dec., Dkt. 61-2, ¶ 7. The IDHW accepted questions from, and provided
responses to, potential bidders. Ex. 1 to Dunagan Dec., Dkt. 61-3.
Describing its proposal as “selectively contracting,” the IDHW indicated that it
need not seek CMS approval before awarding the single contract, but that it would
“comply with CMS requirements for amending its waiver.” Id. at 1. Where a state, for
cost-effectiveness, seeks “to restrict the provider from (or through) whom an [eligible]
individual . . . can obtain services,” the state must first obtain a waiver (through CMS)
from the federal Secretary of Health and Human Services. 42 U.S.C. § 1396n(b)(4).
MEMORANDUM DECISION AND ORDER - 6

Also, according to the CMS Manual, a state may arrange for a contracted entity to
perform “waiver operational and administrative functions,” such as quality improvement,
that are “necessary for the proper and efficient administration of the waiver.” CMS
Manual at 60-61, Ex. B to Grooms Dec., Dkt. 65-1. Thus, under the Medicaid Act’s
waiver provision, and technical guidance from CMS, the IDHW now seeks approval of
an amendment to its DD waiver to permit its proposed selective contract.
The IDHW confirmed that its proposed contract would only require one “face-toface contact per year” between the program coordinator and the Medicaid participant. Id.
at 2-3. When asked if rule changes would reflect the “reduced expectations of the
[IDHW] as outlined in [the] proposal,” the IDHW responded that it would “proceed with
the rulemaking process to amend its rules as necessary.” Id. at 1.
On June 3, 2011, the IDHW contracted with Community Partnerships of Idaho for
that company to be the sole provider of program coordination in Certified Family Homes.
Ex. 2 to Dunagan Dec., Dkt. 61-4. Under the contract, Community Partnerships of Idaho
agreed to provide residential habilitation services, at annual fixed rates of $1,070 for new
entrants to that program, and $628 per year for existing users of the program. Id. As
noted in Judge Quackenbush’s Order granting Temporary Restraining Order, the existing
annualized rate for reimbursing residential habilitation affiliation services, as provided by
Plaintiffs in this suit, is $2,905. TRO, Dkt. 17 at 3.

MEMORANDUM DECISION AND ORDER - 7

On June 10, 2011, the IDHW informed the Plaintiffs that its contract with
Community Partnerships of Idaho would take effect August 5, 2011. Dunagan Dec., Ex.
3, Dkt. 61-5.
3.

Knapp, et al. v. Armstrong, et al., Case No. 1:11-cv-00307
Plaintiffs in Knapp v. Armstrong are the legal guardians of Jason Knapp and Toby

Schultz. Complaint, (Case No. 1:11-cv-00307)2 Dkt. 1, ¶ 2. Jason and Toby are both
residents of Certified Family Homes. Id. Plaintiffs in the Knapp v. Armstrong case
assert that they will suffer harm if IDHW’s selective contract with Community
Partnerships of Idaho is permitted to take effect. According to Plaintiffs, the selective
contract will violate their rights, and the rights of the Certified Family Home providers, to
exercise freedom of choice under 42 U.S.C. 1396a(a)(23).
Plaintiffs also assert that implementation of the contract will violate their rights to
maintain adequate access to, and quality of, services provided under the Medicaid Act.
Complaint, Dkt. 1, ¶¶ 25-26. Plaintiffs contend that the contract is preempted by the
Supremacy Clause of the United States Constitution, therefore they are entitled to
injunctive and prospective relief. Id. ¶ 31.
LEGAL STANDARD
The United States Supreme Court reiterated the standard for a preliminary
injunction in Winter v. Natural Resources Defense Council, Inc., 129 S.Ct. 365, 374
(2008). A plaintiff seeking a preliminary injunction must establish that: (1) it is likely to
2

In this sub-section of the Background section, docket numbers refer to pleadings in the Knapp v. Armstrong case,
No. 1:11-cv-00307, unless otherwise indicated.

MEMORANDUM DECISION AND ORDER - 8

succeed on the merits; (2) it is likely to suffer irreparable harm in the absence of
preliminary relief; (3) the balance of equities tips in its favor; and (4) an injunction is in
the public interest. A preliminary injunction is “an extraordinary remedy never awarded
as of right.” Id. at 376. The standard for issuing a preliminary injunction is identical to
that for issuing a temporary restraining order. Lockheed Missile & Space Co., Inc. v.
Hughes Aircraft Co., 887 F.Supp. 1320, 1323 (N.D. Cal. 1995).
The Court considers these factors using a “sliding scale” approach; a poor showing of
one element may be overcome by a strong showing of another, and still support the
appropriateness of a preliminary injunction. Vanguard Outdoor, LLC v. City of Los
Angeles, 2011 WL 2175891 at *3 (9th Cir. June 3, 2011) (finding that the United States
Supreme Court in Winter “did not completely erase the Ninth Circuit’s ‘sliding scale’
approach”).
ANALYSIS
1.

Likelihood of Success on the Merits
The likely success of Plaintiffs’ actions concerns four issues: (1) whether the

IDHW may seek retroactive effect; (2) whether the IDHW’s proposed contract is a ratecut requiring a state plan amendment; (3) whether the Court has jurisdiction to consider
the propriety of the proposed contract and waiver; and (4) whether Plaintiffs have
standing to bring an action for violation of the Medicaid Act’s free choice clause.
A.

The IDHW must obtain CMS approval before implementing its
selective contract

MEMORANDUM DECISION AND ORDER - 9

The Affiliates Plaintiffs contend that the IDHW’s contract with Community
Partnerships of Idaho required approval of an amendment, which was not sought or
received prior to Plaintiffs’ filing of this action. Although the IDHW has since submitted
a proposed amendment to CMS – on or around July 22, 2011 – approval would need to
be applied retroactively, unless granted before August 5, 2011. The Court will assume
for now a decision from CMS will not issue before August 5.
Approval by CMS of state plan amendments must be obtained prior to
implementation of the proposed amendments. Washington State Health Facilties Ass’n v.
Washington Dep’t of Soc. and Health Serv., 698 F.2d 964 (9th Cir. 1982) (affirming
district court’s grant of preliminary injunction that prevented changes in Medicaid
reimbursement without prior federal approval; Exeter Memorial Hosp. Ass'n v. Belshe,
145 F.3d 1106 (9th Cir. 1998); Oregon Ass'n of Homes for the Aging, Inc. v. State of
Oregon, 5 F.3d 1239 (9th Cir. 1993); Cal. Hosp. Assn. v. Obledo, 602 F.2d 1357, 1361
(9th Cir. 1979). As IDHW notes, and Plaintiffs concede, Ninth Circuit cases addressing
the timing of requests for CMS approval have addressed only state plan amendments, not
waiver amendments.
The IDHW argues that approval is not needed prior to implementing its selective
contract, citing the CMS Manual which provides:
A state may propose that an amendment take effect prospectively on some
future date. An amendment also may be made retroactive to the first day of
a waiver year (or another date after the first day of the waiver year) in
which the amendment is submitted unless the amendment would result in a
reduction of the number of persons served, services provided or providers.
MEMORANDUM DECISION AND ORDER - 10

CMS Manual at 30-31 (emphasis added), Ex. B to Grooms Dec., Dkt. 65-1. Also, the
IDHW suggests that, based on its on-going communications and past experiences with
CMS, it is aware that CMS prefers that most aspects of proposals for waiver amendments
be in place upon submission of its request.
Interestingly, if the Court permits the IDHW to implement its selective contract
and CMS ultimately rejects the waiver amendment, then one of two results will occur:
(1) the IDHW will have implemented a waiver plan that is in violation of Medicaid and
must be undone at significant cost to providers, including the Affiliates Plaintiffs and
Community Partnerships of Idaho; or (2) the IDHW will have implemented a waiver plan
for which it will receive no federal participation, and must be funded solely by state
general funds. It is ironic, if not plainly illogical, that the provision allowing for waiver –
§ 1396n(b), is intended for “cost-effectiveness,” while the process for seeking and
receiving the waiver results in such waste of resources. In any event, the Court finds that
the language in the CMS manual adequately dictates the propriety of retroactive
application here, without need to resolve this apparent conflict.
The provision for retroactivity in the CMS Manual includes an exception – where
“the amendment would result in a reduction of the . . . services provided.” CMS Manual
(emphasis added). The IDHW seems to concede that “affiliation” is indeed a service.
Plaintiffs assert that, by contracting with a single provider throughout the state for this
service, the IDHW reduces costs by roughly half, but also necessarily reduces the

MEMORANDUM DECISION AND ORDER - 11

services provided. The Court agrees. In reducing the “services provided” to Medicaid
participants, the proposed waiver is thus excluded from those which may be made
retroactive under the CMS Manual. CMS Manual, at 30-31.
For this reason, the Court concludes that, in the absence of a decision by CMS to
to approve the IDHW’s waiver amendment, the Plaintiffs in both cases are very likely to
succeed on the merits of their case.
B.

The IDHW’s proposed contract would have the effect of a
reimbursement rate cut, but can be implemented with approval from
CMS of, and compliance with Medicaid Act requirements for, a waiver
amendment, rather than a state plan amendment

Before amending a reimbursement rate in a state’s Medicaid plan, a state must
consider the quality of, and access to, services and care, that justify the amendment.
Indep. Living Center v. Maxwell-Jolly, 572 F.3d 644 (9th Cir. 2009). The Plaintiffs in
Affiliates assert that IDHW’s proposed contract with Community Partnerships of Idaho is
effectively an amendment to the Plaintiffs’ reimbursement rates – specifically a 100%
cut, which is preempted by federal law, because requisite procedures under the Medicaid
Act were ignored. Under this view, IDHW’s contract with Community Partnerships of
Idaho is an amendment to Idaho’s state plan without prior CMS approval. 42 U.S.C.
§ 1396c.
The IDHW counters that it is not cutting Plaintiffs rates, so as to require a state
plan amendment. Rather, it is converting the “affiliation” service to a contracted
administration and operation function. The IDHW notes that Idaho’s state plan under

MEMORANDUM DECISION AND ORDER - 12

Medicaid does not mention “affiliation service.” Grooms Dec., ¶ 9, Dkt. 65-1. Instead,
affiliation service is addressed only in Idaho’s DD waiver. Id. The IDHW proposes to
convert affiliation services to an administrative function through a single contract with
Community Partnerships of Idaho to perform all affiliation services throughout the state.
According to the IDHW, this selective contract need only be approved through an
amendment to the DD waiver, not Idaho’s state plan; thus, its actions are permitted under
federal and state laws, as well as under CMS’s technical manual.
The Court agrees with the IDHW that “affiliation” is a construction of Idaho’s DD
waiver, and not its state plan. However, it is also true that the proposed contract, and thus
the proposed DD waiver amendment, has the effect of cutting reimbursement rates to
providers such as the Affiliates Plaintiffs. While the IDHW has sought approval of its
contract through the appropriate channel -- a waiver amendment – it timing is
questionable.
The Court also has concerns with the proposed contract and the waiver
amendment’s compliance with requirements in §1396n(b)(4). Specifically, it is unclear
whether the proposed contract ensures that the single provider, Community Partnerships
of Idaho, will provide services so as to
. . . comply with the reimbursement, quality, and utilization standards under
the State plan, which standards shall be consistent with the requirements of
§1396r-4 of [the Act] and are consistent with access, quality, and efficient
and economic provision of covered care and services.

MEMORANDUM DECISION AND ORDER - 13

42 U.S.C. § 1396n(b)(4). Although states are given flexibility in designing their
Medicaid programs, they must still fulfill the Medicaid Act’s requirements. See Lewis v.
Hegstrom, 767 F.2d 1371 (9th Cir. 1985).
The IDHW argues that if the waiver is inappropriate – for whatever reason – the
decision to deny it is solely within the purview of CMS, and not the courts. The question
is thus whether the Court has jurisdiction to address the appropriateness of the waiver
amendment.
C.

Jurisdiction of the Court

The IDHW asserts that this Court lacks jurisdiction to address the validity of its
selective contract and amendment waiver, as such issues are properly for CMS to
determine. Under the doctrine of primary jurisdiction, the courts have discretion to
determine whether, concerning issues such as those present here, “the initial
decisionmaking responsibility should be performed by the relevant agency rather than the
courts.” Syntek Semiconductor Co., Ltd. v. Microchip Tech. Inc., 307 F.3d 775, 780 (9th
Cir. 2002). “[P]rimary jurisdiction is properly invoked when a claim is cognizable in
federal court but requires resolution of an issue of first impression . . ..” Id. (quoting
Brown v. MCI WorldCom Network Servs., Inc., 277 F.3d 1166, 1172 (9th Cir. 2002). In
deciding whether to invoke the doctrine, the courts also consider
. . . (1) the need to resolve an issue that (2) has been placed by Congress
within the jurisdiction of an administrative body having regulatory
authority (3) pursuant to a statute that subjects an industry or activity to a
comprehensive regulatory authority that (4) requires expertise or uniformity
in administration.
MEMORANDUM DECISION AND ORDER - 14

Id. (citing General Dynamics Corp., 828 F.2d 1356, 1362 (9th Cir. 1987)). In addition,
the courts look to the potential for conflicts due to overlapping jurisdictions. Id. (quoting
Richard J. Pierce, Jr., Administrative Law Treatise § 14.1 at 917 (4th ed. 2002)).
The Court finds that, while not unduly complex, uniformity in administration is
critical, and Congress has delegated the authority to regulate administration of and
compliance with the Medicaid Act with the Secretary of Health & Human Services, who
in turn, delegated such authority to CMS. 42 U.S.C. § 1396 et seq.; 42 C.F.R. §
430.15(b). Although the Plaintiffs in Knapp assert otherwise, the Court also finds that
the issues presented are of first impression. In making this finding, the Court again
distinguishes the Ninth Circuit cases cited by Plaintiffs. See e.g. Indep. Living Ctr. of S.
Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644, 651-53 (9th Cir.2009) (court considered
whether state agency violated §30(A) of Medicaid Act); Orthopaedic Hosp. v. Belshe,
103 F.3d 1491, 1496 (9th Cir.1997) (court considered plaintiff’s §1983 claim for
violation of §30(A)); Cal. Pharm. Ass’n. v. Maxwell-Jolly, 596 F.3d 1098, 1115 (9th Cir.
2010) (court considered whether state agency violated §30(A)). In those cases, the courts
considered whether state plan amendments complied with § 1396a(a)(30)(A) of the Act.
Plaintiffs contend that the same issue is presented here, and having been
thoroughly addressed by the Ninth Circuit, need not be left to the relevant agency to
resolve. However, as this Court has discussed herein, the issue is whether the IDHW’s
waiver amendment complies with § 1396n(b)(4), not whether a state plan amendment is

MEMORANDUM DECISION AND ORDER - 15

needed or has complied with subsection 30(A). The Court therefore concludes that this
issue is appropriately left to CMS, under the primary jurisdiction doctrine.
Regarding the possible prospective implementation of the IDHW’s waiver
amendment, the Court finds that Plaintiffs are not likely to success on the merits.
D.

Standing to bring action challenging violation of free choice provision

Plaintiffs in the Knapp case assert that IDHW is in violation of the free choice
provision under § 1396a(a)(23). As stated above, under § 1396a(a)(23), a Medicaid
participant may obtain services under the Act “from any institution, agency, community
pharmacy, or person, qualified to perform the service.” 42 U.S.C. §1396a(a)(23).
According to the Knapp Plaintiffs, the IDHW’s contract with Community Partnerships of
Idaho is preempted by federal law because it restricts who Medicaid participants may
choose as their providers, without seeking a waiver from CMS. The Knapp Plaintiffs
argue that they have standing under the Supremacy Clause of the United States
Constitution because they will be directly injured by the elimination of free choice, if the
IDHW’s selective contract with Community Partnerships of Idaho is implemented.
To have standing under Article III, a plaintiff must show: (1) injury in fact, or
invasion of a legally protected interest that is (a) concrete and particularized; and (b)
actual or imminent, as opposed to conjectural or hypothetical; and (2) a causal connection
between the defendant’s challenged action and the plaintiff’s injury. Lujan v. Defenders
of Wildlife, 504 U.S. 555, 560-61 (1992). The Ninth Circuit has held that Medicaid
beneficiaries facing a reduction in “quality services, and access to quality services” due to
MEMORANDUM DECISION AND ORDER - 16

a 10% cut in provider payments were injured so as to satisfy standing requirements.
Independent Living Ctr. of So. Cal. v. Shewry, 543 F.3d 1050, 1065 (9th Cir. 2008).
The Court finds the circumstances for the Knapp Plaintiffs similar to those in
Shewry, and thus agrees that they have standing. The Affiliates Plaintiffs have not
asserted, nor does the Court find, that they have standing under this provision. With
respect to this issue, the Court finds that the Knapp Plaintiffs, only, have a strong
likelihood of success on the merits.
2.

Irreparable Harm
A “possibility” of irreparable harm is insufficient basis for a preliminary

injunction; irreparable injury must be “likely” in the absence of an injunction. Winter,
129 S.Ct. at 374.
The Knapp Plaintiffs argue that they will suffer irreparable harm by virtue of
IDHW’s interference with their right to free choice of provider under the Medicaid Act,
specifically § 1396n. Citing Cal. Pharmacists Assn. v. Maxwell-Jolly, 596 F.3d 1038
(9th Cir. 2010). Also, Plaintiffs in Knapp assert that they will be harmed if IDHW’s
selective contract is permitted to take effect because the Eleventh Amendment bars them
from recovering damages; thus, the only available remedy is the injunctive relief now
sought. Citing Cal. Pharmacists Ass’n v. Maxwell-Jolly, 563 F.3d 847 (9th Cir. 2009).
Finally, the Knapp Plaintiffs note that, if the selective contract is implemented, they will
be forced to terminate their current relationships with affiliation service providers, and
begin new ones with Community Partnerships of Idaho since the Plaintiffs in Affiliates
MEMORANDUM DECISION AND ORDER - 17

would be forced to stop providing affiliation services upon implementation of the
IDHW’s selective contract.
The IDHW has stated that, in the event that CMS does not approve of its proposed
waiver amendment, the IDHW would simply forego federal participation for affiliation
services, and proceed with its selective contract, paid out of state general funds. It does
not appear there is any likelihood that Plaintiffs’ relationships with each other, as
provider and receiver of services, would be repaired. The Court thus finds that the
impact and injury on Plaintiffs in both cases is likely and irreparable. This factor also
weighs in favor of granting the preliminary injunction.
3.

Balance of Equities and Public Interest
In considering whether a preliminary injunction or temporary restraining order

should issue, courts “must balance the competing claims of injury and must consider the
effect on each party of the granting or withholding of the requested relief.” Winter, 129
S.Ct. at 376. On balance, the Court finds that the public interest in the IDHW’s
adherence to federal statutory requirements outweighs harm to the IDHW. As this Court
has previously noted, a reduction in rates cannot be premised on budgetary considerations
alone. Order Granting TRO, Dkt. 17 at 4 (citing Orthopaedic Hosp. v. Belsh, 103 F.3d
1491, 1496 (9th Cir. 1997)). On the facts now before it, the Court also finds that
implementation of a selective contract cannot be premised solely on budgetary
considerations, but must consider the impact on participants.

MEMORANDUM DECISION AND ORDER - 18

The IDHW has acknowledged that its selective contract was proposed in response
to the Idaho Legislature’s expression of budgetary concerns. The IDHW cites the public
interest in non-interference with its federal-state partnership under the Medicaid Act.
However, the Court is unconvinced that this interest outweighs the harms suffered by the
Knapp Plaintiffs, and also – although to a lesser extent – by the Affiliates Plaintiffs, if the
selective contract were implemented without CMS approval. This factor also weighs in
favor of granting the preliminary injunction.
CONCLUSION
In light of the foregoing analysis, the Court finds that a preliminary injunction is
appropriate, pending a decision by CMS on the IDHW’s waiver amendment, and will
grant it. The IDHW is enjoined from implementing its proposed contract with
Community Partnerships of Idaho until it has received approval from CMS. If and when
such approval is granted, the Court will defer to findings and conclusions by CMS that
the contract complies with the Medicaid Act. In the event that CMS renders its decision
without analysis of the applicable provisions of the Medicaid Act, the Court may consider
a renewed motion by Plaintiffs.
ORDER
IT IS ORDERED THAT:
1.

The Affiliates Plaintiffs’ Motion for Preliminary Injunction (Dkt. 61 in
Case No. 1:09-cv-00149) is GRANTED pending a decision from CMS
regarding the IDHW’s proposed waiver amendment.

MEMORANDUM DECISION AND ORDER - 19

2.

The Knapp Plaintiffs’ Motion for Preliminary Injunction (Dkt. 2 in Case
No. 1:11-cv-00307) is GRANTED pending a decision from CMS regarding
the IDHW’s proposed waiver amendment.

DATED: August 4, 2011

_________________________
B. Lynn Winmill
Chief Judge
United States District Court

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