Appalachian Regional Healthcare, Inc. et al v. Coventry Health and Life Insurance Company et al
OPINION AND ORDER: The Cabinet's 57 Motion for Summary Judgment is GRANTED to the extent that ARH seeks mandamus against the Cabinet based only on state law and is otherwise DENIED. Signed by Judge Karl S. Forester on 9/11/2013. (KLB) cc: COR
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
CIVIL ACTION NO. 5:12-CV-114-KSF
APPALACHIAN REGIONAL HEALTHCARE, et al.
OPINION AND ORDER
COVENTRY HEALTH AND LIFE
INSURANCE COMPANY, et al.
This matter is before the Court on the Cabinet’s motion for summary judgment. For the
reasons discussed below, the motion will be granted in part and denied in part.
The initial background facts of this case are set forth in the Court’s June 20, 2012 Opinion
granting a preliminary injunction [DE 67] and will not be repeated here. Subsequently, Coventry’s
agreement to include ARH in its network expired October 31, 2012. ARH’s motion for summary
judgment regarding rates to be paid by Coventry for out-of-network emergency and non-emergency
services was granted. DE 130. King’s Daughters’ motion to file an Intervening Complaint was
granted. DE 132. ARH’s motion to file a Second Amended Complaint was granted, adding the
Centers for Medicare and Medicaid Services (“CMS”) and alleging that the granting of Kentucky’s
Section 1915(b) Waiver violated the Administrative Procedure Act. [DE 133]. Effective January
1, 2013, the Cabinet granted Coventry and WellCare a 7.7 percent rate increase. Kentucky Spirit
cancelled its contract with Kentucky effective July 1, 2013. The Court is not aware of any contract
having been entered into with a replacement managed care organization (“MCO”).
ARH’s First Amended Complaint alleged four claims against the Cabinet: (1) ARH is the
third-party beneficiary of the contract between the Cabinet and Coventry, and the Cabinet breached
the network adequacy and prompt pay provisions; (2) the Cabinet is conspiring with Coventry to
effectuate an unconstitutional taking of ARH’s property; (3) the Cabinet is liable for payments for
non-emergency services provided to Coventry’s members; and (4) the Cabinet breached a provider
agreement. The Claims against Coventry include: (1) breach of contract for failure to meet prompt
pay requirements; (2) declaratory and injunctive relief regarding prompt pay requirements; (3) bad
faith in performance of the Letter of Agreement between Coventry and ARH; (4) declaratory relief
requiring Coventry to pay ARH the reasonable value of its services; (5) violation of Kentucky’s Any
Willing Provider Laws; (6) tortious interference with ARH’s existing and prospective contractual
relationships; and (7) outrageous conduct. DE 5.
The Cabinet’s motion for summary judgment focuses on the defense of sovereign immunity.
DE 57. Coventry did not move to dismiss or seek summary judgment on the First Amended
Summary Judgment Standard
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is proper “if
the pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); Redding v. St. Edward, 241
F.3d 530, 532 (6th Cir. 2001). In reviewing a motion for summary judgment, “this Court must
determine whether ‘the evidence presents a sufficient disagreement to require submission to a jury
or whether it is so one-sided that one party must prevail as a matter of law.’” Patton v. Bearden,
8 F.3d 343, 346 (6th Cir. 1993) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52
(1986)). The evidence, all facts, and any inferences that may permissibly be drawn from the facts
must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co.,
Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Once the moving party shows an absence of evidence to support the nonmoving party’s
case, the nonmoving party must present “significant probative evidence” to demonstrate that “there
is [more than] some metaphysical doubt as to the material facts.” Moore v. Phillip Morris
Companies, Inc., 8 F.3d 335, 340 (6th Cir. 1993). Conclusory allegations are not enough to
withstand a motion for summary judgment. Id. at 343. “The mere existence of a scintilla of
evidence in support of the [nonmoving party’s] position will be insufficient; there must be evidence
on which the jury could reasonably find for the [nonmoving party].” Anderson v. Liberty Lobby, Inc.,
477 U.S. at 252. “If the evidence is merely colorable, or is not significantly probative, summary
judgment may be granted.” Id. at 249-50 (citations omitted).
The Cabinet asserts sovereign immunity under the Eleventh Amendment as a defense to
all counts of the Amended Complaint. Generally, the Eleventh Amendment bars suits brought in
federal court against states and their agencies. Will v. Michigan Dept. of State Police, 491 U.S.
58, 66 (1989). A state’s immunity, however, “comes with a host of exceptions.” Ernst v. Rising,
427 F.3d 351, 359 (6th Cir. 2005). First, a state may waive the protection of Sovereign Immunity
by a voluntary appearance and defense on the merits. Lawson v. Shelby County, Tennessee, 211
F.3d 331, 334 (6th Cir. 2000). Second, “Congress ... may abrogate the sovereign immunity of the
states through statute.” Id. Third, “a federal court may enjoin a ‘state official’ from violating federal
law.” Id. at 335, (citing Ex parte Young, 209 U.S. 123 (1908)). ARH does not rely on any statute
that might abrogate the state’s immunity, but it argues that the Cabinet consented to suit through
its litigation conduct or, alternatively, that the Ex parte Young exception applies.
Litigation Conduct Waiver
ARH claims the Cabinet waived its sovereign immunity defense by its participation in this
litigation. In particular, ARH notes that the Cabinet filed a general notice of appearance; responded
to ARH’s motion for preliminary injunction and addressed the merits of several claims; participated
in settlement negotiations pursuant to an Order of this Court; participated in a telephonic status
conference; actively participated in a preliminary injunction hearing regarding termination of the
Letter of Agreement between Coventry and ARH; and entered into an Agreed Order, all before
raising sovereign immunity as a defense. DE 80 at 8-15.
It is true that a state “appearing without objection and defending on the merits in a case
over which the district court otherwise has original jurisdiction is a form of voluntary invocation of
the federal court’s jurisdiction that is sufficient to waive a State’s defense of Eleventh Amendment
immunity.” Ku v. State of Tennessee, 322 F.3d 431, 435 (6th Cir. 2003). It is also true that the
“test for determining whether a State has waived its immunity from federal-court jurisdiction is a
stringent one.” Atascadero State Hospital v. Scanlon, 473 U.S. 234, 241 (1985), superseded by
statute on other grounds, Rehabilitation Act Amendments of 1986.
In Ku, the state initially was brought in involuntarily as a defendant. Rather than asserting
its Eleventh Amendment immunity defense, however, it “engaged in extensive discovery and then
invited the district court to enter judgment on the merits.” Ku, 322 F.3d at 435. Only after judgment
was entered adversely to the state, did it raise the defense of sovereign immunity. The court held
the defense was waived. Id.
In Lapides v. Board of Regents of the University of Georgia, 535 U.S. 613, 619-20 (2002),
the court found waiver when the state voluntarily appeared in federal court by removing the
plaintiff’s case. In Hill v. Blind Industries and Services of Maryland, 179 F.3d 754, 75 (9th Cir.
1999), the court found waiver when the state did not assert sovereign immunity until the first day
of trial. The relevant inquiry in cases of litigation conduct “must focus on the litigation act the State
takes that creates the waiver.” Lapides, 535 U.S. at 620.
In the present case, ARH filed its Complaint on April 16 and its Amended Complaint on April
26, 2012. ARH filed its motion for preliminary injunction on May 1, and the matter was set for an
expedited hearing on May 4, in light of Coventry’s stated intention to cancel its agreement with ARH
on that date. The parties were ordered to negotiate in the interim. The parties agreed on May 4
to extend the contract until June 30 and to negotiate further. The Cabinet agreed that termination
of the Coventry-ARH agreement would be a “for cause” basis for members to transfer to another
managed care organization. DE 28. On May 18, the Cabinet filed its Answer to the Amended
Complaint and asserted its sovereign immunity and governmental immunity defenses. DE 34. On
June 11, 2012, the Cabinet moved for summary judgment based on immunity. DE 57. It asserted
its sovereign immunity at an evidentiary hearing on June 12. DE 60 at 175:20 – 177:5.
The Cabinet did not gain any unfair tactical advantage by briefly defending itself on an
emergency basis. Rather, the Cabinet’s arguments merely explained its understanding of the
current agreement. The injunctive relief was primarily aimed at Coventry, not the Cabinet. The
assertion of sovereign immunity had no impact on the injunctive relief granted. It is the Opinion of
this Court that the brief involuntary defense by the Cabinet and its prompt assertion of immunity
does not rise to the level of a “litigation waiver.”
The Ex parte Young Exception
In Moiser v. Kentucky, 675 F. Supp.2d 693 (E. D. Ky. 2009), this Court said: “Suits against
state officials for prospective injunctive relief are not barred by the Eleventh Amendment.” Id. at
699. In Telespectrum v. Public Service Commission of Kentucky, 227 F.3d 414 (6th Cir. 2000), the
Sixth Circuit held that the Eleventh Amendment did not bar a suit for mandamus, declaratory or
injunctive relief demanding state officials comply with federal law:
Under the doctrine of Ex parte Young, 209 U.S. 123, 159-60 (1908), suits against
state officials seeking equitable relief for ongoing violations of federal law are not
barred by the Eleventh Amendment. See Michigan Bell Tel. Co. v. Climax Tel. Co.,
202 F.3d 862 (6th Cir. 2000). The Supreme Court has underscored the importance
of the Ex parte Young doctrine, stating it is an “essential part” of Eleventh
Amendment jurisprudence, and must be upheld “if the Constitution [i]s to remain the
supreme law of the land.” Alden v. Maine, 527 U.S. 706, 747, 119 S.Ct. 2240,
2263, 144 L.Ed.2d 636 (1999). “An allegation of an on-going violation of federal law
where the requested relief is prospective is ordinarily sufficient to invoke the Young
fiction.” Idaho v. Coeur d’Alene Tribe of Idaho, 521 U.S. 261, 281, 117 S. Ct. 2028,
138 L.Ed. 2d 438 (1997)
Id. at 419.
More recently in Westside Mothers v. Haveman, 289 F.3d 852 (6th Cir. 2002), the court
Of course, Ex parte Young is a “fiction” to the extent it sharply distinguishes
between a state and an officer acting on behalf of the state, but it is a necessary
fiction, required to maintain the balance of power between state and federal
governments. “The availability of prospective relief of the sort awarded in Ex parte
Young gives life to the Supremacy Clause.” Coeur d’Alene, 521 U.S. at 293. When
a court addresses a claim made under Ex parte Young it should simply ask
“whether a complainant alleges an ongoing violation of federal law and seeks relief
properly characterized as prospective.” Id. at 296. On its surface this case fits
squarely within Ex parte Young. Plaintiffs allege an ongoing violation of federal law,
the Medicaid Act, and seek prospective equitable relief, an injunction ordering the
named state officials henceforth to comply with the law.
Id. at 861.
The Sixth Circuit explained the difference between retrospective and prospective relief as
follows: “prospective relief merely compels the state officers’ compliance with federal law in the
future.” Doe v. Wigginton, 21 F.3d 733, 737 (6th Cir. 1994). Judge Heyburn noted in Kentucky
Revenue Council v. United States Environmental Protection Agency, 304 F. Supp. 2d 920 (W.D.
Ky. 2004), that “[o]ne recognized exception to the Eleventh Amendment’s sovereign immunity is
that federal courts may enjoin an individual state officer from violating federal law and may grant
a plaintiff prospective relief to stop an ongoing violation of federal law.” Id. at 928-29. “The
purpose of the Ex parte Young exception to sovereign immunity is to permit federal courts to
enforce federal rights and hold state officials responsible to the supreme authority of the United
States, where appropriate.” Id. at 929.
The Cabinet string cites a number of cases that it claims recognize the Cabinet’s blanket
immunity. DE 57-1 at 10, n. 10. However, most of those cases merely recognize the Cabinet’s
immunity from “monetary” damages. For example, SEFA v. Kentucky and Cabinet for Health and
Family Services, No. 5:12-32-JMH, 2012 WL 1158793 (April 5, 2012), holds that “the Cabinet is
immune from monetary claims ... based on the Eleventh Amendment....” Id. at *2. The plaintiff’s
injunctive relief claims were considered but dismissed on other grounds. See also Wesley v.
Campbell, No. 10-51-DLB, 2010 WL 3120204 at *4 (August 5, 2010) (“The Eleventh Amendment
therefore bars § 1983 actions against a state, its agencies, and its officials sued in their official
capacities for damages.”) (emphasis in original); Crawford v. Child Protective Services, No. 3:07cv-21-H, 2007 WL 2772740 at *1 (Sept. 20, 2007) (plaintiff requested “counseling money, pain and
suffering money, and punitive damages); Barrett v. Benchmark Family Services, No. 6:07-406DCR, 2008 WL 2050996 at *2 (May 12, 2008) (case dismissed because plaintiffs were “only
seeking monetary damages”); Beall v. Oakwood Community Center, No. 2007-CA-268, 2008 WL
399628 at *1 (Feb. 15, 2008) (wrongful death claim seeking damages). These cases do not take
anything away from ARH’s position that prospective injunctive relief may be granted.
Mandamus and Speculation
The Cabinet also asserts that compliance with state law cannot be compelled by
mandamus, ARH’s federal claims are highly speculative, and ARH lacks standing to enforce any
federal right. DE 109 at 4-8. The Cabinet’s standing argument is addressed separately below.
With respect to payments to ARH for non-emergency, out-of-network services, the Cabinet argues
that the claims “are entirely speculative and not ripe for adjudication.” This Court disagrees and
decided several months ago that “Coventry will pay ARH the ‘reasonable value’ of non-emergency
services provided by ARH to Coventry members, which rate will be determined at a later court
proceeding unless an agreement is reached earlier by the parties.” DE 130 at 8.
In response to the Cabinet’s argument that compliance with state law cannot be compelled,
ARH relies on Hamblen v. Kentucky Cabinet for Health and Family Services, 322 S.W.3d 511 (Ky.
Ct. App. 2010). Hamblen says: “From time immemorial, a writ of mandamus has been available
to compel a public officer to perform a ministerial duty, and, in this Commonwealth, the writ has
been widely utilized for over 150 years in such fashion.” Id. at 517. The court continued:
Some may argue that sovereign/governmental immunity or qualified official
immunity operates as a bar to mandamus relief. This argument simply represents
a fundamental misunderstanding of the writ of mandamus.
Id. at 518. “[T]he very essence of the writ of mandamus eludes the defense of immunity.” Id. The
court held that the plaintiff had “raised the necessary allegations for mandamus relief.” Id.
The difficulty with ARH’s argument is that in Hamblen, a state court granted mandamus
relief for state law claims. Here, ARH is asking a federal court in some instances to compel state
officials to enforce state law. In Pennhurst State School and Hospital v. Halderman, 465 U.S. 89
(1984), the court said:
A federal court’s grant of relief against state officials on the basis of state law,
whether prospective or retroactive, does not vindicate the supreme authority of
federal law. On the contrary, it is difficult to think of a greater intrusion on state
sovereignty than when a federal court instructs state officials on how to conform
their conduct to state law. Such a result conflicts directly with the principles of
federalism that underlie the Eleventh Amendment.
Id. at 106. Accordingly, Ex parte Young is “inapplicable in a suit against state officials on the basis
of state law.” Id. See also Ernst v. Rising, 427 F.3d 351, 369 (6th Cir. 2005) (“As requests for
relief tied to state-law claims, we need not consider whether they are monetary or injunctive in
nature, because they may not form the basis for an exception to state sovereign immunity in the
federal courts in either event.”). Accordingly, any of ARH’s claims against the Cabinet that are
based solely on state law are not eligible for mandamus relief. To the extent the claims against the
Cabinet are based on federal law, however, mandamus relief is available in this Court.
The Cabinet argues that ARH lacks standing to bring the action. Accordingly, the Cabinet
contends that this Court lacks jurisdiction. DE 57-1 at 18-21. The parties agree on the applicable
standard, but disagree on its application here.
The three elements of Article III standing are:
First, the plaintiff must have suffered an injury in fact – an invasion of a legally
protected interest which is (a) concrete and particularized ... and (b) actual or
imminent, not conjectural or hypothetical. Second, there must be a causal
connection between the injury and the conduct complained of – the injury has to be
fairly ... traceable to the challenged action of the defendant, and not ... the result of
the independent action of some third party not before the court. Third, it must be
likely, as opposed to merely speculative that the injury will be redressed by a
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal citations and quotations
This Court previously recognized the harm to ARH’s financial interests if it must accept
payment of only 90 percent of the Medicaid rates for out-of-network services, as required by the
Cabinet in its contract with Coventry. DE 67 at 20-21. ARH also faced the permanent loss of a
substantial number of highly skilled employees. Id. at 21. ARH further claims that the Prompt Pay
provisions of federal and state law are being violated with impunity and that ARH’s viability is
threatened as a result.
In Urban Health Care Coalition v. Sebelius, 853 F. Supp.2d 101 (D.D.C. 2012), the court
found injury in fact to a group of hospitals when their rate of reimbursement was reduced by a
federal statute to less than they would otherwise be entitled. Id. at 105. There, the action
ultimately failed the redressability prong, but injury was clear. Similarly, a group of organizations
owning or operating hospitals had standing to challenge the regulations and actions of the
Secretary of Health and Human Services regarding alleged underpayment of “outlier” payments.
Banner Health v. Sebelius, 797 F. Supp.2d 97, 108 (D.D.C. 2011).
The causation element is also satisfied in the present case. The injury to ARH and others
is directly caused by the Cabinet’s contract requiring reduced payments to out-of-network
providers. A related factor is the Cabinet’s failure to require adequate networks of providers, so
that MCOs like Coventry have an incentive to dump providers to reduce costs.1 A related bonus
The July 2013 Special Report of the Kentucky State Auditor noted an overall 8 percent
decline in all provider types, and a 57 percent decline in general hospitals participating since the
implementation of Medicaid managed care program. A related concern was “how contractual
requirements [for network adequacy] in certain rural areas are met given the challenging
geography in many parts of the state.” “A major issue which surfaced during Kentucky’s switch
to a managed care environment for the Medicaid program was the adequacy of each MCO’s
provider network. ... An inadequate network would make it difficult for Medicaid members to
receive proper treatment and healthcare.” (Continued on next page.)
to the MCOs is their ability to discourage the sickest patients from using services by limiting
providers and, thereby, limiting the patients’ accessability to healthcare.
The Cabinet was clearly told in the past that it could not solve its budgetary woes on the
backs of Kentucky’s Medicaid recipients.
Focusing solely on budgetary concerns simply does not rise to the level of a
reasonable standard for determining eligibility for long-term care services and is
inconsistent with Medicaid objectives. If the Court accepts Plaintiff’s allegations as
true, Kentucky has inappropriately chosen to use cost-savings as the sole
touchstone in its determination, focusing on how much money it wants to save rather
than upon the medical needs of Medicaid recipients or the Medicaid statutory
Kerr v. Holsinger, No. 03-68-H, 2004 WL 882203 at *5 (E. D. Ky. 2004).
At least part of the financial harm to ARH resulting from Coventry’s attempted abrupt
cancellation of its Letter of Agreement has already been redressed by this Court through injunctive
relief. Additionally, the Court has held that Coventry must pay ARH the reasonable value of its nonemergency services provided to Coventry members. DE 130. A decision in favor of ARH that the
Cabinet can no longer require such reduced rates would further redress ARH’s injury and provide
protection with respect to any other MCO that may be obligated to pay for non-emergency services.
A decision by this Court that the Cabinet must enforce the Prompt Pay provisions would redress the
payment delays that ARH currently suffers. Accordingly, ARH meets all standing requirements.
Federal Enforceable Rights
The Cabinet argues that there is no private cause of action under the Medicaid statutes
relied upon in ARH’s complaint. DE 109 at 8-14. The test for whether a federal statute creates
rights that are privately enforceable against state officers was first described in Blessing v.
Freestone, 520 U.S. 329 (1997) as follows:
First, Congress must have intended that the provision in question benefit the plaintiff.
Second, the plaintiff must demonstrate that the right assertedly protected by the
(“Auditor’s Report”) at Page iii.
statute is not so “vague and amorphous” that its enforcement would strain judicial
competence. Third, the statute must unambiguously impose a binding obligation on
the States. In other words, the provision giving rise to the asserted right must be
couched in mandatory rather than precatory terms.
Id. at 340-41. In Gonzaga University v. Doe, 536 U.S. 273 (2002), the court clarified that “it is rights,
not the broader or vaguer ‘benefits’ or ‘interests,’ that may be enforced....” Id. at 283.
A number of courts have found the existence of private rights of action for Medicaid
recipients, including the Eastern District of Kentucky. In Kerr v. Holsinger, No. 03-68-H, 2004 WL
882203 (E.D. Ky. March 25, 2004), the court held that Medicaid recipients residing in nursing
facilities had a private right of action against the state for alleged violations of 42 U.S.C.
1396a(a)(17), which required a state plan for medical assistance to “include reasonable standards
... for determining eligibility for and the extent of medical assistance under the plan ... which are
consistent with the objectives of [the Act].” Id. at *5. In Kerr, the court found the eligibility standards
were manipulated “to make up for budget deficits,” rather than being consistent with the objectives
of the Act. Id. at *8-9.
Similarly, in Michelle P. v. Holsinger, 356 F. Supp.2d 763 (E. D. Ky. 2005), the plaintiffs, who
were adults with mental retardation, were eligible for, but were being denied, Intermediate Care
Facilities for the Mentally Retarded (“ICF/MR”). The relevant statutes provided in part: “A State plan
for medical assistance must ... provide ... for making medical assistance available ... to all [eligible]
individuals.” 42 U.S.C. § 1396a(a)((10)(A). “The term ‘medical assistance’ means payment of part
or all of the cost of the following care and services ... for individuals ... who are eligible [for]: ...
services in an intermediate care facility for the mentally retarded....” 42 U.S.C. § 1396d(a)(15). A
state “must provide ... assistance ... with reasonable promptness to all eligible individuals.” 42
U.S.C. § 1396a(a)(8). The court found that the statutes “unambiguously confer[red] individual
federal rights enforceable under § 1983.” Id. at 767. The same conclusion was reached in Sabree
ex rel. Sabree v. Richman, 367 F.3d 180, 189-90 (3d Cir. 2004).
Although the specific statute at issue (the Boren Amendment) was later repealed, the logic
of Wilder v. Virginia Hosp. Ass’n, 496 U.S. 498 (1990), remains applicable to other Medicaid statutes
that have not been repealed. The Amendment said a State plan for medical assistance must
“provide ... for payment ... of the hospital services ... through the use of rates (determined in
accordance with methods and standards developed by the State ...) which the State finds, and
makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs
which must be incurred by efficiently and economically operated facilities....” Id. at 502-3. Virginia
hospitals claimed the rates they were being paid were not reasonable and adequate and sought
injunctive relief. The district court rejected an argument that there was no cause of action to
challenge the state’s compliance with the Medicaid Act. In affirming, the Supreme Court said:
We must therefore determine whether the Boren Amendment creates a “federal
right” that is enforceable under § 1983. Such an inquiry turns on whether “the
provision in question was intend[ed] to benefit the putative plaintiff.” Ibid. (citations
and internal quotations omitted). If so, the provision creates an enforceable right
unless it reflects merely a “congressional preference” for a certain kind of conduct
rather than a binding obligation on the governmental unit, Pennhurst State School
and Hospital v. Halderman, 451 U.S. 1, 19, 101 S.Ct. 1531, 1541, 67 L.Ed.2d 694
(1981), or unless the interest the plaintiff asserts is “ ‘too vague and amorphous' ”
such that it is “ ‘beyond the competence of the judiciary to enforce.’ ” Golden State,
supra, 493 U.S., at 106, 110 S.Ct., at 448 (quoting Wright, supra, 479 U.S., at 431432, 107 S.Ct., at 774). Under this test, we conclude that the Act creates a right
enforceable by health care providers under § 1983 to the adoption of reimbursement
rates that are reasonable and adequate to meet the costs of an efficiently and
economically operated facility that provides care to Medicaid patients. The right is not
merely a procedural one that rates be accompanied by findings and assurances
(however perfunctory) of reasonableness and adequacy; rather the Act provides a
substantive right to reasonable and adequate rates as well.
There can be little doubt that health care providers are the intended beneficiaries of
the Boren Amendment. The Provision establishes a system for reimbursement of
providers and is phrased in terms benefiting health care providers....
Id. at 509-10.
In the present case, ARH makes claims against Coventry and the Cabinet under the Prompt
Pay provisions of federal and state law and seeks declaratory and injunctive relief. Under 42
U.S.C. § 1396a(a)(37), a state plan for medical assistance must:
provide for claims payment procedures which (A) ensure that 90 per centum of
claims for payment (for which no further written information or substantiation is
required in order to make payment) made for services covered under the plan and
furnished by health care practitioners through individual or group practices or through
shared health facilities are paid within 30 days of the date of receipt of such claims
and that 99 per centum of such claims are paid within 90 days of the date of the
receipt of such claims....
Id. Additionally, section 1396u-2(f) states in part:
A contract ... with a medicaid managed care organization shall provide that the
organization shall make payment to health care providers for items and services
which are subject to the contract and that are furnished to individuals eligible for
medical assistance under the State plan ... on a timely basis consistent with the
claims payment procedures described in section 1396a(a)(37)(A) of this title....
42 U.S.C. § 1396u-2(f).
Similar Prompt Pay claims were raised in National Medical Care, Inc. v. Rullan, No. 041812(HL), 2005 WL 2878094 (D. Puerto Rico Nov. 1, 2005). That court noted the decision in Rio
Grande Community Health Center, Inc. v. Rullan, 397 F.3d 56, 75 (1st. Cir. 2005), that a federallyqualified health center had a private right of action under § 1983 to enforce Medicaid’s Section
1396a(bb)(5) on wraparound payments to “health care practitioners and/or facilities.” The district
court held that §§ 1396a(a)(37) and 1396u-2(f) similarly identified “a discrete class of beneficiaries”
– health care practitioners and health care providers. Id. at 8. It further held that the requirement
for claims payment procedures “ensuring that a specific percentage of the services are paid within
a specified period of time, constitutes rights-creating language, because that provision is neither
vague nor amorphous in imposing a binding obligation on the State.” Id. Accordingly, the dialysis
clinic plaintiffs in Rio Grande had a private right of action against the state and federal health
secretaries to require compliance with federal law regarding payments to the providers. See also
Consejo de Salud de la Comunidad de la Playa de Ponce, Inc. v. Gonzalez-Feliciano, 695 F.3d 83
(1st Cir. 2012) (enforcing wrap around payment provisions for several federally-qualified health
centers); Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204, 212 (4th Cir. 2007) (holding that rural
health clinics have a private right of action to enforce payment provisions of § 1396a(bb)).
Likewise in the present case, §§ 1396a(a)(37) and 1396u-2(f) impose specific requirements
regarding payment of health care providers. First, the beneficiaries of these statutory provisions are
expressly named as “health care practitioners” and “health care providers.” Medicaid recipients are
not obligated to pay providers for their care, except a possible co-pay or deductible. Prompt
payment requirements certainly do not benefit the MCO, which would prefer to keep its money
instead of paying it to a provider. Each provider of services would benefit so long as the claim does
not require further written information or substantiation. As in Wilder, the focus is on individual
claims and providers, rather than an institutional policy or practice, such as the broad Blessing
requirement of “substantial compliance ... throughout all programmatic operations.” Blessing, 520
U.S. at 341. The importance of this issue to providers was stressed in the July 2013 Special Report
by Kentucky’s Auditor of Public Accounts.
One of the most significant and troubling concerns centered on whether Kentucky’s
rural hospitals could continue to afford to “float” Medicaid related costs. Hospital
representatives indicated that rural hospitals are not equipped for the sudden
financial stress put upon them by the managed care program. The matters brought
to our attention include increasing accounts receivable impacting the hospitals’ cash
flow, increased administrative burden for hospitals in trying to file claims to MCOs,
below cost reimbursements related to emergency department triage fee policies, and
reporting difficulties due to a lack of information available from MCOs.
(“Auditor’s Report”) at page ii. As noted above, the report also expressed concern regarding
network adequacy and adequate access to care.
Second, the prompt payment rights protected by the statute are not so vague and
amorphous that enforcement would strain judicial competence. Every provider is entitled to be paid
a specific percentage of claims within a definite period of time. Third, the requirements are
mandatory – “must provide,“ ”shall provide,” and “shall make payment.” Accordingly, all of the
requirements of Blessing and Gonzaga are met in the present case, and health care providers have
a cause of action to pursue their federal claims.
This Court respectfully disagrees with the decision in Medevac Midatlantic, LLC v. Keystone
Mercy Health Plan, 817 F. Supp.2d 515 (E. D. Pa. 2011), in which the court distinguished Wilder
because the statute tied “reimbursement rates to providers’ costs, creating an unmistakable focus
on providers’ needs.” Id. at 523. The statute in Wilder said a plan must provide for payment of
hospital services through rates found to be reasonable and adequate to meet costs. Section 1396u2(f) requires an MCO to “make payment to health care providers ... on a timely basis.” There is no
other conceivable intended beneficiary of § 1396u-2f than “health care providers” and the focus is
on their need for prompt payment. The court even recognized “the facially provider-focused
language of Sections 1396n(b)(4) and 1396u-2(f)” and that it “appears to be similar to that found
to create an enforceable individual right in Wilder and Sebree.” Id. at 523-24. Nonetheless, it held
that the statutory requirement in § 1396a(a)(37)(A) “does not require that all providers be paid within
these time frames” and that “no individual provider is entitled to timely payment.” Id. at 524-5. In
other words, the statute does not mean what it so plainly says. The Medevac court also ignored the
language in § 1396u-2(f) that an MCO can only be exempted from the prompt pay provisions if “the
health care provider and the [MCO] agree to an alternate payment schedule.” The exemption is
provider specific, further demonstrating that the general rule is intended to benefit individual
Miscellaneous Other Arguments
The Cabinet cites Prince George’s Hospital Center v. Advantage Health Plan, Inc., 865 F.
Supp.2d 47 (D.D.C 2012) for the proposition that the court “rejected the idea that the hospital was
a third-party beneficiary to the MCO contract....” DE 57-1 at 23. To the contrary, that case holds:
“As a result of Advantage’s promise to the District of Columbia under the MCO contracts, Advantage
has a duty to make certain payments to providers, as third-party beneficiaries, which may be
enforced by the providers against Advantage as the alleged breaching promisor.“ Id. at 58.
The Cabinet argues ARH’s unconstitutional taking claims are not yet ripe. Citing DLX, Inc.
v. Kentucky, 381 F.3d 511, 518 (6th Cir. 2004), the Cabinet says: “[f]ederal court takings claims are
not ripe until the government seizes property and the former owner seeks and is denied just
compensation through available remedies.” DLX holds, however, that it is only necessary “that the
decisionmaking body has come to a ‘final’ decision, allowing the federal courts to assess how much
use of the property is allowed.” Id. at 518. The Cabinet reached a final decision on payment of outof-network providers when it included a 90 percent rate in its contract with Coventry. There is no
procedure to seek compensation for the remaining 10 percent. The claim is ripe.
The Cabinet also relies on the doctrine of exhaustion of administrative remedies as a reason
to dismiss ARH’s claims. This case is not a standard administrative appeal, nor a standard breach
of contract action. There are no administrative remedies to exhaust. ARH also notes that
exhaustion is not required in a § 1983 action. DE 80 at 37. DLX, 381 F.3d at 519 (“exhaustion is
never required in § 1983 suits”).
IT IS ORDERED that the Cabinet’s motion for summary judgment [DE 57] is GRANTED to
the extent that ARH seeks mandamus against the Cabinet based only on state law and is otherwise
This September 11, 2013.
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