Christ the King Manor, Inc. et al v. Burwell et al
Filing
40
MEMORANDUM (Order to follow as separate docket entry) (eo)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
CHRIST THE KING MANOR, INC., :
et al.,
:
:
Plaintiffs,
:
:
v.
:
:
SYLVIA M. BURWELL, et al.,
:
:
Defendants.
:
1:14-cv-1809
Hon. John E. Jones III
MEMORANDUM
February 18, 2016
Presently pending before the Court are cross motions for summary judgment
filed by the parties in the above-captioned matter. (Docs. 29, 31). For the reasons
that follow, the Court shall grant Defendants’ motion for summary judgment and
deny Plaintiffs’ motion for summary judgment.
I.
PROCEDURAL HISTORY
Plaintiffs bring this action pursuant to the Administrative
Procedure Act, (“APA”), 5 U.S.C. § 702, to set aside action taken by Defendants
and to preclude Defendants from further action to retroactively approve
Pennsylvania’s State Plan Amendment 08-007, (hereafter “SPA 08-007” or “the
SPA”), an amendment to Pennsylvania’s state plan for administering its Medicaid
1
program for the 2008-2009 fiscal year. (Doc. 17). Plaintiffs have previously
challenged Defendants’ initial approval of SPA 08-007 in this Court, ultimately
culminating in review by the Third Circuit in Christ the King Manor, Inc. v. Sec’y
U.S. Dep’t of Health and Human Servs., 730 F.3d 291 (3d Cir. 2013), (hereafter
“Christ the King I”), to be elaborated upon below.
Plaintiffs, a subset of the plaintiffs in Christ the King I, filed the instant
action on September 16, 2014, seeking declaratory and injunctive relief. (Doc. 1).
An amended complaint was filed on December 16, 2014, after the Secretary issued
her reapproval of the SPA based on the supplemented record. (Doc. 17).
Defendants filed an answer to the amended complaint on January 23, 2015.
(Doc. 18). On February 6, 2015, Defendants filed the administrative record in the
instant matter. (Doc. 19, Ex. 1).
The parties filed cross motions for summary judgment on April 15, 2015.
(Docs. 29, 31). Both motions have been fully briefed, (Docs. 30, 32, 34, 36, 37,
38), and are ripe for our review.
II.
BACKGROUND
There are no disputed issues of material fact. The parties have agreed that
this is an APA case which may be resolved upon the Court’s review of the
administrative record. (Docs. 26, 27). Given that the parties are very familiar with
the underlying factual background of this litigation, our summary of the facts will
2
be concise and will principally focus on the facts relevant to the resolution of the
pending motions. As part of our discussion of the facts, we will also review the
federal statutes relevant to our decision.
A.
Factual and Statutory Background
Plaintiffs are nonpublic nursing facility providers participating in
Pennsylvania’s Medicaid Program. (Doc. 17, ¶¶ 3-4). Defendant Sylvia Mathews
Burwell is the Secretary of the U.S. Department of Health and Human Services,
(hereafter “the Secretary” or “HHS”); in that capacity, pursuant to the Medicaid
Act, she is charged with the review and approval of Pennsylvania’s State Plan for
Medical Assistance. (Id., ¶ 5). The Secretary also supervises Pennsylvania’s
compliance with its State Plan, including delegation of such authority to the
Centers for Medicare and Medicaid Services (hereafter “CMS”). (Id.). Defendant
Marilyn Tavenner is the Administrator of CMS. (Id., ¶ 6). Defendant Francis
McCullough is the Associate Regional Director for Region III/Division of
Medicaid and Children’s Health Operations of CMS. (Id., ¶ 7).
Medicaid, created under Title XIX of the Social Security Act, 42 U.S.C. §§
1396 et seq. (“Medicaid Act”), is a “cooperative federal-state program that
provides medical care to needy individuals.” Douglas v. Indep. Living Ctr. of S.
Cal., -- U.S. --, 132 S.Ct. 1204, 1208 (2012). As a requirement of the program,
Pennsylvania must submit a State Plan for Medical Assistance (the “State Plan”) to
3
CMS for approval. “In order to qualify for federal funding . . . a state plan must
comply with the requirements of the Medicaid Act.” Christ the King I, 730 F.3d at
297 (citing 42 U.S.C. § 1396a).
One of the principle requirements of the Medicaid Act for a state plan is
known as the “equal access provision” of Section 30(A). 42 U.S.C. §
1396a(a)(30)(A); see Christ the King I, 730 F.3d at 297 (explaining that Section
30(A) is generally known as the equal access provision). Section 30(A) requires
that a state plan provide “methods and procedures . . . to assure that payments are
consistent with efficiency, economy, and quality of care” and are sufficient to
ensure that Medicaid beneficiaries have adequate access to providers.
Pennsylvania has designated its Department of Human Services1, (“DHS”),
as the state agency to create and administer its State Plan. See 42 U.S.C. §
1396a(a)(5). As discussed extensively in the prior litigation, Pennsylvania pays
participating nursing facilities for Medicaid-related services through the use of
what it refers to as the “case-mix rate.” DHS “calculates the ‘case-mix rate’ using
a complex formula that produces an individualized per diem reimbursement rate
for each facility” based on various factors. Christ the King I, 730 F.3d at 298
(citing 55 Pa.Code § 1187.96). This case mix rate is effective for one fiscal year,
from July 1through the following June 30.
1
This agency was formerly known as the Department of Public Welfare.
4
In an effort to keep rising costs down, Pennsylvania introduced a new
variable to calculating reimbursement rates, called the budget adjustment factor,
(“BAF”). In this context, a BAF is a “fraction by which each provider’s case-mix
payment rate is multiplied, thereby reducing the reimbursement rate by a certain
percentage.” Christ the King I, 730 F.3d at 298. Originally designed to be a
temporary solution to managing rising costs, Pennsylvania ended up using a BAF
every year since the 2005-2006 fiscal year. Id. at 299.
The instant litigation concerns the BAF that was designated as SPA 08-007,
which applied to provider reimbursement rates for the state’s 2008-2009 fiscal
year.2 Specifically, this BAF was 0.90891. In effect, this BAF reduced each
nursing facility’s proposed per diem rate by 9.109%. Id. at 301. However, even
after application of this BAF, provider payments would still be one percent higher
on average in fiscal year 2008-09 than they had been in the previous fiscal year,
“due to the continuing increase in per diem rates under the case-mix
methodology.” Id.
B.
Prior Court Proceedings Concerning SPA 08-007
As aforementioned, Plaintiffs previously challenged the Secretary’s approval
of SPA 08-007 in this Court, claiming that the SPA violated the Medicaid Act.
Plaintiffs argued that the SPA adjusted Pennsylvania’s method for determining
2
Again, for greater detail on the BAF and its approval process, please refer to Christ the King I.
5
Medicaid reimbursement rates to private nursing facility providers without
considering quality of care, in violation of 42 U.S.C. § 1396a(a)(30)(A), (“Section
30(A)”). This challenge ultimately culminated in review by the Third Circuit in
Christ the King I. The Third Circuit affirmed in part and reversed in part this
Court’s decision. Relevant to the instant matter, the Third Circuit reversed our
grant of summary judgment to the Federal Defendants. Christ the King I, 730 F.3d
at 321. The panel found that the administrative record before the Secretary lacked
sufficient evidence that Pennsylvania had considered the impact of SPA 08-007 on
quality of care or adequate access, which was a required consideration by the
Secretary under Section 30(A); consequently, the panel held that it could not
“discern from the record a reasoned basis for the agency’s decision,” and thus the
Secretary’s approval of SPA 08-007 was arbitrary and capricious under the APA.
Id. at 314.3 The panel further stated that in so holding,
[it does] not imply that the payments Pennsylvania made to providers
during the 2008-09 fiscal year were in fact inconsistent with any of
Section 30(A)’s requirements. It is possible that the state was able to
adjust the per diem rates by nine percent while maintaining quality
care and ensuring adequate access to providers. But it is also possible
that the state’s nine percent adjustment threatened to harm care to
Medicaid recipients in ways that previous, small adjustments had not.
The problem here is that, at least so far as the record shows, HHS did
not actually determine which scenario it confronted, and thus we are
obligated to set its approval decision aside.
3
We will review the Third Circuit’s opinion and mandate in Christ the King I more
comprehensively in the Discussion section of our Memorandum.
6
Id. After this comment, the Third Circuit included a footnote, the substance of
which has ultimately led to this round of litigation pending before the Court. In this
footnote, the circuit court stated:
That does not mean that Plaintiffs will necessarily be entitled to a rate
recalculation, and we in no way suggest that they should have been
paid in accordance with the previously approved state plan, which did
not involve the use of any BAF for the 2008-09 fiscal year. When, as
here, ‘the record before the agency does not support the agency
action,’ the agency may be afforded an opportunity ‘for additional
investigation or explanation,’ upon which the agency could lawfully
base its action.
Id. at n.25 (citing Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985)).
In Christ the King I’s Conclusion, the Third Circuit held that it reversed our
grant of summary judgment to the Federal Defendants and that it would “remand
the case with instructions to enter a declaratory judgment in favor of Plaintiffs on
their claim that HHS’s approval of SPA 08-007 was arbitrary and capricious under
the APA.” 730 F.3d at 321. We also note the text of the Third Circuit’s mandate.4
It simply orders this Court to enter a declaratory judgment for Plaintiffs, “all in
accordance with the opinion of this Court.” (Doc. 32, Ex. 3).
Following the Third Circuit’s decision,5 the parties disputed before this
Court the import of the Third Circuit’s mandate in terms of whether it allowed for
4
The Third Circuit refers to its mandate as a “certified judgment,” but the parties refer to it as a
mandate. For the purpose of consistency, we will refer to it as a mandate, as well.
5
Plaintiffs initially filed a petition for a rehearing before the Third Circuit; however the petition
concerned aspects of the panel’s decision in Christ the King I that do not bear on the present
issue of whether the Third Circuit’s opinion permitted the agency to engage in further
7
the Secretary to conduct further administrative proceedings with regard to SPA 08007. Counsel for both sides filed proposed orders and letters with their own
arguments. The defendants requested that this Court enter a judgment expressly
remanding for further administrative proceedings. See Christ the King I, Docs. 112,
113. Plaintiffs, on the other hand, argued that this Court lacked authority to remand
based on its reading of the Third Circuit’s mandate, and instead asked this Court to
enter an order entering judgment in favor of plaintiffs on their request for
declaratory relief on their claim that HHS’s approval of SPA 08-007 was arbitrary
and capricious under the APA. Id., Doc. 111.
In an earnest, albeit clearly unsuccessful attempt to avoid a further potential
appellate issue, this Court declined to enter either side’s proposed orders, and
instead entered an Order on December 20, 2013 stating only that “[j]udgment is
entered in favor of Plaintiffs on their claim that the Department of Health and
Human Service’s approval of SPA 08-007 was arbitrary and capricious.” Id., Doc.
114. However, our Order included the following footnote:
Following the issuance of the Third Circuit’s mandate, we tasked the
parties to meet and confer and provide us with a joint proposed order
to be issued post-mandate. Unfortunately the parties were unable to
agree, and provided us with letter briefs reflecting their disparate
views on the Third Circuit’s mandate. Thus, we find the most prudent
course to be to adopt the precise language articulated by the Third
investigation and review of SPA 08-007 with regard to compliance with Section 30(A). The
panel denied their petition for a rehearing. (Doc. 32, Exs. 2,3).
8
Circuit in its mandate rather than attempt to parse the parties’ varied
positions and risk committing an error.
Id.
C.
The Secretary’s Review of Supplemented Administrative Record
On May 30, 2014, Defendant McCullough, on behalf of CMS, wrote to
Beverly Mackereth at Pennsylvania’s DHS, notifying her of the past litigation over
SPA 08-007 and requesting that Pennsylvania submit “information or analysis
providing evidence of the effect on quality of care of the rates set out in SPA 08007 on the quality of care for residents in nonpublic nursing facilities.” (Admin.
Rec., p. 475).
Pennsylvania submitted its response on August 6, 2014. (AR, pp. 007-013).
The response provided a detailed outline of how the administrative record would
show that the SPA was consistent with quality of care and adequate access to care,
in addition to the other requirements under Section 30(A).
The data submitted by Pennsylvania included CMS’s own Quality Measure
(QM) scores, showing that, from 2006 to 2010 (which includes the relevant 20082009 BAF time period), Pennsylvania “[saw] substantial improvement in 10 of the
12 QMs commonly reported for each year . . . .” (AR, pp. 011, 218-219). The data
also showed that the number of substantiated complaints against nursing facilities
in Pennsylvania had overall declined from 2008 to 2010: to wit, in 2008, there
were 668 substantiated complaints; in 2009, there were 580; and in 2010, there
9
were 605 substantiated complaints. (AR, p. 220). Additionally, Pennsylvania cited
to American Health Care Association statistics demonstrating that the percentage
of nursing facilities in the state with “Substandard Quality of Care” and
“Immediate Jeopardy” citations was consistently well below the national average
and consistent with neighboring states. (AR, pp. 011, 216-17).
With regard to access to care, Pennsylvania provided data showing that there
had not been a decline in nursing facility participation, and in fact noted that in FY
2008-2009 the “vast majority” (more than 87 percent) of licensed nursing facilities
in the state were enrolled in the state Medicaid (or Medical Assistance) program.
The state also pointed to data showing that the Medical Assistance-certified
nursing facility beds at the enrolled providers accounted for over 95 percent of all
licensed nursing facility beds in the state. (AR, pp. 011-12, 225).
Plaintiffs do not challenge the accuracy of any of this data, or that it would
tend to show that the BAF for FYE June 30, 2009 had no adverse impact on quality
of care or access to care. Their main contention with regard to the merits of the
Secretary’s reapproval of SPA 08-007 is that it was impermissible under the law to
use “post-hoc” data to decide whether to reapprove the SPA; in other words, they
argue that the SPA process is prospective and thus the Secretary’s use of data
accumulated after the implementation of the BAF for that fiscal year to decide
10
whether the SPA met the requirements under Section 30(A) was an impermissible
construction of the statute’s requirements. (Doc. 30, pp. 29-30).
CMS informed Pennsylvania on September 26, 2014 that its submission
“supports Pennsylvania’s assertions that access to care and quality of care were not
adversely affected” by SPA 08-007. (AR, p. 005). On December 12, 2014, CMS
issued another letter to Pennsylvania further explaining its rationale for its
conclusion in the September 26, 2014 letter that the SPA was consistent with
Section 30(A). (AR, pp. 001-003). CMS explained how it had reviewed the data
cited above to ascertain whether the new BAF contained in SPA 08-007 was
consistent with the quality of care and access to care requirements. Among other
findings, it noted that CMS’s “own Quality Measure scores reveal that from 2006
to 2010, Pennsylvania has seen substantial improvement in ten out of twelve
[quality measures] commonly reported each year.” CMS concluded that these
quality indicators for the state’s skilled nursing facilities “remain consistent with
national averages and with periods prior to the rate year in SPA 08-007 and
subsequent to the rate year in SPA 08-007.” (AR, p. 002).
Based on these findings, the Secretary approved SPA 08-007, effective July
1, 2008. (AR, p. 003).
11
III.
STANDARD OF REVIEW
Summary judgment is appropriate if the moving party establishes “that there
is no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” FED. R. CIV. P. 56(a). A dispute is “genuine” only if there is a
sufficient evidentiary basis for a reasonable jury to find for the non-moving party,
and a fact is “material” only if it might affect the outcome of the action under the
governing law. See Sovereign Bank v. BJ’s Wholesale Club, Inc., 533 F.3d 162,
172 (3d Cir. 2008) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). A court should view the facts in the light most favorable to the nonmoving party, drawing all reasonable inferences therefrom, and should not
evaluate credibility or weigh the evidence. See Guidotti v. Legal Helpers Debt
Resolution, L.L.C., 716 F.3d 764, 772 (3d Cir. 2013) (citing Reeves v. Sanderson
Plumbing Prods., Inc., 530 U.S. 133, 150 (2000)).
“Summary judgment is an appropriate procedure for resolving a challenge to
a federal agency's administrative decision when review is based upon the
administrative record.” Virginia, Dept. of Medical Assistance Services v. Johnson,
609 F.Supp.2d 1, 6 (D.D.C. 2009) (internal citations). This type of case may be
resolved on cross-motions for summary judgment. Id.
12
IV.
DISCUSSION
Section 706 of the APA provides the standard for the Court’s review of the
agency action. CBS Corp. v. FCC, 663 F.3d 122, 137 (3d Cir. 2011). It requires a
reviewing court to “hold unlawful and set aside agency action, findings, and
conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with the law.” This is a restricted standard of review. Christ the King
I, 730 F.3d at 305. Under this standard of review, the Court must determine
whether the agency, here, HHS, “examine[d] the relevant data and articulate[d] a
satisfactory explanation for its action,” but the Court must “not . . . substitute [our
own] judgment for that of the agency.” Id. (internal citations omitted). Courts find
an agency action to be arbitrary and capricious where:
the agency has relied on factors which Congress has not intended it to
consider, entirely failed to consider an important aspect of the
problem, offered an explanation for its decision that runs counter to
the evidence before the agency, or is so implausible that it could not
be ascribed to a difference in view or the product of agency expertise.
Motor Vehicle Mfrs. Ass’n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
43 (1983).
In their motion, Plaintiffs advance two main arguments challenging the
Secretary’s reapproval of SPA 08-007. First, they argue that the Secretary’s
reopening and approval proceedings were barred because neither the Third
Circuit’s decision in Christ the King I nor this Court’s final judgment authorized a
13
remand for further agency proceedings with regard to the SPA. Second, as alluded
to earlier in our Memorandum, Plaintiffs argue that the Secretary’s reapproval of
the SPA was based on an impermissible construction of the statute’s requirements,
in that HHS relied on “post-hoc” data to support its determination that the SPA met
the requirements of Section 30(A).
Defendants argue that Plaintiffs are incorrect in their reading of Christ the
King I, and that the Third Circuit expressly discussed and authorized further
agency proceedings. Their position is that the Third Circuit’s opinion not only left
open the possibility of further agency proceedings but in fact required this Court to
enter a judgment providing for a remand for further agency proceedings.
Defendants also assert that general principles of administrative law required a
remand. With regard to the Plaintiffs’ challenge of the Secretary’s reapproval
decision on the merits based on her use of “post-hoc” data, Defendants first posit
that this argument is waived because Plaintiffs’ Amended Complaint does not
challenge the reapproval on the merits. If the Court does not find Plaintiffs’ merits
argument to be waived, Defendants argue that the Secretary reasonably interpreted
Title XIX to not foreclose her consideration of all information, including “posthoc” data, submitted by Pennsylvania in support of SPA 08-007.
14
A.
Whether the Secretary’s Reapproval Proceedings were
Inconsistent with the Third Circuit’s Decision in Christ the King I
or this Court’s Final Judgment
Upon a comprehensive review of the Third Circuit’s opinion and mandate in
Christ the King I, we find that the panel did not foreclose and in fact expected and
authorized further agency proceedings with regard to SPA 08-007, even if the text
of the mandate did not explicitly reference a remand for this purpose.
We begin with the text of the Third Circuit’s mandate. It simply orders this
Court to enter a declaratory judgment for Plaintiffs, “all in accordance with the
opinion of this Court.” (Doc. 32, Ex. 3). Indeed, the mandate does not expressly
address further agency proceedings. However, the mandate’s final clause, “all in
accordance with the opinion of this Court,” cannot be read as superfluous. The
mandate, as our final Order reflects, effectively incorporated by reference the
panel’s opinion in Christ the King I. After all, it stands to reason that the panel
would not have written such a detailed and comprehensive opinion had it not
intended or expected the parties to take its entirety under advisement when moving
forward with this SPA as well as others in the future. See Kilbarr Corp. v. Bus. Sys.
Inc., B.V., 990 F.2d 83, 87-88 (3d Cir. 1993) (“A trial court must implement both
the letter and spirit of the mandate, taking into account the appellate court’s
opinion and the circumstances it embraces.”)
15
The opinion in Christ the King I clearly anticipates further agency
proceedings; at the very least, it does not foreclose them. Concluding its discussion
of Section 30(A) and its holding that the Secretary’s approval of the SPA was
arbitrary and capricious, the panel explicitly stated that they did not seek to imply
that the payments Pennsylvania made to providers under the SPA for the 2008-09
fiscal year were in fact insufficient to maintain quality of care or adequate access
to providers. Christ the King I, 730 F.3d at 314. In other words, with its opinion,
the panel did not pass judgment on the merits of the BAF and whether or not it
could meet the requirements of Section 30(A). The panel only held that based on
the record before HHS, HHS was not able to discern whether the payment rates
under SPA 08-007 were consistent with quality of care and adequate access; thus,
the panel was obligated to set aside the Secretary’s approval. Id.
Immediately following its holding that it was obligated to set aside the
approval, the panel underscored the limitations of its holding in a footnote which
we excerpted above, stating that the holding “[did] not mean that Plaintiffs will
necessarily be entitled to a rate recalculation, and we in no way suggest that they
should have been paid in accordance with the previously approved state plan . . .”
Id. at n.25 (emphasis added). This is quite forceful language, logically included as
a signal to the parties that the analysis of SPA 08-007 had not concluded. The
Third Circuit, in our view, clearly telegraphed to Pennsylvania and the Plaintiffs
16
that the battle over this payment rate was not over, and moreover, that the panel
was not seeking to bless or condemn the payment rate. Indeed, the panel further
reasoned that:
When, as here, “the record before the agency does not support the
agency action,” the agency may be afforded an opportunity “for
additional investigation or explanation,” upon which the agency could
lawfully base its action.
Id. (emphasis added) (quoting Fla. Power & Light Co., 470 U.S. at 744). With this
statement, the panel explicitly licenses further agency proceedings. Indeed, if the
panel did not intend for there to be a remand for further agency proceedings, this
footnote would be but a gratuitous tease to HHS. Appropriately deferential to
agency actions in this context, the panel clearly intended HHS to have a second
bite at the apple in reviewing SPA 08-007, but ordered that it be accomplished with
all appropriate considerations under Section 30(A) in mind.
Moreover, in their appeal plaintiffs in Christ the King I expressly sought to
have the Third Circuit preclude remand, but the panel’s opinion appears to have
considered this request and rejected it. Plaintiffs argued in their appellant brief that
“the Secretary’s approval cannot be cured on remand,” and that the court should
“preclude all Defendants from any further application of SPA 07-007 [sic] to
determine Plaintiffs payment rates” and “declare that the only approved State Plan
applicable to the [2008-09] fiscal period is the one in place prior to July 1, 2008,
which did not provide for the application of a BAF after June 30, 2008.” (Christ
17
the King I, Appellants’ Br. at 39, 65). In response to this argument against remand,
the defendants argued that “. . . if the Secretary’s determinations were in some
respect inadequate, the proper remedy under the APA would be to remand this case
to CMS for further proceedings.” (Id., Br. for Federal Defendants-Appellees at 33
n.14) (citing Fla. Power & Light, 470 U.S. at 744).
With footnote 25 in Christ the King I, then, the panel appears to have
addressed this argument regarding the appropriateness of remand, and found in
favor of the Defendants, even going so far as to cite to exactly the same case as
Defendants for the proposition—Fla. Power & Light, 470 U.S. at 744.
The panel elsewhere in its opinion confirmed it intended its mandate to
include a remand for further agency review. In explaining why the case was not
moot, considering the litigation concerned a reimbursement rate period from years
earlier, the panel noted: “This appeal provides an opportunity for them to obtain
some measure of relief, since, if the agency's action was arbitrary or capricious
under the APA, we must set that action aside and require the agency to conform its
action to federal law.” Christ the King I, 730 F.3d at 304 n.18. To support this
statement, the panel then quoted from Fla. Power & Light, 470 U.S. at 744: “[i]f
the record before the agency does not support the agency action, . . . the proper
course, except in rare circumstances, is to remand to the agency for additional
18
investigation or explanation.” Id. Had this case presented “rare circumstances,” we
safely assume the panel would have said as much.
While admittedly an explicit order of remand in the panel’s mandate would
have been preferable for the parties and this Court, there is only one reasonable
interpretation of the panel’s opinion: that it intended its opinion to authorize further
agency review of the SPA. For us to find that the panel did not authorize a remand
would be at best excessively formalist and at worst expose us to committing a
reversible error.
This Court’s final Order did not foreclose further agency proceedings, either.
Given that we asked the parties to provide us with a joint proposed order to be
issued post-mandate, and that the parties continued to dispute what the language of
that proposed order should be and failed to come to an agreement, we decided to
“adopt the precise language articulated by the Third Circuit in its mandate rather
than attempt to parse the parties’ varied positions and risk committing an error.”
Christ the King I, Doc. 114. And as aforestated, the Third Circuit’s mandate
expressly stated that it was remanding the case to us “for entry of declaratory
judgment for Plaintiffs, all in accordance with the opinion of this Court.” (Doc. 32,
Ex. 3) (emphasis added). To put it perhaps inartfully but accurately, our final order
incorporated by reference the Third Circuit’s mandate, which itself incorporated its
19
opinion in Christ the King I. In other words, as Defendants argue, this Court’s final
Order is best understood as an implicit remand.6 7
We candidly admit that our final Order entering judgment in favor of
Plaintiffs intentionally avoided further clarifying the remand issue, thus bringing us
to this point. We had hoped, perhaps applying false judicial optimism, that the
parties would come to an agreement on a path forward, given the important public
interest at stake in the provision of quality health care services. Nonetheless, we
today find that the clear import of the Third Circuit’s decision, even if its mandate
was not explicit on this issue, was to allow the Secretary to engage in additional
6
Given that we have clarified that both the Third Circuit’s mandate and our final Order allowed
for further agency review proceedings of the SPA, Plaintiffs’ discussion of estoppel and
preclusion in their brief opposing the Defendants’ motion is now irrelevant, as the argument
turns on an assumption that there was no remand and thus Defendants’ reapproval proceedings
were “barred.” Relatedly, we find Plaintiffs’ argument based on New York v. Shalala,119 F.3d
175 (2d Cir. 1997), to be difficult to follow, but to the extent Plaintiffs cite New York for their
position that preclusion and estoppel are relevant to our disposition in the matter sub judice,
(Doc. 34, p. 17), we find the discussion of that case similarly irrelevant.
7
Additionally, since we have interpreted both the appellate decision and our final Order to allow
for a remand, we need not wade too deeply into Plaintiffs’ argument that 42 U.S.C. § 1316(a)(4)
does not provide Defendant with authority to reopen administrative proceedings. (Doc. 30, p.
27). Plaintiffs’ argument appears to hinge on the false assumption that Christ the King I did not
authorize further agency proceedings.
To the extent that Plaintiffs’ unclear argument stands for the proposition that Defendants
have no authority to revive proceedings unless § 1316(a)(4) authorizes it, Plaintiffs have already
conceded that courts have inherent authority to order a remand in APA cases. (Doc. 30, pp. 23,
28) (citing United States v. Jones, 336 U.S. 641, 672 (1949)). Further, § 1316(a) is simply not
directly applicable to the instant matter, in that by its terms it applies only to the situation where
a state is dissatisfied with the Secretary’s final determination regarding a state plan and seeks
court review; this statute authorizes direct appellate review of such a determination. Plaintiffs
cite to no authority for the broad proposition that agencies cannot conduct further investigations
pursuant to a court remand unless done so pursuant to § 1316(a). Lastly, the panel itself in Christ
the King I cited to § 1316 as support for its decision to allow a remand for the Secretary the
opportunity for “additional investigation or explanation.” 730 F.3d at 314 n.25 (internal citation
omitted).
20
investigation and review of SPA 08-007, consistent with its guidance on what was
required under Section 30(A). This holding is also in line with fundamental
principles of administrative law. See Fla. Power & Light, 470 U.S. at 743-44 (“If
the record before the agency does not support the agency action, if the agency has
not considered all relevant factors . . . the proper course, except in rare
circumstances, it to remand to the agency for additional investigation or
explanation.”)
We note that both parties extensively argue that New York v. Shalala
supports its own position in the instant matter. However, we do not find the case
particularly persuasive one way or the other in aid of our disposition. In New York,
the Second Circuit considered whether its earlier decision in Pinnacle Nursing
Home v. Axelrod, 928 F.2d 1306 (2d Cir. 1991), in which the court declared a state
plan amendment which the Secretary had approved to be “null and void,”
permitted the state to seek reapproval of the amendment. The court held in New
York that the Pinnacle opinion and decision did allow the state to attempt to gain
reapproval of the state plan amendment by submitting supplemental findings and
assurances. New York, 119 F.3d at 180.
Counter to what Defendants argue, the Second Circuit’s prior judgment in
Pinnacle much more explicitly ordered further agency review. We also do not find,
as Plaintiffs urge, (Doc. 17, ¶ 52), that the Secretary in the instant matter is bound
21
by her previous position in New York that she could not engage in reapproval
proceedings once a court found a state plan amendment to be “null and void.” It is
clear that the Secretary’s position was based on the specific language of the
opinion and mandate in Pinnacle, rather than a broader pronouncement of an HHS
position on reapproval proceedings for state plan amendments.
New York is persuasive only to the extent that in deciding whether the panel
in Pinnacle authorized the state to submit supplemental findings and seek
reapproval by the Secretary, it looked not only to the panel’s mandate but instead
engaged in “an examination of the entire opinion and its resolution of the
substantive claims . . .,” ultimately finding that the panel “le[ft] the door open for
New York to revive [the state plan amendment].” Id. at 180. Our approach in
resolving the remand issue in the instant matter by reviewing the Third Circuit’s
entire opinion in Christ the King I, then, is in line with the Second Circuit’s
approach in New York.
B.
Whether the Reapproval of SPA 08-007 was Consistent with
Section 30(A)
Plaintiffs argue that even if the Court finds that the prior proceedings
allowed for further agency review and reapproval of SPA 08-007, the Secretary in
her reapproval proceedings impermissibly considered “post-hoc” data—that is,
data on the actual effects of SPA 08-007, as opposed to predictive data normally
considered by the Secretary on the likely effects of a state plan amendment.
22
Plaintiffs contend that the Secretary’s reapproval of the SPA, based on this data,
was based on an impermissible construction of 42 U.S.C. § 1396a(30)(A).
Defendants respond that the Secretary reasonably interpreted Title XIX not to
foreclose her consideration of all information submitted by Pennsylvania in
support of SPA 08-007, including the so-called post-hoc data.8 Plaintiffs do not
dispute that the conclusion to be drawn from the data in question is that SPA 08007 had no observable adverse impact on quality of care or access to care.
As aforestated, Section 30(A) requires that a state plan provide:
methods and procedures . . . to assure that payments are consistent
with efficiency, economy, and quality of care and are sufficient to
enlist enough providers so that care and services are available under
the plan at least to the extent that such care and services are available
to the general population in the geographic area . . .
Our review of the Secretary’s interpretation of Section 30(A) is governed by
the two-step framework in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837 (1984).9 At step one, the court determines “whether Congress has
directly spoken to the precise question at issue.” Chevron, 467 U.S. at 842. If
8
Defendants also argue that Plaintiffs waived this argument with regard to post-hoc data because
their Amended Complaint does not challenge the Secretary’s reapproval decision on the merits.
However, we do not find Plaintiffs to have waived their argument. In this type of APA case
where there are no facts in dispute and the case is determined on cross motions for summary
judgment, there is no prejudice to the Defendants by Plaintiffs’ failure to raise an argument in
their pleadings. See Cedars-Sinai Medical Center v. Shalala, 177 F.3d 1126, 1129 (9th Cir.
1999); see also Novosteel SA v. U.S. Bethlehem Steel Corp., 284 F.3d 1261, 1274 (Fed. Cir.
2002) (“[A] party does not waive an argument based on what appears in its pleading; a party
waives arguments based on what appears in its brief.”)
9
The Third Circuit held in Christ the King I that the Chevron framework does apply to SPA
approvals by HHS. 730 F.3d at 307.
23
Congressional intent is clear, our analysis ends here, as courts as well as the
agency in question “must give effect to the unambiguously expressed intent of
Congress.” Id. at 843. If the court makes a determination that Congress has not
“directly addressed the precise question,” in that the statute is “silent or ambiguous
with respect to the specific issue,” then the court proceeds to step two of the
framework, in which it must decide “whether the agency’s answer is based on a
permissible construction of the statute.” Id. The Supreme Court has “long
recognized that considerable weight should be accorded to an executive
department’s construction of a statutory scheme it is entrusted to administer, and
the principle of deference to agency interpretations.” Id. at 844.
From this Court’s perspective, we do not believe there could be any
colorable argument that “Congress has directly spoken to the precise question at
issue.” As Defendants correctly note, Section 30(A) is a broadly written statute.
The Supreme Court in Armstrong v. Exceptional Child Ctr., Inc., has recently
underscored just how unspecific Section 30(A) is in terms of what is required of a
state plan and how the agency must discern whether a state plan has met those
requirements. 135 S. Ct. 1378, 1385 (2015). In its opinion, the Supreme Court
noted, “[i]t is difficult to imagine a requirement broader and less specific than §
30(A)’s mandate that state plans provide for payments that are ‘consistent with
efficiency, economy, and quality of care . . .” Id. In fact, the Supreme Court goes
24
so far as to call Section 30(A)’s text “judicially unadministrable.” Id. (emphasis
added).10 This precedent alone strongly cautions this Court against finding
impermissible the Secretary’s interpretation of Section 30(A) to allow for
consideration of post-hoc data in deciding whether to reapprove the SPA.
Thus, the post-hoc data question is resolved at step two of the Chevron
analysis: whether the Secretary’s interpretation of Section 30(A) to allow for the
consideration of post-hoc data, or as the Secretary calls it, “the most accurate and
current” data, is a “permissible” construction of the statute. We underscore that we
have a very limited role: the reviewing court “may not substitute its own
construction of a statutory provision for a reasonable interpretation made by the
administrator of an agency.” Chevron, 467 U.S. at 844. Fully cognizant of our
limited standard of review, we thus hold that the Secretary’s determination to use
the most current data available to her upon remand to examine whether SPA 08007 did in fact comply with Section 30(A)’s requirements was a permissible and
reasonable interpretation of this statute. In doing so we decline to adopt the
unreasonable and artificial construct that comprises Plaintiffs’ view of how the
Secretary should conduct this review.
10
Justice Breyer agreed in his concurrence: “Congress decided to vest broad discretion in the
agency to interpret and to enforce § 30(A).” Id. at 1390 (Breyer, J., concurring). Moreover, the
Supreme Court’s dicta regarding how perilous it is for judges to administer this statute finds no
better exemplar than the case sub judice.
25
The Third Circuit has considered Section 30(A)’s requirements in two
previous cases, which notably predate Armstrong. In Rite Aid of Pa., Inc. v.
Houstoun, the circuit court held that the statute requires only “substantive
compliance” with the four specified factors (efficiency, economy, quality of care,
and adequate access), but it “does not impose any particular method or process for
getting to that result.” 171 F.3d 842, 851 (3d Cir. 1999) (emphasis in original). In
Pa. Pharmacists Ass’n v. Houstoun, the circuit court interpreted Section 30(A)
again, and held that the statute does not grant Medicaid providers a cause of action
under 42 U.S.C. § 1983. 283 F.3d 531,534-35 (3d Cir. 2002).
Plaintiffs argue that language from the Rite Aid opinion binds our decision
here. Specifically, they argue that the Third Circuit in that decision “rejected the
Seventh Circuit’s acceptance of post-hoc data” in addressing what is required
under Section 30(A). (Doc. 37, p. 13). Plaintiffs cite to Rite Aid’s statement that “a
state may not act arbitrarily and capriciously” in setting payment rates “by offering
a certain price, and seeing what response or result that price brings forth . . .” Id. at
851. However, the panel then clarified, “section 30(A) does not govern the process
by which [a state] sets its prices . . . other doctrines do . . . .” Id. at 852 (emphasis
added). Thus, a full reading of Rite Aid does not support reading a prohibition on
post-hoc data into Section 30(A) in terms of what the Secretary is permitted to
review during the approval process.
26
Furthermore, the main thrust of the Third Circuit’s opinion was its emphasis
that Section 30(A) requires the state to “achieve a certain result.” The Third Circuit
repeated itself on this point at least three times in just one section of its opinion. Id.
at 851-852. If anything then, Rite Aid provides support for Defendants’ position
that it can consider data pertaining to the actual consequences of the SPA after
remand. There is no dispute in the instant matter that the state has achieved the
required results under Section 30(A). If anything, limiting the type of data the state
or the Secretary is permitted to consider in the approval process could be viewed as
reading a “procedural” requirement into Section 30(A), which Rite Aid held to be
an incorrect interpretation of the statute.
In any event, the Third Circuit itself has stated that its interpretations of
Section 30(A) do not control, and that under the Chevron standard, “if HHS
applied a different but nonetheless permissible interpretation of Section 30(A),
then we must defer to that interpretation, even if it conflicts with our precedent.”
Christ the King I, 730 F.3d at 308. Again, the operative question is whether HHS’s
reapproval of SPA 08-007 is based on a permissible construction of Section 30(A).
“To answer that question, we must consider the basis HHS had for
concluding that Section 30(A) is satisfied, which requires we examine the record it
had before it” during the SPA reapproval process. Id. at 309. Here, the basis for
HHS’s reapproval was the supplemental data from Pennsylvania. As aforestated,
27
the data submitted by Pennsylvania includes CMS’s own Quality Measure (QM)
scores, showing that, from 2006 to 2010 (which includes the relevant 2008-2009
BAF time period), Pennsylvania “[saw] substantial improvement in 10 of the 12
QMs commonly reported for each year . . . .” (AR, pp. 011, 218-219). Also,
Pennsylvania cited to American Health Care Association statistics demonstrating
that the percentage of nursing facilities in the state with “Substandard Quality of
Care” and “Immediate Jeopardy” citations was consistently well below the national
average and consistent with neighboring states. (AR, pp. 011, 216-17).11
Pennsylvania also submitted additional data with regard to access to care.
Again, Plaintiffs do not dispute the conclusions drawn by HHS from this
supplemented data that the SPA did not cause an adverse impact on quality of care
or access to care. They argue that the consideration of this data was impermissible.
However, we find the Secretary’s decision to consider the most relevant, current
information available to her in deciding whether the SPA complied with Section
309(A) to have been a reasonable decision. Pennsylvania no longer presents to
HHS an “unsupported assertion that its plan meets Section 30(A)’s requirements,
without any accompanying explanation or evidence.” Christ the King I, 730 F.3d at
312. It now has the most relevant data possible to buttress its assertion—data on
the actual effects of the SPA on quality of care and access to care. “[I]n order for
11
To review our full summary of the supplemented record, please refer to pages 9-10 of our
Memorandum.
28
HHS to deny approval on Section 30(A) grounds, a plan must fail to fulfill its
conditions.” Christ the King, 730 F.3d at 313. We simply cannot conclude that
HHS was unreasonable in finding the SPA to meet Section 30(A)’s conditions,
based on the supplemented record.
Plaintiffs additionally argue that the Secretary’s review of post-hoc data was
impermissible because Congress and the Secretary herself have established time
limits for the approval of state plan amendments, and that the approval process was
not intended to “string out” over a period of six years. While that argument is
facially compelling, in practical fact the only reason the Secretary had the
opportunity to review the post-hoc data was because of the multiple rounds of
litigation over SPA 08-007, after the Secretary’s initial approval which occurred in
2008. The statutes and regulations cited by Plaintiffs in support of their time limits
argument, 42 U.S.C. § 1316 and 42 C.F.R. § 447.256(b), simply do not apply to a
case with the procedural posture such as the one we have: review of a reapproval
of an SPA following court decisions permitting such a review by the Secretary.
Christ the King I permitted the Secretary an additional opportunity to reconsider
the SPA; presumably, if the Secretary were not permitted by statute to engage in
further review after a court order, then Christ the King I would not have allowed an
additional review period.
29
We further note that it appears to be established agency practice for the
Secretary to review additional information submitted by a state regarding a plan
amendment multiple years after the amendment’s submission to the agency. See
Douglas, 132 S.Ct. at 1208-09 (CMS approved in 2011 the state’s plan
amendments submitted in 2008). Plaintiffs do not address this contention made by
Defendants. We acknowledge that it is unclear whether it is established agency
practice to consider post-hoc data; however, we can easily speculate that it is
unlikely the agency has often found itself in the posture it finds itself in the instant
matter.
In the specific context of the matter sub judice, our conclusion that the
Secretary’s review of post-hoc data to determine whether the SPA complied with
Section 30(A) was a permissible construction of the statute is eminently logical
and reasonable. Consider, as Defendants argue, an alternative situation where this
Court ordered the agency to engage in further review of the SPA, and the agency
received data from Pennsylvania showing that implementation of the SPA had in
fact resulted in adverse consequences on quality of care and access to care. In that
scenario, we highly doubt Plaintiffs would be before the Court suggesting that the
Secretary should callously ignore such data. In effect, Plaintiffs ask the Court to
rule that the Secretary on remand should have reviewed only the data that would
have been available to her during the initial review proceedings, and ignore the
30
more recent data bearing on the actual effects of the SPA, even though she had this
data at her fingertips. This is a practical absurdity, and as aforestated an illogical
construct. To find the Secretary’s consideration of more recent data impermissible
would be a foray into judicial abstraction. Especially considering the Supreme
Court’s pointed commentary that Section 30(A) is “judicially unadministrable,” we
can easily choose not to err on the side of judicial abstraction.
Plaintiffs argue that, as a policy matter, this decision renders the state plan
amendment initial review process a charade. We disagree. HHS has no discernible
incentive to engage in years upon years of litigation over its approval or
disapproval of an SPA for a specific fiscal year. It likewise has no motivation to
rubber stamp an amendment, and wait for supplemental data following a court
remand to decide an amendment in fact complied with the statute. Additionally,
HHS must still comply with the other regulations involved with the SPA review
process.
Accordingly, because we find permissible the Secretary’s construction of
Section 30(A) to not preclude the use of post-hoc data, or data bearing on the
actual results of SPA 08-007, in deciding whether the statutory requirements were
met, we find the Secretary’s reapproval based on this data to not be arbitrary or
capricious. As aforestated, the undisputed conclusion to be drawn from this
additional data was that SPA 08-007 was consistent with quality of care and access
31
to care. In line with the Third Circuit’s guidance, HHS has now “actually
determine[d] which scenario it confronted” insofar as it has determined, based on
the supplemented data, that the payments to providers under SPA 08-007 were
consistent with Section 30(A)’s requirements. See Christ the King I, 730 F.3d at
314.
V.
CONCLUSION
Sadly, we are confident that our decision will not end this morass of a case.
It has compelled us to decipher a statute that the Supreme Court has editorialized
as problematical, suffer a reversal by the Third Circuit, interpret a less than clear
circuit mandate, and finally negotiate this case several times through admittedly
uncharted waters. We have done our best, and confess relief that for now at least,
we may pass this cup to other jurists. We hope fervently never to see it again.
For the reasons hereinabove set forth, the Court shall grant the Defendants’
motion for summary judgment and deny the Plaintiffs’ motion for summary
judgment. Judgment shall be entered in favor of Defendants.
An appropriate Order shall follow.
32
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