NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS OCT 8 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
AVENAL COMMUNITY HEALTH No. 23-16109 CENTER; et al., D.C. No. Plaintiffs-Appellants, 2:20-cv-02171-DAD-KJN
v. MEMORANDUM* MICHELLE BAASS, Director of the California Department of Health Care Services; CHIQUITA BROOKS-LASURE, as Administrator of the Centers for Medicare and Medicaid Services,
Defendants-Appellees.
Appeal from the United States District Court for the Eastern District of California Dale A. Drozd, District Judge, Presiding
Argued and Submitted September 10, 2024 San Francisco, California
Before: BYBEE, BEA, and MENDOZA, Circuit Judges.
Plaintiffs-Appellants are ten community health clinics designated as federally
qualified health centers (“FQHC”). Plaintiffs challenge the district court’s decision
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. to grant Defendants’ motions to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6).
We have jurisdiction pursuant to 28 U.S.C. § 1291 and affirm. We review a
district court’s dismissal of an action pursuant to Federal Rule of Civil Procedure
12(b)(6) de novo. Cervantes v. United States, 330 F.3d 1186, 1187 (9th Cir. 2003).
To determine whether a complaint states a claim to relief that is plausible and non-
conclusory, we must accept the factual allegations of the complaint as true and
construe the pleadings in the light most favorable to the plaintiff. See Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009); Benavidez v. Cnty. of San Diego, 993 F.3d 1134,
1144–45 (9th Cir. 2021).
1. The district court did not err when it dismissed Plaintiffs’ § 1983 claims
against California Department of Health Care Services (“DHCS”) Director Michelle
Baass for violations of Plaintiffs’ right to reimbursement under 42 U.S.C.
§ 1396a(bb). “Section 1983 imposes liability on anyone who, under color of state
law, deprives a person ‘of any rights, privileges, or immunities secured by the
Constitution and laws.’” Blessing v. Freestone, 520 U.S. 329, 340 (1997).
“Medicaid providers have a private right of action to bring a § 1983 claim to enforce
42 U.S.C. § 1396a(bb).” Cal. Ass’n of Rural Health Clinics v. Douglas, 738 F.3d
1007, 1013 (9th Cir. 2013).
2 At all relevant times, Plaintiffs have been entitled to the reimbursement
amount available under 42 U.S.C. § 1396a(bb)—the Prospective Payment System
(“PPS”). State Plan Amendment 17-002 (“SPA 17-002”) applies to FQHCs only if
that FQHC chooses to carve out pharmacy services from its PPS payment plan and
receive those payments separately, through what is now Medi-Cal Rx. Medi-Cal Rx
changed the way FQHCs could be reimbursed for the pharmacy services carved out
from its PPS payment plan, but it does not prevent FQHCs from receiving the
amount they are entitled to be paid under the PPS.
On appeal, Plaintiffs argued for the first time that SPA 17-002, in effect,
created an alternative payment methodology (“APM”) that does not conform with
§ 1396a(bb)(6)—i.e., an APM that pays less than what the FQHC was entitled to
under the PPS. To be considered an APM, a payment methodology must be set forth
in the State Plan as an alternative to PPS reimbursement and “agreed to by the State
and the center or clinic.” 42 U.S.C. § 1396a(bb)(6). California’s state plan identifies
APMs, and SPA 17-002 is not one of them. And Plaintiffs do not allege that they
entered into such an agreement with the State for SPA 17-002 to be an APM.
Plaintiffs further argue that, labels aside, SPA 17-002’s function renders it an
APM subject to the requirement to provide payments at least equal to the PPS. But
Plaintiffs cite no authority explaining why “[t]he fact that pharmacy services are
Section 1396d(a)(2)(C) services that should be paid via the Section 1396a(bb) rate
3 calculation are being carved out and paid through some other mechanism” creates
an APM. Nor are we aware of authority that dictates that every change to the
calculation of reimbursements and payments constitutes an APM.
And had SPA 17-002 created an APM, Plaintiffs do not allege that under this
regime they would receive less than the guaranteed PPS amounts. Additionally,
even further assuming that SPA 17-002 is an APM that results in Plaintiffs receiving
less than the § 1396a(bb) minimum payments, Plaintiffs do not explain why they
could not simply decline to carve out pharmaceutical services from the PPS and seek
payment for the pharmacy services as part of its PPS payment. FQHCs can elect to
include pharmaceutical services in its “scope-of-services” covered under PPS, and
that election is reversible. Cal. Welf. & Inst. Code § 14132.100(k). Plaintiffs cite no
authority demonstrating that an optional carve-out must result in payment equal to
the PPS. Nor do Plaintiffs cite authority requiring the Secretary to provide an
alternative to the PPS. Accordingly, the district court did not err when it found that
Plaintiffs failed to state a legally cognizable claim showing that their reimbursement
rights under § 1396a(bb) were violated.
2. Plaintiffs’ claims under the APA also fail. Under the APA, courts must
“hold unlawful and set aside agency action” that is “arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). “The
APA’s arbitrary-and-capricious standard requires that agency action be reasonable
4 and reasonably explained.” FCC v. Prometheus Radio Project, 592 U.S. 414, 423
(2021).
Plaintiffs argue that the Centers for Medicaid & Medicare Services (“CMS”)
Administrator’s approval of SPA 17-002 was arbitrary and capricious for failing “to
consider the requirements of Section 1396a(bb).” Plaintiffs reason that CMS failed
to consider an important aspect of the problem because “SPA 17-002’s FFS system,
when applied to FQHCs, is an APM for reimbursing FQHCs. As an APM, it must
be established in an amount that is at least equal to 100 percent of the FQHC’s cost.”
Plaintiffs’ argument fails because, as discussed above, SPA 17-002 is not an
APM. Additionally, Plaintiffs are incorrect that APMs “must be established in an
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NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS OCT 8 2024 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT
AVENAL COMMUNITY HEALTH No. 23-16109 CENTER; et al., D.C. No. Plaintiffs-Appellants, 2:20-cv-02171-DAD-KJN
v. MEMORANDUM* MICHELLE BAASS, Director of the California Department of Health Care Services; CHIQUITA BROOKS-LASURE, as Administrator of the Centers for Medicare and Medicaid Services,
Defendants-Appellees.
Appeal from the United States District Court for the Eastern District of California Dale A. Drozd, District Judge, Presiding
Argued and Submitted September 10, 2024 San Francisco, California
Before: BYBEE, BEA, and MENDOZA, Circuit Judges.
Plaintiffs-Appellants are ten community health clinics designated as federally
qualified health centers (“FQHC”). Plaintiffs challenge the district court’s decision
* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. to grant Defendants’ motions to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6).
We have jurisdiction pursuant to 28 U.S.C. § 1291 and affirm. We review a
district court’s dismissal of an action pursuant to Federal Rule of Civil Procedure
12(b)(6) de novo. Cervantes v. United States, 330 F.3d 1186, 1187 (9th Cir. 2003).
To determine whether a complaint states a claim to relief that is plausible and non-
conclusory, we must accept the factual allegations of the complaint as true and
construe the pleadings in the light most favorable to the plaintiff. See Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009); Benavidez v. Cnty. of San Diego, 993 F.3d 1134,
1144–45 (9th Cir. 2021).
1. The district court did not err when it dismissed Plaintiffs’ § 1983 claims
against California Department of Health Care Services (“DHCS”) Director Michelle
Baass for violations of Plaintiffs’ right to reimbursement under 42 U.S.C.
§ 1396a(bb). “Section 1983 imposes liability on anyone who, under color of state
law, deprives a person ‘of any rights, privileges, or immunities secured by the
Constitution and laws.’” Blessing v. Freestone, 520 U.S. 329, 340 (1997).
“Medicaid providers have a private right of action to bring a § 1983 claim to enforce
42 U.S.C. § 1396a(bb).” Cal. Ass’n of Rural Health Clinics v. Douglas, 738 F.3d
1007, 1013 (9th Cir. 2013).
2 At all relevant times, Plaintiffs have been entitled to the reimbursement
amount available under 42 U.S.C. § 1396a(bb)—the Prospective Payment System
(“PPS”). State Plan Amendment 17-002 (“SPA 17-002”) applies to FQHCs only if
that FQHC chooses to carve out pharmacy services from its PPS payment plan and
receive those payments separately, through what is now Medi-Cal Rx. Medi-Cal Rx
changed the way FQHCs could be reimbursed for the pharmacy services carved out
from its PPS payment plan, but it does not prevent FQHCs from receiving the
amount they are entitled to be paid under the PPS.
On appeal, Plaintiffs argued for the first time that SPA 17-002, in effect,
created an alternative payment methodology (“APM”) that does not conform with
§ 1396a(bb)(6)—i.e., an APM that pays less than what the FQHC was entitled to
under the PPS. To be considered an APM, a payment methodology must be set forth
in the State Plan as an alternative to PPS reimbursement and “agreed to by the State
and the center or clinic.” 42 U.S.C. § 1396a(bb)(6). California’s state plan identifies
APMs, and SPA 17-002 is not one of them. And Plaintiffs do not allege that they
entered into such an agreement with the State for SPA 17-002 to be an APM.
Plaintiffs further argue that, labels aside, SPA 17-002’s function renders it an
APM subject to the requirement to provide payments at least equal to the PPS. But
Plaintiffs cite no authority explaining why “[t]he fact that pharmacy services are
Section 1396d(a)(2)(C) services that should be paid via the Section 1396a(bb) rate
3 calculation are being carved out and paid through some other mechanism” creates
an APM. Nor are we aware of authority that dictates that every change to the
calculation of reimbursements and payments constitutes an APM.
And had SPA 17-002 created an APM, Plaintiffs do not allege that under this
regime they would receive less than the guaranteed PPS amounts. Additionally,
even further assuming that SPA 17-002 is an APM that results in Plaintiffs receiving
less than the § 1396a(bb) minimum payments, Plaintiffs do not explain why they
could not simply decline to carve out pharmaceutical services from the PPS and seek
payment for the pharmacy services as part of its PPS payment. FQHCs can elect to
include pharmaceutical services in its “scope-of-services” covered under PPS, and
that election is reversible. Cal. Welf. & Inst. Code § 14132.100(k). Plaintiffs cite no
authority demonstrating that an optional carve-out must result in payment equal to
the PPS. Nor do Plaintiffs cite authority requiring the Secretary to provide an
alternative to the PPS. Accordingly, the district court did not err when it found that
Plaintiffs failed to state a legally cognizable claim showing that their reimbursement
rights under § 1396a(bb) were violated.
2. Plaintiffs’ claims under the APA also fail. Under the APA, courts must
“hold unlawful and set aside agency action” that is “arbitrary, capricious, an abuse
of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). “The
APA’s arbitrary-and-capricious standard requires that agency action be reasonable
4 and reasonably explained.” FCC v. Prometheus Radio Project, 592 U.S. 414, 423
(2021).
Plaintiffs argue that the Centers for Medicaid & Medicare Services (“CMS”)
Administrator’s approval of SPA 17-002 was arbitrary and capricious for failing “to
consider the requirements of Section 1396a(bb).” Plaintiffs reason that CMS failed
to consider an important aspect of the problem because “SPA 17-002’s FFS system,
when applied to FQHCs, is an APM for reimbursing FQHCs. As an APM, it must
be established in an amount that is at least equal to 100 percent of the FQHC’s cost.”
Plaintiffs’ argument fails because, as discussed above, SPA 17-002 is not an
APM. Additionally, Plaintiffs are incorrect that APMs “must be established in an
amount that is at least equal to 100 percent of the FQHC’s cost.” An APM (which
SPA 17-002 is not) must “result[] in payment to the [FQHC] of an amount which is
at least equal to the amount” that would be paid under the PPS. 42 U.S.C.
§ 1396a(bb)(6)(B). The PPS, in turn, is calculated using a formula to establish a
baseline payment that undergoes a cost-of-living adjustment every fiscal year.
§ 1396a(bb)(1)-(4). Nowhere is an FQHC guaranteed coverage of “100 percent” of
its costs.
As the district court correctly observed, Plaintiffs “failed to plausibly allege
that the approval of [SPA 17-002] alters or prevents—or is even necessarily
connected to—the PPS reimbursement rate specified in § 1396a(bb).” Any lack of
5 analysis by the district court regarding whether SPA 17-002 would yield rate
payments equal to the PPS therefore cannot be construed as “entirely fail[ing] to
consider an important aspect of the problem,” Defs. of Wildlife v. Zinke, 856 F.3d
1248, 1257 (9th Cir. 2017) (quotation omitted), nor is it arbitrary or capricious.
3. The district court did not err when it dismissed Plaintiffs’ claims against
the CMS Administrator under the APA for approving SPA 17-002, in conjunction
with Medi-Cal Rx, which relies on an FFS reimbursement system for 340B Program
drugs. Although Plaintiffs do not dispute that CMS has the authority to approve
state plans, Plaintiffs allege that CMS lacks authority to approve SPA 17-002
because the 340B program is “under the jurisdiction [of the Health Resources and
Services Administration (“HRSA”)].” Plaintiffs, however, cite no legal authority
identifying HRSA as having exclusive jurisdiction over the 340B program. Plaintiffs
also fail to explain why CMS, in its capacity to review state plans under 421 C.F.R.
§ 430.12, cannot approve plans that concern the 340B program.
Plaintiffs also argue that California’s 340B regulations are preempted by
federal law—namely, § 1396r-8(a)(5)(C). “Federal law may preempt state law in
three ways” known as express, field, and conflict preemption. Nat’l Fed’n of the
Blind v. United Airlines Inc., 813 F.3d 718, 724 (9th Cir. 2016).
Section 1396r-8(a)(5)(C) provides no such express limitation on the states’
authority to implement a mechanism to regulate duplicate discounts. Rather, 42
6 U.S.C. § 1396r-8(a)(5)(C) provides that if the Secretary of Health and Human
Services “does not establish a mechanism” for avoiding duplicate discounts “within
12 months of November 4, 1992,” then states shall establish their own mechanisms.
42 U.S.C. § 1396r-8(a)(5)(C). Thus, nothing in the text of the statute prevents both
the Secretary and the states from each establishing their own mechanisms for
duplicate discount avoidance.
Plaintiffs’ argument that Congress intended to “‘occupy the field’ of 340B
duplicate discount regulations” is equally unavailing. Again, Plaintiffs rely on 42
U.S.C. § 1396r-8(a)(5)(C)’s requirement that states establish their own mechanism
for duplicate discounts should the Secretary fail to act within one year. But Plaintiffs
provide no further evidence or citation for why states would be “precluded from
regulating” the field after the Secretary has acted.
Plaintiffs also argue that it alleged facts supporting a theory of “obstacle
preemption.” Plaintiffs, however, do not explain how a state’s prevention of
duplicate discounting would hinder prevention of duplicate discounting at the federal
level. Moreover, in an unpublished case in the same context we found persuasive,
this Court found no conflict between state and federal law. AIDS Healthcare Found.
v. Douglas, 457 F. App’x 676, 678 (9th Cir. Nov. 3, 2011) (“There is no actual
conflict because the state and federal statutes can both easily be complied with; the
state statute surely does not present an obstacle to the prevention of double
7 discounts; and there is no indication that Congress intended to occupy the whole
field in this part of the cooperative Medicaid program.”).
4. The district court did not err in denying Plaintiffs’ request for
declaratory relief. Plaintiffs argue that because the district court erred in dismissing
Plaintiffs’ underlying claims, dismissal of declaratory relief was error as well.
“[T]he Declaratory Judgment Act does not provide an affirmative cause of action
where none otherwise exists.” City of Reno v. Netflix, Inc., 52 F.4th 874, 878 (9th
Cir. 2022) (per curiam). Therefore, for the reasons set forth above, the district court
did not err in dismissing Plaintiffs’ claim for declaratory relief.
5. Plaintiffs did not make an independent argument that the district court’s
denying leave to amend was erroneous. At the motion to dismiss hearing, Plaintiffs’
counsel stated that Plaintiffs “don’t want to plead any new theories” and that the
claims in the First Amended Complaint “state cognizable claims.” Because
Plaintiffs fail to state cognizable claims, and on appeal, Plaintiffs do not argue
whether or how they would amend their pleadings, the district court did not err in
refusing to grant leave to amend.
AFFIRMED.