Dartmouth-Hitchcock et al v . NH DHHS 11-CV-358-SM 9/27/12 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Dartmouth-Hitchcock Clinic, et a l . , Plaintiffs
v. Case N o . 11-cv-358-SM Opinion N o . 2012 DNH 169 Nicholas Toumpas, Commissioner, N.H. Dept. of Health and Human Services, Defendant
O R D E R
The Commissioner’s motion to dismiss the hospital and
beneficiary plaintiffs’ Supremacy Clause claims (Counts I-IV)
required additional briefing in light of the Supreme Court’s
decision in Douglas v . Independent Living Ctr. of S . Cal., 132
S . C t . 1204 (2012). The parties have addressed the issues
specified by the court and have further developed their
respective positions. Having carefully considered the matter,
the court denies the Commissioner’s motion to dismiss the
Supremacy Clause counts, without prejudice to renewing the motion
following receipt of the views o f , or administrative action by,
the Secretary of Health and Human Services.
Discussion
The plaintiff hospitals and Medicaid beneficiaries seek
preliminary and permanent injunctive relief enjoining the
defendant Commissioner from implementing certain Medicaid reimbursement rate reductions on grounds, inter alia, that those
rate reductions: 1 ) were dictated by state action taken pursuant
to state statutes that directly contravene, and are therefore
preempted by, applicable federal law; 2 ) were calculated using
methodologies that are not part of the federally-approved state
Medicaid plan, o r , alternatively, were the product of a
substantial misapplication of the federally-approved methodology
such that it was effectively changed without required federal
consent; and, 3 ) the rate reductions are inconsistent with the
State’s federal statutory obligations to set Medicaid
reimbursement rates at a level adequate 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.” 42 U.S.C. § 1396(a)(30)(A) (hereafter
“Section 30(A)”).
As noted in the court’s earlier order discussing the
background facts and granting limited injunctive relief, the
provider and beneficiary plaintiffs have made a strong showing
that the reduced Medicaid reimbursement rates at issue are likely
inconsistent with the State’s legal obligations to set Medicaid
rates at a level capable of sustaining the delivery of medical
2 care to the most needy, and in a manner consistent with the
federally approved state Medicaid plan. The reduced rates are
likely the impermissible product of a single and conclusive
factor: state budgetary concerns. See Indep. Living Ctr. of S .
Cal., Inc. v . Maxwell-Jolly, 572 F.3d 644, 659 (9th Cir. 2009)
(“State budgetary concerns cannot . . . be the conclusive factor
in decisions regarding Medicaid.”), vacated on other grounds sub
nom. Douglas v . Indep. Living Ctr. of S . Cal Inc., 132 S . C t .
1204 (2012); Amisub (PSL), Inc. v . Colorado Dep’t of Social
Services, 879 F.2d 789, 800-01 (10th Cir. 1989) (“While budgetary
constraints may be a factor to be considered by a state when
amending a current plan, implementing a new plan, or making the
annually mandated findings, budgetary constraints alone can never
be sufficient.”).
While state budgetary concerns cannot conclusively dictate
Medicaid reimbursement rates, they do play a significant and
legitimate role in the rate-setting process. But, even where
significant state budget issues arise, still, Medicaid
reimbursement rates must be set by participating states in
accordance with methodologies and standards that are published in
a state plan and approved by the United States Secretary of
Health and Human Services (currently through the Centers for
Medicare and Medicaid Services (“CMS”)). And, those rates must
3 meet minimum federal statutory standards, which generally require
that the rates be adequate to assure quality and availability of
medical care for those most in need of i t . See Section 30(A).
Plaintiffs have conceded that they cannot bring a private
cause of action to enforce Section 30(A)’s provisions.
Nevertheless, they say they may challenge the constitutionality
of state statutes, as applied, under the Supremacy Clause, to the
extent those state laws dictate reduced Medicaid rates that are
invalid under federal law. The Commissioner responds that
plaintiffs cannot be permitted to use the Supremacy Clause to
indirectly assert a private cause of action aimed at enforcing
Section 30(A)’s provisions. But that argument misses an
important and distinct point.
Plaintiffs are challenging the constitutionality of two
state statutes and the rate-setting action taken under the power
purportedly established by those statutes. They are not,
strictly speaking, challenging the Commissioner’s rate-setting
action under the Medicaid Act itself (which plaintiffs say
amounted to little more than acquiescence in unlawful rate-
setting directives issued by the Governor and Legislature). That
i s , plaintiffs do not sue to establish Medicaid-compliant rates,
4 but rather seek to invalidate what they assert are unlawful rates
dictated by preempted state law.
“Although participation in the Medicaid program is entirely
optional, once a State elects to participate, it must comply with
the requirements of [the Act].” Harris v . McRae, 448 U.S. 297,
301 (1980). One such requirement is that the State must have
(and must adhere to) a federally-approved plan for reimbursing
health care providers, 42 U.S.C. §§ 1396a(a), 1396d(a), and the
State must also promptly file any “[m]aterial changes in State
law, organization, or policy, or in the State’s operation of the
Medicaid program,” 42 C.F.R. § 430.12(e).
To the extent N.H. Rev. Stat. Ann (“RSA”) 126-A:3, VII(a)
and RSA 9:16-b, the state statutes at issue, authorize the
Governor and Legislature to usurp the Commissioner’s obligations
under federal law to properly set Medicaid reimbursement rates —
by dictating across-the-board percentage reductions completely
divorced from the approved rate-setting methodology published in
the State’s approved plan, and without regard to the processes
and standards required by the Medicaid Act — those state statutes
would no doubt be declared invalid (as applied) under the
5 Supremacy Clause.1 Such state legislation would necessarily
purport to override clear provisions of federal law and would
“seriously compromise important federal interests.” Pharm.
Research & Mfrs. of Am. v .
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Dartmouth-Hitchcock et al v . NH DHHS 11-CV-358-SM 9/27/12 UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Dartmouth-Hitchcock Clinic, et a l . , Plaintiffs
v. Case N o . 11-cv-358-SM Opinion N o . 2012 DNH 169 Nicholas Toumpas, Commissioner, N.H. Dept. of Health and Human Services, Defendant
O R D E R
The Commissioner’s motion to dismiss the hospital and
beneficiary plaintiffs’ Supremacy Clause claims (Counts I-IV)
required additional briefing in light of the Supreme Court’s
decision in Douglas v . Independent Living Ctr. of S . Cal., 132
S . C t . 1204 (2012). The parties have addressed the issues
specified by the court and have further developed their
respective positions. Having carefully considered the matter,
the court denies the Commissioner’s motion to dismiss the
Supremacy Clause counts, without prejudice to renewing the motion
following receipt of the views o f , or administrative action by,
the Secretary of Health and Human Services.
Discussion
The plaintiff hospitals and Medicaid beneficiaries seek
preliminary and permanent injunctive relief enjoining the
defendant Commissioner from implementing certain Medicaid reimbursement rate reductions on grounds, inter alia, that those
rate reductions: 1 ) were dictated by state action taken pursuant
to state statutes that directly contravene, and are therefore
preempted by, applicable federal law; 2 ) were calculated using
methodologies that are not part of the federally-approved state
Medicaid plan, o r , alternatively, were the product of a
substantial misapplication of the federally-approved methodology
such that it was effectively changed without required federal
consent; and, 3 ) the rate reductions are inconsistent with the
State’s federal statutory obligations to set Medicaid
reimbursement rates at a level adequate 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.” 42 U.S.C. § 1396(a)(30)(A) (hereafter
“Section 30(A)”).
As noted in the court’s earlier order discussing the
background facts and granting limited injunctive relief, the
provider and beneficiary plaintiffs have made a strong showing
that the reduced Medicaid reimbursement rates at issue are likely
inconsistent with the State’s legal obligations to set Medicaid
rates at a level capable of sustaining the delivery of medical
2 care to the most needy, and in a manner consistent with the
federally approved state Medicaid plan. The reduced rates are
likely the impermissible product of a single and conclusive
factor: state budgetary concerns. See Indep. Living Ctr. of S .
Cal., Inc. v . Maxwell-Jolly, 572 F.3d 644, 659 (9th Cir. 2009)
(“State budgetary concerns cannot . . . be the conclusive factor
in decisions regarding Medicaid.”), vacated on other grounds sub
nom. Douglas v . Indep. Living Ctr. of S . Cal Inc., 132 S . C t .
1204 (2012); Amisub (PSL), Inc. v . Colorado Dep’t of Social
Services, 879 F.2d 789, 800-01 (10th Cir. 1989) (“While budgetary
constraints may be a factor to be considered by a state when
amending a current plan, implementing a new plan, or making the
annually mandated findings, budgetary constraints alone can never
be sufficient.”).
While state budgetary concerns cannot conclusively dictate
Medicaid reimbursement rates, they do play a significant and
legitimate role in the rate-setting process. But, even where
significant state budget issues arise, still, Medicaid
reimbursement rates must be set by participating states in
accordance with methodologies and standards that are published in
a state plan and approved by the United States Secretary of
Health and Human Services (currently through the Centers for
Medicare and Medicaid Services (“CMS”)). And, those rates must
3 meet minimum federal statutory standards, which generally require
that the rates be adequate to assure quality and availability of
medical care for those most in need of i t . See Section 30(A).
Plaintiffs have conceded that they cannot bring a private
cause of action to enforce Section 30(A)’s provisions.
Nevertheless, they say they may challenge the constitutionality
of state statutes, as applied, under the Supremacy Clause, to the
extent those state laws dictate reduced Medicaid rates that are
invalid under federal law. The Commissioner responds that
plaintiffs cannot be permitted to use the Supremacy Clause to
indirectly assert a private cause of action aimed at enforcing
Section 30(A)’s provisions. But that argument misses an
important and distinct point.
Plaintiffs are challenging the constitutionality of two
state statutes and the rate-setting action taken under the power
purportedly established by those statutes. They are not,
strictly speaking, challenging the Commissioner’s rate-setting
action under the Medicaid Act itself (which plaintiffs say
amounted to little more than acquiescence in unlawful rate-
setting directives issued by the Governor and Legislature). That
i s , plaintiffs do not sue to establish Medicaid-compliant rates,
4 but rather seek to invalidate what they assert are unlawful rates
dictated by preempted state law.
“Although participation in the Medicaid program is entirely
optional, once a State elects to participate, it must comply with
the requirements of [the Act].” Harris v . McRae, 448 U.S. 297,
301 (1980). One such requirement is that the State must have
(and must adhere to) a federally-approved plan for reimbursing
health care providers, 42 U.S.C. §§ 1396a(a), 1396d(a), and the
State must also promptly file any “[m]aterial changes in State
law, organization, or policy, or in the State’s operation of the
Medicaid program,” 42 C.F.R. § 430.12(e).
To the extent N.H. Rev. Stat. Ann (“RSA”) 126-A:3, VII(a)
and RSA 9:16-b, the state statutes at issue, authorize the
Governor and Legislature to usurp the Commissioner’s obligations
under federal law to properly set Medicaid reimbursement rates —
by dictating across-the-board percentage reductions completely
divorced from the approved rate-setting methodology published in
the State’s approved plan, and without regard to the processes
and standards required by the Medicaid Act — those state statutes
would no doubt be declared invalid (as applied) under the
5 Supremacy Clause.1 Such state legislation would necessarily
purport to override clear provisions of federal law and would
“seriously compromise important federal interests.” Pharm.
Research & Mfrs. of Am. v . Walsh, 538 U.S. 644, 671 (2003)
(Breyer, concurring). See also Arkansas Elec. Cooperative Corp.
v . Arkansas Pub. Serv. Comm’n, 461 U.S. 375, 389 (1983).
The New Hampshire statutes at issue here, as applied (i.e.,
the rate-setting actions taken under their authority) are highly
suspect. But, as noted in the court’s earlier order, RSA 126-A:3
is by its terms permissive, rather than mandatory (the
RSA 126-A:3, VII(a) provides in pertinent part:
If [Medicaid outpatient reimbursement] expenditures are projected to exceed the annual appropriation, the department may recommend rate reduction for providers to offset the amount of any such deficit. The department of health and human services shall submit to the legislative fiscal committee and to the finance committees of the house and the senate, the rates that it proposes to pay for hospital outpatient services. The rates shall be subject to the prior approval of the legislative fiscal committee.
RSA 9:16-b provides in pertinent part:
Notwithstanding any other provision of law, the governor may, with the prior approval of the fiscal committee, order reductions in any or all expenditure classes within any or all department . . . if he determines at any time during the fiscal year that:
(a) Projected state revenues will be insufficient to maintain a balanced budget and the likelihood of a serious deficit exists.
6 Commissioner “may” seek approval by the Fiscal Committee of a
“proposed” rate reduction). RSA 9:16-b, is broad in scope, and
does not directly focus on Medicaid rate-setting. Each statute
might plausibly be construed in this context as (implicitly)
requiring that any directed Medicaid rate reductions must also
necessarily comport with substantive and procedural rate-setting
requirements mandated by controlling federal law. It is also
conceivable that what may well have been intended by the Governor
and Legislature as arbitrary budget-driven rate reductions, in
disregard of the State’s voluntarily-assumed federal legal
obligations, might nevertheless be found to be consistent with
those controlling federal obligations and, therefore, might
eventually be approved by the Secretary of Health and Human
Services. But the Secretary has yet to weigh-in on those issues.
That fact puts this case in a different posture than
Douglas. Here, there is no final administrative decision by the
Secretary with respect to the propriety of the challenged rate
reductions, and it is not even clear that an administrative
proceeding that will produce a final (appealable) agency decision
is ongoing. Thus, it is hardly clear that plaintiffs are without
a Supremacy Clause remedy, or that they must first pursue
administrative remedies (that may not be available).
7 While a strong minority in Douglas would have held that the
Supremacy Clause is unavailable to medical service providers as a
means to enforce state obligations under Spending Clause
legislation (like the Medicaid Act) in which Congress has not
created a private right of action, the Court did not actually
adopt that view. Rather, the Court bypassed the Supremacy Clause
issue altogether, finding that intervening administrative action
by the Secretary of Health and Human Services put the case in a
different posture and posed a risk that the Supremacy Clause
claims, if adjudicated, would result in a decision that either
subjected states to conflicting interpretation of federal law, or
was redundant. See Douglas, 132 S . C t . at 1211. But in Douglas,
there was an appealable final agency administrative decision.
Here there is none. Consequently, it is not apparent at all that
plaintiffs’ Supremacy Clause claims are, at this point, either
unnecessary or redundant.
In this circuit, applicable precedent generally supports
plaintiffs’ claim of right to a cause of action challenging the
validity of state laws under the Supremacy Clause on grounds that
they conflict with federal law and undermine important federal
interests. See e.g. Pharm. Research & Mfrs. of Am. v . Concannon,
249 F.3d 66 (1st Cir. 2001), aff’d Pharm. Research & Mfrs. of Am.
v . Walsh, 538 U.S. 644 (2003). S o , while the differing views
8 expressed in Douglas concededly add up to serious doubt about the
future viability of private suits like this one, the law remains
unchanged by Douglas. This court is obliged to rule in a manner
consistent with applicable circuit and Supreme Court precedent
and cannot ignore that precedent in anticipation of future
change. See Lewis v . Alexander, 685 F.3d 325, 2012 WL 2334322,
* 14 (3d Cir. June 2 0 , 2012). See also Koenning v . Suehs, 2012
WL 4127956 (S.D. Tx. Sept 1 8 , 2012); Arizona Hosp. and Healthcare
Ass’n v . Betlach, 2012 WL 999066, * 11 (D. Ariz. Mar. 2 3 , 2012)
(“[a]lthough Douglas provides ample reason to doubt the viability
of such a claim, the current state of Ninth Circuit law seems to
support such claims under the Supremacy Clause.”).
Plaintiffs’ Supremacy Clause claims (Counts I-IV) are not
subject to dismissal at this point. That conclusion gives rise
to another potentially critical matter. As noted in Douglas and
by the court of appeals, the goals expressed in Section 30(A) of
the Medicaid Act (efficiency, quality of care, geographic
equality, reasonable rates) are “highly general and potentially
in tension.” Long Term Care Pharm. Alliance v . Ferguson, 362
F.3d 5 0 , 58 (1st Cir. 2004). Indeed, “read literally the statute
does not make these [criteria] directly applicable to individual
state decisions; rather state plans are to provide ‘methods and
procedures’ to achieve these general ends.” Id. “Thus, the
9 generality of the [Medicaid Act’s] goals and the structure for
implementing them suggest that plan review by the Secretary is
the central means of enforcement intended by Congress.” Id.
Accordingly, “the [Secretary of Health and Human Services’]
expertise is relevant in determining [the Act’s] application.”
Douglas 132 S.Ct. at 1211. “After all, the agency is
comparatively expert in the statute’s subject matter” and
Congress has committed to the Secretary the power to administer
the Medicaid program, including the power to exercise discretion
in enforcing its requirements. Id.
Here, as in Douglas, the underlying substantive legal
question is whether the challenged New Hampshire statutes, as
applied, are sufficiently inconsistent with federal statutory
provisions that the imposed rate reductions should be invalidated
and future implementation of those reduced rates enjoined. It is
evident, then, that the Secretary’s views as to whether New
Hampshire acted inconsistently with its legal obligations under
the Act, would materially aid the court in deciding whether
injunctive relief should issue. That is to say, the primary
jurisdiction doctrine may well favor referring those potentially
dispositive issues to the Secretary (CMS) for her initial
consideration and expert resolution. Referral seems appropriate
here as the Secretary’s views will certainly advance the sound
10 disposition of this litigation, facilitate the Secretary’s own
exercise of her administrative enforcement authority, and insure
uniformity and consistency in results in similar cases
nationwide. See e.g. Texas & P. R. C o . v . Abilene Cotton Oil
Co., 204 U.S. 426 (1907); Ass’n of Intern. Auto. & Mfrs., Inc. v .
Comm’n of Mass. Dept. of Envtl. Protection, 163 F.3d 74 (1st Cir.
1998).
The doctrine of primary jurisdiction seeks to promote proper
relationships between the courts and administrative agencies
charged with particular administrative duties. See United States
v . Western P. R. Co., 352 U.S. 5 9 , 63-64 (1956). When a
cognizable legal claim turns on issues that fall within the
special competence of an administrative agency, and the court
would benefit from the agency’s expertise, it is appropriate to
refer those issues to the agency and obtain its views. See
Pejepscot Indus. Park v . Maine Central R.R., 215 F.3d 195, 205
(1st Cir. 2000). Indeed, “if the issues referred to the agency
. . . are critical to judicial resolution of the underlying
dispute, the court cannot proceed with the trial of the case
until the agency has resolved those issues. In many
circumstances, the court that referred the issues to the agency
also must wait until the agency’s decision has been either upheld
or set aside by a different reviewing court.” Assn. of Intern.
11 Auto Mfrs., Inc. v . Commissioner, 196 F.3d 302, 304 (1st Cir.
1999) (quoting 2 Kenneth Culp Davis & Richards Pierce, Jr.,
Administrative Law Treaties, 271, 272-73 (3d ed. 1994)).
The defendant Commissioner asserts that the Secretary has
been actively reviewing the propriety of the rate reductions at
issue, as well as the procedure that produced them, for some
months now. Regularly scheduled meetings between CMS and the
Commissioner’s office have taken place and the Commissioner has
apparently responded in detail to numerous CMS requests for
information and clarification. Indeed, it is suggested that some
pending state plan amendment (SPA) requests have been modified in
ways that may be pertinent to the issues raised in this
litigation. Given that circumstance, the Secretary may well be
fully prepared to assist the court in addressing some or all of
the following questions:
1) Whether the issues raised by plaintiffs with respect to the validity of rate-reductions fall within the primary jurisdiction of the Secretary such that the case should be stayed pending final administrative resolution of those issues. See Ass’n of Intern. Auto. Mfrs., 196 F.3d at 304;
2) What, if any, administrative proceeding is ongoing relative to determining the propriety of the rate reductions at issue;
3) Whether any final agency action is expected with respect to the rate reductions that are subject to the complaint in this case, and if s o , when;
12 4) Whether, in the Secretary’s view, the Commissioner’s imposition of the rate reductions at issue comports with the substantive and procedural requirements of the Medicaid Act and implementing regulations;
5) Whether the imposed rate reductions at issue have been, or are likely to b e , approved by the Secretary;
6) Whether issuance of equitable relief enjoining implementation of the reduced rates at issue would be in the public interest in that such an injunction would facilitate the Secretary’s exercise of her enforcement responsibilities under the Medicaid Act.
Given that plaintiffs have made a substantial showing that
hardship is being suffered by both providers and Medicaid
eligible patients due to the reduced rates, and that continuing
enforcement of those rates, if unlawful, will at some point
result in irreparable injury (e.g., loss of medical care
facilities, providers, and the concomitant inability of Medicaid
patients to obtain needed care), the court will schedule a
hearing at which the Secretary’s expert views, and those of the
parties, will be heard on the questions posed above, as well as
on any related matters. The Secretary is invited to appear on an
amicus basis or otherwise, through counsel, and the Secretary and
parties may address the issues raised either orally or in written
submissions, as they prefer.
Conclusion
The defendant’s motion to dismiss Counts I-IV of the
complaint (document n o . 48) is denied.
13 The Clerk shall schedule a hearing on the matter on November
1 , 2012. A copy of this order shall be provided to the United
States Attorney, who shall insure that the appropriate
responsible officers within the Department of Health and Human
Services are made aware of its contents in sufficient time to
allow a meaningful response to the issues raised, particularly
the Secretary’s position with respect to her primary jurisdiction
to administratively determine the validity of the rate reductions
at issue under the Medicaid Act.
SO ORDERED.
Steven J. McAuliffe / T - ^ n -I- ^ ^I o-i-^-i-^^ T ^ -; ^ -i- -^ Jnited States District Judge
September 27, 2012
cc: John P. Kacavas, United States Attorney, NH Martha Van Oot, Esq. William L. Chapman, Esq. Anthony J. Galdieri, Esq. Emily P. Feyrer, Esq. Gordon J. MacDonald, Esq. W . Scott O’Connell, Esq. John E . Friberg, Jr., Esq. Erica Bodwell, Esq. Mitchell B . Jean, Esq. Nancy J. Smith, Esq. Jeanne P. Herrick, Esq. Laura E . B . Lombardi, Esq. Constance D. Sprauer, Esq.