Safe Haven Home Care, Inc. v. United States Department of Health and Human

130 F.4th 305

• Court: Court of Appeals for the Second Circuit
• Decided: March 6, 2025
• Docket: 23-1231
• Status: Published

Opinion

23-1231 Safe Haven Home Care, Inc. v. United States Department of Health and Human Services

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term, 2024

Argued: September 16, 2024 Decided: March 6, 2025

Docket No. 23-1231-cv

SAFE HAVEN HOME CARE, INC., ELIM HOME CARE AGENCY, LLC, SILVER LINING HOMECARE AGENCY, ANGEL CARE, INC.,

Plaintiffs-Appellants,

— v. —

UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, ROBERT F. KENNEDY, JR., in his official capacity as Secretary of the United States Department of Health and Human Services, UNITED STATES CENTERS FOR MEDICARE & MEDICAID SERVICES, STEPHANIE CARLTON, in her official capacity as Administrator of the U.S. Centers for Medicare and Medicaid Services, NEW YORK STATE DEPARTMENT OF HEALTH, JAMES V. MCDONALD, in his official capacity as Commissioner of the New York State Department of Health, AMIR BASSIRI, in his official capacity as Medicaid Director of the New York State Department of Health,

Defendants-Appellees.*

* The Clerk of Court is respectfully directed to amend the official caption in this case to conform to the caption above. B e f o r e:

LYNCH, PÉREZ, and MERRIAM, Circuit Judges.

__________________

This appeal challenges the decision of the U.S. Centers for Medicare & Medicaid Services to approve the New York State Department of Health’s application to pay $361.25 million to certain managed care organizations, which assist the State of New York in administering its Medicaid system. As detailed in the approved application, the managed care organizations were instructed to direct the money to the top one-third of revenue-generating licensed home care services agencies in New York’s four rate regions that were willing to agree to use the funding in a particular manner. Appellants, licensed home care services agencies that did not satisfy the revenue threshold for eligibility to receive this funding from the New York State Department of Health, argue that the approval of the application was unlawful under federal law and regulations because the class of eligible licensed home care services agencies was improperly defined and the application was not assessed for actuarial soundness before pre-approval was granted.

The district court (Cronan, J.) dismissed the amended complaint against the State Appellees for failure to adequately allege a cause of action under Ex parte Young, 209 U.S. 123 (1908), and granted summary judgment to the Federal Appellees, concluding that the approval of the State’s application did not violate the Administrative Procedure Act. In addition, the district court denied Appellants’ motion for the admission of extra-record evidence. We agree that the decision to approve New York’s distribution of the funds complied with federal law and conclude that that determination resolves Appellants’ claims against both the Federal and State Appellees on the merits. We also conclude that the district court did not abuse its discretion in excluding Appellants’ extra-record evidence. We therefore AFFIRM the judgment of the district court.

2 DEREK ADAMS (Susan Baldwin Hendrix, on the briefs), Potomac Law Group, PLLC, Washington, D.C., for Plaintiffs-Appellants.

MOLLIE KORNREICH (David E. Farber, Benjamin H. Torrance, on the brief), Assistant United States Attorneys, for Damian Williams, United States Attorney for the Southern District of New York, New York, NY, for United States Department of Health and Human Services, Xavier Becerra, United States Centers for Medicare & Medicaid Services, and Chiquita Brooks-Lasure.

BLAIR J. GREENWALD, Assistant Solicitor General (Barbara Underwood, Solicitor General, Judith N. Vale, Deputy Solicitor General, on the brief), for Letitia James, Attorney General of the State of New York, New York, NY, for New York State Department of Health, James V. McDonald, and Amir Bassiri.

GERARD E. LYNCH, Circuit Judge:

Plaintiffs-appellants Safe Haven Home Care, Inc., Elim Home Care

Agency, LLC, Silver Lining Homecare Agency, and Angel Care, Inc. (together,

“Appellants”) are licensed home care services agencies (“LHCSAs”) that did not

receive funding when appellee the New York State Department of Health

(“NYSDOH”) disbursed $361.25 million in funds to the top one-third of revenue

generating LHCSAs in New York, after obtaining the written pre-approval of

appellee the U.S. Centers for Medicare & Medicaid Services (“CMS”) to do so. In

3 this action, Appellants contend that CMS’s decision to pre-approve NYSDOH’s

application to make this payment violated the Administrative Procedure Act

(“APA”). The district court (John P. Cronan, J.) disagreed, holding that

Appellants had failed to state a claim against the State Appellees and that the

Federal Appellees were entitled to summary judgment. We agree and therefore

AFFIRM the judgment of the district court.

BACKGROUND

On March 11, 2021, the American Rescue Plan Act of 2021 (“ARPA”) was

enacted to redress the harmful effects of the COVID-19 pandemic on the

economy and the healthcare system. See American Rescue Plan Act of 2021, Pub.

L. No. 117-2, 135 Stat. 4; West Virginia ex rel. Morrisey v. U.S. Dep’t of Treasury, 59

F.4th 1124, 1132 (11th Cir. 2023). One feature of ARPA was increased federal

matching for qualifying state Medicaid expenditures. See Pub. L. No. 117-2,

§§ 9814–15, 9817, 135 Stat. at 215–17.

A particular aspect of that increased federal matching is at the heart of the

instant appeal. Section 9817 of ARPA increased “the Federal medical assistance

percentage . . . by 10 percentage points with respect to expenditures of the State

under the State Medicaid program for home and community-based services”

4 provided between April 1, 2021 and March 31, 2022. Id. § 9817(a), 135 Stat. at 216.

In turn, Section 9817(b) imposed two restrictions on how States were to utilize

this increased funding: (1) the State was required to “use the Federal funds

attributable to the increase under subsection (a) to supplement, and not supplant,

the level of State funds expended for home and community-based services for

eligible individuals through programs in effect as of April 1, 2021”; and (2) the

State had to “implement, or supplement the implementation of, one or more

activities to enhance, expand, or strengthen home and community-based services

under the State Medicaid program.” Id. § 9817(b), 135 Stat. at 217.

This appeal originates from NYSDOH’s decision to use this increased

federal matching to direct approximately $361 million to certain providers of

home and community-based services in New York known as LHCSAs.

I. Statutory and Regulatory Framework

Before turning to the particularities of the funding decision at issue in this

appeal, it is necessary to understand how New York administers its Medicaid

program through managed care organizations. Managed care organizations are

“health insurance plans or health care systems.” J. App’x 46, ¶ 38. The State of

New York contracts with managed care organizations, and the managed care

5 organizations, in turn, contract with medical providers, who then provide

medical care to Medicaid enrollees. See Community Health Care Ass’n of New York

v. Shah, 770 F.3d 129, 137 (2d Cir. 2014). Simply put, managed care organizations

act as middlemen between the State and the medical providers and Medicaid

enrollees who benefit from the Medicaid program.

The manner in which New York may contractually compensate managed

care organizations is subject to limitations imposed by federal law. Generally

speaking, States compensate managed care organizations via capitation

payments, which are fixed periodic payments that a managed care organization

receives per enrolled individual regardless of whether or how much that enrolled

individual utilizes medical services during the relevant payment period. See 42

C.F.R. § 438.2 (2021). To be eligible to receive federal reimbursement for those

expenditures, the State must make capitation payments that are “actuarially

sound.” 42 U.S.C. § 1396b(m)(2)(A)(iii). That means the capitation payment must

be “projected to provide for all reasonable, appropriate, and attainable costs that

are required under the terms of the contract and for the operation of the

[managed care organization] . . . for the time period and the population covered

under the terms of the contract.” 42 C.F.R. § 438.4(a) (2021).

6 Federal regulations generally prohibit a State from “direct[ing]” a managed

care organization’s “expenditures under the [relevant] contract” between the

State and the managed care organization. 42 C.F.R. § 438.6(c)(1) (2021).1 There

are, however, exceptions to this general prohibition that permit the State to direct

the expenditures of managed care organizations, which are known as state-

directed payments. See id. § 438.6(c)(1)(i)–(iii). One of those exceptions is relevant

here. A State is permitted to require a managed care organization to “[p]rovide a

uniform dollar or percentage increase for network providers that provide a

particular service under the contract.” Id. § 438.6(c)(1)(iii)(C).

Before directing a managed care organization to disburse such a state-

directed payment, the State must prepare an application, submit that application

to CMS, and receive CMS’s written pre-approval. See id. § 438.6(c)(2)(ii). Federal

regulations delineate the scope of CMS’s review of such applications. Section

438.6(c)(2) provides, inter alia, that

1 Section 438.6 was substantially amended as of July 9, 2024. See Medicaid Program; Medicaid and Children’s Health Insurance Program (CHIP) Managed Care Access, Finance, and Quality, 89 Fed Reg. 41002 (May 10, 2024). Neither party has argued that the amended regulation should be given retroactive effect in this case. Accordingly, this Court’s decision relies exclusively on the version of the federal regulations that were in effect at the time CMS granted pre-approval to NYSDOH’s application.

7 (i) All contract arrangements that direct the [managed care organization’s] . . . expenditures under paragraphs (c)(1)(i) through (iii) of this section must be developed in accordance with § 438.4, the standards specified in § 438.5, and generally accepted actuarial principles and practices.

(ii) Contract arrangements that direct the [managed care organization’s] . . . expenditures under paragraphs (c)(1)(i) and (ii) and (c)(1)(iii)(B) through (D) of this section must have written approval prior to implementation. . . . To obtain written approval, a State must demonstrate, in writing, that the arrangement— (A) Is based on the utilization and delivery of services; (B) Directs expenditures equally, and using the same terms of performance, for a class of providers providing the service under the contract; (C) Expects to advance at least one of the goals and objectives in the quality strategy in § 438.340; (D) Has an evaluation plan that measures the degree to which the arrangement advances at least one of the goals and objectives in the quality strategy in § 438.40; (E) Does not condition provider participation in contract arrangements under paragraphs (c)(1)(i) through (iii) of this section on the provider entering into or adhering to intergovernmental transfer arrangements; and (F) May not be renewed automatically.

In accordance with this regulation, during the time period relevant to this appeal,

CMS reviewed applications for pre-approval to ensure compliance with the

requirements of 42 C.F.R. § 438.6(c)(2)(ii) but did not evaluate the applications for

actuarial soundness during the pre-approval process. Instead, actuarial

soundness was evaluated as part of the separate periodic review of the State’s

8 rate certifications.

II. Administrative Proceedings

With that regulatory background in mind, we turn to the specifics of the

state-directed payment at issue in this appeal. On December 23, 2021, NYSDOH

sought pre-approval from CMS to make a state-directed payment under 42 C.F.R.

§ 438.6(c)(1)(iii)(C) in connection with utilizing the increased federal matching

provided under Section 9817 of ARPA.2 The application indicated that the State

of New York was seeking approval to make a payment totaling $361.25 million to

two specific types of managed care organizations: Managed Long-Term

Capitation Plans (“MLTCP”) and Medicaid Advantage Plus Plans (“MAP”),

which, in turn, would be required to pay that money to qualifying LHCSAs. The

increased funding was structured to be a “[u]niform [d]ollar or [p]ercentage

[i]ncrease,” meaning that the qualifying LHCSAs would receive an additional

“$3.69 per hour of service” provided during the relevant time period. J. App’x

298–99.

The application indicated, however, that not all LHCSAs in New York

2 That application is the operative application at issue in this case. NYSDOH had submitted an incomplete version of the application on November 15, 2021.

9 would qualify to receive that increase. Instead, the eligible class of providers was

limited to those LHCSAs “whose 2019 managed care revenue received from

MLTCP and MAP plans falls in the top third of providers in their designated . . .

rate regions and that attest to using the funding on State-directed programs

and/or services in SFY 2022 (April 1, 2021 through March 31, 2022) and 2023

(April 1, 2022 through March 31, 2023).” Id. at 293. In total, 212 LHCSAs across

four different rate regions (the “NYC Area,” the “Mid-Hudson/Northern Metro,”

the “Northeast/Western,” and the “Rest of State” regions) met those eligibility

criteria. Id. at 343–44.

NYSDOH’s application provided a justification for this limitation on

eligible LHCSAs. NYSDOH explained that its central goal in making the state-

directed payment was to “increas[e] the quality and capacity of the [Medicaid

home and community-based services] workforce, such that the [LHCSAs] are

able to implement evidence-based care interventions, promote quality, and

prepare to participate effectively in value-based payment . . . arrangements.” Id.

at 300. NYSDOH argued that providing funding only to the highest-revenue-

generating LHCSAs would best further that goal because those agencies account

for “92% of managed care revenue from MLTCP and MAP plans”; therefore,

10 targeting those agencies would lead to “greater, more targeted and meaningful

investments” as compared to spreading the funding across all LHCSAs in New

York. Id.

After NYSDOH’s application was submitted for CMS’s review, some New

York-based LHCSAs lodged an objection to NYSDOH’s proposed limitations on

the eligible class of providers. On January 19, 2022, the Potomac Law Group, on

behalf of a group of LHCSAs, sent a letter to CMS requesting that CMS withhold

approval of NYSDOH’s application, contending that defining a class of eligible

providers based on a revenue threshold is inconsistent with federal regulations.

After receiving that objection, CMS asked NYSDOH follow-up questions about

the definition of the provider class, which NYSDOH then answered in a revised

application submitted on February 1, 2022.3

In response to CMS’s questions, NYSDOH explained that it had limited the

provider class to the top one-third of revenue generating LHCSAs “to maximize

3 NYSDOH answered CMS’s questions in a document appended to the end of the revised application. Otherwise, the revised application was largely identical to the application submitted on December 21, 2021, with the exception of a revised calculation indicating that the uniform dollar increase would result in an additional “$3.80 per hour of service” being paid to qualifying LHCSAs for services performed between April 1, 2021, and September 30, 2021. J. App’x 353, 359.

11 the impact of these funds in achieving the goals of the [application]—specifically,

to improve the quality of care for Medicaid members by ensuring that the funds

are adequate to enable meaningful and innovative workforce recruitment and

retention initiatives.” Id. at 375. NYSDOH backed this proposition up with

quantitative reasoning:

The top third of LHCSAs—as included in this preprint—comprise the vast majority of Medicaid service delivery at 92% of total Medicaid spend for personal care services provided by LHCSAs. Because there is a large volume of small LHCSAs with de minimis Medicaid service delivery hours and reimbursement, funding all LHCSAs that participate in Medicaid would result in the receipt of funding by hundreds of very small providers in the bottom two-thirds, whose revenue only total 8% of Medicaid spend for personal care services provided by LHCSAs. To that end, if the State were to include all LHCSAs in the provider class, about 350 LHCSAs would receive less than $1,000. Based on the approved purposes of this funding, it is unlikely that such small award amounts would have a meaningful impact on workforce development and [value-based payment] readiness for the personal care sector. Accordingly, by limiting the provider class to LHCSAs that have greater engagement with the Medicaid program, the State can distribute larger amounts of funding to each provider that will result in real, long-term change for the personal care sector, consistent with the direction and purposes of Section 9817 of ARPA.

Id. (emphasis in original).

NYSDOH then submitted another revised application on February 23,

2022, which was identical to the February 1, 2022 application in all respects

relevant to this appeal. Finally, on March 4, 2022, CMS granted written approval

12 to NYSDOH’s application. In so doing, CMS indicated that its approval “only

satisfie[d] the regulatory requirement pursuant to 42 CFR 438.6(c)(2) for written

approval prior to implementation of any payment arrangement described in 42

CFR 438.6(c)(1)” and thus did “not constitute approval of any Medicaid managed

care plan contracts or rate certifications for the aforementioned rating period.” Id.

at 405. In other words, it remained necessary for NYSDOH to submit rate

certifications, which incorporate state-directed payments, for CMS to review for

compliance with the applicable statutory and regulatory requirements governing

New York’s payments to managed care organizations, including actuarial

soundness. See 42 C.F.R. §§ 438.4(b), 438.7 (2021).

This lawsuit followed shortly thereafter.

III. Procedural History

On March 18, 2022, six LHCSAs that had been excluded from eligibility for

funding as a result of the revenue threshold sued CMS, the United States

Department of Health and Human Services (“HHS”), NYSDOH, and various

officials of those agencies.4 Soon thereafter, the LHCSAs sought to enjoin

4 The specific officials sued were Xavier Becerra in his official capacity as Secretary of HHS, Chiquita Brooks-Lasure in her official capacity as Administrator of CMS, Mary Bassett in her official capacity as Commissioner of

13 NYSDOH from making the scheduled disbursement of the pre-approved state-

directed payment on March 31, 2022. After a full evidentiary hearing, the district

court denied the LHCSAs’ motion for a preliminary injunction. The LHCSAs

promptly filed an interlocutory appeal on April 4, 2022; however, that appeal was

withdrawn after this Court denied their motion for an injunction pending appeal.

On June 1, 2022, Appellants, a subset of the original plaintiff LHCSAs, filed

an amended complaint, suing the same defendants for injunctive and declaratory

relief. Appellants averred that CMS’s approval of NYSDOH’s application was

unlawful because the state-directed payment was not actuarially sound and the

class of providers was improperly defined. The amended complaint accordingly

asserted that the APA had been violated because, in approving NYSDOH’s

application, CMS exceeded its statutory authority, did not act in accordance with

law, and acted arbitrarily and capriciously.

On September 2, 2022, the Federal Appellees moved to dismiss the

amended complaint and, in the alternative, for summary judgment based on the

NYSDOH, and Brett Friedman in his official capacity as Medicaid Director of NYSDOH. For the sake of brevity, this Opinion refers to the federal agencies and officials sued as the “Federal Appellees” and to the state agency and officials sued as the “State Appellees.”

14 certified administrative record. That same day, the State Appellees moved to

dismiss the amended complaint. Appellants opposed both motions and moved

for the admission of extra-record evidence. On July 10, 2023, the district court

granted summary judgment to the Federal Appellees, dismissed the amended

complaint against the State Appellees, and denied Appellants’ motion for the

admission of extra-record evidence. See Safe Haven Home Care, Inc. v. U.S. Dep’t of

Health and Human Servs., 681 F. Supp. 3d 195 (S.D.N.Y. 2023).

With respect to the Federal Appellees, the district court held that CMS’s

approval of NYSDOH’s application complied with federal law. As most relevant

to this appeal, the district court first concluded that the provider class was

properly defined, under 42 C.F.R. § 438.6(c)(2)(ii)(B), because the plain text of the

regulation permitted CMS to approve a provider class that is defined based on a

revenue threshold. Safe Haven Home Care, 681 F. Supp. 3d at 219. The district court

then held that CMS was not required to assess actuarial soundness as part of the

pre-approval process; accordingly, CMS’s approval decision was not rendered

unlawful by its failure to analyze NYSDOH’s application for actuarial soundness.

Id. at 220–22. Finally, the district court held that CMS did not otherwise act

arbitrarily or capriciously when it approved NYSDOH’s application, as CMS did

15 not fail to consider any factors it was required to evaluate under federal law. Id.

at 222–25.

Ancillary to its decision on the merits of the Federal Appellees’ summary

judgment motion, the district court denied Appellants’ motion for the admission

of extra-record evidence. Id. at 225–26. The district court reasoned that because

CMS was not required to assess actuarial soundness during the pre-approval

process, it would be improper to admit Appellants’ extra-record evidence, which

pertained only to actuarial soundness. Id.

Finally, with respect to the State Appellees, the district court dismissed the

amended complaint, with leave to amend, because it failed to adequately allege a

cause of action under Ex Parte Young, 209 U.S. 123 (1908). Safe Haven Home Care,

681 F. Supp. 3d at 207–12. Instead of amending their complaint, Appellants took

the instant appeal.

DISCUSSION

I. Federal Appellees

We start with the grant of summary judgment to the Federal Appellees. On

appeal, Appellants argue that the district court failed to recognize that the

Federal Appellees acted unlawfully in two principal ways: first, by approving an

16 improperly defined provider class, and second, by failing to assess actuarial

soundness before granting pre-approval. Appellants also argue that the district

court improperly denied their motion for the admission of extra-record

evidence.5 For the reasons discussed below, we find that CMS’s approval of

NYSDOH’s application complied with federal law and that Appellants’ extra-

record evidence was properly excluded. We therefore affirm the grant of

summary judgment to the Federal Appellees.

A. Standard of Review

“On appeal from a grant of summary judgment involving a claim brought

under the [APA], we review the administrative record de novo without according

deference to the decision of the district court.” New York v. Raimondo, 84 F.4th 102,

106 (2d Cir. 2023) (alteration in original), quoting Town of Southold v. Wheeler, 48

F.4th 67, 77 (2d Cir. 2022). We also review any questions of statutory

5 The district court also held that the state-directed payment complied with the regulatory requirement that it be “based on the utilization and delivery of services,” 42 C.F.R. § 438.6(c)(2)(ii)(A), because “the amount of money paid to each LHCSA depends on the number of hours of home-care services provided during the relevant period,” Safe Haven Home Care, 681 F. Supp. 3d at 218. Appellants did not challenge that holding until their reply brief. Accordingly, we decline to consider it. See EDP Medical Computer Sys., Inc. v. United States, 480 F.3d 621, 625 n.1 (2d Cir. 2007); FTC v. Verity Int’l, Ltd., 443 F.3d 48, 65 (2d Cir. 2006).

17 interpretation de novo. See Power Auth. v. M/V Ellen S. Bouchard, 968 F.3d 165, 170

(2d Cir. 2020). However, our “review of agency actions under the Administrative

Procedure Act is narrow and deferential.” American Cruise Lines v. United States,

96 F.4th 283, 286 (2d Cir. 2024) (internal quotation marks omitted). We will “only

set aside an agency action” if it “is arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with the law.” Id. (internal quotation marks omitted).

B. Provider Class

Appellants contend that the Federal Appellees violated the APA because

CMS regulations prohibit defining a provider class based upon a revenue

threshold. We disagree.

The validity of Appellants’ challenge hinges on the meaning of “a class of

providers” in 42 C.F.R. § 438.6(c)(2)(ii)(B). To interpret that key phrase, we start

with “the traditional tools” of statutory interpretation: “the text, structure,

history, and purpose of [the] regulation.” Kisor v. Wilkie, 588 U.S. 558, 575 (2019)

(internal quotation marks omitted). If, after deploying those traditional tools, we

find that the meaning of the regulation is unambiguous, our task is completed,

and we need not defer to the agency’s interpretation of its own regulation. Walsh

v. Walmart, Inc., 49 F.4th 821, 827–28 (2d Cir. 2022). Here, those traditional tools of

18 statutory interpretation foreclose Appellants’ position.

We first look at the relevant text. In order to obtain CMS’s written pre-

approval, the “State must demonstrate, in writing, that the arrangement,” inter

alia, “[d]irects expenditures equally, and using the same terms of performance,

for a class of providers providing the service under the contract.” 42 C.F.R.

§ 438.6(c)(2)(ii) (emphasis added). The relevant dictionary definition of a “class”

is “[a] set or category of things having some related properties or attributes in

common, grouped together, and differentiated from others under a general name

or description; a kind, a sort.” Class, OXFORD ENGLISH DICTIONARY,

https://www.oed.com/dictionary/class_n?tl=true#9303200 (last visited Jan. 17,

2025); see also Class, MERRIAM-WEBSTER’S UNABRIDGED DICTIONARY,

https://unabridged.merriam-webster.com/unabridged/class (last visited Dec. 9,

2024) (“a group, set, or kind marked by common attributes or a common

attribute”). Accordingly, the plain text of the regulation requires that a State

define its provider class based on an identifiable, shared characteristic that

distinguishes the providers in the class from providers outside the class.

If we stopped there, as the district court did, the regulation would seem to

permit the State to propose, and CMS to approve, a class of providers as long as

19 those medical providers share any identifiable characteristic. See Safe Haven Home

Care, 681 F. Supp. 3d at 219. We recognize, as the district court did implicitly, that

the dictionary definition of “class” is extremely broad. Indeed, providers may be

divided into classes in any number of ways, and the directive to act with

reference to classes of providers, rather than directing funds to providers on an

individual basis, does not appear to give preference to any particular method of

categorization. Accordingly, absent any contextual reference to a specific scheme

of classification, we are skeptical of Appellants’ contention that the instruction to

treat “a class of providers” equally, 42 C.F.R. § 438.6(c)(2)(ii)(B), somehow means

that the proper class here is all LHCSAs.

Nevertheless, the district court’s conclusion that the regulation permits any

kind of classification by reference to any common characteristic would render the

requirement meaningless, as such an interpretation inherently lacks content or

limiting principles. It would permit CMS to approve a class defined by

characteristics that are completely irrelevant to the permissible purposes for

making state-directed payments. For example, if we accepted the district court’s

interpretation of the regulation, then CMS could approve a state-directed

payment to a class of all dental practices accepting Medicaid in New York City

20 that employ a dentist named Smith. That is certainly a group of providers that

share a common characteristic, but one might reasonably question whether such

a class is crafted to further permissible objectives in directing the expenditures of

managed care organizations, the particular context that is relevant here.

That is exactly why we must not “construe words ‘in a vacuum.’” Gundy v.

United States, 588 U.S. 128, 141 (2019), quoting Davis v. Michigan Dep’t of Treasury,

489 U.S. 803, 809 (1989). Instead, it is critical that we look to the broader

regulatory context to discern the meaning of the regulation. See Rock of Ages Corp.

v. Secretary of Labor, 170 F.3d 148, 155 (2d Cir. 1999). To do so, we need look no

further than Section 438.6 itself as a whole.

As we have already explained, Section 438.6 generally prohibits States

from “direct[ing] the [managed care organization’s] . . . expenditures under the

contract,” 42 C.F.R. § 438.6(c)(1), but does include specific exceptions that permit

the State to direct expenditures under limited circumstances as long as the State

obtains written pre-approval from CMS before making such an expenditure

“under paragraphs (c)(1)(i) and (ii) and (c)(1)(iii)(B) through (D),” 42 C.F.R.

§ 438.6(c)(1)(i)–(2). The regulation is structured that way for a reason. The general

prohibition on directing expenditures bans the use of what are known as “pass-

21 through” payments, because a State’s contract with a managed care organization

is supposed to “define[] the comprehensive cost for the delivery of services under

the contract, and . . . the [managed care organization] . . . , as [a] risk-bearing

organization[],” is supposed to be able to “maintain the ability to fully utilize the

payment under that contract for the delivery of services.” Medicaid and

Children’s Health Insurance Program (CHIP) Programs; Medicaid Managed

Care, CHIP Delivered in Managed Care, and Revisions Related to Third Party

Liability (“Final 2016 Rule”), 81 Fed. Reg. 27498, 27582, 27589, 27591 (May 6,

2016).6

The regulation, however, provided carve-outs, because CMS recognized

that there may be circumstances in which permitting the State to direct

expenditures would further permissible Medicaid-related goals. Specifically, the

carve-outs were designed so as “to encourage states to use health plans as

partners to assist the states in achieving overall delivery system and payment

reform and performance improvements,” and to give states the ability “to

6 The regulation in effect at the time CMS rendered its decision in this case laid out a schedule pursuant to which the States’ use of “pass-through” payments would be phased out over time. See 42 C.F.R. § 438.6(d); Final 2016 Rule, 81 Fed. Reg. at 27588, 27590.

22 incentivize and retain certain types of providers to participate in the delivery of

care to Medicaid beneficiaries under a managed care arrangement.” Medicaid

and Children’s Health Insurance Program (CHIP) Programs; Medicaid Managed

Care, CHIP Delivered in Managed Care, Medicaid and CHIP Comprehensive

Quality Strategies, and Revisions Related to Third Party Liability (“Proposed

2015 Rule”), 80 Fed. Reg. 31098, 31124 (proposed June 1, 2015); see also Final 2016

Rule, 81 Fed. Reg. at 27582. Notably, CMS intentionally chose not to promulgate

an exception permitting states to direct payments to “specific providers” without

any tie “to delivered services or the outcomes of those services” because such

payments would constitute prohibited, actuarially unsound, “pass-through”

payments. Final 2016 Rule, 81 Fed. Reg. at 27587–89. Rather than provide such an

exception, CMS chose to give the States flexibility through the class-of-providers

requirement in 42 C.F.R. § 438.6(c)(2), which was designed to be “a tool through

which states and managed care plans can support payment rates that are directly

tied to services” while still “direct[ing]” payments “toward specific classes of

providers.” Id. at 27590.

With that context in mind, we read 42 C.F.R. § 438.6(c)(2)(ii)(B) to require

that the shared, identifiable characteristics that the State uses to define a provider

23 class plausibly further some permissible Medicaid-related goal, such as

“enhancing services and ensuring access” to care. Final 2016 Rule, 81 Fed. Reg. at

27583; see also Proposed 2015 Rule, 80 Fed. Reg. at 31124. To interpret the

provision otherwise -- to permit States to propose, and CMS to pre-approve, any

provider class as long as the providers shared some identifiable characteristic --

would do violence to the regulatory scheme, which is centered on permitting

States to direct expenditures only if doing so will further permissible Medicaid-

related goals.

That, however, is where the limitations on the States’ ability to craft

provider classes end. But Appellants’ arguments on appeal do not stop there.

Instead, relying on CMS’s sub-regulatory guidance and the application form

itself, Appellants urge this Court to interpret the regulation to require the State to

direct a payment to all providers of a service under the managed care

organization’s contract and not just to a smaller subset of such providers. If that

rule were adopted and applied to this case, it would require NYSDOH to direct

funding to all LHCSAs, not just those that are top revenue-earners. The problem

for Appellants is that there is no textual or contextual hook to support such a

limitation.

24 To start, the sub-regulatory guidance upon which Appellants rely is

unavailing. Appellants point to a CMS bulletin which states that “CMS has

deferred to states in defining the provider class for purposes of state directed

payment arrangements, as long as the provider class is reasonable and

identifiable, such as the provider class being defined in the state’s Medicaid State

Plan.” Centers for Medicare & Medicaid Services, Medicaid Managed Care Options

in Responding to COVID-19, at 6 (May 14, 2020),

https://www.medicaid.gov/federal-policy-guidance/downloads/cib051420.pdf

(“2020 CMS Bulletin”). The bulletin then elaborates that “[e]xamples of state

directed payments for a target class or classes of providers providing services

under the contract could include dental, behavioral health, home health and

personal care, pediatric, federally-qualified health centers, and safety-net

hospitals.” Id.

But the extrapolation that Appellants seek to draw from this guidance (that

the proper provider class here is all LHCSAs, because LHCSAs are a provider

class recognized under New York law and New York’s Medicaid State plan) is

unfounded. First, the plain text of the bulletin provides illustrative, rather than

exhaustive, “[e]xamples” of permissible provider classes. Id.; see also Samantar v.

25 Yousuf, 560 U.S. 305, 317 (2010) (noting that the “use of the word ‘include’ can

signal that the list that follows is meant to be illustrative rather than exhaustive”);

Bragdon v. Abbott, 524 U.S. 624, 639 (1998) (“As the use of the term ‘such as’

confirms, the list is illustrative, not exhaustive.”).

Second, to the extent that the bulletin is treated, as Appellants would treat

it, as limiting or guiding our interpretation of the term “class of providers,”42

C.F.R. § 438.6(c)(2)(ii)(B), its text points us in a direction opposite to Appellants’

assertion. The bulletin, rather than incorporating some specified classificatory

scheme, expressly announces CMS’s intention to permit any State definition of a

class that is “reasonable and identifiable.” 2020 CMS Bulletin, at 6. In other

words, CMS interprets the regulation that requires States to treat classes of

providers equally to permit States to direct payments to classes that are defined

reasonably, that is, in ways that plausibly further the goals of the Medicaid

program. In sum, CMS’s sub-regulatory guidance is a dead end for Appellants.

Even less persuasive is Appellants’ attempt to infer a limitation from the

application form itself. Appellants appear to believe that the fact that the

application form requires States to select a “general class of providers [that]

would be affected by the state directed payment” (here, “HCBS/personal care

26 services”) means that any further limitation on a class of providers must be

improper. J. App’x 414. But even if we could draw inferences about the meaning

of the regulation from the application form, the form itself undermines the very

inference that Appellants ask us to draw. That is because the next page of the

application form asks States to “define the provider class(es) (if further narrowed

from the general classes indicated above).” Id. at 415 (emphasis added). Accordingly,

CMS plainly thought it was permissible for States to further limit a provider class

beyond the general provider classes laid out earlier in the application form.

Moreover, Appellants’ own classification, which demands that New York treat

all LHCSAs equally, fails their own test, since LHCSAs are themselves a limited

subset of “HCBS/personal care services.” Id. at 414. Appellants’ argument

therefore fails on its own terms.

Appellants’ argument, however, suffers from an even more fatal flaw than

the weakness of the regulatory indicia upon which it is built: the limitation that

Appellants ask us to read into the regulation was one that CMS intentionally

omitted. As initially proposed, the regulation would have required States to

“demonstrate, in writing, that the arrangement . . . [d]irects expenditures equally,

and using the same terms of performance, for all public and private providers

27 providing the service under the contract.” 2015 Proposed Rule, 80 Fed. Reg. at

31259 (emphasis added). But CMS replaced “all public and private providers”

with “a class of providers” in the final rule after receiving public comments

urging “that states be permitted to direct payments to certain provider types

within a service classification without having to include all providers of that

same service under a singular payment initiative.” 2016 Final Rule, 81 Fed. Reg.

at 27586, 27860. CMS did so because it agreed with the public commenters that

requiring state-directed payments to go to “all public and private providers”

would be “unnecessarily restrictive and could have inhibited a state’s policy

goals for the Medicaid program.” Id. at 27586. Appellants’ position, that the

payment must go to all LHCSAs in New York, would have this Court reimpose a

limitation that CMS purposely removed from the regulation, thus requiring the

State “to include all providers of that same service under a singular payment

initiative.” Id. We decline to do so.

In sum, Section 438.6(c)(2)(ii)(B) permits States to propose, and CMS to pre-

approve, a state-directed payment that goes to a subset of providers that share an

identifiable characteristic that plausibly furthers some permissible Medicaid-

28 related goal.7

Applying the proper standard, we agree with CMS that it acted in

accordance with federal law in approving NYSDOH’s proposed provider class.

NYSDOH defined the provider class based on shared, identifiable characteristics:

revenue and willingness to attest to using the state-directed payment in a

particular way. Those criteria plausibly further a permissible purpose: to

“increas[e] the quality and capacity of the [Medicaid home and community-based

services] workforce, such that the [LHCSAs] are able to implement evidence-

based care interventions, promote quality, and prepare to participate effectively

in value-based payment . . . arrangements.” J. App’x 300. Because the top one-

third of revenue-generating LHCSAs provide “the vast majority” of “personal

care services provided by LHCSAs,” it is plausible that targeting those LHCSAs

will lead to “greater, more targeted and meaningful investments.” Id. at 300, 375

(emphasis in original). That is especially so when spreading the funding across

7 We note that we do not here defer to CMS’s interpretation of its own regulation; we have no need to defer because the regulation, in our view, is clear. See Kisor, 588 U.S. at 574; Walsh, 49 F.4th at 827–28. Instead, we simply note that our interpretation is fully consistent with CMS’s interpretation of the class-of- providers requirement, and that Appellants’ contention that its interpretation is supported by the 2020 CMS Bulletin is without merit. See 2020 CMS Bulletin, at 6.

29 all LHCSAs would result in many smaller LHCSAs receiving a payment that is so

small that it would be “unlikely” to “have a meaningful impact on workforce

development and [value-based payment] readiness for the personal care sector.”

Id. at 375.8

In sum, NYSDOH’s proposed provider class was permissible under 42

C.F.R. § 438.6(c)(2)(ii)(B), and CMS did not act contrary to that provision by pre-

approving that class.

C. Actuarial Soundness

We now turn to Appellants’ argument that CMS’s failure to consider

actuarial soundness when pre-approving NYSDOH’s application was contrary to

law, arbitrary, and capricious. The validity of this argument hinges on whether

CMS’s regulations or the Medicaid statute impose an obligation on CMS to assess

actuarial soundness during the pre-approval process. For the reasons explained

below, we conclude that neither federal regulations nor federal statutory law

8 We further note that we do not have to determine for ourselves that we agree with New York’s policy judgments in this regard. That is because CMS’s acceptance of New York’s conclusions does not conflict with law for the reasons we have already explained and because Appellants have put forward no argument that CMS’s approval of New York’s proposed class of providers was arbitrary and capricious.

30 require that assessment, and Appellants’ challenge therefore fails.

1. Contrary to Law

Appellants first argue that CMS’s failure to assess actuarial soundness was

contrary to law. Appellants contend that a subsection of CMS’s regulations, 42

C.F.R. § 438.6(c)(2)(i), and a provision of the Medicaid statute, 42 U.S.C.

§ 1396b(m)(2)(A)(iii), require CMS to assess actuarial soundness when pre-

approving a state-directed payment. We disagree.

Appellants’ principal argument is that Section 438.6(c)(2)(i) of CMS’s

regulations requires an assessment of actuarial soundness during the pre-

approval process. It does not.

We start with the text. Section 438.6(c)(2) is entitled “Process for approval.”

Two of its three subdivisions are relevant here. The first relevant subdivision,

438.6(c)(2)(i), is the textual hook for Appellants’ theory. It provides that “[a]ll

contract arrangements that direct the [managed care organization’s] . . .

expenditures under paragraphs (c)(1)(i) through (iii) of this section must be

developed in accordance with § 438.4, the standards specified in § 438.5, and

generally accepted actuarial principles and practices.” 42 C.F.R. § 438.6(c)(2)(i).

The two sections incorporated by reference, 438.4 and 438.5, respectively set the

31 standards that capitation payment rates must satisfy for CMS to approve them as

actuarially sound and delineate the process that states must follow to meet those

standards. See 42 C.F.R. §§ 438.4–438.5 (2021). The second relevant subdivision,

438.6(c)(2)(ii), then lays out the six criteria that the “State must demonstrate, in

writing,” in order “[t]o obtain written approval” from CMS. Id. § 438.6(c)(2)(ii).

The plain terms of the two relevant subdivisions undermine Appellants’

position. To start, it is subdivision (ii), not subdivision (i), that governs what a

State must show in writing to obtain CMS’s pre-approval. By extension, then, it is

Section 438.6(c)(2)(ii) that governs what CMS must review before granting pre-

approval. Critically, none of the six criteria in Section 438.6(c)(2)(ii) requires the

state-directed payment to be actuarially sound. Furthermore, the plain terms of

Section 438.6(c)(2)(i) impose obligations only on the State, not on CMS. As the

district court aptly pointed out, it is telling that subdivision (i) uses the term

“developed,”42 C.F.R. § 438.6(c)(2)(i), as it is the State, not CMS, that is

developing the state-directed payment, see Safe Haven Home Care, 681 F. Supp. 3d

at 220. And the sections that 438.6(c)(2)(i) incorporates by reference do not oblige

CMS to assess actuarial soundness at the pre-approval stage. See 42 C.F.R.

§§ 438.4(b)–(c), 438.5(b). In sum, the plain terms of Section 438.6(c)(2) do not

32 require CMS to analyze actuarial soundness before granting pre-approval.

That reading of the text is reinforced by the structure of Section 438.6(c)(2).

Section 438.6(c)(2)(i) is a separate subdivision from Section 438.6(c)(2)(ii). That

separation counsels in favor of not reading the regulation as if subdivision (i)

were nested within subdivision (ii). But that is exactly what Appellants would

have this Court do in order to find that the State must demonstrate, and CMS

must therefore assess, actuarial soundness for pre-approval to be granted. We

instead interpret the regulation as it is written and structured: that an assessment

of actuarial soundness is not part of the pre-approval process.

That interpretation of the regulation also comports with the broader

regulatory scheme governing the approval of capitation rates, laid out in Sections

438.4 and 438.7 of CMS’s regulations. Section 438.4, which requires CMS to

“review[] and approve[]” capitation rates “as actuarially sound,” lists nine

criteria that the State must meet to obtain CMS’s approval. 42 C.F.R. § 438.4(b).

Two of those criteria are that the capitation rates “[m]eet any applicable special

contract provisions as specified in § 438.6“ and “[b]e provided to CMS in a

format and within a timeframe that meets requirements in § 438.7.” Id.

§ 438.4(b)(7)–(8). Section 438.7, in turn, requires that the State submit its

33 capitation rates for managed care organizations, including all state-directed

payments, to CMS in the State’s periodic rate certification for “12-month rating

period[s],” which CMS then reviews for actuarial soundness. See 42 C.F.R.

§ 438.7(a)–(b); Centers for Medicare & Medicaid Services, 2021-2022 Medicaid

Managed Care Rate Development Guide, at 2–5, 26–32 (June 2021),

https://www.medicaid.gov/medicaid/managed-care/downloads/2021-2022-medic

aid-rate-guide-11102021.pdf. Thus, CMS’s regulations require that actuarial

soundness, including the effect on actuarial soundness of state-directed

payments, be assessed as part of the periodic rate certification process. It would

therefore make no sense to interpret Section 438.6(c)(2) to separately require that

assessment at the pre-approval stage.

Stripped of the ability to rely on Section 438.6(c)(2)(i), Appellants’

argument collapses, because the other contextual and regulatory clues that

Appellants point to are completely unpersuasive.

First, Appellants argue that the title of Section 438.6(c)(2), “Process for

approval,” indicates that Section 438.6(c)(2)(i) must impose an obligation on CMS

to assess actuarial soundness because “[t]he approval referenced by this section is

that of CMS for a State’s [state-directed payment].” Appellants’ Br. 29 (emphasis

34 omitted). But even assuming that such an inference can be drawn, it is well

established that a title cannot “override” the plain meaning of the text. Dubin v.

United States, 599 U.S. 110, 121 (2023) (internal quotation marks omitted); see also

Bhd. of R.R. Trainmen v. Baltimore & O.R. Co., 331 U.S. 519, 528–29 (1947). Here, the

plain meaning of the regulation does not require CMS to assess actuarial

soundness during the pre-approval process. Accordingly, any counter-

indications from the title do not override that plain meaning and are thus of no

help to Appellants.

Second, Appellants point out that CMS requests information relevant to

actuarial soundness in the application form that States submit to seek pre-

approval, which Appellants argue is evidence that CMS must assess actuarial

soundness during the pre-approval stage. It is true that the application form

requests such information. Specifically, the form requires the State to provide

assurances that “all expenditures” for the state-directed payment “are developed

in accordance with 42 C.F.R. § 438.4, the standards specified in 42 C.F.R. § 438.5,

and generally accepted actuarial principles and practices.” J. App’x 420. In

addition, Table 2, entitled “Provider Payment Analysis,” id. at 417, is included in

the application form so that “states [can] demonstrate that the state directed

35 payments result in provider payment rates that are reasonable, appropriate, and

attainable as part of the review of the preprint,” Centers for Medicare &

Medicaid Services, SMD # 21-001 RE: Additional Guidance on State Directed

Payments in Medicaid Managed Care, at 5–6 (Jan. 8, 2021),

https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd21001.pdf.

The fundamental problem for Appellants, however, is that the application form

cannot alter what is required under the text of the regulation itself. As a policy

matter, CMS is, of course, entitled to request information about actuarial

soundness. But that CMS can seek information does not mean that it is required

to make a particular assessment of that information determinative of approving

the application.

Third and finally, Appellants recite statements from a 2023 proposed rule

that indicate that CMS must review actuarial soundness during the pre-approval

process. See Medicaid Program; Medicaid and Children’s Health Insurance

Program (CHIP) Managed Care Access, Finance, and Quality, 88 Fed. Reg. 28092

(proposed May 3, 2023). That argument too suffers from a fatal flaw: the 2023

proposed rule, which was promulgated as a final rule in 2024, amended Section

438.6(c) in order to require CMS to analyze actuarial soundness during the pre-

36 approval process. Id. at 28234–36; Medicaid Program; Medicaid and Children’s

Health Insurance Program (CHIP) Managed Care Access, Finance, and Quality,

89 Fed. Reg. 41002, 41268–69 (May 10, 2024). And as we have noted above, see

supra note 1, neither party has argued that this version of the regulation should

be given retroactive effect in this case. Accordingly, Appellants’ reliance on

commentary accompanying a 2023 proposed rule, which amended the regulation

to adopt, for the future, Appellants’ position on appeal, is totally misplaced.

In sum, the version of CMS’s regulations in effect at the time the relevant

decisions were made in this case does not require CMS to analyze actuarial

soundness during the pre-approval stage.

In addition to their argument based on the regulation, Appellants also

argue that a provision of the Medicaid statute, 42 U.S.C. § 1396b(m)(2)(A)(iii),

independently requires CMS to assess actuarial soundness during the pre-

approval process. Once again, we disagree.

The relevant provision prohibits the federal government from making a

payment “to a State with respect to expenditures incurred by it for payment

(determined under a prepaid capitation basis or under any other risk basis) for

services provided by” a managed care organization “unless . . . such services are

37 provided for the benefit of” Medicaid enrollees “in accordance with a contract

between the State and [a managed care organization] under which prepaid

payments to the [managed care organization] are made on an actuarially sound

basis.” 42 U.S.C. § 1396b(m)(2)(A). The problem for Appellants is simple: the

plain language of this provision imposes no requirements on CMS’s pre-approval

of state-directed payments. Instead, it limits only when the federal government

can reimburse the State for the State’s expenditures on care provided by

managed care organizations. In other words, it requires an assessment of

whether the contracts with managed care organizations are actuarially sound

after the State expends funds and seeks reimbursement; it says nothing about

what CMS must do before approving a state-directed payment.9

Appellants protest that this is a distinction without a difference because the

federal government provides matching funds for any state-directed payments

that a State makes to a managed care organization. Appellants’ position,

however, overlooks that state-directed payments are assessed for actuarial

9 Tellingly, Appellants do not allege or argue that the State was or should have been denied payment from the federal government for Medicaid expenditures in 2022 because the state-directed payment at issue here rendered the capitation rates actuarially unsound.

38 soundness during the rate certification process, at which point any issues with

the state-directed payment must be reconciled. That review is sufficient to satisfy

the requirements of 42 U.S.C. § 1396b(m)(2)(A)(iii), as nothing in the provision

indicates that review for actuarial soundness must take place at the earlier pre-

approval stage. We accordingly find Appellants’ argument that 42 U.S.C.

§ 1396b(m)(2)(A)(iii) requires an assessment of actuarial soundness at the pre-

approval stage is without merit.

In sum, because neither federal regulations nor federal law require CMS to

analyze actuarial soundness before granting pre-approval to a state-directed

payment, we find that CMS did not act contrary to law when it pre-approved

NYSDOH’s application without first conducting that analysis.

2. Arbitrary and Capricious

We next turn to Appellants’ argument that CMS’s failure to consider

actuarial soundness during the pre-approval process was arbitrary and

capricious. However, “[a]n agency’s decision is arbitrary and capricious only if

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,

39 or is so implausible that it could not be ascribed to a difference in view or the

product of agency expertise.” American Cruise Lines, 96 F.4th at 286 (internal

quotation marks omitted). We have concluded above that CMS was authorized to

grant pre-approval without first assessing the actuarial soundness of New York

State’s state-directed payment and to instead consider actuarial soundness as

part of its review of the State’s periodic rate certifications. It follows then that

actuarial soundness was not “an important aspect of the problem” that CMS was

tasked with addressing, at least at the pre-approval stage. Id.

In conclusion, CMS did not violate the APA by not considering actuarial

soundness before granting pre-approval to NYSDOH’s application.

D. Exclusion of Extra-Record Evidence

Finally, we turn to Appellants’ contention that the district court erred in

denying their motion for the admission of extra-record evidence. Appellants

argue that the district court improperly excluded two expert declarations, one

from Gregory G. Fann, who opined on whether the payment for which NYSDOH

sought pre-approval was actuarially sound,10 and another from John D. Inman,

10 Appellants also characterize Fann’s declaration as opining on whether NYSDOH’s proposed payment was tied to the utilization and delivery of services. We disagree with that characterization because Fann’s opinion about the

40 who provided general background about the relevant regulatory scheme and

concluded that NYSDOH’s proposed provider class was improper.

We review the district court’s decision to exclude Appellants’ extra-record

evidence for abuse of discretion. Nat’l Audubon Soc’y v. Hoffman, 132 F.3d 7, 16 (2d

Cir. 1997). “Generally, a court reviewing an agency decision is confined to the

administrative record compiled by that agency when it made the decision.” Id. at

14. There are, however, limited circumstances under which the admission of

extra-record evidence “may be appropriate.” Id. The first is “when there has been

a strong showing in support of a claim of bad faith or improper behavior on the

part of agency decisionmakers.” Id. The second is “where the absence of formal

administrative findings makes such investigation necessary in order to determine

the reasons for the agency’s choice.” Id. The third is when “the district court

need[s] to supplement the record with background information in order to

determine whether the agency considered all of the relevant factors.” American

utilization and delivery of services is little more than a continued discussion of principles of actuarial soundness.

41 Wildlands v. Kempthorne, 530 F.3d 991, 1002 (D.C. Cir. 2008) (internal quotation

marks omitted).11

The evidence that Appellants sought to admit does not fall within any of

these exceptions. Fann’s declaration, which focuses on actuarial soundness, was

properly excluded because CMS was not required to assess actuarial soundness

during the pre-approval process. Inman’s declaration was properly excluded

both because the background information he sought to offer is irrelevant, when

the only issue before the district court was one of statutory and regulatory

interpretation, and because his opinion about the permissibility of the proposed

provider class is little more than improper second-guessing of CMS’s decision on

the merits. See Ascaro, Inc. v. U.S. Env’t Prot. Agency, 616 F.2d 1153, 1160 (9th Cir.

1980) (“Consideration of [extra-record] evidence to determine the correctness or

wisdom of the agency’s decision is not permitted.”).

11 The parties dispute whether extra-record evidence can be admitted when it “is alleged” that the agency “entirely failed to consider an important aspect of the problem.” Appellants’ Br. 35, quoting Nat. Res. Def. Council, Inc. v. U.S. Food & Drug Admin., 598 F. Supp. 3d 98, 106 (S.D.N.Y. 2022). We need not decide this issue because the only evidence that Appellants appear to argue would be admissible under this rule is Fann’s opinion on actuarial soundness, which was properly excluded for the independent reason that actuarial soundness is not a factor that CMS must consider before granting pre-approval.

42 In conclusion, we affirm the district court’s denial of Appellants’ motion

for the admission of extra-record evidence. Given that the district court both

properly concluded that CMS did not violate the APA by granting pre-approval

to NYSDOH’s application and properly excluded Appellants’ extra-record

evidence, we affirm the grant of summary judgment to the Federal Appellees.

II. State Appellees

Finally, we turn to the district court’s decision to dismiss the amended

complaint against the State Appellees. Appellants’ claims against the State

Appellees are entirely dependent on whether the Federal Appellees violated

federal law by approving NYSDOH’s application. Because we find that the

Federal Appellees’ decision to approve the application complied with federal

law, all of Appellants’ claims against the State Appellees necessarily fail on the

merits. We accordingly affirm the dismissal of the amended complaint against

the State Appellees.12

12 We also note that Appellants did not challenge the merits of the district court’s dismissal of the amended complaint against the State Appellees in its opening brief, so we decline to consider that issue. See EDP Medical Computer, 480 F.3d at 625 n.1; Verity Int’l, 443 F.3d at 65.

43 CONCLUSION

We have considered Appellants’ remaining arguments and find them to be

without merit. The district court properly granted summary judgment to the

Federal Appellees, dismissed the amended complaint against the State Appellees,

and denied Appellants’ motion for the admission of extra-record evidence.

Accordingly, we AFFIRM the judgment of the district court.