cha rate cut state oppo

8/3/2019 Cha Rate Cut State Oppo

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K AMALA D. HARRIS Attorney General of CaliforniaJENNIFER M. K IM (State Bar No. 178364)LESLIE P. MCELROY R ICHARD T. WALDOW Supervising Deputy Attorneys GeneralJONATHAN E. R ICH CHARA L. CRANE Deputy Attorneys General

300 South Spring Street, Suite 1702Los Angeles, CA 90013Telephone: (213) 897-2443Fax: (213) 897-2805E-mail: [email protected]

Attorneys for Defendant Toby Douglas, Director of Calif. Dept. of HealthCare Services

IN THE UNITED STATES DISTRICT COURT

FOR THE CENTRAL DISTRICT OF CALIFORNIA

WESTERN DIVISION

CALIFORNIA HOSPITALASSOCIATION; G.G., an individual;A.G., an individual; I.F., anindividual; R.E., an individual; A.W.,an individual; DOES 1-5,

Plaintiffs,

v.

TOBY DOUGLAS, Director of theCalifornia Department of HealthCare Services; KATHLEENSEBELIUS, Secretary of the UnitedStates Department of Health andHuman Services,

Defendant.

CV-11-09078 CAS (MANx)

DIRECTOR DOUGLAS’SOPPOSITION TO PLAINTIFFS’MOTION FOR PRELIMINARY

INJUNCTION

Date: December 19, 2011Time: 10:00 a.m.Courtrm: 5Judge The Honorable Christina A.

Snyder

[Filed concurrently with:Declaration of Tim Matsumoto; Request for Judicial Notice; and [Proposed] Order

Case 2:11-cv-09078-CAS-MAN Document 45 Filed 12/05/11 of 37 Page ID #:1613



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TABLE OF CONTENTS

Page

i

INTRODUCTION ..................................................................................................... 1

I. PLAINTIFFS LACK STANDING TO ASSERT THE

ALLEGED CAUSES OF ACTION ...................................................... 2A. THE PLAINTIFFS LACK ARTICLE III STANDING ............................... 2

1. Plaintiffs Have Not Alleged an “Actual andImminent” Injury. ............................................................. 2

2. Plaintiffs’ Claims Are Not Ripe for Adjudication. .......... 3

B. PLAINTIFFS LACK PRUDENTIAL STANDING. .................................. 3

C. CHA CANNOT ESTABLISH ASSOCIATIONAL STANDING. ................. 4

1. CHA Does Not Have Associational Standing onBehalf of Hospitals. .......................................................... 4

2. CHA Does Not Have Associational Standing onBehalf of Beneficiaries. .................................................... 5

II. PLAINTIFFS HAVE NO LIKELIHOOD OF SUCCESS ONTHEIR UNLAWFUL TAKING CAUSES OF ACTION .................... 6

A. FEDERAL AND STATE CONSTITUTIONS REQUIRE APROTECTED PROPERTY INTEREST IN ORDER TO STATE AVALID TAKINGS CLAIM ................................................................. 7

B. CHA FAILED TO ESTABLISH A PROTECTED PROPERTYINTEREST BECAUSE HOSPITALS VOLUNTARILY PARTICIPATEIN THE MEDI-CAL PROGRAM. ........................................................ 7

III. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF

SUCCESS ON THE MERITS OF THEIR § (A)(8) CLAIM ............. 10IV. PLAINTIFFS HAVE NO LIKELIHOOD OF SUCCESS ON

THE MERITS OF THEIR § (A)(19) CLAIM .................................... 13

A. SECTION (A)(19) IS NOT PRIVATELY ENFORCEABLE UNDER § 1983. ......................................................................................... 14

B. SECTION (A)(19) HAS NOTHING TO DO WITHREIMBURSEMENT RATES. ............................................................ 14

C. SECTION (A)(19) DOES NOT PREEMPT AB 97. .............................. 15

V. PLAINTIFFS ARE NOT LIKELY TO SUCCEED ON THEMERITS BECAUSE AB 97 IS NOT PREEMPTED BY

SECTION (30)(A) ............................................................................... 18A. PLAINTIFFS CANNOT JUDICIALLY ENFORCE § 30(A) BECAUSE CONGRESS HAS NOT PROVIDED FOR A PRIVATERIGHT OF ACTION. ...................................................................... 18

B. CMS APPROVED AB 97 AND FOUND THAT § 30(A) DOES NOTREQUIRE A COST STUDY.............................................................. 18

C. PLAINTIFFS CANNOT DEMONSTRATE THAT AB 97 VIOLATES§ 30(A)’S ACCESS AND QUALITY OF CARE PROVISIONS. .............. 21




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TABLE OF CONTENTS

(continued)

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VI. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OFSUCCESS ON THE STATE LAW MANDATE REQUESTBECAUSE IT IS BARRED BY THE ELEVENTHAMENDMENT ................................................................................... 22

VII. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OFSUCCESS ON THE CLAIM FOR DECLARATORY RELIEF ....... 23

VIII. PLAINTIFFS FAILED TO ESTABLISH IRREPARABLEHARM ................................................................................................. 23

A. I NJURY TO PROVIDERS IS NOT A PROPER BASIS FOR INJUNCTIVE RELIEF..................................................................... 23

B. PLAINTIFFS HAVE NOT SHOWN IMMEDIATE IRREPARABLEHARM TO MEDI-CAL BENEFICIARIES ........................................... 24

C. EVEN IF THE COURT CONSIDERS PLAINTIFFS’ CLAIMS OF

HARM, CMS’S APPROVAL OF THE STATE’S PLAN ISCONTROLLING IN THE STATE’S FAVOR ........................................ 24

IX. THE BALANCE OF HARDSHIPS AND PUBLIC INTERESTFAVOR CONTINUED IMPLEMENTATION OF AB 97 ................ 25

CONCLUSION ........................................................................................................ 26




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TABLE OF AUTHORITIES

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CASES

Abbott Laboratories v. Gardner 387 U.S. 136 (1967) ............................................................................................. 3

Alexander v. Choate

469 U.S. 287 (1985) ........................................................................................... 26

Alexander v. Sandoval

532 U.S. 275 (2001) ........................................................................................... 18

Am. Passage Media Corp. v. Cass Comm’ns, Inc.750 F.2d 1470 (9th Cir. 1985) ............................................................................ 24

Arcamuzi v. Continental Air Lines, Inc.

819 F.2d 935 (9th Cir. 1987) ........................................................................ 23, 24

Belshe v. Orthopaedic Hosp. et al.

103 F.3d 1491 (9th Cir. 1997) cert. denied , 522 U.S. 1044 (1998) ................... 20

Blessing v. Freestone

520 U.S. 329 (1997) ............................................................................................. 3

Bowen, Secretary of Health and Human Services v. Gilliard

483 U.S. 587 (1987) ............................................................................................. 9

Brown v. Tenn. Dep’t of Fin. & Admin.561 F.3d 542 (6th Cir. 2009) .............................................................................. 13

Bruggeman v. Blagojevich

324 F.3d 906 (7th Cir. 2003) .................................................................. 12, 14, 16

Burditt v. U.S. Dept. Health and Human Services934 F.2d 1362 (5th Cir. 1991) ...................................................................... 7, 8, 9

California Pharmacists Ass’n v. Maxwell-Jolly

596 F.3d 1098 (9th Cir. 2010) (Cal. Pharm.) .................................................... 19




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(continued)

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California v. Sierra Club

451 U.S. 287 (1981) ........................................................................................... 16

Chase Bank USA v. McCoy131 S. Ct. 871 (2011) ......................................................................................... 19

Chevron v. Nat’l Res. Def. Council

467 U.S. 837 (1984) .................................................................................... passim

Coalition for Economic Equity v. Wilson

122 F.3d 718 (9th Cir. 1997) .............................................................................. 25

DeFeo v. Procter & Gamble Co.831 F. Supp. 776 (N.D. Cal. 1993) ..................................................................... 23

Eastern Enterprises v. Apfel

524 U.S. 498 (1998) ............................................................................................. 6

Equal Access for El Paso, Inc. v. Hawkins562 F.3d 724 (5th Cir. 2009) .............................................................................. 12

Erickson v. U.S. ex rel. Dept. of Health and Human Services

67 F.3d 858 (9th Cir. 1995) .................................................................................. 7

Folden v. Wash. State Dep't of Soc. & Health Servs.

744 F. Supp. 1507 (W.D. Wash. 1990) .............................................................. 23

Franklin Memorial Hosp. v. Harvey575 F.3d 121 (1st Cir. 2009) ................................................................................ 8

G. v. Hawaii

676 F. Supp. 2d 1046 (D. Hawaii 2009) .............................................................. 9

Garelick v. Sullivan987 F.2d 913 (2d Cir. 1993) ....................................................................... 8, 9, 24

Georgia Nursing Home Ass'n v. State of Georgia1997 WL 820966 (N.D. Ga. October 29, 1997) ................................................. 10

Golden State Transit Corp. v. City of Los Angeles

493 U.S. 103 (1989) ........................................................................................... 15




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(continued)

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Goldie’s Bookstore Inc., v. Super Ct.

739 F.2d 466 (9th Cir. 1984) .............................................................................. 24

Gonzaga University v. Doe536 U.S. 273 (2002) ........................................................................................... 18

Guerra v. Sutton

783 F.2d 1371 (9th Cir. 1986) ............................................................................ 23

Hang On, Inc. v. City of Arlington

65 F.3d 1248 (5th Cir. 1995) ................................................................................ 4

Harris v. James127 F.3d 993 ..................................................................................... 14, 15, 16, 17

Hunt v. Wash. State Apple Advertising Comm’n

432 U.S. 333 (1977) ..................................................................................... 4, 5, 6

Independent Living Center, et al. v. Maxwell-Jolly572 F.3d 644 (9th Cir. 2009) ........................................................................ 19, 20

Jones v. Reagan

748 F.2d 1331 (9th Cir. 1984) .............................................................................. 9

L.A. Haven Hospice, Inc. v. Leavitt

2009 U.S. Dist. LEXIS 125308 (C.D. Cal. July 13, 2009), aff’d in part and vacated in part on other grounds, 638 F.3d 644 (9th Cir. 2011) ............ 8, 24

Lee v. State of Oregon

107 F.3d 1382 (9th Cir. 1997) .............................................................................. 2

Mandy R. v. Owens464 F.3d 1139 (10th Cir. 2006) .......................................................................... 12

Maynard v. Bonta

2003 U.S. Dist. LEXIS 16201 (C.D. Cal. 2003) .................................... 14, 16, 17

Minnesota Assn. of Health Care Facilities, Inc. v. Minnesota Dept. Of Public

Welfare742 F.2d 442 (8th Cir. 1984) .......................................................................... 8, 24




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(continued)

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National Cable & Telecomm. Ass’n v. Brand X Internet Svcs.

545 U.S. 967 (2005) ............................................................................... 17, 20, 25

Nelson v. King County895 F.2d 1248 (9th Cir. 1990) .............................................................................. 2

New Motor Vehicle Bd. v. Orrin W. Fox Co.434 U.S. 1345 (1977) (Rehnquist, J., in chambers) ........................................... 25

Oklahoma Chap. of the Amer. Acad. of Pediatrics v. Fogarty

472 F.3d 1208 (10th Cir. 2007) .......................................................................... 12

Pennhurst State Sch. v. Halderman465 U.S. 89 (1984) ............................................................................................. 22

Sanchez v. Johnson

416 F.3d 1051 (9th Cir. 2005) ................................................................ 18, 21, 23

Shaw v. Delta Air Lines463 U.S. 85 (1983) ............................................................................................. 16

Small Prop. Owners of San Francisco v. San Francisco County

141 Cal. App. 4th 1388 (2006) ............................................................................. 7

Sobky v. Smoley

855 F. Supp. 1123 (E.D. Cal. 1994) ................................................................... 13

Stewart v. Bernstein769 F.2d 1088 (5th Cir. 1985) ................................................................ 14, 15, 16

Susan J. v. Riley

616 F. Supp. 2d 1219 (M.D. Ala. 2009) ............................................................. 13

Turnacliff v. Westly546 F.3d 1113 (9th Cir. 2008) .............................................................................. 7

Valley Forge Christian Coll. v. Amer. United for Sep. of Church and State, et al.

454 U.S. 464 (1982) ............................................................................................. 4




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(continued)

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Video Gaming Technologies, Inc. v. Bureau of Gambling Control

356 Fed. Appx. 89 (9th Cir. 2009) ...................................................................... 25

Warth v. Seldin422 U.S. 490 (1975) ............................................................................................. 3

Westside Mothers v. Olszewski

454 F.3d 532 (6th Cir. 2006) .............................................................................. 12

Wheeler v. Travelers Ins. Co.

22 F.3d 534 (3d Cir. 1994) ................................................................................... 4

Whitney v. Heckler 780 F.2d 963 (11th Cir. 1986) .............................................................................. 8

Wilder v. Va. Hosp. Ass’n

496 U.S. 498 (1990) ..................................................................................... 18, 19

STATUTES

42 U.S.C.

§ 1395dd ............................................................................................................... 8

§ 1395u(b) ............................................................................................................. 8§ 1396a ............................................................................................................... 19§ 1396a(a)(8) ........................................................................................................ 1§§ 1396a(a)(19) ........................................................................................ 1, 15, 16§ 1396d(a) ........................................................................................................... 11§ 602(a)(38) .......................................................................................................... 9

California Welfare and Institutions Code

§ 14105.192(j) ........................................................................................ 15, 16, 17

Deficit Reduction Act of 1984 ................................................................................... 9

U.S. Deficit Reduction Act of 1984 .......................................................................... 8

CONSTITUTIONAL PROVISIONS

ELEVENTH AMENDMENT ................................................................................. 22




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(continued)

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OTHER AUTHORITIES

42 C.F.R.

§§ 430.12 et seq. ................................................................................................. 19§ 435.911 ...................................................................................................... 11, 12

Assembly Bill 97 ....................................................................................................... 1

SECTION (A)(19) IS NOT PRIVATELY E NFORCEABLE U NDER § 1983 ......................... 14




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1

INTRODUCTION

Plaintiffs’ challenge to California’s Assembly Bill 97 (AB 97), by law, has no

likelihood of success on the merits, and their Motion for Preliminary Injunction

(Motion) should be denied. The federal agency charged with implementing and

administering the Medicaid Act (CMS) approved the reimbursement rate at issue

after careful deliberation of California’s State Plan Amendment (SPA). As Plaintiff

CHA’s counsel concedes, if CMS approves the SPA, then Medicaid providers and

recipients “have zero hope of prevailing.”1

Despite this admission, Plaintiffs attempt to state a cause of action against the

State by presuming a private right of action where none exists and adopting

interpretations of statutes that have been rejected by the courts. The First Amended

Complaint (FAC) alleges one bankrupt cause of action after another. Plaintiffs’

attempt to allege a takings claim fails because they do not have a protected property

interest necessary to state such a claim. Plaintiff CHA does not have a private right

of action to assert a claim under 42 U.S.C. § 1396a(a)(8) (§(a)(8)); and beneficiary

Plaintiffs’ § (a)(8) claim is based on twisted interpretations of the statute that have

been rejected by the courts. No Plaintiff has a private right of action under 42U.S.C. §§ 1396a(a)(19) or (a)(30)(A) (§§(a)(19) & 30(A), respectively); and CMS’s

finding that AB 97 complies with the above statutes moots any claim that Plaintiffs

may have had. The State is immune from Plaintiffs’ state law mandamus claim in

federal court. And Plaintiffs lack standing to raise their claims. Little wonder,

then, that their moving papers relegate some of their main arguments to footnotes,

while other main points are unsupported by any argument or citation to authorities.

1. CHA is a named party in Case No. 09-1158 in the U.S. Supreme Court, and wasrepresented by Carter Phillips, who conceded this point during oral argument. (RJN, Ex. D at52-56)

Case 2:11-cv-09078-CAS-MAN Document 45 Filed 12/05/11 of 37 Page ID#:1622



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Because, by law, Plaintiffs’ claims cannot succeed, the Court need not even

consider the balance of relative harms. But even if the Court were to consider

harm, CMS approval renders Plaintiffs’ speculative allegations of harm moot.

I. PLAINTIFFS LACK STANDING TO ASSERT THE ALLEGED CAUSES OF

ACTION

A. THE PLAINTIFFS LACK ARTICLE III STANDING

1. Plaintiffs Have Not Alleged an “Actual and Imminent” Injury.

For Article III standing, Plaintiffs must allege facts showing injury that is

“actual and imminent,” not merely “conjectural and hypothetical.” See Lee v. State

of Oregon, 107 F.3d 1382, 1388 (9th Cir. 1997). Plaintiffs’ allegations of harm are

a tenuous thread of assumptions contingent upon possibilities. They fall into twocategories: allegations that because of AB 97, some providers might end or restrict

their services to Medi-Cal beneficiaries, and allegations that some beneficiaries will

then have no alternative service providers and will thereby suffer serious injury.2

These allegations, on their face, are speculative. Not one provider alleges

that AB 97 has caused it to cease serving Medi-Cal beneficiaries, let alone shut

down. Not one beneficiary alleges that because of AB 97, he or she has been

evicted or moved to a remote facility that cannot provide proper care. Plaintiffs’

thin hash of “what ifs” is blatantly conjectural and hypothetical. The Ninth

Circuit has repeatedly found a lack of standing where a claim relies on a

speculative chain of contingencies. Nelson v. King County, 895 F.2d 1248, 1250

(9th Cir. 1990).

2. For example, Plaintiffs’ Takings Clause claim rests on the weak chain of pure

speculation that some of CHA’s members (not all of which even provide the services in aDP/NF, or to Medi-Cal beneficiaries; see FAC at 4, lines 13-17) might decide that thereimbursement they will receive for services to some of their patients will be so low that theymight decide to stop participating in Medi-Cal (even though nothing prevents them frommaking money by treating non-Medi-Cal patients), and that those members who decide toleave the program “may” be required, “in some instances,” to continue treating some of their Medi-Cal patients, who might refuse to accede to CHA’s members’ demands that they moveout. (FAC at 31, ¶ 76.)




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2. Plaintiffs’ Claims Are Not Ripe for Adjudication.

Article III standing also requires the complaint to show the dispute to be

ripe for adjudication. The ripeness inquiry contains a constitutional component,

which focuses on whether there is sufficient injury, and a prudential component,

which asks whether there is an adequate record upon which to base effective

review. Abbott Laboratories v. Gardner, 387 U.S. 136, 148-149 (1967). The

FAC and Plaintiffs’ evidence fail this test as well. CHA’s claim that AB 97

violates its members’ rights is based on speculation. Because none of Plaintiffs’

arguments are grounded in concrete facts, there is no adequate factual record on

which this Court could determine the FAC’s purported legal claims. Because the

case is not ripe for effective review, Plaintiffs have no likelihood of success on

the merits.

B. PLAINTIFFS LACK PRUDENTIAL STANDING.

Plaintiffs' efforts to enforce §§ (a)(19) and 30(A) are barred by prudential

standing principles because they seek to enforce rights belonging not to

themselves, but to a third party (i.e., CMS). As discussed infra, these statutes do

not confer any individual entitlements on any private parties, but instead serve as"yardsticks" by which the federal government may assess a State's system-wide

performance under the Medicaid Act, and thus its eligibility for federal funds.

Blessing v. Freestone, 520 U.S. 329, 343 (1997). Accordingly, any "right" to

enforce these statutes lies with the federal government rather than with private

parties. Plaintiffs' claims are thus barred: "Even when the plaintiff has alleged

injury sufficient to meet the ‘case or controversy’ requirement, . . . the plaintiff

generally must assert his own legal rights and interests, and cannot rest his claim

to relief on the legal rights or interests of third parties.” Warth v. Seldin, 422

U.S. 490, 499 (1975). This principle applies with special force in the present

case, where the actual holder of the rights at issue – the federal government – has

taken a position at odds with Plaintiffs, and concluded that its rights have not




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been violated because the State's distinct part nursing facility (DP/NF) rates

comply with federal law. See Hang On, Inc. v. City of Arlington, 65 F.3d 1248,

1252 (5th Cir. 1995) (fact that "interest in th[e] litigation diverges" may weigh

against allowing party to assert rights belonging to another); Wheeler v.

Travelers Ins. Co., 22 F.3d 534, 539 & n.11 (3d Cir. 1994) ("Wheeler fails to

satisfy the prudential requirements for standing because she improperly is

seeking to vindicate the rights of a third-party, the United States.").

To the extent that Plaintiffs’ claims rest on the Supremacy Clause, they

also run afoul of the bar against generalized grievances. Plaintiffs invoke the

Supremacy Clause not to vindicate any right personal to them, but instead as an

all-purpose cause of action to compel a State's compliance with federal law. (See

FAC, ¶¶ 82, 86, 89.) A cognizable lawsuit, however, must assert “something

more than ‘the generalized interest of all citizens in constitutional governance.’”

Valley Forge Christian Coll. v. Amer. United for Sep. of Church and State, et al.,

454 U.S. 464, 483 (1982). Thus, the Supreme Court "repeatedly has rejected

claims of standing predicated on 'the right, possessed by every citizen, to require

that the Government be administered according to law.'" Id . at 482-83.

C. CHA CANNOT ESTABLISH ASSOCIATIONAL STANDING.

An association has standing to sue on behalf of its members if (1) they

would have standing to sue in their own right; (2) the interests it seeks to protect

are germane to the organization’s purpose; and (3) participation by the individual

members is not necessary to resolve the claim. Hunt v. Wash. State Apple

Advertising Comm’n, 432 U.S. 333, 343 (1977). CHA fails to allege facts

sufficient to meet this three-part test.

1. CHA Does Not Have Associational Standing on Behalf of Hospitals.

CHA does not have associational standing to assert any rights to relief that

its members may have. CHA cannot meet the third prong as to hospital members




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because any injury suffered by any member will be particular to that member.

For example, to determine whether there has been a violation of the Takings

Clause – assuming such a claim can be stated – the Court must determine on an

individualized basis whether a particular hospital had been injured, and to what

extent. First, payments for DP/NFs must be figured using one of two methods.

(FAC ¶ 30.) Second, depending on when and if a DP/NF decided to close, the

“taking” or loss, if any, must be calculated for that particular DP/NF. Thus,

participation by the individual hospitals is absolutely necessary to resolve the

takings claim.

This is true not only with the takings claim, but also with CHA’s others

claims alleging violations of the Medicaid Act. CHA alleges that AB 97 will

cause its member hospitals to lose varying amounts of revenue. (See, Dkt No.

22, Ex. 1-27.) Some member hospital will allegedly lose over $30 million (Dkt

No. 22-1 at 56, ¶ 7), while others will allegedly lose approximately $200,000

(Dkt No. 22-1 at 3, ¶ 7). These vastly differing sums will require each hospital’s

participation to resolve. Thus, CHA cannot meet the third-prong of the Hunt test.

2. CHA Does Not Have Associational Standing on Behalf of Benef iciaries.

CHA alleges that it has standing to challenge AB 97 on behalf of Medi-Cal

beneficiaries because it “represents the interests of its members’ patients.”

(FAC, ¶¶ 81, 85.) Associational standing does not extend that far. Supreme

Court precedent plainly states that an association’s member – not a third-party

transacting business with that member – must have standing to sue in that

member’s own right. CHA concedes that it is a “trade association representing

the interest of hospitals in the State of California” (FAC, ¶ 10), and that Medi-

Cal “providers . . . comprise substantial portions of [CHA]’s membership” (FAC,

p. 30, lines 7-8). As its name betrays, CHA is comprised of member hospitals,

not patients. Nowhere in the FAC does CHA allege that Medi-Cal recipients are




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“members” of CHA. Thus, CHA cannot establish the first prong of the

associational standing test.

CHA’s inability to demonstrate associational standing goes even further. It

fails to allege how representing the Medi-Cal recipients’ interest in receiving

prompt services is germane to its organization’s purpose – the second prong.

The FAC is absolutely silent on CHA’s purpose as an organization to further the

interests of Medi-Cal recipients. In fact, such an allegation would be

contradictory because CHA alleges that its member hospitals will refuse to treat

these very patients if the members’ profit margins are not satisfactory. (FAC at

32, lines 26-28; Dkt No. 21 at ¶ 6; Dkt No. 22, Ex. 3, ¶¶ 9-10; Dkt No. 22, Ex. 7,

¶ 9; Dkt No. 22, Ex. 13, ¶ 9.) Thus, CHA cannot meet the second prong of the

Hunt test.

Also, determining whether an individual beneficiary has a claim under §§

(a)(8) and (a)(19) – assuming such claims can be stated – will require

individualized determinations – the third prong. Thus, CHA fails to meet any of

the three prongs of associational standing with regard to individual Medi-Cal

beneficiaries.3

II. PLAINTIFFS HAVE NO LIKELIHOOD OF SUCCESS ON THEIR UNLAWFULTAKING CAUSES OF ACTION

In alleging an unconstitutional taking, Plaintiffs “barred a substantial

burden.” Eastern Enterprises v. Apfel , 524 U.S. 498, 523 (1998). The Supreme

Court has repeatedly recognized that “[g]overnment regulation often ‘curtails

some potential for the use or economic exploitation of private property,’ . . . and

‘not every destruction or injury to property by governmental action has been held

to be a ‘taking’ in the constitutional sense.” Id . (internal citations omitted).

3 A number of individual beneficiaries have brought suit and are plaintiffs in thisaction. Thus, they do not need CHA to represent their interests.




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A. FEDERAL AND STATE CONSTITUTIONS R EQUIRE A PROTECTEDPROPERTY I NTEREST IN ORDER TO STATE A VALID TAKINGSCLAIM

CHA argues that its members are the subjects of an unlawful taking

because state regulations prevent them from indiscriminately discharging their

patients when treating them stops being profitable. CHA fails to state a viable

takings claim as a matter of law because it fails to allege a protected property

interest.

The Fifth Amendment to the United States Constitution states, “Nor shall

private property be taken for public use, without just compensation.” “California

courts generally construe the federal and California takings clauses congruently.”

Small Prop. Owners of San Francisco v. San Francisco County, 141 Cal. App.

4th 1388, 1395-96 (2006).

“In order to state a claim under the Takings Clause, a plaintiff must first

demonstrate that he possesses a ‘property interest’ that is constitutionally

protected.” Turnacliff v. Westly, 546 F.3d 1113, 1118-1119 (9th Cir. 2008)

(citing Schneider v. Cal. Dep’t of Corr. 151 F.3d 1194, 1198 (9th Cir. 1998)). It

is settled in the Ninth Circuit that health care providers "do not possess a property interest in continued participation in Medicare, Medicaid, or the

federally-funded state health care programs." Erickson v. U.S. ex rel. Dept. of

Health and Human Services, 67 F.3d 858, 862 (9th Cir. 1995). Absent this

fundamental requirement, a takings claim must fail as a matter of law. Id .

B. CHA FAILED TO ESTABLISH A PROTECTED PROPERTY I NTERESTBECAUSE HOSPITALS VOLUNTARILY PARTICIPATE IN THE MEDI-CAL PROGRAM.

For a regulatory taking, as alleged by CHA, a “[g]overnmental regulation

that affects a group’s property interests ‘does not constitute a taking of property

where the regulated group is not required to participate in the regulated

industry.’” Burditt v. U.S. Dept. Health and Human Services, 934 F.2d 1362,

1376 (5th Cir. 1991) ( Burditt ) (quoting Whitney v. Heckler, 780 F.2d 963, 972




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(11th Cir. 1986)). See also Garelick v. Sullivan, 987 F.2d 913, 917 (2d Cir.

1993) (“[a]ll court decisions of which we are aware that have considered takings

challenges by physicians to Medicare price regulations have rejected them in the

recognition that participation in Medicare is voluntary”); accord L.A. Haven

Hospice, Inc. v. Leavitt , 2009 U.S. Dist. LEXIS 125308, *4 n.2 (C.D. Cal. July

13, 2009), aff’d in part and vacated in part on other grounds, 638 F.3d 644 (9th

Cir. 2011).

Whitney v. Heckler held that provisions of the U.S. Deficit Reduction Act

of 1984 that temporarily froze fees that physicians could charge their Medicare

patients, 42 U.S.C. § 1395u(b), did not effect an unconstitutional taking because

plaintiffs were not required to treat Medicare patients. Id . at 972. Similarly, in

Minnesota Assn. of Health Care Facilities, Inc. v. Minnesota Dept. Of Public

Welfare, 742 F.2d 442, 446 (8th Cir. 1984), a state statute limiting what

Medicaid-participating nursing homes could charge their residents was not an

unlawful taking because “[i]f appellants find that the reimbursement rates are

insufficient, then they may either make their homes more efficient and

economical or terminate their relationship with Medicaid and no longer acceptMedicaid recipients as residents.” Id . And, in Franklin Memorial Hosp. v.

Harvey, 575 F.3d 121, 129 (1st Cir. 2009), Maine’s statute requiring hospitals to

provide free medical services to low-income patients was not an unconstitutional

taking of property because the hospital’s participation in the state Medicaid

program was voluntary. Id .

Burditt rejected a similar attack against provisions of the Emergency

Medical Treatment and Active Labor Act (EMTALA), 42 U.S.C. § 1395dd,

which require Medicare participating hospitals to treat all patients who enter their

emergency departments. The court held that EMTALA did not effect an

unlawful taking, since “[o]nly hospitals that voluntarily participate in the . . .

Medicare program must comply with EMTALA,” and “[h]ospitals must consider




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the cost of complying with EMTALA's requirements in deciding whether to

continue to participate in the Medicare program.” Burditt, 934 F.2d at 1376; see

also Garelick v. Sullivan, 987 F.2d at 917 (a New York law requiring hospitals to

afford each patient the right to treatment, regardless of ability to pay, did not

constitute an unlawful taking from plaintiffs-physicians who were not Medicare

providers, because plaintiffs could avoid treating Medicare patients by practicing

on an out-patient basis).

These principles are not limited to medical providers, but to benefits

recipients, as well. In Bowen, Secretary of Health and Human Services v.

Gilliard , 483 U.S. 587 (1987), the Supreme Court held that those provisions of

the Deficit Reduction Act of 1984 which reduced benefits to families with

dependent children, 42 U.S.C.S. § 602(a)(38), were not an unlawful taking

because “the beneficiaries [ sic] child receiving support payments holds no vested

protectable expectation that his or her parent will continue to receive identical

support payments on the child's behalf, and that the child will enjoy the same

rights with respect to them.” Id. at 608. Accepting “the unquestioned premise

that the Government has a right to reduce AFDC benefits generally,” id . at 605,the Court held “[i]t is obviously necessary for the Government to make hard

choices and to balance various incentives in deciding how to allocate benefits in

this type of program.” Id . at 608.

Courts in the Ninth Circuit are in accord. See Jones v. Reagan, 748 F.2d

1331, 1339 (9th Cir. 1984) (legislation terminating merchant seamen’s free

medical care did not effect an unlawful taking because seamen had no property

interest in the continuation of medical benefits); G. v. Hawaii, 676 F. Supp. 2d

1046 (D. Hawaii 2009) (Hawaii’s reduction of Medicaid reimbursement rates not

a taking, where participation in the program by Medicaid beneficiaries was




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voluntary).4

The hospitals that CHA represents voluntarily elected to participate in

Medi-Cal and thereby accepted the various restrictions to their services,

including the statutory requirements to continue treating Medi-Cal beneficiaries

until they are placed in suitable alternative facilities. Because CHA’s hospitals

are under no legal compulsion to participate in Medi-Cal’s skilled nursing

program, and there are other medical fields in which hospitals can, and do,

practice, there is no valid property interest subject to a claim under the Takings

Clause. Thus, CHA has no chance of succeeding on the merits of its taking

claims.

III. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE MERITS OF THEIR § (A)(8) CLAIM

Plaintiffs allege that AB 97 violates § (a)(8) because the rate reduction will

cause “significant delays in the time that Medi-Cal beneficiaries will be able to

access skilled nursing care” and will “result in Medi-Cal beneficiaries having to

wait for particular services that are otherwise available.” (Mot. at 18.) Plaintiffs’

claim fails, however, because § (a)(8) has nothing to do with reimbursement rates

or the provision of medical services. Instead, § (a)(8) states, in full:

(a) Contents. A State plan for medical assistance must - -

* * *(8) provide that all individuals wishing to make application for medical assistance under the plan shall have opportunity to do

4. The only authority cited by plaintiffs in support of their takings claim, Georgia Nursing Home Ass'n v. State of Georgia, 1997 WL 820966 (N.D. Ga. October 29, 1997), isunavailing to them. Without supporting authority or elaboration, the court merely ventured indicta that plaintiffs "may have a valid claim" if, indeed, a Georgia statute required them tocontinue treating Medicaid patients once they opt out of the Medicaid program. Id., 1997 WL820966 at *3 (emphasis added). However, the court qualified this dicta with thefollowing: "Of course, as businesses operating in a highly regulated industry, plaintiffs do notenjoy a full panoply of property rights and therefore may not have the historically rootedexpectation of compensation or the reasonable investment-backed expectations that arenecessary to prevail on a takings claim." Id., 1997 WL 820966 at *3, n.4. The court thereforedeclined to rule on the issue. Not surprisingly, the decision in Georgia Nursing Home has not been followed by any other court.




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so, and that such assistance shall be furnished with reasonable promptness to all eligible individuals.”

(Emphasis added.)

Contrary to Plaintiffs’ assertion, “medical assistance” does not mean the

actual receipt of services by a Medicaid beneficiary. Rather, 42 U.S.C. §

1396d(a) defines “medical assistance” as the state’s payment of part or all of the

cost of covered care and services to an eligible person as defined in § 1396d(a),

and not as actual services provided to an eligible person.

Likewise, the phrase “application for medical assistance” in § (a)(8) refers

to an application for eligibility under a state’s Medicaid program and is

consistent with the fact that individuals seeking Medicaid services do not submit

an “application” for specific services. Rather, they submit an “application” to

become eligible for Medicaid, then receive services, for which the provider bills

the Medicaid program for payment. If a person’s application for eligibility is

granted, it means the person is eligible for “medical assistance,” (i.e., having the

state pay for “part or all of the cost” of covered services provided to the eligible

person).5

Moreover, 42 C.F.R. § 435.911, the regulation implementing § (a)(8),

makes clear that § (a)(8)’s focus is prompt financial payment, not the actual

provision of services. Section 435.911 implements the “reasonable promptness”

requirement by imposing specific deadlines for processing eligibility

applications. The federal agency’s only interpretation of § (a)(8) – by

promulgating section 435.911 – is to require reasonable promptness in processing

5 . Further illustrative of this fact is § 1396a(a)(34), which clearly distinguishes between eligibility for “medical assistance” and the receipt of specific services. It states that“medical assistance [i.e., paying the provider] . . . will be made available for care and services .. . furnished in or after the third month before the month in which he made application . . . for such assistance if such individual was . . . eligible for such assistance at the time such care andservices were furnished.” In other words, if the eligible person received “care and services”two months prior to submitting an application, the state will go back and provide “medicalassistance” (i.e., pay for those services) if the person is eligible.




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applications for eligibility, not in providing specific covered services. This

interpretation of § (a)(8) is entitled to deference and should be the “controlling

weight” on this issue. Chevron v. Nat’l Res. Def. Council , 467 U.S. 837, 843

(1984).

Although the Ninth Circuit has not ruled on this issue, several circuits have

held that § (a)(8)’s “reasonable promptness” provision requires the expeditious

processing of applications and payment, not prompt provision of medical

services. The Fifth, Sixth, Seventh, and Tenth Circuits have all rejected the

notion that § (a)(8) guarantees prompt medical care and services to Medicaid

recipients. Oklahoma Chap. of the Amer. Acad. of Pediatrics v. Fogarty, 472

F.3d 1208, 1214 (10th Cir. 2007) ( Fogarty) (Explained that “medical assistance”

in § (a)(8) refers to financial assistance rather than to actual medical services; and

expressly rejected the idea that § (a)(8) required a state Medicaid program to

ensure that medical services are actually provided to Medicaid beneficiaries in a

reasonably prompt manner.); Mandy R. v. Owens, 464 F.3d 1139, 1143 (10th

Cir. 2006) (held that § (a)(8) refers to financial assistance, not to actual medical

services); Bruggeman v. Blagojevich, 324 F.3d 906, 910 (7th Cir. 2003)( Bruggeman) (Explained that “assistance” mentioned in § (a)(8) refers to

“financial assistance” and not to “actual medical services” and that implementing

regulations, such as 42 C.F.R. § 435.911, indicate that § (a)(8) requires “prompt

determination of eligibility and prompt provision of funds to eligible individuals”

and not prompt treatment.); Equal Access for El Paso, Inc. v. Hawkins, 562 F.3d

724, 727 (5th Cir. 2009) ( El Paso) (rejecting argument that § (a)(8) guarantees

prompt medical care and services to Medicaid recipients); Westside Mothers v.

Olszewski, 454 F.3d 532, 540 (6th Cir. 2006) (held that § (a)(8) requires financial

assistance be provided with reasonable promptness, but does not require the

actual provision of medical services).




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Plaintiffs’ reliance on Sobky v. Smoley, 855 F. Supp. 1123 (E.D. Cal. 1994)

is unavailing. (Mot. at 19.) In Sobky, the district court based its ruling on a

flawed interpretation of the term “medical assistance” and found that it meant

medical services. The district court then found that § (a)(8) requires reasonable

promptness in the provision of these medical services. Id. at 1147. However,

this interpretation has been repeatedly rejected by no less than four different

circuits, and other courts have outright refused to follow Sokby’s ill-reasoned

holding. Brown v. Tenn. Dep’t of Fin. & Admin., 561 F.3d 542, 544 (6th Cir.

2009) (rejecting finding in Sobky that term "medical assistance" meant medical

services); Susan J. v. Riley, 616 F. Supp. 2d 1219, 1241 n.24 (M.D. Ala. 2009)

(declining to follow Sobky and finding it "not persuasive"). Thus, the weight of

the law is clear that § (a)(8) absolutely does not apply to medical services.

Plaintiffs clearly cannot succeed on the merits of their claim because their

assertion that AB 97 may cause “significant delays” in the provision of skilled

nursing care or will require that Medi-Cal beneficiaries have to wait for services

does not establish a violation of § (a)(8). Thus, Plaintiffs have no likelihood of

succeeding on the merits of this claim.6

IV. PLAINTIFFS HAVE NO LIKELIHOOD OF SUCCESS ON THE MERITS OF THEIR § (A)(19) CLAIM

Plaintiffs allege that AB 97 conflicts with, and is preempted by, § (a)(19)

because transferring patients from CHA’s member hospitals to other long-term

care facilities is not in these patients’ best interest. (Mot. at 19, n.3.) This

argument fails as a matter of law because § (a)(19) is not privately enforceable

under § 1983; because § (a)(19) has nothing to do with reimbursement rates, the

placement of patients, or the provision of care; and because § (a)(19) does not

preempt AB 97.

6. Plaintiffs’ Motion contains no argument or authority to advance their allegation that §(a)(8) preempts AB 97 pursuant to the Supremacy Clause. Thus, this argument is waived.




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A. SECTION (A)(19) IS NOT PRIVATELY E NFORCEABLE U NDER § 1983.

Section (a)(19) is not privately enforceable under § 1983 by either Medi-Cal

providers or individual beneficiaries. The “best interests” provision of § (a)(19)

is insufficiently definite to be justiciable and, therefore, cannot be interpreted to

create a private right of action. Bruggeman, 324 F.3d at 911 (citing Gonzaga

University v. Doe, 536 U.S. 273, 273-275 (2002); see also, Stewart v. Bernstein,

769 F.2d 1088, 1093 and n.7 (5th Cir. 1985) (finding that § (a)(19) does not

create substantive rights that would allow private enforcement); Maynard v.

Bonta, 2003 U.S. Dist. LEXIS 16201, at *97 (C.D. Cal. 2003) (Maynard )

(finding § (a)(19) is not privately enforceable under § 1983 by Medicaid

providers because it is not sufficiently specific to confer rights); Harris v. James,

127 F.3d 993, 1010 & 1011 n.24 (11th Cir. 1997) ( Harris) (Held § (a)(19) was

not enforceable under § 1983 because it imposed only “generalized duty on the

states”; was “insufficiently specific to confer any particular right upon [Medicaid

recipients]”; and was “too vague and amorphous” for judicial enforcement.).

Since Plaintiffs cite no authority to the contrary, because none exists, they

have no likelihood of success on the merits of their § (a)(19) claim under § 1983.B. SECTION (A)(19) HAS NOTHING TO DO WITH R EIMBURSEMENT

R ATES.

Assuming Plaintiffs could establish a private right of action, it nevertheless

must fail. Section (a)(19) instructs a state to create “safeguards” in its state plan

to assure that care and services will be provided consistent with the broad and

general goals of “simplicity of administration” and “the best interests of the

recipients.” It does not create federally enforceable rights and does not providean objective benchmark for measuring whether a state has met its obligations.

Maynard , 2003 U.S. Dist. LEXIS 16201, at *97-100. Section (a)(19) imposes a

generalized duty on the states and simply expresses in general terms the overall

goals of the program. Id.; Harris, 127 F.3d at 1010.




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“Section 1396a(a)(19) speaks to two sometimes conflicting goals: simplicity

of administration and the best interests of the recipients. Whether a state plan

strikes a proper balance between the two is a decision better left to the [federal]

and the state agencies responsible for implementing [the Medicaid Act].”

Stewart v. Bernstein, 769 F.2d at 1093, quoting Bumpus v. Clark, 681 F.2d 679,

683 (9th Cir. 1982), withdrawn as moot , 702 F.2d 826 (9th Cir. 1983).

Plaintiffs contend AB 97 is not in the “best interest” of Medi-Cal

beneficiaries and violates § (a)(19) because it will cause the closure of some

DP/NFs and the transferring patients to other facilities will result in transfer

trauma. (Mot. at 19, n.3.) Plaintiffs cannot succeed on the merits of their claim

because the courts have soundly rejected Plaintiffs’ twisted interpretation of the

phrase “best interests.” Harris, 127 F.3d at 1010.

Plaintiffs provide absolutely no authority to support their claim. In fact, not

one of the cases Plaintiffs cite even mentions § (a)(19), let alone holds that it is

actionable under § 1983 or even enforceable. Plaintiffs have clearly failed to

meet their burden of proving likelihood of success on the merits.

C. SECTION (A)(19) DOES NOT PREEMPT AB 97.Plaintiffs allege that AB 97, as codified in California Welfare and

Institutions Code section 14105.192(j), violates the Supremacy Clause and is

preempted by § (a)(19). (Mot. at 19 n.3.) Not so. The Supremacy Clause grants

no substantive federal rights; rather, it ‘secure[s]’ federal rights by according

them priority whenever they come in conflict with state law.” Golden State

Transit Corp. v. City of Los Angeles, 493 U.S. 103, 107-108 (1989) (quoting

Chapman v. Houston Welf. Rights Org., 441 U.S. 600, 613 (1979).) Thus, a

litigant who claims its protection must be able to point to another source of

federal law for the substantive right to the relief he seeks. Id. at 613.

Here, Plaintiffs ask this Court to allow a private suit alleging a violation of

§ (a)(19), even though Congress did not intend to create a private right of action




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for an alleged violation of this statute. The Supreme Court has stated that “the

federal judiciary will not engraft a remedy on a statute, no matter how salutary,

that Congress did not intend to provide.” California v. Sierra Club, 451 U.S. 287

(1981).

In ascertaining this intent, the first consideration is the plain language of the

statute. There is nothing in the plain language indicating congressional intent to

provide either Medi-Cal providers or beneficiaries with a private right of action

to enforce § (a)(19). Rather, the opposite is true. The plain language establishes

that Congress did not intend to create a private right of action as to either Medi-

Cal providers or Medi-Cal recipients. See Bruggeman, 324 F.3d at 911; Harris,

127 F.3d at 1010-1, n.24; Stewart v. Bernstein, 769 F.2d at 1093 & n.7 (5th Cir.

1985); Maynard , 2003 U.S. Dist. LEXIS 16201, at *97. Thus, Plaintiffs cannot

show likelihood of success on the merits of their claim.

Assuming that Plaintiffs have a private right of action to allege a Supremacy

Clause claim, which they do not, the claim still fails. Plaintiffs allege section

14105.192(j) is preempted because Defendants “cannot simultaneously comply

with the provisions of California law requiring the implementation of the ratereduction and the requirements of 42 U.S.C. § 1396a(a)(19).” (FAC, ¶ 86.)

Plaintiffs are mistaken.

The Supremacy Clause commands that federal law prevail over (or

preempt) any state law that conflicts with federal law. Thus, the existence of a

preempting federal law is a prerequisite to any preemption action. Shaw v. Delta

Air Lines, 463 U.S. 85, 109 (1983). Here, the basic and irremediable flaw in

Plaintiffs’ argument is their erroneous assumption that section 14105.192(j)

interferes with, or is inconsistent with, § (a)(19). Section 14105.192(j) provides,

in relevant part:

Notwithstanding any other provision of law, for dates of




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service on and after June 1, 2011, Medi-Cal reimbursementrates applicable to the following classes of providers shall notexceed the reimbursement rates that were applicable to thoseclasses of providers in the 2008-09 rate year, as described insubdivision (f) of Section 14105.191, reduced by 10 percent:

. . .(2) Skilled nursing facilities that are distinct parts of generalacute care hospitals.

Absolutely nothing contained in section 14105.192(j) interferes, or

conflicts, with § (a)(19). As explained above, the “best interests” provision of §

(a)(19) has nothing to do with Medi-Cal providers’ reimbursement rates. Rather,

§ (a)(19) expresses the overall objectives of the Medicaid program and focuses

on general goals and procedural administration of the program. Harris, 127 F.3d

at 1010; Maynard , 2003 U.S. Dist. LEXIS 16201 at *97-100.

Moreover, CMS’s approval of section 14105.192 completely undercuts

Plaintiffs’ arguments to the contrary. As Plaintiffs concede, the federal

government recently approved SPA 11-010, which includes the rates set by AB

97, as codified in section 14105.192. (FAC, ¶ 62.) This approval constitutes

prima facie evidence that section 14105.192(j) complies with federal law and,

specifically, with § (a)(19).

The Supreme Court has long recognized that considerable weight and

deference should be given to a federal agency’s interpretation of a statutory

scheme that it is entrusted to administer. Chevron, 467 U.S. at 843-844. The

agency’s interpretation of federal law that it administers may even be dispositive

when its interpretations are challenged in court. Id.; National Cable &

Telecomm. Ass’n v. Brand X Internet Svcs., 545 U.S. 967, 980 (2005) (“[I]f the

implementing agency’s construction [of a statute] is reasonable, Chevron requires

a federal court to accept the agency’s construction of the statute, even if the

agency’s reading differs from what the court believes is the best statutory

interpretation.”) (emphasis added)). Accordingly, this Court should give great




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deference to CMS’s approval of SPA 11-010 as controlling evidence that section

14105.192 complies with federal law and § (a)(19). Plaintiffs fail to show they

are likely to prevail on this claim.

V.

PLAINTIFFS ARE

NOT

LIKELY

TO

SUCCEED

ON

THE

MERITS

BECAUSE AB 97 IS NOT PREEMPTED BY SECTION (30)(A)

A. PLAINTIFFS CANNOT JUDICIALLY E NFORCE § 30(A) BECAUSECONGRESS HAS NOT PROVIDED FOR A PRIVATE R IGHT OF ACTION.

Plaintiffs lack a private cause of action to enforce § 30(A) because

Congress did not create one. Unlike other provisions of the Medicaid Act, §

30(A) does not create any individualized “rights,” whether to a specific level of

access, a specific level of provider payments, or anything else. See Sanchez v.

Johnson, 416 F.3d 1051 (9th Cir. 2005). To the contrary, the text and structure

of § 30(A), and its legislative history, confirm congressional intent that the

statute be enforced administratively by the U. S. Department of Health and

Human Services (HHS) rather than through private suits. Id. at 1059-62.

Because Congress “controls the availability of remedies for violations of

statutes,” and because it has not provided a private remedy here, Plaintiffs lack

a cause of action to enforce § 30(A). See Wilder v. Va. Hosp. Ass’n, 496 U.S.498, 508 n.9 (1990); see also Gonzaga, 536 U.S. at 280; Alexander v. Sandoval ,

532 U.S. 275, 286 (2001). Thus, Plaintiffs are not likely to succeed on the

merits of their § 30(A) claim.7

B. CMS APPROVED AB 97 A ND FOUND THAT § 30(A) DOES NOTR EQUIRE A COST STUDY.

Assuming that Plaintiffs do have a private right of action, which they do

not, they cannot demonstrate that AB 97 violates, and is thus preempted by, §

30(A). First and foremost, CMS approved the SPA for AB 97’s reimbursement

7. It is settled that Plaintiffs do not have a private right of action under § 1983.Sanchez, 416 F.3d at 1059. Whether they may bring suit under the Supremacy Clause is before the U.S. Supreme Court in Douglas v. Independent Living Center, et al . (U.S.S.C. Nos.09-958, 09-1158, 10-283). If this Court is not inclined to deny Plaintiffs’ Motion, the Director requests that it be stayed pending a decision on this very issue by the Supreme Court.




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rates. (RJN, Ex. C.) In so doing, CMS found that AB 97 complies with all the

requirements of 42 U.S.C. § 1396a, which necessarily includes § 30(A). This

finding alone is sufficient to defeat Plaintiffs’ claim, not only because CMS’s

approval entitled to great deference, Chevron, 467 U.S. at 843-844, but because

Plaintiff CHA’s counsel conceded this point. (RJN, Ex. D at 52-56) (CHA’s

counsel, Carter Phillips, concedes that if CMS approves the SPA, then Medicaid

providers and recipients “have zero hope of prevailing.”)

A closer look further exposes the infirmity of Plaintiffs’ argument. The

crux of their argument is that AB 97 violates and is preempted by § 30(A),

because neither the Department nor the Legislature conducted a provider cost

study prior to AB 97’s enactment. (Mot. at 21-23; FAC, ¶¶ 88-89.) Plaintiffs

rely heavily on Independent Living Center, et al. v. Maxwell-Jolly, 572 F.3d 644

(9th Cir. 2009) ( Independent Living ) and California Pharmacists Ass’n v.

Maxwell-Jolly, 596 F.3d 1098 (9th Cir. 2010) (Cal. Pharm.) for this proposition.

(Mot. at 20-23; FAC, ¶¶ 35, 41.) However, since these opinions were issued, the

federal agency has confirmed that no cost study is required in order to comply

with § 30(A). And, the Supreme Court has held that an amicus brief filed by thefederal agency charged with overseeing the program is entitled to deference, if

not outright determinative of the issue. Chase Bank USA v. McCoy, 131 S. Ct.

871, 880 (2011).

Indeed, the federal government specifically rejected the Ninth Circuit’s

interpretation of § 30(A) as requiring a cost study. The HHS Secretary is

charged with overseeing and promulgating regulations for the Medicaid program.

See Wilder , 496 U.S. at 502. To receive funds, a state must administer its

Medicaid program through an HHS approved plan, which may be modified by

submitting a SPA to CMS for approval. 42 U.S.C. §1396a, 42 C.F.R. §§ 430.12

et seq.

On multiple occasions, the Secretary has averred that § 30(A) absolutely




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does not require provider cost studies. The first such expression was in an

amicus brief filed by the United States in Belshe v. Orthopaedic Hosp. et al., 103

F.3d 1491 (9th Cir. 1997) cert. denied , 522 U.S. 1044 (1998), wherein the

Secretary stated that “[§] 30(A) does not set forth any requirement that a State

consider costs in making payments for outpatient or other services . . . .” (U.S.

Amicus Br. at 8, Orthopaedic Hosp. (No. 96-1742).) “[T]he Secretary has not

construed [§] 30(A) to require the States to base reimbursement rates for

outpatient or other services on the costs incurred by hospitals or other categories

of providers. Rather, implementing regulations leave the States broad discretion

to set rates . . . .” ( Id . at 8-9.)

Fourteen years later, the Secretary’s interpretation of § 30(A) remains

unchanged. In an amicus brief filed by the United States in Independent Living –

the very case that Plaintiffs rely on to advance this argument – the Secretary

reiterates that “The court of appeals erred in affirming its prior reading of [§]

30(A) as imposing on States an obligation to consider cost studies to ensure that

payment rates bear a reasonable relationship to providers’ costs.” (U.S. Amicus

Br. at 7, Independent Living. (No. 09-958).)The federal agency overseeing Medicaid has thus unequivocally affirmed

that § 30(A) does not require a cost study. That interpretation is entitled to

Chevron deference; conflicting judicial precedent, such as the cases Plaintiffs

cite, must yield to it. “Only a judicial precedent holding that the statute

unambiguously forecloses the agency’s interpretation, and therefore contains no

gap for the agency to fill, displaces a conflicting agency construction.” Brand X ,

545 U.S. at 982-983. Here, no such precedent exists.

Under Brand X , a federal agency’s interpretation of a statute is controlling,

notwithstanding a prior inconsistent judicial interpretation, if the agency

construction is “reasonable” and the prior court decision did not foreclose agency

interpretation by finding the statute capable of only one interpretation. Here, the




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agency’s construction of § 30(A) – rejecting a provider cost study requirement –

is entirely reasonable and supported by statute. Section 30(A) does not mention

a study requirement, nor does it mention provider cost data, let alone mandate

that states conduct a specific kind of study. The Ninth Circuit cases upon which

Plaintiffs rely cannot be said to be the sole possible interpretation of § 30(A).

Indeed, the Ninth Circuit recognized that § 30(A) contains “nebulous terms” and

is “ill-suited to judicial remedy” because “the interpretation and balancing of the

statute’s indeterminate and competing goals would involve making policy

decisions for which this court has little expertise and even less authority.”

Sanchez , 416 F.3d at 1060. Thus, even the Ninth Circuit concedes that § 30(A)

should be open to the federal agency’s interpretation, not foreclosed from it. In

light of the above, Plaintiffs’ reliance on the Ninth Circuit’s prior, inconsistent

cost study requirement must be rejected.

C. PLAINTIFFS CANNOT DEMONSTRATE THAT AB 97 VIOLATES § 30(A)’S ACCESS AND QUALITY OF CARE PROVISIONS.

As a throwaway argument, Plaintiffs allege in a single sentence that AB 97

is preempted by § 30(A) because of its purported adverse impact on access and

quality of care. (Mot. at 23.) The administrative record, however, tells a

different story. It contains the voluminous documents that California submitted

to CMS, including a sixteen-page access analysis and eighty-two-page

monitoring plan. (See, CMS’s Admin. R.; RJN, Exs. E & F.) These documents

detail the specific metrics by which the Department reviewed and studied AB

97’s potential impact on access. The fact that Plaintiffs disagree with these in-

depth analyses does not make them invalid or insufficient. The fact remains that,

based on these submissions, CMS approved the reimbursement rates at issue in

AB 97. This approval is entitled to Chevron deference, and Plaintiffs’ challenge

must be rejected.

Plaintiffs cite no authority requiring the Department to analyze quality of




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care in setting Medicaid reimbursement rates. Nor can they. No authority –

statutory, regulatory, or judicial – requires the Department to specifically

analyze, study, or evaluate quality of care when the State sets rates. Thus, to the

extent that Plaintiffs allege that AB 97 violates § 30(A) because the Department

did not perform a quality of care analysis, this contention fails as a matter of law.

And, at any rate, CMS approved the AB 97 rates, implicitly finding that they are

in compliance with the requirements of § 30(A) – a determination that is

controlling here.

VI. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE STATE LAW MANDATE REQUEST BECAUSE IT IS BARRED BY THE ELEVENTH AMENDMENT

Plaintiffs’ request for state law mandamus relief is barred by the Eleventh

Amendment. Pennhurst State Sch. v. Halderman, 465 U.S. 89, 98 (1984)

( Pennhurst ) holds that (1) a federal suit against state officials on the basis of state

law contravenes the Eleventh Amendment when the relief sought and ordered

directly impacts the state, id . at 117, and (2) this applies to state-law claims

brought in federal court under pendent jurisdiction. Id. at 121.

Here, by way of pendent jurisdiction, Plaintiffs seek the issuance of a statelaw writ of mandate against a state official in federal court. (FAC, ¶¶ 90-95.)

Clearly, under Pennhurst , this claim is not viable. Moreover, Plaintiffs cannot

demonstrate that the State or Congress intended to unequivocally waive the

Director’s sovereign immunity and permit a state law writ of mandate cause of

action to proceed against him or the Department in federal court. And, it is

irrelevant that California law permits mandate actions against the State in state

court, because a state's waiver of sovereign immunity in its own courts is not a

waiver of Eleventh Amendment immunity in federal courts. Pennhurst , 465 U.S.

at 100, n.9. In sum, Pennhurst dictates that the request for state law mandamus

relief be dismissed.




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VII. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE CLAIM FOR DECLARATORY RELIEF

Plaintiffs’ claim for declaratory relief (FAC, ¶¶ 99-104) fails as a matter of

law because (1) all of Plaintiffs’ other causes of action fail, and (2) it would be

improper for this Court to clarify and settle the legal dispute at hand through a

declaratory judgment when the United States Supreme Court will do so in the

coming months.

The Declaratory Judgment Act grants federal courts discretion to award

declaratory relief in certain cases. DeFeo v. Procter & Gamble Co., 831 F.

Supp. 776, 777-778 (N.D. Cal. 1993). Declaratory relief is appropriate when it

will (1) clarify and settle the legal dispute at hand, and (2) terminate and afford

relief from the uncertainty, insecurity, and controversy giving rise to the

proceeding. Id. at p. 778; Guerra v. Sutton, 783 F.2d 1371, 1376 (9th Cir. 1986).

Plaintiffs’ claim for declaratory relief is repetitive of all other causes of

action pled in the FAC. (See FAC, ¶ 100.) Because these other causes of action

lack merit, and because Plaintiffs lack standing to bring them, the declaratory

relief claim necessarily fails.

VIII. PLAINTIFFS FAILED TO ESTABLISH IRREPARABLE HARM

Because Plaintiffs have failed to show a likelihood of success on the merits,

the injunction should not issue, irrespective of any purported irreparable harm they

assert. Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987).

A. I NJURY TO PROVIDERS IS NOT A PROPER BASIS FOR I NJUNCTIVER ELIEF

Medi-Cal is not obligated to ensure that providers make a profit or that they do

not operate at a loss. Folden v. Wash. State Dep't of Soc. & Health Servs., 744 F.

Supp. 1507, 1535 (W.D. Wash. 1990). Injury to providers should not be a basis for

an injunction because they are merely indirect beneficiaries of the program.

Sanchez , 416 F.3d at 1059. Medi-Cal exists to provide services to indigent patients




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Providers have no property interest in continued participation in the program.

See, e.g., Garelick , 987 F.2d at 917; accord L.A. Haven Hospice, 2009 U.S. Dist.

LEXIS 125308, at 4 n.2; see also Minnesota Assn. of Health Care Facilities, 742

F.2d at 446 (“[i]f appellants find that the reimbursement rates are insufficient, then

they may either make their homes more efficient and economical or terminate their

relationship with Medicaid and no longer accept Medicaid recipients as residents”).

B. PLAINTIFFS HAVE NOT SHOWN IMMEDIATE IRREPARABLE HARMTO MEDI-CAL BENEFICIARIES

Nor have Plaintiffs shown irreparable harm to beneficiaries. An injunction

should not issue without admissible evidence of a “significant threat of irreparable

injury.” Arcamuzi, 819 F.2d at 937. Speculative or potential injury does notwarrant a preliminary injunction. Goldie’s Bookstore Inc., v. Super Ct., 739 F.2d

466, 472 (9th Cir. 1984). Conclusory allegations are, likewise, insufficient to

support a finding of irreparable injury for a preliminary injunction. Am. Passage

Media Corp. v. Cass Comm’ns, Inc., 750 F.2d 1470, 1473 (9th Cir. 1985).

The claims of prospective irreparable harm made by the individual Plaintiffs

are based on vague and conclusory assumptions, founded entirely on hearsay and

conjecture by plaintiffs and other purported beneficiaries and family members, that

their current providers will stop treating them and that, in such event, they will not

receive equal or better care at any other facility. (See, e.g., Dkt No. 24 at 46-48.)

These statements do not prove that AB 97 “may deny [plaintiff-beneficiaries]

needed medical care,” that equals irreparable injury.

C. EVEN IF THE COURT CONSIDERS PLAINTIFFS’ CLAIMS OF HARM , CMS’S APPROVAL OF THE STATE’S PLAN IS CONTROLLING IN THE

STATE’S FAVOR

If the Court nevertheless considers Plaintiffs’ claims of harm, Plaintiffs’

argument amounts to an attempt to show a violation of the access provision of §

30(A). But the Department submitted its plan to CMS, responded to CMS’s request

for additional information, and CMS approved it, determining that AB 97 complies




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with the access provision of § 30(A). The Court must defer to that determination.

Chevron, 467 U.S. at 843-844; Brand X , 545 U.S. at 980.

As detailed in the Secretary’s opposition to Plaintiffs’ Motion, ample evidence

shows that beneficiaries’ access will not be affected by the AB 97 rates. (See, e.g.,

Dkt No. 18-2, at 2-27.) Under the plan approved by the Secretary, the Department

will continually monitor a set of “early warning” measures, including changes in

Medi-Cal enrollment, provider participation rates, and calls to the Medi-Cal help

line. (Dkt No. 18-3 at 3, 63-64.) Given CMS’s approval of these safeguards, and

the deference this Court must give to CMS’s determination of the issue, Plaintiffs’

contention that beneficiaries will be irreparably harmed by the rate reductions is

fatally defective. Cf. Midgett , 254 F.3d at 850 (reasoning that defendant’s

procedures for monitoring compliance in the ADA context “show that Plaintiff does

not face a threat of immediate irreparable harm without an injunction”).

IX. THE BALANCE OF HARDSHIPS AND PUBLIC INTEREST FAVOR CONTINUED IMPLEMENTATION OF AB 97

The third element of a preliminary injunction is whether the balance of

hardships, and public interest, favor an injunction. The public will surely suffer

irreparable harm if an injunction issues. Any injunction that prevents the

implementation of a state statute per se inflicts irreparable injury to the public

interest. As the Ninth Circuit held in Coalition for Economic Equity v. Wilson, 122

F.3d 718, 719 (9th Cir. 1997), “a state suffers irreparable injury whenever an

enactment of its people or their representatives is enjoined.” See New Motor

Vehicle Bd. v. Orrin W. Fox Co., 434 U.S. 1345, 1351 (1977) (“It also seems to me

that any time a state is enjoined by a court from effectuating statutes enacted by

representatives of its people, it suffers a form of irreparable injury.”) (Rehnquist, J.,

in chambers). Any injunction of AB 97 thus “irreparably harms [the State] under

this court’s precedent.” Video Gaming Technologies, Inc. v. Bureau of Gambling

Control , 356 Fed. Appx. 89, 92 (9th Cir. 2009).




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Federal courts should not interfere with non-federal government operations

absent facts showing an immediate harm of substantial injury. Hodgers-Durgin,

199 F.3d at 1042-43; Midgett , 254 F.3d at 850. The State remains in the grip of an

unprecedented fiscal crisis. The Legislature must exercise its judgment to balance

the competing federal objectives in the best interests of Medi-Cal patients and all

Californians, for the greater good of the State. Congress afforded the states

“substantial discretion” to do so. Alexander v. Choate, 469 U.S. 287, 303 (1985).

In contrast, Plaintiffs seek to enjoin the operation of statewide legislation, with

a profound impact on the continuing financial health of the State and all of its

citizens, based on the alleged effect of such legislation on a select group of

providers and beneficiaries. The allegations of harm are negated, by law, by the

deference this Court must show to CMS’s approval of the AB 97 rates. And

because an injunction against state legislation constitutes irreparable harm to the

public, per se, this Court should find the harm to the State outweighs whatever

showing Plaintiffs have made based on speculation.

The public interest in controlling skyrocketing Medi-Cal costs and restoring

California to fiscal integrity far outweighs any conjectural harm that may occur tothe handful of providers and beneficiaries whose speculations CHA has proffered.

CONCLUSION

For all of the foregoing reasons, the Court should deny Plaintiffs’ Motion.




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Dated: December 5, 2011 Respectfully submitted,

K AMALA D. HARRIS Attorney General of CaliforniaR ICHARD T. WALDOW Supervising Deputy Attorney General

/s/JENNIFER M. K IM Acting Senior Assistant AttorneyGeneral

Attorneys for Defendant Medi-Cal Reimbursement Rates

LA2011505023

51043548.doc




CERTIFICATE OF SERVICE

Case Name: California Hospital Association,

et al., v. Douglas, T., et al.

No. CV-11-09078 JAN (MRWx)

I hereby certify that on December 5, 2011, I electronically filed the following documents withthe Clerk of the Court by using the CM/ECF system:

DIRECTOR DOUGLAS’S OPPOSITION TO PLAINTIFFS’ MOTION FOR

PRELIMINARY INJUNCTION

I certify that all participants in the case are registered CM/ECF users and that service will be

accomplished by the CM/ECF system.I declare under penalty of perjury under the laws of the State of California the foregoing is true

and correct and that this declaration was executed on December 5, 2011, at Los Angeles,

California.

Norma L. Herrera-Orr /s/ Norma L. Herrera-Orr

Declarant Signature

51039620.doc


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