Asante v. California Department of Health Care Services
Docket: Case No. 14-cv-03226-EMC
Court: District Court, N.D. California; December 20, 2015; Federal District Court
The court issued an order granting the plaintiffs' motion for partial summary judgment and partially granting the defendant's motion for summary judgment in a case involving nineteen hospitals from Oregon, Nevada, and Arizona challenging California’s Medi-Cal reimbursement policies for out-of-state hospitals. The plaintiffs filed the suit against California’s Department of Health Care Services in June 2014, claiming violations of the Commerce Clause, the Equal Protection Clause under both the United States and California Constitutions, and federal laws related to Medi-Cal DSH and out-of-state hospital payments. They seek a declaration of violations and an injunction against enforcement of the law.
The document outlines the Medicaid Program, a joint federal-state initiative that provides medical services to low-income populations, detailing the process for states to submit and amend their State Plans for federal approval. It emphasizes the role of the Centers for Medicare and Medicaid Services (CMS) in reviewing these plans and the consequences of non-compliance, including the withholding of federal funds. The California Medi-Cal Program, administered by the Department, has specific regulations for reimbursement rates and is required to provide certain services not available within the state, in accordance with federal regulations.
Title 42 of the Code of Federal Regulations, Section 431.52(b)(4), along with California Code of Regulations, Title 22, Section 51006(a)(4), acknowledges that Medi-Cal recipients often seek medical services in neighboring states like Oregon, Nevada, and Arizona. In 2009, California amended Title 22, Section 51543, which mandates reimbursement for out-of-state hospital inpatient services that are either emergencies or pre-authorized by Medi-Cal, at the lower of the statewide average per diem rate or the hospital's actual charges. There are over 3,000 hospitals nationwide that may serve Medi-Cal beneficiaries, though nearly 3,000 out-of-state hospitals reported no Medi-Cal inpatient services for the fiscal year 2013/2014. In that year, nineteen plaintiff hospitals provided 859 covered stays, while an additional twelve hospitals near the California border contributed 143 stays, and 155 other distant hospitals provided 338 stays. Collectively, these represent a small fraction of total Medi-Cal admissions but involve significant potential reimbursement, as evidenced by Renown Regional Medical Center's reported costs exceeding $12 million. The Department anticipates a $1.4 million annual increase in Medi-Cal out-of-state expenditures due to the 15-020 Amendment. Additionally, the All Patient Refined Diagnosis Related Group (APR-DRG) reimbursement methodology, implemented on July 1, 2013, categorizes hospital patients based on diagnoses and various factors, assigning each category a numerical weight reflecting the resources required for treatment.
The Department calculates hospital reimbursement using the formula: APR-DRG weight x base price x policy adjustors. The base price is determined as either the Statewide Base Price ($6,289) or the Remote Rural Base Price ($12,768), with adjustments for in-state hospitals based on the highest Medicare wage index applicable. For out-of-state hospitals, a uniform wage index of 1.0 applies, resulting in no adjustments. In 2013, most out-of-state hospital plaintiffs had a wage index above 1.0. A California hospital with a wage index of 1.5 would see its base price increase by $2,141 to $8,364, yielding 34% more per Medi-Cal discharge compared to an out-of-state hospital with the same index.
The Remote Rural Base Price is exclusive to California hospitals, providing a higher base price for those classified as "remote rural." A California remote rural hospital would receive $10,218, which is 64% more than an out-of-state hospital's base price of $6,223. In-state hospitals may benefit from Medicare wage index reclassifications, unlike out-of-state facilities. The Department also implements "policy adjustors" for specific services, such as a 75% increase for NICU stays and "outlier payments" for cases exceeding reimbursement thresholds, calculated from the hospital's cost-to-charge ratio. Out-of-state hospitals do not have access to these policy adjustors or the cost reports used to determine their CCR. Consequently, combining these policies can significantly amplify the reimbursement advantage for California hospitals, as illustrated by a scenario where a California hospital with a NICU and a wage index of 1.5 would receive 235% more per Medi-Cal discharge than a similarly situated out-of-state counterpart.
Disproportional Share Hospital (DSH) payments are supplemental payments made by Medi-Cal to hospitals that meet specific eligibility criteria under federal law and the State Plan. These payments aim to compensate hospitals that serve a disproportionate number of low-income individuals and Medicaid recipients. To qualify for DSH payments, a hospital must either have a Medicaid Inpatient Utilization Rate (MIUR) at least one standard deviation above the state mean or a Low-Income Utilization Rate (LIUR) exceeding 25%. The Department is responsible for calculating the MIUR and determining the mean MIUR for hospitals in California, requiring extensive data from hospitals to assess eligibility. Notably, only California hospitals are eligible for DSH payments, excluding out-of-state hospitals.
On September 29, 2015, the Department received approval from CMS for State Plan Amendment 15-020. This amendment followed a notice published on June 19, 2015, indicating plans to modify APR-DRG policies related to wage index, remote rural base price, and adjustments for border hospitals. The notice acknowledged that Medi-Cal recipients often seek services in neighboring states, suggesting a need to align payment standards between California and out-of-state border hospitals to better accommodate these beneficiaries.
“Border hospitals” are defined as hospitals outside California that are within a 55-mile driving distance from the nearest California border crossing and include all plaintiff hospitals. The 15-020 Amendment modifies the APR-DRG methodology for these out-of-state border hospitals in several ways:
1. The Department will apply the same hospital-specific wage area index value used by Medicare, adjusted by a California Wage Area Neutrality Adjustment of .9797 for both California and border hospitals.
2. Border hospitals classified as rural by Medicare, meeting California's “remote” hospital definition, and adhering to specific licensing standards will qualify for the remote rural base price.
3. Border hospitals can receive a 1.75 policy adjustor for neonatal care if they apply for neonatal intensive care unit status through California Children’s Services.
4. The cost-to-charge ratio for determining outlier payments will utilize Medicare average ratios for hospitals in the border hospital’s state.
These changes take effect on July 1, 2015, but the Amendment maintains the exclusion of DSH payments to out-of-state hospitals. Plaintiffs, comprising hospitals from Oregon, Nevada, and Arizona, argue that they serve a significant number of Medi-Cal beneficiaries as they are the nearest trauma facilities for these patients. Their proximity allows them to provide necessary acute care services, particularly in rural areas of California with limited medical facilities. Notably, Washoe Medical Center in Reno treats more Medi-Cal patients than any other out-of-state hospital, and other plaintiffs serve regions in California without adequate medical care options.
Defendants in the case are the Department of Health Care Services and Toby Douglas, sued in his official capacity as Director. The Department requested judicial notice of nine exhibits without opposition from Plaintiffs. The exhibits include excerpts from California’s State Medicaid Plan, specific State Plan Amendments, and various California Regulatory Notice Registers, as well as approval letters from the Director of CMS regarding State Plan Amendment 4.19-A, and court documents from related litigation.
Under Federal Rule of Evidence 201, judicial notice is permissible for facts not subject to reasonable dispute, either because they are generally known or can be accurately determined from reliable sources. Courts can take judicial notice of undisputed public records but not disputed facts within those records. The court granted the Department's request to take judicial notice of the listed exhibits, affirming that it is appropriate to consider California’s State Medicaid Plan and its legislative histories, as well as records from prior litigation involving the same parties.
Additionally, courts may recognize proceedings in other courts if they relate directly to the current issues, but only to acknowledge the judicial act reflected in those proceedings, not for the truth of the matters asserted. It is noted that findings of fact from other proceedings cannot be taken for their truth due to their disputable nature.
The Court acknowledges the judicial notice of certain legal documents, including the memorandum and order from *Children’s Hosp. and Health Ctr. v. Belshe*, and the U.S. Amicus Curiae brief, based on precedents that allow courts to recognize filings from federal and state court proceedings. The brief, while not factual, is viewed as legal argument, thus not barred by Federal Rule of Evidence 201. Additionally, the Court recognizes CMS’s letters as suitable for judicial notice, supported by relevant case law regarding state health department records and reports from state administrative bodies.
The section then outlines the legal standard for summary judgment, aiming to prevent unnecessary trials when no factual disputes exist. Under Federal Rule of Civil Procedure 56(a), summary judgment is granted if the moving party demonstrates the absence of a genuine dispute regarding material facts. The moving party carries the burden of proof, requiring the court to view evidence favorably towards the non-moving party. If the moving party shows a lack of evidence supporting the non-moving party's claims, the non-moving party must provide specific facts, beyond mere allegations, to demonstrate a genuine issue for trial. Summary judgment is appropriate when a party fails to establish an essential element of its case. In instances of cross-motions for summary judgment on the same issues, each motion is assessed separately, with the non-moving party receiving all reasonable inferences.
To establish a claim under 42 U.S.C. 1396a(a)(13)(A) for disproportionate share payments, plaintiffs must demonstrate that the statute creates a private cause of action. The Supreme Court's decision in Cort v. Ash outlines a four-factor test for this determination: (1) whether the plaintiff belongs to the class for whose benefit the statute was enacted; (2) whether there is explicit or implicit legislative intent to create or deny a private remedy; (3) whether implying such a remedy aligns with the legislative scheme's purposes; and (4) whether the cause of action is traditionally within state law's domain. Subsequent cases, including Touche Ross Co. v. Redington and Transamerica Mortgage Advisors, Inc. v. Lewis, emphasize that congressional intent is the key factor, and without it, a private remedy cannot be inferred. Regarding DSH payments, there is no evidence that Congress intended to grant enforceable rights under 42 U.S.C. 1396a(a)(13)(A). This statute requires state Medicaid plans to implement a public process for determining payment rates, including publishing proposed rates, methodologies, and justifications, allowing for public review and comment, and ensuring that final rates consider the needs of hospitals serving low-income patients.
Section 1396r-4(c)(3)(B) mandates that payment adjustments for disproportionate share hospitals must include a minimum additional payment or increased percentage that reflects the costs, volume, or proportion of services provided to patients eligible for medical assistance or low-income patients. However, neither Section 1396a(a)(13)(A) nor Section 1396r-4 provides explicit rights-creating language that would allow health care providers to pursue private rights of action, as established in Gonzaga v. Doe, which emphasizes the need for clear Congressional intent to create enforceable rights. Historical context shows that prior to 1980, states needed to reimburse hospitals for reasonable inpatient service costs, leading to the enactment of the Boren Amendment. This amendment allowed additional payments for disproportionate share hospitals and granted states more flexibility in cost calculations, while also requiring that payment rates be "reasonable and adequate." However, the Boren Amendment was repealed in 1997, and its standards were replaced with a notice and comment provision that mandates states to disclose and allow public input on their reimbursement methodologies.
Plaintiffs argue for the application of the Ninth Circuit's ruling in Belshe, which determined that the Boren Amendment applied to both in-state and out-of-state hospitals, preventing the exclusion of out-of-state hospitals from DSH payments. However, the Belshe decision was based on the now-repealed Boren Amendment, and the Ninth Circuit did not address the statutory changes introduced by the Balanced Budget Act of 1997. The current issue is whether Plaintiffs retain a private right of action under the amended 42 U.S.C. 1396a(a)(13)(A) to contest the exclusion of out-of-state hospitals from DSH payments. The Court concludes that the amended statute does not provide such a right. In Children’s Seashore House v. Waldman, the Third Circuit ruled that Congress eliminated the ability to enforce substantive rights to payments by repealing the Boren Amendment and replacing it with a requirement for a public rate-setting process. This change indicates that Congress removed the obligation for states to provide reasonable and adequate rates, significantly altering the legal landscape. The Waldman court clarified that without the "reasonable and adequate" language, the previous rulings, such as West Virginia v. Casey, could not apply, and thus no private right of action exists under the new provisions. Additionally, the court found that 42 U.S.C. 1396r-4 does not create an enforceable right for hospitals concerning DSH adjustments, as it solely outlines procedural requirements without substantive claims. Consequently, the Third Circuit upheld the dismissal of the hospital's section 1983 claim and determined that hospitals cannot enforce the Medicaid Act for DSH adjustments. The Ninth Circuit has not yet ruled on this specific issue.
In 1997, Congress repealed the Boren Amendment and established notice and comment rulemaking requirements, with the intent of eliminating any cause of action for providers regarding the adequacy of Medicaid rates. This intention is supported by the H.R. report, which clarifies that neither this nor any provision in Section 1396 should be interpreted as granting hospitals or nursing facilities a cause of action concerning rate adequacy. Courts, including the Ninth Circuit, have upheld this interpretation, concluding that providers lack a private right of action under 42 U.S.C. § 1983 concerning the adequacy of rates. Cases such as Developmental Servs. Network v. Douglas and New York Ass’n of Homes. Servs. for the Aging, Inc. v. DeBuono affirm that the repeal of the Boren Amendment removed any federal right to adequate rates, emphasizing that sections 1396a(a)(30)(A) and related provisions are intended to benefit Medicaid beneficiaries rather than providers. The court also noted that while some limited private causes of action exist, such as for a “reasonable opportunity to comment” on reimbursement changes, plaintiffs failed to establish a private cause of action under the relevant sections of the Medicaid Act. Consequently, the court granted the defendant summary judgment on the plaintiffs' claims under § 1396a(a)(13)(A). Additionally, the plaintiffs argued that the disparity in reimbursement rates between in-state and out-of-state hospitals violated the Dormant Commerce Clause, but the Department countered that the clause does not apply as the Medicaid program is federally authorized and funded.
Congress delegated authority to the Secretary of Health and Human Services, establishing federal checkpoints regarding regulation. The Department argues that if payments are analyzed under the dormant Commerce Clause, it is exempt from restrictions because it acts as a market participant. The Commerce Clause grants Congress the power to regulate commerce among states and limits state power to discriminate against interstate commerce. This dormant aspect of the Commerce Clause protects the free flow of commerce from state encroachment when Congress has not exercised its regulatory power in a specific area.
The threshold question in dormant Commerce Clause cases is whether Congress has acted in the relevant field; if it has, judicial review under the dormant Commerce Clause is not applicable. Clear congressional intent is required to preclude such review. The Department cites cases like White v. Massachusetts Council of Const. Emp’rs, Inc. and Merrion v. Jicarilla Apache Tribe to support its claim that Congress implicitly approved discriminatory practices against out-of-state hospitals in Medicaid payments. In White, the Supreme Court upheld a local executive order requiring city-funded projects to employ a majority of city residents, ruling it did not violate the dormant Commerce Clause because the city, using its own funds, acted as a market participant.
The city’s use of federal funds for a construction project led to the assertion that the executive order in question was "affirmatively sanctioned" by federal regulations, as indicated by the Supreme Court's decision in White. The Department claims the executive order aligns with federal goals of economic revitalization for disadvantaged groups, but it misinterprets White. In White, the federal programs were found to permit localized favoritism, which is not the case for the Department's current policies under the Medicaid Act. Unlike White, where the executive order supported congressional goals, the Department's policies diverge from Medicaid's core purpose of providing medical assistance to low-income individuals without geographic discrimination. The Department contends that Merrion v. Jicarilla Apache Tribe exempts it from the dormant Commerce Clause. However, Merrion involved tribal authority over business transactions on reservation land, which does not parallel the situation regarding Medicaid's intended universal access to medical services. The summary emphasizes that Congress did not intend for Medicaid to allow for geographic favoritism, which contradicts the Department's actions.
Petitioners, non-Indian lessees extracting oil and gas from a tribal reservation, contested a severance tax, claiming it infringed upon the dormant Commerce Clause. The Department cited Merrion to assert that federal checkpoints allowed discrimination against out-of-state hospitals, but the applicability of Merrion is limited in this case. The Court, in Merrion, affirmed that the power to tax is an essential attribute of tribal sovereignty, noting the necessity for tribes to exercise minimal taxing authority to fulfill municipal functions. It also highlighted that Congress was aware of tribal mineral severance taxes when it enacted the Natural Gas Policy Act of 1978.
The inherent power of a Tribe to tax is not disputed in this case, but the focus is on Merrion's finding that Congress established federal checkpoints for tribal tax imposition. For the Tribe to levy a severance tax on non-Indian lessees, several federal approvals were required. In contrast, Congress's involvement here is less pronounced; it has not instituted a similar series of checkpoints. Although Congress granted authority to CMS for state plan approvals, this only involves one checkpoint, lacking explicit regulations allowing the discrimination at issue. Additionally, unlike in Merrion, there is no clear congressional intent to endorse discrimination against out-of-state hospitals regarding Medicaid reimbursement, supported by the Fourth Circuit’s ruling in Environmental Technology Council v. Sierra Club, which involved similar issues of state law and federal delegation.
Congress assigned the EPA the responsibility to review and authorize state waste programs to ensure they align with the federal program under RCRA. A state may implement its program in place of the federal one if it is deemed "equivalent to," "consistent with," and adequately enforceable. In 1985, despite claims of inconsistency due to a discriminatory fee on out-of-state waste, the EPA authorized South Carolina's RCRA program. South Carolina was required under CERCLA to submit a Capacity Assurance Plan (CAP) to ensure it could manage hazardous waste disposal over a 20-year span, either by providing adequate in-state capacity or through interregional agreements.
South Carolina enacted various measures, including laws and executive orders, to limit out-of-state hazardous waste, which included a blacklisting provision and discriminatory fees. When these measures faced legal challenges under the Commerce Clause, South Carolina contended that RCRA and CERCLA conferred congressional authority that rendered the dormant Commerce Clause irrelevant. The Fourth Circuit dismissed this argument, emphasizing that while the EPA's interpretation of "consistency" may evolve, the constitutional standards remain unchanged, and lack of explicit congressional authorization for state discrimination against out-of-state waste must be adhered to.
Additionally, South Carolina attempted to invoke Merrion, arguing that congressional delegation of state program authority to the EPA constituted a system of “checkpoints” that validated its laws. The Fourth Circuit rejected this comparison, highlighting that, unlike in Merrion, Congress did not authorize South Carolina's imposition of discriminatory fees on out-of-state waste.
The court determined that the EPA had not provided explicit approval for South Carolina’s discriminatory laws, highlighting the absence of express congressional authorization. The Secretary of Health and Human Services' administrative review, similar to the situation in *Sierra*, resulted in CMS approving California’s State Plan Amendments 13-033 and 15-020 with minimal commentary. The court noted that CMS did not establish regulations that would legitimize the Department's discriminatory practices, nor was there evidence that Congress intended to authorize such actions. The Department's argument, suggesting that Congress intended states to limit DSH payments to out-of-state hospitals, could also affect the dormant Commerce Clause analysis. However, the court found no clear congressional authorization for such exclusions. The Department referenced 42 U.S.C. 1396r-4, citing various provisions as evidence of congressional intent. Nonetheless, the Ninth Circuit's ruling in *Belshe* rejected similar claims, clarifying that while states must determine DSH payment eligibility based on in-state hospitals, this does not limit eligibility solely to those hospitals. The Ninth Circuit emphasized that the Medicaid statute repeatedly references "hospitals" without restricting it to in-state facilities. Even if some provisions might imply ambiguity, they do not provide unmistakable congressional authorization for excluding out-of-state hospitals from DSH payments.
No provision explicitly permits the exclusion of payments to out-of-state hospitals. Parties asserting Congress's authorization for invalid legislation face a significant burden, as Congress must clearly express its intent to protect state legislation from challenges under the Commerce Clause. Without such authorization, the dormant Commerce Clause analysis applies to the Department's policies that discriminate against out-of-state hospitals.
The Department claims exemption from Commerce Clause restrictions under the market participant exception, arguing that by using state funds to reimburse out-of-state hospitals, it acts as a market participant. However, for a state to qualify as a market participant, it must operate like a private entity rather than in its governmental capacity. If a state regulates others in the market, the exception does not apply.
The Department's argument was previously rejected in the case of Children’s Hospital Medical Center v. Bont, where out-of-state hospitals challenged the Department's reimbursement rates. The California Court of Appeal found the Department's market participation claim flawed, noting that the state is not a consumer of the services and merely fulfills regulatory obligations by reimbursing providers chosen by Medi-Cal recipients.
The Department's reimbursement levels for Medi-Cal patients do not align with market dynamics, as there is no true private market for such care. Hospitals provide services to Medi-Cal patients primarily because they are mandated to do so, resulting in inherent unprofitability. The Department's regulation of compensation is a state responsibility rather than market participation, thus the market participation exception is not applicable. The Department dictates rates for out-of-state hospitals treating Medi-Cal patients and does not engage in selective business partnerships akin to a private entity.
Regarding the Commerce Clause, the Department’s reimbursement policies are analyzed to determine if they discriminate against interstate commerce. The dormant Commerce Clause prohibits regulatory measures that favor in-state interests to the detriment of out-of-state competitors. The Court employs a two-step inquiry: first, assessing whether the statute discriminates against interstate commerce; if so, it is generally invalid unless it serves a legitimate local purpose without reasonable nondiscriminatory alternatives. If the statute has only indirect effects and is evenhanded, the balancing test from Pike v. Bruce Church, Inc. is applied, which upholds regulations unless their burdens on interstate commerce are excessively disproportionate to local benefits.
Discrimination in this context is characterized as the unequal treatment of in-state versus out-of-state economic interests, favoring the former. A statute can demonstrate such discrimination in three ways: facially, purposefully, or in practical effect. The plaintiffs assert that under the APR-DRG reimbursement methodology, California hospitals receive significantly higher payments for Medi-Cal patients compared to out-of-state hospitals for the same services. The stipulated facts indicate that the APR-ARG scheme discriminates against interstate commerce on its face and excludes out-of-state hospitals from various reimbursement adjustments available to in-state hospitals.
Key discriminatory practices include:
1. In-state hospitals receive adjustments based on local Medicare wage indices, while out-of-state hospitals do not.
2. In-state hospitals benefit from a California rural floor wage index, which is not applied to out-of-state hospitals.
3. In-state hospitals classified as “remote rural” receive increased base prices, a classification inaccessible to out-of-state hospitals.
4. In-state hospitals designated as “NICU-Surgery” receive a 75% payment increase for neonate cases, a designation not available for out-of-state hospitals.
5. Outlier calculations apply a lower, fixed Medicare Cost-to-Charge Ratio (CCR) for out-of-state hospitals compared to hospital-specific CCRs for in-state facilities.
The document notes the lack of clarity between per se discrimination and the Pike balancing test regarding the Commerce Clause. To withstand constitutional scrutiny, facially discriminatory laws must show a legitimate local purpose and no viable nondiscriminatory alternatives. Such laws can only be justified by valid factors unrelated to economic protectionism, with the Supreme Court having upheld only one discriminatory law, which was specific to protecting Maine's fisheries.
The Department argues against the presumption of invalidity by asserting that out-of-state hospitals accounted for only 0.3% of all Medi-Cal covered hospital stays in fiscal year 2013/2014 and that establishing specific wage indexes and cost-to-charge ratios for these hospitals would be administratively burdensome and potentially unfeasible. The Department contends that out-of-state hospitals are not similarly situated to designated public hospitals because they do not serve a significant portion of California's uninsured and Medi-Cal populations. However, it is argued that out-of-state hospitals do provide the same services to Medi-Cal beneficiaries, and they are essential for patients in remote areas of California. Notably, Washoe (Renown Regional Medical Center) treats more Medi-Cal patients than any other out-of-state facility.
The low percentage of Medi-Cal hospital stays does not negate the similarity between out-of-state and in-state hospitals regarding Medicaid reimbursement. Citing case law, the excerpt emphasizes that even minor disparities in treatment can violate the Commerce Clause and that the volume of commerce impacted is irrelevant for determining discrimination against interstate commerce. The Department’s claim regarding administrative burdens is countered by referencing prior cases (Bontá and Belshe), which indicated that developing a reasonable reimbursement methodology for out-of-state hospitals is feasible. The Plaintiffs argue that four specific factors demonstrate that applying similar adjustments for out-of-state hospitals would not be administratively challenging: 1) finding applicable wage indexes for hospitals in neighboring states is straightforward; 2) the same cost-to-charge ratios can be applied uniformly; 3) determining remote rural base prices would not require evaluating a large number of hospitals, as few would qualify as remote rural under the applicable guidelines.
Only six plaintiffs may qualify for the 1.75 policy adjustor for neonate stays. The Ninth Circuit's decision in Belshe allows for less than perfect equality in administrative practices, provided they are not arbitrary and are justified by impracticalities. However, the Department’s claimed administrative burden in reimbursing out-of-state hospitals does not sufficiently counteract the presumption of invalidity associated with practices that discriminate against interstate commerce. The absence of significant administrative burdens weakens the Department’s argument for a legitimate local purpose. The Department also failed to demonstrate a nondiscriminatory intent.
In Bont, the California Court of Appeal ruled against the Department’s reimbursement practices that discriminated against out-of-state hospitals, deeming them unconstitutional under the dormant Commerce Clause, despite the slight disparity in treatment. The court emphasized that any disparity in treatment, regardless of its size, constitutes discrimination. It applied strict scrutiny to the Department’s payment scheme, which was found to be facially discriminatory as it favored in-state hospitals without valid defenses unrelated to economic protectionism.
Additionally, in W. Va. Univ. Hospitals, Inc. v. Rendell, the court invalidated Pennsylvania's Trauma DSH payment scheme, examining the entitlement of West Virginia University Hospitals to specific trauma payments under state law.
Pennsylvania's Trauma Act established the Trauma Disproportionate Share Hospital (DSH) payments for trauma centers, but defined "trauma center" to include only in-state hospitals. The state defended this limitation under the market participant exception to the dormant Commerce Clause, arguing that the payments subsidized domestic industry. The court rejected this claim, stating that the DSH payments are compensation for hospitals treating a disproportionate number of Medicaid patients, and are part of the Medicaid State Plan, which is jointly funded by the state and federal government. Consequently, the court ruled the Trauma Act facially discriminatory and invoked a per se rule of invalidity under the dormant Commerce Clause.
The state attempted to justify the Trauma Act by asserting it was aimed at improving trauma care for Pennsylvania residents, claiming that distributing resources to out-of-state hospitals would undermine this goal. The court countered that out-of-state hospitals also serve many Pennsylvania residents, thus the exclusion was counterproductive. The court concluded that the Trauma Act's exclusion of out-of-state hospitals from DSH payments rendered it invalid.
In a related case involving the California Department of Health Care Services, the 15-020 Amendment was introduced to address discrepancies affecting hospitals, including applying a uniform wage index and adjusting cost-to-charge ratios. However, plaintiffs argued that out-of-state hospitals still faced significant disadvantages, such as not qualifying for California's "rural" floor wage index or Medicare wage index reclassifications. The plaintiffs highlighted that the California "rural floor" led to excessive payments to in-state hospitals unrelated to actual wage costs, resulting in substantial increases in Medi-Cal reimbursements for those hospitals.
Nationwide, nearly 40% of hospitals have received Medicare wage index reclassifications that increase their wage index values. For hospitals classified as "remote rural," the Department utilizes a higher base price of $10,218 compared to the unadjusted base price of $6,223. To qualify for this remote rural base price, border hospitals must be designated as "rural" by federal Medicare and meet specific California standards. Disparities exist between in-state and out-of-state hospitals, as out-of-state facilities receive lower payments; if they were granted the "rural" floor wage index, their base prices would increase by 15.7%. Additionally, California hospitals benefit from wage index reclassifications, further widening the gap. The cost-to-charge ratio for out-of-state hospitals is 22, while it is 35 for California hospitals, impacting potential additional payments for losses incurred. Despite the Department's claim that the 15-020 Amendment nearly aligns reimbursement rates, slight disparities may still violate the dormant Commerce Clause, as established in case law. Notably, the Supreme Court has ruled that even minimal differential burdens on interstate commerce indicate discrimination. The 15-020 Amendment fails to eliminate the existing disparities and does not address the exclusion of Disproportionate Share Hospital (DSH) payments for out-of-state hospitals. Consequently, the Department's continued lower reimbursement rates for out-of-state hospitals constitutes discrimination under the Commerce Clause, which the Department has not justified, relying solely on an administrative burden argument that has been rejected.
A state can justify a statute that discriminates against interstate commerce by demonstrating it serves a legitimate local purpose that cannot be met through reasonable nondiscriminatory alternatives, as established in New Energy Co. However, the state has not succeeded in this case. The court does not need to address the plaintiffs' Equal Protection claims due to its prior ruling. Other courts have ruled that discrimination against out-of-state hospitals, particularly with significant disparities, violates the Equal Protection Clause, even under rational basis review. Cases cited include Children's Seashore House v. Waldman, W. Va. Univ. Hospitals v. Casey, and others, all concluding that lower Medicaid reimbursements and denial of payments to out-of-state hospitals are unconstitutional. The court partially grants the defendant's motion for summary judgment concerning a particular claim while fully granting the plaintiffs' motion based on violations of the Commerce Clause. The ruling addresses specific docket numbers and affirms that a state plan must reimburse out-of-state medical services to the same extent as in-state services under certain conditions, as outlined in 42 C.F.R. 431.52(b) and 42 U.S.C. 1396a(a)(16).
The Secretary of Health and Human Services interprets 42 U.S.C. 1396(a)(16) and 42 C.F.R. 431.52 as applying solely to coverage services for recipients receiving care outside their home state, rather than mandating specific payment levels for providers. According to this interpretation, if a state plan covers a service such as a heart transplant within the state, it must also cover the same service when provided out-of-state. Plaintiffs do not substantively claim violations of 42 C.F.R. 431.52(b), as the Secretary views it as focused on coverage rather than payment levels for out-of-state services.
The California Code of Regulations allows for necessary out-of-state medical care under specific conditions: emergencies, health risks from postponing care, dangers from returning to California, customary practices in border areas, or when a treatment plan proposed by a physician is pre-approved by the Department and unavailable in-state. Data from a December 22, 2011, Medi-Cal report indicates 2,151 out-of-state hospital stays, with plaintiffs treating 1,385, constituting 64% of Medi-Cal patients at these facilities.
The fiscal year 2013/2014 data covered admissions from July 1, 2013, to June 30, 2014, with the APR-DRG methodology not applicable to certain hospitals and care types. Plaintiffs’ calculations reference a 2013 base price of $6,223 and a remote rural price of $10,128. The plaintiff hospitals include various facilities across Oregon, Nevada, and Arizona.
Centennial Hills Hospitals Medical Center, Desert Springs Hospital, Spring Valley Hospital Medical Center, Valley Hospital Medical Center, Northern Nevada Medical Center, Summerlin Hospital Medical Center, and Yuma Regional Medical Center are referenced. The analysis regarding claims based on statutory violations under Section 1983 emphasizes that a court's role is to determine whether Congress intended to confer individual rights to a specific class of beneficiaries, mirroring the implied right of action context. The case Gonzaga University v. Doe is cited to support this point. Santiago ex rel. Muniz v. Hernandez clarifies that the first inquiry in such cases is whether the plaintiff is an intended beneficiary of the statute. If not, they lack a federally enforceable right under Section 1983 or a private right of action under the statute. In January 2000, the Department updated its reimbursement policy for hospital inpatient services, announcing it would not make Disproportionate Share Hospital (DSH) payment adjustments to out-of-state hospitals treating Medi-Cal patients. A final notice reiterated this position in March 2000. The document references West Virginia University Hospitals Inc. v. Casey, which established that a state cannot set disproportionately low rates for out-of-state hospital services. Title 42 U.S.C. 1396a(a)(30)(A) requires state plans to ensure payments are efficient, economical, and sufficient to maintain care availability. Plaintiffs assert they are pursuing a writ of mandate under California law rather than under Section 1983, but provide no authority indicating that a federal court can issue such a writ against the state based on a federal statute that lacks a private right of action.
The Secretary is empowered to grant urban development action grants to cities and urban counties facing severe economic distress to promote economic recovery. Eligibility for these grants requires a demonstration of effective housing provision for low- and moderate-income individuals, as well as equal opportunities in housing and employment for these groups and minorities. The Secretary will establish regulations that define criteria and minimum standards for assessing the economic distress of applicants. Key considerations include the project's potential to address urgent employment and housing needs by reemploying recently unemployed workers, retraining them in new skills, and enhancing the local skilled labor pool.
Grants must directly benefit low- and moderate-income families in the area. Regulations mandate that opportunities for training and employment from projects funded by these grants should primarily benefit lower-income residents. Additionally, Medicaid regulations specify that state plans must include necessary information for federal approval, be reviewed by CMS regional staff, and cannot be disapproved without consulting the Secretary. The Resource Conservation and Recovery Act (RCRA) governs hazardous waste management, while the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and its amendments establish federal funding for state cleanup efforts and require states to submit Capacity Assurance Plans to the EPA.
Effective three years post-October 17, 1986, the President is prohibited from providing remedial actions unless the State involved has a contract or cooperative agreement ensuring the availability of hazardous waste treatment or disposal facilities. These facilities must: (A) have sufficient capacity for the hazardous waste expected to be generated over the next 20 years; (B) be located within the State or outside it under an interstate or regional agreement; (C) be acceptable to the President; and (D) comply with subtitle C of the Solid Waste Disposal Act. The EPA's stance on the consistency requirement between state and federal programs has varied, with regulations stipulating that state programs must not unreasonably restrict interstate commerce.
Approval letters from CMS Director reference a review aligned with the Social Security Act's statutory requirements and federal regulations. Section 1396r-4(3) raises ambiguity regarding "statewide pooling arrangements" limited to in-state hospitals. Under EMTALA, hospitals accepting Medicare must provide emergency services regardless of a patient's insurance status. Discrepancies in payments between in-state and out-of-state hospitals illustrate potential discrimination, with California hospitals receiving significantly higher Medi-Cal reimbursements.
The 15-020 Amendment is projected to increase Medi-Cal expenditures on out-of-state hospitals by approximately $1.4 million annually. The 19 plaintiff hospitals collectively provided 895 Medi-Cal covered hospital stays in fiscal year 2013/2014, with some hospitals having minimal Medi-Cal admissions. Assessing hospitals for approval as Regional or Community NICUs involves field visits. The Director may request necessary information for DSH payments to the plaintiff hospitals.
Several states, including Arizona, Connecticut, Florida, Iowa, Kansas, Minnesota, Pennsylvania, South Carolina, Virginia, and Washington, make Disproportionate Share Hospital (DSH) payments to out-of-state hospitals. A Court of Appeal highlighted several key findings:
1. The unweighted average of in-state contract rates for acute inpatient hospital services used by the Department of Health Services (DHS) resulted in nearly $3 million less compensation for out-of-state hospitals compared to a weighted average.
2. In-state contract rates have consistently increased, and the DHS's practice of using fixed rates set on December 1 without annual adjustments leads to lower payments to out-of-state hospitals, which is inconsistent with state law requirements under the Medicaid Act.
3. DHS distributes over $2 billion annually in DSH adjustments to state hospitals but has never paid disproportionate share funds to out-of-state hospitals.
4. From April 1, 1994, to August 14, 2000, the allowable expenses for treating Medi-Cal patients by respondent hospitals totaled $22,660,318, yet they received only $14,696,955, covering just 65% of their allowable costs, resulting in a shortfall of $7,963,363.
5. Prior to the current reimbursement system, respondents would have received $19,380,433 for the same services, resulting in a net shortfall of $4,683,478.
The DHS defended the disparity in compensation by arguing the impracticality of contracting with numerous distant hospitals. However, the Court of Appeal rejected this rationale, noting that the DHS could contract with nearby large hospitals treating significant Medi-Cal patient numbers. Additionally, it contended that large out-of-state hospitals willing to comply with audits and jurisdiction should be allowed processes to contest their compensation adequacy.
The document also defines a "Remote Rural Border Hospital," which must be at least 15 miles from the nearest general acute care hospital and meet specific criteria. Plaintiffs argue that the State's proposed definition for out-of-state hospitals is more restrictive than that applied to in-state hospitals.
Border hospitals are defined as those situated outside California, within a 55-mile driving distance from the nearest point where a road crosses the California border, encompassing all plaintiff hospitals. A "Remote Rural Border Hospital" is characterized as a rural hospital recognized by the Federal Medicare Program, located at least 15 miles from the nearest General Acute Care (GAC) hospital with a basic emergency room, and does not share a license or National Provider Index (NPI) number with a non-remote rural hospital. Similarly, a "Remote Rural Hospital" in California is also defined as a rural hospital, meeting the same distance and licensing criteria. Plaintiffs argue that the Department should apply the same "remote rural" designation criteria for the plaintiffs as used for California hospitals, excluding state-specific requirements applicable only to in-state facilities. However, the plaintiffs have not clarified how many hospitals, if any, were excluded from the "Remote Rural Border Hospital" designation under Amendment 15-020.
