No. 12-55067, Consolidated with Nos. 12-55068, 12-55103, 12-55315, 12-55331, 12-55332, 12-55334, 12-55335, 12-55535, 12-55550 & 12-55554
IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
____________________________
MANAGED PHARMACY CARE et al.,
Plaintiffs-Appellees,
v.
KATHLEEN SEBELIUS, SECRETARY, DEPARTMENT OF HEALTH & HUMAN SERVICES, et al.,
Defendants-Appellants. ____________________________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA
____________________________
OPPOSITION TO PETITIONS FOR REHEARING AND REHEARING EN BANC
____________________________
STUART F. DELERY Principal Deputy Assistant Attorney General
ANDRÉ BIROTTE JR. United States Attorney
MARK B. STERN (202) 514-5089 LINDSEY POWELL (202) 616-5372 JEFFREY E. SANDBERG (202) 532-4453 Attorneys, Appellate Staff Civil Division, Room 7240 Department of Justice 950 Pennsylvania Ave., NW Washington, DC 20530
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TABLE OF CONTENTS
Page
INTRODUCTION AND SUMMARY ................................................................................ 1 STATEMENT ........................................................................................................................... 2 ARGUMENT ............................................................................................................................ 4 A. In According Deference to the Agency’s Interpretation of Section 30(A), the Panel’s Decision Adheres to this Court’s Precedent and Is Consistent with the Decision of Every Other Circuit To Consider the Issue .............................................................. 4 B. The Panel Correctly Held that the Agency’s Interpretation of Section 30(A), as Reflected in the Approval Decisions, Is Controlling ...................................................................................................... 8 C. The Panel Gave Appropriate Deference to the Agency’s Determination that the Data Provided by DHCS Demonstrated the Plan Amendments’ Compliance with Section 30(A) ........................... 13 CONCLUSION ...................................................................................................................... 18 CERTIFICATE OF COMPLIANCE CERTIFICATE OF SERVICE
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TABLE OF AUTHORITIES Cases: Page Alaska Dep’t of Health & Social Servs. v. CMS,
424 F.3d 931 (9th Cir. 2005) ......................................................................... 2, 4, 5, 12, 16 Barnes v. U.S. Dep’t of Transp.,
655 F.3d 1124 (9th Cir. 2011) ........................................................................................... 14 Barnhart v. Walton,
535 U.S. 212 (2002) .............................................................................................................. 6 Davis v. EPA,
348 F.3d 772 (9th Cir. 2003) ............................................................................................... 6 Dickson v. Hood,
391 F.3d 581 (5th Cir. 2004) .......................................................................................... 5, 7 Douglas v. Independent Living Ctr. of S. Cal., Inc.,
132 S. Ct. 1204 (2012) ................................................................................................. 1, 5, 9 Harris v. Olszewski,
442 F.3d 456 (6th Cir. 2006) .......................................................................................... 5, 7 Illinois Brick Co. v. Illinois,
431 U.S. 720 (1977) ............................................................................................................ 11 Independent Acceptance Co. v. California,
204 F.3d 1247 (9th Cir. 2000) ........................................................................................... 14 Independent Living Ctr. of S. Cal., Inc. v. Maxwell-Jolly,
572 F.3d 644 (9th Cir. 2009) ............................................................................................... 9 Methodist Hosps., Inc. v. Sullivan,
91 F.3d 1026 (7th Cir. 1996) ...................................................................................... 10, 11 Minnesota Homecare Ass’n v. Gomez,
108 F.3d 917 (8th Cir. 1997) ............................................................................................. 10
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Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983) ............................................................................................................... 14
National Cable & Telecomms. Ass’n v. Brand X Internet Servs.,
545 U.S. 967 (2005) ....................................................................................................... 9, 10 National Parks & Conserv. Ass’n v. U.S. Dep’t of Transp.,
222 F.3d 677 (9th Cir. 2000) ............................................................................................. 15 NationsBank of N.C. v. Variable Annuity Life Ins. Co.,
513 U.S. 251 (1995) .............................................................................................................. 6 Orthopaedic Hosp. v. Belshe,
103 F.3d 1491 (9th Cir. 1997) ............................................................................................. 9 Pennsylvania Pharmacists Ass’n v. Houstoun,
283 F.3d 531 (3d Cir. 2002) ........................................................................................ 16, 17 Pharmaceutical Research & Mfrs. of Am. (PhRMA) v. Thompson,
362 F.3d 817 (D.C. Cir. 2004) .................................................................................... 5, 6, 7 Price v. Stevedoring Services of Am., Inc.,
697 F.3d 820 (2012) (en banc) ............................................................................................ 7 Ranchers Cattlemen Action Legal Fund United Stockgrowers of Am. v. USDA,
499 F.3d 1108 (9th Cir. 2007) ........................................................................................... 14 Rite Aid of Pa., Inc. v. Houstoun,
171 F.3d 842 (3d Cir. 1999) .................................................................................. 10, 16, 17 Sanchez v. Johnson,
416 F.3d 1051 (9th Cir. 2005) ............................................................................................. 7 United States v. Mead Corp.,
533 U.S. 218 (2001) .............................................................................................................. 6 United States v. Montero-Camargo,
208 F.3d 1122 (9th Cir. 2000) (en banc) ............................................................................ 6
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Statutes: 5 U.S.C. § 706(2)(A) ......................................................................................................... 13, 14 42 U.S.C. § 1396a(a)(30)(A) ..................................................................................................... 2 42 U.S.C. § 1396a(b).................................................................................................................. 2 Cal. Welf. & Inst. Code § 14105.192(a)(2) ........................................................................... 17 Notice of Proposed Rulemaking: 76 Fed. Reg. 26,3423 (May 6, 2011) ................................................................. 11, 12, 13, 14 Other Authorities: Brief for United States as Amicus Curiae, Belshe v. Orthopaedic Hosp., 522 U.S. 1044 (1998) (No. 96-1742), 1997 WL 33561790 ............................................ 12 Brief for United States as Amicus Curiae, Maxwell-Jolly v. Independent Living Ctr. of S. Cal., Inc., 131 S. Ct. 992 (2011) (No. 09-958), 2010 WL 4959708 ................................................. 12 Brief for Respondents, Alaska Dep’t of Health & Social Servs. v. CMS, 424 F.3d 931 (9th Cir. 2005) (No. 04-74204), 2004 WL 3155124 ............................... 12
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INTRODUCTION AND SUMMARY
After extensive review, the Secretary of Health and Human Services approved
amendments to California’s Medicaid plan that reduced by ten percent the provider
payment rates for certain covered services. Plaintiffs in these consolidated cases
challenge the validity of the Secretary’s decisions, alleging a variety of shortcomings
including inadequate consideration of provider costs. The district court accepted
these contentions and entered preliminary injunctions staying the approval decisions.
This Court reversed, holding that the Secretary’s interpretation of the Medicaid
statute is entitled to Chevron deference; that the Secretary’s approval of the state plan
amendments was reasonable; and that plaintiffs therefore cannot show a likelihood of
success on their claims.
The panel’s decision is consistent with this Court’s precedent and the decisions
of other circuits. Plaintiffs’ arguments would require this Court to create a circuit
conflict and to adopt reasoning in significant tension with the Supreme Court’s
decision in Douglas v. Independent Living Center of Southern California, Inc., 132 S. Ct. 1204,
1210 (2012), which signaled that deference to the agency’s interpretation is
appropriate in these circumstances.
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STATEMENT
A. The Secretary of Health and Human Services (HHS), through the Centers
for Medicare & Medicaid Services (CMS), is responsible for administering the
Medicaid program and reviewing state Medicaid plans and plan amendments to
determine whether they comply with the “vast network of specific statutory
requirements” set forth in federal law. Alaska Dep’t of Health & Social Servs. v. CMS,
424 F.3d 931, 939 (9th Cir. 2005) (internal quotation marks omitted); see 42 U.S.C.
§ 1396a(b). Among those requirements, a state plan must
provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan . . . as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.
42 U.S.C. § 1396a(a)(30)(A) (Section 30(A)).
B. In 2011, CMS undertook a searching review of the payment rate reductions
proposed by the California Department of Health Care Services (DHCS) to determine
whether the state plan amendments (SPAs) met the requirements of Section 30(A). In
the course of its extensive dialogue with DHCS, CMS suggested various measures the
state might use to demonstrate compliance with the statute’s substantive
requirements, see, e.g., CMA ER 143-44, 145-46, and explained that CMS “does not
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currently interpret [Section 30(A)] to require cost studies in order to demonstrate
compliance,” CMA ER 138.
Using the measures suggested by CMS, DHCS submitted analyses showing that
payment rate reductions for the following services are consistent with Section 30(A)’s
requirement that beneficiaries have access to services comparable to that available to
individuals in the general population: hospital-based skilled nursing services, pharmacy
services, medical transportation services, dental services, durable medical equipment,
and physician and clinic services. See, e.g., CHA ER 145-54; CMA ER 152-54, 155-66,
278-361. To provide further assurance of adequate access to these services, DHCS
also developed a plan to monitor twenty-three measures of access on a continual basis
and to take prompt action if any problems are indicated. CMA ER 167-248. In
preparing its analyses, DHCS determined that payment rate reductions for certain
services would be inconsistent with the statute’s access requirement, and it did not
include those services in the plan amendments approved by CMS.
Based on the analyses and monitoring plan, and after meeting with and
reviewing materials submitted by plaintiffs and other stakeholders, CMS determined
that the plan amendments were consistent with Section 30(A). CHA ER 256; CMA
ER 264. CMS emphasized that “the State was able to provide metrics,” including
provider participation and per capita service utilization data, that “adequately
demonstrated beneficiary access to care.” CHA ER 255; CMA ER 263.
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C. Reversing preliminary injunctions entered by the district court, a panel of
this Court held that the agency’s interpretation of Section 30(A) as expressed in the
approval decisions is entitled to Chevron deference, and that the agency’s approval of
the state plan amendments was not arbitrary or capricious.
ARGUMENT
A. In According Deference to the Agency’s Interpretation of Section 30(A), the Panel’s Decision Adheres to this Court’s Precedent and Is Consistent with the Decision of Every Other Circuit To Consider the Issue.
1. As the panel explained, this Court has “already considered the application of
Chevron to the SPA process.” Slip Op. at 29. In Alaska Department of Health & Social
Services, the Secretary disapproved a state plan amendment proposing to raise
reimbursement rates as inconsistent with Section 30(A)’s standards of efficiency and
economy. This Court observed that it “generally afford[s] Chevron deference to the
Agency’s interpretations of the Medicaid Act,” 424 F.3d at 938, and that “[t]he
authority to elucidate the meaning of the statute in this manner, via case-by-case
adjudication, is well within the Secretary’s mandate,” id. at 940. The Court
accordingly gave deference to the Secretary’s interpretation of the Medicaid statute
reflected in the decision disapproving the plan amendment. Id. at 939.
The Court in this case is asked to review the Secretary’s approval of a plan
amendment, rather than a disapproval. The panel correctly observed that “[t]here
does not appear to be any logical reason why Congress would delegate to the
Secretary the discretion to decide that a proposed SPA violates § 30(A), but choose to
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withhold from her that same discretion if she decides the SPA complies with § 30(A).”
Slip Op. at 29 (emphasis in original). The panel explained that “[t]he nature of [the
Secretary’s] authority is the same in both instances,” and there is no proper basis for
varying the standard of review based on the outcome of the Secretary’s inquiry. Id.
Nothing in the Alaska decision suggests that the Court’s reasoning was limited
to cases in which the Secretary declines to approve a plan amendment. On the
contrary, the Court relied on the D.C. Circuit’s reasoning in Pharmaceutical Research &
Manufacturers of America (PhRMA) v. Thompson, 362 F.3d 817 (D.C. Cir. 2004), which
gave deference to a CMS decision approving a plan amendment. See Alaska, 424 F.3d at
939; see also Harris v. Olszewski, 442 F.3d 456, 467 (6th Cir. 2006) (holding that a
decision approving a state plan amendment was entitled to Chevron deference because
“HHS was exercising Congress’s ‘express delegation of specific interpretive
authority’”); Dickson v. Hood, 391 F.3d 581, 595-96 (5th Cir. 2004) (same).
The Supreme Court’s opinion in Douglas provides further support for the
panel’s decision, as it strongly indicates that the Court would reach the same
conclusion if called upon to decide the deference due to plan approvals. The Douglas
Court observed that “[t]he Medicaid Act commits to the federal agency the power to
administer a federal program. And here the agency has acted under this grant of
authority. That decision carries weight.” 132 S. Ct. at 1210. Although this
declaration was not necessary to the Court’s holding, “Supreme Court dicta have a
weight that is greater than ordinary judicial dicta as prophecy of what that Court
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might hold.” United States v. Montero-Camargo, 208 F.3d 1122, 1132 n.17 (9th Cir. 2000)
(en banc) (internal quotation marks omitted).
2. Plaintiffs argue that deference is nevertheless unwarranted because the
Secretary’s decisions were not attended by a sufficiently formal process. The Supreme
Court has clearly stated, however, that the want of formal procedure “does not decide
the case,” and it has often “found reasons for Chevron deference even when no such
administrative formality was required and none was afforded.” United States v. Mead
Corp., 533 U.S. 218, 231 (2001); see Barnhart v. Walton, 535 U.S. 212, 221 (2002);
NationsBank of N.C. v. Variable Annuity Life Ins. Co., 513 U.S. 251, 256-57 (1995); see
also Davis v. EPA, 348 F.3d 772, 779 n.5 (9th Cir. 2003).
In the absence of formal procedures, courts must determine whether there are
“any other circumstances reasonably suggesting” that Congress intended deference to
an agency decision. Mead, 533 U.S. at 231. Where, as here, Congress has expressly
delegated authority to the agency to implement the statutory scheme, the inquiry is at
an end. See PhRMA, 362 F.3d at 821-22 (applying Mead and affording Chevron
deference because “Congress expressly conferred on the Secretary authority to review
and approve state Medicaid plans”). Many other factors also counsel deference in
these circumstances, including “the interstitial nature of the legal question, the related
expertise of the Agency, the importance of the question to administration of the
statute, the complexity of that administration, and the careful consideration the
Agency has given the question over a long period of time.” Barnhart, 535 U.S. at 222;
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see also Sanchez v. Johnson, 416 F.3d 1051, 1060 (9th Cir. 2005) (noting the complexity of
the Medicaid statute and the “broad and diffuse” language of Section 30(A)).
Like the panel in this case, the D.C. Circuit in PhRMA held that the Secretary’s
approval of a plan amendment should receive deference notwithstanding the
plaintiffs’ contentions that the Secretary’s interpretation was “not the result of a
formal administrative process, d[id] not involve agency expertise, [was] inconsistent
with previous HHS interpretations and w[as] developed solely in response to this
lawsuit.” 362 F.3d at 821. The D.C. Circuit explained that “the Secretary is charged
with ensuring that each state plan complies with a vast network of specific statutory
requirements,” and that Congress has “manifested its intent that the Secretary’s
determinations, based on interpretation of the relevant statutory provisions, should
have the force of law.” 362 F.3d at 821-22. “The Secretary’s interpretations of the
Medicaid Act are therefore entitled to Chevron deference.” Id. at 822; see also Olszewski,
442 F.3d at 467; Dickson, 391 F.3d at 595-96.
Plaintiffs do not acknowledge the absence of support for their position or the
circuit conflict that would result from its acceptance. They instead seek to rely on this
Court’s decision in Price v. Stevedoring Services of America, Inc., 697 F.3d 820 (2012) (en
banc), which held that a statutory interpretation adopted for the first time by an
agency in litigation generally is not entitled to Chevron deference. Price has no bearing
on this case, in which the panel accorded deference to the agency’s decision, not the
government’s litigating position.
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B. The Panel Correctly Held that the Agency’s Interpretation of Section 30(A), as Reflected in the Approval Decisions, Is Controlling. 1. CMS’s approval letters clearly explain what measures the agency found
adequate to demonstrate compliance with the substantive requirements of Section
30(A). DHCS submitted analyses examining such factors as the “number of providers
by type and geographic location” and the per capita “[u]tilization of services by
eligibility type over time,” and CMS determined that “[t]hese metrics demonstrated a
baseline level of beneficiary access” consistent with Section 30(A), notwithstanding
the absence of cost studies for some of the affected services. CHA ER 255; CMA
ER 263. The approval letters also reflect CMS’s conclusion that the monitoring plan
submitted by DHCS provided additional assurance of continuing compliance with
Section 30(A)’s substantive requirements. CHA ER 255; CMA ER 263.
Correspondence in the administrative record further explains CMS’s
interpretation that Section 30(A) permits states to rely on a variety of data in
demonstrating consistency with the statute’s substantive requirements and does not
require use of a particular methodology in making that showing. CMA ER 138
(explaining that “CMS does not currently interpret [Section 30(A)] to require cost
studies in order to demonstrate compliance. We believe the appropriate focus is on
access.”). Plaintiffs’ suggestion that the agency’s interpretation of the statute cannot
be discerned from the approval decisions or the record on review is without basis.
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The panel correctly recognized that earlier decisions of this Court construing
Section 30(A) without the benefit of the federal agency’s participation must give way
to the Secretary’s authoritative interpretation of the statute. See National Cable &
Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 982 (2005). The Secretary was
not a party to Independent Living Center of Southern California, Inc. v. Maxwell-Jolly, 572 F.3d
644 (9th Cir. 2009), or Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir. 1997), in
which this Court construed Section 30(A) to require the state to provide reliable cost
studies to support a proposed payment rate reduction. In the absence of federal
participation, the only government entity to offer its interpretation was DHCS, and
the Court observed that “[a] state agency’s interpretation of federal statutes is not
entitled to the deference afforded a federal agency’s interpretation of its own statutes
under Chevron.” Orthopaedic Hospital, 103 F.3d at 1495.
CMS issued the decisions under review after this Court’s decision in Independent
Living Center but before the Supreme Court’s reversal of that decision in Douglas.
Reflecting on this development, the Supreme Court noted that the fact that “[t]he
federal agency charged with administering the Medicaid program has determined that
the challenged rate reductions comply with federal law” “may change the answer” to
the question of how the statute should be interpreted. Douglas, 132 S. Ct. at 1210.
The panel in this case correctly determined that it does.
This Court’s earlier decisions did not purport to hold that “the unambiguous
terms of the statute” require cost studies. Brand X Internet Servs., 545 U.S. at 982.
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Such a conclusion would find no support in the statute’s text, which makes no
reference to cost studies or any other specific methodology. See Slip Op. 34.
Accordingly, the Secretary’s interpretation is entitled to deference notwithstanding
this Court’s contrary opinions, as long as the Secretary’s interpretation is reasonable.
Brand X Internet Servs., 545 U.S. at 982.
2. As the panel correctly concluded, the Secretary’s interpretation is entirely
reasonable. “[B]y its terms § 30(A) requires a substantive result—reimbursement rates
must be consistent with efficiency, economy, and quality care, and sufficient to enlist
enough providers to ensure adequate beneficiary access.” Slip Op. at 34. Consistent
with that direction, the Secretary has interpreted Section 30(A) to make beneficiary
access to services, rather than provider costs, the focus of the agency’s inquiry.
Section 30(A) thus “requires each state to produce a result, not to employ any
particular methodology for getting there.” Methodist Hosps., Inc. v. Sullivan, 91 F.3d
1026, 1030 (7th Cir. 1996) (emphasis in original); accord Rite Aid of Pa., Inc. v. Houstoun,
171 F.3d 842, 853 (3d Cir. 1999); Minnesota Homecare Ass’n v. Gomez, 108 F.3d 917, 918
(8th Cir. 1997) (per curiam).
This interpretation accommodates the practical realities of the market for
health care services and the data that will be relevant and available in any given
instance. Based on the circumstances presented, a variety of data may be pertinent to
the substantive inquiry: “Many factors affect whether beneficiaries have access to
Medicaid services, including but not limited to, the beneficiaries’ health care needs and
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characteristics, State or local service delivery models, procedures for enrolling and
reimbursing qualified providers, the availability of providers in the community, and
Medicaid service payment rates to providers.” 76 Fed. Reg. 26,342, 26,343 (May 6,
2011) (Notice of Proposed Rulemaking). “Depending upon State circumstances,
cost-based studies may not always be informative or necessary.” Id. at 26,344. Thus,
requiring states to provide cost studies in every instance would not further the
statute’s substantive objectives.
In addition, an inflexible cost-study requirement would impose extraordinary
constraints on the agency’s consideration of proposed plan amendments. “[I]t is
exceptionally difficult to determine demand and supply schedules for a single
product.” Methodist Hosps., 91 F.3d at 1030 (citing Illinois Brick Co. v. Illinois, 431 U.S.
720 (1977)). “Doing this for the entire medical segment of the economy would be
more than difficult; it would be impossible.” Id. This is particularly true because
“many State payment rates are not specifically calculated based on provider cost
considerations,” and cost data are often unavailable. 76 Fed. Reg. at 26,344. “There
are literally thousands of individual services for which the Medi-Cal program has
established separate rates. The State has never established a mechanism for gathering
cost data on each of thousands of different services.” CMA ER 52. Moreover,
plaintiffs themselves have not been able to suggest what “cost” would mean in these
circumstances; as the panel observed, it is hardly a term that conveys a precise
meaning. Slip Op. 35.
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3. CMS’s interpretation of Section 30(A) is longstanding and consistent. See 76
Fed. Reg. at 26,344 (“Depending upon State circumstances, cost-based studies may
not always be informative or necessary.”); Brief for United States as Amicus Curiae at
9, Maxwell-Jolly v. Independent Living Ctr. of S. Cal., Inc., 131 S. Ct. 992 (2011) (No. 09-
958), 2010 WL 4959708 (“Section 1396a(a)(30)(A) does not set forth any requirement
that a State consider cost studies in setting payment rates.”); Brief for United States as
Amicus Curiae at 8, Belshe v. Orthopaedic Hosp., 522 U.S. 1044 (1998) (No. 96-1742),
1997 WL 33561790 (“Section 1396a(a)(30)(A) does not set forth any requirement that
a State consider costs in making payments for outpatient or other services.”).
Plaintiffs are mistaken in asserting that the agency’s interpretation is
inconsistent with the interpretation expressed in the plan disapproval in Alaska. The
state in that case had introduced no evidence to show that its plan amendment was
consistent with Section 30(A), and the agency disapproved the plan amendment on
that basis. The government’s brief explained that cost data would have been useful in
demonstrating consistency with the statutory requirements of efficiency and economy
in those circumstances, but it also made clear that CMS “has not ‘required’ the State
to submit cost data” and does not understand Section 30(A) to impose such a
requirement. Brief for Respondents at 31-32, Alaska, 424 F.3d 931 (No. 04-74204),
2004 WL 3155124. Consistent with that position, CMS continues to recognize that
cost data may sometimes be pertinent—and it in fact considered cost data with
respect to some of the covered services implicated in these appeals, see CHA ER 88-
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89, 93-97; CMA ER 67—but the agency has also made clear that other types of data
will often be similarly or more useful.
Plaintiffs are equally wide of the mark in positing an inconsistency between the
Secretary’s interpretation in this case and the 2011 proposed rule regarding
appropriate methods for demonstrating compliance with Section 30(A)’s substantive
requirements. By its terms, the approach outlined in the notice of proposed
rulemaking “does not focus on one particular data element, such as the relationship of
provider payment rates to provider costs, but recognizes that access to covered
services is affected by multiple factors.” 76 Fed. Reg. at 26,344. The Secretary noted
that “cost may be one consideration affecting access to care,” but that “there are
other factors such as local market conditions, variable provider costs, administrative
burden for providers, and demographic differences.” Id.
C. The Panel Gave Appropriate Deference to the Agency’s Determination that the Data Provided by DHCS Demonstrated the Plan Amendments’ Compliance with Section 30(A). The Secretary reasonably concluded that the access analyses provided by
DHCS, together with the monitoring plan for ensuring continuing compliance,
adequately demonstrated the plan amendments’ consistency with Section 30(A)’s
substantive requirements. In arguing otherwise, plaintiffs urge this Court to ignore
decades of precedent requiring deferential review of agency decisions.
A reviewing court may not set aside agency action unless it is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C.
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§ 706(2)(A). “This standard of review is ‘highly deferential, presuming the agency
action to be valid and affirming the agency action if a reasonable basis exists for its
decision.’” Ranchers Cattlemen Action Legal Fund United Stockgrowers of Am. v. USDA, 499
F.3d 1108, 1115 (9th Cir. 2007) (quoting Independent Acceptance Co. v. California, 204
F.3d 1247, 1251 (9th Cir. 2000)). The panel correctly recognized that, in undertaking
this review, a court may “not substitute [its] judgment for that of the agency,” Barnes v.
U.S. Dep’t of Transp., 655 F.3d 1124, 1132 (9th Cir. 2011), and must uphold the agency
action, even if it is made with “less than ideal clarity,” as long as “the agency’s path
may reasonably be discerned” from the record, Motor Vehicle Mfrs. Ass’n v. State Farm
Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (internal quotation marks omitted).
As the record shows, DHCS submitted analyses for each of the affected
services demonstrating that the payment rate reductions would not impair beneficiary
access. See CHA ER 145-54; CMA ER 152-54, 155-66, 278-361. These analyses
reviewed data on provider availability and per capita utilization of services—precisely
the factors that CMS identified as relevant in its correspondence with DHCS. CMA
ER 143-46; see 76 Fed. Reg. at 26,343-44. In addition to these predictive analyses,
DHCS submitted a comprehensive plan for monitoring access to services after the
plan amendments are implemented—another measure suggested by CMS, see CMA
ER 145. The monitoring plan identifies twenty-three measures that DHCS will
continually study to ensure that the plan amendments do not impair beneficiary
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access. CMA ER 200-25. Like the access analyses, the monitoring plan focuses on
measures of provider availability, per capita service utilization, and enrollee needs.
Various providers and provider groups, including many of the plaintiffs in
these consolidated cases, also had extensive involvement in the administrative
process. Plaintiffs submitted letters and studies to CMS and met with CMS officials
to present their concerns. CMS considered this input when conducting its review of
the proposed payment rate reductions, see CHA ER 256; CMA ER 264, and its
decision to credit DHCS’s evidence over that submitted by other parties was plainly
reasonable. “[W]here there is conflicting evidence in the record, the [agency’s]
determination is due deference—especially in areas of [its] expertise.” National Parks
& Conserv. Ass’n v. U.S. Dep’t of Transp., 222 F.3d 677, 682 (9th Cir. 2000). CMS has
repeatedly explained the deficiencies in the data submitted by plaintiffs and the
comparative reliability of the access analyses submitted by the state, see CMA ER 368-
81, and the panel appropriately credited that explanation.
As discussed in the Secretary’s panel briefing, the agency also gave adequate
consideration to the statutory requirements of efficiency, economy, and quality of
care. While CMS most closely scrutinized the question of beneficiary access to
services, this focus represented a reasonable and appropriate prioritization under the
circumstances. Many plan amendments will principally implicate only one or two of
Section 30(A)’s substantive requirements. For example, questions of efficiency and
economy are most salient when states increase payments to providers, not when they
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decrease payments. See Pennsylvania Pharmacists Ass’n v. Houstoun, 283 F.3d 531, 537-38
(3d Cir. 2002). For that reason, the parties in Alaska, where the amendment proposed
a payment rate increase, properly focused their briefing on the factors of efficiency
and economy. 424 F.3d at 940, 941 n.3. Where the agency can readily satisfy itself
that some number of statutory factors are not implicated by the plan amendment, it
need not expend additional resources on unnecessary analysis. Cf. Rite Aid, 171 F.3d
at 854 (upholding a plan amendment even where the state “gave some of the section
30(A) factors more attention than others”).
In asserting that CMS was required to provide a detailed discussion with
respect to each statutory factor, plaintiffs fail to recognize the practical implications of
the result they advocate. Section 30(A) is not the only source of requirements for
state plans and plan amendments. Title 42 U.S.C. § 1396a(a) contains eighty-two
other enumerated requirements, many of which, like Section 30(A), have multiple
components. The constraints plaintiffs would impose on the review process are
without basis in principles of administrative law and would frustrate the Secretary’s
ability to review the many plan amendments submitted each year.
Finally, there is no merit to plaintiffs’ contention that CMS was required to
disapprove the plan amendments because they were motivated by “purely budgetary
reasons,” MPC Pet. for Reh’g at 5. It is entirely appropriate for a state to review its
Medicaid plan to determine whether it can continue to satisfy its statutory obligations
at lower payment rates. Indeed, Section 30(A)’s requirements of efficiency and
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economy may reasonably be understood to encourage this type of inquiry in order to
avoid the perpetuation of payment rates that are unnecessarily high. See Rite Aid, 171
F.3d at 856; see also Pennsylvania Pharmacists Ass’n, 283 F.3d at 537. The state legislature
directed DHCS to “find areas within the [Medi-Cal] program where reimbursement
levels are higher than required under the standard provided in Section 1902(a)(30)(A)”
in order to “minimize the need for drastically cutting enrollment standards or
benefits.” Cal. Welf. & Inst. Code § 14105.192(a)(2). The question before the
Secretary was whether the evidence submitted by DHCS demonstrated that the
proposed payment rate reductions could be effected consistent with the substantive
requirements of Section 30(A). The Secretary’s determination that the evidence
sufficed to make that showing was reasonable and provides no occasion for en banc
review.
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CONCLUSION
For the foregoing reasons, the petitions for rehearing and rehearing en banc
should be denied.
Respectfully submitted,
STUART F. DELERY Principal Deputy Assistant Attorney General
ANDRÉ BIROTTE JR. United States Attorney
MARK B. STERN (202) 514-5089 s/ Lindsey Powell LINDSEY POWELL (202) 616-5372 JEFFREY E. SANDBERG (202) 532-4453 Attorneys, Appellate Staff Civil Division, Room 7240 Department of Justice 950 Pennsylvania Ave., NW Washington, DC 20530
FEBRUARY 2013
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CERTIFICATE OF COMPLIANCE
I hereby certify pursuant to Circuit Rules 35-4 and 40-1 that the foregoing
opposition to rehearing and rehearing en banc is proportionately spaced, has a
typeface of 14 points or more, and contains 4,162 words according to the count of
this office’s word-processing system.
s/ Lindsey Powell LINDSEY POWELL
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CERTIFICATE OF SERVICE
I hereby certify that on February 22, 2013, I filed an electronic copy of the
foregoing brief with the United States Court of Appeals for the Ninth Circuit through
the CM/ECF system, with electronic service provided to opposing counsel.
s/ Lindsey Powell LINDSEY POWELL
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