No. 12-55067, Consolidated with Nos. 12-55068, 12-55103 ... · managed pharmacy care et al.,...

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

Case: 12-55067 02/22/2013 ID: 8523571 DktEntry: 163 Page: 1 of 25

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


iii

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


iv

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


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.


2

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


3

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.


4

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


5

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


6

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;


7

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.


8

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.


9

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.


10

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


11

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.


12

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-


13

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.


14

§ 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


15

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


16

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


17

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.


18

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


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


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


No. 12-55067, Consolidated with Nos. 12-55068, 12-55103 ... · managed pharmacy care et al.,...

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