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Dartmouth-Hitchcock Clinic, et al v. Nicholas Toumpas

March 2, 2012


The opinion of the court was delivered by: Steven J. McAuliffe United States District Judge

Opinion No. 2012 DNH 032


A number of New Hampshire hospitals and two individuals seek an order prospectively enjoining the State's Commissioner of Health and Human Services from enforcing significantly reduced reimbursement rates for medical care provided under the State's Medicaid Program. The hospital and health care system plaintiffs are "providers" of medical care, and the individual plaintiffs are "beneficiaries" under the program.

Plaintiffs complain that, in several respects, the Commissioner ignored his clear obligations under federal law, both procedurally and substantively. First, they say, he failed to provide them with notice and an opportunity to comment before the reduced rates became final. Second, they claim he failed to provide notice and an opportunity to comment before the Department of Health and Human Services ("DHHS") employed rate-setting methods and standards that were materially different from those established in the State's federally-approved Medicaid plan. Finally, plaintiffs assert that the reduced rates cannot and do not satisfy substantive (and preemptive) federal requirements (i.e., that Medicaid reimbursement rates be set at a level sufficient to both assure quality of care and enlist enough providers to deliver medical services to Medicaid beneficiaries to the same extent such care is available to the general population). See 42 U.S.C. § 1396a(a)(30)(A) ("Section


At the risk of oversimplifying the complaint, it generally alleges that New Hampshire's Legislature and Governor effectively dictated substantial reductions in Medicaid reimbursement rates (as well as other Medicaid funding) solely to accommodate state budgetary preferences -- that is, to save the State money. And, say plaintiffs, they acted in a manner completely divorced from the federally required rate-setting process that the State agreed to follow when it voluntarily enlisted in the Medicaid program. The Commissioner's failure to comply with mandatory notice requirements, and his failure to set reimbursement rates in a lawful manner, plaintiffs argue, render those reduced rates invalid and unenforceable. Accordingly, say plaintiffs, they are entitled to equitable injunctive relief as necessary to obtain the Commissioner's compliance with federal law.

The Commissioner opposes the motion for injunctive relief on a number of grounds. He also moves to dismiss plaintiffs' substantive claims (Counts I - IV) on grounds that the Medicaid Act does not include a private right of action entitling either medical service providers or beneficiaries to enforce the Act's substantive provisions. Enforcement of the Medicaid Act's substantive provisions, says the Commissioner, is a matter that Congress has committed to the sound discretion of the federal Secretary of Health and Human Services, not private litigants. Moreover, the Commissioner argues, plaintiffs' assertion of a direct claim under the Supremacy Clause of the United States Constitution is little more than a transparent effort to end-run Congressional intent, by putting a different label on what is really an effort to enforce private rights under the Medicaid Act.

With respect to plaintiffs' procedural claims, the Commissioner denies that DHHS employed rate-setting methods or standards different from those described in the State's Medicaid plan (and so denies that any public notice was required), and he denies that he was obligated to obtain federal approval of a change in rate-setting methodology before reducing the reimbursement rates. Moreover, he contends that, to the extent any notice and opportunity for public comment were required, the legislative and executive processes associated with the rate reductions were sufficient, in themselves, to satisfy his obligations under federal law.

The parties have extensively briefed the pertinent legal and factual issues, and hearings have been held on plaintiffs' request for preliminary injunctive relief, as well as the Commissioner's motion to dismiss Counts I - IV.


Medicaid is a cooperative federal-state program designed to provide medical services to those members of society who, because they lack the necessary financial resources, cannot otherwise obtain medical care. That is, the program provides medical care to a population generally consisting of the poor, including dependent children, the disabled, and the elderly. 42 C.F.R. § 430.0. Legislation creating the program, the Medicaid Act, 42 U.S.C. § 1396 et seq., "provides financial support to states that establish and administer state Medicaid programs in accordance with federal law through a state plan approved by the U.S. Department of Health and Human Services ("HHS")." Long Term Care Pharm. Alliance v. Ferguson, 362 F.3d 50, 51 (1st Cir. 2004). "Although participation in the Medicaid program is entirely optional, once a State elects to participate, it must comply with the requirements of [the Act]." Harris v. McRae, 448 U.S. 297, 301 (1980). One such requirement is that the state must have (and adhere to) a federally-approved plan for reimbursing health care providers. 42 U.S.C. §§ 1396a(a), 1396d(a).

New Hampshire participates in the program and has a federally-approved state plan. Under New Hampshire's plan, DHHS is the single state agency charged with responsibility to administer the Medicaid program. 42 U.S.C. § 1396a(a)(5). DHHS is headed by the defendant, Commissioner Nicholas A. Toumpas. As the State agency charged with administering the Medicaid program, DHHS is required to set payment rates for various medical services according to approved methods and standards.

All agree that the present dispute arises from state budget management decisions made by the Governor and Legislature, in 2008, in response to an anticipated decline in general revenues and concomitant looming deficits. Given difficult economic circumstances and the relatively large expenditures associated with the Medicaid program, DHHS's budget naturally came under increasing scrutiny. Earlier, in 2005, the legislature had enacted a provision of state law apparently designed to create a specific mechanism for adjusting reimbursement rates for Medicaid outpatient services, should DHHS think that claims might exceed appropriations available to pay those claims:

If [Medicaid outpatient reimbursement] expenditures are projected to exceed the annual appropriation, the department may recommend rate reduction for providers to offset the amount of any such deficit. The department of health and human services shall submit to the legislative fiscal committee and to the finance committees of the house and the senate, the rates that it proposes to pay for hospital outpatient services. The rates shall be subject to the prior approval of the legislative fiscal committee.

N.H. Rev. Stat. Ann. ("RSA") 126-A:3, VII(a).

A careful reading of the provision discloses that the statute is permissive, not mandatory - the department "may" recommend provider rate reductions. But the intent is certainly clear. The Legislature sets a budget for DHHS. Then, rather than incur financial obligations beyond the amount appropriated to pay for outpatient services, the Commissioner is expected to recommend rate reductions for those services. Recommended reductions are to "offset the amount of any such deficit" - that is, rates are expected to be reduced as necessary to make certain that the amount paid to providers for outpatient services (even dramatically increased services) does not exceed the appropriation. The statute is silent with respect to the federal statutory criteria applicable to setting or changing Medicaid reimbursement rates (i.e., the rate-setting standards set forth in Section (30)(A)). And, it seemingly precludes DHHS from transferring funds from other budget sources to supplement the appropriation available to pay for outpatient services: "The department shall not increase expenditures in approved budgets for such outpatient services without prior [fiscal committee] approval." RSA 126-A:3, VII(a).

Under this scheme, the reimbursement rate for Medicaid outpatient services could be easily manipulated. The statute encourages reduction of the approved, multi-factor computation method to a single controlling element: the State's appropriation. Essentially, one would merely divide the available appropriated funds by the anticipated claims. The resulting number becomes the new reimbursement rate for outpatient services, a rate whose amount and stability are entirely matters of legislative grace. The problem, of course, is that such a scheme threatens to render irrelevant other important factors that federal law requires the Commissioner to consider, such as Section (30)(A)'s requirement that rates be set at a level sufficient to assure both quality of care and that Medicaid beneficiaries have equal access to medical care.

In the Fall of 2008, DHHS determined that the then-appropriated amount would not cover anticipated Medicaid outpatient services claims. Accordingly, it wrote to the legislative fiscal committee, seeking authorization to "revise the [Medicaid] reimbursement rate paid to non-critical access hospitals for outpatient services from 81.24 percent of Medicare allowable costs to 54.04 percent of Medicare allowable costs effective retroactive to July 1, 2008." Exhibit C, Freyer Declaration. The fiscal committee approved the requested rate reduction on November 21, 2008, as a "budget neutrality" measure - that is, a measure designed to reduce reimbursement rates as necessary to keep total costs within the amount budgeted.

Following fiscal committee approval, the Commissioner reduced the outpatient services reimbursement rate by 33.48%, a rather significant amount. That the outpatient rate reduction was the result of one fact - the State legislature's desire to reconcile an anticipated shortfall in the amount appropriated to pay for those services - is not seriously disputed. But, it is not inconceivable that the reduced rates still might have passed muster under Section (30)(A)'s standards, had they been properly considered. And, of course, by reducing outpatient services rates, the State effectively shifted the financial burden associated with the delivery of increased outpatient medical services away from society as a whole, and onto Medicaid services providers, like the hospital plaintiffs.

Also on November 21, 2008, New Hampshire's Governor issued Executive Order 2008-10, pursuant to statutory authority providing that:

Notwithstanding any other provision of law, the governor may, with the prior approval of the fiscal committee, order reductions in any or all expenditure classes within any or all departments . . . if he determines at any time during the fiscal year that:

(a) Projected state revenues will be insufficient to maintain a balanced budget and the likelihood of a ...

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