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Dartmouth-Hitchcock Clinic, et al v. Nicholas Toumpas

September 27, 2012


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

Opinion No. 2012 DNH 169


The Commissioner's motion to dismiss the hospital and beneficiary plaintiffs' Supremacy Clause claims (Counts I-IV) required additional briefing in light of the Supreme Court's decision in Douglas v. Independent Living Ctr. of S. Cal., 132 S. Ct. 1204 (2012). The parties have addressed the issues specified by the court and have further developed their respective positions. Having carefully considered the matter, the court denies the Commissioner's motion to dismiss the Supremacy Clause counts, without prejudice to renewing the motion following receipt of the views of, or administrative action by, the Secretary of Health and Human Services.


The plaintiff hospitals and Medicaid beneficiaries seek preliminary and permanent injunctive relief enjoining the defendant Commissioner from implementing certain Medicaid reimbursement rate reductions on grounds, inter alia, that those rate reductions: 1) were dictated by state action taken pursuant to state statutes that directly contravene, and are therefore preempted by, applicable federal law; 2) were calculated using methodologies that are not part of the federally-approved state Medicaid plan, or, alternatively, were the product of a substantial misapplication of the federally-approved methodology such that it was effectively changed without required federal consent; and, 3) the rate reductions are inconsistent with the State's federal statutory obligations to set Medicaid reimbursement rates at a level adequate 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. § 1396(a)(30)(A) (hereafter "Section 30(A)").

As noted in the court's earlier order discussing the background facts and granting limited injunctive relief, the provider and beneficiary plaintiffs have made a strong showing that the reduced Medicaid reimbursement rates at issue are likely inconsistent with the State's legal obligations to set Medicaid rates at a level capable of sustaining the delivery of medical care to the most needy, and in a manner consistent with the federally approved state Medicaid plan. The reduced rates are likely the impermissible product of a single and conclusive factor: state budgetary concerns. See Indep. Living Ctr. of S. Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644, 659 (9th Cir. 2009) ("State budgetary concerns cannot . . . be the conclusive factor in decisions regarding Medicaid."), vacated on other grounds sub nom. Douglas v. Indep. Living Ctr. of S. Cal Inc., 132 S. Ct. 1204 (2012); Amisub (PSL), Inc. v. Colorado Dep't of Social Services, 879 F.2d 789, 800-01 (10th Cir. 1989) ("While budgetary constraints may be a factor to be considered by a state when amending a current plan, implementing a new plan, or making the annually mandated findings, budgetary constraints alone can never be sufficient.").

While state budgetary concerns cannot conclusively dictate Medicaid reimbursement rates, they do play a significant and legitimate role in the rate-setting process. But, even where significant state budget issues arise, still, Medicaid reimbursement rates must be set by participating states in accordance with methodologies and standards that are published in a state plan and approved by the United States Secretary of Health and Human Services (currently through the Centers for Medicare and Medicaid Services ("CMS")). And, those rates must meet minimum federal statutory standards, which generally require that the rates be adequate to assure quality and availability of medical care for those most in need of it. See Section 30(A).

Plaintiffs have conceded that they cannot bring a private cause of action to enforce Section 30(A)'s provisions. Nevertheless, they say they may challenge the constitutionality of state statutes, as applied, under the Supremacy Clause, to the extent those state laws dictate reduced Medicaid rates that are invalid under federal law. The Commissioner responds that plaintiffs cannot be permitted to use the Supremacy Clause to indirectly assert a private cause of action aimed at enforcing Section 30(A)'s provisions. But that argument misses an important and distinct point.

Plaintiffs are challenging the constitutionality of two state statutes and the rate-setting action taken under the power purportedly established by those statutes. They are not, strictly speaking, challenging the Commissioner's rate-setting action under the Medicaid Act itself (which plaintiffs say amounted to little more than acquiescence in unlawful rate-setting directives issued by the Governor and Legislature). That is, plaintiffs do not sue to establish Medicaid-compliant rates, but rather seek to invalidate what they assert are unlawful rates dictated by preempted state law.

"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 must adhere to) a federally-approved plan for reimbursing health care providers, 42 U.S.C. §§ 1396a(a), 1396d(a), and the State must also promptly file any "[m]aterial changes in State law, organization, or policy, or in the State's operation of the Medicaid program," 42 C.F.R. § 430.12(e).

To the extent N.H. Rev. Stat. Ann ("RSA") 126-A:3, VII(a) and RSA 9:16-b, the state statutes at issue, authorize the Governor and Legislature to usurp the Commissioner's obligations under federal law to properly set Medicaid reimbursement rates - by dictating across-the-board percentage reductions completely divorced from the approved rate-setting methodology published in the State's approved plan, and without regard to the processes and standards required by the Medicaid Act - those state statutes would no doubt be declared invalid (as applied) under the Supremacy Clause.*fn1 Such state legislation would necessarily purport to override clear provisions of federal law and would "seriously compromise important federal interests." Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644, 671 (2003) (Breyer, concurring). See also Arkansas Elec. Cooperative Corp. v. Arkansas Pub. Serv. Comm'n, 461 U.S. 375, 389 (1983).

The New Hampshire statutes at issue here, as applied (i.e., the rate-setting actions taken under their authority) are highly suspect. But, as noted in the court's earlier order, RSA 126-A:3 is by its terms permissive, rather than mandatory (the Commissioner "may" seek approval by the Fiscal Committee of a "proposed" rate reduction). RSA 9:16-b, is broad in scope, and does not directly focus on Medicaid rate-setting. Each statute might plausibly be construed in this context as (implicitly) requiring that any directed Medicaid rate reductions must also necessarily comport with substantive and procedural rate-setting requirements mandated by controlling federal law. It is also conceivable that what may well have been intended by the Governor and Legislature as arbitrary budget-driven rate reductions, in disregard of the State's voluntarily-assumed federal legal obligations, might nevertheless be found to be consistent with those controlling federal obligations and, therefore, might eventually be approved by the Secretary of Health and Human Services. But the Secretary has yet to weigh-in on those issues.

That fact puts this case in a different posture than Douglas. Here, there is no final administrative decision by the Secretary with respect to the propriety of the challenged rate reductions, and it is not even clear that an administrative proceeding that will produce a final (appealable) agency decision is ongoing. Thus, it is hardly clear that plaintiffs are without a Supremacy Clause remedy, or that they must first pursue administrative remedies (that may not be available).

While a strong minority in Douglas would have held that the Supremacy Clause is unavailable to medical service providers as a means to enforce state obligations under Spending Clause legislation (like the Medicaid Act) in which Congress has not created a private right of action, the Court did not actually adopt that view. Rather, the Court bypassed the Supremacy Clause issue altogether, finding that intervening administrative action by the Secretary of Health and Human Services put the case in a different posture and posed a risk that the Supremacy Clause claims, if adjudicated, would result in a decision that either subjected states to conflicting interpretation of federal law, or was redundant. See Douglas, 132 S. Ct. at 1211. But in Douglas, there was an ...

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