Managed Pharmacy Care v. Sebelius

The Department of Health and Human Services’ interpretation of 42 U.S.C. § 1396a(a)(30)(A), allowing individualized state procedures for Medicaid rate reimbursement reductions resulting from a State Plan Amendment review, is due deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.

Providers and beneficiaries of Medi-Cal (“Plaintiffs”) sued the California Department of Health Care Services (“DHCS”) and the Department of Health and Human Services (“HHS”) (collectively, “Defendants”) for failure to conduct cost studies prior to reducing certain Medicaid reimbursement rates via the State Plan Amendment review process (“SPA”). The lower courts enjoined the Defendants from pending and future rate reductions on the basis of Plaintiffs’ “likely succe[ss] on the merits of their” Administrative Procedure Act (“APA”), Supremacy Clause, and Takings Clause claims. The Ninth Circuit, in Orthopaedic Hospital v. Belshe, had previously interpreted 42 U.S.C. § 1396a(a)(30)(A) (“§ 30(A)”) to require specific procedures for SPA rate reductions. HHS subsequently interpreted § 30(A) differently and allowed individualized state determination of SPA procedure requirements. The panel held that the lower courts erred by requiring the Defendants comply with Orthopaedic Hospital’s requirements, finding that Orthopaedic Hospital no longer controlled because the Secretary of HHS had subsequently interpreted § 30(A) and approved the SPA procedures at issue. The panel found Orthopaedic Hospital’s interpretation of § 30(A) was not “the only reasonable interpretation.” The panel held HHS’s interpretation was due deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., the procedures at issue were sufficient under APA requirements, and no Plaintiffs were treated arbitrarily or capriciously. The panel noted the Defendants’ conducted studies, had a plan for monitoring negative impacts, considered affected providers input, and gave affected providers “succinct” but sufficient notice of why the reductions complied with § 30(A). The panel vacated the Supremacy injunctions in light of the panel’s APA holding and vacated the Takings injunctions as Medicaid is a voluntary program that does not create a property interest. Finally, the panel dismissed the plaintiffs’ cross appeal as moot. REVERSED, INJUNCTIONS VACATED and REMANDED; DISMISSED as MOOT.