Opinion
Civil No. 03-2438 (JRT/FLN).
August 18, 2004.
Samuel D. Orbovich, ORBOVICH GARTNER, St Paul, MN, for ARRM plaintiffs.
Margaret Chutich, William A. Szotkowski, Francis Ling, Erika Schneller Sullivan and Theresa Meinholz Gray, Assistant Attorneys General, MINNESOTA ATTORNEY GENERAL'S OFFICE, St. Paul, MN, for defendants Goodno and Patterson.
Perry Sekus and Fred Siekert, Assistant United States Attorneys, UNITED STATES ATTORNEY'S OFFICE, Minneapolis, MN, for defendant Garner.
MEMORANDUM OPINION AND ORDER
Plaintiffs, the Association of Residential Resources in Minnesota ("ARRM") and Mary Rodenberg-Roberts as guardian and parent of Amari Roberts (collectively, "the ARRM plaintiffs"), filed this action against the Commissioner of Human Services for the State of Minnesota, the Director of the Disability Services for the Minnesota Department of Human Services ("DHS"), and Jacqueline Garner, Regional Administrator for Region V of the Centers for Medicare and Medicaid Services ("CMS"), alleging violations of federal Medicaid laws and regulations, and violations of constitutional rights. The Court previously has addressed several preliminary motions in this case, and in a consolidated case, Masterman, et al. v. Goodno (03-2939 (JRT/FLN)). This memorandum opinion and order addresses four pending motions, as detailed below.
The "Masterman plaintiffs" are not involved in this motion, and the Court is advised that the parties have reached a settlement in that case. A copy of this order is provided to the Masterman plaintiffs, pursuant to the Magistrate Judge's Order of Consolidation.
BACKGROUND
Much of the background to this case was discussed in the Court's previous orders. The Court therefore provides only the following summary. As part of its state Medicaid plan, Minnesota provides services to disabled individuals through its Home and Community Based Services (HCBS) waiver program. Home and community-based care is intended to be an alternative to institutionalization for qualified individuals. In late 2002 and early 2003, DHS began attempting to implement a cost-savings plan, called the rebase or rebasing plan. The rebase was to impact the way waiver funds are distributed. Providers of waiver services, as well as many waiver recipients and their families, brought this legal action after alerting DHS and the CMS of their concerns.
Medicaid is a jointly funded cooperative program between state and federal governments that provides medical assistance to low-income persons and individuals with disabilities. 42 U.S.C. §§ 1396- 1396v; Arkansas Medical Soc'y v. Reynolds, 6 F.3d 519, 521-22 (8th Cir. 1993). State participation in Medicaid is voluntary, but once a state chooses to participate it is bound by Medicaid statutory and regulatory requirements. See Pediatric Specialty Care, Inc. v. Ark. Dep't of Human Serv., ___ F.3d ___, slip op. at 4 n. 2, 2004 WL 814286 (April 16, 2004) (citing Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502 (1990)). Medicaid was enacted pursuant to Congress's Spending Power. Westside Mothers v. Haveman, 289 F.3d 852, 859 (6th Cir. 2002).
In this order the Court addresses several motions. First, the Court will discuss plaintiffs' request for a writ of mandamus compelling defendant Jacqueline Garner to conduct a targeted and focused review of the Minnesota re-base program. The Court next discusses defendant Garner's motion to dismiss, which argues that plaintiff ARRM's constitutional claims against defendant Garner are barred by sovereign immunity and that ARRM's statutory claims fail because they lack a private right of action as against the federal government. Defendant Garner also argues plaintiff cannot maintain an action pursuant to the Administrative Procedures Act ("APA"). The Court next addresses Defendants Goodno and Patterson's (the "State defendants") motion to dismiss the Second, Fourth, and Sixth causes of action pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. The Court will also address a motion that was argued separately. Specifically, after the above-mentioned motions were briefed and argued, plaintiff ARRM moved for injunctive relief premised on activity in Sherburne County. The Court granted a temporary restraining order, and will address the preliminary injunction in this Order.
ANALYSIS
I. Plaintiffs' Request for a Writ of MandamusPlaintiffs request that the Court issue a writ of mandamus to order the CMS to undertake a targeted and focused review of the waiver amendment and impose a corrective action plan.
Mandamus is an "extraordinary remedy" appropriate only "to compel the performance of `a clear nondiscretionary duty.'" Pittston Coal Group v. Sebben, 488 U.S. 105, 121 (1988) (quoting Heckler v. Ringer, 466 U.S. 602, 616 (1984)). A federal court is justified in issuing a writ of mandamus . . . only if a petitioner is able to establish a `clear and indisputable right' to the relief sought, the defendant has a nondiscretionary duty to honor that right, and the petitioner has no other adequate alternative administrative or judicial remedy." In re Lane, 801 F.2d 1040, 1042 (8th Cir. 1986) (quoting Borntrager v. Stevas, 772 F.2d 419, 420 (8th Cir. 1985) (additional citation omitted)).
Neither the equal access provision ( 42 U.S.C. § 1396a(a)(30)(A)) nor the "health and safety" requirement stated in 42 C.F.R. 441.302 establish that plaintiffs are entitled to immediate, targeted review of the waiver program. The equal access provision requires states to assure the Secretary of Health and Human Services that payments are sufficient to enlist enough providers to ensure equal access to services. The corresponding regulation provides that CMS shall not grant a waiver unless the State provides adequate assurances, and also allows CMS to terminate a waiver if the waiver has already been granted. This section does not require an independent investigation by the CMS. The Medicaid statute and corresponding regulations also provide the Secretary with enforcement power. For example, the Secretary may request that the State implement necessary changes, and may terminate a waiver. These enforcement mechanisms, however, are discretionary, and do not suffice to meet the demanding standard for mandamus relief. Plaintiffs have not established a "clear and indisputable right" to the relief sought, therefore the Court must deny the request for mandamus relief.
Plaintiffs also note the CMS internal "Regional Office Protocol." This document does not establish a right to the protocol contained therein, and certainly does not establish the requisite nondiscretionary duty to honor that right required before mandamus relief is appropriate. See, e.g., Schweiker v. Hansen, 450 U.S. 785, 789 (1981) (holding internal agency procedures have no legal force).
Defendant Garner also points out that this protocol has been superseded by a new "Interim Procedural Guidance for CHBS Waiver Reviews."
Plaintiffs have also not established that, absent a writ of mandamus, the Secretary will take no action on the concerns identified by both this Court and the plaintiffs. To the contrary, there is record evidence that CMS is investigating the rebase program, and has asked for additional information from DHS. Defendant has not ignored any clear duty. For these reasons, plaintiffs have not established that they are entitled to mandamus relief at this time. This denial, of course, does not prevent the Secretary from making a more intensive or on-site review if, in the Secretary's discretion, such a review is appropriate. This denial will not prevent additional relief to the plaintiffs, if developments in this case establish a need and right for such relief.
II. Defendant Garner's Motion to Dismiss
Plaintiffs assert a claim against defendant Garner under "both the Administrative Procedures Act and the federal Mandamus statute." (Pls.' Mem. in Opp'n to Mot. to Dismiss at 4.) Plaintiffs claim that defendant Garner "improvidently granted" approval of the rebase amendment, and that the approval was arbitrary, capricious, contrary to law, and in excess of statutory authority of CMS and violates the Administrative Procedures Act ("APA"). (First Amended Verified Complaint ("Am. Compl.") at ¶¶ 42-44.) Plaintiffs also allege that Garner acted in violation of federal law by approving a "retroactive" amendment to the waiver program and failing to prohibit the State defendants from implementing their informal administrative order in a way as to violate the plaintiffs' rights. ( Id. ¶ 51.) Finally, plaintiffs assert a cause of action for the arbitrary and capricious approval of the waiver program, in the absence of any authority to approve the rebase.
Defendant Garner challenges the jurisdictional basis for the plaintiffs' complaint as against a federal defendant. Specifically, defendant Garner argues that plaintiffs' constitutional claims are barred by sovereign immunity, and argues no waiver of sovereign immunity can be implied here. Defendant argues plaintiffs' statutory claims against her also fail, because the statutes do not give rise to a private right of action. Plaintiffs' APA claim cannot be maintained, defendant Garner contends, because the APA expressly provides that review is barred if the underlying statute itself precludes judicial review. Since the at-issue statute provides for agency discretion, defendant Garner suggests that there is nothing for the Court to review. Finally, defendant suggests that because plaintiffs have an adequate remedy against the State defendants, no APA relief is appropriate.
Defendant Garner does not specify whether this motion is brought pursuant to Rule 12(b)(1) or Rule 12(b)(6). The Court assumes the motion is a 12(b)(1) motion, and notes that when subject matter jurisdiction is challenged under Rule 12(b)(1) the plaintiff has the burden of proving jurisdiction in order to survive the motion.
Plaintiff disputes defendant Garner's jurisdiction argument, and suggests that the APA supplies the necessary basis for this Court to exercise jurisdiction. The APA provides a route for judicial review of final administrative action for which there is no other adequate remedy in court. See 5 U.S.C. § 704. There exists a strong presumption under the APA in favor of interpreting statutes to allow judicial review. Bowen v. Michigan Acad. of Family Physicians, 476 U.S. 667, 670 (1986). Judicial review is inappropriate, however, in two instances: when "(1) the statute precludes judicial review; or (2) the agency action is committed to agency discretion by law." 5 U.S.C. § 701(a)(1), (2); see also Heckler v. Chaney, 470 U.S. 821, 828, (1985); Madison-Hughes v. Shalala, 80 F.3d 1121, 1124 (6th Cir. 1996). The federal defendant argues that both exceptions apply.
Defendant Garner argues that APA review of the CMS approval is inconsistent with the Medicaid Act. To support this argument defendant Garner cites numerous cases decided under the now repealed Boren Amendment. See, e.g., Michigan Hosp. Ass'n v. Dept. of Social Services, 738 F. Supp. 1080 (W.D. Mich. 1990); Illinois Hosp. Ass'n v. Edgar, 765 F. Supp. 1343 (N.D. Ill. 1991); Illinois Health Care Ass'n v. Suter, 719 F. Supp. 1419 (N.D. Ill 1989). Defendant argues that federal courts consistently have concluded that the Boren Amendment does not authorize lawsuits against the Secretary — instead, the Amendment was designed to limit the Secretary's review to the state's assurances, and not its findings. For that reason, as well as on the basis of legislative history, several courts concluded that the Boren Amendment contemplated very limited, and even minimal review by the federal government. See, e.g., Michigan Hosp. Ass'n, 728 F. Supp. at 1085.
Although the Boren Amendment has been repealed, reference to cases decided under its auspices are useful, because, as the Eighth Circuit remarked in Arkansas Medical Society v. Reynolds, 6 F.3d 519 (8th Cir. 1993), the equal access provision is "very analogous" to the reasonable access provision of the Boren Amendment. Ark. Med. Soc'y, 6 F.3d at 525.
The federal defendant does not cite a case, however, that addresses and dismisses an APA cause of action on this basis. See, e.g., Mass. Fed. of Nursing Homes, Inc. v. Massachusetts, 791 F. Supp. 899 (D. Mass. 1992) (holding Boren Amendment does not create right of action against Secretary, but that Secretary's action was subject to review under APA). Similarly, the federal defendant cites no case rejecting judicial review of compliance with the "equal access" requirement at issue here. The Court is not persuaded that Congress intended to preclude all judicial review of the Secretary's approval of waiver amendments.
The federal defendant cites several cases in which the Secretary was dismissed as a defendant, but no APA claim was raised in the majority of those cases. In the one case cited in which an APA claim was raised and dismissed, it was dismissed on an alternate ground. American Health Care Ass'n v. Sullivan, 1991 WL 187456 (D.D.C. June 20, 1991).
The second exception to judicial review, which is set forth in 5 U.S.C. § 701(a)(2), is a "very narrow" one "applicable only in those rare instances where `statutes are drawn in such broad terms that in a given case there is no law to apply.' S. Rep. No. 752, 79th Cong., 1st Sess., 26 (1945)." Chaney, 470 U.S. at 830 (citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 410, (1971)); see also Webster v. Doe, 486 U.S. 592, 599-601 (1988); State of N.D. ex rel. Bd. of Univ. Sch. Lands v. Yeutter, 914 F.2d 1031, 1034-35 (8th Cir. 1990) (hereinafter, " Yeutter"). This section precludes judicial review only in cases in which there are "no judicially manageable standards," making it "impossible to evaluate agency action for `abuse of discretion.'" Id. 1034; Madison-Hughes, 80 F.3d 1127. The determination of whether action is "committed to agency discretion" under the APA therefore turns on a "careful examination of the statute on which the claim of agency illegality is based." Yeutter, 914 F.2d at 1034 (citing Webster, 486 U.S. at 600).
The federal defendant engages in a persuasive and extensive discussion of the Eighth Circuit's decision in the "North Carolina" case. Based on context and citation to the federal reporter, the Court is quite sure that this discussion refers to the Yeutter case — a case out of North Dakota (a state which, counsel doubtless is aware, is in this Circuit).
This Court, therefore, must carefully examine the statute on which the plaintiffs claim an invasion of their rights. Plaintiffs base their APA claim on the CMS' approval of the waiver amendment. The plain language of the statutory sections and the regulations to which plaintiffs point indicate that waiver approvals are within the Secretary's discretion. That discretion is limited only by the requirement that the State provide assurances to the Secretary, and those assurances need be adequate only to the Secretary. The statute contemplates only minimal review by the Secretary. 42 U.S.C. § 1396n(f)(2). For example, the Secretary is not required to make findings, or investigate a State's assurances; but only to receive assurances that are satisfactory to the Secretary. 42 U.S.C. § 1396n(c)(2).
It is clear that the standards for initial approval are not exacting. The Secretary is not required to make findings or investigate the adequacy of a State's proposal. The Secretary is required merely to receive "assurances" that are satisfactory "to the Secretary." 42 U.S.C. § 1396n(c)(2). Nonetheless, plaintiffs argue that there remain available judicial standards for determining whether the Secretary abused her discretion. Specifically, plaintiffs argue that the Secretary's approval was not based on relevant factors. Plaintiffs suggest that when CMS knows, or has reason to know, that assurances are suspect, CMS is legally obligated to seek state compliance or institute action to sanction the State.
Numerous cases have examined relatively similar statutory language, and determined that it did not provide adequate guidance for judicial review. See, e.g., Webster v. Doe, 486 U.S. 592, 600 (1988) (the language "shall deem . . . necessary or advisable" exudes deference to the agency and forecloses the application of any meaningful standard of review); Yeutter, 914 F.2d at 1032-33 (holding that Secretary of Agriculture's decision to waive or not waive specific requirements of Conservation Reserve Program was not subject to judicial review where language of statute required Secretary to "determine that the land was acquired under circumstances that give adequate assurance that such land was not acquired for the purpose of placing it in the program") (emphasis added); Haitian Refugee Center, Inc. v. Baker, 953 F.2d 1498, 1507-08 (11th Cir. 1992) (agency discretion to act "as [the president] deems necessary" is not constrained by requirements contained in executive order and agency guidelines); Knight Newspapers Inc. v. United States, 395 F.2d 353, 358 (6th Cir. 1968) (language that postmaster may grant a refund if satisfied that certain conditions had been met not reviewable).
Plaintiffs bear the burden of establishing that jurisdiction under the APA exists. Plaintiffs recognize the limited review, but argue that approval of a waiver amendment based on facially false assurances, which is in actuality a litigation strategy, is not contemplated by any statute. Plaintiffs suggest that the allegation that approval obtained by DHS was part of a litigation strategy states a claim under the APA, and such approval would not satisfy even the minimal standards set out by the statute. The language of this statute is very difficult to distinguish from that in cases such as Yeutter and Webster v. Doe. Plaintiffs' argument, that approval was based on facially false assurances or as litigation strategy, does not distinguish, in any meaningful way, the cases discussed above. In addition, accepting this argument would eviscerate the exception set out in 5 U.S.C. § 701(a)(2), because a plaintiff could "create" jurisdiction simply by pleading "litigation strategy." The Court therefore finds that the second exception to the APA applies to this action, and determines that the Court lacks jurisdiction.
As an alternate ground for dismissal the federal defendant argues that because the lawsuit against the State defendants is proceeding, plaintiffs have "an adequate remedy in court", and therefore pursuant to 5 U.S.C. § 704, judicial review is foreclosed. Plaintiffs are pursuing their grievances directly against the State of Minnesota, and, as discussed below, that dispute is on-going. Plaintiffs have not indicated that they lack adequate relief against the State defendants, or that the inclusion of the federal defendant is necessary for the prompt and efficient resolution of this matter. Defendant Garner will be dismissed from this action.
III. The State Defendants' Motion for Partial Judgment on the Pleadings
A. Standard of Review
Rule 12c allows a party to move for judgment on the pleadings after responsive pleadings have been filed. Fed.R.Civ.P. 12(c) ("After the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings."). The Court applies the same standard in a 12(c) motion as that applied in a 12(b)(6) motion to dismiss. Westcott v. Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990) (citing Morgan v. Church's Fried Chicken, 829 F.2d 10, 11 (6th Cir. 1987) (collecting cases)). That is, the Court grants the motion "`only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.'" Handeen v. Lemaire, 112 F.3d 1339, 1347 (8th Cir. 1997) (quoting Hishon v. King Spalding, 467 U.S. 69, 73 (1984)). The Court assumes "that well-pleaded factual allegations in the complaint are true `and construe[s] the complaint, and all reasonable inferences arising therefrom, most favorably to the pleader.'" Westcott, 901 F.2d at 1488 (quoting Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986)). In so doing, however, the Court does not "blindly accept the legal conclusions drawn by the pleader from the facts." Id.
B. Plaintiffs' Second Cause of Action
Plaintiffs' second cause of action is styled a "violation of rights under federal law to be free of retroactive waiver amendments." (Am. Compl. at page 15.) Plaintiffs allege that the rebase program was approved with a retroactive date, and claims that this action deprived ARRM members of their right to rely on approved rates until those rates were changed on a prospective basis. ( Id.). Plaintiffs complain that the State defendants "are unlawfully usurping the authority of the single state Medicaid agency in Minnesota by implementing an amendment that conflicts with DHS' enabling legislation." ( Id. at ¶ 51.)
In the Court's previous order regarding the requested injunction, the Court determined that the regulations cited in the second cause of action, including 42 C.F.R. § 430.25(h) and 42 C.F.R. § 447.205, subd. (d)(10) do not confer on the plaintiffs a private right of action. Although a preliminary injunction "does not constitute the law of the case or of further proceedings and does not limit or preclude the parties from litigating the merits," Travelers Ins. Co. v. Westridge Mall Co., 826 F. Supp. 289, 293 n. 2 (D. Minn. 1992) (citation omitted), the ARRM plaintiffs have not given the Court sufficient reason to alter that holding. For that reason, the Court dismisses the Second Cause of Action.
C. Plaintiffs' Third Cause of Action
Plaintiffs' third cause of action alleges violation of rights under the Supremacy Clause, the Contract Clause, and the Fifth and Fourteenth Amendments to the United States Constitution. The State defendants seek dismissal of "most" of this cause of action. Specifically, the State defendants argue that only plaintiff Rodenberg-Roberts' procedural due process claim should be allowed to proceed.
After the Court issued both preliminary injunction rulings in these consolidated cases, the Eighth Circuit addressed a somewhat similar dispute in Pediatric Specialty Care, Inc. v. Ark. Dep't of Human Serv., 364 F.3d 925 (8th Cir. 2004), in which a group of plaintiffs, including care providers, brought suit against the Arkansas Department of Human Services ("ADHS"), its director, and the director of the Division of Medical Services of the Arkansas Department of Human Services. The plaintiff alleged that the ADHS' plan to significantly alter the program through which it provided services to special needs children ran afoul of several statutory and constitutional dictates. The United States District Court for the Eastern District of Arkansas enjoined implementation of the program and ruled that ADHS could not alter the program until it conducted an impact study to ensure that changes comport with principles of economy, efficiency, and quality of care.
This was the second time the Eighth Circuit had addressed the Pediatric Specialty case. In Pediatric Specialty Care, Inc. v. Ark. Dep't of Human Servs., 293 F.3d 472 (8th Cir. 2002) ( Pediatric Specialty I), the ADHS appealed the district court's injunction. The Eighth Circuit affirmed in part, reversed in part, and remanded for further proceedings. On remand, the district court found that the proposed changes would result in a denial of procedural and substantive due process, and ordered the services to continue without any changes. Pediatric Specialty Care, 364 F.3d at 928 (describing procedural history). Arkansas then appealed, arguing, in part, that the district court exceeded its authority on remand by considering the substantive due process issue. The Eighth Circuit rejected Arkansas's procedural argument, finding that "[o]ur instruction . . . to consider the Plaintiffs' procedural due process claim on remand did not restrict its decision to only that matter. The Plaintiffs' substantive due process claim remained unresolved, and it was within the province of the district court to entertain that claim on remand" Id. at 931.
ADHS appealed the injunction, and the Eighth Circuit affirmed in part and reversed in part. Relevant to the lawsuit before this Court is the Circuit's quick rejection of the ADHS' "argument that the equal access provision of the Medicaid Act cannot support the [Arkansas] Plaintiffs' procedural due process claim because it does not create any constitutionally-recognized property interest." Id. at 929-30. The Court remarked "it is well established that `the Fourteenth Amendment's procedural protection of property is a safeguard of the security interests that a person has already acquired in specific benefits.'" Id. at 930 (citing Board of Regents v. Roth, 408 U.S. 564, 576 (1972)). The Court held it was "entirely appropriate for the [Arkansas] Plaintiffs to base their procedural due process claim on their clearly established right to have equal access to quality medical care as defined by § 1396a(1)(30)(A)." Id. The Court did not distinguish between beneficiaries and providers in its procedural due process discussion.
The Eighth Circuit opinion in Pediatric Specialty Care also reinforces this Court's reliance on Ark. Med. Soc'y Inc. v. Reynolds, 6 F.3d 519 (8th Cir. 1993), cited by the Court for the proposition that § 1396a(a)(30)(A) creates an enforceable right for Medicaid recipients and providers.
The Eighth Circuit also addressed the plaintiffs' substantive due process claim, and reversed the use of substantive due process as a ground for the injunction. The Court noted that the [Arkansas] plaintiffs' substantive due process claim was properly analyzed under the "shocks the conscience" test. Id. at 931-32 (citing Brown v. Nix, 33 F.3d 951, 953 (8th Cir. 1994)). Under this standard, state action is unconstitutional if the conduct "shock[s] the conscience or otherwise offend[s] our judicial notions of fairness, or [is] offensive to human dignity." Id. (quoting Brown v. Nix, 33 F.3d at 953). Although the Pediatric Specialty Court held that it could not affirm an injunction on the record before it, the Court was careful to note that "this opinion should not be read as precluding Plaintiffs from raising such matters at the appropriate time." Id. at 932.
Based on the Court's analysis in the preliminary injunction opinion and orders and the Eighth Circuit's recent opinion in Pediatric Specialty, the Court finds it improvident to dismiss on the pleadings either the substantive or procedural due process claims of either ARRM or the individual plaintiffs.
The Court also reminds the parties that its decision to deny the preliminary injunction "does not constitute the law of the case of further proceedings and does not limit or preclude the parties from litigating the merits." Travelers Ins. Co. v. Westridge Mall Co., 826 F. Supp. 289, 293 n. 2 (D. Minn. 1992) (citing Berrigan v. Sigler, 499 F.2d 514 (D.C. Cir. 1974)).
In addition, plaintiffs claim at paragraph 58 that the State defendants have "elevated a state administrative order over federal statutory and regulatory requirements thereby violating the Supremacy Clause of the United States Constitution." The Supremacy Clause provides that "the Laws of the United States . . . shall be the supreme Law of the Land . . . any [t]hing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const. art. VI, cl. 2. Plaintiffs suggest that the DHS rebase program conflicts with federal various Medicaid rules and regulations, and that therefore the rebase violates the Supremacy clause. This is adequate to state a claim, Missouri Child Care Ass'n v. Cross, 294 F.3d 1034, 1040-41 (8th Cir. 2002), and the State defendants' motion to excise this portion of the plaintiffs' complaint is denied. See also Pharm. Research Mfr. of Am. v. Walsh, 538 U.S. 644 (2003) (reaching the merits of plaintiff's (group of nonresident drug manufacturers) claim that state's pharmaceutical rebate program — "Maine Rx" was pre-empted); Pharm. Research and Mfrs. of America v. Thompson, 362 F.3d 817, 819 n. 3 (D.C. Cir. 2004) (rejecting in a footnote the State's argument that the Court did not have jurisdiction to address the plaintiff's pre-emption argument).
Plaintiffs also raise Contract Clause arguments in this third cause of action. The Contract Clause is discussed below.
D. Plaintiffs' Fourth Cause of Action
The State defendants also request dismissal of plaintiffs' Contract claims, arguing that, as this Court found in a previous order, plaintiffs did not point to any law or legislation passed, and therefore the Contract Clause is not implicated. Plaintiffs note that the State defendants point to Minnesota Statute § 256B.092 as authority for the rebase. Plaintiffs intimate that this statute provides the statutory hook on which to hang the Contract Clause claim.
The Constitution provides that "[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10, cl. 1. To state a claim for a violation of this Clause, plaintiffs must first show that state law "has, in fact, operated as a substantial impairment of a contractual relationship." Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978). "This inquiry has three components: [1] whether there is a contractual relationship, [2] whether a change in law impairs that contractual relationship, and [3] whether the impairment is substantial." General Motors Corp. v. Romein, 503 U.S. 181, 186 (1992).
The second step is dispositive here. To demonstrate a contract clause violation, "[t]he state action complained of must alter the obligations or duties of the parties to a contract." Northwestern Nat'l Life Ins. Co. v. Tahoe Reg'l Planning Agency, 632 F.2d 104, 106 (9th Cir. 1980). The Minnesota Statute to which plaintiffs point is a lengthy discussion of case management, and details the duties of counties and other interested parties. The Court cannot determine, and plaintiffs have not adequately explained, how the statute alters any obligations or duties of the parties to a contract — which is the minimum required to state a claim. See Minn. Ass'n of Health Care Facilities, et al. v. Dep't of Pub. Welfare, 742 F.2d 442 (8th Cir. 1994); see also AGI-Bluff Manor, Inc. v. Reagen, 713 F. Supp. 1535, 1552 (W.D. Mo. 1989) (holding "[t]he Contract Clause restrains only state legislatures and not Executive Branch agencies") (citing Smith v. Sorensen, 748 F.2d 427, 437 (8th Cir. 1984)). This statute simply cannot be read as an "attempt on the part of the state and its officials `to use the law . . . to repudiate a contractual obligation.'" Smith v. Sorensen, 748 F.2d 427, 437 (8th Cir. 1984) (quoting Jackson Sawmill Co. v. United States, 580 F.2d 302, 312 (8th Cir. 1978)). In sum, the Amended Complaint does not allege facts sufficient to state a claim under the Contracts Clause, and the State defendants' motion to dismiss the fourth cause of action is granted.
In the alternative, plaintiffs argue that even if the Contract Clause is not implicated, plaintiffs have a vested property right that cannot be impaired without running afoul of the Fourteenth Amendment's guarantee of due process. Plaintiffs suggest that discovery might reveal that the waiver amendment could have a retroactive impact on their contracts. The Amended Complaint, however, does not state facts to support this allegation. For example, the plaintiffs do not allege, in the amended complaint, that there has been an instance of a retroactive contract modification. The only allegation is that counties were reminded that there will be a reduction in provider payments, and that this should be kept in mind when negotiating fut ure rates. This is insufficient to state a Constitutional claim.
To the extent plaintiffs assert a viable substantive due process claim, such a claim is adequately stated in the Third Cause of action, and is not adequately premised on the Contract Clause.
E. Plaintiffs' Sixth Cause of Action
Finally, plaintiffs claim a cause of action for "violation of rights under federal law that waivers may only be amended by the single state agency and amendments must not be arbitrarily and capriciously granted." (Am. Compl. ¶¶ 75-83.) Plaintiffs argue that any waiver request must be submitted by a "single state agency." Plaintiffs argue that in this case, the waiver submission went beyond DHS' authority under its enabling legislation because no Minnesota statute authorizes DHS to file an amendment converting the "profile-based" funding mechanism to the prior-period funding mechanism.
The State defendants argue that this cause of action should be dismissed because DHS did not go beyond its authority in rebasing its allocation of waiver funding to counties. As to the "single state agency" claim, the State defendants suggest that plaintiffs have no enforceable right under the "single state agency" clause of the Medicaid Act. See San Lazaro Ass'n, Inc. v. Connell, 286 F.3d 1088, 1099 (9th Cir.), cert. denied, 537 U.S. 878 (2002) (holding that the single state agency provision creates no enforceable rights under section 1983).
The State defendants' argument that they did not go beyond their authority in rebasing reaches the merits of the dispute, and is not appropriately dismissed at this stage. On the other hand, the Court agrees with the Ninth Circuit's determination that the "single state agency" clause does not create a private right of action. The sixth cause of action, therefore, will be dismissed only to the extent it attempts to state a cause of action under the "single state agency" clause.
IV. Plaintiff ARRM's Motion for a Preliminary Injunction
While the previously discussed motions were pending, plaintiff ARRM brought to the Court's attention a situation in Sherburne County that ARRM believed violated the rights of ARRM members. Plaintiff ARRM believed that Sherburne County intended to enforce a unilateral cut in rates to providers of waivered services. Plaintiff ARRM was under the impression that DHS ratified this unilateral rate cut when modified service agreements were generated by DHS. After contacting DHS, but receiving what plaintiff characterized as an inadequate response, plaintiff then moved for a temporary restraining order. The Court granted a temporary restraining order on May 20, 2004, to preserve the status quo pending full briefing and a hearing. For the following reasons, the Court denies the motion, and dissolves the temporary restraining order.
ARRM, not plaintiff Mary Rodenberg Roberts, is the sole movant for the preliminary injunction.
A. Background
At least two ARRM members, Dungarvin Minnesota, Inc., and REM Minnesota, manage group homes in Sherburne County. Sherburne County providers, including REM and Dungarvin, received a letter from Gary Fahnhorst, the Social Services Supervisor for Adult Services for Sherburne County Social Services. The letter indicated that rates would be cut 5.5% as of May 1, 2004. Plaintiff ARRM members aver that they did not agree to any reduction, and that in fact they had both voiced concerns and requested rate increases.
Specifically, the letter noted in its fourth paragraph that "Regrettably, one of the immediate actions we will need to take is to reduce the monthly rates . . . governed by our Host County Contract by 5.5% effective May 1st. Also, July 1st, the rates will be reduced another 1.5% . . ." See Fifth Orbovich Affidavit Ex. A.
In support of this motion, plaintiff submitted the affidavit of Lori Wirtzfeld, Regional Director of a group home in Sherburne County owned by REM Minnesota. Wirtzfeld avers the proposed rate reduction would be detrimental to her program and result in staff reductions and potential harm to the health and safety of residents. She also claims that she asked Fahnhorst if there was any way to avoid the cut, and he said no (the Court notes the affidavit of Fahnhorst submitted by the state defendants differs on this point). Although Wirtzfeld's organization did not agree to the 5.5% reduction, DHS "approved" the cut via a revised Service Agreement.
Plaintiff also submitted the affidavit of Barbara Jacobson, the director for Dungarvin, which provides residential services for children and adults with developmental disabilities. Dungarvin has operated as many as three four-person group homes in Sherburne County. The homes were known as "42nd Street," "Powell," and "Minnesota Boulevard." By affidavit, Jacobson informs that Court that shortly after the rebase a client in the 42nd Street home passed away. Jacobson tried to work with Sherburne County to fill the vacancy, but it was not filled until an individual from another county was placed there. Jacobson's affidavit also details other perceived delays and problems with Sherburne County's ability to fill the homes so that they can remain open.
The affidavits submitted by the state defendants differ in important respects from Wirtzfeld's and Jacobson's. For example, defendants submitted an affidavit from Fahnhorst. Fahnhorst concedes that he could have worded the "cut" letter more gracefully, but avers that Sherburne County had no intention to unilaterally cut rates, and the letter was actually a "proposal" to cut rates by 5.5%. Fahnhorst also clarifies that Sherburne County did not send the notice to clients because it did not anticipate services to clients would be impacted. He claims that when providers talked to him about the rate cut, he suggested that if it would impact the health and safety of clients/residents, the providers should request a conciliation conference. Because neither REM nor Dungarvin requested such a conference, Fahnhorst believed they agreed to the change and sent out the revised service agreements. Once he learned that REM and Dungarvin did not agree to the change, Sherburne County reinstated the original provider rates.
Fahnhorst also addresses the waiting list for waiver services in Sherburne County. He suggests that the waiting list is not the result of rebasing, but that demand has almost always exceeded available waiver slots. He clarifies that 35 people are currently on the list, 30 of whom are children. Only rarely are children placed in commercial residential homes like REM or Dungarvin, since in-home placement is preferred. He also explains the priority system for placement in the waiver program.
Defendant also provided an affidavit from Patricia E. Kuehn, Developmental Disabilities Coordinator for Sherburne County Social Services. She responds to plaintiff's contentions that vacancies and the county's refusal to refer clients necessitated the closure of one of the group homes. Specifically, she clarifies that the REM St. Cloud home, which was designed as a 4-person home, had a special arrangement to house only three people, and REM received a higher rate due to the arrangement. REM requested to go to a 4-person home; that request was approved but it was conditioned on the county locating an appropriate placement, which the county was unable to do. Kuehn also clarifies that the closure of the Powell home and the vacancy at the 42nd Street home are unrelated to the rebase. Kuehn avers that clients left Powell due to dissatisfaction or a desire for an alternative placement. The nearly year-long vacancy at the 42nd Street home, which is a home for medically needy children, resulted from having no appropriate clients to place in that home. Finally, Kuehn discusses the client who was placed in an ICF/MR. According to Kuehn, this client requires intensive staffing and resources which are better provided by the ICF/MR. The ICF/MR was also preferable for the client because it was closer to a family member. Kuehn has followed the client's progress, and indicates that the client is doing exceptionally well in the new placement.
The state defendants emphasize that the 5.5% cut has not taken effect, and will not take effect unless the providers agree to a rate cut. The defendants also note, however, that providers are not guaranteed rates, and rates are subject to negotiation when contracts expire. Further, the defendants emphasize that no Minnesota county has been forced to use its own funds to make up overspending.
B. Analysis
The ARRM plaintiffs seek a preliminary injunction requesting a variety of relief including an order preventing the state defendants from enforcing or issuing DHS Service Agreements that would allow Sherburne County's announced 5.5% provider rate cut and preventing DHS from shifting to the county any obligation to fund potential shortfalls exceeding the MR/RC Waiver allocations; and finally enjoining DHS from implementing any MR/RC Waiver provider cuts or service cuts announced by any Minnesota county. Plaintiff requests that the Court continue the injunction until DHS conducts an "impact study" pursuant to 42 U.S.C. § 1396a(1)(30)(A) to determine whether the re-base program's allocations to Sherburne County jeopardize the economic and efficient provision of quality services and their equal access within Sherburne County.
The Court applies the familiar Dataphase factors to ARRM's request. A preliminary injunction may be granted only if the moving party can demonstrate: (1) that there is a likelihood of success on the merits; (2) that the movant will suffer irreparable harm absent the restraining order; (3) that the balance of harms favors the movant; and (4) that the public interest favors the movant. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981).
The Court is not persuaded that these factors favor granting preliminary injunctive relief at this time. First, the relief plaintiff requests is not necessarily in the best interest of all waiver recipients, including potential waiver recipients. The affidavit of Shirley Patterson York emphasizes that many waiver recipients do not live in corporate group homes (like REM and Dungarvin), but receive waivered funds for other critical services. In addition, the impact study plaintiff ARRM has proposed (though the Court notes plaintiff has not defined what such a study would entail) is of questionable use to DHS, waiver recipients, and the Court. The public interest, therefore, does not counsel granting the injunction.
Similarly, the Court cannot find on this record that plaintiff has established that either the irreparable harm or balance of harm factor favors relief. ARRM has not demonstrated that its providers face "certain and great" harm. Iowa Utils. Bd. v. FCC, 109 F.3d 418, 425 (8th Cir. 1996). Although the record reflects long-standing vacancies and even the closure of one home, there is insufficient evidence in the record for the Court to find that the vacancies and closure were caused by rebase and/or budgetary concerns. In addition, and perhaps more importantly, there is no evidence in the record that waiver recipients who sought group home placements were, or will be, denied such placements for lack of providers. Further, as the defendants point out, the 11th Amendment does not prevent ARRM members from recovering under contract theories from the counties, should the counties attempt to impose unilateral contract changes. The Court's conclusion on this factor might have been different had Sherburne County actually imposed the 5.5% cut. It might be that imposition of that cut was thwarted only by the prosecution of this motion; nonetheless, Sherburne County is now on clear notice that it cannot disregard its contractual obligations, and the proposed, but not enacted cut, cannot justify a finding of irreparable harm. The Court therefore finds that the potential harm to waiver recipients and counties that might result from further injunctive relief outweighs the harm plaintiff ARRM has identified.
Finally, the Court addresses the likelihood of success on the merits. The parties discuss and dispute the implication of Pediatric Specialty Care on the requested preliminary injunction. Although instructive, that case does not require the Court to issue an injunction at this time. A determinative distinction between the Pediatric Specialty Care case, and the instant case is that the district court's finding, left undisturbed on appeal that the change proposed by the ADHS would decrease the availability of the at-issue services, and would adversely impact developmentally disabled children. 364 F.3d at 929 (describing lower court's findings). The district court also found that "Arkansas had been trying to curtail its early intervention day treatment services program. . . . based on improper motivations." Id. The ADHS' conduct was so egregious as to "shock the conscious" of the district court. Id.
The importance of the lower court's findings to the Eighth Circuit's opinion is emphasized by the concurring opinion of Judge Bye, who wrote "to reiterate the district court's findings of fact which Pediatric I left undisturbed and which therefore continue to inform the law of the case." Id. at 933-34 (Bye, J., concurring). Judge Bye repeated the lower court's findings that the proposed change (offering therapy services through referrals from physicians, rather than through the child health management services) would "`not result in the maximum reduction of [recipients'] development disabilities or restoration of their best function level, as is mandated by § 1396d(a)(13).'" Id. (citing Pediatric Specialty Care, Inc. v. Ark. Dep't of Human Servs., 293 F.3d 472, 479 (8th Cir. 2002) (alternation in original)).
The Eighth Circuit noted that it "share[d] the district court's concern about such conduct," id. at 932, but reversed the injunction based on plaintiffs' substantive due process claim. The Court noted that Arkansas was facing a budget shortfall, and was specifically required to keep the at-issue services provided pursuant to the Eighth Circuit's previous opinion in the same case. Id. Although insufficient to support an injunction on substantive due process grounds, these factors clearly informed the Eighth Circuit's decision to affirm the injunction on the plaintiffs' procedural due process claim. In contrast, in this case, the record reveals that the state defendants are committed not only to maintaining the waiver program, but to ensuring it is funded adequately by increasing its funding each year.
The requested relief is sweeping, and the Court finds it cannot be justified on this record, which is bereft of evidence that could lead the Court to conclude that an injunction is required to "assure the citizens of [Minnesota] that the factors of economy, efficiency, quality of care and equal access will not be jeopardized." Id. at 931 (quoting Dist. Ct. Order of November 27, 2002, at 12). The Court denies the motion.
ORDER
Based upon the foregoing, the submissions of the parties, the arguments of counsel and the entire file and proceedings herein, IT IS HEREBY ORDERED that:
1. Plaintiffs' motion for a writ of mandamus [Docket No. 78] is DENIED.
2. Defendant Garner's motion to dismiss [Docket No. 69] is GRANTED. Defendant Garner is DISMISSED from this case.
3. Defendants Goodno and Patterson's motion for partial judgment on the pleadings [Docket No. 86] is GRANTED in part and DENIED in part as follows:
a. Defendants' motion to dismiss the Second Cause of Action is GRANTED; the Second Cause of Action is DISMISSED WITH PREJUDICE;
b. Defendants' motion to dismiss the Fourth Cause of Action is GRANTED; the Fourth Cause of Action is DISMISSED WITH PREJUDICE;
c. Defendants' motion to dismiss the Sixth Cause of Action is GRANTED in part, consistent with the above opinion and order.
d. In all other respects, the motion is DENIED.
4. Plaintiff ARRM's motion for a Preliminary Injunction [Docket No. 100] is DENIED. IT IS FURTHER ORDERED that the Temporary Restraining Order [Docket No. 111] is DISSOLVED.