Opinion
No. 2:06-cv-0435-MCE-KJM.
June 28, 2006
MEMORANDUM AND ORDER
Through the present action, Plaintiffs seek to enjoin implementation of the Medicare Prescription Drug, Modernization and Improvement Act of 2003, 42 U.S.C. § 1395w-101, et seq. ("MMA") to the extent that changes in prescription drug coverage available to individuals who are both eligible for benefits under Medicare and Medicaid (so-called "dual eligibles") are unconstitutional. Defendant Michael Leavitt, Secretary of the United States Department of Health and Human Services ("Federal Defendant"), now moves to dismiss Plaintiffs' claims against the government pursuant to Federal Rule of Civil Procedure 12(b)(1), on grounds that this Court lacks subject matter jurisdiction over such claims. The Federal Defendant also requests that Plaintiffs' claims be dismissed for failure to state a claim upon which relief can be granted under Rule 12(b)(6). For the reasons set forth below, the Federal Defendants' Motion will be granted.
Plaintiffs include the Independent Living Center of Southern California, Inc. ("ILC"), an independent living center established under the auspices of California Welfare and Institutions Code § 19801 to provide services to disabled persons, as well as eight individuals who qualify as dual eligibles and who claim to have been impacted by implementation of the MMA.
All further references to "Rule" or "Rules" are to the Federal Rules of Civil Procedure unless otherwise noted.
BACKGROUND
Title XVIII of the Social Security Act, commonly known as the Medicare Act, establishes a program of federally subsidized health insurance for the elderly and disabled. 42 U.S.C. §§ 1395,et seq. Coverage available under Medicare includes hospital inpatient and related care (Part A), supplemental coverage for outpatient services (Part B), and a managed-care alternative to Part B (known as Part C). Through enactment of the MMA, Congress provided Medicare coverage for drugs. Part D became effective on January 1, 2006.
Another portion of the Social Security Act, Title XIX, establishes a separate federal-state program providing medical assistance for categorically low-income persons. 42 U.S.C. §§ 1396, et seq. This coverage, known as Medicaid, or MediCal in California, is administered by the states and funded in part through federal aid so long as each state's program complies with applicable Medicaid laws and regulations. See Alexander v. Choate, 469 U.S. 287, 289 n. 1 (1985). California's MediCal program is administered by the California Department of Health Services.
So-called "dual eligibles" qualify for both Medicare and Medicaid benefits. For those individuals, Medicare generally pays first and Medicaid provides protection for services not covered under Medicare. Prior to enactment of the MMA, Medicaid paid for dual eligibles' prescription drugs. In addition to receiving a fifty percent contribution from the federal government for benefits provided under Medicaid, including prescription drugs, the Medicaid Act also required pharmaceutical companies to make substantial rebate payments in return for dispensing their products under Medicaid.
Exclusive provision of prescription drugs through Medicaid has changed with the advent of the MMA. Under Part D, Medicare becomes the primary payer for dual eligibles as to all drugs covered under Medicare. The Medicaid Act was consequently amended to provide that Medicaid is not available for such drugs. 42 U.S.C. § 1396u-5(d)(1). The State of California similarly enacted Welfare and Institutions Code § 14133.23, which eliminated the provision of drug benefits under MediCal to dual-eligible beneficiaries that would otherwise now be covered under Medicare, Part D.
The Enrollment Clause of the MMA requires that all dual eligibles be automatically enrolled into private-entity prescription drug plans on a random basis, with MediCal drug coverage to cease on enrollment. 42 U.S.C. § 1395w-101(b)(1)(C). The formularies for such plans are to be approved by the Secretary of the U.S. Department of Health and Human Services ("Secretary"). 42 U.S.C. § 1395w-111(e)(1). Each drug plan must include drugs within each therapeutic category and class of covered Part D drugs, although not necessarily all drugs with such categories or classes. 42 U.S.C. § 1395w-104(b)(3)(C)(i). If a particular drug is not covered under the assigned formulary and a prescription is accordingly denied, a dissatisfied enrollee can request review by an independent, outside entity. 42 U.S.C. § 1395w-22(g)(4).
In essence, the MMA shifts the cost of providing prescription drugs to dual eligibles from Medicaid at Title XIX to Medicare at Title XVIII. In exchange for assuming this obligation, under the so-called "clawback" provision of the MMA the states must reimburse the federal government for fifty percent of the cost of providing dual eligibles prescription drugs, which mirrors the fact that prior to the enactment of the MMA the states were required to provide such drugs, with a fifty percent contribution from the federal government. 42 U.S.C. §§ 1396u- 5(c)(1)-(2). Under the MMA, however, unlike Medicaid, pharmaceutical companies no longer are required to make rebate payments. In addition, under Part D, even dual eligibles with incomes not exceeding the poverty level must make a modest co-payment for needed drugs, ranging from $1 for generic medicines to $3 for name brands.
This is a change from prior coverage available to dual eligibles under Medicaid, which provided that no services would be denied on account of a beneficiary's "inability to pay a deduction, cost sharing, or similar charge . . ." 42 U.S.C. § 1396o(e).
In order to ease transition difficulties between drug payment under MediCare and reassignment of dual eligibles to coverage under Medicare Part D, the California Legislature enacted legislation on an emergency basis to pay for Part D drugs. California Welfare and Institutions Code § 14133.23(f). That emergency legislation was subsequently extended until May 16, 2006.
In filing the present lawsuit, Plaintiffs contend that transfer of dual eligibles' prescription drug coverage to Medicare has created a "dire situation" rife with the potential for damage to dual eligibles' health if needed medications cannot be obtained. Plaintiffs also contend that formularies assigned by Medicare are less comprehensive than the drug benefits formerly available under MediCal. Although they concede that dual eligibles can apply for a waiver/exception if drugs not on the formulary are determined to be necessary, Plaintiffs contend that because the pharmacy cannot represent the dual eligible in obtaining such a waiver/exception, the process is too cumbersome inasmuch as treating physicians simply will not take the time necessary to make such an appeal. Plaintiff contends that this creates an "extraordinary barrier" for dual eligibles to obtain necessary medicine.
Plaintiffs further contend that many dual eligibles have not in fact been automatically enrolled into a drug formulary under Medicare, which also poses a significant obstacle in obtaining needed drugs.
Finally, Plaintiffs argue that the co-payment requirement imposed by Part D (whether $1 or $3) is impermissible because many dual eligibles simply cannot afford any co-payment.
STANDARD
In moving to dismiss for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), the challenging party may either make a "facial attack" on the allegations of jurisdiction contained in the complaint or can instead take issue with subject matter jurisdiction on a factual basis ("factual attack"). Thornhill Publ'n Co. v. Gen. Tel. Elect. Corp., 594 F.2d 730, 733 (9th Cir. 1979); Mortensen v. First Fed. Sav. Loan Ass'n, 549 F.2d 884, 891 (3d Cir. 1977). If the motion constitutes a facial attack, the Court must consider the factual allegations of the complaint to be true. Williamson v. Tucker, 645 F.2d 404, 412 (5th Cir. 1981); Mortensen, 549 F.2d at 891. If the motion constitutes a factual attack, however, "no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims." Thornhill, 594 F.2d at 733 (quoting Mortensen, 549 F.2d at 891).
On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). A complaint will not be dismissed for failure to state a claim unless it appears beyond doubt that plaintiff can prove no set of facts in support of his [or her] claim that would entitle him [or her] to relief. Yamaguchi v. Dep't of the Air Force, 109 F.3d 1475, 1480 (9th Cir. 1997) (quoting Lewis v. Tel. Employees Credit Union, 87 F.3d 1537, 1545 (9th Cir. 1996).
If the Court grants a motion to dismiss a complaint, it must then decide whether to grant leave to amend. Generally, leave to amend should be denied only if it is clear that the deficiencies of the complaint cannot be cured by amendment. Broughton v. Cutter Labs., 622 F.2d 458, 460 (9th Cir. 1980).
ANALYSIS
A. Exhaustion of Administrative Remedies.The case law firmly establishes that "virtually all legal attacks" implicating the Medicare statutory scheme must be routed, at least initially, through the Medicare administrative appeals process. Ill. Council on Long Term Care v. Shalala, 529 U.S. 1, 13 (2000). Exhaustion of administrative remedies is generally required in order to prevent "premature interference with agency processes, so that the agency may function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review." Weinberger v. Salfi, 422 U.S. 749, 765 (1975). Exhaustion applies with full force to the claims of individual Medicare beneficiaries (Heckler v. Ringer, 466 U.S. 602, 615-17 (1984), citing Mathews v. Eldridge, 424 U.S. 319, 328 (1976)), including beneficiaries seeking to raise constitutional claims. Weinberger v. Salfi, 422 U.S. at 763-64.
Exhaustion of Medicare claims contains two components. First, there is a nonwaivable requirement that a claim for benefits be presented to the agency. Heckler v. Ringer, 466 U.S. at 617. Second, a claimant must fully pursue the prescribed administrative remedies prescribed by the Medicare system, although this requirement may be waived. Id. Initial claim presentment is "an essential and distinct precondition" for jurisdiction and is "purely `jurisdictional' in the sense that it cannot be `waived' by the Secretary in a given case." Mathews v. Eldridge, 424 U.S. at 328-29.
While the Complaint (at ¶¶ 121-22) does allege that certain Plaintiffs have been denied coverage for certain drugs, the Complaint does not allege that any Plaintiff presented an unsuccessful exemption claim paving way for this Court's jurisdiction. The MMA contains procedures for both presenting claims to the sponsor of the Medicare Part D drug formulary and pursuing those claims through an administrative appeals process. 42 U.S.C. §§ 1395w-104(g)-(h) (incorporating 42 U.S.C. §§ 1395w-22(g)(1)-(5). Plaintiffs' failure to establish that any concrete appeals have been presented, yet alone pursued and denied, prevents them from resorting to the jurisdiction of this Court. As explained by N.Y. Statewide Senior Action Council v. Leavitt, 409 F. Supp. 2d 325, 329 (S.D.N.Y. 2005):
Paragraph 122 does allege that two Plaintiffs, Blane Beckworth and Margaret Dowling, were able to successfully obtain drug exceptions from their formularies in order to obtain needed medicine. Although those Plaintiffs may consequently have presented a claim, the fact that they apparently obtained favorable redress through the administrative process does not allow their claims to satisfy the presentment requirement necessarily applicable to other claims upon which administrative relief was not forthcoming.
"The Medicare Act does not contemplate that . . . an individual can file a complaint in federal court before even attempting to present a claim to the agency. It would be a wholesale subversion of the Medicare Act's legislative intent to avoid overburdening the courts (citation omitted) if beneficiaries were able to bring federal cases where a simple phone call, e-mail or letter might straighten out the problem."
Plaintiffs have not substantively opposed this Motion, other than to incorporate arguments previously made in their Memorandum For Preliminary Injunction, filed April 2, 2006, and to allege that this Court should refrain from considering this matter in any event pending the Ninth Circuit's ruling on Plaintiffs' appeal from the May 19, 2006 denial of that request for preliminary injunctive relief. (Pls.' Opp'n, 2:8-17). Tellingly, however, Plaintiffs' Complaint, at ¶ 126, does make the blanket statement that seeking any administrative relief would be "futile". In addition, while Plaintiffs do not specifically incorporate by reference their Reply filed in support of their Motion for Preliminary Injunction, that Reply, in response to Federal Defendants' argument that no adequate exhaustion had been established, also states that it would be "futile" to seek any administrative remedy given the constitutional violations alleged by Plaintiff.
That position is wrong inasmuch as an appeal from a preliminary injunction does not deprive a district court of jurisdiction. See Moltan Co. v. Eagle-Picher Indus., Inc., 55 F.3d 1171, 1174 (6th Cir. 1995) (district court may proceed with action on the merits where order denying preliminary injunction appealed).
A blanket futility argument, however, is insufficient to skirt the mandate of exhaustion. First, as indicated above, the presentment requirement cannot be waived under any circumstance, including, as indicated above, cases where constitutional challenges are raised. Weinberger v. Salfi, 422 U.S. at 764. In addition, merely alleging that further exhaustion would be "futile", as Plaintiffs appear to claim, is inadequate to excuse even the waivable requirement that subsequent levels of administrative review be exhausted. Id. at 766 (exhaustion may not be dispensed with by a mere conclusion of futility).
Significantly, to avail themselves of the futility doctrine for purposes of excusing further compliance with the administrative appeals process, Plaintiffs must also show, with respect to constitutional issues like those advanced by their lawsuit, that such issues are "wholly collateral" to a claim for Medicare benefits and that any alleged injury could not be "remedied by the retroactive payment of benefits after exhaustion of administrative remedies." Heckler v. Ringer, 466 U.S. at 618. Plaintiffs have not, and cannot, argue that their claims against the Federal Defendant are "wholly collateral" to claims for prescription drug benefits. Instead, implicit in their claims is the contention that drug benefits are either too low (by requiring a co-payment, for example) too narrow (with respect to available medications within a particular formulary), or too cumbersome in terms of presenting a claim in the first instance. These claims are all inextricably intertwined with claimed drug benefits and are not entirely independent, or wholly collateral, so as to excuse compliance with the administrative appeals process.
The mere fact that Plaintiffs' Complaint does not address the exhaustion requirement mandates dismissal under Rule 12(b)(1) in and of itself.
The Complaint is devoid of any allegations that concrete claims have been unsuccessfully presented, and in the absence of such allegations no federal jurisdiction is present. Moreover, even if such claims had been identified, which they have not, Plaintiffs cannot rely on an argument that further administrative appeals would be "futile" under the circumstances present here in any event.
While the Federal Defendant is consequently entitled to dismissal of Plaintiffs' claims on jurisdictional grounds alone, the Court cannot rule out that Plaintiffs might be able to remedy the deficiencies of their Complaint in that regard through amendment. It hence becomes appropriate for the Court to look beyond the current jurisdictional shortcomings of the Complaint and assess Plaintiffs' allegations on their merits. Examination of the various claims asserted, as delineated below, shows that those claims are not viable, presenting yet another justification for dismissal of this action.
B. Tenth Amendment Concerns.
Plaintiffs assert, in their First Claim, that by shifting the provision of prescription medications away from the states, the federal government has interfered with state sovereignty over administration of states' own poverty drug programs for its poorest citizens. Plaintiffs contend that such conduct runs afoul of the Tenth Amendment's reservation, to the states, of powers not delegated to the United States by the Constitution. Plaintiffs specifically contend that the MMA's clawback provision, in requiring state participation in payment for Part D Medicare costs incurred for dual eligibles, is impermissible. Plaintiffs argue that the federal government has no power to command such an involuntary payment from the states, despite the fact as indicated above that the switch from Medicaid to Medicare appears to have simply entailed a change from states' direct responsibility under Medicaid for fifty percent of expenditures to a new system whereby, in exchange for federal assumption of payment responsibility, the state simply pays the federal government the same fifty percent it would otherwise have had to incur.
Plaintiffs also make a related argument that the same conduct violates the Necessary and Proper Clause of Article I, section 8 of the Constitution, on grounds that the Constitution permits Congress only to make laws as "necessary and proper" to effectuate the powers granted to the federal government by the Constitution. Plaintiffs appear to assert that because the care of the poor is reserved to the states under the Tenth Amendment, federal enactment of laws intruding on such sovereignty is also impermissible under the Necessary and Proper Clause.
The Federal Defendant opposes Plaintiffs' Tenth Amendment challenge primarily on grounds that private individuals like Plaintiffs herein simply lack standing to raise any question under the Tenth Amendment, pursuant to well-established precedent dating back to Tenn. Elec. Power Co. v. TVA, ("TVA") 306 U.S. 118, 144 (1939). While Plaintiffs have not disputed the import of the TVA holding in this regard, they argued, in connection with their previous preliminary injunction request, that TVA has been overruled by a subsequent Supreme Court decision, N.Y. v. U.S., 505 U.S. 144 (1992). In passing, the Court's N.Y. decision noted that "the Constitution divides authority between federal and state governments for the protection of individuals" (Id. at 181), and while one Seventh Circuit decision has deemed that pronouncement to have effectively overruled TVA (see Gillespie v. City of Indianapolis, 185 F.3d 693, 700-03 (7th Cir. 1999), other courts have concluded just the opposite, reasoning that because the N.Y. decision does not even mention TVA, it cannot be construed as effectively overruling it. See Medeiros v. Vincent, 431 F.3d 25, 34 (1st Cir. 2005). In Artichoke Joe's Cal. Grand Casino v. Norton, 278 F. Supp. 2d 1174, 1181 (E.D. Cal. 2003), Judge Levi found that the Supreme Court has not overruled its TVA holding while noting other cases, including the Seventh's Circuit's Gillespie opinion, that reached the opposite conclusion.
In addition, because N.Y. involved only a claim asserted by the State of New York, the question of private party standing under the Tenth Amendment was simply not an issue in that case, and the word standing was never even mentioned in the N.Y. decision. Id.
It is well-recognized that only the Supreme Court itself has the prerogative of overruling its own decisions. City of Roseville v. Norton, 219 F. Supp. 2d 130, 147-48 (D.D.C. 2002). The N.Y. decision is not sufficient to overrule a long-established lack of standing on the part of private litigants to enforce sovereignty issues under the Tenth Amendment. As the government has pointed out, California has ample resources to object to the provisions of the MMA should it choose to do so.
Even aside from standing, which the Court believes is fatal to Plaintiffs' Tenth Amendment claims in this case, Congress has in any event authority under the Tax and Spending Clause to urge states to adopt legislative programs consistent with federal interests. N.Y., 505 U.S. at 166-67. See also S.D. v. Dole, 483 U.S. 203, 207 (1987) (condition imposed on receipt of federal funding upheld against Tenth Amendment challenge). Congress thus has the "power to fix the terms upon which its money allotments to states shall be disbursed." Mayweathers v. Newland, 314 F.3d 1062, 1069 (9th Cir. 2002).
By providing services to states' citizens under Medicare that formerly were provided by the states, the federal government simply is asking that monies the state formerly paid be transferred to it. The government hence links its provision of prescription drug coverage to such payment. While the states could presumably elect to continue to provide such coverage with no contribution whatsoever from the federal government, government funding is linked to its recoupment of a portion of its expenses from the states. This appears to be permissible under the Tenth Amendment under the above-cited cases. C. Unlawful Delegation of Legislative Powers.
Plaintiffs allege, in their Second Claim, that the MMA's delegation of responsibility, to the Secretary, for approval of drug formularies amounts to an abdication of its own legislative responsibility. According to Plaintiffs, this violates the so called non-delegation doctrine identified by the Supreme Court inPanama Refining Co. v. Ryan, 293 U.S. 388, 421-22 (1935).
This argument is patently untenable. It has long been settled that to burden Congress with all federal rulemaking would defeat the concept of a workable national government. Loving v. U.S., 517 U.S. 748, 758 (1996). Hence Congress passes constitutional muster by legislating in broad terms and leaving a certain degree of discretion to executive or judicial actors. Touby v. U.S., 500 U.S. 160, 165 (1991). To survive a challenge under the non-delegation doctrine, Congress only has lay down an intelligible principle pursuant to which a person authorized to act must conform. Whitman v. Am. Trucking Ass'ns, 531 U.S. 457, 474-75 (2001).
Here, while Congress has given the Secretary discretion to approve Part D private drug formularies, it has directed that each formulary include drugs within each therapeutic category and class of covered Part D drugs, although not necessarily all drugs with such categories or classes. 42 U.S.C. § 1395w-104(b)(3)(C)(i). Hence the Secretary has been given broad guidelines from which to exercise his discretion in approving such formularies. In addition, in disapproving drug plans, Congress has indicated that there must be some evidence that the plan's practices discourage enrollment, and that this discouragement will likely have a substantial effect on certain Medicare beneficiaries. 42 U.S.C. § 1395w-111(e)(2)(D)(I). All of this provides enough direction to the Director to survive challenge under the non-delegation doctrine.
D. Violations of Fifth Amendment Rights.
Plaintiffs contend that their due process rights as protected by the Fifth Amendment are violated by the MMA's requirement that dual eligibles make nominal co-payments for needed prescriptions. Plaintiffs appear to argue that requiring such payments is not only unjustifiable and in derogation of Fifth Amendment due process but also amounts to discrimination against the poor in violation of equal protection concerns also guaranteed by the Fifth Amendment.
It has long been held that the due process clauses of both the Fifth and Fourteenth Amendments are intended to prevent governmental abuse of power, and "generally confer no affirmative right to governmental aid". DeShaney v. Winnebago County Dep't of Soc. Servs., 489 U.S. 189, 196 (1989). Moreover, with respect to equal protection, the constitutionality of the co-payment provision must be judged under a rational basis standard, since poverty alone is not a suspect classification demanding strict scrutiny. See Harris v. McCrae, 448 U.S. 297, 323 (1980). Consequently the government need only show a rational relationship between its requirement of co-payments and a legitimate governmental purpose. Bd. of Trustees of Univ. of Ala. v. Garrett, 531 U.S. 356, 367 (2001).
Here, the government can show a rational relationship between allocating limited aid dollars and fostering investment by dual eligibles in the efficiency of their own medical care through demanding small co-payments as a demonstration of accountability.
Plaintiffs also appear to argue that their due process rights are infringed by the delegation to privately administered drug formularies of control over their ultimate drug benefits, and by participants' random assignment to such formularies. Plaintiff ILC, for example, contends that some drug plans are more comprehensive than others, and some authorize fewer drugs than would have previously available under MediCal. Plaintiffs also assert that to the extent dual eligibles are enrolled in a "bottom" plan, their Fifth Amendment rights are violated. Plaintiffs ignore the fact, however, that all drug formularies must include medications across the therapeutic spectrum. See 42 U.S.C. § 1395w-104(b)(3)(C)(i). In addition, participants who still claim that they need a particular drug not on the formulary can apply for a waiver through the appeal process. These safeguards adequately protect participants' rights. Plaintiffs are not entitled to optimal coverage so long as the coverage they are afforded is adequate, as the Court believes to be the case here. As indicated above, due process rights are not impinged simply because of limitations in governmental aid implicit in coverage that falls short of offering unrestricted access to all prescription drugs.
E. Automatic Enrollment Provision.
For a Third Claim, Plaintiffs appear to assert that dual eligibles who for whatever reason have not successfully enrolled in Medicare Part D coverage, despite the automatic enrollment provisions of the MMA, should be permitted to retain coverage under MediCal on an indefinite basis if no enrollment occurs. This argument is disingenuous in light of the stopgap measures provided by both California and the federal government in paying claims temporarily under MediCal.
CONCLUSION
As set forth above, Plaintiffs' Complaint, on its face, does not establish the prerequisites for federal jurisdiction over claims sounding in Medicare by failing to allege that requisite administrative appeals have been unsuccessfully attempted. Even were Plaintiffs to be granted leave to amend their Complaint for purposes of correcting those defects, however, examination of the Complaint on its merits shows that none of the claims advanced by Plaintiffs are meritorious.
The Federal Defendants' Motion to Dismiss is GRANTED both under Rule 12(b)(1) and 12(b)(6). No leave to amend will be permitted under the circumstances, since the Court does not believe that the overall deficiencies of the Complaint can be remedied through amendment.
Because oral argument will not be of material assistance, the Court orders this matter submitted on the briefing. E.D. Cal. Local Rule 78-230(h).
IT IS SO ORDERED.