Free Memorandum - District Court of Arizona - Arizona

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

JEFFREY S. BUCHOLTZ Acting Assistant Attorney General DIANE J. HUMETEW A United States Attorney District of Arizona RONALD R. GALLEGOS Assistant U.S. Attorney Civil Chief Arizona State Bar No. 013227 Two Renaissance Square 40 North Central Avenue, Suite 1200 Phoenix, Arizona 85004 4408 Telephone: (602) 514 7500 Facsimile: (602) 514 7760 SHEILA LIEBER VESPER MEI Department of Justice, Civil Division Federal Programs Branch 20 Massachusetts Ave. N.W ., Rm. 7316 W ashington, D.C. 20001 Telephone: (202) 514 4686 Fax: (202) 616 8470

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA SHARON NEWTON-NATIONS, et al. CIV-03-2506-PHX-EHC Plaintiffs, v. ANTHONY RODGERS, et al. Defendants. MEMORANDUM IN SUPPORT OF DEFENDANT LEAVITT'S MOTION FOR SUMMARY JUDGMENT AND IN OPPOSITION TO PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT INTRODUCTION Arizona's current expansion Medicaid demonstration program, approved by the Secretary under 42 U.S.C. § 1315, represents a creative effort by the State to extend government-funded health care coverage to those who are not ordinarily entitled to it. Plaintiffs have no statutory right to this coverage because they are not included in a group for whom the statute mandates coverage, and the State has not elected to make them eligible for coverage under Arizona's State Medicaid plan. What plaintiffs are protesting is a small increase in the copayments imposed by the State on non-Medicaid eligible populations who receive benefits under the demonstration. There is nothing, however, that requires that plaintiffs receive any federally-funded coverage at all, and were the Secretary's approval of

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 1 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

these copayments determined to exceed his authority under the Social Security Act or otherwise, Arizona could well decide either to terminate the wholly discretionary program in its entirety, make other significant cuts in government-funded health care programs, or, alternatively, and in the absence of federal Medicaid matching funds, determine to implement identical or even higher copayments upon these individuals. Nor is there any assurance that the Secretary would approve a modified demonstration. The restrictions on Medicaid copayments apply only to persons who could be eligible for Medicaid coverage under a state's Medicaid State plan, and who are actually covered under that plan. In Spry v. Thompson, 487 F.3d 1272 (9th Cir. 2007), the Ninth Circuit addressed that very issue, determining that a state is not bound by Medicaid's copayment limitations for expansion populations that is, those individuals who are not eligible for

Medicaid coverage under a State Medicaid plan. Plaintiffs, however, ignore Spry for the most part, although it largely disposes of the issues in this case in the defendants' favor. In fact, Plaintiffs are not entitled to mandatory Medicaid coverage under the statute (they are non-disabled, non-blind, childless adults or parents whose income exceeds the Medicaid maximum), nor are they included in the Arizona Medicaid State plan. While plaintiffs contend that a fraction of the State's Medical Expense Deduction ("MED") could fall into a population for which a state, at its option, could choose to offer Medicaid coverage, at best, that population is one that Arizona is statutorily permitted to make eligible under its State plain, but which Arizona has elected not to make eligible under that plan. Instead, all of the plaintiffs in this case receive health care services from the State only because Arizona has chosen to conduct a section 1115 (42 U.S.C. § 1315) demonstration that includes them. The copayments listed in Amended Rule R9-22-711(E) (Arizona's rule that exempts many categories of individuals from copayments, but imposes increased copayments on the state expansion populations at issue in this lawsuit) are collected exclusively from persons in the State's health care demonstration project. As a result, neither Secretary

-2-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 2 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Leavitt nor the State or Arizona has violated the restrictions on Medicaid copayments in 42 U.S.C. §§ 1396o or 1396o-1. Congress has narrowly limited the populations to whom a State must include as eligible under a State plan to specified groups of individuals who are within certain categories: aged, blind, disabled, pregnant, very young, or other specified categories. See 42 U.S.C. § 1396a(a)(10); 42 U.S.C. § 1396d(a)(i)-(xiii). Congress has also permitted state flexibility to elect to cover other specified groups within those categories. Plaintiffs do not fall into any of those specified groups, and indeed, most do not fit into any of the statutory categories of coverable groups. They receive health care coverage only as a result of Arizona's § 1115 demonstration project. This project extends health care benefits to some previously uninsured, low-income Arizona residents who are not eligible to receive such benefits in the absence of the project. Medicaid cost-sharing limitations (i.e., restrictions on co-payments and deductibles) do not apply to individuals who are not eligible under the State plan, and thus do not apply to expansion populations. The co-payments Arizona chooses to charge these groups need not meet the criteria of 42 U.S.C. § 1396o. As long as the State's demonstration project is valid under 42 U.S.C. § 1315(a) by which the Secretary

determines that the demonstration project, including the increased co-payments, is "likely to assist in promoting the objectives" of Medicaid plaintiffs cannot maintain their legal that

challenge with respect to these co-payments. The other claims advanced by plaintiffs

the federal government did not conduct the inquiry necessary to waive the restrictions on copayments and failed to ensure that Arizona's co-payments complied with the "human subjects" protections Secretary Leavitt.1 are similarly inapplicable. Summary judgment should be granted for

Docket Numbers 63, 61, and 101contain the Certified Administrative Record in this case (filed May 21, 2004), as well as the federal defendant's Statement of Undisputed Facts (filed May 21, 2004) and Response to Plaintiffs' Statement of Undisputed Facts (filed October 13, 2004), respectively. These documents are incorporated herein. -3-

1

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 3 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I.

BACKGROUND THE MEDICAID PROGRAM A. Overview

The Medicaid program, established by Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., is a cooperative effort by the federal government and the states to provide medical care to individuals "whose income and resources are insufficient to meet the costs of necessary medical services." See 42 U.S.C. § 1396. As the Supreme Court has described: The program authorizes federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons. In order to participate in the Medicaid program, a State must have a plan for medical assistance approved by the Secretary of Health and Human Services (Secretary). PhRMA v. Walsh, 538 U.S. 644, 650 (2003).2 Only those individuals who meet stringent statutory requirements regarding income and resource limitations and who fall within certain statutorily defined categories can be eligible for Medicaid benefits under a State plan. See, e.g., 42 U.S.C. § 1396a(a)(10)(A); 42 U.S.C. § 1396d(a)(i)-(xiii). Medicaid provides medical assistance only to certain groups of individuals who meet applicable criteria, for example, the aged, blind, or disabled who qualify for Supplemental Security Income, or pregnant women or children whose family incomes are below certain levels. See 42 U.S.C. §§ 1396a(a)(10); 1396d(a)(i)-(xiii). Some groups must be included as eligible under a State plan, and the statute provides that others may be included at State option. See 42 U.S.C. § 1396(a)(10). While other individuals, such as non-disabled single or married childless adults or parents whose incomes exceed Medicaid's income limits

might benefit from assistance as well, they are not statutorily eligible for Medicaid coverage. Medicaid was not enacted to provide these individuals with medical coverage, and a state's

The State actually submits the plan to the Centers for Medicare & Medicaid Services ("CMS"), an agency within the Department of Health and Human Services ("HHS"), which administers the federal aspects of the Medicaid program on behalf of the Secretary. See 42 U.S.C. § 1396a. CMS was formerly known as the Health Care Financing Administration. -4-

2

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 4 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

participation in the Medicaid program does not provide coverage for non-eligible individuals under its State plan. See id. This Medicaid coverage limitation is a crucial aspect of this case. A Medicaid State plan defines the categories of individuals eligible for benefits and the specific kinds of medical services that are covered. 42 U.S.C. §§ 1396a(a)(10), (17). The plan must provide coverage for certain `categorically needy' groups, and, at the State's option, may also cover other individuals, including `medically needy' groups. Walsh, 583 U.S. at 650-51. The Supreme Court has described the "categorically needy" and "medically needy" groups as follows: The "categorically needy" groups include individuals eligible for cash benefits under the Aid to Families with Dependent Children (AFDC) program,3 the aged, blind, or disabled individuals who qualify for supplemental security income (SSI) benefits, and other low-income groups such as pregnant women and children entitled to poverty-related coverage. § 1396a(a)(10)(A)(i). . . . The "medically needy" are individuals who meet the nonfinancial eligibility requirements for inclusion in one of the groups covered under Medicaid, but whose income or resources exceed the financial eligibility requirements for categorically needy eligibility. § 1396a(a)(10)(C). Id. at 650-51, nn.4 & 5. Arizona has opted not to include coverage for the medically needy in its State plan. Ex. 1. Once the Secretary approves a State plan setting out which categories of individuals and kinds of medical services will be covered, the State may seek federal payment for a specified percentage of the amounts "expended . . . as medical assistance under the State plan." See 42 U.S.C. § 1396b(a)(1). Plaintiffs, while low income and in need of medical care, are not "categorically needy." Further, even if Arizona could choose to include certain plaintiffs who might qualify

The Personal Responsibility And Work Opportunity Reconciliation Act of 1996, Public Law 104-193 ("Welfare Reform law") replaced the AFDC program with block grants to States for "Temporary Assistance for Needy Families" ("TANF"). However, categorical Medicaid eligibility remains linked to eligibility under the State's AFDC program, as it was in effect at the time Welfare Reform law was enacted. Specifically, references to eligibility under Title IV-A of the Social Security Act (formerly the citation to the AFDC program, but now where TANF provisions are located) are deemed by statute to be references to eligibility under the AFDC state plan in that state "as of July 16, 1996." See 42 U.S.C. § 1396u-1. -5-

3

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 5 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

as "medically needy" within the Arizona State plan, Arizona has opted not to cover such individuals in its State plan, and as a result, they are not eligible for coverage under the Arizona State Medicaid plan. Rather, all of the plaintiffs receive federal coverage for their benefits solely as a result of Arizona's demonstration project. The Court erred in stating in its ruling on plaintiffs' motion for a preliminary injunction that "[t]he parties agree that Plaintiffs are `medically needy' under the Medicaid framework" (Apr. 20, 2004 Order at 9). See, e.g., supra at II.B.; Defendant Rodgers' Joinder in Defendant Leavitt's Motion for Summary Judgment and Response to Plaintiffs' `Response in Opposition to Defendant Leavitt's Notice of Recent Authority'" at 2 (Jul. 30, 2007) ("Def. Rodgers' Joinder") (Docket #121) (disputing that the MED program covers "medically needy" persons, and stating that Defendant Rodgers was not admitting "that these people are `medically needy' as defined by the Medicaid statutes. As discussed below, AHCCCS does not cover any such persons."). B. Section 1115 Medicaid Demonstration Projects

Section 1115 of the Social Security Act, 42 U.S.C. § 1315, permits States to develop Medicaid "pilot" or "demonstration" projects that experiment with new methods of providing health care to low-income citizens. The Secretary may approve such projects if they will "assist in promoting the objective" of the Medicaid system. Upon granting such approval, the Secretary can waive certain federal requirements that would normally apply to traditional Medicaid programs. The Secretary also has authority to "regard" costs for a demonstration project as an "expenditure" pursuant to that state's Medicaid plan. PhRMA v. Thompson, 313 F.3d 600, 602 (D.C. Cir. 2002) (internal citations omitted),

20 modified, 321 F.3d 1134 (D.C. Cir. 2003); see also Kaiser Comm'n on Medicaid and the 21 Uninsured, Section 1115 Waivers in Medicaid and the State Children's Health Insurance 22 Program: An Overview, at 2 (July 20, 2001) [hereinafter "Kaiser Comm'n Article"], 23 available at http://www.kff.org/content/2003/waivers/.cfm/. 24 What section 1115 provides is that, contingent on approval from the Secretary of 25 Health and Human Services, every state has the option to do something different and more 26 innovative by creating a demonstration project under § 1115 to better serve populations in 27 28 -6-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 6 of 36

1 2 3 4 5 6 7 8

need of health care. Such demonstration projects can take one of three forms: (1) waiver-only under 42 U.S.C. § 1315(a)(1) (e.g., a demonstration project consisting solely of a waiver of certain Medicaid requirements for individuals eligible under the State plan Medicaid-eligible individuals); (2) expansion-only under 42 U.S.C. § 1315(a)(2)(A) (e.g., a demonstration project consisting solely of an expansion of health care coverage to individuals not eligible under the State plan non-Medicaid-eligible individuals or for services not otherwise covered under the State plan); or (3) combination (e.g., a demonstration project including both a waiver component under § 1315(a)(1) and an expansion component under § 1315(a)(2)(A)). Notwithstanding the existence of a demonstration project, every State that chooses to

9 participate in Medicaid must already have an approved Medicaid "State plan," see 42 U.S.C. 10 § 1396a, which remains in effect and is administered as written except to the extent of any 11 approved waivers. Any expansion populations or services that go beyond the basic Medicaid 12 State plan requirements are not included in that approved State plan; they are covered only 13 through the demonstration project. 14 Demonstration projects like Arizona's may include an expansion of coverage to the 15 16 provide a way for states to obtain federal money which they can then use to reduce the 17 number of uninsured people, according to the terms and conditions of the award letter and 18 the demonstration project rather than the usual Medicaid rules. The Kaiser Commission 19 noted 20 21 22 23 24 25 26 27 28 There are other types of demonstration projects, some of which involve Medicaideligible individuals. For example, the Secretary granted a waiver for a part of AHCCCS's demonstration that allows Arizona to require its Medicaid-eligible beneficiaries to receive their health care services from managed care organizations rather than allowing them the choice otherwise available to Medicaid beneficiaries, of obtaining care from traditional fee-for-service providers. -74

uninsured poor who cannot receive Medicaid benefits under a Medicaid State plan.4

They

Federal funding for Medicaid and [State Children's Health Insurance Program, or "SCHIP"] eligibility is limited to certain groups recognized in the statute. States may seek, through demonstrations, to extend Federal funding for coverage for other groups of individuals who are not eligible under current law (e.g. low-income non-elderly, non-disabled adults without children, who as a

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 7 of 36

1 2 3 4 5 6 7 8

category are ineligible for Medicaid regardless of the extent of their poverty). Kaiser Comm'n Article at 5 (July 20, 2001). But a demonstration project, even as it extends coverage, cannot result in greater federal financial outlays than would occur otherwise. As the U.S. General Accounting Office ("GAO") described in a July 2002 report: Recognizing its fiduciary obligations, HHS has since the early 1980s required that states justify that their section 1115 waiver demonstrations will not cost the federal government more money than the programs would have cost without the waivers. GAO, Report to the Committee on Finance, U.S. Senate, Medicaid and SCHIP: Recent HHS

9 Approvals of Demonstration Waiver Projects Raise Concerns, at 8 (July 2002), available at 10 www.gao.gov/new.items/d02817.pdf [hereinafter "GAO Report"]. To establish that a 11 demonstration project is "budget neutral," the Secretary requires the state to calculate the 12 expenditure ceiling, which is the product of the number of current law eligibles (not 13 including expansion populations) multiplied by the appropriate annual per capita expenditure 14 estimate. See GAO Report at 19. 15 In designing a demonstration project that expands health benefits to the uninsured 16 who are not Medicaid-eligible, a state may achieve budget neutrality through cost saving 17 methodologies, such as limiting optional enrollment, reducing certain health benefits, or 18 imposing cost-sharing requirements. See GAO Report at 8 ("HHS's HIFA initiative, using 19 the section 1115 authority, gives states flexibility to increase cost sharing and reduce benefits 20 for some program beneficiaries in order to help fund coverage for uninsured populations 21 within existing Medicaid and SCHIP program resources."); see also Kaiser Comm'n on 22 Medicaid and the Uninsured, Section 1115 Medicaid and SCHIP Waivers: Policy 23 Implications of Recent Activity at 2 (June 2003), available at 24 http://www.kff.org/content/2003/waivers/cfm/ ("Many of the recent waivers lower the cost 25 of coverage for existing beneficiaries by capping enrollment, limiting services, and/or 26 imposing new premium and cost sharing obligations."). Expansion of health coverage has a 27 28 -8-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 8 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

price, and states often are forced to make hard choices in the face of fiscal pressures. C. Arizona's Medicaid Program and Demonstration Project

Arizona's Medicaid program operates in accordance with an approved State plan, as modified by waivers contained in an approved demonstration project that also includes expansion authority. The Medicaid program, the demonstration project, and certain Stateonly health coverage initiatives, operate through an entity that is known as the Arizona Health Care Cost Containment System ("AHCCCS"). Arizona submitted a Medicaid State plan to HHS in 1982, which the agency subsequently approved. Arizona's Medicaid State plan is still in effect, though it has been amended over time, and much of the State's Medicaid program operates as a § 1115 demonstration project. Only one aspect of Arizona's Medicaid demonstration project is relevant to the plaintiffs' claims the state's expansion of health care coverage to persons not otherwise

eligible for such coverage under Arizona's Medicaid State plan. In early 2001, Arizona received permission from CMS to amend its § 1115 demonstration project to include certain non-Medicaid eligible individuals with incomes up to 100% of the federal poverty level. See Certified Administrative Record (hereinafter "AR") at AR 0086-0103. Arizona's decision to expand health care services to this group followed the passage of the State's Proposition 204. See A.R.S. § 36-2901.01. In its January 18, 2001 approval letter, CMS invoked its "expenditure authority" under 42 U.S.C. § 1315(a)(2) in allowing Arizona to offer this expanded coverage. See AR 0086. At the same time, Arizona also expanded the demonstration project to include coverage to non-Medicaid eligible persons who incur medical expenses such that their income is reduced to 40% of the federal poverty level. See AR 00086-AR 0103. These persons are part of the State's Medical Expense Deduction ("MED") program. See A.R.S. § 36-2901.04. CMS likewise invoked its "expenditure authority" under 42 U.S.C. § 1315(a)(2) in permitting Arizona to offer the MED group expanded coverage. See AR 0086. CMS's January 18, 2001 approval letter included a "cumulative list of waivers and -9-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 9 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

expenditure authorities for the overall AHCCCS program." See AR 0087. An attachment to the letter noted that all other Medicaid requirements continued to apply to the Arizona program. See AR 0096 ("All requirements of the Medicaid program expressed in laws, regulations, and policy statements, not expressly waived or identified as not applicable in the award letter of which these amended Special Terms and Conditions are part, will apply to the Arizona acute care eligibility expansion."). On September 20, 2001, Arizona sought to amend its existing Medicaid demonstration project, by applying for approval to conduct a demonstration under the HHS Health Insurance Flexibility and Accountability ("HIFA") demonstration initiative. See AR 00064. States use HIFA demonstrations to expand health care coverage. http://www.hhs.gov/ budget/06budget/centersformed.html. A primary goal of the HIFA demonstration initiative is to "give States the programmatic flexibility to increase health insurance." Id. CMS approved Arizona's HIFA application on December 12, 2001. See AR 0064. It approved the new HIFA "expenditure authorities to demonstrate whether expanding eligibility for coverage of both parents and single adults and childless couples will improve the overall health of the community, and reduce overall rates of uninsurance." See AR 00065.5 The HIFA demonstration permitted Arizona to access Title XXI (State Children's Health Insurance program, or "SCHIP") funds for the provision of services to "certain single adults and childless couples with adjusted net incomes at or below 100% of the federal poverty level" and parents of children enrolled in the SCHIP or Medicaid programs, with adjusted net incomes between 100-200% of the federal poverty level who were not themselves Medicaid eligible. See AR 0065. The persons included in Arizona's HIFA expansion overlapped to a degree with those already included in the Proposition 204 expansion, and were not Medicaid eligible. Id.

The non-Medicaid eligible groups who are provided with health care services as a result of Arizona's demonstration project will be referred to as "AHCCCS expansion populations" or "demonstration project expansion populations." -10-

5

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 10 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

In its December 12, 2001 approval letter, CMS cited its "expenditure authority" under 42 U.S.C. § 1315(a)(2) in approving the HIFA demonstration's expanded coverage. See AR 0065. CMS's December 12, 2001 approval letter included a "cumulative list of waivers and expenditure authorities for the overall AHCCCS program." See AR 0065-0066. It also reminded the State that all other Medicaid requirements continued to apply to the Arizona program. See AR 0076 ("All requirements of the Medicaid program expressed in laws, regulations, and policy statements, not expressly waived or identified as not applicable in the award letter of which these amended Special Terms and Conditions are part, will apply to the Arizona acute care eligibility expansion."). On October 25, 2006, CMS approved Arizona's request to extend its section 1115 demonstration project, for the period from October 27, 2006 through September 30, 2011. This approval encompassed the groups included above.6 Supplemental Administrative Record ("SAR") 1-3. 1. Cost-Sharing for AHCCCS Expansion Populations

On May 2, 2003, Arizona submitted a letter to CMS in which the State described a number of changes it was proposing to its demonstration program. See AR 0058-0063. One of the changes contemplated by the State was the imposition of increased co-payments on AHCCCS expansion populations. See id. at AR 0059 (describing cost sharing proposal for an "expansion population" including "individuals added by the January 2001 amendment" to the demonstration project). Arizona's proposal, which represented an increase from what had previously been charged, included the following: · New co-payment of $5 for generic prescription drugs and $8 for brand name drugs

The certified administrative record for the extension of CMS's approval of Arizona's demonstration project is being filed in conjunction with this brief. While the Secretary believes that this motion could have been decided on the papers previously submitted, and without the filing of this supplemental administrative record, the plaintiffs filed portions of the record with their motion for summary judgment. For completeness of the record, the Secretary is hereby filing the certified supplemental administrative record. -11-

6

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 11 of 36

1 2

· ·

Increase the co-payment of $5 to $30 for the non-emergency use of the emergency room Add a new co-payment of $10 for non-emergency transportation Add a new co-payment of $5 for physician visits, specialist visits, laboratory services and x-ray tests Allow the state to collect an initial one-time $25 enrollment fee before an applicant is enrolled in The Title XIX program. The state was considering a $25 enrollment fee for each certification period. Allow the state to collect a monthly premium.

3 · 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 · AR 0059. CMS responded to Arizona's May 2, 2003 letter on June 17, 2003. See AR 00540057. With respect to the State's proposal to increase the cost-sharing for "groups that are not eligible for Medicaid except through Section 1115 demonstration authority," (i.e., expansion populations) CMS informed Arizona that "there are no legal restrictions on cost sharing." See AR 0055. In the absence of "legal restrictions on cost sharing . . . states may impose higher than `nominal' levels of cost sharing." Id. CMS also noted: Many states with section 1115 demonstrations have adopted various forms of cost sharing and applied them in amounts that vary by income level and population type (e.g., parents, children, etc.). Such cost sharing does not involve waivers, since the affected groups are not eligible under the State plan. Rather, it is documented in states' operational protocols, For Arizona, information on cost sharing for demonstration eligibles could be included in a new section on cost sharing to be added to your financial operational protocol. AR 0055. Arizona subsequently submitted draft operational protocols to CMS. See AR 0003-AR 0004; AR 0008-AR 0053. CMS also reminded Arizona that individuals "eligible through the Medicaid State plan may be charged no more than the maximum allowable amounts for copayments, coinsurance and deductibles specified in 42 C.F.R. 447.54." AR 0054. In contrast, CMS noted that "expansion groups that are eligible due entirely to section 1115 authority (e.g., childless adults) are not subject to the limits on cost sharing that apply to State plan eligibles." AR 0055. CMS did not approve the State's May 2 proposal in its June 17 response. In the -12·

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 12 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

closing of its July 17 letter, CMS informed Arizona that "[h]opefully, this information will enable you to refine your request to take into consideration the approvable approach to follow in each situation in order to achieve the changes you are seeking to make." AR 0057. CMS also noted that it had "tried to provide fairly general guidance" and it expected the State's "revised letter" to "contain details not available" as of May 2, 2003. Id. On July 17, 2003, AHCCCS staff sent an e-mail to CMS, attaching the "latest version of what AHCCCS is proposing to implement on cost sharing." AR 0052. For the "Prop 204 Expansion Groups and HIFA Parents," AHCCCS indicated it planned to charge the following co-payments to its expansion populations: · · $4 co-payment for generic prescriptions $10 co-payment for brand name prescriptions when a generic is available · · AR 0053. On October 1, 2003, Arizona implemented a new rule imposing the following copayments on AHCCCS expansion populations: · · $4 for generic prescriptions or brand name prescriptions where a generic is not available; $10 for a brand name prescription when a generic is available; $30 for nonemergency use of an emergency room; and $5 for a physician office visit. $30 co-payment for non-emergency use of the emergency room $5 co-payment for physician visits

20 · 21 · 22 Arizona Administrative Code, R9-22-711(E). 23 Subsequent to Arizona's initiation of the increased co-payments, CMS approved the 24 amounts, retroactive to October 1, 2003. See AR 0001-0002. CMS concluded that the new 25 copayments "apply only to expansion populations not included in the State plan." AR 0001. 26 In CMS's view, the Arizona demonstration project, with the addition of the new copayments, 27 28 -13-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 13 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

"will continue to serve the purposes of Title XIX because the demonstration project will continue to ensure wider health benefit coverage for low-income populations." Id. CMS also approved these copayment amounts in its October 25, 2006 approval of Arizona's request to extend its Medicaid demonstration project. SAR 1-3; 8-12. 2. Plaintiffs

Plaintiffs are individuals who are homeless or destitute, and they receive health care services paid for by AHCCCS. See, e.g., Compl. ¶¶ 56, 59, 60, 65, 72, 77, 81, 86, 92, 94, 95, 99, 103, 108, 111, 115. Plaintiffs are not eligible to receive Medicaid benefits (i.e., they are not "categorically eligible" or part of a "mandatory" population) because they do not meet Medicaid eligibility criteria under the approved State plan (they are non-disabled, non-blind, childless adults or parents whose income exceeds the Medicaid maximum). Plaintiffs have nowhere alleged any basis to conclude that they have received health care services in Arizona on the basis of being "categorically eligible" under the Medicaid Act. See id. Nor have they alleged that they are included within the confines of Arizona's Medicaid State plan. Rather, plaintiffs have been and are currently part of an expansion population under Arizona's demonstration project, which is the only way that they have in the past received and are now receiving health care benefits funded in part by the federal government. The Court erred in stating in its ruling on plaintiffs' motion for a preliminary injunction that "[t]he parties agree that Plaintiffs are `medically needy' under the Medicaid framework" (Apr. 20, 2004 Order at 9). See, e.g., supra at II.B.; Def. Rodgers' Joinder at 2. ARGUMENT I. STANDARDS FOR REVIEW A. Administrative Procedure Act, 5 U.S.C. §§ 701-706

Section 1115 of the Social Security Act provides that, "[i]n the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives" of the Medicaid program, "the Secretary may waive compliance with any of the requirements of section . . . 1396a of this title, as the case -14-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 14 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14

may be, to the extent and for the period he finds necessary to enable such State or States to carry out such project." 42 U.S.C. § 1315(a)(1). The United States Court of Appeals for the Ninth Circuit has held that the Secretary's waiver decisions are subject to review under the Administrative Procedure Act ("APA"), 5 U.S.C. §§ 701-706. See Beno v. Shalala, 30 F. 3d 1057, 1063 (9th Cir. 1994). In Beno, the Ninth Circuit stated that "§ 1315(a) provides a meaningful standard by which to judge the Secretary's waiver. The statute does not give the Secretary unlimited discretion. It allows waivers only for the period and extent necessary to implement experimental projects which are `likely to assist in promoting the objectives'" of the program at issue. See id. at 1067. But as the Ninth Circuit also noted, a court has no jurisdiction "to review the wisdom" of a state's undertaking or of the Secretary's approval thereof: The APA does not give this court power "to substitute its judgment for that of the agency" but only to "consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgement." See id. at 1073 (quoting Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416

15 (1971)); see also C.K. v. New Jersey, 92 F.3d 171, 181 (3d Cir. 1996). 16 The basis for the Court's review in an APA action is the Certified Administrative 17 record. See Florida Power & Light Co. v. Lorion, 470 U.S. 729, 743-44 (1985) ("[T]he task 18 of the reviewing court is to apply the appropriate APA standard of review to the agency 19 decision based on the record the agency presents to the reviewing court."); Southwest Ctr. for 20 Biological Diversity v. U.S. Forest Service, 100 F.3d 1443, 1450 (9th Cir. 1996) ("Judicial 21 review of an agency decision typically focuses on the administrative record in existence at 22 the time of the decision . . . ."); C.K., 92 F.3d at 179-81; Beno, 30 F.3d at 1064, n.11. 23 The Court may reverse the Secretary's decision only if it is "contrary to law" or 24 "arbitrary and capricious" in that: 25 26 27 28 "the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view -15-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 15 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

or the product of agency expertise." See Beno, 30 F.3d at 1073 (quoting Motor Vehicle Mfrs. Ass'n v. State Farm Ins., 463 U.S. 29, 43 (1983)). The Supreme Court has noted that it will "uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned," Motor Vehicle Mfrs. Ass'n, 463 U.S. at 43 (internal quotation marks and citation omitted), and the Ninth Circuit has also noted that "[t]he legislative history of § 1315(a) also suggests that Congress intended to give the Secretary considerable discretion," Beno, 30 F.3d at 1066, n.19.7 Moreover, to the extent the Secretary's action in this case involves an interpretation of the Secretary's authority to approve a demonstration project, the Court should defer to the Secretary's interpretation. The Secretary has sweeping authority to approve demonstration projects. In PhRMA v. Thompson, 362 F.3d 817, 822 (D.C. Cir. 2004), the D.C. Circuit extended Chevron deference to the Secretary's approval of an amendment to the Michigan state Medicaid plan, reasoning that the comprehensive nature of the Secretary's authority "to review and approve state Medicaid plans" evidenced a congressional "intent that the Secretary's determinations, based on interpretation of the relevant statutory provisions, should have the force of law." Similar circumstances are present here; plaintiffs are challenging the Secretary's approval of an amendment to Arizona's demonstration project. Congress has expressly conferred on the Secretary far-reaching authority to evaluate and approve Medicaid demonstration projects. See 42 U.S.C. § 1315(a) (providing that the Secretary may waive statutory requirements or match non-matchable expenditures "[i]n the case of any experimental, pilot, or demonstration project" which, "in the judgment of the Secretary is

A court's review of whether an agency's decision was arbitrary or capricious is "highly deferential" and "presum[es] the agency action to be valid." Irvine Medical Center v. Thompson, 275 F.3d 823, 830-31 (9th Cir. 2002) (internal quotation marks and citation omitted). "[The] court may not substitute its judgment for the agency's." Fry v. D.E.A., 353 F.3d 1041, 1043 (9th Cir. 2003). The court "must instead presume that the [agency] acted lawfully and so conclude unless [a] thorough inspection of the record yields no discernible rational basis for the agency's action." Davis v. U.S. E.P.A., 348 F.3d 772, 781 (9th Cir. 2003). -16-

7

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 16 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

likely to assist in promoting the objectives" of the program) (emphasis added); 42 U.S.C. § 1315(a)(2)(A) (expenditures are matched "for the period prescribed by the Secretary"). Where Congress has given an agency such broad authority, Chevron deference is appropriate. B. Summary Judgment, Fed. R. Civ. P. 56

Summary judgment is governed by Rule 56 of the Federal Rules of Civil Procedure. Under Rule 56(c), the Court must "grant summary judgment if there is no genuine issue as to any material fact and if the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). Rule 56 "mandates the entry of summary judgment" if the nonmovant "fails to make a showing sufficient to establish the existence of an element essential to that party's case," being that a "failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); see Anderson, 477 U.S. at 247-48. *** Plaintiffs' legal challenges to the Secretary's approval of the Arizona co-payments may be broadly grouped as follows: (1) plaintiffs allege that the Secretary acted outside his statutory authority by permitting the imposition of co-payments in violation of § 1396o and § 1396o-1; (2) plaintiffs further allege that the Secretary should not have approved the demonstration project because it does not "demonstrate anything" and fails to further the purposes of the Medicaid Act. Plaintiffs additionally claim that the Arizona Amended Rule presents a danger to participants in the project, in violation of 42 U.S.C. § 3515b. As will be shown below, plaintiffs' claims lack merit, and summary judgment should be entered for the Secretary. II. THE SECRETARY DID NOT VIOLATE 42 U.S.C. § 1396o OR § 1396o-1 BECAUSE NEITHER APPLIES TO PLAINTIFFS. A. Spry v. Thompson Disposes of Plaintiffs' Claims That Amended Rule R922-711(E) Violates the Copayment Limitations of 42 U.S.C. §§ 1396o and 1396o-1. -17-

26 27 28

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 17 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

In Spry v. Thompson, 487 F.3d 1272 (9th Cir. 2007), the state of Oregon, like Arizona did in this case, sought through a demonstration project to expand medical coverage to needy people who were not eligible for Medicaid ("expansion populations"). Id. at 1274. The Oregon demonstration project included higher premiums and, as in this case, higher copayments for the expansion populations than would be allowable under Medicaid. The Secretary of HHS approved Oregon's demonstration project. For the expansion populations those who were not eligible for Medicaid "the Secretary took the position that no waiver

was needed and neither gave nor denied a waiver for the expansion population." Id. at 1275. Plaintiffs sued, seeking injunctive and declaratory relief to prevent Oregon from requiring them to pay the premiums and co-payments. Id. Both sides moved for summary judgment. Id. The district court granted summary judgment in favor of the plaintiffs on the copayments, and enjoined collection of them based on the absence of a waiver, and granted summary judgment in favor of defendants on the premiums. Id. Both sides appealed. Id. On appeal, the question was whether the Secretary's approval of Oregon's demonstration project, including the mandatory co-payments, exceeded his authority under Section 1115 of the Social Security Act, 42 U.S.C. § 1315(a). The Ninth Circuit determined that it did not, holding that the restrictions on the imposition of co-payments under 42 U.S.C. § 1396o applied only to the categorically needy and medically needy populations who were eligible for Medicaid coverage under a State plan, and not to expansion populations. Id. at 1276. Moreover, while 42 U.S.C. § 1396o(f) limited the waivers of the co-payment provisions for demonstration projects, such limits did not apply to the expansion populations. Id. The court added: "People in the expansion population are not made worse off by inclusion in a demonstration project less favorable to them than to the categorically and medically needy because, without the demonstration project, they would not be eligible for Medicaid at all." Id. In addition, for purposes of determining when a waiver was required under the waiver authority of 42 U.S.C. § 1315, Spry distinguished between the Secretary's "waiver authority" -18-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 18 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

and "expenditure authority," stating that "section 1315 only discusses which `expenditures,' not which individuals for whom the money is expended, are to be `regarded as' being under the state Medicaid plan." Id. at 1277. Thus, an expenditure "being `regarded as eligible' for Medicaid for purposes of calculating hospital reimbursement is not the same thing as an individual being `eligible' for Medicaid benefits." Id. And, such an expenditure would not require a waiver from the Secretary. Spry thus disposes of plaintiffs' contention that the Secretary acted outside his statutory authority by permitting the imposition of copayments in violation of § 1396o and in excess of the limits established by 42 C.F.R. §§ 447.52 and 447.54. Plaintiffs, although poor, are not eligible for Medicaid under Arizona's State plan, and as a result, they are not covered by the copayment restrictions imposed by 42 U.S.C. § 1396o. Plaintiffs make little attempt to distinguish Spry, stating that it does not apply because it concerned coverage of individuals with incomes up to 185 percent of the federal poverty level (apparently contending that Spry cannot apply because the income levels of the plaintiffs in this case are lower), and that the Ninth Circuit did not consider in Spry the impact of the addition of 42 U.S.C. § 1396o-1 or the amendment to § 1396o(f) that resulted from the Deficit Reduction and Tax Relief Acts ("DRA"). Pls' Mot. at 6 n.6. Plaintiffs' contentions, however, are unpersuasive. First, that the plaintiffs in Spry may have had incomes up to 185 percent of the federal poverty level is irrelevant. What was important in Spry was that the plaintiffs were part of an expansion population not eligible for Medicaid, and would not have received coverage absent the demonstration project the reasons for which they were not eligible for Medicaid are not

important. Likewise, in this case, the plaintiffs are also not eligible for Medicaid coverage under the State plan, and are instead receiving benefits through a demonstration project. As in Spry, the reasons for their ineligibility for Medicaid are not important. Second, plaintiffs have misconstrued the impact of 42 U.S.C. § 1396o-1 and the amendment to § 1396o(f) on Spry and on this case. Because the plaintiffs are all individuals -19-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 19 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

who would not be eligible for Medicaid coverage under the Arizona State plan, and would not receive benefits absent the demonstration project at issue in this case, neither § 1396o-1 nor the amendment to § 1396o(f) under the DRA applies to them. Plaintiffs' defined class consists of individuals from two groups: 1) certain nonMedicaid eligible individuals with incomes up to 100% of the federal poverty level, covered as a result of the passage of Arizona's Proposition 204, see AR 0086-AR 0103; A.R.S. § 362901.01; and 2) certain non-Medicaid eligible persons (e.g., childless couples or single individuals) who incur medical expenses such that their income is reduced to 40% of the federal poverty level, who are part of the State's MED program. See AR 00086-AR 0103; A.R.S. § 36-2901.04. For the first group of plaintiffs, who have incomes "not exceeding 100 percent of the poverty line," 42 U.S.C. § 1396o-1 is irrelevant. See § 1396o-1(a)(2) (exempting such individuals from § 1396o-1(a)(1) and (d)). Although plaintiffs contend that "the terms of § 1396o continue to apply," 42 U.S.C. § 1396o-1; Pls' Mem. at 16, because these plaintiffs are not eligible for Medicaid coverage under the Arizona state plan, 42 U.S.C. § 1396o still does not apply to them. While § 1396o limits a state's ability to collect premiums and copayments for certain individuals, it applies only to individuals "who are eligible under the [State Medicaid] plan." 42 U.S.C. §§ 1396o(a), (b). See 42 U.S.C. § 1396o(a) ("the State plan shall provide . . ."); 42 U.S.C. § 1396o(b) ("[t]he State plan shall provide . . .") (emphases added). Plaintiffs do not receive Medicaid benefits under the Arizona Medicaid State plan. Instead, they receive coverage for health care services the Arizona Medicaid State plan for which they are not eligible under

because they are included in an AHCCCS expansion

population, and because the Secretary has exercised his "expenditure authority" under 42 U.S.C. § 1315(a)(2) to permit Arizona to offer expanded health care coverage. See AR 0086 ("expenditure authority" under § 1315(a)(2) "is granted for the eligibility expansion") (emphasis added); AR 0064 ("expenditure authority" under § 1315(a)(2) is granted to -20-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 20 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

"provide Medicaid coverage to individuals over age 18 with adjusted net countable family income at or below 100 percent of the FPL, who are single adults and childless couples and who are not otherwise eligible for such coverage, except through the demonstration project amendment approved January 18, 2001"). Without the Secretary's exercise of this authority, and the State's interest in expanding the services it provides, plaintiffs (or more directly, the State) would receive no funds from the federal government to subsidize their health care. As a result, because plaintiffs are not eligible for Medicaid under the Arizona State plan, and instead receive benefits under the demonstration as AHCCCS expansion populations, section 1396o's limits on cost-sharing provisions do not apply. See Spry, 487 F.3d at 1277 ("The Secretary is correct as a matter of law that no waiver is necessary for expansion populations not eligible for Medicaid, to enable the state to exceed the co-payment and premium limitations applicable to these individuals."). Nor does the amendment to § 1396o(f) change this result. As Spry makes clear, the pre-DRA version of § 1396o(f) that limited waivers of the copayment provisions of the statute did not apply to expansion populations. Spry, 487 F.3d at 1276 ("Subsection (f) of [1396o] limits waivers of the premium and co-payment provisions for demonstration projects. But this limitation on waivers only applies to the mandatory populations `described' under section 1396o(a) or the optional populations addressed by 1396o(b) not

expansion populations."). The amendment to § 1396o(f) did nothing to alter this conclusion. All that amendment did was to add the phrase "and section 1396o-1 of this title," thus requiring consistency with § 1396o-1 in imposing a "deduction, cost sharing, or similar charge." 42 U.S.C. § 1396o(f) ("No deduction, cost sharing, or similar charge may be imposed under any waiver authority of the Secretary, except as provided in subsections (a)(3) and (b)(3) of this section and section 1396o-1 of this title, . . .") (emphasis added). Here, where there is no dispute that § 1396o-1 does not apply to individuals with incomes below 100 percent of the poverty line, the DRA's amendment to § 1396o(f) does not change the outcome of this case that section 1396o's limits on cost-sharing provisions do not apply to -21-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 21 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

expansion populations. See Spry, 487 F.3d at 1276. This reading of the statute is also consistent with language found elsewhere in the Deficit Reduction Act. Section 5002 of the DRA provides: "In determining under subclause (II) the number of the hospital's patient days for such period which consist of patients who (for such days) were eligible for medical assistance under a State plan approved under title XIX, the Secretary may, to the extent and for the period the Secretary determines appropriate, include patient days of patients not so eligible but who are regarded as such because they receive benefits under a demonstration project approved under title XI" (emphasis added). As § 5002 makes clear (and consistent with Spry), individuals who receive benefits only under a demonstration project approved under the Secretary's waiver authority (title XI) are simply not considered to be "eligible for medical assistance under a State plan." Congress characterized patients receiving benefits under a demonstration project as being "not [] eligible" for medical assistance under a state plan "but who are regarded as such because they receive benefits under a demonstration project." DRA § 5002(a). Accordingly, Congress made plain that it considered patients who were part of section 1115 demonstration projects to be "not eligible" for Medicaid. Accord Cookeville Regional Medical Center v. Leavitt, 2006 WL 2787831, * 2 (D.D.C. 2006). With respect to the MED population, to the extent that plaintiffs contend that this population contains individuals whose incomes may exceed 100% of the federal poverty level, a similar analysis applies.8 Plaintiffs contend that the heightened cost sharing allowed by § 1396o-1(a)(1) must occur through a State plan amendment, or, alternatively, while the

Plaintiffs have not met their burden of showing that the MED population in fact contains individuals who fit this description. Section 1396o-1(b)(4) provides that "family income shall be determined in a manner specified by the State for purposes of this subsection." The primary income eligibility requirement for the MED population is that a person must: "Have a family income that does not exceed forty per cent of the federal poverty guidelines after deducting allowable medical expenses." A.R.S. § 36-2901.04(B)(1). It is simply unclear, and plaintiffs provide no further analysis, whether any, and, if so, what part of the MED population may fall into this category. -22-

8

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 22 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Secretary may determine "through waiver to modify limitations on premiums and cost sharing under this section," see § 1396o-1(b)(6)(B), such a modification can occur only through the Secretary's waiver, and not expenditure, authority. Pls' Mem. at 16. These arguments, however, are flawed for at least two reasons. First, plaintiffs have not alleged that this population is other than an expansion population, and have further offered no argument why the reasoning of Spry (that no waiver is necessary for those individuals who are ineligible for Medicaid under a State plan but receive benefits as the result of an expansion demonstration) would not continue to apply to expansion populations under § 1396o-1. Second, to the extent that plaintiffs argue that some fraction of the MED population consists of "families or individuals who are medically needy as described in the Medicaid Act," this fraction would likewise not be subject to the requirements of § 1396o-1. There is nothing in § 1396o-1 that limits the Secretary's approval of demonstration projects for individuals who are not eligible for Medicaid coverage.9 And here, there is no prohibition against Arizona opting to cover such individuals through a demonstration project, rather than choosing to amend its State plan to cover an optional "medically needy" population.10 Further, while plaintiffs appear to contend that any individual who could possibly receive Medicaid coverage under Arizona's Medicaid State plan, must be subject to an amendment to

While plaintiffs cite to legislative history from 1982 in an attempt to bolster their argument that "Medicaid copayments be nominal in amount, and that implementation of copayments through demonstration authority be strictly curbed," Pls' Mem. at 14 n.5, they can cite to nothing in the legislative history of the DRA to support that argument. In fact, the legislative history of § 1396o-1 (section 6041 of the DRA) does not mention demonstration authority at all, and there is thus no indication that it was intended to change that authority; rather, like the statute itself, it mentions the imposition of premiums and cost-sharing only through "Medicaid state plan amendments (rather than waivers)," and, like the state of the law prior to the DRA's passage, leaves open the option of a demonstration project that might cover a population that could potentially receive Medicaid coverage through a State plan amendment. H.R. Conf. Rep. 109-362, 2006 U.S.C.C.A.N. at 129. This is consistent with CMS's proposed rule interpreting this section of the DRA. 73 Fed. Reg. 9727 (Feb. 22, 2008).
10

9

This argument is further addressed in section II.B., below. -23-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 23 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

the State plan to include such individuals, this argument could well have the unfortunate effect of discouraging states from providing health insurance coverage to additional groups of people because they would be unable to do so unless they were willing to adhere to the additional requirements of the federal Medicaid program. In sum, plaintiffs do not distinguish between individuals who receive health care services solely by virtue of a demonstration project authorized by 42 U.S.C. § 1315 and

those individuals who receive services because they are eligible under Arizona's Medicaid State plan. As Spry makes clear, section 1396o's restrictions on cost-sharing apply only to individuals actually eligible for medical assistance (i.e., Medicaid) under the State plan, and not to expansion populations, and the DRA does nothing to change this result. Plaintiffs' claim that § 1396o and § 1396o-1 prohibit Arizona's increased co-payments fails because the charges are imposed only on AHCCCS expansion populations, to whom §§ 1396o and 1396o-1 do not apply.11 on this claim. B. Section 1396o Does Not Apply to Individuals Included in the MED Program. Summary judgment should therefore be entered for the Secretary

Plaintiffs contend that some class members "are families or individuals who are 17 medically needy as described in the Medicaid Act" and are "protected by the nominality and 18 waiver requirements of 42 U.S.C. § 1396o(b)." Pls' Mem. at 25-29. Plaintiffs do not allege 19 that any individuals included in the MED program fall into any of the categorically needy 20 groups; nor do they contend that the individuals included in the MED program fall into any 21 groups that must be covered under a State plan. Instead, they argue only that certain 22 23 24 25 26 27 28 -24Indeed, because Arizona could well decide not to provide coverage to these individuals at all, or to impose exactly the same or even higher copayments were the Secretary's approval of the copayments determined to be unlawful by the Court, it is merely speculative that plaintiffs' alleged injury having to pay copayments greater than those allowed under the Medicaid statute would be redressed by a favorable decision, and plaintiffs lack standing to pursue their claims. See, e.g., Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561 (1992).
11

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 24 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

individuals included in the MED program could fall within the category of "medically needy" individuals that a state may, at its option, include within its State plan. Even if this were true, however, section 1396o(b) does not apply to these individuals because they are not eligible for Medicaid coverage under the Arizona State plan. Plaintiffs contend that any MED families or households who "fit within the Title XIX description of the medically needy" are protected by the Medicaid Act's cost sharing provisions. Pls' Mem. at 28. Plaintiffs do not, however, point to any evidence within the certified Administrative Record that shows that this is, in fact, the case, and also do not attempt to detail which (if any) MED families or households would "fit within the Title XIX description of the medically needy," which is their burden.12 Further, even if it were the case that certain of the MED population could fit within the Title XIX description of "medically needy," Arizona has opted not to include a "medically needy" program as part of its State plan, so such individuals are not eligible for Medicaid coverage under Arizona's State plan, and it would thus make no difference in this case. Plaintiffs cite to 42 U.S.C. § 1396o(b) to argue that families and households within the MED population who fit within the Title XIX description of the medically needy "are

Plaintiffs rely on an email dated June 28, 2004 from Joan Peterson, an HHS staffer, as evidence that individuals in the MED program are covered under the State plan. See Katz Suppl. Decl., Ex. 4. The purpose of this email was to discuss subsection (D) copayments in response to new allegations that certain plaintiffs were within the populations affected by subsection (D), not to discuss subsection (E) copayments relevant to the MED program. It is undisputed that the Arizona State plan specifically states that Arizona is opting not to include a "medically needy" program as part of its State plan. Moreover, because this email is not in the certified Administrative Record and was therefore not before the Secretary when he made the decision to approve the copayments, it should not be considered by the Court. See Wilderness Soc'y v. Dombeck, 168 F.3d 367, 377 (9th Cir. 1999) ("Review of agency action is limited to the record considered and relied upon by the agency at the time a decision is made."). Nor do plaintiffs' descriptions of AHCCCS descriptions of the MED program and the individuals that it covers show that any of those individuals "fit within the Title XIX description of the medically needy." Pls' Mem. at 27-28. A statement by AHCCCS to its contractors, for example, that "MEDs may have a categorical link to a Title XIX category; however, their income exceeds the limits of the Title XIX category," id., in fact stands for the opposite of what plaintiffs are trying to prove if the MEDs' income exceeds the limits of the Title XIX category, they would not be eligible for coverage under that category. -25-

12

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 25 of 36

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

protected by the Medicaid Act's cost sharing provisions." Id. at 28. This argument, however, is incorrect. Section 1396o(b) provides: "The State plan shall provide that in the case of individuals other than those described in subparagraph (A) or (E) of section 1396a(a)(10) of this title who are eligible under the plan: . . ." 42 U.S.C. § 1396o(b) (emphasis added). By its plain language, therefore, and like the rest of § 1396o, § 1396o(b) applies only to those individuals who are eligible for Medicaid coverage under the State plan. Here, Arizona has opted not to cover medically needy populations within its Medicaid State plan; as a result, the plaintiffs in this case receive benefits only under the demonstration project, and are not eligible for coverage under the Arizona State plan. As a result, § 1396o(b) does not apply to them. Accord DRA § 5002(a). This reading of § 1396o(b) is also consistent with Spry, in which the Ninth Circuit read the limitation on waivers of the copayment provisions for demonstration projects to apply only to § 1396o(a) for mandatory populations and § 1396o(b) for optional populations. Spry, 487 F.3d at 1276 ("this limitation on waivers only applies to the mandatory populations `described' under section § 1396o(a) or the optional populations addressed by 1396o(b) not expansion populations"). In fact, the

language of § 1396o(b) is not on its face limited to optional populations, and refers to populations who are eligible under the plan other than the mandatory populations. See § 1396o(b). As a result, the Spry court's determination that the waiver limitation of § 1396o(f) covers only § 1396o(b) optional populations leads to the conclusion that expansion populations are not covered under § 1396o(b). Cf. Pls' Mem. at 28; Spry, 487 F.3d at 1276. Likewise, here, where the MED population is eligible for benefits only under an expansion demonstration project, a waiver is not required. Plaintiffs ignore the fact that Arizona is not required to provide them benefits under its State Medicaid plan. Indeed, were the Secretary's approval of the increased copayments declared unlawful by this Court, there is nothing that would require Arizona to provide any coverage to these populations at all. See, e.g., A.R.S. § 36-2919 ("If at any time federal monies . . . are denied, not renewed or become unavailable for any reason the provisions of -26-

Case 2:03-cv-02506-EHC

Document 148

Filed 04/22/2008

Page 26 of 36

1 2 3 4 5 6 7

this article relating to the operation of the system are suspended and the director shall notify each provider of that fact."). Nor, if Arizona were to decide to provide coverage to these populations despite the lack of federal Medicaid monies, is there anything that would prevent Arizona from imposing the same or even higher copayments upon these individuals.

Summary judgment should be entered for the Secretary on this claim. C. Forcing Arizona to Comply With Otherwise Inapplicable Statutory Provisions Threatens the Viability of Demonstration Projects who are not eligible

The application of 42 U.S.C. § 1396o or § 1396o-1 to plaintiffs 8 9 expansion populations 10 11

for Medicaid coverage under the Arizona State Medicaid plan, but, rather, are part of would threaten all expansions of coverage to non-Medicaid eligible

individuals which might include cost-sharing. Under such application, a State's praiseworthy attempt to provide health care coverage to poor, non-Medicaid eligible individuals could 12 inevitably bind a State to a host of inapplicable Medicaid provisions in providing that 13 coverage and might well lead the State to abandon the provision of any expansion coverage 14 at all. Not all State plan requirements need apply to expansion populations because their 15 health care coverage (and any federal financial participation provided for such coverage) is a 16 bonus that should not be deterred by the imposition of inapplicable Medicaid provisions. By 17 adding to the demonstration project certain burdens that Congress never intended to require 18 of the States, plaintiffs' suggested application of § 1396o and § 1396o-1, if accepted, would 19 significantly discourage any experimentation in providing some coverage to otherwis