Free Motion for Summary Judgment - District Court of Arizona - Arizona

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ELLEN SUE KATZ, AZ Bar. No. 012214 WILLIAM E. MORRIS INSTITUTE FOR JUSTICE 202 E. McDowell Rd., Suite 257 Phoenix, AZ 85004 (602) 252-3432 [email protected] JENNIFER L. NYE, AZ Bar No. 019230 ARIZONA CENTER FOR DISABILITY LAW 100 N. Stone Ave., Suite 305 Tucson, AZ 85701 (520) 327-9547 [email protected] JANE PERKINS NATIONAL HEALTHnd LAW PROGRAM 211 N. Columbia St., 2 Floor Chapel Hill, NC 27514 (919) 968-6308 [email protected] Attorneys for Plaintiffs UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA ) ) ) ) ) ) ) ) ) ) ) ) Plaintiffs, ) ) v. ) ) Anthony Rodgers, Director of the Arizona ) ) Health Care Cost Containment System; and Michael O. Leavitt, Secretary of the ) ) United States Department of Health and ) Human Services, in their official ) ) capacities, ) ) Defendants. ) ) Sharon Newton-Nations; Manuela Gonzalez; Cheryl Bilbrey; Donald McCants; Hector Martinez; Anne Garrison; Dawn House; Dana Franklin; Edward Bonner; D.H.; Jack Baumhardt; Manuel Esparza; and Patricia Jones, on behalf of themselves and all others similarly situated,
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No. CIV 03-2506 PHX EHC

MEMORANDUM IN SUPPORT OF PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

(Assigned to Hon. Earl H. Carroll)

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INTRODUCTION This class action involves Arizona residents who live below the federal poverty level and receive medical coverage through Arizona's Medicaid program, the Arizona Health Care Cost Containment System ("AHCCCS"). These persons have serious,

ongoing medical conditions including high blood pressure, diabetes, respiratory ailments, depression, epilepsy, HIV, and spinal cord injury. To stabilize their medical conditions and prolong their lives, they need to go to the doctor and take prescribed medications. Since they were added to AHCCCS in 2001, the class members have shared in the cost of their medical care by paying copayments, monetary amounts paid to the health care provider at the time of service. For example, they paid a $1.00 copayment for each doctor visit. Arizona Administrative Code ("A.A.C.") R9-22-711(B). As of October 1, 2003, Defendant Rodgers, with retroactive approval from the federal Defendant, imposed higher copayments on the class; for example, a $5.00 copayment for each doctor visit. A.A.C., Amended Rule, R9-22-711(E). In another change from prior policy, "[t]he provider may deny a service if the member does not pay the required copayment." Id. When it implemented the changes, AHCCCS acknowledged that it was questionable whether the copayments would generate cost savings. Notably, the greatest potential for savings was based not upon the estimated revenue from the payment of copayments but instead on the number of people who would have to forego care because they were unable to pay the copayments. Plaintiffs' Statement of Undisputed Facts in Support of Opposition to Defendant Thompson's Motion for Summary Judgment and in Support of Plaintiffs' Motion for Summary Judgment, Fact No. 17, filed on August 27, 2004, ("Pls.' Fact") (Docket No. 88); AHCCCS, Cost Sharing Options at 2, 3, 5, 8 (submitted October 1, 2002, revised March 4, 2003), Ex. 2 to Declaration of Ellen Sue Katz filed on August 27, 2004) ("Katz Decl.") (Docket No. 90). As a result of the copayment policies, AHCCCS participants had to make difficult choices between paying for needed medical services and other basic necessities. Some used relatives' prescriptions or stretched the quantity of their own medicines by taking

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fewer pills than prescribed. Others did not get needed care. emergencies resulted. For example: ·

Illnesses and medical

Patricia Jones, who is disabled from a spinal injury and suffers from a heart condition and asthma, went without meals or ate one meal a day to meet her copayments for medications (ten in number) and doctor visits (usually five per month). Appendix I, Ex. 12, Jones Decl. ¶¶ 4-5. 1 Virgil Alwood could not pay copayments associated with his diabetes, gastro-intestinal problems and high blood pressure and required emergency room treatment. Appendix II, Ex. 1, Alwood Decl. ¶¶ 4-5. D.H., who has HIV and epilepsy, was unable to pay the copayments and put off seeing his doctor for over three months. Appendix I, Ex. 9, D.H. Decl. ¶ 4. Dana Franklin, who has diabetes and high blood pressure, missed his prescribed medications and became ill. Appendix I, Ex. 8, Franklin Decl. ¶ 3. See also Appendix I, Ex.7, House Decl. ¶¶ 4-5 (plaintiff with Addison's Disease, diabetes and hypothyroidism did not have money for prescription copayments for almost two months and became ill).

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Pls.' Fact Nos. 43-45. Arizonans' experiences with these heightened copayments are consistent with the conclusions of over 35 years of substantial research finding that copayments keep low-income people from obtaining essential medical care and force them to choose between health care and other necessities of life. Pls.' Fact Nos. 32, 46; Second Declaration of Leighton Ku, Ph.D., M.P.H., ¶¶ 9, 18 filed with this Memorandum ("Second Ku Decl."). On behalf of a class of similarly situated individuals, thirteen low-income Arizonans challenged the copayment requirements as violating the Social Security Act. On March 19, 2004, the Court certified the class, defined as: "All Arizona Health Care Appendices I and II (Docket Nos. 15-16) contain declarations in Support of Plaintiffs' Motion for Preliminary Injunction and Motion for Class Certification, previously filed with the Court on January 26, 2004, and are incorporated by reference into Plaintiffs' Motion for Summary Judgment, Plaintiffs' Statement of Undisputed Facts filed on August 27, 2004, Plaintiffs' Supplemental Statement of Facts and this Memorandum.
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Cost Containment System eligible persons in Arizona who have been or will be charged copayments pursuant to Arizona Administrative Code Amended Rule R9-22-711(E)." 221 F.R.D. 509 (D. Ariz. 2004). On April 21, 2004, the Court preliminarily enjoined implementation of A.A.C. R922-711(E), finding that the plaintiffs had demonstrated irreparable injury; the balance of hardships tipped sharply in their favor; the plaintiffs were likely to succeed on the merits; and the public interest was in plaintiffs' favor. 316 F. Supp. 2d 883 (D. Ariz. 2004). The parties filed cross-motions for summary judgment in 2004. The case was stayed pending the Ninth Circuit Court of Appeals decision in Spry v. Thompson, which issued on May 21, 2007. Spry, 487 F.3d 1272 (9th Cir. 2007). Because so much time had elapsed, this Court requested that the parties submit new motions for summary judgment. In this motion, the plaintiff class again asks the Court to grant them summary judgment. They ask the Court to find that Defendants violated federal law and the United State Constitution and permanently enjoin Defendants Rodgers and Leavitt from: (1) imposing copayments on the plaintiff class that exceed nominal amounts and allowing medical services to be denied to class members who are unable to pay a copayment; (2) evading congressionally mandated requirements by continuing to label the approval as an experiment when it is not; and (3) implementing copayment projects that do not comply with the federal protections for human experimentation subjects. They also ask the Court to permanently enjoin Defendant Rodgers from using untimely and inadequate notices that do not provide sufficient information to allow individuals to know whether they are being correctly subjected to the copayments. I. STANDARD OF REVIEW A. The Summary Judgment Standard

Rule 56 of the Federal Rules of Civil Procedure provides that a moving party is entitled to summary judgment, if based on the pleadings, depositions, answers to interrogatories and any affidavits submitted, there is no "genuine issue as to any material

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fact and that the moving party is entitled to a judgment as a matter of law." If a party fails to establish the existence of an essential element of its case on which it has the burden of proof, the other party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Whether a fact is material is determined for summary judgment purposes by looking to the relevant substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 247-48, 254 (1986). A disputed fact is material if it might affect the outcome of the suit under the governing law. Id. The summary judgment inquiry is whether there exists a material factual dispute that requires the trier of fact to resolve the differing versions of the truth at trial. Id. at 248-49. B. The Administrative Procedure Act

The Administrative Procedure Act ("APA") provides for judicial review of the actions of federal agencies. 5 U.S.C. §§ 701-706. The APA provides that a reviewing court may "hold unlawful and set aside" agency actions that are "in excess of statutory jurisdiction, authority or limitations" or that are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Id. at § 706(2)(A), (C). When a court reviews an agency's construction of a statute, the court must first address whether Congress spoke directly to the question at issue. "If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 842-43 (1984). An agency decision to approve a demonstration project under § 1115 of the Social Security Act, 42 U.S.C. § 1315, is reviewable under the APA, as is the determination that a project does not pose unnecessary risks to human participants. Beno v. Shalala, 30 F.3d 1057, 1067, 1071 (9th Cir. 1994). The

administrative record must show that the Secretary of the Department of Health and Human Services ("DHHS") considered the factors Congress intended it to consider or the decision will be reversed. Id. at 1073-76. II. A. BACKGROUND

The Federal Medicaid Program

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Congress established the Medicaid program under Title XIX of the Social Security Act. See 42 U.S.C. §§ 1396-1396v. States do not have to participate in Medicaid. If a state does participate, however, "it must comply with all provisions of the federal Medicaid statute and implementing regulations, except insofar as individual requirements may be waived by the federal government." Newton-Nations v. Rodgers, 316 F. Supp. 2d 883, 889 (D. Ariz. 2004) (quoting J.K. v. Dillenberg, 836 F. Supp. 694, 696 (D. Ariz. 1993). To participate in Medicaid and receive federal funding, the state must operate its program through a state plan which has been submitted to and approved by the Secretary of DHHS. See 42 U.S.C. § 1396. The purpose of the state plan is to define the population groups who are eligible for Medicaid and the scope of benefits that will be covered. Arizona participates in the Medicaid program. See A.R.S. § 36-2931(13). The Arizona Health Care Cost Containment System is Arizona's Medicaid program. A.R.S. §§ 36-2901-36-2972. DHHS granted the State permission to implement AHCCCS as a demonstration project in 1982, pursuant to § 1115 of the Social Security Act, 42 U.S.C. § 1315(a) (authorizing "experimental, demonstration or pilot" projects). The Medicaid Act requires the state plan to cover certain population groups and gives the option to cover others. See 42 U.S.C. § 1396a(a)(10). The state plan must cover (i.e., provide Medicaid to) the population groups described in 42 U.S.C. § 1396a(a)(10)(A)(i) (the "mandatory categorically needy"), and it may cover the population groups described in § 1396a(a)(10)(A)(ii) (the "optional categorically needy"). The categorically needy populations are comprised of families with dependent children, pregnant women, and people who are aged, blind or disabled whose incomes are below state-set eligibility levels. Id. The state plan may also cover the "medically

needy." These are individuals who fit within a categorical group (i.e., families, pregnant women, aged, blind, or disabled); however, their incomes exceed the categorical income eligibility levels. These individuals must "spend down" to eligibility by incurring

medical expenses sufficient to bring their incomes to a level that is below a state-set

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medically needy eligibility level. Id. at §§ 1396a(a)(10)(C), 1396a(a)(17); see also 42 C.F.R. § 435.831. In a medically needy program, the spend down amount operates as a medical expense deductible, which must be incurred on medical expenses before the individual becomes Medicaid-eligible. 1. The Federal Provisions

The Medicaid Act allows states to use copayments but strictly regulates their use. Congress added substantive cost sharing provisions to the Medicaid Act in 1982. See Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, § 133 (adding 42 U.S.C. § 1396o). Recently, it authorized states to employ additional cost sharing options. See Deficit Reduction Act of 2005, Pub. L. No. 109-171, §§ 6041-43 (adding 42 U.S.C. § 1396o-1 and amending § 1396o); Tax Relief and Health Care Amendments of 2006, Pub. L. No. 109-432, § 405 (amending § 1396o-1). The Medicaid Act allows states to use copayments as follows: States may impose copayments through two separate statutory provisions, 42 U.S.C. §§ 1396o and 1396o-1. Under either option, some services are generally

exempted from copayments, including services furnished to persons under age 18, pregnancy-related services, services for institutionalized persons, emergency services, and hospice care. 42 U.S.C. §§ 1396o(a)(2), 1396o(b)(2), 1396o-1(b)(3)(B), 1396o1(c)(1)(B) (concerning prescription drugs). Moreover, nothing in these provisions

prevents a state from imposing copayments in a more limited fashion than is described in the statute. See Id. at § 1396o-1(b)(C). Under § 1396o, states are precluded from imposing copayments unless they are "nominal" in amount. 42 U.S.C. § 1396o(a)(3) (regarding categorically needy

"individuals described in § 1396a(a)(10)(A) or (E)(i)") and § 1396o(b)(3) (regarding "individuals other than those described in § 1396a(a)(10)(A) or (E)(i)"). Sections

1396o(a)(3) and 1396o(b)(3) incorporate the definition of nominal contained in regulations in effect on July 1, 1982. Id. Pursuant to these regulations, which remain in effect today, copayments may range from $.50, when the Medicaid payment for the

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service is $10.00 or less, up to a maximum of $3.00, when the Medicaid payment for the service is $50.01 or more. 42 C.F.R. § 447.54(a)(3). Section 1396o also mandates that "no provider participating under the State plan may deny care or services to an individual eligible for such care or services under the plan on account of such individual's inability to pay a deduction, cost sharing, or similar charge." 42 U.S.C. § 1396o(e). In § 1396o, Congress approved two ways for states to charge copayments that are not nominal. First, the Act provides that cost sharing . . . of up to twice the nominal amount established for outpatient services may be imposed by a State under a waiver granted by the Secretary for services received at a hospital emergency room if the services are not emergency services . . . and the State has established to the satisfaction of the Secretary that individuals eligible for services under the plan have actually available and accessible to them alternative sources of nonemergency, outpatient services. 42 U.S.C. §§ 1396o(a)(3) and 1396o(b)(3). Second, in 42 U.S.C. § 1396o(f), Congress establishes strict requirements under which DHHS may waive nominal copayments: 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, unless such waiver is for a demonstration project which the Secretary finds after public notice and opportunity for comment­ (1) (2) (3) will test a unique and previously untested use of copayments, is limited to a period of not more than two years, will provide benefits to recipients of medical assistance which can reasonably be expected to be equivalent to the risks to the recipients, is based on a reasonable hypothesis which the demonstration is designed to test in a methodologically sound manner, including the use of control groups of similar recipients of medical assistance in the area, and is voluntary, or makes provision for assumption of liability for preventable damage to the health of recipients of medical assistance resulting from
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(4)

(5)

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involuntary participation. 42 U.S.C. § 1396o(f). In the Deficit Reduction Act of 2005 and the Tax Relief and Health Care Amendments of 2006, Congress expanded states' options to use copayments, affecting both the populations that can be subjected to copayments and the copayment amounts that can be charged. A new provision, 42 U.S.C. § 1396o-1, authorizes states generally to increase copayments, with additional options for prescription drugs and nonemergency use of the emergency room. Subject to crucial limitations, "a State, at its option and through a state plan amendment, may impose premiums and cost sharing for any group of individuals (as specified by the State). . . ." 42 U.S.C. § 1396o-1(a)(1). Under this option, the state can impose copayments that are not nominal. For example, for individuals whose family incomes are 100-150 percent of the federal poverty level, the state can establish the copayment at up to 10 percent of the service cost (capped at five percent of family income). Id. at § 1396o-1(b)(1)(B). For individuals whose family incomes exceed 150 percent of the federal poverty level, the state can impose a copayment of up to 20 percent of the cost of a drug that is not on the state's preferred drug list (capped at five percent of family income). Id. at § 1396o-1(c)(2)(A). If the state proceeds under §1396o-1, it may allow health care providers to condition the provision of services on the payment of the copayment. Id. at § 1396o-1(d)(2). However, these options are subject to restrictions. These options do not apply to individuals who are living below the federal poverty level. Specifically, "in the case of an individual whose family income does not exceed 100 percent of the poverty line," the state must employ only the nominal copayments established under § 1396o. 42 U.S.C. § 1396o-1(a)(2)(A). In addition, the state must not allow health care providers to condition the provision of services on the payment of a copayment when the individual's family income does not exceed the federal poverty level. Id. § 1396o-1(a)(2)(A) (stating that § 1396o-1(d)(2) shall not apply to this population group).

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The Secretary, "through waiver," can allow a state to modify these limits on copayments. Id. at § 1396o-1(b)(6)(B). Notably, however, when it added § 1396o-1, Congress amended § 1396o(f) to provide that no copayments may be imposed under "any waiver authority of the Secretary," except as provided in subsections 1396o(a)(3) and (b)(3) and section 1396o-1, unless such waiver is for a demonstration project which the Secretary finds, after public notice and opportunity for comment, will meet the five tightly circumscribed criteria set forth in § 1396o(f). These criteria include that the project will test a unique and untested use of copayments and be voluntary or make provision for assumption of liability for preventable damage to the health of recipients resulting from involuntary participation. See 42 U.S.C. § 1396o(f) (as amended by Deficit Reduction Act of 2005). Another relevant federal law concerns human experimentation protections. 42 U.S.C. § 3515b. This provision prohibits the Secretary of DHHS from using funds appropriated to the Department to pay for any program which is of an experimental nature, or any other activity involving human participants, which is determined by the Secretary or a court of competent jurisdiction to present a danger to the physical, mental, or emotional well-being of a participant of such program, without the written informed consent of each participant. Finally, the federal law contains due process protections for Medicaid recipients. See Due Process Clause of the United States Constitution; 42 U.S.C. §1396a(a)(3). These provisions require individualized written notice and an opportunity for a hearing when coverage is reduced or denied.
B.

The AHCCCS Policies

In November 2000, the citizens of Arizona passed a voter initiative, Proposition 204, expanding AHCCCS to cover all persons who have incomes below the 100 percent federal poverty level. 2 As a result, the legislature enacted A.R.S. § 36-2901.01, which As of April 1, 2008, for example, the poverty level is $10,404 for an individual, $14,004 for a couple, and $17,604 for a family of three. Ex. 16 to Katz Suppl. Decl.
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entitles these persons to AHCCCS coverage. 3 Pls.' Fact No. 3. In 2001, Arizona also expanded AHCCCS to cover the participants in a previously state-funded program, the Medical Expense Deduction ("MED") program. A.R.S. §§ 362901.04 and 36-2901(6)(a)(v). The MED program covers extremely medically indigent individuals and families who incur medical expenses sufficient to reduce their monthly incomes to below 40 percent of the federal poverty level. Ex. 13 to Katz. Decl. Pls.'

Fact Nos. 4-5. In 2001, DHHS granted Arizona permission to amend its demonstration project to include these two groups. Pls.' Fact No. 6. Individuals from these groups form the defined class in this case. Since 2001, the class members have been paying copayments. Prior to October 1, 2003, Defendant Rodgers imposed the following copayments on them and most other AHCCCS beneficiaries: Doctor's visit, including any x-ray/laboratory services associated with the visit: Non-emergency surgery: Non-emergency use of the emergency room: $1.00 per visit $5.00 per visit $5.00 per visit

A.A.C. R9-22-711(A). In addition, AHCCCS-participating health care providers were prohibited from denying care or services on account of an individual's inability to pay the copayment. A.A.C. R9-22-711(B). Pls.' Fact No. 8. During its 2002 session, the legislature required AHCCCS to submit a report that would identify possible cost sharing measures. Laws 2002, Chap. 327. The AHCCCS Director's report, Cost Sharing Options, concluded that: (1) increased copayments would not provide a direct fiscal benefit to the state since AHCCCS does not collect the Proposition 204 also prohibits enrollment caps and provides that the legislature can only change financial eligibility "to a percentage of the federal poverty guidelines that is even more inclusive." A.R.S. § 36-2901.01(A). The Arizona Constitution, Article IV, Part I, Section I, Subsections 6(A) and (B), provides that the governor cannot veto and the legislature cannot repeal an initiative that has been approved by a majority of the votes cast.
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copayments (providers do); (2) collecting the copayments would add new administrative costs at the health plan or provider level; (3) increased copayments would not increase revenue to the state in the short term and any long term benefit would depend on whether provider collection of copayments was sufficient to allow a future offset in pay rates to providers; and (4) for the state to generate revenue that merited an increase in copayments, it would need to be able to refuse health care services altogether if the copayment were not paid. AHCCCS, Cost Sharing Options at 2, 3, 5, 8 (submitted October 1, 2002, revised March 4, 2003), Ex. 2 to Katz Decl. Pls.' Fact No. 17. In 2002, the legislature called on the AHCCCS Director to implement cost sharing. A.R.S. § 36-2903.01(D)(4). It did not, however, demand that AHCCCS impose any specific type or amount of copayment or require AHCCCS to implement a policy to deny medical care to persons unable to pay the copayments. Pls.' Fact No. 9.

Thereafter, AHCCCS proposed the copayments in A.A.C., Amended Rule, R9-22711(E). In May 2003, AHCCCS requested permission from DHHS to increase the copayments. Pls.' Fact No. 10. Letter from Phyllis Biedess, Director, AHCCCS, to Joan Peterson, Project Officer, DHHS (May 2, 2003) (Def. Thompson's Administrative Record ("AR") 00058-63 filed on May 21, 2004, Docket No. 63). DHHS responded that AHCCCS did not need to amend its state plan or obtain a waiver to increase the copayments. Pls.' Fact No. 11; Letter from Joan Peterson, Project Officer, DHHS, to Lynn Dunton, Deputy Director, AHCCCS (June 17, 2003) (Def. Thompson's AR 0005457). The information on cost sharing could be added to the financial operational

protocol. Id. The operational protocol is a document, prepared by the State and approved by DHHS, that represents all policies and operating procedures applicable to a demonstration project. Thereafter, on October 1, 2003, AHCCCS published a final rule imposing copayments on MED participants with incomes below 40 percent of the federal poverty

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level and non-disabled, childless adults with incomes below the federal poverty level as follows: Generic prescription, or brand prescription where no generic is available: Brand name prescription when generic is available: Non-emergency use of the emergency room: Physician office visit: $4.00 per prescription

$10.00 per prescription

$30.00 per visit $ 5.00 per visit.

A.A.C., Amended Rule, R9-22-711(E). The rule also states: "The provider may deny a service if the member does not pay the required copayment." R9-22-711(E). Plaintiffs' Fact Nos. 12-13. It is these rules that the class challenges. 4 In 2006, AHCCCS submitted a Section 1115 demonstration project request to DHHS, which was approved for five years to begin on October 27, 2006. DHHS again approved the copayments set forth in R9-22-711(E). DHHS did not require the State to use or implement the copayment through a state plan amendment or a waiver. Pls.' Supplemental Statement of Facts No. 51; Ex. 16 to Katz Supp. Decl. III. ARGUMENT A. Plaintiffs are Entitled to Summary Judgment because Amended Rule R9-22-711(E) Violates the Copayment Limitations of 42 U.S.C. §§ 1396o and 1396o-1.

Since this case was filed, Congress has amended 42 U.S.C. ' 1396o and added ' 1396o-1 to the Medicaid Act. See Deficit Reduction Act of 2005, Pub. L. No. 109-171, Plaintiffs' Complaint also challenged the $5.00 copayment imposed for nonemergency use of the emergency room, see A.A.C. R9-22-711(D). In response, CMS informed AHCCCS that it could only charge the enhanced copayment if AHCCCS obtained a "waiver of nominality," which it had not done. Rather than file for the waiver, Defendant Rodgers repealed that $5.00 copayment in October 2004, and the current $1.00 copayment complies with federal law. Pls.' Supplemental Statement of Facts Nos. 48-49.
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'' 6041-43, 120 Stat. 81-87 (2006); Tax Relief and Health Care Amendments of 2006, Pub. L. No. 109-432, ' 405, 120 Stat. 2996-98 (2006). As amended, the Medicaid Act specifically addresses the issues in this case. Congress has provided, first, that

individuals with incomes below the federal poverty level can be charged only nominal copayments and, second, that Medicaid-participating providers not deny services to such individuals who are unable to pay a copayment. In 42 U.S.C. ' 1396o-1, Congress has generally allowed States to impose heightened cost sharing "for any group of individuals (as specified by the State)....@ 42 U.S.C. ' 1396o-1(a)(1) (emphasis added). These heightened copayments can be

established by "a State, at its option and through a State plan amendment." Id. (emphasis added). In an exception to this general rule, however, Congress makes it absolutely clear that states must continue to impose only nominal copayments "in the case of an individual whose family income does not exceed 100 percent of the poverty level applicable to a family of the size involved." Id. § 1396o-1(a)(2)(A). 5 The statute also prohibits Medicaid-participating providers from denying services to individuals whose

This is not the first time that Congress has called upon the states and the Secretary to limit copayments to nominal amounts. In 1982, when Congress removed the substantive cost sharing provisions from section 1396a and placed them in section 1396o, it noted that "with one exception, . . . all copayments must be nominal in amount. . . . The Secretary may not redelegate the definition of `nominality' to the States. . . . H. R. Rep. No. 97-760, Tax Equity and Fiscal Responsibility Act of 1982, Pub. L. No. 97-248, as reprinted in 1982 U.S.C.C.A.N. 781, 1215-1216. In its report on copayments, the U.S. House of Representatives Committee on Energy and Commerce also noted: [A] large number of States have sought waivers of current law relating to the imposition of cost-sharing under the demonstration authority at section 1115 of the Act. The Committee believes that this bill gives the States sufficient flexibility in this regard to make further exercise of the Secretary=s demonstration authority unnecessary. H. R. Rep. No. 97-757 (1982), Report on Medicaid and Medicare Part B Budget Reconciliation Amendments of 1982 (August 17, 1982). Clearly, Congress intended that Medicaid copayments be nominal in amount, and that implementation of copayments through demonstration authority be strictly curbed.

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incomes are at or below the federal poverty level if they are unable to pay the copayment (although the copayment does remain the liability of the individual to pay). Id. Admittedly, the new cost sharing provision does limit "the authority of the Secretary through waiver to modify limitations on premiums and cost sharing under this section." Id. at § 1396o-1(b)(6)(B). However, this provision contains two distinct limitations. First, Congress authorized the Secretary to act only through a waiver and not through the purportedly separate and independent "expenditure authority" that the Secretary described in his original motion for summary judgment in this case. Second, Congress only authorized waivers of the cost sharing provisions of "this section," i.e. § 1396o-1. But for individuals with incomes below 100 percent of the poverty level, § 1396o-1 is not the applicable section. Rather, Congress specifically provided that as to such individuals "section [1396o] and [1396a(a)(10)(B)] shall continue to apply. . . ." As a final measure, Congress returned to the existing cost sharing waiver authorization in ' 1396o(f) and amended it to apply to instances where states want to impose copayments that do not adhere to either sections 1396o or 1396o-1: No deduction, cost sharing, or similar charge may be imposed under any waiver authority of the Secretary, except as provided in subsection (a)(3) and (b)(3) of this section and section 1396o-1 of this title, unless such waiver is for a demonstration project which the Secretary finds after public notice and opportunity for comment-(1) will test a unique and previously untested use of copayments, . . . . 42 U.S.C. ' 1396o(f). To determine the significance of these changes, Awe begin with the language employed by Congress.@ Vance v. Hegstrom, 793 F.2d 1018,1023 (9th Cir. 1986). "The language of a statute is the best and most reliable index of its meaning, and where language is clear and unequivocal it is determinative of its construction." Monte Vista Lodge v. Guardian Life Ins. Co. of Am., 384 F.2d 126, 128 (9th Cir. 1967). The language of the statute is clear. Section 1396o describes the cost sharing

protections that state plans "shall" provide if they are going to impose cost sharing on

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state plan populations. Section 1396o(a) requires nominal copayments for "individuals described in section 1396a(a)(10)(A) or (E)(i)" [categorically needy populations] and section 1396o(b) requires nominal copayments for "individuals other than those described in section 1396a(a)(10)(A) or (E)(i)." See 42 U.S.C. § 1396o. The newly added ' 1396o-1(a)(1) allows a state, at its option and only through a State plan amendment, to impose heightened copayments for any group of individuals that the State may specify. However, for members of any such group who have incomes below 100 percent of the poverty level, § 1396o-1(a)(2)(A) provides that the terms of ' 1396o continue to apply. Thus, the copayment must be nominal in amount; a service cannot be denied because of an inability to pay the copayment. If a state wants to deviate from these cost sharing provisions, it must do so pursuant to a waiver that meets the five tightly circumscribed criteria of § 1396o(f). 6 The Medicaid Act has been violated by Defendants Rodgers and Leavitt in this case. Defendant Rodgers seeks to impose heightened copayments on two groups of individuals with incomes below 100 percent of the federal poverty levelBchildless, nondisabled adults and medical expense deduction populations. He has obtained the federal Defendant=s permission. However, that authorization was not in a permissible form. It was not included in a state plan amendment. Nor was it given pursuant to a

demonstration project waiver which the Secretary found, after public notice and opportunity for comment, would meet the five tightly circumscribed criteria for approval. Therefore, summary judgment should be granted to plaintiffs.

Spry v. Thompson does not and cannot alter this conclusion. Spry concerned coverage of individuals with incomes up to 185 percent of the federal poverty level. The Spry court concluded that there were Medicaid recipients, including the plaintiffs before that court, who were not covered by the language of either § 1396o(a) or (b). 487 F.3d at 1279. However, that court was never asked to consider the impact of the addition of §1396o-1 or the amendment to § 1396o(f) accomplished by the Deficit Reduction and Tax Relief Acts. Whatever the scope of 1396o before its amendment, § 1396o-1 specifically applies to "any group of individuals" specified by the State. The plaintiff class in this case is certainly such a group.
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B.

Plaintiffs are Entitled to Summary Judgment because the Challenged Copayments do not "Demonstrate" Anything.

Section 1115 only authorizes "experimental, pilot, or demonstration" projects. 42 U.S.C. § 1315(a). It is axiomatic that any attempt to interpret a statute must begin with the words of the statute itself and, "unless otherwise defined, words will be interpreted as taking their ordinary, contemporary common meaning." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1041 (9th Cir. 2004). "In plain language, `experiment' must be

understood as a trial conducted for the purpose of testing a proposition." California Welfare Rights Org. v. Richardson, 348 F. Supp. 491, 498 (N.D. Cal. 1972). The terms "pilot" and "demonstration" have similar definitions. See Merriam-Webster Dictionary On-Line (10th Ed. 2006). Legislative history confirms that Congress meant for section 1115 projects to test experimental ideas. According to Congress, section 1115 was intended to allow only for "experimental projects designed to test out new ideas and ways of dealing with the problems of public welfare recipients" that are "to be selectively approved," "designed to improve the techniques of administering assistance and related rehabilitative services," and "usually cannot be statewide in operation." S. Rep. No. 87-1589, at 19-20, as reprinted in 1962 U.S.C.C.A.N. 1943, 1961-62, 1962 WL 4692 (1962). See also H. R. Rep. No. 3982, pt. 2 at 307-08 (1981) ("States can apply to HHS for a waiver of existing law in order to test a unique approach to the delivery and financing of services to Medicaid beneficiaries."). The Ninth Circuit Court of Appeals has described § 1115's application to "experimental, pilot or demonstration" projects as follows: The statute was not enacted to enable states to save money or to evade federal requirements but to >test out new ideas and ways of dealing with the problems of public welfare recipients.= [citation omitted] A simple benefit cut, which might save money, but has no research or experimental goal,
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would not satisfy this requirement. Rather, the >experimental or demonstration project= language strongly implies that the Secretary must make at least some inquiry into the merits of the experimentBshe must determine that the project is likely to yield useful information or demonstrate a novel approach to program administration. Beno v. Shalala, 30 F.3d 1057, 1069 (9th Cir. 1994). See also California Welfare Rights Org., 348 F. Supp. at 498 (noting, "As a matter of principle, it is clear that the Secretary would abuse his discretion if he were to approve a project which . . . subject[ed] an unreasonably large population to the experiment or continu[ed] it for an unreasonably long period"). To begin with here, the very duration of the Arizona project is inconsistent with it being an experiment. However broadly § 1115 may be read, it cannot be interpreted to authorize permanent demonstration projects that ignore the Medicaid Act=s requirements. Yet, that is what is happening here. The Arizona demonstration project was originally approved 26 years ago to allow the State to implement AHCCCS, a novel approach to providing Medicaid through mandatory enrollment of beneficiaries into managed care organizations such as HMOs. The use of managed care is no longer novel or untested, however. In fact, the Medicaid Act has been amended to specify the conditions through which all states can provide Medicaid through mandatory managed care plans, see 42 U.S.C. §§ 1396n(b), 1396u-2. Moreover, the heightened copayments were not

introduced until 2003, 21 years after the original authorization and two years after AHCCCS had been expanded to include childless-non disabled adults and the MED populations. By this time, a number of demonstrations had tested copayments in the Medicaid program, and a rigorous body of research had verified the negative health and fiscal impacts when heightened copayments are imposed on poverty-level populations. Not surprisingly, nothing in the federal Defendant=s review of the State=s proposal shows that the copayments were evaluated and approved as bona fide experiments, demonstrations, or pilots. Indeed, it is not clear what innovation could be tested by these

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copayments. According to Leighton Ku, Ph.D., M.P.H., Professor of Health Policy at the George Washington University School of Public Health and Health Services, over the last 35 years, a number of studies have looked at the effects of cost sharing on the poor. Of all forms of cost sharing, copayments have been the most heavily studied. Second Ku Decl., & 9. According to Dr. Ku: A substantial and rigorous body of research has consistently concluded that low-income individualsBthose with income below 100 percent of the federal poverty levelBare more vulnerable to the adverse effects of copayments than other groups. . . . For example, multiple studies have concluded that higher copayments for medical services or prescription drugs cause low-income people to use substantially fewer essential and effective medical services or medications. Id. at & 10. [T]here is an accumulated and consistent body of research concluding that low-income people cannot financially bear copayments as easily as those with higher incomes. This is because low income people are in a different economic position. Data show that Medicaid beneficiaries already have substantial out-of-pocket medical care expenditures. . . . Increases in copayments will exacerbate their financial burdens. Id. at & 16. Studies show that those with incomes below the poverty line already experience hardships, such as running out of food or having difficulty paying rent or utility bills. Elevated copayments for low-income people force many of them to choose between healthcare and other basic needs. Id. at & 17. Dr. Ku concludes: The research predominantly shows that copayments generally reduce the utilization of essential health care services and of medications by low-income people. Some of the studies demonstrate that there were adverse health consequences for those who were required to make copayments. I am not aware of any `unique or untested' aspect of cost-sharing or copayments that would be examined under this project; other states have imposed copayments of a similar nature for the same services (prescription drugs, physician office visits, non-emergency use of emergency rooms). Neither Arizona=s
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waiver application nor the federal approval letter delineates any unique or untested uses of copayments in this section 1115 project. Id. at & 24. Rather than as an experiment, the record shows that AHCCCS implemented the higher copayments for budgetary reasons. But see Beno, 30 F.3d at 1069 (holding that such a purpose is an impermissible basis for a § 1115 project). It is questionable whether the copayments will generate significant savings. Pls.= Fact Nos. 18, 21. Dr. Ku finds that: Instituting or increasing copayments is not an efficient way for states to lower their expenditures for Medicaid because they lose a substantial portion of any savings generated . . . For example, consider a prescription drug that costs $60. Under Medicaid matching rules, the federal government will pay $39.72 (or 66.2 percent, the federal Medicaid matching rate for Arizona in 2008), while the state of Arizona pays $20.18 (33.8 percent total). If there is a $10 copayment, the total cost to Medicaid for the drug is reduced to $50, so the state share will fall to $16.90 (33.8 percent of $50) and the federal government will pay $33.10. Even though a poor state resident has paid $10 of his or her limited income for that prescription, the state of Arizona saves only $3.32 (33.2 percent of $10), while the great majority of savings accrues to the federal government. . . . From a public finance perspective, this is both regressive and fiscally inefficient. Second Ku Decl., &18. Notably, in describing the process that AHCCCS adopted to reflect the collection of the copayments at issue in this case, Defendant Rodgers used language strikingly similar to Dr. Ku=s testimony, stating that AHCCCS: assumed lower utilization rates for the services to which copays applied, and increased the assumed utilization of inpatient hospital and emergency room services. The Kaiser Commission study, as well as several others, showed that when cost sharing is applied to a population like the TWG [Title XIX Waiver Group], people will tend to forgo seeing their physician and having their prescriptions filled. Use of the hospital and emergency services will increase because the use of preventative services has decreased.

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Def. Rodgers' Answers to Pls' Interrogs., Interrog. No. 3, at 4 (quoting from the report prepared by their budget consultant, Mercer Government Health Services Consulting), Ex. 1 to Katz Decl. More recently, Defendant Rodgers has stated: Cost sharing works against the notion of managed care. Cost sharing is imposed to change beneficiary behavior or to make the beneficiary financially responsible for the service choices "they" make (like overuse the emergency room). . . . If you are going to put co-payments and co-insurance on AHCCCS MCO [managed care organization] members it will work against the health plans medical management programs. The reason that AHCCCS has one of the lowest PMPM [per member per month payments] of all state Medicaid programs is our managed care model. Health plan[s] manage the utilization of members better than any cost sharing program would do. Cost sharing is for States that don=t have Medicaid managed care. Email communication from Anthony Rodgers, AHCCCS Director, to Tom Betlach et al. (9:18 AM, Feb. 21, 2007), Ex. 23 to Katz Supp. Decl. Thus, according to Defendant Rodgers, copayments work against managed care and, consistent with the rigorous body of research, the imposition of copayments will cause class members to forgo seeing physicians and pharmacists with a resulting increase in the use of the hospital and emergency services. There is nothing experimental, demonstration or pilot at issue. It was reversible error for the federal Defendant to grant the state Defendant's request to impose the challenged copayments. This Court should grant summary judgment to Plaintiffs. C. Plaintiffs are Entitled to Summary Judgment because the Challenged Copayments do not Promote the Objectives of the Medicaid Act.

In addition to lacking an experimental quality, the copayments are inconsistent with § 1115 because they do not "promote the objectives of the Medicaid Act." 42 U.S.C. § 1315(a). This provision assures that the Secretary will not exercise the Otherwise,

discretion to ignore Congressional dictates when granting approvals.

"administrative prerogative will quickly become legislative in nature." Mark S. Coven,

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Altering State Welfare Programs Through the Administrative Waiver ProcessBOr EndRun Around Congress, 17 New. Eng. L. Rev. 1175, 1192 (1982). To determine the objectives of the Act, the Ninth Circuit has instructed courts to look to the statute, its legislative history and other courts. Beno, 30 F.3d at 1070. The purpose of the Medicaid Act is to furnish medical assistance to families and individuals whose incomes and resources are insufficient to meet the costs of necessary medical care. See 42 U.S.C. § 1396. At the time of implementation, according to AHCCCS, 18.6 percent of generic drugs had an average cost of $3.50. Email from Anne Winter to Dawn Tibbs, AHCCCS Financial Consultant (June 30, 2003), Ex. 11 to Katz Decl. To obtain these generic drugs, class members are required to pay a $4.00 copayment. Thus, in nearly one fifth of all prescription drug transactions, the individual is no longer being asked to provide a copayment but, in effect, a subsidy. Since the purpose of Medicaid is to assist those who cannot otherwise afford medical care, it could hardly have been the intent of Congress that these same people be required to pay the full cost of their care, much less for them to be subsidizing the states= expenditures for that care. A project can also fail to promote the objectives of the Medicaid Act when there is a conflict with a purpose of the Act that has been expressed with such a degree of consistency and clarity that it has become part of the "common law of the Social Security Act and part of its essential purposes." Quiding v. Hegstrom, No. 81-251 PA, slip op. at 4 (D. Or. Nov. 10, 1981), Ex. 24 to Katz Supp. Decl. The 25-year history of Medicaid cost sharing exhibits two consistent, major themes: First, cost sharing should not erect barriers to care for the very poor. To this end, Congress prescribes that these low-income individuals pay only nominal copayments and prohibits Medicaid-participating providers from denying services when these individuals are unable to pay the copayment. Second, Congress has made it quite clear that, if a state and the Secretary of DHHS want to deviate from these protections, then they must do so, only after public notice and comment, and pursuant to a demonstration waiver that meets specified criteria, including that it is going to test a unique use of copayments and it is voluntary or makes provision

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for assumption of liability from preventable damage resulting from involuntary participation. See 42 U.S.C. § 1396o(f). In sum, Congress has expressed a consistent and clear intent that an essential purpose of Medicaid is to assure that copayments do not prevent low-income people from obtaining necessary health care. With his approval, the Secretary clearly violated the requirements of § 1115 that demonstration projects be consistent with the objectives of the Medicaid Act and plaintiffs are entitled to summary judgment D. Plaintiffs are Entitled to Summary Judgment because the Federal Statute Governing Human Experimentation was Violated.

The Social Security Act prohibits the Secretary from using federal funds to pay for any program or project which is of an experimental nature, or any other activity involving human participants, which is determined by the Secretary or a court of competent jurisdiction to present a danger to the physical, mental, or emotional well-being of a participant or subject of such program [or] project . . . without the written informed consent of each participant or subject. 42 U.S.C. ' 3515b. The copayment program at issue here clearly presents a danger to the participants. Congress has established as a matter of legislative decree that heightened copayments pose a danger: When heightened copayments are going to be used, the state must make them voluntary, or "make[s] provision for assumption of liability for preventable damage to the health of recipients of medical assistance resulting from involuntary participation." 42 U.S.C. § 1396o(f) (emphasis added). Indeed, multiple studies have established that heightened copayments cause low-income people to forgo or limit essential and effective medical services and prescription drugs. Second Ku Decl., ¶¶ 10, 15-17. Testimony

from class members illustrates. See, e.g., Appendix II, Ex. 1, Alwood Decl. ¶¶ 4-5 (attesting that Virgil Alwood could not pay the copayments for treatment for his diabetes, gastro-intestinal problems and high blood pressure and ended up requiring emergency treatment); Appendix I, Ex. 8, Franklin Decl. ¶ 3 (attesting that Dana Franklin went
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without his prescriptions for diabetes and high blood pressure and became ill). This court has recognized that the plaintiffs were at risk of irreparable harm because of the likelihood that they would be denied medical care because of the copayment program. Newton-Nations, 316 F. Supp. 2d at 888. Moreover, there is no dispute that the copayments were implemented without the written, informed consent of each demonstration participant. Pls.= Fact Nos. 29-30; See Appendices I and II, Declarations of Named Plaintiffs and Class Members (stating that "I was not asked by the State of Arizona or the federal government if I would agree to voluntarily participate in the enhanced copayment program.") The protections for human subjects were first imposed upon DHHS in 1982. Pub. L. No. 97-377, 96 Stat. 1830, 1905 (HHS Appropriations Act for 1981). At that time, regulations required that all DHHS-funded research involving human subjects include procedures for obtaining informed consent and approval by an Institutional Review Board ("IRB"). These regulations were amended in 1983 to except demonstration

projects involving public benefit programs from IRB review. However, the Department affirmed that it does have an obligation, pursuant to conditions imposed upon its continuing appropriations, to ensure that research activity not present a danger to the physical, mental or emotional well-being of participants . . . . 48 Fed. Reg. 9266-67 (1983); see also 53 Fed. Reg. 45667 (1988) (same). Thus, the statute requires, and DHHS does not dispute, that DHHS must review each public benefit demonstration to determine whether it presents a danger to participants and, if so, to obtain written informed consent of the participants. The Ninth Circuit recognized this obligation in Beno, finding that when a § 1115 waiver request is reviewed, "[the Secretary] must make some determination that a project does not pose unnecessary risks to human subjects." 30 F.3d at 1070. It also noted that the waiver review should include an examination of the proposal's "potential danger to participants' physical, mental and emotional well-being." Id. The Beno Court found no

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evidence that consideration of danger to recipients was part of the approval process for the § 1115 waiver at issue in the case. Accordingly, the court vacated the grant of the waiver. 30 F.3d at 1075. Here, there is no evidence in the documents submitted by Defendants that there was any consideration of the effects the copayments would have on the participants= well being. In fact, the federal government=s initial approval of these copayments occurred more than five months after the copayment collections were initiated by the state, thus making it chronologically impossible for the necessary federal review to have occurred. "Stating that a factor was considered . . . is not a substitute for considering it." Beno, 30 F.3d at 1075 (citation omitted). 7 The Court should find that the Secretary failed to make a determination under § 3515b and grant summary judgment to plaintiffs. E. The Class Includes Medically Needy Individuals and Families Who Must be Accorded the Cost Sharing Protections of 42 U.S.C. ' 1396o.

Some class members have an additional argument: Because they are families or individuals who are medically needy as described in the Medicaid Act, they are protected by the nominality and waiver requirements of 42 U.S.C. § 1396o(b). 8 The Medicaid Act requires states= Medicaid plans to cover the population groups described in 42 U.S.C. § 1396a(a)(10)(A)(i) (the "mandatory categorically needy"), and it may cover those listed in § 1396a(a)(10)(A)(ii) (the "optional categorically needy"). The categorically needy population groups are comprised of families with dependent children, pregnant women, and people who are aged, blind or disabled whose incomes are below

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Defendants may cite Beno to argue that a review of the danger presented by the copayments was subsumed within the Secretary=s review of the State=s request. However, Beno concerns a waiver request and the reviews and assessments that are part of that process. In this case, the Secretary did not approve the copayments using the waiver approval authority and process but rather a separate "expenditure" authority. The State could opt to impose heightened copayments on certain medically needy individuals and households through § 1396o-1. However, the State of Arizona has not exercised this option and, if it did, the protections of § 1396o would apply to individuals and families with incomes below the poverty level, as described in section A, supra.
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state-set eligibility levels.

Id.

The state plan may also cover "medically needy"

individuals who fit within a categorical group (e.g., families with children) but whose incomes exceed the categorical eligibility cut offs. These individuals must spend down, by incurring medical expenses sufficient to bring their incomes to a level below the stateset medically needy eligibility level. 9 Id. at § 1396a(a)(10)(C) (defining the medically needy); 42 C.F.R. § 435.831 (medically needy regulations). 10 Spry v. Thompson also recognized a third population group, which it called "expansion" populations. 487 F.3d at 1275. "They are childless, non-disabled adults" who cannot be eligible for Medicaid as categorically needy or medically needy because they are not blind or disabled or have children. §1396a(a)(10)). Prior to 2001, Arizona operated a medical expense deduction (MED) program with state funding. In that year, AHCCCS was expanded to cover the participants in the MED program. A.R.S. §§ 36-2901.04 and 36-2901(6)(a)(v). The Arizona program includes both childless, non-disabled adults (expansion populations) and individuals and families who fall within the state plan populations because they are medically needy. The evidence clearly establishes that medically needy state plan populations are included with the MED program. When it applied to DHHS to cover the MED Id. at 1274 (citing 42 U.S.C.

populations, AHCCCS said that the MED program will provide health care coverage for individuals and households who have a catastrophic illness or medical event. Under this proposal, individuals and their family members will be determined Medicaid eligible based on incurred medical bills, which will enable individuals to spend down to the established income level of 40% of the FPL [federal [poverty level] frozen at 2000 levels. For example, assume that the medically needy income level is $700/month for a family of four; and the applicant=s income is $900/month. In this example, the family must incur $200 in medical expenses before Medicaid coverage begins. These categorically needy and medically needy populations are sometimes referred to as "state plan" populations.
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Letter from Lynn Dunton, AHCCCS, to Joan Peterson, DHHS Centers for Medicare & Medicaid Services (CMS) (Oct. 16, 2000), Ex. 4 to Katz Decl. (emphasis added). More recent communications between the AHCCCS and CMS acknowledge that "some

individuals in the Medical Expense Deduction (MED) program are actually in the State plan (although the majority are 1115 expansion folks)." See Email communication from Joan Peterson, CMS, to Lynn Dunton, AHCCCS (4:00 PM, June 28, 2004), Exh. 22 to Katz Suppl. Decl. In its descriptions of coverage options, AHCCCS lists the MED program as a program that is available for families with children under age 19. See AHCCCS, Family Coverage, at http://www.azahcccs.gov/Servicse/CoverageGroups/Family.asp (last visited Mar. 3, 2008), Ex. 20 to Katz Supp. Decl. AHCCCS=s listing of income eligibility limits for the MED program also includes not just individuals (e.g., childless, non-disabled adults) but also households with multiple family members. See AHCCCS, Income Limits for AHCCCS Eligibility-April 1, 2008, Ex. 19 to Katz. Supp. Decl.; AHCCCS, Eligibility Requirements-April 1, 2008, Ex. 17 to Katz. Supp. Decl. See also Pls.= Statement of Undisputed Facts ¶¶ 4-5; Exs. 3, 4, 14 to Katz Decl. (showing AHCCCS employees have conceded that some members of the class are "medically needy" under section 1396a(a)(10)(C)). Elsewhere, AHCCCS has informed its contractors that "MEDs may have a categorical link to a Title XIX category; however, their income exceeds the limits of the Title XIX category.@ See, e.g., AHCCCS, Division. of Business and Finances Contract

Amendment. at 7 (July 1, 2006), at http://www.azahcccs.gov/Contracting/Contract Amend/YH03-0032/CYE07ContractAmendment.pdf, Ex. 18 to Katz Supp. Decl. AHCCCS has also informed participating health care providers that MED extends to childless adults and families. AHCCCS Fee-for-Service Provider Manual at 2-2 (Oct. 2003; updated Feb. 20, 2004), at http://www.azahcccs.gov/Publications/Guides Manuals/provman/FFSChap02Eligibility-2003.pdf, Ex. 21 to Katz Supp. Decl. (stating that "AHCCCS provides family coverage under the following eligibility categories: . . .

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Medical Expense Deduction (MED). . . . Coverage for single individuals and couples without minor children is provided under the following eligibility categories: . . . Medical Expense Deduction (MED)."). The MED families/households who have a link to a Title XIX categoryBthat is, they fit within the Title XIX description of the medically needyBare protected by the Medicaid Act=s cost sharing provisions. See 42 U.S.C. § 1396o(b). In addition to falling within the plain language of the Medicaid Act, this reading is consistent with the decision in Spry. According to Spry, the critical question for cost sharing purposes is whether an individual or family is described under 1396o(a), which applies to categorical populations, or whether they are described under 1396o(b), which applies to medically needy populations. See Spry, 487 F.3d at 1276. If an individual or family is so

described, then they are subject to the cost sharing protections, which limit copayments to nominal amounts. If the state wants to impose copayments that are not nominal, it will need to obtain a waiver that meets the tightly circumscribed criteria of the Medicaid Act. See 42 U.S.C. § 1396o(f). The State cannot deny class members within the MED population who fit within the medical needy description these protections by labeling them as "expansion populations." Such a slight of hand would allow a state, when expanding its Medicaid program, to simply label newly-covered populations as "expansion populations" and thereby avoid the Congressionally-prescribed cost sharing protections. Compare Beno, 30 F.3d at 1068-69 (expressing "doubt that Congress would enact such comprehensive [Social Security Act] regulations, frame them in mandatory language, require the Secretary to enforce them, and then enact a statute [42 U.S.C. § 1315] allowing states to evade these requirements with little or no federal agency review.") When an individual or family obtains coverage as the result of a Medicaid program expansion (i.e., the group was not previously covered), that individual or family is not an "expansion population" under Spry unless they are a childless, non-disabled adult. If their characteristics meet the description of a categorically needy or medically needy population group, they must

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be recognized as state plan populations. 1396o(a), o(b). 11

See 42 U.S.C. §§ 1396a(a)(10)(A), (C),

In this case, there are individuals within the MED population who are protected by section 1396o(b) because they are described within the Medicaid Act's medically needy provisions. These individuals and families can be required to pay "nominal" copayments but not the heightened amounts set forth in A.A.C. R9-22-711(E). 12 If the State wants to impose heightened copayments on them, it must do so pursuant to a wavier that meets the req