EDWARD M. CHEN, United States District Judge.
Nineteen hospitals from Oregon, Nevada, and Arizona challenge California's Medi-Cal reimbursement policies for out-of-state hospitals. Compl. ¶ 1. Plaintiffs filed this action against California's Department of Health Care Services in June 2014. Docket No. 1 ("Compl."). Toby Douglas, Director of the California Department of Health Care Services, removed this action to federal court. Docket No. 1 (Not. of Removal). Plaintiffs bring the following causes of action: (1) violation of the Commerce Clause, Article I, Section 8, Clause 3 of the United States Constitution; (2) violation of the Equal Protection Clause under the Fourteenth Amendment to the United States Constitution; (3) violation of the Equal Protection Clause of the California Constitution; (4) violation of federal laws governing Medi-Cal DSH payments (42 U.S.C. § 1396a(a)(13)(A)); and (5) violation of federal laws governing Medi-Cal payments to out-of-state hospitals. (42 U.S.C. § 1396a(a)(16) and 42 C.F.R. § 431.52). Plaintiffs seek a declaration that the Department violates these provisions and an injunction enjoining the Department from enforcing the law.
Medicaid is a joint federal-state program that provides for the payment of medical services pursuant to the Medicaid Act to the poor, elderly, and disabled. 42 U.S.C. § 1396 et seq. States that choose to participate in Medicaid must submit a State Plan to the United States Department of Health and Human Services ("HHS") for approval. The State Plan describes the policy and methods used to set payment rates for each type of service included in the program. See, e.g., Wilder v. Virginia Hosp. Ass'n, 496 U.S. 498, 502, 110 S.Ct. 2510, 110 L.Ed.2d 455 (1990). The Centers for Medicare and Medicaid Services ("CMS") administers the Medicaid Program on the Secretary's behalf, including approving State Plans and State Plan Amendments. Pharm. Research & Mfrs. of Am. v. Walsh, 538 U.S. 644, 650, n. 3, 123 S.Ct. 1855, 155 L.Ed.2d 889 (2003); 42 C.F.R. §§ 430.10, 430.15(b). A state may change its plan by obtaining approval of a State Plan Amendment ("SPA") from CMS. The amendment must meet federal requirements. 42 U.S.C. §§ 1396a(b); 42 C.F.R. §§ 430.10, 430.12. The CMS reviews a state's State Plan and State Plan Amendments to determine whether they comply with the statutory and regulatory requirements governing the Medicaid Program.
Medi-Cal is California's state Medicaid healthcare program. Cal. Welf. Inst. Code §§ 14000 et seq. California's Department of Health Care Services ("Department") is the single state agency responsible for the administration of Medi-Cal. Cal. Welf. Inst. Code § 10740. California has an extensive regulatory framework for the setting of reimbursement rates. See e.g., Cal. Welf. Inst. Code §§ 14075, 14079, 14105. California's State Plan sets forth the standards and methods for reimbursement rates paid to Medi-Cal providers for Medi-Cal covered services. The United States makes contributions to a state's program provided the State Plan is consistent with the applicable Medicaid Act provisions. 42 C.F.R. § 430.35.
Medi-Cal is required to provide acute inpatient services that are not available in California pursuant to part 431.52(b) of Title 42 of the Code of Federal Regulations.
Cal. Code Regs. tit. 22, § 51543
According to information published by the federal Medicare Program, there are over 3,000 hospitals across the country that may occasionally render services to a Medi-Cal beneficiary and bill the Medi-Cal program for reimbursement.
On July 1, 2013, the Department implemented All Patient Refined Diagnosis Related Group ("APR-DRG")
The Department's methodology for calculating a hospital's reimbursement for a particular patient is equal to the ARP-DRG weight of that patient times the hospital's "base price" times "policy adjustors." Id. For the base price, the Department uses either a "Statewide Base Price" or a "Remote Rural Base Price" to establish the rates for all hospitals, except hospitals paid based on a transitional base price (an incremental change in base price). Rowan Decl. ¶ 6. The current Statewide base price is $6,289 and the current Remote Rural base price is $12,768. Id. at ¶ 6.
For in-state hospitals, the Department adjusts the labor component of the "base price" of each California hospital by the highest of the following Medicare wage indices: (1) the Medicare wage index for the geographical area in which the hospital is located; (2) the California rural floor wage index; or, (3) the wage index for the area in which the hospital has been reclassified by Medicare. Vaida Decl. ¶ 10. The State Plan 13-020 provides that a uniform wage index 1.0 applies to all out-of-state hospitals, which means that the base price for an out-of-state hospital is not adjusted upward or downward. Rowan Decl. ¶ 8. In 2013, "18 of the 19 [out-of-state hospital] plaintiffs ... had a wage index that was greater than 1.0." Vaida Decl. ¶ 12. According to the Complaint, "[a] California hospital with a wage index of 1.5 would have its `base price' increased by $2,141 ($6,223 times 68.8% times 0.5), or from
The qualifications for the higher remote rural base price are laid out in the State Plan. The State Plan uses the Remote Rural Base Price only for hospitals that qualify as "remote rural." Rowan Decl. ¶ 8. California's rural wage index is calculated based on the wage costs of nine rural hospitals and then applied to 211 urban hospitals. Vaida Decl. ¶ 14. The Remote Rural Base Price is only available for California hospitals. Rowan Decl. ¶ 16. "Thus, a California hospital that is `remote rural' would receive a `base price' of $10,218, while an out-of-state hospital that is similarly situated would receive a `base price' of only $6,223. In this case, the California hospital that is deemed to be `remote rural' would receive 64% more per Medi-Cal discharge (i.e., $10,218 divided by $6,223) than an out-of-state hospital that is similarly situated."
With the third wage adjustment, the Department permits in-state hospitals to use Medicare wage index reclassifications that increase their index values, but does not extend that same benefit to out-of-state hospitals. Vaida Decl. ¶ 17.
According to the Complaint, the Department also applies "policy adjustors" that increase its payments for particular services. Compl. ¶ 19. First, for stays in a neonatal intensive care unit ("NICU"), California hospitals receive a 75 percent payment increase. Compl. ¶ 19. Second, the Department makes "outlier payments." Vaida Decl. ¶ 22. If a hospital's "estimated cost" for rendering services exceeds the Medi-Cal reimbursement by certain "thresholds," the hospital is entitled to "outlier" payments. Rowan Decl. ¶ 19. The "estimated cost" is determined by multiplying the hospital's cost-to-charge ratio (CCR) by the hospital's charges for the admission. Id. The Department annually receives a cost report from each California hospital to determine a hospital-specific CCR. Id. The Department claims it does not have access to cost reports for out-of-state hospitals. Id. Thus, "policy adjustors" are not available to out-of-state hospitals.
According to Plaintiffs, the effect of the Department's reimbursement policies is even more pronounced when two or more of these policies are combined. For example, "a California hospital with a qualifying NICU and a wage index of 1.5 would receive 235% more per Medi-Cal discharge than a similarly situated out-of-state hospital[]." Compl. ¶ 20.
Under the State Plan, Medi-Cal also makes Disproportional Share Hospital ("DSH") payments. DSH payments are supplemental payments to hospitals meeting DSH eligibility standards under applicable federal law and the State Plan. Chao Decl.
On September 29, 2015, the Department obtained CMS approval of the new State Plan Amendment 15-020 ("15-020 Amendment"). Docket No. 59 at 2 ("D's Reply to P's Opp'n"); Rowan Decl. ¶¶ 21-26; Second Supp. Rowan Decl. ¶¶ 3-4. On June 19, 2015, the Department published notice that it was planning to submit a State Plan Amendment to CMS with proposed changes to the APR-DRG policies concerning the wage index, remote rural base price, NICU policy adjustment, and CCR with respect to out-of-state border hospitals. Rowan Decl. ¶ 21. The notice stated:
Rowan Decl., Ex. C at 1007. (25-Z Cal. Regulatory Notice Reg. (June 19, 2015)).
The amendment defines "border hospitals" as those hospitals located outside of California that are within 55 miles driving distance from the nearest physical location at which a road crosses the California border, and includes all plaintiff hospitals. Rowan Decl. ¶¶ 11, 22.
The 15-020 Amendment provides for the following changes in the APR-DRG methodology that impact out-of-state border hospitals:
The effective date of these changes is July 1, 2015. Attachment 4.19-A, Docket No. 51-3 at 112. The Amendment does not change the Department's policy excluding DSH payments to out-of-state hospitals. According to Plaintiffs, out-of-state hospitals are also excluded from the California "rural" floor wage index, Medicare wage index reclassifications, and Medicaid cost-to-charge ratio. Plaintiffs also complain that under the new State Plan, the "remote rural" definition for out-of-state hospitals remains very restrictive. P's MSJ at 14.
Plaintiffs are hospitals located in Oregon, Nevada, and Arizona that treat a significant number of Medi-Cal beneficiaries.
Bontá, 97 Cal.App.4th at 760, 118 Cal.Rptr.2d 629. One plaintiff, the University Medical Center of Southern Nevada, is the only Level I trauma center within a 200 mile radius of Las Vegas, NV. Id. ¶ 10. Another plaintiff, the Renown Regional Medical Center, is the only Level II Trauma Center between Sacramento, CA, and Salt Lake City, UT. Plaintiffs serve Medi-Cal patients from far northern and eastern reaches of California. Id. ¶ 9. These regions do not have many large medical facilities providing high levels of intensive care. Id. Defendants are the Department of Health Care Services and Toby Douglas. Toby Douglas is sued in his official capacity as Director of the Department.
Without opposition from Plaintiffs, the Department requested judicial notice over nine exhibits: (A) Excerpt from California's State Medicaid Plan; (B) State Plan Amendment 13-004; (C) California Regulatory Notice Register 2000, Number 3-Z, published June 19, 2015; (D) Excerpt from the California Regulatory Notice Register 2000, Number 3-Z, published January 21, 2000; (E) Excerpt from the California Regulatory Notice Register 2000, Number 3-Z, published March 2, 2000; (F) May 31, 2013 approval Letter from Cindy Mann, Director of CMS, regarding State Plan Amendment 4.19-A; (G) December 5, 2013 approval Letter from Cindy Mann, Director of CMS, regarding State Plan Amendment 4.19-A; (H) Memorandum and Order, Children's Hosp. and Health Ctr. v. Belshe, United States District Court, Northern District of California, Case No. C 95-01076 MHP, filed June 13, 2001; (I) Brief of the United States as Amicus Curiae, Children's Hosp. and Health Center v. Belshe, United States District Court, Northern District of California, Case No. C 95-1076, filed March 1, 1995. Defendants' Request for Judicial Notice in Support of Motion for Summary Judgment. ("D's RJN"), Docket No. 51-1.
Under Federal Rule of Evidence 201, "[a] judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201. Courts may take judicial notice of "undisputed matters of public record," but generally may not take judicial notice of "disputed facts stated in public records." Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir.2001) (emphasis in original).
The Court
Third, it is proper to take judicial notice of the United States' Amicus Curiae brief. Estate of Blue v. County of Los Angeles, 120 F.3d 982, 984 (9th Cir.1997) (noting that a court "may properly take judicial notice of the papers filed" in both federal and state court proceedings). "As the brief is not a `fact,' legal or adjudicative, but only legal argument, Fed. R. Evid. 201 is not a bar." Natural Res. Def. Council v. Sw. Marine, Inc., 39 F.Supp.2d 1235, 1236 n. 1 (S.D.Cal.1999) aff'd, 236 F.3d 985 (9th Cir.2000) (taking judicial notice of the U.S. Government's amicus curiae brief). The Court takes notice of the argument contained in the amicus brief.
Finally, it is proper to take judicial notice of CMS's letters. Kottle v. Northwest Kidney Centers, 146 F.3d 1056, 1064 n. 7 (9th Cir.1998) (holding that state health department records were proper subjects of judicial notice); Mack v. South Bay Beer Distribs, Inc., 798 F.2d 1279, 1282 (9th Cir.1986) (observing that the court may take judicial notice of the records and reports of state administrative bodies), overruled on other grounds by Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 111 S.Ct. 2166, 115 L.Ed.2d 96 (1991).
The purpose of summary judgment is to avoid unnecessary trials when there is no dispute as to the facts before the court. Zweig v. Hearst Corp., 521 F.2d 1129 (9th Cir.1975), cert. denied, 423 U.S. 1025, 96, 96 S.Ct. 469, 46 L.Ed.2d 399 (1975).
Under Federal Rule of Civil Procedure 56(a), "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "The moving party has the burden of establishing the absence of a genuine dispute of material fact. The court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in the non-movant's favor." City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1049-50 (9th Cir.2014). "`Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving
Once the moving party has shown that there is an absence of evidence to support the claims of the non-moving party, the non-moving party may not simply sit back and rest on the allegations in its complaint. See Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Instead, it must "go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Id. (internal quotations omitted). Summary judgment should be granted where a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden at trial." Id. at 322-23, 106 S.Ct. 2548. On cross-motions for summary judgment on the same issues, the court must "evaluate each motion separately, giving the non-moving party the benefit of all reasonable inferences." Am. Civil Liberties Union of Nev. v. City of Las Vegas, 333 F.3d 1092, 1097 (9th Cir.2003).
In order to assert claims for violations of 42 U.S.C. § 1396a(a)(13)(A), Plaintiffs must first establish that the statute in question creates a private cause of action. In Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), the Supreme Court set out a four-factor test for determining whether a federal statute implies a private right of action:
Id. at 78, 95 S.Ct. 2080 (citations and quotation marks omitted).
In two cases after Cort, the Supreme Court emphasized that congressional intent is the primary determinant in this inquiry. See Touche Ross & Co. v. Redington, 442 U.S. 560, 575-76, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979) (stating that "[t]he central inquiry remains whether Congress intended to create, either expressly or by implication, a private cause of action" and that the remaining three factors are "traditionally relied upon in determining legislative intent."); Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 24, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979) (reiterating that "[t]he dispositive question remains whether Congress intended to create any such remedy"). "[U]nless this congressional intent can be inferred from the language of the statute, the statutory structure, or some other source, the essential predicate for implication of a private remedy simply does not exist." Northwest Airlines, Inc. v. Transp. Workers Union of America, 451 U.S. 77, 94, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981).
Pursuant to 42 U.S.C. § 1396a(a)(13)(A)(2006), a state plan changing Medicaid rates must provide:
42 U.S.C. § 1396a(a)(13)(A).
In addition, section r-4(c)(3)(B), entitled "Payment adjustment," provides:
42 U.S.C. § 1396r-4(c)(3)(B).
By their plain language, neither Section 13(A) or 1396a(a) nor Section 1396r-4 contain express rights creating language that would confer private rights of action on health care providers. See Gonzaga, 536 U.S. at 287, 122 S.Ct. 2268 (statutory provision fails to confer enforceable rights when it "entirely lack[s] the sort of `rights-creating' language critical to showing the requisite Congressional intent to create new rights"); Cannon v. Univ. of Chicago, 441 U.S. 677, 690 n. 13, 99 S.Ct. 1946, 60 L.Ed.2d 560 (1979) (stating that rights-creating language "confer[s] a right directly on a class of persons that include[s] the
As a starting point, the current wording of the statute must be juxtaposed against prior language at issue in Children's Hosp. & Health Ctr. v. Belshe, 188 F.3d 1090 (9th Cir.1999), on which Plaintiffs rely. Prior to 1980, states were required to reimburse hospitals "the reasonable cost[s]" of providing inpatient services. Folden v. Washington State Dep't of Soc. & Health Servs., 981 F.2d 1054, 1056 (9th Cir.1992). In response to concerns that the Medicaid reimbursement standard did not give enough authority to the states, Congress enacted the Boren Amendment as part of the Omnibus Reconciliation Act of 1980, Pub.L. No. 96-499, § 8962(a), 94 Stat. 2599 (1980). The Boren Amendment provided additional payments for disproportionate share hospitals. Belshe, 188 F.3d at 1093; Children's Seashore House v. Waldman, 197 F.3d 654, 656 (3d Cir.1999). Disproportionate share hospitals are those hospitals that serve a larger number of Medicaid recipients and other low-income persons than other hospitals. Chao Decl. ¶ 3. The Boren Amendment also gave states greater flexibility in calculating reasonable costs and in containing the continuing escalation of those costs." Folden, 981 F.2d at 1056. Importantly, however, the Boren Amendment required that states establish payment and reimbursement rates that were "reasonable and adequate" to cover the costs that must be incurred by efficiently and economically operated facilities. Omnibus Budget Reconciliation Act of 1980, Pub.L. No. 96-499, § 962(a), 94 Stat. 2599, 2650 (1980) (codified at 42 U.S.C. § 1396a(a)(13)) (repealed 1997).
In 1997, Congress amended the Medicaid Act to "eliminate the Boren Amendment and establish instead a notice and comment provision." Exeter Memorial Hosp. Ass'n v. Belshe, 145 F.3d 1106, 1108 (9th Cir.1998) (citing Balanced Budget Act of 1997, Pub.L. No. 105-33, 111 Stat. 251, § 4711, codified at 42 U.S.C. § 1396a(a)(13)(A)). Congress replaced "reasonable and adequate" rate requirement in the Boren Amendment with a "public participation" process, which requires the states to publicize their reimbursement methodologies and subject them to public comment. U.S.C. § 1396a(a)(13)(A).
Plaintiffs urge this Court to follow the Ninth Circuit's decision in Belshe, 188 F.3d 1090. In Belshe, the Ninth Circuit held that the Boren Amendment unambiguously applied to out-of-state as well as in-state hospitals, and thus out-of-state hospitals could not be excluded from DSH payments. Belshe, 188 F.3d at 1097. However, the Ninth Circuit emphasized that its holding in Belshe was based on the now-repealed Boren Amendment. Id. at 1099. The Belshe court had no occasion to interpret the new statutory language of the Balanced Budget Act of 1997.
In Children's Seashore House v. Waldman, the Third Circuit squarely addressed this question. The Court held Congress removed a party's ability to enforce any substantive rights to payments when it replaced the Boren Amendment (and its "reasonable and adequate rate" requirement) with a requirement that a state establish a public process by which its rates would be determined. 197 F.3d 654, 659 (3d Cir.1999). Specifically, the Waldman court stated that "it is clear that by amending a-13 in 1997, Congress eliminated the Boren Amendment's requirement that a state must provide ... `reasonable and adequate' [rates]." Id. at 659. By doing so Congress removed ability of a disproportionate share hospital to enforce any statutory substantive right to reasonable and adequate adjustment on account of treatment of Medicaid enrollees from another state. Id. The court explained:
Id. at 656-57. The court held that the public process provision did not confer a private right of action.
The court also held that a disproportional share hospital could not maintain an action for DSH adjustments under definitional provision 42 U.S.C. § 1396r-4. Id. at 660. Section § 1396r-4 sets the parameters of what is a DSH, what constitutes and adequate payment adjustment, and what limits are placed on federal financial participation and on state allotments for each year. Id. The court explained that unless section § 1396r-4 establishes an enforceable right on its own, the hospital does not have an enforceable statutory claim. "Yet, r-4 imposes neither procedural nor substantive requirements on a state that provide a basis for the [hospital] to press such claims. Rather r-4 is a definitional provision that describes certain procedures that a state must satisfy, such as submitting a qualified plan to the Secretary of Health and Human Services by a certain date to establish an adequate state disproportionate share hospital adjustment plan." Id. at 659. For these reasons, the Third Circuit affirmed the district's court dismissal of
Although the Ninth Circuit has not ruled on the precise question here, in Alaska Dep't of Health & Soc. Servs. v. Centers for Medicare & Medicaid Servs., 424 F.3d 931, 941 (9th Cir.2005), the Ninth Circuit noted (consistent with Waldman) that in 1997, when Congress repealed the Boren Amendment and replaced it with the notice and comment rulemaking requirements, "Congress intended that there be no `cause of action for [providers] relative to the adequacy of the rates they receive.'") (quoting Evergreen Presbyterian Ministries Inc. v. Hood, 235 F.3d 908, 919 n. 12 (5th Cir.2000) (citing H.R. No. 105-149, at 1230 (1997))). The H.R. report, cited in Evergreen, stated, "It is the Committee's intention that, following the enactment of the [Balanced Budget Act of 1997], neither this nor any other provision of [§ 1396] will be interpreted as establishing a cause of action for hospitals and nursing facilities relative to the adequacy of the rates they receive." Likewise in Developmental Servs. Network v. Douglas, 666 F.3d 540, 543 (9th Cir.2011), the providers claimed that the Department violated 42 U.S.C. § 1396a(a)(30)(A) by limiting reimbursement rates under California's Medicaid program. Id. The providers argued that the implementation of the statute was unlawful because it violated section 1396a(a)(30)(A)'s requirement that the states consider quality of care in setting Medicaid payment rates.
The Second and Fourth Circuits have also held that there is no private right of action after the repeal of the Boren Amendment by the Budget Reconciliation Act of 1997. See e.g., New York Ass'n of Homes & Servs. for the Aging, Inc. v. DeBuono, 444 F.3d 147, 148 (2d Cir.2006) (affirming the district court's conclusion that plaintiff-providers' claims, based on sections 13(A) and 30(A) of the Medicaid Act, were "unenforceable against the defendants by providers through 42 U.S.C. § 1983" and its further conclusion that "§ 1396r does not create a federally enforceable right because it was obviously intended to benefit Medicaid beneficiaries, not providers."); HCMF Corp. v. Allen, 238 F.3d 273, 276 (4th Cir.2001) (affirming the district's court conclusion in HCMF Corp. v. Gilmore, 26 F.Supp.2d 873, 880 (W.D.Va.1998) that "[w]ith the repeal of the Boren Amendment nothing remains that remotely resembles a federal right to reasonable and adequate rates"). See also In re NYAHSA Litig., 318 F.Supp.2d 30, 39-40 (N.D.N.Y.2004) aff'd sub nom. New York Ass'n of Homes & Servs. for the Aging, Inc. v. DeBuono, 444 F.3d 147 (2d Cir.2006) (stating that providers cannot use § 1983 to enforce any rights contained in § 1396a(a)(30)(A)). Cf. Am. Soc'y of Consultant Pharmacists v. Concannon, 214 F.Supp.2d 23, 29 (D.Me.2002) (recognizing a limited private cause of action enforceable under § 1983 for violation of section 13(A)'s guarantee of a "reasonable opportunity to comment" on a change in the rate of service reimbursement).
Plaintiffs contend that the disparity between the amounts the Department pays for Medi-Cal covered hospital in-patient stays to California and out-of-state hospitals violates the Commerce Clause. Compl. ¶¶ (26-29); P's MSJ at 16.
The Department argues the dormant Commerce Clause analysis does not apply here because the Medicaid program is authorized by Congress. The Department bases this argument on several grounds. D's MSJ at 14. First, Congress is spending federal funds to finance Medicaid. D's MSJ at 15. Second, Congress provided a "series of federal checkpoints" by delegating its authority to the Secretary of Health and Human Services. Id; Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 102 S.Ct. 894, 71 L.Ed.2d 21 (1982). In the alternative, the Department claims that even if the payments are subject to the dormant Commerce Clause analysis, the Department is exempt from Commerce Clause restrictions because it is a market participant. D's MSJ at 17.
The Commerce Clause states that "Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." U.S. Const., art. I, § 8, cl. 3. Although the Commerce Clause speaks only of Congress's power, it has long been understood that there is a dormant or negative aspect of the Commerce Clause that limits the power of the states to regulate commerce. The Commerce Clause both permits Congress to regulate commerce among the States and "also directly limits the power of the States to discriminate against interstate commerce." New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988). This limitation on the states prohibits states from enacting laws that "benefit in-state economic interests by burdening out-of-state competitors." Id. Under the dormant Commerce Clause analysis, courts "protect [] the free flow of commerce, and thereby safeguard[] Congress' latent power from encroachment by the several States[]" when Congress has not affirmatively exercised its Commerce Clause power. Merrion v. Jicarilla Apache Indian Tribe, 455 U.S. 130, 154, 102 S.Ct. 894, 71 L.Ed.2d 21 (1982).
Thus, the threshold question in dormant Commerce Clause cases is whether Congress has exercised its Commerce Clause power in a particular field; if so, judicial review under the dormant Commerce Clause is precluded. See Wyoming v. Oklahoma, 502 U.S. 437, 457-58, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992); South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 87-93, 104 S.Ct. 2237, 81 L.Ed.2d 71, (1984). For a statute to preclude dormant Commerce Clause review, however, congressional intent to authorize
The Department relies on White v. Massachusetts Council of Const. Emp'rs, Inc., 460 U.S. 204, 103 S.Ct. 1042, 75 L.Ed.2d 1 (1983) and Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 102 S.Ct. 894, 71 L.Ed.2d 21 (1982) in arguing that Congress implicitly approved the practice of discrimination against out-of-state hospitals in respect to Medicaid payments. D's MSJ at 14-16.
At issue in White was an executive order issued by Boston's Mayor requiring all construction projects funded by the city or by funds that the city had authority to administer, to be performed by a work force consisting of at least 50% residents of the city. White, 460 U.S. at 205-06, 103 S.Ct. 1042. A number of the projects were funded in part with federal Urban Development Action Grants. Id. at 212, 103 S.Ct. 1042. The Supreme Court held that the order did not violate the dormant Commerce Clause for two reasons. First, insofar as the city expended its own funds and projects, it was a market participant unconstrained by the dormant Commerce Clause. Id. at 215, 103 S.Ct. 1042. Second, because the city expended federal funds, the order was "affirmatively sanctioned" by the federal regulations of those programs. Id.
The Department relies on the Court's statements in White that the federal regulations "affirmatively sanctioned" the executive order because Boston's construction project was funded by federal funds. D's MSJ at 16. The Department, however, reads too much into White.
In White, the Supreme Court examined the applicable statutes and found that the federal programs "were intended to encourage economic revitalization, including improved opportunities for the poor, minorities, and unemployed," particularly to distressed cities and urban counties
White is distinguishable from the case at bar for two reasons. First, as discussed below, the Department is not a market participant. Second, unlike in White, where the mayor's executive order was consistent with Congress' goal of improving the opportunities for the poor, minorities, and unemployed in targeted areas, here, the Department's policies are far from being in harmony with Medicaid. Moreover, in White, the implementing regulations expressly authorized "the type of parochial favoritism [towards distressed cities and urban counties] expressed in the [challenged] order.'" Id. at 215, 103 S.Ct. 1042; 42 U.S.C. § 5318 (b)(1). No such geographic targeting was contemplated by Congress in enacting the Medicaid Act; nor has the Secretary promulgated regulations authorizing the discrimination challenged harmonious with Congress' intent. Indeed, if anything, Congress was concerned with ensuring that cross-border medical services be available to all Medicare recipients.
At its core, the purpose of the Medicaid Act is to enable "each state, as far as practicable under the conditions in such state, to furnish ... medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services...." 42 U.S.C. § 1396-1. As noted in Belshe, discrimination against out-of-state hospitals which provide medical care to residents of the state undermines that purpose.
The Department also argues that Merrion v. Jicarilla Apache Tribe, 455 U.S. 130, 102 S.Ct. 894, 71 L.Ed.2d 21 (1982), shields the Department from the reach of the dormant Commerce Clause. In Merrion, the Commissioner of Indian Affairs, on behalf of the Secretary of the Interior, approved petitioners' leases with the Tribe to extract and produce oil and gas from the reservation. Merrion, 455 U.S. at 133-35, 102 S.Ct. 894. The Tribe was organized under the Indian Reorganization Act of 1934, which authorizes any tribe residing on a reservation to adopt a constitution subject to the approval of the Secretary of the Interior. Id. at 134, 102 S.Ct. 894. The Secretary approved the Tribe's Revised Constitution that allowed the Tribal Council "to enact ordinances, subject to approval by the Secretary of the Interior, to impose taxes and fees on non-members of the tribe doing business on the reservation." Id. at 135, 102 S.Ct. 894. (citing Revised Constitution of the Jicarilla Apache Tribe, Art. XI, § 1(e)). Pursuant to its Revised Constitution, the Tribal Council adopted an ordinance imposing a severance tax on oil and gas production on tribal land. Id. at 135-36, 102 S.Ct. 894. The Secretary then approved the ordinance. Id. at 136, 102 S.Ct. 894. The petitioners, non-Indian lessees producing oil
The Department relies on Merrion for the proposition that "a series of federal checkpoints" for the Department's State plans and amendments authorizes the Department to discriminate against out-of-state hospitals. However, Merrion does not apply as broadly to this case as the Department suggests. In upholding the Apache severance tax, the Court observed that the ability to tax is an inherent power exercisable by all sovereigns. Id. at 141, 102 S.Ct. 894. It "simply does not make sense to expect the tribes to carry out municipal functions ... without being able to exercise at least minimal taxing powers." Id. at 138, 102 S.Ct. 894 n. 5. The Court also observed that Congress knew that Indian tribes were imposing mineral severance taxes such as the one challenged by the petitioners when it enacted the Natural Gas Policy Act of 1978, 15 U.S.C. § 3301 et seq. Section 3320(c) defined, for purposes of the Act, "State Severance Tax" as any "severance, production, or similar tax ... imposed on the production of natural gas ... by any State or Indian Tribe." 15 U.S.C. § 3320(c), Repealed. Pub.L. 101-60, § 2(b), July 26, 1989, 103 Stat. 158.
The inherent sovereign power of a Tribe to tax is not at issue in the case at bar. While Merrion found that the Apache's taxing power was an inherent attribute of tribal sovereignty that has not been divested by Congress, id. at 152, 102 S.Ct. 894, that issue of sovereignty is not relevant here.
Merrion's analysis in upholding the severance tax because Congress "has affirmatively acted by providing a series of federal checkpoints that must be cleared before a tribal tax can take effect," id. at 155, 102 S.Ct. 894, is more on point. Before the Tribe could impose a severance tax on non-Indian lessees, the Tribe had to pass three "federal checkpoints": the Secretary's approval of Merrion's lease with the Tribe, the Secretary's approval of the Tribe's Revised Constitution, as well as the Secretary's specific approval of the ordinance.
Nonetheless, Merrion is distinguishable. Congress has done far less here than in Merrion; unlike Merrion, it has not set up a "series of federal checkpoints." Although Congress delegated authority to approve state plan to CMS,
The Fourth Circuit's decision in Environmental Technology Council v. Sierra Club, 98 F.3d 774 (4th Cir.1996) is persuasive on this point. In Sierra, the South Carolina Department of Health and Environmental Control promulgated a set of laws that restricted in-state treatment and disposal of hazardous waste generated in other states. 98 F.3d at 780. South Carolina argued that Congress affirmatively authorized the South Carolina laws when Congress delegated the authorization of state programs to the Environmental Protection Agency. Id. at 782-83. Under the Resource Conservation and Recovery Act of 1976 ("RCRA"),
In 1985, EPA gave South Carolina RCRA authorization to operate its waste program despite the argument that the program was "inconsistent" with federal law by imposing a discriminatory fee on waste generated out of state. Under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), South Carolina submitted to EPA a Capacity Assurance Plan ("CAP").
When out-of-state waste facilities challenged South Carolina's waste program as violation of the Commerce Clause, South Carolina asserted that RCRA and CERCLA embody a congressional exercise of the commerce power rendering the dormant Commerce Clause analysis irrelevant. Sierra, 98 F.3d at 782. First, South Carolina argued that under RCRA, Congress has expressly authorized any state program that meets "EPA's consistency standard of `reasonableness.'" Id. at 782. The Fourth Circuit, rejecting the argument, stated that "[w]hile EPA may change its position on what `consistency' entails,
Also, South Carolina, like the Department here, heavily relied on Merrion to argue that by delegating the authorization of state programs to the EPA under RCRA and CERCLA, Congress created a system of "checkpoints" for South Carolina's waste program. Id. at 782. The state argued that Congress's "checkpoints" affirmatively authorized the challenged state laws because EPA approved RCRA program and CAP. Id. at 782-83. The Fourth Circuit rejected the argument and distinguished Merrion for several reasons. First, unlike in Merrion, where Congress was aware that Indian tribes were imposing taxes on non-members, Congress did not anticipate or authorize a discriminatory fee for disposal of waste generated out of state. See id. at 784. Second, the court found that EPA had not expressly approved South Carolina's discriminatory laws; absent was "express congressional authorization." Id. at 784 n. 17.
Here, the Secretary of Health and Human Services engaged in the same type of administrative review similar to that described in Sierra. With little comment, CMS approved California's State Plan Amendments 13-033 and 15-020.
The Department argues that Congress intended that states be allowed in particular to limit DSH payments to out-of-state hospitals (see D's Opp'n to P's MSJ, pp. 11-12). Though this argument was made on the merits in opposing Plaintiffs' claim that the Department violated federal statutory law, this contention could implicate the dormant Commerce Clause analysis as well. If Congress was unmistakably clear in authorizing states to exclude out-of-state hospitals from DSH payments, this would remove this aspect of discrimination from Commerce Clause scrutiny. The Court, however, finds no such clear authorization.
In support of its argument, the Department cites provisions from 42 U.S.C. § 1396r-4. In particular, the Department cites phrases such as "to a State" (subdivision(f)), "for hospitals in the State" (subdivision (f)(6)), "any hospital in such State" (subdivision (g)(2)(B)), "to hospitals in the State" (subdivision (h)(1)(B)), and "in the State" (subdivision (j)(2)).
However, the core of this argument was soundly rejected by the Ninth Circuit in Belshe:
188 F.3d at 1096-97.
The Ninth Circuit's conclusion is underscored when reading the entirety of Section 1396r-4 — throughout its lengthy text spanning from subdivision (a) through (j) with many subparts, reference is made repeatedly to "hospitals" without limiting them to in-state hospitals. Out of the scores of repeated references to hospitals generically, the Department is able to identify but a handful of references to hospitals "within the state," and these provisions pertain to the level of federal reimbursement to states which appear to be keyed to in-state hospital statistics and to reporting requirements. As in Belshe, none of these provisions say that "only hospitals within the state can qualify for DSH payments." 188 F.3d at 1096. Even if one or two provisions might be deemed to create some ambiguity in this regard,
Parties seeking to establish that Congress has authorized otherwise invalid legislation face a heavy burden: "when Congress has not `expressly stated its intent and policy' to sustain state legislation from attack under the Commerce Clause, we have no authority to rewrite its legislation based on mere speculation as to what Congress `probably had in mind.'" New England Power Co. v. New Hampshire, 455 U.S. 331, 343, 102 S.Ct. 1096, 71 L.Ed.2d 188 (1982) (citations omitted). The Department has not met that burden. Absent unmistakably clear Congressional authorization, the dormant Commerce Clause analysis applies to all of the Department's policies at issue which exclude or discriminate against out-of-state hospitals.
The Department contends that even if the Commerce Clause applies, the Department is exempt from Commerce Clause restrictions because it is a market participant. D's MSJ at 17. Under the market participant exception, a discriminatory law does not violate the Constitution if the state is acting as a market participant. New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 277, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988). For a state to be labeled a "market participant," however, a state must be acting as a private company would act, not "in its distinctive governmental capacity." New Energy Co., 486 U.S. at 277, 108 S.Ct. 1803. Conversely, when a state flexes its sovereign muscle to regulate the behavior of other players in the market, the market participant exception does not apply. See id. at 277-78, 108 S.Ct. 1803.
The Department contends that "[b]y using 50% of its own state funds to reimburse out-of-state hospitals" it is acting as a market participant because it is purchasing the medical treatment from Plaintiffs for Medi-Cal beneficiaries. D's MSJ at 17.
The market participant exception is inapplicable. The Department advanced the same argument in Children's Hospital & Medical Center v. Bontá, 97 Cal.App.4th 740, 118 Cal.Rptr.2d 629 (1st Dist.2002). The California Court of Appeal correctly rejected it. In Bontá, 11 out-of-state hospitals from Nevada, Oregon, and Arizona sued the Department claiming that the difference between the reimbursement of in-state and out-of-state hospitals for treatment of Medi-Cal beneficiaries violated the Commerce Clause. Id. at 747, 752, 118 Cal.Rptr.2d 629. In Bantá, California's Welfare and Institutions Code provided that reimbursement for out-of-state acute inpatient hospital services provided to Medi-Cal beneficiaries shall not exceed the current statewide average of contract rates. Id. at 749, 118 Cal.Rptr.2d 629. Out-of-state hospitals challenged the statute on the ground that the Department did not pay out-of-state hospitals the "current" statewide average of contract rates, but rather used a previous year's average of the different rates paid to in-state hospitals. Id. The plaintiffs alleged that in "[i]n an inflationary economy, such as the one that hospitals operate in, last year's average rate is always less than the `current' rate." Id.
Id. at 768, 118 Cal.Rptr.2d 629.
Bontá's analysis of market participation is equally applicable here. First, the Department is not acting as a market participant because it controls the rates that out-of-state hospitals have to accept when they treat Medi-Cal patients. Second, the Department is not "pick[ing] and choos[ing] its business partners, its terms of doing business, and its business goals — just as it were a private party." Id. (internal citations omitted). Plaintiffs are legally obligated
Because the Department's policies are subject to the Commerce Clause, the Court addresses whether the Department's reimbursement rates for out-of-state hospitals violate the Clause. The dormant Commerce Clause "prohibits economic protectionism — that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors." New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988). Under the dormant Commerce Clause, the Court applies a two-step inquiry.
The first inquiry requires a court to determine whether "a state statute directly regulates or discriminates against interstate commerce, or [whether] its effect is to favor in-state economic interests over out-of-state interests." Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986). If a state statute directly discriminates, it is "generally struck down ... without further inquiry." Id.; see also Dep't of Revenue of Ky. v. Davis, 553 U.S. 328, 338, 128 S.Ct. 1801,
If the "statute has only indirect effects on interstate commerce and regulates evenhandedly," Brown-Forman, 476 U.S. at 579, 106 S.Ct. 2080, the court then applies the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970). That test upholds a state regulation unless the burden it imposes upon interstate commerce is "clearly excessive in relation to the putative local benefits." Id. at 142, 90 S.Ct. 844.
Discrimination is defined as the "differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter." Oregon Waste Sys. Inc. v. Dep't of Envtl. Quality of Oregon, 511 U.S. 93, 99, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994). A statute can discriminate against out-of-state interests in three different ways: (a) facially, (b) purposefully, or (c) in practical effect. Wyoming v. Oklahoma, 502 U.S. 437, 454-55, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992).
Plaintiffs contend that under the APR-DRG reimbursement methodology, "[t]he [Department] pay[s] California hospitals significantly more money for every Medi-Cal patient treated than they pay California hospitals for the exact same services." Compl. ¶ 2. The stipulated facts confirm that the APR-ARG reimbursement scheme directly discriminates on its face against interstate commerce. In addition from being excluded from DSH payments, out-of-state hospitals have categorically been excluded from reimbursement adjustments accorded to in-state hospitals. In particular, the APR-ARG reimbursement scheme excludes out-of-state hospitals from various wage indices, rural, and policy adjustments (as well as DHS payments which this Court has determined in violation of statutory law):
P's MSJ at 16-17.
While the line between the per se rule and the Pike balancing test is not always clear, see Raymond Motor Transportation, Inc. v. Rice, 434 U.S. 429, 440-41, 98 S.Ct. 787, 54 L.Ed.2d 664 (1978) (recognizing that there is no clear line separating the category of state regulation that is virtually per se invalid under the Commerce Clause and the category subject to the Pike v. Bruce Church balancing approach), it is here. The Department rules clearly discriminate against out-of-state hospitals.
To survive a constitutional challenge under the Commerce Clause, facially discriminatory laws must demonstrate both the existence of a legitimate, non-protectionist local purpose and the absence of nondiscriminatory alternatives. Hughes v. Oklahoma, 441 U.S. 322, 337, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979). Facially discriminatory state regulations must be stricken "unless the discrimination is demonstrably justified by a valid factor unrelated to economic protectionism." New Energy Company of Indiana v. Limbach, 486 U.S. 269, 274, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988). The Supreme Court has upheld only one such discriminatory law. See Maine v. Taylor, 477 U.S. 131, 141, 106 S.Ct. 2440, 91 L.Ed.2d 110 (1986) (upholding Maine's statute banning the importation of live baitfish because of "significant threats to Maine's unique and fragile fisheries").
The Department attempts to overcome the presumption of invalidity by claiming 1) that out-of-state hospitals provided only.3% of all Medi-Cal covered hospital stays during state fiscal year 2013/2014
Likewise, the Department's administrative burden argument fails. This argument was already twice rejected in Bontá and Belshe. Belshe, 188 F.3d at 1098 (stating that the Department "could develop a reasonable methodology for reimbursement different from its in-state provider methodology."); Bontá, 97 Cal.App.4th at 764 n. 15, 118 Cal.Rptr.2d 629 (stating that the Department did not explain why it cannot contract with the few large hospitals in nearby states that treat a significant number of Medi-Cal patients). As Plaintiffs point out, it "would not be administratively difficult for the Department to apply many of the same adjustments that it applies to in-state hospitals to out-of-state hospitals" for four reasons. Opp'n to D's MSJ at 10. First, it would be easy for the Department's employees to find an applicable wage index for a hospital in Nevada, Oregon, or Arizona. Id. Second, the Department can apply the same Medi-Cal cost-to-charge ratio to every out-of-state hospital. Id. at 11. Third, for remote rural base prices the Department would not have to evaluate "thousands of out-of-state hospitals" because even under the 15-020 Amendment only four plaintiffs would meet the requirements of remote rural hospitals. Id. Finally, only six plaintiffs might qualify for the 1.75 policy adjustor for a neonate stay. Id. There is no insurmountable burden to eliminate the challenged disparity.
In sum, the Department's claimed administrative burden in reimbursing out-of-state hospitals is insufficient to overcome
The Court finds persuasive two cases which have examined issues closely related to that at issue here. In Bontá, supra, the California Court of Appeal struck down the Department's reimbursement practices that discriminated against out-of-state hospitals as unconstitutional. Bontá, 97 Cal.App.4th 740, 118 Cal.Rptr.2d 629. The court found the Department's discriminatory hospital reimbursement scheme violated the dormant Commerce Clause, even though the disparity in the treatment of in-state and out-of-state hospitals "[was] slight." Id. at 763, 118 Cal.Rptr.2d 629. In Bantá, the Court of Appeal examined the "fundamental dissimilarities"
In W. Va. Univ. Hospitals, Inc. v. Rendell, No. CIV. 1:CV-06-0082, 2007 WL 3274409, at *11 (M.D.Pa. Nov. 5, 2007), the court invalidated Pennsylvania's Trauma DSH payment scheme. The issue in Rendell was whether the plaintiff, West Virginia University Hospitals, Inc. ("the Hospital"), was entitled to trauma disproportionate share hospital ("Trauma DSH") payments under the Pennsylvania Trauma Systems Stabilization Act, 35 P.S. §§ 6943.1 et seq. ("Trauma Act"). Id. at *1. Pennsylvania enacted the Trauma Act, which authorized the distribution of a new disproportionate share payment, the Trauma DSH, to Pennsylvania's trauma centers. Id. at *2. However, the statute limited the definition of "trauma center" to include only hospitals located within Pennsylvania. See 35 Pa. Cons.Stat. Ann. § 6943.2 (defining a hospital as "[a]n entity located in this Commonwealth that is licensed as a hospital [under the] Health Care Facilities Act."). Id. To escape the dormant Commerce Clause, the state argued that Pennsylvania was a market participant because the Trauma DSH payments were a permissible subsidy to domestic industry. Id. at *8. The court rejected this argument explaining that by definition the payments are a form of compensation for hospitals which provide a disproportionate share of trauma treatment for Medicaid patients. Id. at *9. The court concluded that Trauma DSH payments did not fall within the market participant exception because the payments were incorporated into the Medicaid State Plan, jointly funded by Pennsylvania and the federal government. Id.
Because the Trauma Act was facially discriminatory, the court invoked the per se rule of invalidity. Id. at *10. The state attempted to overcome the presumption of invalidity by claiming that the Trauma Act served a legitimate purpose of providing trauma care for Pennsylvania citizens. Id. According to Pennsylvania, that purpose would have been undermined if the state distributed scarce resources to out-of-state hospitals. Id. The court, however, explained that the state was undermining its important goal of improving access to trauma care for Pennsylvania citizens because out-of-state hospitals, as the Plaintiffs here, provided trauma care to a significant number of Pennsylvania residents.
For reasons noted above, the same reasoning applies to the instant case. Thus, the Department's APR-ARG reimbursement scheme as it relates to out-of-state hospitals along with the DSH payment policy are invalid under the dormant Commerce Clause.
As discussed above, the 15-020 Amendment (1) will apply the same wage index policy for California hospitals and border hospitals; (2) will apply the "remote rural" base price to border hospitals that are determined to be "rural" by the Medicare program; (3) border hospitals will qualify for 1.75 policy adjustors; and (4) the cost-to-charge ratio will be based on the Medicare reported average CCRs. Rowan Second Suppl. Decl. ¶ 4, Docket No. 59-1.
The Department claims that the 15-020 Amendment "addresses most, if not all, of the discrepancies plaintiffs complain about." D's Opp'n to P's MSJ at 7. Plaintiff respond that even after the enactment of the 15-020 Amendment, out-of-state hospitals are not going to get: (1) the California "rural" floor wage index; (2) Medicare wage index reclassifications; (3) the "remote rural" definition for out-of-state hospitals remains very restrictive; and (4) the cost-to-charge ratio that is based on Medicaid (35%), rather than Medicare (22%) patients. P's MSJ at 14. In addition, as discussed above, out-of-state hospitals continue to be excluded from DSH payments.
Section 4410 of the Balanced Budget Act of 1997 established the "rural floor" by requiring that the Medicare wage index for a hospital in an urban area of a State cannot be less than the area wage index determined for that State's rural area. Vaida Decl. ¶ 13. According to Plaintiffs, the Department's use of the California "rural floor" as a Medi-Cal adjustor for urban California hospitals resulted in substantial windfall payments to 211 in-state hospitals that had nothing to do with their actual wage costs. Id. For FYE 2013-2014, the California "rural floor" wage index was 1.2282. Id. The use of this "rural floor" increased the labor component of the "base price" of 211 California urban hospitals by $977.02 (i.e., 22.82% × $4,281.42), resulting in a new total "base price" of $7,200.02, and an increase of 15.7% in the Medi-Cal reimbursement. Id.
With respect to Medicare wage index reclassifications, which increase wage index values, Plaintiffs assert that nationwide almost 40% of hospitals have been reclassified. Johnson Decl. Ex.3. In the case of hospitals that the Department deems "remote rural,"
During the oral argument, the Department argued that after the 15-020 Amendment the State became "as close as the State can get" in its alignment of in-state and out-of-state reimbursement rates. Yet, the courts have held that even a "slight disparity in the treatment of in-state and out-of-state interests may offend the dormant commerce clause." Bontá, 97 Cal. App.4th at 766, 118 Cal.Rptr.2d 629. For example, in Oregon Waste Systems, Inc. v. Department of Environmental Quality, 511 U.S. 93, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994), the Supreme Court found that a $2.25 per ton surcharge on out-of-state waste impermissibly burdened interstate commerce despite an increase of only 14 cents per week for the average user. The Court stated that its precedents "clearly establish that the degree of a differential burden or charge on interstate commerce `measures only the extent of the discrimination' and `is of no relevance to the determination whether a State has discriminated against interstate commerce.'" Id. at 100, 114 S.Ct. 1345 n. 4 (quoting Wyoming, 502 U.S. at 455, 112 S.Ct. 789). Hence, the fact that the 15-020 Amendment substantially lessens the disparity in treatment, but does not eliminate that disparity, does not obviate the Commerce
Because the Department continues to reimburse out-of-state hospitals at lower rates than in-state hospitals resulting in out-of-state hospitals being paid less and excludes such hospitals from DSH payments, the Department directly discriminates against out-of-state hospitals even after the 15-020 Amendment. The Department has not justified the residual disparity as required by strict scrutiny under the Commerce Clause. Cf. New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 278, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988). The Department did not advance any justification for discrimination in this case. The administrative burden argument, rejected herein, is the Department's only defense. "[A] State may validate a statute that discriminates against interstate commerce by showing that it advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives." New Energy Co, 486 U.S. at 278, 108 S.Ct. 1803 (1988). It has failed to do so here.
In view of the holding above, the Court need not reach Plaintiffs' Equal Protection claims. The Court notes that several other courts have found that the discrimination (at least where there are significant disparities) against out-of-state hospitals violate the Equal Protection Clause even under rational basis review. See e.g., Children's Seashore House v. Waldman, 197 F.3d 654, 661 (3d Cir.1999) (stating that plaintiffs' Equal Protection claim for disproportionate share hospital adjustments should have survived defendant's motion to dismiss); W. Va. Univ. Hospitals v. Casey, 701 F.Supp. 496, 518-20 (M.D.Pa. 1988), rev'd in part on other grounds by 885 F.2d 11 (3d Cir.1989), rev'd on other grounds by 499 U.S. 83, 111 S.Ct. 1138, 113 L.Ed.2d 68 (1991) (holding that a considerably lower Medicaid reimbursement to out-of-state hospitals violated the Equal Protection Clause); W. Va. Univ. Hospitals, Inc. v. Rendell, No. CIV. 1:CV-06-0082, 2007 WL 3274409, at *7 (M.D.Pa. Nov. 5, 2007) (holding that denying trauma disproportionate share hospital payments to out-of-state hospitals violated the Equal Protection Clause); Children's Hospital & Medical Center v. Bontá, 97 Cal.App.4th 740, 771, 118 Cal.Rptr.2d 629 (1st Dist.2002) (holding that the Department failed to demonstrate that "differential treatment of respondent hospitals on the basis of their location out of state is rationally related to a legitimate governmental purpose.").
For the foregoing reasons, the Court partially
This order disposes of Docket Nos. 39 and 51.
42 C.F.R. § 431.52(b).
The Secretary adopted the regulation 42 C.F.R. § 431.52(b) to implement 42 U.S.C. § 1396a(a)(16). Section 1396a(a)(16) addresses services for beneficiaries who are absent from their home state. Under section 1396a(a)(16), a State plan must:
42 U.S.C. § 1396a(a)(16).
In the course of other litigation, the Secretary of Health and Human Services has interpreted 42 U.S.C. § 1396(a)(16) and the implementing regulation at 42 C.F.R. § 431.52 to be:
D'S RJN, Ex. I at 19-20. Plaintiffs do not base any substantive claim on 42 C.F.R. § 431.52(b), presumably because the Secretary has assumed it is directed only at coverage and not at ensuring that the states achieve certain payment levels when reimbursing out-of-state hospitals. See Brief of the United States as Amicus Curiae at 19-20, Children's Hosp. and Health Center v. Belshe, No. C 95-1076 (N.D.Cal. March 1, 1995).
Cal. Code Regs. tit. 22, § 51006.
Gonzaga Univ. v. Doe, 536 U.S. 273, 285, 122 S.Ct. 2268, 153 L.Ed.2d 309 (2002) (citations and internal quotations omitted).
In Santiago ex rel. Muniz v. Hernandez, 53 F.Supp.2d 264 (E.D.N.Y.1999), the district court explained:
Id. at 268.
42 U.S.C.A. § 5318 (emphasis added).
42 U.S.C. § 9604(c).
