RICHARD W. ROBERTS, District Judge.
Plaintiffs Urban Health Care Coalition and fifteen hospitals, medical centers, and health systems (referred to collectively as "the Hospitals") have sued the Secretary of the Department of Health and Human Services
The Hospitals sue the Secretary, challenging the constitutionality of § 6085 and its applicability to Pennsylvania. In Pennsylvania, Medicaid enrollees can obtain medical services through the state's fee for service ("FFS") program. In the FFS program, service providers, such as the Hospitals, enter into participation agreements with the Pennsylvania agency that oversees Medicaid. The Hospitals all participate in Medicaid and the payments from the FFS program are "below the hospitals' actual costs of providing hospital services." (Am. Compl. ¶¶ 3, 31.)
In addition to the FFS program, Pennsylvania has a managed care program through which it contracts with managed care organizations ("MCOs"). The MCOs provide services to Medicaid enrollees through contracts with "a `network' of physicians, hospitals[,] and other in-plan medical service providers." (Id. ¶¶ 34, 40.) For the same services, the Hospitals generally receive higher payments from their contracts with MCOs than from the FFS program. (Id. ¶ 75.) However, even if the Hospitals are not providers under contract with a particular MCO, the Hospitals are required by federal law to provide emergency medical services ("EMS") to all Medicaid patients who are in that MCO. (Id. ¶ 62.) Before January 1, 2007, the Hospitals provided EMS to such Medicaid patients and billed those patients' MCOs for "all reasonably necessary costs," as required by 40 Pa. Stat. § 991.2116.
42 U.S.C. § 1396u-2(b)(2)(D). Section 6085 requires the Hospitals not under contract with an EMS patient's MCO to forego the higher payments under Pennsylvania's "all reasonably necessary costs" standard and instead accept payments based on Pennsylvania's FFS rates. (Am. Compl. ¶¶ 90-92.) The Hospitals complain that this shifts the financial burden from the MCOs to the Hospitals as the FFS rates for EMS are below cost, and affects the Hospitals' "ability to negotiate fair rates of payment from MCOs" in the future. (Id. ¶¶ 102, 105-106.) After Congress enacted the DRA, the Director of the Centers for Medicare and Medicaid Services ("CMS"), an agency within the Department of Health and Human Services, sent a letter to state Medicaid agencies advising them that they must amend their contracts with MCOs to comply with the new limitation of § 6085 and that the Hospitals must accept the FFS rates as payment in full. (Pls.' Corrected Opp'n to Def.'s Mot. to Dismiss ("Pls.' Opp' n"), Ex. B at 1.)
The Hospitals seek to enjoin the Secretary from enforcing § 6085 against them, arguing that the statute does not apply to Pennsylvania and is unconstitutional as applied because it violates the takings clause, due process rights, and equal protection under the law.
A federal court should first determine that it has jurisdiction over a case before ruling on the merits. Al-Zahrani v. Rodriguez, 669 F.3d 315, 317-18 (D.C.Cir.2012); Moms Against Mercury v. Food & Drug Admin., 483 F.3d 824, 826 (D.C.Cir.2007) ("In every case, the jurisdictional requirements of Article III must be present before a court may proceed to the merits."); but see Sinochem Int'l Co. Ltd. v. Malaysia Int'l Shipping Corp., 549 U.S. 422, 430-32, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (distinguishing between proceeding to the merits and proceeding to
"[A] showing of standing is an essential and unchanging predicate to any exercise of [a court's] jurisdiction." Fla. Audubon Soc'y v. Bentsen, 94 F.3d 658, 663 (D.C.Cir.1996) (internal quotation marks omitted). In order for a plaintiff to establish standing to bring a constitutional claim, Article III requires that the plaintiff demonstrate (1) that he has suffered "an injury in fact" that is "(a) concrete and particularized and (b) actual and imminent, not conjectural or hypothetical," (2) that there exists "a causal connection between the injury and the conduct complained of," that is, that the injury is "fairly traceable to the challenged action of the defendant," and (3) that it is "likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal quotation marks and citations omitted).
An injury in fact is "an invasion of a legally protected interest[.]" Lujan, 504 U.S. at 560, 112 S.Ct. 2130 (internal quotation marks and citations omitted). At the pleading stage, the "general factual allegations of injury resulting from the defendant's conduct may suffice," since on a motion to dismiss, a court presumes "that general allegations embrace those specific facts that are necessary to support the claim." Bennett v. Spear, 520 U.S. 154, 168, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997) (internal quotation marks omitted). Here, the Hospitals allege that § 6085 reduces their reimbursements for non-contracted EMS from the level at which they would otherwise be entitled to be paid under Pennsylvania law. (Pl.'s Opp'n at 8.) This constitutes a concrete, actual harm to the Hospitals' financial interests and is sufficient to satisfy the requirement of injury in fact. See Andrews v. U.S. Dep't of Health and Human Srvcs., Civil Action No. 04-307(JR), 2005 WL 4826342, at *2 (D.D.C. Apr. 13, 2005) ("Economic injury may amount to injury-in-fact for standing purposes.").
"In applying the causation test,... `fair traceability turns on the causal nexus between the agency action and the asserted injury.'" Humane Soc'y of U.S. v. Babbitt, 46 F.3d 93, 100 (D.C.Cir.1995) (quoting Freedom Republicans, Inc. v. FEC, 13 F.3d 412, 418 (D.C.Cir.1994)). The plaintiff "need not prove a cause-and-effect relationship with absolute certainty;
The Hospitals contend that they are directly injured by the Secretary's enforcement of § 6085, which requires them to accept payments at Pennsylvania's FFS rates for EMS and impairs their ability to negotiate future contracts with MCOs. (Am. Compl. ¶¶ 102, 105; Pls.' Opp'n at 12, 17.) The Secretary argues that the injury is not traceable to a past or imminent action that she has taken or is about to take, but is instead traceable to a statute passed by Congress. (Def.'s Reply Mem. in Support of Mot. to Dismiss ("Def.'s Reply") at 2.) The amended complaint does not explicitly make reference to a specific action by the Secretary in connection with § 6085 that caused the Hospitals' injury. However, in their opposition, the Hospitals attached a 2006 letter to state Medicaid agencies sent by the Director of CMS, which provided "initial guidance" that "[s]tates must amend any existing MCO... contracts that have provisions governing payment for emergency services at non-contracting providers that are inconsistent with the requirements of new section 1932(b)(2)(D) ... before January 1, 2007." (Pls.' Opp'n, Ex. B at 1.) The letter also stated that providers had to "accept [the FFS rates] as payment in full," and advised that MCOs had to limit the amount to be paid to non-contracting providers.
Redressability focuses on the question of whether plaintiffs' injury would likely be cured if they secured the relief sought. Fla. Audubon Soc'y, 94 F.3d at 663-64 ("Redressability examines whether the relief sought, assuming that the court chooses to grant it, will likely alleviate the particularized injury alleged by the plaintiff.") (footnote omitted). A plaintiff does not need to show that the relief sought would redress the injury completely. See Shays v. FEC, 414 F.3d 76, 83 (D.C.Cir. 2005). However, redressability cannot depend upon the action or discretion of a non-party not before the court. See Univ. Med. Ctr. of S. Nev. v. Shalala, 173 F.3d 438, 442 (D.C.Cir.1999) (stating that even if the plaintiff prevailed, "it has never explained how, or under what legal theory, it would be entitled to recover" against non-parties). "When redress depends on the cooperation of a third party, it becomes the burden of the [plaintiff] to adduce facts showing that those choices have been or will be made in such manner as to produce causation and permit redressability of injury." US Ecology, Inc. v. U.S. Dep't of Interior, 231 F.3d 20, 24-25 (D.C.Cir.2000) (internal quotation marks omitted).
The Hospitals present several different theories of redressability.
The Hospitals maintain that "MCOs have been expressly contractually bound as a condition of serving in the [Pennsylvania Medicaid program] to pay for non-contracted EMS at the rates prescribed by Act 68 (40 P.S. § 991.2116), `but for' § 6085." (Pls.' Surreply at 3.) Following a declaratory judgment in the Hospitals' favor, the Hospitals contend that the Pennsylvania statute that governs reimbursement for EMS, which requires MCOs to pay "all reasonably necessary costs[,]" 40 Pa. Stat. § 991.2116, will provide the controlling law for MCOs' payments. Consequently, the Hospitals argue that the MCOs will pay them in accordance with Pennsylvania law after § 6085 is declared unlawful because to do otherwise would violate the terms of the MCOs' state contracts. (Pls.' Surreply at 4.) See also Pls.' Opp'n at 17 (arguing that the Hospitals "automatically would be entitled upon the entry of a favorable judgment in this case to reimbursement for EMS from non-contracted Medicaid MCOs at the much higher rates prescribed by Pennsylvania Act 68"). Neither declaratory nor injunctive relief in this case, however, would ensure or make likely that the MCOs would behave in the manner the Hospitals assume.
Because § 6085 is a statutory provision enacted by Congress, not a regulation adopted by the Secretary or her department, a judgment in this case declaring it unconstitutional and enjoining the Secretary from "enforcing" it (Am. Compl. at 31) will not effect any change in federal Medicaid law that could bind nonparties.
The recent case of LaRoque v. Holder, 650 F.3d 777 (D.C.Cir.2011), addressed by the parties in supplemental briefing, does not support the Hospitals' contention that a declaratory judgment in the instant case would void § 6085 for the MCOs or for the State of Pennsylvania. In LaRoque, voters and a citizen's group challenged the United States Attorney General's refusal to pre-clear under Section 5 of the Voting Rights Act a jurisdiction's proposed amendment to its election system and argued that Section 5 is unconstitutional. Absent the Attorney General's objection, the proposed amendment would have taken effect. The D.C. Circuit found that the plaintiffs' injury could be redressed by a favorable decision, because if Section 5 were found unconstitutional, the Attorney General's actions under that statute would be rendered void. Id. at 790-91. The Hospitals contend that LaRoque compels the result that the constitutional claims in the instant case are redressable because a favorable decision will void § 6085. (Pls.' Reply to Def.'s Supp. Mem. at 2-5.) The D.C. Circuit's decision, however, depended on the unique structure of Section 5, a statutory provision that "provides that `no person shall be denied the right to vote for failure to comply' with a new electoral law `unless and until' the law is precleared by either the Attorney General or the District Court for the District of Columbia." LaRoque, 650 F.3d at 790 (quoting 42 U.S.C. § 1973c(a)). The operation of Section 5 therefore expressly requires action by the Attorney General, or by the district court. Placed in this factual context, the LaRoque plaintiffs' injuries were "fairly traceable to the Attorney General's insistence on enforcing section 5's preclearance requirement[,]" id. at 789, and a declaratory judgment that Section 5 is unconstitutional, voiding the action of Attorney General, would redress those injuries.
Unlike Section 5, the operation of § 6085 does not hinge on any action of the Secretary. See 42 U.S.C. § 1396u-2(b)(2)(D); supra at 104 (quoting the statutory language). Here, a declaratory judgment and injunction against the Secretary will not preclude the MCOs from relying on § 6085 to pay the Hospitals in accordance with the federal default rate or from re-litigating the issue in a suit against the Hospitals. In Taylor v. Sturgell, the Supreme Court reaffirmed the general rule against nonparty preclusion, reasoning that because "[a] person who was not a party to a suit generally has not had a `full and fair opportunity to litigate' the claims and issues settled in that suit[,]"
The Taylor Court, however, construed both of these exceptions narrowly, and neither applies here. The Secretary does not adequately represent the MCOs' interests because there is no evidence that she defends this suit in a "representative capacity" on behalf of the MCOs and because there are in place no "special procedures to protect the nonparties' interests[.]" Id. at 897; see also Holland v. Nat'l Mining Ass'n, 309 F.3d 808, 814 (D.C.Cir.2002) (finding no adequate representation of private parties' interests in a prior suit against an agency to determine statutorily required payment to those parties because they "ha[d] a monetary incentive to adopt a statutory interpretation that will maximize [their] revenues" while agency "must act impartially and does not have a monetary incentive to adopt a particular statutory interpretation"). Further, preclusion based on assumption of control over the litigation requires that a party litigate an action for the non-party's benefit and at the non-party's direction. Montana, 440 U.S. at 154, 99 S.Ct. 970. In Montana, the Supreme Court held the United States was precluded from relitigating the constitutionality of a state tax where it had assumed control of a prior constitutional challenge brought by a government contractor. The Court based its holding on findings that the United States had required the contractor to file suit, reviewed and approved the complaint, and paid the attorneys' fees and costs, among other efforts. Id. at 155, 99 S.Ct. 970. The Hospitals have neither alleged nor provided evidence of the MCOs' involvement in the instant litigation, and the Hospitals' contention that " § 6085 was enacted at the instigation and for exclusive financial benefit of Medicaid MCOs" (Pls.' Reply to Defs.' Supp. Mem. at 7) is insufficient to support a reasonable inference that the MCOs have assumed or may assume control of the litigation.
In the absence of enjoinable agency action or preclusive effect, this is not a case where non-parties could only continue to rely on § 6085 after it was declared unconstitutional if they "took the extraordinary measure of continuing their injurious conduct in violation of the law." Nat'l Wrestling Coaches Ass'n, 366 F.3d at 941. Because the MCOs are not parties to this action, a judgment for the Hospitals will not bind them. The Hospitals' failure to sue or join the MCOs thus is fatal to the redressability of this action. Cf. Duke Power Co. v. Carolina Envtl. Study Group, 438 U.S. 59, 75-78, 98 S.Ct. 2620, 57 L.Ed.2d 595 (1978) (finding redressability requirement satisfied in suit challenging constitutionality of Price-Anderson Act, which limited liability of federally licensed power plants for nuclear accidents, where plaintiff citizens groups and interested individuals sued both the Nuclear Regulatory Commission and the utility
Alternatively, the Hospitals contend that their claims are redressable because § 6085 regulates the Hospitals' own conduct, limiting what they can collect from MCOs. (Pls.' Supp. Mem. at 3.) According to the Hospitals, regardless of whether the MCOs are bound by a favorable decision in this case, such a decision would free the Hospitals to seek higher payments from the MCOs.
The complaint thus contemplates future suits against the MCOs, stating that "unless the application of the DRA Default Rate Provision is enjoined as to Plaintiffs, Plaintiffs will have no way to assert and preserve claims against MCOs for amounts in excess of the confiscatory rates imposed by § 6085." (Am. Compl. ¶ 104.) The requested relief would allegedly allow the Hospitals to pursue their claims against the MCOs and to avoid "potential criminal liability and exclusion from Medicare and Medicaid." (Id.) However, the two-step process of obtaining a declaratory judgment and then suing a non-party for payment does not satisfy redressability. In University Medical Center, for example, where a hospital sought a declaratory judgment against the Secretary to be deemed eligible to receive discounts on drug prices, the D.C. Circuit held that the hospital failed to demonstrate that the injury from its loss of past discounts was
The Hospitals contend that the two-step process is necessary because they are faced with the dilemma of either accepting lower payments from the MCOs or facing criminal penalties — for billing the MCOs at the higher billing rates than would have been permissible but for § 6085 — under § 1128B of the Act. (Pl.'s Opp'n at 14-16.) That section provides that whoever knowingly and willfully charges for services provided to an individual enrolled with an MCO at a rate in excess of that permitted by the contract shall be guilty of a felony. 42 U.S.C. § 1320a-7b(d). In support of their contention, the Hospitals cite Abbott Labs. v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967), where drug companies brought a pre-enforcement action to challenge FDA labeling regulations, defiance of which carried criminal penalties. Unlike this case, Abbott Labs. was a challenge to an agency's regulations, raising claims which clearly were redressable in a suit against the agency head. See id. at 154, 87 S.Ct. 1507 (noting there was "no question in the present case that petitioners have sufficient standing"). Moreover, the Hospitals do not need to subject themselves to potential criminal liability by charging the MCOs excessive payments in order to pursue claims against them. The Hospitals may initiate a suit directly against the MCOs for a declaratory judgment that the statute is unconstitutional and an injunction requiring payment in accordance with Pennsylvania rather than federal law. Proceeding in that fashion
Finally, the Hospitals argue that this suit will redress their injuries because a judgment that § 6085 is unconstitutional will reduce the MCOs' reliance on the provision to avoid negotiating case-specific agreements with the Hospitals, thereby improving the Hospitals' "bargaining leverage." (Pls.' Supp. Mem. at 12-15; Am. Compl. ¶¶ 109-111.) Even assuming that the Hospitals' alleged injury of a weakened contract bargaining position with the MCOs is sufficient to constitute a concrete and particularized injury for standing purposes, this injury is not redressable. It is speculation to assert that the requested relief would have any effect on future contract negotiations that are within the complete discretion of the MCOs and can be influenced by other factors not within the court's control. Redressability cannot rest on "the unfettered choices made by independent actors not before the courts and whose exercise of broad and legitimate discretion the courts cannot presume either to control or to predict." US Ecology, Inc., 231 F.3d at 24 (internal quotation marks omitted). Article III limits federal courts to adjudicating cases and controversies and prohibits them from issuing advisory opinions. The redressability requirement is not met where a decision favorable to the Hospitals would not resolve their right to payment from the MCOs but merely put pressure on the MCOs to negotiate contracts beneficial to Hospitals because the MCOs might believe that separate litigation might result in another decision favorable to the Hospitals.
In sum, the Hospitals have not demonstrated that a favorable decision would redress their injury, through either the decision's affect on the MCO's contractual obligations, on the Hospitals' ability to pursue claims against the MCOs, or on the Hospitals' bargaining leverage vis-à-vis the MCOs. Because the Hospitals therefore do not have standing, the court lacks subject matter jurisdiction, and the Secretary's motion to dismiss will be granted. A separate Order accompanies this Memorandum Opinion.
40 Pa. Stat. § 991.2116.
