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1 MARKE.REAGAN~teBarNO.143438) EwMail: mre~g~ ealth-Iaw.cotn
2 JORDAN B. KEVIL (State Bar No. 217868) E-Mail: jkevillera>.health-law.com. .
3 HOOPER, LUNDy-'& BOOKMAN, INC. 1875 Century Park East. Suite 1600
4 Los Angeles) Califomia90067 T.elephone: (310) 551-8111
5 Facsunile: (310) 551-8181
6 Attorneys. for Plaintiff CALIFORNIA ASSOCIATION OF HEALTH
7 FACILITIES

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UNITED STATES DISTRICT COURT

9

CENTRAL DlSTRICT OF CALIFORNIA, WESTERN DIVISION

10

11:

CALIFORNIA ASSOCIATION OF
HEALTII FACILITIES,

121

Plaintiff1

13 vs;

14
DAVID MAXWELL-JOLLY,

15 DIRECTOR OF TIm DEPARTMENT OF HEALlH CARE SERVICES,

16 STATE OF CALIFORNIA,

17

Defendant.·

COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

18

19

20 /1/
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22 /1/

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24 II!

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27 III

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21J24379.J

COMPLAlNT FOR l'NJUNCTIVE AND DECLARATORY RELlEr -

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 2 of 24 Page ID #:2

1

JURISDICTION AND VENUE

2

1. Plaintiff California Association of Health Facilities ("CAHF" or

3 "Plaintiff') brings this complaint pursuant to 28 United States Code ("U.S.C.")

4 § 1331, the Supremacy Clause and 42 U.S.C. § 1983. Shaw v. Delta Air Lines, Inc.,

5 463 U.S. 85,96 n. 14 (1983). This court further may compel Defendant David

6 Maxwell-Jolly, Director ofthe California Department of Health Care Services (the

7 "Director" or "Defendant") to comply with the mandatory provisions ofthe federal

8 Medicaid law pursuant to 28 U.S.C. § 1361.

9

2. Venue lies in this judicial district under 28 U.S.C. § 1391, in that the

10 Director has offices within this judicial district and is thus deemed to reside within

11 this judicial district.

12

INTRODUCTION

13

3. The State of California continues to disregard the mandates of federal

14 law when making decisions that impact the rates of reimbursement afforded to

15 health care providers under California's Medicaid program, Medi-Cal. On two

16 separate occasions in 2008, as part ofthe enactment of the State budget, the

17 California Legislature passed statutes that called for flat percentage reductions in the

18 payment rates for various classes of services covered under Medi-Cal. The majority

19 of these payment rate reductions were enjoined by federal courts because they were

20 not enacted or implemented in a manner consistent with the federal Medicaid Act,

21 which requires that states consider certain factors and take certain procedural steps

22 before altering the rates paid to health care providers. Indeed, these rate reductions

23 resulted in three, published decisions from the Ninth Circuit Court of Appeals

24 establishing clearly that, to the extent it undertakes the task of setting Medi-Cal

25 payment rates, the Legislature must comply with the mandates of federal law and, if

26 it does not, the offending State statutes will be preempted.

27

4. The Legislature's effort to balance California's budget for the

28 2009-2010 fiscal year has resulted in legislation that once again reduces Medi-Cal

2024379.3

COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 3 of 24 Page ID #:3

1 payment rates solely in the name of financial savings and without adherence to the

2 requirements ofthe Medicaid Act. Although the form of the most recent rate

3 reductions may differ slightly from the flat percentage reductions that were enjoined

4 previously, the process through which the latest limitations were enacted was

5 virtually identical to the process that led to the now enjoined cuts. The State should

6 not be permitted to continue to ignore federal law when setting Medi-Cal payment

7 rates.

8

5. By this action, an organization representing the interests of California

9 Intermediate Care Facilities For The Mentally Retarded ("ICFIMR facilities") and

10 Freestanding Pediatric Subacute facilities ("FPS facilities") seeks an injunction to

11 invalidate and stop the implementation of the Medi-Cal rate limitation, which went

12 into effect on August 1, 2009, that applies to payment rates for services rendered by

13 ICFIMR facilities and FPS facilities. This new payment limitation has and will

14 continue to improperly deprive Medi-Cal participating ICFIMR facilities and FPS

15 facilities, including a large number of small facilities, of reimbursement to which

16 they otherwise are lawfully entitled.

17

6. The payment limitation is illegal because, as it has multiple times

18 before, the California Legislature failed to fulfill its legal mandate to consider

19 whether the resulting reimbursement rates are consistent with efficiency, economy

20 and quality of care, reasonably related to provider costs, and sufficient to enlist

21 enough providers so that Medi-Cal beneficiaries have access to the impacted

22 services to the extent such services are available to the general public. The State

23 further violated federal law, like it has done before, by enacting the reimbursement

24 limitation without the proper public process required for payment rate adjustments.

25

7. For these and other reasons, the Medi-Cal rate limitation impacting

26 ICFIMR facilities and FPS facilities violates federal law. The imposition of the rate

27 limitation has caused, and will continue to cause, irreparable harm to California

28 ICFIMR facilities and FPS facilities in the form of improperly reduced payments.

2024379.3

2
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 4 of 24 Page ID #:4

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1 that cannot be recovered in federal court through an action at law. Indeed, a federal

2 district court already has preliminary enjoined implementation ofthis rate limitas it

3 applies to certain hospital services based on findings that it likely violates the

4 Medicaid Act and was causing irreparable harm to California hospitals.

5 Accordingly, Plaintiff, on behalf of its members, seeks declaratory and injunctive

6 reliefto prevent the rate limitation from taking effect and, to the extent the

7 limitation already is in operation, to stop it from being applied any further to

8 ICF/MR facilities and FPS facilities.

9

FEDERAL MEDICAID LAW

10

8. Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., the

11 Medicaid Act, authorizes federal financial support to states for medical assistance to

12 low-income persons who are aged, blind, disabled, or members of families with

13 dependent children. The program is jointly financed by the federal and state

14 governments and administered by the states. The states, in accordance with federal

15 law, decide eligible beneficiary groups, types and ranges of services, payment level

16 for services, and administrative and operative procedures. Payment for services is

17 made directly by states to the individuals or entities that furnish the services.

18 42 Code of Federal Regulations ("C.F.R.") § 430.0.

19

9. In order to receive matching federal financial participation, states must

20 agree to comply with the applicable federal Medicaid law and regulations, 42 U.S.C.

21 §§ 1396 et seq. Once a state has decided to participate in the Medicaid program,

22 compliance with the federal Medicaid law and regulations is mandatory.

23

10. At the state level, the Medicaid program is administered by a single

24 state agency, which is charged with the responsibility of establishing and complying

25 with a state Medicaid plan (the "State Plan") that, in tum, must comply with the

26 provisions of applicable federal Medicaid law. 42 U.S.C. § 1396a(a)(5) and

27 42 C.F.R. §§ 430.10 and 431.10. The State Plan must be submitted to the Secretary

28 of the United States Department of Health and Human Services (the "Secretary") for

2024379.3

3
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 5 of 24 Page ID #:5

1 approval and must describe the policies and methods to be used to set payment rates

2 for each type of service included in the state Medicaid plan. 42 C.F.R. §§ 430.10

3 and 447.201 (b). Changes to the State Plan may not be implemented by the state

4 prior to being approved by the Secretary.

5

11. For ICFiMR facilities, FPS facilities, and certain other institutional

6 providers, states must establish rates through a public process that includes:

7 (a) publication of proposed rates, the methodologies underlying the establishment of

8 such rates, and justifications for the rates; (b) a reasonable opportunity for comment

9 on the proposed rates, methodologies and justifications by providers, beneficiaries

10 and their representatives, and other concerned State residents; and (c) publication of

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11 the tlnal rates, the methodologies underlying the establishment of such rates, and

12 justifications for such final rates. See 42 U.S.C. § 1396a(a)(13)(A) (hereinafter

13 "Section 13(A)"); 42 C.F.R. § 447.205.

14

12. Each state's Medicaid plan must "provide such methods and

15 procedures ... relating to the utilization of, and the payment for, care and services

16 available under the plan which may be necessary . . . to assure that payments are

17 consistent with efficiency, economy, and quality ofcare and are sufficient to enlist

18 enough providers so that care and services are available under the plan at least to

19 the extent that such care and services are available to the general public in the

20 geographic area . ... " 42 U.S.C. § 1396a(a)(30)(A) (hereinafter "Section 30(A)")

21 (emphasis added); 42 C.F.R. § 447.204. Section 30(A) has been interpreted by the

22 Ninth Circuit Court of Appeals to require state Medicaid agencies to consider

23 provider costs, based on "reasonable cost" studies, when setting Medi-Cal payment

24 rates and to preclude states from basing Medicaid rate setting decisions solely on

25 budgetary factors.

26

CALIFORNIA'S MEDI-CAL PROGRAM

27

13. The State of California has elected to participate in the Medicaid

28 program. California has named its program "Medi-Cal." See Cal. Welf. & Inst.

2024379.3

4
COMPLAINT FOR INruNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 6 of 24 Page ID #:6

1 Code §§ 14000 et seq.; 22 Cal. Code of Regs. §§ 50000 et seq.

2

14. The Medi-Cal program covers services provided to persons with

3 developmental disabilities whose health and well-being are compromised to the

4 point that they need to reside in ICFIMR facilities. The term ICFIMR facilities is

5 used to refer to intermediate care facilities for the mentally retarded as defined in

6 42 U.S.C. § 1396d(c), including those facilities known in the State of California

7 (and defined in Title 22, Cal. Code Regs. §§ 51164-51165.2 and 51243-51243.2) as

8 Intermediate Care Facilities/Developmentally Disabled ("ICFIDD"), Intermediate

9 Care FacilitieslDevelopmentally Disabled-Habilitative ("ICFIDD-H), and

10 Intermediate Care FacilitieslDevelopmentally Disabled-Nursing ("ICFIDD-N") that

11 serve this dependent population.

12

15. The Medi-Cal program also covers pediatric subacute services for

13 children who need highly intensive specialized services in order to rehabilitate

14 and/or survive. Subacute services are more intensive than skilled nursing care, but

15 slightly less intensive than care provided in an acute, inpatient setting. Medi-Cal

16 coverage extends to subacute services provided by both hospital-based and

17 freestanding providers. The term FPS facilities is used to refer to freestanding

18 subacute facilities licensed as skilled nursing facilities or congregate living facilities

19 that provide services to this dependent population, as defined in Title 22, Cal. Code

20 Regs. §§ 51124.6, 51215.6, 51215.8-51215.11 and 51335.6.

21

16. The vast majority of funding provided to ICF/MR facilities and FPS

22 facilities comes from the Medi-Cal program. As a result, these facilities are

23 completely dependent on the Medi-Cal program for their funding and financial

24 survival.

25

MEDI-CAL PAYMENTS TO ICFIMRAND FPS FACILITIES

26

17. Payments from the Medi-Cal fee for service program for various

27 categories of services are governed by various statutes, regulations, the State Plan,

28 and in some instances, informal handbooks, manuals or bulletins.

2024379.3

5
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 7 of 24 Page ID #:7

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18. Payments for services provided by ICFIMR facilities are governed by

2 Title 22, Cal Code Regs. §§ 51510.l-51510.3 and Attachment 4.19-D to the State 3 Plan. Reimbursement is established at a per diem rate calculated at the 65th

4 percentile of audited costs incurred by each ofthe categories ofICFIMR facilities

5 referred to in paragraph 14, separated by bed size. Payments for services provided

6 by FPS facilities are governed by Title 22, Cal. Code Regs. § 51511.6 and

7 Attachment 4.19-D to the State Plan. FPS facilities are reimbursed pursuant to

8 either of two predetermined flat rates, one for patients who are ventilator dependent

9 and one for patients who are not. The rates that FPS facilities are paid are based on

10 a model that projects the costs FPS facilities will incur in treating Medi-Cal patients.

11 Under the State Plan, the Department is required to re-evaluate Medi-Cal payment

12 rates for ICFIMR facility and FPS facility services on a yearly basis. The

13 Department generally is required to make updates to payment rates each year to

14 account for certain economic conditions in the industry, which reflect an assumption

IS that provider costs will generally increase every year due to, at minimum, inflation.

16

19. For the 2009-2010 rate year (beginning on August 1, 2009 and ending

17 on July 31, 2010), the average Medi-Cal rates determined by the Department to be

18 paid under the State Plan would have increased by 1.1 % for ICFIDD facilities,

19 6.03% for ICFIDD-H facilities, 8.87% for ICFIDD-N facilities and at least 6% for

20 FPS facilities, but for the applicability ofthe rate limitation being challenged here.

21

THE INDEPENDENT LIVING CENTER DECISION

22

20. On February 16,2008, the California Legislature enacted Assembly

23 Bill X3 5 ("2008 AB 5") in special session. Section 14 of said bill added Section

24 14105.l9 to the Welfare and Institutions Code. Pursuant to paragraph (b)(1) of

25 Welfare and Institutions Code § 14105.19, payments under the Medi-Cal fee for

26 service program for various classes services were reduced by ten percent beginning

27 with services provided on or after July 1,2008. The Legislature also enacted

28 Welfare and Institutions Code § 14166.245, which reduced by ten percent payments

2024379.3

6
COMPLAINT FOR INmNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 8 of 24 Page ID #:8

1 to hospitals that do not have a contract with the Department for inpatient services

2 furnished on or after July 1. The rate and payment reductions set forth in Welfare

3 and Institutions Code §§ 14105.l9(b)(l) and 14166.245, as enacted by 2008 AB 5,

4 are referred to herein as "the 2008 AB 5 Rate Reductions." The rates paid by the

5 Medi-Cal program for ICF/MR facility and FPS facility services were not directly

6 impacted by the 2008 AB 5 Rate Reductions.

7

21. On April 22, 2008, Independent Living Center of Southern California

8 ("ILCSC") and other plaintiffs filed a lawsuit in Los Angeles Superior Court against

9 the Director to challenge the 2008 AB 5 Rate Reductions. The essence ofthe

10 complaint was that the 2008 AB 5 Rate Reductions violated Section 30(A). The

11 State removed the action to federal court.

12

22. On August 18, 2008, the United States District Court for the Central

13 District of California issued a preliminary injunction ordering the State to refrain .

14 from implementing the 2008 AB 5 Rate Reductions for certain services. Indep.

15 Living Ctr. alS. Cal. v. Shewry, 2008 WL 3891211 (C.D.Cal. 2008). The district

16 court found that ILCSC established a likelihood of success on the merits because the

17 Department did not offer sufficient evidence that it "made the [inquiries required by

18 Section 30(A)] in deciding to enact the ten percent reduction." The district court

19 further determined that the 2008 AB 5 Rate Reductions as applied to pharmacies,

20 physicians, dentists and adult day health care centers ("ADRCs") had a likelihood of

21 causing irreparable harm. Both ILCSC and the Director appealed aspects ofthe

22 district court's preliminary injunction order to the Ninth Circuit.

23

23. On July 9,2009, the Ninth Circuit issued a published decision

24 regarding the appeals ofthe district court's injunction of the 2008 AB 5 Rate

25 Reductions. See Indep. Living Ctr. DIS. Cal., Inc. v. Maxwell-Jolly, 572 F.3d 644

26 (9th Cir. 2009) [hereinafter "ILC Ir]. The Ninth Circuit affirmed the district court's

27 determination that ILCSC was likely to prevail on its claim that 2008 AB 5 was not

28 enacted in accordance with, and therefore is preempted by, Section 30(A). The

2024379.3

7
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 9 of 24 Page ID #:9

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1 Ninth Circuit also concluded that the district court did not abuse its discretion in

2 determining that ILCSC adequately demonstrated the likelihood that irreparable

3 harm would result ifthe 2008 AB 5 Rate Reductions were not enjoined.

4

THE CALIFORNIA PHARMACIST ASS'NDECISIONS

5

24. On September 18, 2008, after a protracted budget stalemate, Governor

6 Schwarzenegger signed Assembly Bill 1183 ("AB 1183"), the budget trailer bill for

7 fiscal year 2008-09. AB 1183 amended Welfare and Institutions Code § 14105.19,

8 making most aspects of the 2008 AB 5 Rate Reductions effective only through

9 February 28,2009.

10

25. AB 1183 also enacted modified rate reductions for several classes of

11 providers, subject to certain exemptions, effective March 1, 2009, by implementing

12 Welfare and Institutions Code § 14105.l91. AB 1183 also imposed additional

13 reductions on reimbursement from the Medi-Cal program to hospitals for inpatient

14 services by amending Welfare and Institutions Code § 14166.245. The reductions

15 set forth in Welfare and Institutions Code §§ 14105.191 and 14166.245, as enacted

16 or amended by AB 1183, are hereinafter referred to as the "AB 1183 Rate

17 Reductions." The rates paid under the Medi-Cal program for ICFIMR facility and

18 FPS facility services were not directly impacted by the AB 1183 Rate Reductions.

19

26. On January 29,2009, a coalition of Medi-Cal providers and provider

20 organizations filed a complaint in district court against the Director challenging the

21 AB 1183 Rate Reductions as to pharmacy, ADHC and hospital services on the

22 grounds that AB 1183 was not enacted in accordance with the requirements ofthe

23 Medicaid Act, including those set forth in Section 30(A). On February 11,2009,

24 several hospital plaintiffs filed a motion in the district court seeking preliminary

25 injunction of the AB 1183 rate cuts for hospital services. The other, non-hospital

26 plaintiffs filed a separate motion to enjoin the rate reductions as to pharmacy and

27 ADHC services.

28

27. On March 9, 2009 the district court issued orders on both preliminary

2024379.3

8
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 10 of 24 Page ID #:10

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1 injunction motions concerning the AB 1183 Rate Reductions. The district court

2 concluded, with respect to both motions, that the plaintiffs demonstrated a

3 substantiallike1ihood of prevailing on their claims that the AB 1183 Rate

4 Reductions conflicted with, and therefore are preempted by, Section 30(A).

5 Notwithstanding this finding, the district court declined to enjoin the AB 1183 Rate

6 Reductions for hospital services on the grounds that the hospital plaintiffs had not

7 demonstrated that they would be irreparably harmed by the reduced payment rates

8 because they did not show that beneficiary access to hospital services would be

9 reduced as a result of the rate reductions.

10

28. The hospital plaintiffs appealed the district court's order on March 11,

11 2009. The next day, they filed an emergency motion with the Ninth Circuit seeking

12 a temporary stay of the AB 1183 Rate Reductions for hospitals on the grounds that

13 the district court committed legal error by not finding that hospitals were faced with

14 irreparable harm by virtue of reduced Medi-Cal payment rates.

15

29. The emergency motion was granted in a published decision from the

16 Ninth Circuit. See California Pharmacists Ass'n v. Maxwell-Jolly, 563 F.3d 847

17 (9th Cir. 2009) ("Cal. Pharm. f'). In Cal. Pharm 1., the Ninth Circuit concluded

18 that the plaintiffs showed that AB 1183 likely was preempted by Section 30(A)

19 because the statute, and the Medi-Cal rate cuts called for thereby, were enacted

20 without consideration of efficiency, economy, quality of care and impact on

21 beneficiary access to services. fd. at 851. Cal. Pharm. f also establishes that, for

22 preliminary injunction purposes, unlawfully reduced Medi-Cal reimbursement

23 constitutes an injury to the providers subject to the decreased rates and that such an

24 injury is irreparable when, due to sovereign immunity, the reimbursement

25 differential cannot be recovered in federal court through a suit for money damages.

26 fd. at 851 - 853. Based on the aforementioned findings, the Cal. Pharm. f court

27 stayed the AB 1183 Rate Reductions impacting hospitals.

28

30. In March 2010, the Ninth Circuit issued its decision on the State's

2024379.3

9
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 11 of 24 Page ID #:11

1 appeal of the district court's preliminary injunction ofthe AB 1183 Rate Reductions

2 as applied to ADHCs. In California Pharmacists Ass 'n v. Maxwell-Jolly, 596 F.3d 3 1098 (9th Cir. 2010) ("Cal. Pharm. If'), the court affirmed the injunction order,

4 finding that the district court correctly concluded that AB 1183 was likely

5 preempted because it was not enacted in accordance with Section 30(A). In this

6 decision, the Ninth Circuit made clear that when it is the Legislature that sets Medi-

7 Cal payment rates, the Legislature is responsible for considering the factors

8 enumerated in Section 30(A) prior to making any rate changes. Id. at 1107. The

9 court also found that the plaintiffs in the case had adequately demonstrated

10 irreparable harm resulting from the rate reductions. Id. at 1115 - 1114.

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11

THE AB 5 RATE REDUCTIONS OF 2009

12

31. On July 28,2009, after four extra legislative sessions, Governor

13 Schwarzenegger signed into law Assembly Bill X4 5 ("2009 AB 5"), the budget

14 trailer bill for California fiscal year 2009 - 2010. Although, unlike the last two

15 California budget trailer bills, 2009 AB 5 did not make any flat percentage

16 reductions to Medi-Cal payment rates, the bill enacted or amended multiple statutes

17 in order to limit Medi-Cal reimbursement for several classes of health care services.

18

32. Among other things, 2009 AB 5 amended Welfare and Institutions

19 Code § 14105.191, which originally was enacted by AB 1183, to effectively

20 "freeze" the Medi-Cal payment rates for, among other things, ICF/MR and FPS

21 facility services at 2008 - 2009 levels. Specifically, the statute now provides that,

22 for the designated services, "reimbursement rates ... for services rendered during

23 the 2009 - 10 rate year and each rate year thereafter, shall not exceed the

24 reimbursement rates that were applicable to those classes of providers in the 2008-

25 09 rate year." In effect, the amended version of the statute indefinitely suspends the

26 annual payment updates for these classes of services that are otherwise required by

27 the State Plan.

28

33. The reimbursement limitation described in paragraphs 32 above and

2024379.3

10
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 12 of 24 Page ID #:12

1 established by the amendment to Welfare and Institutions Code § 14105.191, as

2 enacted by 2009 AB 5, is hereinafter referred to as the "2009 AB 5 Reimbursement

3 Freeze."

4

34. Plaintiff is informed and believes and thereon alleges that 2009 AB 5,

5 which included the 2009 AB 5 Reimbursement Freeze, did not go through the public

6 process that is normally characteristic of legislation and was instead the product of

7 mostly behind-closed-doors budget negotiations. 2009 AB 5 was first introduced as

8 a spot budget trailer bill on July 2, 2009, had no substantive content at the time, and

9 was intended to provide a vehicle to enact budget related items that were under

10 negotiation. The substantive provisions ofthe bill, including the 2009 AB 5

11 Reimbursement Freeze, were added to the bill on July 23,2009. It was passed by

12 both the Senate and Assembly that same day and then forwarded on to the Governor

13 for signature the next day, July 24, 2009. The bill was signed into law by the

14 Governor on July 28,2009. The bill was enacted as urgency legislation to become

15 effective immediately. In enacting 2009 AB 5, both the Senate and Assembly

16 suspended rules that otherwise limit how quickly a bill can be passed after

17 amendment.

18

35. Plaintiff is informed and believes and thereon alleges that, prior to

19 enacting 2009 AB 5, neither the Legislature nor the Director engaged in any type of

20 public notice and comment process related to the payment rates that would result

21 from the 2009 AB 5 Reimbursement Freeze.

22

36. Plaintiff is further informed and believes and thereon alleges that, like

23 the State's failures that prompted the injunctions at issue inILC II, Cal. Pharm. I,

24 and Cal. Pharm. II, prior to enacting or implementing 2009 AB 5, no studies or

25 other analyses were conducted by the Legislature or by the Director to determine

26 whether the Medi-Cal payment rates resulting from the 2009 AB 5 Reimbursement

27 Freeze would be consistent with efficiency, economy and quality of care or

28 reasonably related to the costs of providing the services affected by the rate

2024379.3

1 1
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 13 of 24 Page ID #:13

;;;
ejO0;;"j<-?
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1 reduction.

2

37. Plaintiff is informed and believes and thereon alleges that prior to

3 enacting or implementing 2009 AB 5, no studies or other analyses were conducted

4 by the Legislature or by the Director to determine the impact the 2009 AB 5

5 Reimbursement Freeze would have on the ability ofMedi-Cal beneficiaries to have

6 access to the impacted ICFIMR facility and FPS facility services to the same extent

7 as the general public.

8

38. As mentioned above, a federal district court already has preliminarily

9 enjoined the 2009 AB 5 Reimbursement Freeze as it applied to certain categories of

10 hospital services. In California Hospital Association v. Maxwell-Jolly, Case No. 09-

11 08642, by order dated February 24,2010, the United States District Court for the

12 Central District of Califomia preliminarily enjoined the Director from applying or

13 otherwise enforcing the 2009 AB 5 Reimbursement Freeze with respect to hospital

14 based skilled nursing and subacute services (including pediatric subacute services)

15 based on findings that 2009 AB 5 was enacted by the Legislature without adherence

16 to the requirements of Section 30(A) and that hospitals were being irreparably

17 harmed by the decreased Medi-Cal reimbursement resulting from the limitation,

18 which could not be recovered in an action for damages due to the State's Eleventh

19 Amendment immunity.

20

THE ILLEGALITY OF 2009 AB 5

21

39. The State has violated, and continues to violate federal Medicaid

22 statutes, federal Medicaid regulations and the State Plan by failing to analyze

23 Medi-Cal reimbursement rates for the services affected by the 2009 AB 5

24 Reimbursement Freeze in order to ensure that those rates are consistent with

25 efficiency, economy and quality of care, reasonably related to provider costs, and

26 sufficient to ensure that beneficiaries of the Medi-Cal program have access to

27 services to the same extent as the general public.

28

40. Violation of Federal Statute: The 2009 AB 5 Reimbursement Freeze is

2024379.3

12
COMPLAINT FOR INJUNCTNE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 14 of 24 Page ID #:14

1 invalid and may not lawfully be implemented because it violates federal Medicaid

2 law, and is therefore preempted by the Supremacy Clause, because:

3

(a) The 2009 AB 5 Reimbursement Freeze violates Section 30(A) in

4 the following ways:

5

(i) Neither the Director nor the Legislature considered the

6 factors of efficiency, economy, quality of care, and access to services prior to

7 enacting the 2009 AB 5 Reimbursement Freeze;

8

(ii) Neither the Director nor the Legislature demonstrated a

9 reasonable connection between rates resulting from the 2009 AB 5 Reimbursement

10 Freeze and the efficient and economical provision of quality care,.or ensuring access

11 to services, prior to enacting the 2009 AB 5 Reimbursement Freeze;

12

(iii) Neither the Legislature nor the Director considered the

13 costs ofproviding quality care or demonstrated a reasonable connection between

14 Medi-Cal rates resulting from the 2009 AB 5 Reimbursement Freeze and provider

15 costs;

16

(iv) Plaintiff is informed and believes and thereon alleges that

17 the rates resulting from the 2009 AB 5 Reimbursement Freeze are not consistent

18 with efficiency, economy, and quality of care, reasonably related to provider costs,

19 or sufficient to ensure that Medi-Cal beneficiaries have access to the impacted

20 ICFIMR facility and FPS facility services to the same extent as the general

21 population.

22

(b) The 2009 AB 5 Reimbursement Freeze violates Section 13(A) as

23 to the impacted ICFIMR facility and FPS facility services because it was not

24 adopted through the public process required by this provision. In addition to a claim

25 of preemption under the Supremacy Clause, the State's failure to comply with

26 Section 13(A) gives rise to a private right of action under 42 U.S.C. § 1983, as

27 violation of the civil rights ofCAHF's members.

28

4l. Violation of Federal Regulations: The 2009 AB 5 Reimbursement

2024379.3

13
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 15 of 24 Page ID #:15

1 Freeze is invalid and may not lawfully be implemented because it violates federal

2 Medicaid regulations, and is therefore preempted by the Supremacy Clause, in that

3 public notice ofthe reimbursement limitation as to the impacted ICF/MR facility

4 and FPS facility services was not given in accordance with the terms of 42 C.F.R.

5 § 447.205.

6

42. Violation of the State Plan: As mentioned above, the Director must

7 follow the State Plan as a Federal requirement for participation in the Medicaid

8 program. The 2009 AB 5 Reimbursement Freeze is invalid and may not lawfully be

9 implemented as it violates the State Plan, and accordingly, Federal law, and is

10 therefore preempted by the Supremacy Clause, because it indefinitely suspends the

11 annual payment update for ICF/MR facility and FPS facility services otherwise

12 required by the State Plan.

13

43. No State Plan Amendment: The 2009 AB 5 Reimbursement Freeze is

14 invalid and may not lawfully be implemented because it is inconsistent with and

15 violates the State Plan, including, but not limited to, Attachment 4.19-D as to

16 ICFiMR facility and FPS facility services. The 2009 AB 5 Reimbursement Freeze

17 therefore is preempted by the Supremacy Clause. The Director may not lawfully

18 implement the 2009 AB 5 Reimbursement Freeze unless and until he obtains federal

19 approval of the necessary amendments to the State Plan from the federal

20 government. Plaintiff is informed and believes, and thereon alleges, that the

21 Director has not obtained federal approval for the 2009 AB 5 Reimbursement

22 Freeze.

23

THE PARTIES

24

44. Defendant DAVID MAXWELL-JOLLY is the Director of the

25 Department of Health Care Services and, as such, has the responsibility to

26 administer the Medi-Cal program consistent with the Medicaid Act. The Director is

27 sued in his official capacity. The Department is the single state agency charged with

28 the administration of California's Medicaid program, known as Medi-Cal. See

2024379.3

14
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 16 of 24 Page ID #:16

1 California Welf. & Inst. Code §§ 14000 et seq. The Director has an office in the

2 County of Los Angeles.

3

45. Plaintiff CALIFORNIA ASSOCIATION OF HEALTH FACILITIES

4 is, and at all times mentioned herein was, a non-profit association representing,

5 among other long-term care providers, 519 licensed ICFIMR facilities and FPS

6 facilities in the State of California, a number of which are located within the Central

7 District of California, Western Division. These members are affected by the State's

8 failure to pay for services provided to Medi-Cal beneficiaries at the rates required by

9 federal law and the State Plan. The protection of these interests are germane to

10 CAHF's purpose. CAHF is bringing this action on its own behalf and as the

11 "representative" of its member ICFIMR facilities and FPS facilities. The individual

12 participation of CAHF' s members is not required for the claims asserted or the relief

13 requested.

14

CAHF'S STANDING AS AN ASSOCIATION

15

46. All ofCAHF's ICFIMR facility and FPS facility members are

16 Medi-Cal providers. These Medi-Cal providers will suffer (and have suffered) a

17 concrete economic injury in the form of reduced payments for services by the

18 unlawful implementation of the 2009 AB 5 Reimbursement Freeze.

19

47. CAHF, as an association representing the interests of California

20 ICFIMR facilities and FPS facilities that participate in the Medi-Cal program and as

21 a party seeking to compel the Director to comply with his public duties as defined

22 by federal law, has a right and an enforceable interest to maintain this action to: (1)

23 enjoin Defendant's continuing violation of federal Medicaid law; and (2) compel

24 Defendant to comply with the provisions ofthe applicable federal laws.

25

48. Moreover, CAHF has a right and an enforceable interest to maintain

26 this action against the Director under the Supremacy Clause of the United States

27 Constitution and under the Civil Rights Act, 42 U.S.C. § 1983, to enjoin the

28 Director's continuing violation of the federal Medicaid law and to compel the

2024379.3

15
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 17 of 24 Page ID #:17

1 Director to comply with the provisions of the applicable federal Medicaid law.

2

49. Under 28 U.S.C. § 2201, CAHF is entitled to a declaration of its rights,

3 its members' rights, and/or its members' patients' rights under federal Medicaid

4 law.

5

FIRST CAUSE OF ACTION

6 (VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A)/SUPREMACY CLAUSE)

7

50. Plaintiff hereby incorporates by reference paragraphs 1 through 49,

8 inclusive, as though fully set forth herein.

9

51. The 2009 AB5 Reimbursement Freeze violates Section 30(A) of the

10 Medicaid Act because:

11

(a) Neither the Director nor the Legislature considered the factors of

12 efficiency, economy, quality of care, and access to services prior to enacting the

13 2009 AB 5 Reimbursement Freeze;

14

(b) Neither the Director nor the Legislature demonstrated a

15 reasonable connection between the payment rates resulting from 2009 AB 5

16 Reimbursement Freeze and the provision of quality care in an efficient and

17 economic manner, or ensuring access to services, prior to enacting the 2009 AB 5

18 Reimbursement Freeze;

19

(c) Neither the Legislature nor the Director considered the costs of

20 providing quality care or demonstrated that the Medi-Cal payment rates resulting

21 from the 2009 AB 5 Reimbursement Freeze are reasonably related to provider costs;

22 and

23

(d) Plaintiff is informed and believes and thereon alleges that the

24 rates resulting from the 2009 AB 5 Reimbursement Freeze are not consistent with

25 efficiency, economy, and quality of care, nor are they reasonably related to provider

26 costs, and also are not sufficient to enlist enough providers so that Medi-Cal

27 beneficiaries have access to the impacted ICF/MR facility and FPS facility services

28 at least to the extent that such services are available to the general population.

2024379.3

16
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 18 of 24 Page ID #:18

1

SECOND CAUSE OF ACTION

2

(VIOLATION OF 42 U.S.C. 9 1396a(a)(13)(A)/SUPREMACY

CLAUSE/42 U.S.C. § 1983)

3

52. Plaintiff hereby incorporates by reference paragraphs 1 through 49,

4

inclusive, as though fully set forth herein.

5 53. The 2009 AB 5 Reimbursement Freeze violates Section 13(A) as to the

6

impacted ICF/MR facility and FPS facility services because it was not adopted

7

through a public process as required by this provision.

8 54. The 2009 AB 5 Reimbursement Freeze is thus preempted by the

9 Supremacy Clause of the United States Constitution, art. IV. and violates the civil

10 rights ofCAHF's members, which are enforceable through 42 U.S.C. § 1983.

11

THIRD CAUSE OF ACTION

12 (VIOLATION OF 42 C.F.R. § 447.205/SUPREMACY CLAUSE)

13

55. Plaintiff hereby incorporates by reference paragraphs 1 through 49,

14 inclusive, as though fully set forth herein.

15 56. The 2009 AB 5 Reimbursement Freeze is invalid and may not lawfully

16 be implemented because it violates 42 C.F.R. § 447.205 as to the impacted ICF/MR

17 facility and FPS facility services, and is therefore preempted by the Supremacy

18 Clause, in that public notice ofthe reimbursement limitation was not given in

19 accordance with the terms of 42 C.F.R. § 447.205.

20 FOURTH CAUSE OF ACTION

21 (VIOLATION OF STATE PLANIFAILURE TO AMEND STATE

22

PLAN/SUPREMACY CLAUSE)

23

57. Plaintiff hereby incorporates by reference paragraphs 1 through 49

24 inclusive, as though fully set forth herein.

25

58. The 2009 AB 5 Reimbursement Freeze is invalid and may not lawfully

26 be implemented as it violates the State Plan, including but not limited to,

27 Attachment 4.l9-D as to ICFIMR facility and FPS facility services, and accordingly,

28 federal law, and is therefore preempted by the Supremacy Clause, because it

2024379.3

17
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 19 of 24 Page ID #:19

1 indefinitely suspends the annual updates to Medi-Cal payment rates for ICFIMR

2 facility and FPS facility services otherwise required by the State Plan.

3

59. The Director may not lawfully implement the 2009 AB 5

4 Reimbursement Freeze unless and until it obtains federal approval ofthe necessary

5 amendments to the State Plan from the federal government.

6

FIFTH CAUSE OF ACTION

7

(DECLARATORY RELIEF)

8

60. Plaintiff hereby incorporates by reference paragraphs 1 through 49

9 inclusive, as though fully set forth herein.

10

61. An actual and justiciable controversy exists between Plaintiff and

11 Director regarding the vaiidity ofthe 2009 AB 5 Reimbursement Freeze. Plaintiff,

12 on behalf of its members, contends that the reimbursement limitation is invalid and

13 unlawful in violation of federal statute, federal regulations, and the State Plan, while

14 the Director contends that the reimbursement limitation is valid in all respects.

15

62. Accordingly, pursuant to 28 U.S.C. § 2201, Plaintiff requests this Court

16 to declare that the 2009 AB 5 Reimbursement Freeze is invalid, unlawful and

17 preempted by federal Medicaid law.

18

63. No administrative appeal process or other administrative remedy is

19 available to Plaintiff or its members to challenge the 2009 AB 5 Reimbursement

20 Freeze.

21

64. All ofthe said injuries are great, immediate, and irreparable, for which

22 damages at law are inadequate, and for which Plaintiff, or its members, have no

23 plain, adequate or speedy relief at law or otherwise.

24

WHEREFORE, Plaintiff prays for judgment as follows:

25

1. For an Order declaring that the 2009 AB 5 Reimbursement Freeze

26 violates 42 U.S.C. §§ 1396a(a)(30)(A) and 1396a(a)(13), 42 C.F.R. § 447.205, and

27 the California State Plan and is thus invalid and preempted by the Supremacy

28 Clause of the United States Constitution, art. IV;

2024379.3

18
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 20 of 24 Page ID #:20

1

2. For an Order declaring that the 2009 AB 5 Reimbursement Freeze

2 represents a de facto amendment to the State Plan and therefore said rate reduction

3 cannot be imposed without federal approval;

4

3. For an Order preliminarily and permanently enjoining the Director

5 from effectuating or otherwise applying the 2009 AB 5 Reimbursement Freeze or

6 reducing to any degree the Medi-Cal rates for services rendered by ICFIMR

7 facilities and FPS facilities that are affected by Welfare and Institutions Code

8 §§ 14105.191, as amended by 2009 AB 5; and

9

4. For the costs of suit, including reasonable attorneys' fees incurred by

10 Plaintiffs, as permitted under 42 U.S.C. § 1988 or otherwise, and

11

5. Such other and further relief as may be just and proper.

12 DATED: April 30, 2010

HOOPER, LUNDY & B

13

14

By::~~~~~~~~~_ _ _ __ _ JORDAN KEVILLE

15

eys for Plaintiff CALIFORNIA ClATION OF HEALTH FACILITIES

16

17

18

19

20

21

22

23

24

25

26

27

28

2024379.3

19
COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

04/3C0/a2s0e102:1102-c:4v8-0325193-1C05A5S'3-5M29A8N Document 1 FALilLedST0A4R/3A0T/1TY0 S\PJCage 21 of 24 PagePIADGE#:2105/11
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE FOR DISCOVERY
This case has been assigned to District Judge Christina A. Snyder and the assigned
discovery Magistrate Judge is Ralph Zarefsky. The case number on all documents filed with the Court should read as follows:
CV10- 3259 CAS, (RZx) Pursuant to General Order 05-07 of the United States District Court for the Central
District of California, the Magistrate Judge has been designated to hear discovery related
motions.
All discovery related motions should be noticed on the calendar of the Magistrate Judge

NOTICE TO COUNSEL

A Copy of this notioo must be served with the summons and complaint on all defendants (If B removal action [s filed, a copy of this notice must be served on all plaIntiffs).

Subsaquant documents must be filed at the following location:

[Xl Western DiviSion
312 N. Spring St., Rm. G-8 Los Angel., CA 90012

U Southern Division

U Eastern Division

411 West Fourth St., Rm. 1-053

3470 Twelfth St, Rm. 134

Santa Ana, CA 92701-4516

Riverside, CA 92501

Failure to file at the proper location wtll result In your documents being returned to yOll.

CV-18 (03105)

NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE FOR DISCOVERY

04/3C0/a2s0e102:1012-c:4v8-0325193-1C05A5S'3-5M2'A38N Document 1 FAiLleLdST0A4R/30AT/1TY0 SVPCage 22 of 24 Page PIDAGE#:2211/11

AO 440 (Rev. 02,1(9) Summons i!; a Civil Action
UNITED STATES DISTRICT COURT
for the CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION

CALIFoRNIA ASSOCIAnON OF HEALTII
Plaintiff
v. DAVID ~WELL-JOLLY, DIRECTOR OF THE
, DEPARTMENT OF HEALTH CARE
SERVICES, STATE OF CALIFORNIA}
Dli!fondant

)

)

) )

CiVilACtiOn~~cv 10- 03259

)
CAS f4>?.fJ

SUMMONS IN A CIVll. ACTION
To: (D~f~ndani'li name and address)
David Maxwell-Jolly, Director Departm~nt of Health Care Services . State of California 1501 CaAitol Avenue Suite60{)1 Sacramento, CA 95814

A la-wsuit has been filed against you.

2. Witltin days after service of this summons on you (not counting the day you received it) - or 60 days if you

or are the Unite~ States or a United States agency. or an officer or ~mployee of the United States described in Fed. R. Civ.
P. 12 (a)(2) (3) ~you must serve on the plaintiff all answer to the attached complaint Or a motion under Rule 12 of the Federal B#Jes of Civil Procedure. The answer or motion must be sorved on the plaintiff or plaintiff's attomey~

whose name ~d address are:

.

Mark E. Reg~, Esq.

Jordan B. Ketme, Esq.

HOOPER. L~DY & BOOKMAN, INC.

1875 CenturylPark East

Suite 1600 :

Los Angeles,:CA 90067
Tel: (310~551-8103

Fax: (310) 551-8181

mreagan@health-law .com

jkeville@heaJth-Iaw.com

If you fail to respond, judgment by default will be entered against you for the relief demanded in the complaint.
You also mu# file your answer or tnotion with the court.

30 APR, lOili

CLERK OF COURT

1010649.1

American LegalNet, 1riC. WW'W.Form$ VtlbrJrl'low. C(>(}\

04/3C0/a2s0e102:1012-c:4v8-0325193-1C0A55S%-M29A8N Document 1 FAiLleL dS0TA4R/30AT/1TV0 SPlJCage 23 of 24 Page PIADGE#:2308/11

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..

.
UNITED STATES DISTRICT COURT, C\';NTRAL DlS"fRICT OF CALIFORNIA

0VlL COVER SHEET

..... '-'."'~'

O) 1 (ll) tLArNTIFFS (Check box if YOII !.Il"e represetltlng yourself

DtnNDANTS

CALIFORNIA ASSOClATION OF BEALTH FACILITIES

DAVID MAXWELL-JOLLY, DIRECTOR OF THE CALIFORNIA

DEPARTMENT OF HEALTH C.ARE SERVrCES

(b) Attorneys (PUm NlI/t'e., Mdtess Md ielephQ.!le Numba-. Ifyou arc representing YQurseit llfO'l'ide same.)
Mark E. Reagan and Jordan B. Keville

Attorncy~ (If Known)

Hooper, J)jndy & Bookman, Inc.,
1815 Century Park EaSt, Suite 1600 Los Angelos, CA 90067

(310) 551·8103

IT. :BASlS OF J1$ISDlCTION (F'lllC1: l1I1 x: in 01\\:1 bolt only.)

111. ClT1Z£N8ffll' Oi't·l.':RlNCIPAL PARTIES - For Dlv~ity Cl\Ilea Only

o 1 U.S. Oovemment Ph,intiff ~ 3 Federal Question (U,S. Gov=mont Not a PiIrty

(Place lin Xin one box fbr olaintifIlIml one: for dc;frndant.)

Cilimn ofThis Stato

PTF DEl?
01 01 nlAJrporat~ or Pcincif>M Place

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04 04

p ~ 2 U.S. VoVCl1'Inc:nt Defendant

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Plaintiff claims that Defendant's Non·Contracted Hospftal Rates violate the federal Medicaid Act, 42 U.S.C. !IS. 1396a(a)(30)(A),

13961\(a)(I3)(A) and 42 C.F.R. SS, 447.205 and 43&.114. the U-S. Conlltitution's Supremacy ClauSe,

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FOR OFFICE USE ONLY: Case Number. I
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,-- Case 2:10-cv-03259-CAS-MAN Document 1 Filed 04/30/10 Page 24 of 24 Page ID #:24
UNITED STATES DISTRICT COURT, CENTRAL DISTRICT OF CALIFORNIA
CIVIL COVER SHEET

VIH(Il). IDENTICAL CASES: Has this action been previously filed in this court and dismissed, remanded or closed? I8l No 0 Yo.

[fyes,list case number(s): -1

o VIIl(b), RELATED CASES: Have /lily cases been previollsly filed in this court thflt arc related to Ihe present case?

No I8l Yo.

[fyes, lis' case ",unb,,(s): /2:08-cv-03315; 2:09-cv-03 82; 2:09-cy-0722; 2:09-cy-08642

Civil cas~s are deemed I'elated Ifn prevlollsly filed case llllU the present CRse:
Cbeck nil boxes that apply) I8J A. Arise from the same or closely related trans-fictions, happenings, or events; or
[8J B. Call for determination offlle same or substnntilllly related or similar qllcstions oflaw and fnct; or [gJ C. For other reasons would entail subsUUltinl duplication of labor (fheard by differelltjudges; or
D D. Involve the same patent,.trademllrk or copyright,.!!ill! Olle ofthe factors identified above in f1, b or c also is present.

IX. VENUE: (When completing the following information, nse an additiollal sheet ifllecessllry.)

a) List the COImty in Ihis Dis{ricl; California County outside of this District; State ifolher than C<llifornin; or Poreign Country, in ",Ihich EACH named plainliffresides.
0 Cheek here if the I!overnment, its agencies or employees is.a named plaintiff. Jfthis box is checked. g9 to item (b).

COllnty in this Dislricl:*

Cnlirornill County olltside ofthis Districl; Stllte, ifother limn California; or Foreign COUlltry

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES Sacramento County

(1)) List the County in (his District; Cldifornia County outside of this District; State if other than Californill; or Foreign COLllltry, in which EACH nnmcd defendant resides.
0 Check here if the government, its ag~eneies or employees is a tlamed defendant. If this box is checked, go to item (c);

County in this District"

Cuiifornia Couuty outside of this District; State, if olherthflll California; or Foreign Country

DAVID MAXWELL-JOLLY, DIRECTOR OF THE CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICESlocated in Sacramento County but has offices in Los Angeles County

~e) List Ihe County in Ihis Dis(ricl~ Culifornia Connty Olltside Oft11is District; State if other than Cfllifornia; or Foreign Country. in which EACH cillim arose. Nllk~ In lam) COlulernnntinn ~nscs. usc the illclllinn of the h-ad of land involved.
~-~-

Counly in this District*

CulifOlnia CounLY outside oflhi5 Distri!.;!; Stale, irolher tllan California; or Foreign Country

I

* Los A.ngeles. Orange. San Uernardino. Riverside! V~~\~~rll' Saota Dfll'bfll'a. 01' Sail L1AS it.s pojOlllltles

Note.: In land condemnation cases, use the location of the t ct of !jlnd [tlvolve.rl) .

.

I / I L W )A1f1J X. SIGNATURE OF ATTORNEY (OR PRO PER):

VJ.AA !~

~ntc !April

Jofd:a~ B. Keville'

,2010

V

.

Notice to CllunseIIPR1'!iCS: TIm CV-71 (J8-44) Civil Coyer Sheet nnd the il~fonnation coot!lined hcreillllcilher replace nor supplement Ihe filinE lind service of picad lUgs

or other papers as required by law. Thisfonn, approved by tlltJ·Judicial COllference oftlle United Sti\tes in September 1974, is required purswlllt to Loc"1 Rule 3 -I is not filed

but is usl;d by the Clerk of the Court for the Jllupose ofsla(i.sties, venue and initiating the civil dockct sheet. (For more detailed instructions. see scpm:ute instructions shee!.)

'----

CV-71 (05/0R)

CTVIL COVlm STIllET

Pagc20f2
American l(lllfllNul. In<;. WNW. FormsWorkflow.com

 
 Case 2:10-cv-03259-CAS-MAN Document 6 Filed 05/11/10 Page 1 of 3 Page ID #:36

1 MARK E. REAGAN (State Bar No. 143438) E-Mail: mreagan@health-law.com
2 JORDAN B. KEVILLE (State Bar No. 217868) E-Mail: jkeville@health-law.com
3 HOOPER, LUNDY & BOOKMAN, INC. 1875 Century Park East, Suite 1600
4 Los Angeles, California 90067 Telephone: (310) 551-8111
5 Facsimile: (310) 551-8181

6 Attorneys for CALIFORNIA ASSOCIATION OF HEALTH
7 FACILITIES

8

UNITED STATES DISTRICT COURT

9

CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION

10

11 CALIFORNIA ASSOCIATION OF HEALTH FACILITIES,
12 Plaintiff,
13 vs.
14 DAVID MAXWELL-JOLLY,
15 DIRECTOR OF THE STATE DEPARTMENT OF HEALTH
16 SERVICES, STATE OF CALIFORNIA,
17 Defendant.
18 19

CASE NO. CV 10-03259 CAS (RZx) PLAINTIFF’S NOTICE OF MOTION AND MOTION FOR PRELIMINARY INJUNCTION [Points and Authorities, Declarations of Raymond, Nixon, Hayward, Keville and Exhibits Thereto in support of Motion; [Proposed] Order; and Request for Judicial Notice filed concurrently herewith]
Date: June 14, 2010 Time: 10:00 a.m. Place: Courtroom 5

20

Hon. Christina A. Snyder, Judge

Presiding

21 Complaint filed: 04-30-10

22

Trial Date:

NA

23

24 / / /

25 / / /

26 / / /

27 / / /

28 / / /

1079616.1

NOTICE OF MOTION AND MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03259-CAS-MAN Document 6 Filed 05/11/10 Page 2 of 3 Page ID #:37

1

TO DEFENDANT DAVID MAXWELL-JOLLY, DIRECTOR OF THE

2 CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES, AND TO

3 HIS ATTORNEYS OF RECORD: PLEASE TAKE NOTICE that on June 14,

4 2010, at 10:00 a.m., or as soon thereafter as counsel may be heard, in the Courtroom

5 of the Honorable Christina A. Snyder, located at 312 N. Spring Street, Los Angeles,

6 California, Plaintiffs California Association of Health Facilities ("Plaintiff" or

7 "CAHF"), on behalf of its member facilities, makes application, pursuant to Federal

8 Rule of Civil Procedure 65(a), for an Order for Preliminary Injunction restraining

9 and enjoining Defendant David Maxwell-Jolly, Director of the Department of

10 Health Care Services for the State of California (“Defendant” or “Director”), and his

11 agents, employees, and all persons acting in concert with him, from violating federal

12 law by implementing or otherwise applying the Medi-Cal reimbursement rate

13 limitation for long-term care facilities, including intermediate care facilities for the

14 mentally retarded ("ICF/MR") and freestanding pediatric subacute ("FPS") facilities,

15 enacted as part of California Assembly Bill X4 5 of 2009 ("2009 AB 5") through

16 amendments to California Welfare & Institutions Code Sections 14105.191. The

17 Medi-Cal rate limitation set forth in the statute went into effect on August 1, 2009.

18

The grounds for this motion are that 2009 AB 5, and the Medi-Cal

19 reimbursement rate limitation enacted thereby, is preempted under the Supremacy

20 Clause of the United States constitution as inconsistent with, and violative of 42

21 United States § 1396a(a)(30)(A), a provision of the federal Medicaid Act, and

22 because the Director implemented the rate limitation without receiving prior

23 approval of the United States Department of Health and Human Services, as

24 required by federal law, and that, unless Defendant, his agents, employees, and

25 others acting in concert with him, are immediately restrained from implementing or

26 otherwise applying the unlawful provision of 2009 AB 5, Plaintiff's members and

27 others will suffer irreparable and immediate injury, loss and damage.

28

This Motion is based on this Notice of Motion, the accompanying

1079616.1

1
NOTICE OF MOTION AND MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03259-CAS-MAN Document 6 Filed 05/11/10 Page 3 of 3 Page ID #:38

1 Memorandum of Points and Authorities, the Declarations, Request for Judicial

2 Notice and Exhibits submitted herewith, and all other pleadings on file in this

3 matter.

4

5 DATED: May 11, 2010

HOOPER, LUNDY & BOOKMAN, INC.

6

7

By:

/s/

JORDAN B. KEVILLE

8

Attorneys for CALIFORNIA ASSOCIATION OF HEALTH FACILITIES

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1079616.1

2
NOTICE OF MOTION AND MOTION FOR PRELIMINARY INJUNCTION

 
 Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 1 of 17 Page ID #:1601

1

2

3

4

5

6

7

8

UNITED STATES DISTRICT COURT

9

CENTRAL DISTRICT OF CALIFORNIA

10

WESTERN DIVISION

11 CALIFORNIA ASSOCIATION OF )

HEALTH FACILITIES,

)

12

)

Plaintiff,

)

13

)

vs.

)

14

)

)

15 DAVID MAXWELL-JOLLY, et al.; )

)

16

Defendants.

)

_______________________________ )

17

)

DEVELOPMENTAL SERVICES

)

18 NETWORK, et al.,

)

)

19

Plaintiffs,

)

)

20 vs.

)

)

21

)

DAVID MAXWELL-JOLLY, et al.; )

22

)

Defendants.

)

23 _______________________________ )

Consolidated Cases: Case No. CV 10-3259 CAS (MANx) Case No. CV 10-3284 CAS (MANx) ORDER GRANTING PLAINTIFFS’ MOTIONS FOR PRELIMINARY INJUNCTION

24

I. INTRODUCTION

25

On April 30, 2010, plaintiffs Developmental Services Network and United

26 Cerebral Palsy/Spastic Children’s Foundation of Los Angeles and Ventura Counties, in

27 CV 10-3284 CAS (MANx), and California Association of Health Facilities, in CV 10-

28 3259 CAS (RZx), filed the instant actions against David Maxwell-Jolly, Director of the

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 2 of 17 Page ID #:1602

1 California Department of Health Care Services (the “Director”) and the California

2 Department of Health Care Services (the “Department”).1 The Department is a

3 California agency charged with the administration of California’s Medicaid program,

4 Medi-Cal. Plaintiffs are entities that represent certain Medi-Cal providers, specifically

5 intermediate care facilities for the developmentally disabled and the mentally retarded

6 (respectively, “ICF/DD facilities” and “ICF/MR facilities”), and freestanding pediatric

7 subacute facilities (“FSP facilities”).

8

On July 28, 2009, California Governor Arnold Schwarzenegger signed into law

9 Assembly Bill X4 5 (“AB 5” ), the budget trailer bill for California fiscal year 2009-

10 2010. AB 5 amends Cal. Welf. & Inst. Code § 14105.191, in part, and effectively

11 “freezes” the Medi-Cal reimbursement rates for certain designated services rendered

12 during the 2009-2010 rate year and each rate year thereafter at 2008-2009 levels. Cal.

13 Welf. & Inst. Code § 14105.191(f). Among the designated services, are services

14 provided by ICF/DD facilities, ICF/MR facilities, and FSP facilities.

15

Plaintiffs seek to enjoin implementation or enforcement of these rate freeze

16 provisions in AB 5 on the grounds that they violate Title XIX of the Social Security Act,

17 42 U.S.C. § 1396 et seq. (the “Medicaid Act”), and therefore are invalid under 42 U.S.C.

18 § 1983 and the Supremacy Clause of the United States Constitution, U.S. CONST. art. VI,

19 cl. 2. CAHF Complaint ¶ 1; DSN Complaint ¶ 1. Specifically, plaintiffs allege that AB

20 5 violates 42 U.S.C. § 1396a(a)(30)(A) of the Medicaid Act (“Section 30(A)”), because

21 neither the Director nor the California legislature considered the “quality of care” and

22 “equal access” provisions of Section 30(A), or whether reimbursement rates are

23 reasonably related to provider costs, before its implementation. CAHF Complaint ¶¶

24 50–51; DSN Complaint ¶¶ 10, 38–39. Plaintiffs further allege that AB 5 is unlawful

25 because the Director implemented the rate freeze through an amendment to the State’s

26

27 1 On June 15, 2010, the Court ordered thetwo matters consolidated for all purposes.
28

2

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 3 of 17 Page ID #:1603

1 Medi-Cal Plan without prior federal approval. CAHF Complaint ¶¶ 57–59; DSN

2 Complaint ¶¶ 10, 41. Finally, plaintiffs allege that AB 5 was enacted in violation of the

3 public process provisions of 42 U.S.C. § 1396a(a)(13)(A) (“Section 13(A)”). CAHF

4 Complaint ¶¶ 52–54; DSN Complaint ¶¶ 10, 40.

5 II. BACKGROUND

6

A. Statutory Background

7

Medicaid is a cooperative federal program whereby the federal government

8 provides funds to participating states to help defray the expense of providing health care

9 services to low income and needy citizens. State participation is voluntary; however,

10 once a state chooses to participate by accepting federal funds, it must comply with

11 requirements imposed by the Medicaid Act. See Orthopaedic Hosp. v. Belshe, 103 F.3d

12 1491, 1493 (9th Cir. 1997) (“Orthopaedic Hospital”). Because California has elected to

13 participate in the Medicaid program, it must administer its state Medicaid program,

14 Medi-Cal, in compliance with a State Medicaid Plan (“State Plan”) that has been pre-

15 approved by the Secretary of the U.S. Department of Health and Human Services, and

16 which complies with federal Medicaid law, including the requirements set forth in 42

17 U.S.C. § 1396a(a)(1)-(70). The State Plan is “a comprehensive written statement . . .

18 describing the nature and scope of [the State’s] Medicaid program and giving assurance

19 that it will be administered in conformity with the specific requirements of [federal

20 Medicaid law].” 42 C.F.R. § 430.10. The agency charged with approving State Plans is

21 the Centers for Medicare and Medicaid Services (“CMS”), an arm of the Department of

22 Health and Human Services. Id. §§ 400.200, 430.12. When a state wishes to make

23 changes to its State Plan, it must submit a State Plan Amendment to CMS. Id. § 430.12.

24 CMS may approve or disapprove of the State Plan Amendment, or it may request more

25 information from the State before making a final determination. Id. § 430.16. If CMS

26 does not act on the State Plan Amendment within 90 days, the amendment is considered

27 approved. Id. § 430.16(a)(1). If CMS requests additional information, however, the 90-

28 day period for CMS action on the State Plan Amendment begins on the day CMS

3

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 4 of 17 Page ID #:1604

1 receives the information. Id. §§ 430.16(a)(2), 447.256.

2

The Medicaid Act further requires that, prior to establishing reimbursement rates,

3 California provide “methods and procedures” for the payment of care and services that

4 (1) are “consistent with efficiency, economy, and quality of care,” and (2) ensure their

5 availability to the Medicaid population to the same “extent as they are available to the

6 general population in the geographic area.” 42 U.S.C. § 1396a(a)(30)(A). These

7 requirements are known, respectively, as the “quality of care” and “equal access”

8 provisions of Section 30(A) of the Medicaid Act. In Orthopaedic Hospital, the Ninth

9 Circuit interpreted Section 30(A) to require the Director to set reimbursement rates that

10 “bear a reasonable relationship to efficient and economical hospitals' costs of providing

11 quality services, unless the Department shows some justification for rates that

12 substantially deviate from such costs.” 103 F.3d at 1496; see also Indep. Living Ctr. of

13 S. Cal. v. Maxwell-Jolly, 572 F.3d 644, 651–52 (9th Cir. 2009) (“ILC II”) (affirming the

14 standards established in Orthopaedic Hospital). To meet this statutory requirement, the

15 Ninth Circuit held that the Director “must rely on responsible cost studies, its own or

16 others', that provide reliable data as a basis for its rate setting.” Orthopaedic Hospital,

17 103 F.3d at 1496. In addition, for certain providers, including hospital service providers,

18 California must establish rates through a public process that includes publication of the

19 proposed rates and their underlying methodologies, such that providers are “given a

20 reasonable opportunity for review and comment.” 42 U.S.C. § 1396a(a)(13)(A).

21 Further, the state must administer Medi-Cal in accordance with Medicaid regulations;

22 applicable state law, as specified in sections 14000 to 14124 of the Welf. & Inst. Code;

23 and Medi-Cal regulations.

24

B. Procedural Background

25

In February 2010, this Court granted a preliminary injunction in another action

26 challenging the same rate freeze as applied to hospital based skilled nursing and

27 subacute facilities. See Cal. Hosp. Ass’n v. Maxwell-Jolly (“CHA I”), Case No. 09-CV-

28 8642, Order (C.D. Cal. Feb. 24, 2010). The Court enjoined the rate freeze on the

4

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 5 of 17 Page ID #:1605

1 grounds that plaintiff was likely to succeed on its claim that the freeze was enacted by

2 the California legislature without complying with Section 30(A). CHA I, No. 09-8642,

3 slip op. at 5–10. Because the Court found that plaintiff demonstrated a likelihood of

4 success on the merits on its section 30(A) claim, the Court did not address the merits of

5 plaintiff’s remaining claims. Id. at 10. The Court further found that plaintiff had

6 sufficiently demonstrated that its member hospitals would suffer irreparable harm absent

7 a preliminary injunction because the rate freeze was causing them to be paid less than

8 they otherwise were entitled and the Eleventh Amendment barred them from pursuing

9 any reimbursement shortfall in an action for damages. Id. at 10–14.

10

In May 2010, plaintiffs filed the instant motions seeking to preliminarily enjoin

11 application of the rate freeze as applied to their members. See Doc. 6. Prior to the

12 hearing on the motion for a preliminary injunction, the Court stayed the case. See Doc.

13 34. The Court found that good cause existed to stay the case because there was then

14 pending before the United States Supreme Court the Director’s petitions for certiorari in

15 Independent Living Center of Southern California, Inc. v. Maxwell-Jolly, U.S.S.C. Case

16 No. 09-958 (“ILC II”), and Maxwell-Jolly v. California Pharmacists Ass’n (“Cal.

17 Pharm.”), U.S.S.C. Case No. 09-1158. On January 18, 2011, the Supreme Court partially

18 granted review in ILC II, limited to the question of whether Medicaid recipients and

19 providers may maintain a private cause of action under the Supremacy Clause to enforce

20 Section 30(A) by asserting that the provision preempts a state law that reduces

21 reimbursement rates.2

22

On March 16, 2011, plaintiffs filed an ex parte application to lift the stay in this

23 case, arguing that during the stay they continued to suffer irreparable harm and

24

25

2 Subsequent to the stay that was issued inthis case, the Director filed a petition for

26 certiorari in Maxwell-Jolly v. Santa Rosa Mem’l Hosp., U.S.S.C. Case No. 10-283, a case

27 concerning some of the same rate reductions at issue in ILC II and Cal. Pharm. The petitions for certiorari in Santa Rosa and Cal. Pharm. raise identical legal issues to those
28 in ILC II and, consequently, the Supreme Court is addressing them together with ILC II.

5

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 6 of 17 Page ID #:1606

1 irrespective of the Supreme Court’s decision in ILC II, the rate freeze is invalid because

2 the Department implemented it without first obtaining federal approval. On March 28,

3 2011, the Court granted plaintiffs’ ex parte application to lift the stay and restored

4 plaintiffs’ motions for a preliminary injunction to the calendar.

5

On April 20, 2011, the parties filed supplemental briefs on the pending motions

6 for preliminary injunction. After carefully considering the arguments set forth by both

7 parties, the Court finds and concludes as follows.

8 III. LEGAL STANDARD

9

A preliminary injunction is an “extraordinary remedy.” Winter v. Natural Res.

10 Def. Council, Inc., 555 U.S. 7, 129 S. Ct. 365, 375 (2008). The Ninth Circuit

11 summarized the Supreme Court’s recent clarification of the standard for granting

12 preliminary injunctions in Winter as follows: “[a] plaintiff seeking a preliminary

13 injunction must establish that he is likely to succeed on the merits, that he is likely to

14 suffer irreparable harm in the absence of preliminary relief, that the balance of equities

15 tips in his favor, and that an injunction is in the public interest.” Am. Trucking Ass’n,

16 Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009); see also Cal Pharms.

17 Ass’n v. Maxwell-Jolly, 563 F.3d 847, 849 (9th Cir. 2009) (“Cal Pharm. I”).

18 Alternatively, “‘serious questions going to the merits’ and a hardship balance that tips

19 sharply toward the plaintiff can support issuance of an injunction, assuming the other

20 two elements of the Winter test are also met.” Alliance for the Wild Rockies v. Cottrell,

21 632 F.3d 1127, 1132 (9th Cir. 2011). A “serious question” is one on which the movant

22 “has a fair chance of success on the merits.” Sierra On-Line, Inc. v. Phoenix Software,

23 Inc., 739 F.2d 1415, 1421 (9th Cir. 1984).

24 IV. DISCUSSION

25

A. Success on the Merits/Serious Legal Questions

26

1. Standing

27

As a threshold matter, the Director contends that plaintiffs have not established

28 that they have Article III standing. Opp’n at 20. In order to establish Article III

6

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 7 of 17 Page ID #:1607

1 standing, a plaintiff must: (1) demonstrate an injury in fact, which is concrete, distinct

2 and palpable, and actual or imminent; (2) establish a causal connection between the

3 injury and the conduct complained of; and (3) show a substantial likelihood that the

4 requested relief will remedy the alleged injury in fact. See McConnell v. Fed. Election

5 Comm’n, 540 U.S. 93, 225-26 (2003). An association has standing to bring suit on

6 behalf of its members where any of its members would have standing in their own right,

7 the interests at stake are germane to the organization’s purpose, and the relief request

8 does not require participation of individual members. Colwell v. Dep’t of Health &

9 Human Servs., 558 F.3d 1112, 1122 (9th Cir. 2009). “The general rule applicable to

10 federal court suits with multiple plaintiffs is that once the court determines that one of

11 the plaintiffs has standing, it need not decide the standing of the others.” Leonard v.

12 Clark, 12 F.3d 885, 888 (9th Cir. 1993).

13

Here, the Court finds that plaintiffs have Article III standing to challenge the rate

14 freeze. CAHF is a trade association representing the interests of hundreds of California

15 long-term care facilities, including all categories of ICF/MR facilities and FPS facilities.

16 See Declaration of Darrly Nixon ¶ 3. DSN is a trade association representing the

17 interests of hundreds of California intermediate care facilities, including ICF/DD

18 facilities. DSN Complaint ¶ 3. The Ninth Circuit has recognized that plaintiffs’

19 individual member facilities would have standing to pursue this action in their own right.

20 Indep. Living Ctr. of S. Cal. v. Shewry, 543 F.3d 1050, 1065 (9th Cir. 2008) (“ILC I”)

21 (holding that Medi-Cal providers have Article III standing to challenge legislation

22 reducing payments to providers). Moreover, plaintiffs have brought the instant actions

23 in their representative capacities in an effort to prevent injury to their members resulting

24 from the implementation of the rate freeze enacted in AB 5. As such, the lawsuit is

25 germane to plaintiffs’ purpose and does not require the individual participation of their

26 members. See Colwell, 558 F.3d at 1122.

27

The Director also argues for the first time in his supplemental opposition that

28 plaintiffs lack prudential standing to challenge the rate freeze because plaintiffs’ claims

7

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 8 of 17 Page ID #:1608

1 (1) violate the rule against third party standing, Warth v. Seldin, 422 U.S. 490, 499

2 (1975); (2) are barred by the prohibition against “generalized grievances,” Valley Forge

3 Christian Coll. v. Ams. United for Separation of Church & State, 454 U.S. 464, 475

4 (1982); and (3) are barred because plaintiffs, as providers, are not within the “zone of

5 interests” protected by the Medicaid Act provisions at issue, Valley Forge, 454 U.S. at

6 475. Dir. Supp. Mem. at 8–9. Unlike the Article III standing requirements, prudential

7 standing doctrines are non-constitutional limitations on the Court’s review. See ILC I,

8 543 F.3d at 1065 n.17 (citing Bd. of Natural Res. v. Brown, 992 F.2d 937, 945–46 (9th

9 Cir. 1993)). To the extent that the Director’s arguments are directed toward plaintiffs’

10 challenges under the Supremacy Clause, they are unavailing for the reasons set forth in

11 ILC I and Cal. Pharm. I. See ILC I, 543 F.3d at 1064–65; Cal. Pharm. I, 563 F.3d at

12 852–53; see also Cal. Hospital Ass’n v. Maxwell-Jolly, Civ No. 10-3465 FCD/EFB,

13 2011 WL 836706, at *19–20 (E.D. Cal. Mar. 4, 2011) (“CHA II”) (rejecting the

14 Director’s prudential standing argument in challenge to similar rate freeze brought by

15 hospital providers).

16

2. Section 30(A)

17

This Court has already found that the rate freeze provisions of AB 5, codified at

18 Cal. Welf. & Inst. Code §§ 14105.191(f), are likely preempted by federal law because

19 the rate freeze was not enacted in compliance with Section 30(A). See CHA I, No. 09-

20 8642, slip op. at 5–10. The Court’s ruling in CHA I was predicated on the Ninth

21 Circuit’s holding that Medicaid recipients and providers may maintain a private cause of

22 action under the Supremacy Clause to enjoin implementation of state legislation

23 preempted by the Medicaid Act. See ILC I, 543 F.3d at 1065–66; ILC II, 572 F.3d at

24 652–53. The Supreme Court has granted certiorari in ILC II and is currently set to

25 review whether Section 30(A) is enforceable in federal court through the Supremacy

26 Clause. See ILC II, U.S.S.C. Case No. 09-958.

27

Notwithstanding the Supreme Court’s review in ILC II, plaintiffs maintain that

28 they are likely to prevail on their Section 30(A) claim. CAHF Supp. Mem. at 1 n.1.

8

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 9 of 17 Page ID #:1609

1 Plaintiffs argue that unless and until the Supreme Court actually reverses the Ninth

2 Circuit’s decision in ILC II, that precedent should control. Id. The Court recognizes

3 that at this time the Ninth Circuit’s ruling in ILC II is still good law and controlling in

4 this circuit. See Hart v. Massanari, 266 F.3d 1155, 1171 (9th Cir. 2001) (“Once a panel

5 resolves an issue in a precedential opinion, the matter is deemed resolved, unless

6 overruled by the court itself sitting en banc, or by the Supreme Court.”). In light of the

7 pending Supreme Court proceedings in ILC II, however, the Court finds that it would be

8 imprudent to resolve the present motions under Section 30(A). For now, suffice it to say

9 that plaintiffs’ claims under Section 30(A) present a “serious question going to the

10 merits.” Wild Rockies, 632 F.3d at 1132.

11

3. Prior Federal Approval of the Rate Freeze

12

Plaintiffs argue that they are likely to succeed on their claim that the Director’s

13 implementation and application of the rate freeze is unlawful because CMS has not

14 approved an amendment to California’s State Plan. CAHF Mot. at 13–14; CAHF Reply

15 at 13–16; CAHF Supp. Mem. at 2–4. After the passage of AB 5, the Department

16 submitted to CMS State Plan Amendment No. 09-019 (“SPA 09-019"), which proposed

17 changes to the rate methodology affecting long term care providers by maintaining the

18 level of reimbursement in effect for the 2009–2010 rate year and each year thereafter.

19 See Declaration of Jordan B. Keville ¶¶ 2–3, Exh. A. On December 4, 2009, CMS

20 requested additional information on SPA 09-019. Id. To date, it appears that CMS is

21 still waiting for additional information, and has not approved SPA 09-019. See Second

22 Supp. Decl. of Gary Macomber ¶ 7; Supp. Decl. of Jordan B. Keville ¶¶ 4–5, Exh. B.

23

The Ninth Circuit has held that the Director must obtain federal approval before

24 implementing amendments to the State Plan. See Exeter Mem’l Hosp. Ass’n v. Belshe,

25 145 F.3d 1106, 1108 (9th Cir. 1998). In Exeter, the Ninth Circuit resolved a split in

26 district court authority over whether federal approval was required before the

27 Department could implement amendments to the State Plan. Id. at 1107. The court

28 affirmed its prior holdings in Or. Ass’n of Homes for the Aging, Inc. v. Oregon, 5 F.3d

9

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 10 of 17 Page ID #:1610

1 1239 (9th Cir. 1993) and Wash. State Health Facilities Ass’n v. Wash. Dep’t of Soc. &

2 Health Servs., 698 F.2d 964 (9th Cir. 1982) (per curiam), that a state Medicaid agency

3 may not implement amendments to a State Plan unless it has received prior federal

4 approval. Exeter, 145 F.3d at 1108. The court based its holding on the “overall

5 statutory framework [of the Medicaid Act] rather than the particular language of the

6 statute relating to amendments to state plans.” Id. (citing Washington, 698 F.2d at 965).

7 More recently, two Eastern District of California cases decided by the Hon. Frank C.

8 Damrell, Jr., have reaffirmed that the lack of prior CMS approval for amendments to the

9 State Plan is grounds for enjoining a rate freeze. See Cal. Ass’n of Rural Health Clinics

10 v. Maxwell-Jolly, 748 F. Supp. 2d 1184, 1198–1200 (E.D. Cal. 2010) (“CARHC”);

11 CHA II, 2011 WL 836706, at *15–18.

12

The Director argues that Exeter is distinguishable because it construed provisions

13 of the Medicaid Act that were repealed in the Boren Amendment.3 Dir. Supp. Mem. at

14 2–4. The Director is correct in noting that the Ninth Circuit in Exeter declined to an

15 express a view as to how the elimination of the Boren Amendment would impact

16 subsequent challenges. See Exeter, 145 F.3d at 1109 (“We express no opinion as to

17 what effect that statute may have upon the validity of any other or future amendments to

18 Medi-Cal.”). As Judge Damrell points out, however, “[t]he Ninth Circuit [in Exeter] did

19 not tie its holding to any specific statutory language, and thus, the subsequent repeal of

20 the Boren Amendment does not render the decision inapposite. . . .” CARHC, 748 F.

21 Supp. 2d at 1199. This interpretation is fortified by Judge Levi’s reasoning in the

22 underlying decision in Exeter. See Exeter Mem’l Hosp. Ass’n v. Belshe, 943 F. Supp.

23 1239, 1242–44 (E.D. Cal. 1996). In reaching the conclusion that the state could not

24

25

3 The Boren Am endment, previously codified at 42 U.S.C. § 1396a(a)(13)(A),

26 required states to set hospital reimbursement rates that were “reasonable and adequate to

27 meet the costs which must be incurred by efficiently and economically operated facilities.” Wilder v. Va. Hosp. Ass’n , 496 U.S. 498, 501–02 (1990) (quoting 42 U.S.C. §
28 1396a(a)(13)(A) (1982 ed., Supp. V)).

10

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 11 of 17 Page ID #:1611

1 implement a new Medicaid reimbursement rate structure prior to federal approval of the

2 State Plan Amendment, Judge Levi relied almost entirely on the importance of the State

3 Plan in the overall structure of the Medicaid Act. See id. at 1242 (“In short, the State

4 must pay the rates approved in the State plan and therefore cannot pay rates proposed in

5 an amendment until the proposed amendment has been approved and made part of the

6 State plan. Any other interpretation of the plain language of the statute and regulations

7 would be inconsistent with the centrality of an approved State plan to the structure of the

8 Act.”).4

9

The Director further maintains that although the Medicaid regulations contemplate

10 CMS approval for material changes to the State Plan, they do not mandate that such

11 approval be obtained before a state implements the change. Dir. Supp. Mem. at 4. As

12 recognized in CARHC, this argument was explicitly rejected by Judge Levi in his

13 opinion in Exeter. See CARHC, 748 F. Supp. 2d at 1200; see also Exeter, 943 F. Supp.

14 at 1243 (to permit implementation of a State Plan amendment pending federal approval

15 “would be inconsistent with the function of the State plan, the approval process for State

16 plans and amendments, and the directive that the States ‘must pay’ reimbursement

17 according to the methods specified in an approved State plan.”).

18

Finally, the Director contends that plaintiffs do not have a private right of action

19 to challenge an amendment to the State Plan. Dir. Supp. Mem. at 5–6.5 Under

20 controlling Ninth Circuit precedent, Medicaid providers may bring a claim under 42

21 U.S.C. § 1983 to enjoin enforcement of changes to Medi-Cal reimbursement rates prior

22

23

4 It also bears mention that the Ninth Circuit rejected the Director’s argument that

the repeal of the Boren Am endment undermined the substantive and procedural

24 requirements of Section 30(A) as set forth in Orthopaedic Hospital. See ILC II, 572 F.3d

25 at 654–55.

26

5At oral argument, the Director requested to submit additional briefing on whether

27 plaintiffs have a private right of action to assert a State Plan Amendment claim. Because the Court finds the briefing on this issue adequate, see Dir. Supp. Mem. at 5–6, the Court
28 denies the Director’s request.

11

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 12 of 17 Page ID #:1612

1 to federal approval of a State Plan Amendment.6 See Exeter, 145 F.3d at 1107; Oregon,

2 5 F.3d at 1240; Washington, 698 F.2d at 965 n.4; see also CARHC, 748 F. Supp. 2d at

3 1199; CHA II, 2011 WL 836706, at *16–17. To the extent the Director urges the Court

4 to ignore settled Ninth Circuit precedent on this issue, the Court declines to do so.

5

Accordingly, the Court finds that plaintiffs are likely to succeed on their claim that

6 the Director’s implementation of the rate freeze in advance of CMS approval is

7 unlawful. Because the Court finds that plaintiffs have demonstrated a likelihood of

8 success on the merits of their State Plan Amendment claim, the Court declines to address

9 plaintiffs’ claim under Section 13(A) for purposes of the present motion.

10

B. Irreparable Harm

11

Plaintiffs assert that their members are being irreparably harmed because they are

12 being reimbursed less now than they otherwise would be absent the rate freeze

13 provisions in AB 5. CAHF Mot. at 14–17; DSN Mot. at 19–21; CAHF Reply at 17–23;

14 CAHF Supp. Mem. at 8–10.

15

Traditionally, monetary losses alone are not irreparable because they can be later

16 remedied by a damage award. L.A. Mem’l Coliseum Comm’n v. Nat’l Football League,

17 634 F.2d 1197, 1202 (9th Cir. 1980). The Ninth Circuit has recognized an exception to

18 this rule where a plaintiff would be unable to recover damages due to a State’s Eleventh

19

20

6 At oral argument, the Director argued that plaintiffs have alleged their State Plan

21

Amendment claim under the Suprem acy Clause and not section 1983. Judge Dam rell rejected this exact same argument in CHA II , and this Court is sim ilarly unmoved. In

22 Paragraph 1 of its com plaint, CAHF alleges that the action is brought pursuant to “the

23

Supremacy Clause and 42 U.S.C. § 1983.” C AHF Complaint ¶ 1. CAHF’s State Plan Amendment claim, although nominally asserted under the Supremacy Clause, incorporates

24 by reference all previous paragraphs of the complaint. “Thus, the complaint can be read

25 as alleging each of the claims for relief under the Supremacy Clause and/or Section 1983.” CHA II, 2011 WL 836706, at *17 (emphasis in original). Moreover, even though DSN’s
26 complaint does not specifically allege a cl aim under section 1983, “the Ninth Circuit

27 recognized in Wash. State Health, that while the plaintiffs there did not plead a claim for relief under Section 1983, ‘it is clear that th ey are properly in federal court under this
28 provision.’” Id. (quoting Washington, 698 F.2d at 965 n.4).

12

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 13 of 17 Page ID #:1613

1 Amendment immunity. Cal. Pharm. I, 563 F.3d at 851–52 (“Because the economic

2 injury doctrine rests only on ordinary equity principles precluding injunctive relief

3 where a remedy at law is adequate, it does not apply where, as here, the Hospital

4 Plaintiffs can obtain no remedy in damages against the state because of the Eleventh

5 Amendment.”). Given that plaintiffs’ members are barred by the Eleventh Amendment

6 from obtaining retroactive relief in federal court from the AB 5 rate provisions, they can

7 establish irreparable harm by demonstrating that their members “will lose considerable

8 revenue through [a] reduction in payments that they will be unable to recover. . . .” Cal

9 Pharms. Ass’n v. Maxwell-Jolly, 596 F.3d 1098, 1113–1114 (9th Cir. 2010) (“Cal.

10 Pharm. II”).

11

The Court finds that plaintiffs have met their burden. Welfare and Institutions

12 Code section 14105.191, as amended by AB 5, effectively freezes at 2008–09 levels

13 reimbursement rates for services rendered by, among other things, ICF/DD facilities,

14 ICF/MR facilities, and FPS facilities, “during the 2009–10 rate year and each rate year

15 thereafter.” Cal. Welf. & Inst. Code § 14105.191(f). Plaintiffs state that but for the

16 application of the rate freeze, the Department would calculate updated rates that would

17 have included an increase to account for inflation. Declaration of Darryl Nixon ¶¶ 8–10.

18 Based on historical rate data and the Department’s own data regarding “unfrozen”

19 ICF/DD, ICF/MR, and FPS rates for the 2009–2010 rate year, plaintiffs argue that it is

20 evident providers operating these facilities are being paid less now than they otherwise

21 would be.7 Declaration of Nancy Hayward ¶¶ 6–8, Exhs. A & B; Declaration of P.

22 Dennis Mattson, Ph.D ¶ 5.

23

By way of example, plaintiffs state that CAHF member Hilldale Habilitation

24

25

7 Although the Department has not released the “unfrozen” rates for the 2010–2011

26 rate year, plaintiffs state that the available da ta demonstrates that this fact rem ains true.

27 CAHF’s Supp. Mem. at 8–9 (citing Second Supp. Decl. ofNancy Hayward (Hayward 2nd Supp. Decl.) ¶¶ 5–6; Second Supp. Decl. of Gary Macomber (Macomber 2nd Supp. Decl.)
28 ¶¶ 5–6.

13

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 14 of 17 Page ID #:1614

1 Center, an ICF/DD facility, is currently being paid for its services at a “frozen” rate of

2 $175.03, while the Department has calculated an “unfrozen” rate for the facility of

3 $179.88 for 2009–2010. Declaration of Nancy Hayward ¶ 8a. Annualized for the entire

4 year, the differential in reimbursement rates results in total losses to the facility of

5 $100,278.60. Id. ¶ 8a, Exh. C. These losses appear to continue for the 2010-2011 rate

6 year. For example, plaintiffs estimate that ICF/DD facilities with 7–15 beds will lose

7 between $56,000 and $73,000 in Medi-Cal reimbursement during the 2010–2011 rate

8 year, and FPS facilities will lose a minimum of nearly $700,000 for the same time

9 period. Hayward 2nd Supp. Decl. ¶ 6, Exh. A; Macomber 2nd Supp. Decl. ¶ 6.

10

Despite these ongoing losses, the Director argues that the Court should deny the

11 request for a preliminary injunction on the basis that plaintiffs “delayed” in initiating this

12 action relative to when the rate freeze went into effect. Opp’n at 21–22. “[D]elay by

13 itself is not a determinative factor in whether the grant of interim relief is just and

14 proper.” Miller v. Cal. Pac. Med. Ctr., 991 F.2d 536, 543–44 (9th Cir. 1993). The factor

15 of delay is only material where the harm sought to be prevented already has occurred

16 and the parties cannot be returned to the status quo. McDermott v. Ampersand Publ’g,

17 LLC, 593 F.3d 950, 965 (9th Cir. 2010). Stated differently, where the delay is such that

18 it places the parties in a position where a preliminary injunction will “not actually make

19 a practical difference,” equitable relief may be denied. Id. That is plainly not the case

20 here. As discussed above, plaintiffs’ members have been subjected to the rate freeze

21 since August 1, 2009, and continue to be paid less now than they otherwise would be

22 absent application of the rate freeze. Because this shortfall cannot be remedied

23 retroactively, plaintiffs’ members continue to suffer irreparable harm.

24

Alternatively, the Director argues that plaintiffs cannot establish irreparable harm

25 because they may recover retroactive relief in a collateral state court action or through an

26 administrative process. Dir. Supp. Mem. at 9–10. The Ninth Circuit rejected this

27 argument in Cal. Pharm. I. There, the court acknowledged that damages may later

28 become available to plaintiffs in state court, but stated that federal courts must “consider

14

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 15 of 17 Page ID #:1615

1 only prospective federal remedies for the purpose of gauging whether the harm caused to

2 [plaintiffs] and their members is irreparable.” Cal. Pharm. I, 563 F.3d at 852 n.2

3 (emphasis in original) (relying on United States v. New York, 708 F.2d 92, 93–94 (2d

4 Cir. 1983) (per curiam)).

5

In sum, the Court finds that plaintiffs have sufficiently demonstrated that there is a

6 likelihood that certain ICF/DD facilities, ICF/MR facilities, and FPS facilities “will lose

7 considerable revenue” as a result of the rate freeze implemented by AB 5. Cal. Pharm.

8 II, 596 F.3d at 1113–14. This harm is irreparable because if the Court does not grant the

9 preliminary injunction, plaintiffs’ members would be barred by the Eleventh

10 Amendment from obtaining retroactive relief in federal court. See Cal. Pharm. I, 563

11 F.3d at 851–52.

12

C. Balance of Hardships and Public Interest

13

While the Court is mindful of the difficulty facing the State of California in light

14 of its fiscal crisis, the Ninth Circuit has held that “[s]tate budgetary considerations do not

15 . . . in social welfare cases, constitute a critical public interest that would be injured by

16 the grant of preliminary relief.” ILC II, 572 F.3d at 659. Further, the Ninth Circuit has

17 determined that “it would not be equitable or in the public's interest to allow the state to

18 continue to violate the requirements of federal law, especially when there are no

19 adequate remedies available to compensate the [plaintiffs] for the irreparable harm that

20 would be caused by the continuing violation.” Cal. Pharm. I, 563 F.3d at 852–53.

21 Given that the State may decide to implement a rate change upon complying with the

22 mandates of federal law, the Court finds that the balance of equities and the public

23 interest weigh in favor of granting the injunction.8

24

25

8 The Court notes that this does not a ppear to be a case where t he balance of

hardships tips sharply in favor of plaintiffs because there is no showing on the present

26 record that Medi-Cal beneficiaries are likely to be forced to go without medical care due

27 to the implementation of the rate freeze. See ILC II, 572 F.3d at 657–58 (“it is not legal

error to conclude, when balancing the medical or financial hardship to Medi-Cal recipients

28

(continued...)

15

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 16 of 17 Page ID #:1616

1 V. CONCLUSION

2

In accordance with the foregoing, the Court hereby GRANTS plaintiffs’ motions

3 for preliminary injunction. The Court hereby ORDERS the Director, his agents,

4 servants, employees, attorneys, successors, and all those working in concert with him to

5 refrain from enforcing Cal. Welf. & Inst. Code § 14105.191(f), including refraining from

6 effectively freezing at 2008–2009 levels the Medi-Cal reimbursement rates for services

7 provided by intermediate care facilities for the developmentally disabled and the

8 mentally retarded, and freestanding pediatric subacute facilities during the 2009–2010

9 rate year and each rate year thereafter.

10

At oral argument, the Director orally moved for a stay of the preliminary

11 injunction pending the Director’s emergency appeal of this order. In deciding whether

12 to issue a stay pending appeal, the Court considers “(1) whether the stay applicant has

13 made a strong showing that he is likely to succeed on the merits; (2) whether the

14 applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will

15 substantially injure the other parties interested in the proceeding; and (4) where the

16 public interest lies.” See Golden Gate Rest. Ass’n v. City & County of S.F., 512 F.3d

17 1112, 1115 (9th Cir. 2008) (citations omitted). The Court finds that the relevant factors

18 do not weigh in favor of granting the Director’s motion. Most importantly, there is no

19 evidence that the Director will suffer irreparable injury absent a stay, and issuance of a

20 stay would substantially injure plaintiffs because their members would continue to lose

21 considerable revenue that cannot be recouped retroactively in federal court.

22

23

8(...continued)

24 against the financial hardship to the state, that the balance of hardships tipped sharply in

25 favor of the plaintiffs.”) (internal quotati ons omitted). Thus, the “serious questions” analysis in Wild Rockies is ina pplicable. Se e Wild Rockies , 632 F.3d at 1132.
26 Nevertheless, the Court finds that it is appropriate to issue the prelim inary injunction

27 because plaintiffs have demonstrated that they are likely to succeed on the merits of their State Plan Amendment claim and the other W inter elements are satisfied. See Am.
28 Trucking, 559 F.3d at 1052.

16

Case 2:10-cv-03259-CAS-MAN Document 49 Filed 05/05/11 Page 17 of 17 Page ID #:1617

1 Accordingly, the Court DENIES the Director’s motion for a stay pending appeal.

2

IT IS SO ORDERED

3 Dated: May 5, 2011 4

________________________________ CHRISTINA A. SNYDER UNITED STATES DISTRICT JUDGE

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 Case 2:10-cv-03259-CAS-MAN Document 67 Filed 06/28/11 Page 1 of 2 Page ID #:1768
FILED

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

JUN 282011
MOu.LsL. YCOCU. RDTWOYFEARP,PCEALLESRK

DEVELOPMENTAL SERVICES NETWORK and UNITED CEREBRAL PALSY/SPASTIC CHILDREN'S FOUNDATION OF LOS ANGELES AND VENTURA COUNTIES,
Plaintiffs - Appellees,
v,
DAVID MAXWELL-JOLLY, Director of the Department of Health Care Services, State of California and CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES,
Defendants - Appellants.

No. 11-55851
D.C. No. 2: I O-cv-03284-CAS Central District of California, Los Angeles

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES,
Plaintiff - Appellee,
v.
DAVID MAXWELL-JOLLY, Director of the Department of Health Care Services, State of California,
Defendant - Appellant.

No. 11-55852 D.C. No. 2:IO-cv-03259-CAS Central District of California, Los Angeles
ORDER

AW/MOATT

Case 2:10-cv-03259-CAS-MAN Document 67 Filed 06/28/11 Page 2 of 2 Page ID #:1769
Before: GOULD and TALLMAN, Circuit Judges. These are consolidated preliminary injunction appeals. Appellants' and
appellees' unopposed motions to take judicial notice are granted. Appellants' opposed emergency motions to stay the district court's May 6,
2011 order pending appeal are granted. See Leiva-Perez v. Holder, 640 F.3d 962, 966-67 (9th Cir. 2011) (per curiam) (citing Nken v. Holder, 129 S.Ct. 1749 (2009) and Hilton v. Braunskill, 481 U.S. 770 (1987)).
Appellants' opposed motions to expedite proceedings are granted in part. The previously established briefing schedule remains in effect. These consolidated appeals will be calendared for oral argument for the week of October 11, 2011, at The Richard H. Chambers Courthouse in Pasadena, California.

AW/MOATT

2

11·55851

 
 Case 2:10-cv-03259-CAS-MAN Document 72 Filed 08/24/11 Page 1 of 2 Page ID #:1781
FILED

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

AUG 24 2011
MOLLY C. DWYER, CLERK u.s. COURT OF APPEALS

DEVELOPMENTAL SERVICES NETWORK and UNITED CEREBRAL PALSY/SPASTIC CHILDREN'S FOUNDATION OF LOS ANGELES AND VENTURA COUNTIES,
Plaintiffs - Appellees,
v.
DAVID MAXWELL-JOLLY, Director of the Department of Health Care Services, State of California and CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES,
Defendants - Appellants.

No. 11-55851
D.C. No. 2:10-cv-03284-CAS Central District of California, Los Angeles

ORDER

RECEIVED CLERK, U.S. DISTRICT COURT

AUG 2 4 2011

CENTRAL DISTR~ OF CALlF9RN1A

BY

L..-- Dt'UTY

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES,
Plaintiff - Appellee,
v.
DAVID MAXWELL-JOLLY, Director of the Department of Health Care Services, State of California,
Defendant - Appellant.

No. 11-55852
D.C. No. 2:10-cv-03259-CAS Central District of California, Los Angeles

AW/MOATT

Case 2:10-cv-03259-CAS-MAN Document 72 Filed 08/24/11 Page 2 of 2 Page ID #:1782
Before: GOULD and TALLMAN, Circuit Judges. The opposed motion for reconsideration of the June 28, 2011 order is
denied. See 9th Cir. R. 27-10. We refer appellants' August 9,2011 motion requesting judicial notice,
submitted in conjunction with the optional reply brief, to the panel that will hear the merits of this appeal for whatever consideration the panel deems appropriate.
Briefing is complete.

AW/MOATT

2

11-55851

 
 Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 1 of 30 Page ID #:76

1 KATHRYN DOl, SBN 121979

Email:

kdoi~murphyaustin.com

2 JENNY MAE PHrLLIPS, SBN 255458

Email:

jphillips~murrhyaustin.com

3 MURPHY AUSTIN ADAMS SCHOENFELD LLP

304 "S" Street (95811-6906)

4 Post Office Box 1319

Sacramento, California 95 812-1319

5 Telephone: (916) 446-2300

Facsimile: (916) 503-4000

6

DOUGLAS S. CUMMING, SBN 88580

7 Email:

dsc~dougcuininingmedical-law. co111

LAW OFFICES 'OF DOlJGLAS S. CUMMING

8 542 5th Street

Lincoln, CA 95648

9 Telephone: (916) 434-8719

Facsnnile: (916) 645-2997

10

P-.

Attorneys for Plaintiffs

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11 DEVELOPMENTAL SERVICES NETWORK;

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and UNITED CEREBRAL PALSY OF LOS

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12 ANGELES, VENTURA, AND SANTA

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BARBARA COUNTIES

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17 DEVELOPMENTAL SERVICES

Case No. CV10-03284

NETWORK, et al.

18

PLAINTIFFS' MEMORANDUM OF

Plaintiffs,

POINTS AND AUTHORITIES IN

19

SUPPORT OF MOTION FOR

v.

PRELIMINARY INJUNCTION

20

DAVID MAXWELL-JOLLY, Director rNotice of Motion and Motion for

21 of the Derartment of Health Care

l>reliminary Injunction; Declarations

Services, State of California, et al.

of Macomber, Mattson, and Cohen

22

and Exhibits thereto; Request for

Defendants.

Judicial Notice; and (Proposed]

23

Order Granting Motion for

Preliminary InJunction filed

24

concurrently herewith]

25

DATE:

June 7, 2010

TIME:

lO:og a.m.

26

DEPT:

5-2" Floor

27 28
PLAINTIFFS'

ASSIGNED FOR ALL PURPOSES TO HON. CHRISTINA A. SNYDER

- 1-
OF PRELIMINARY INJUNCTION

3 745.001-908548.1
IN SUPPORT OF MOTION FOR

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 2 of 30 Page ID #:77

1

TABLE OF CONTENTS

2

3

4 I. INTRODUCTION ........................................................................................... !

5

6 II. BACKGROUND ............................................................................................. 2

7

A. Federal Medicaid Law .......................................................................... 2

8

9

B. The Establishment Of Intermediate Care Facilities Under Federal and State Law........................................................................... 4

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C. The Reimbursement System For Intermediate Care Facilities For The Developmentally Disabled- Habilitative and Nursing................. 6
D. E. DHCS Calculations Show ICF/DD Reimburse1nent Rates
Should Have Increased Beginning August 1, 2009 ............................ 10

17 III. DISCUSSION ............................................................................................... 11
18

19

A. Plaintiffs' Application Meets The Well-Established Standards For The Granting Of Injunctive Relief In The Same Manner As

20

The Medi-Cal Rate Cut And Freeze Cases That Have Preceded This Action.......................................................................................... 11

21

22

B. Plaintiffs Are Like!Y To Succeed On The Merits Because Defendants Failed To Co~ply With Federal Medicaid Law

23

Before Freezing The Reimbursement Rates ....................................... 12

24

1. Plaintiffs are likely to succeed on the merits of the

25

argu1nent that the rate freeze is preempted by§ 30(A) unaer the Supremacy Clause because It is impossible for

26

defendants to comply with federal and State law and the State law obstructs the purpose underlying federal

27

Medicaid law ............................................................................ 14

28
- 1-
MEMORANDUM OF POINTS AND AUTHORITIES

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 3 of 30 Page ID #:78

1

TABLE OF CONTENTS

2

(continued)

3

4

2. Plaintiffs are likely to succeed on the merits of the argument that the rate freeze is preempted by §§ 13(A)

5

ana 477.205 under the Supretnacy Clause because there was no meaningful notice or opportunity to be heard .............. 16

6

7

3. Plaintiffs are likely to succeed on the 1nerits of the argutnent that the rate freeze is preempted under the

8

Supretnacy Clause because the Implementation of the freeze is inconsistent with the current provisions of the

9

California State Medicaid Plan................................................. 18

10

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C. Plaintiffs Are Suffering And Will Continue To Suffer Irreparable Injury As A Result Of The Rate Freeze ........................... 19
D. The Balance Of Hardships Tips In Plaintiffs' Favor And The Granting Of An Injunction Is 1n The Public Interest .......................... 21
E. A Preliininary Injunction Has Already Issued Enjoining Defendants Fro1n Im12lementing The Section 14I05.19l(f) Rate Freeze With Respect To Other Providers ........................................... 23

17 IV. CONCLUSION ............................................................................................. 24
18

19

20

21

22

23

24

25

26

27

28
- 11 -
MEMORANDUM OF POINTS AND AUTHORITIES

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 4 of 30 Page ID #:79

1

TABLE OF AUTHORITIES

2

3 Federal Cases

4

5

Alaska Dept. of Health and Social Servs. v. Centers for Medicare and Medicaid Servs. (9th Cir. 2005) 424 F.3d 931 ................................ 3

6 California Pharmacists Ass'n v. Maxwell-Jolly (9th Cir. 2009)

7

563 F.3d 847, 849 ..................................................................................... 12, 20, 22

8

California Pharmacists Assn. v. Maxwell-Jolly (C.D. Cal. 2009) 630 F. Supp. 2d 1154............................................................................................ 13

9 Do1ninguez v. Schwarzenegger (9th Cir. 2010) 596 F.3d 1087......................... 12, 21

10 Exeter Memorial Hospital Ass'n v. Belshe (9th Cir. 1998)

0.... ,__)
,__)

1 1

145 F.3d 1106 ................................................................................................... 4, 19

0

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Independent Living Center of Southern California, Inc. v. Sliewry (9th Cir. 2008) 543 F.3d 1050,

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13

cert. denied June 22, 2009 ............................................................ 12, 13, 14, 19, 21

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14 Int'l Paper Co. v. Gullette (1987) 479 U.S. 481 ....................................................... 13

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Managed Pharmacy- Care v. Maxwell-Jolly (C.D. Cal. 2009) 603 F.Supp.2d 1230, mtn to amend denied by (C.D.Cal. 2009) .......................... 12

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16 McDennott v. Wisconsin (1913) 228 U.S. 115 ........................................................ 13

17 Oregon Ass'n of Homes for the Aging, Inc. v.

18

State of Oregon (9th Cir. 1993) 5 F.3d 1239.................................................... 4, 19

19 Orthopaedic Hospital v. Belshe (9th Cir. 1997), 103 F.3d 1491. ............................. 14

20 Pacific Gas & Elec. Co. v. State Energy Comm'n (1983) 461 U.S. 190 ................. 13

21

Pharmaceutical Research and Manufacturers of America v. District of Columbia (2005) 406 F. Supp. 2d 56 .............................................. 13

22 Ting v. AT&T (9th Cir. 2003) 319 F.3d 1126 ......................................................... 13

23 United States v. New York (2d Cir. 1983) 708 F.2d 92 (per curiam) ...................... 20

24 Wilder v. Va. Hosp. Ass'n (1990) 496 U.S. 498, 502................................................ 2

25 Winter v. Natural Resources Defense Council (2008)

26

--U.S.--, 129 S.Ct. 365 ........................................................................................ 12

27

28

- 111 -
MEMORANDUM OF POINTS AND AUTHORITIES

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 5 of 30 Page ID #:80

1

TABLE OF AUTHORITIES

2

(continued)

3 California Cases

4

5

California Hospital Association v. Maxwell-Jolly (C.D. Cal) Case No. CV 09-8642 CAS (MANx) ............................................................... 2, 23

6 California Pharmacists Ass'n v. Maxwell-Jolly (C.D. Cal. 2010)

7

No. 09-08200 ........................................................................................................ 12

Mission Hospital Regional Medical Center v. Shewry 8 (3d Dist. 2008) 168 Cal.App.4th 460 ....................................................... 12, 16, 17

9 10

saRf~.~S~OJ173,o:~~1. ~~~El~~ .~:. ~~~~?:.~~:?.:.~.~~----~-~-~?!.:................................... 12

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14 42 U.S.C. § 1396a(a)(30)(A) .................................................... 2, 3, 10, 12, 14, 15, 23

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Federal Regulations

17

18 42 C.F.R. § 430.0 ........................................................................................................ 3

19 42 C.F.R. § 430.10 ................................................................................................ 3, 18

20 42 C.F.R. § 431.10 ...................................................................................................... 3

21 42 C.F.R. § 447.205 ............................................................................ 4, 10, 12, 16, 18

22 42 C.F.R. § 447.251 .................................................................................................. 18

23 42 C.F.R. § 447.252 .................................................................................................. 18

24 42 C.F.R. § 447.253 .................................................................................................. 18

25 California Statutes

26 Health & Saf. Code§ 1250................................................................................. 5, 6, 8

27 Health & Saf. Code§ 1324.2...................................................................................... 7

28 Health & Saf. Code § 1324.8 ...................................................................................... 8

-IV-
MEMORANDUM OF POINTS AND AUTHORITIES

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 6 of 30 Page ID #:81

1

TABLE OF AUTHORITIES

2

(continued)

Page 3
Health & Saf. Code § 1324.1 0.................................................................................... 7 4
Weif. & Inst. Code § 10720 ...................................................................3 5
Welf. & Inst. Code§ 14000........................................................................................ 3 6
Welf. & Inst. Code§ 14105.191 .................................................8, 9, 10, 23 7

8 Other Authorities

9 Assetnbly BillS ("AB4X_5") .................................................. 8, 9, 10, 16, 20, 21,24

10 California Constitution, art. IV, sec. 10, subdiv. (±) ................................................. 21

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11 Social Security Act, Title XIX ............................................................................... 2, 6

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25

26

27

28
- v-
MEMORANDUM OF POINTS AND AUTHORITIES

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 7 of 30 Page ID #:82

1 I. 2

INTRODUCTION Plaintiffs Developmental Services Network ("DSN"), a trade association for

3 intermediate care facilities for the developmentally disabled-habilitative and

4 nursing ("ICF/DD-1-I" and "ICF/DD-N", respectively), and lJnited Cerebral Palsy

5 of Los Angeles, Ventura and Santa Barbara Counties ("lJCP"), one ofDSN's

6 metnbers and the owner/operator of 12 ICF/DD-H hotnes and 9 ICF/DD-N hotnes

7 (collectively, "plaintiffs"), bring this action to challenge a State of California law

8 adopted in July 2009 that permanently "freezes" Medi-Cal reimbursement rates for

9 ICF/DD-Hs and ICF/DD-Ns at the 2008-09 rates.

10

Defendants the Department of Health Care Services ("DHCS") and its

11 Director (collectively, "defendants") have impletnented this rate freeze and, since

12 August 1, 2009, have paid and continue to pay ICF/DD-Hs and ICF/DD-Ns at the

13 2008-09 rates despite the results of defendants' own cost study, conducted pursuant

14 to the California Medicaid State Plan, which shows that weighted reimbursetnent

15 rates paid to ICF/DD-Hs should be 6.03o/o higher and weighted reitnbursement rates

?:r:'

~

16 paid to ICF/DD-Ns should be 8.87o/o higher for the 2009-10 fiscal year (which

~

17 began August 1, 2009).

18

The legislative history underlying the rate freeze statute shows that the

19 statute was enacted based solely on the budget concerns of the State of California,

20 without any analysis or consideration of the quality of care or equal access

21 considerations required under federal Medicaid law. The Ninth Circuit and this

22 Court have clearly stated in a series of recent decisions that State of California

23 Medi-Cal health care provider rate reductions and freezes enacted in this manner

24 and under comparable circumstances are invalid as preetnpted by federal Medicaid

25 law pursuant to the Supremacy Clause of the United States Constitution.

26

In fact, on February 24, 2010, this Court granted a plaintiffs 1notion for a

27 preliminary injunction in a case challenging different subdivisions of the exact

28 same statute, California Welfare and Institutions Code section 141 05.191, finding

- 1-

3745 001-908548.1

PLAINTIFFS' MEMORANDUM OF PRELIMINARY INJUNCTION

OF MOTION FOR

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 8 of 30 Page ID #:83

1 that plaintiff in that case had demonstrated a likelihood of success on the merits of

2 its claim under 42 U.S.C. § 1396a(a)(30)(A) ("§ 30(A)") because the State had

3 failed to consider the "quality of care" and "equal access" provisions of§ 30(A), or

4 whether reitnbursetnent rates are reasonably related to provider costs, before its

5 itnplementation. (California Hospital Association v. Maxwell-Jolly (C.D. Cal)

6 Case No. CV 09-8642 CAS (MANx).)

7

Plaintiffs submit that a preliminary injunction should likewise be issued in

8 this case on the grounds that they have the same likelihood of success on the merits

9 as the health care providers who have challenged the other reimbursement rate

10 limitations and have made the showing in this motion that they, like the health care

11 providers in the other actions, are likewise suffering irreparable injury as a result of

12 the rate freeze. Plaintiffs further submit that the balance of hardships tips in their

13 favor and that the public interest weighs in favor of granting the preliminary

14 injunction. Accordingly, plaintiffs request that the Court issue a preliminary

15 injunction order preventing defendants from continuing to implement the rate

16 freeze and to direct defendants to pay the Inembers of plaintiff DSN and plaintiff

17 UCP the rate already calculated by defendants for the 2009-10 rate year.

18 II. 19 20

BACKGROUND
A. Federal Medicaid Law
In 1965, Congress enacted Title XIX of the Social Security Act, generally

21 referred to as The Medicaid Act, to provide States with funding to furnish medical

22 assistance to individuals "whose incotne and resources are insufficient to meet the

23 costs of necessary medical services." (42 U.S.C. §§ 1396 et. seq.; Wilder v. Va.

24 Hosp. Ass'n (1990) 496 U.S. 498,502 [110 S.Ct. 2510,2513, 110 L.Ed.2d 455].)

25 The Medicaid program authorizes federal financial support to States for medical

26 assistance to low income persons who are aged, blind, disabled, or members of

27 families with dependent children. The program is jointly financed by the federal

28 and State governments and adtninistered by the States. The States, in accordance

- 2-

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 9 of 30 Page ID #:84

1 with federal law, determine eligibility of particular types of beneficiaries, types and

2 ranges of services, payment levels, and administrative and operative procedures.

3 Payment for services is made directly by States to the individuals or entities that

4 furnish the services. (42 C.P.R. § 430.0.)

5

A State's participation in Medicaid is voluntary, but a State that chooses to

6 participate must comply with the provisions of the Medicaid Act and its

7 itnplementing regulations. (Alaska Dept. ofHealth and Social Servs. v. Centers for

8 Medicare and Medicaid Servs. (9th Cir. 2005) 424 P.3d 931, 935.) Each State

9 administers its Medicaid program through a single State agency, which is charged

10 with the responsibility of establishing and cotnplying with a State Medicaid Plan

11 that, in turn, must comply with the applicable provisions of federal Medicaid law,

12 including the requirements set forth in 42 U.S.C. § 1396a(a)(1)-(70). (42 U.S.C. §

13 1396a(a)(5); 42 C.P.R.§§ 430.10 & 431.10.) In California, defendant DHCS is the

14 single State agency charged with administration of the California Medicaid

15 progratn, which is referred to as "Medi-Cal". (See Cal. Welf. & Inst. Code §§

16 10720 et seq. and 14000 et seq.)

17

In accordance with the requirements of 42 U.S.C. § 1396a(a)(1)-(70),

18 California must provide "methods and procedures" for the paytnent of care and

19 services that ( 1) are "consistent with efficiency, economy, and quality of care," and

20 (2) ensure their availability to the Medicaid population to the same "extent as they

21 are available to the general population in the geographic area." (42 U.S.C. §

22 1396a(a)(30)(A).) These requirements are known, respectively, as the "quality of

23 care" and "equal access" provisions of§ 30(A) of the Medicaid Act.

24

In addition, for certain providers, including ICP/DDs, California must

25 establish rates through a public process that includes publication of the proposed

26 rates and their underlying methodologies, such that providers are "given a

27 reasonable opportunity for review and comment." (42 U.S.C. § 1396a(a)(13)(A)

28 ("§ 13(A)").) In addition, CMS impletnenting regulations require that public notice

- 3-

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 10 of 30 Page ID #:85

1 be provided of "any significant proposed change" in the State's setting of payment

2 rates for services, with exceptions not relevant here. (42 C.F.R. § 447.205 (" §

3 447.205").)

4

Finally, the California Medicaid State Plan ("State Plan") requires defendants

5 to recalculate the reimbursement rate for ICF/DD-Hs and ICF/DD-Ns each year

6 based on cost reports and audits. Unless and until the State Plan is approved by the

7 federal Centers for Medicare and Medicaid Services ("CMS"), defendants are

8 required to perform these calculations and implement the resulting reimbursement

9 rates. (See Exeter Memorial Hospital Ass 'n v. Belshe (9th Cir. 1998) 145 F.3d

10 11 06; Oregon Ass 'n ofHomes for the Aging, Inc. v. State of Oregon (9th Cir. 1993)

11 5 F.3d 1239, 1241.) For fiscal year 2009-10, defendants perfonned the calculations·

12 required under the State Plan, but did not imple1nent the resulting rei1nbursement

13 rates.

14

B. The Establishment Of Intermediate Care Facilities Under

Federal and State Law

15

16

Prior to 1971, facilities for the developmentally disabled were financed

17 solely by state, local and private funding. In the Act of December 14, 1971 (Public

18 Law 92-223 ), Congress enacted legislation that provided federal funding for

19 ICF/DDs (referred to as "intermediate care facilities for the mentally retarded" or

20 "ICF/MRs" in the federal legislation) through the Medi-Cal program.

21

Under federal law, ICF/MR is defined as follows:

22

The term "intermediate care facility for the 1nentally

23

retarded" means an institution (or distinct part thereof) for

24

the mentally retarded or persons with related conditions if

25

(1) the primary purpose of such institution (or distinct

26

part thereof) is to provide health or rehabilitative services

27

for 1nentally retarded individuals and the institution meets

28

such standards as may be prescribed by the Secretary;

-4-

3745.001-908548.1

PLAINTIFFS'

OF

IN SUPPORT

PRELIMINARY INJUNCTION

MOTION FOR

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 11 of 30 Page ID #:86

1

(2) the mentally retarded individual with respect to

2

whom a request for payment is made under a plan

3

approved under this subchapter is receiving active

4

treatment under such a program; and

5

(3) in the case of a public institution, the State or

6

political subdivision responsible for the operation of such

7

institution has agreed that the non-Federal expenditures in

8

any calendar quarter prior to January 1, 1975, with respect

9

to services furnished to patients in such institution (or

1 0

distinct part thereof) In the State will not, because of

11

payments made under this subchapter, be reduced below

12

the average a1nount expended for such services in such

13

institution in the four quarters immediately preceding the

14

quarter in which the State in which such institution is

15

located elected to make such services available under its

16

plan approved under this subchapter.

17 (42 U.S.C. § 1396d(d).)

18

The State of California Department of Public Health, in turn, issues licenses

19 to intermediate care facilities that fall into one of four categories: ( 1) intermediate

20 care facility; (2) ICF/DD-Hs; (3) intermediate care facility/developmentally

21 disabled; and (4) ICF/DD-Ns. (Cal. Health & Saf. Code§§ 1250(d), (e), (g) and

22 (h), respectively.) Plaintiffs own and operate or represent ICF/DD-H and ICF/DD-

23 N facilities only.

24

An ICF/DD-H facility is defined as:

25

a facility with a capacity of 4 to 15 beds that provides 24-

26

hour personal care, habilitation, developmental, and

2 7

supportive health services to 15 or fewer persons with

28

develop1nental disabilities who have intermittent

-5-

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 12 of 30 Page ID #:87

1

recurnng needs for nursing services, but have been

2

certified by a physician and surgeon as not requ1nng

3

availability of continuous skilled nursing care.

4 (Cal. Health & Saf. Code§ 1250(e).)

5

An ICF/DD-N facility is defined as:

6

a facility with a capacity of 4 to 15 beds that provides 24-

7

hour personal care, developmental services, and nursing

8

supervision for persons with developmental disabilities

9

who have intermittent recurring needs for skilled nursing

I 0

care but have been certified by a physician and surgeon as

11

not requiring continuous skilled nursing care. The facility

12

shall serve medically fragile persons with developmental

13

disabilities or who demonstrate significant develop1nental

14

delay that may lead to a developmental disability if not

15

treated.

16 (Cal. Health & Saf. Code§ 1250(h).)

17

c. The Reimbursement System For Intermediate Care

Facilities F'or The Developmentally Disabled- Habilitative

18

and Nursing

19

The State Plan establishes the principles of the State of California's

20 reimburseinent systein for providers of long-term care services to assure

21 compliance with the requirements of Title XIX of the Federal Social Security Act

22 and the Code of Federal Regulations and describes the procedures to be followed by

23 DHCS in determining long-term care reimbursement rates. (See intro. to Att. 4.19-

24 D of the State Plan, eff. Aug. 1, 2005, Exh. 11 to Plaintiffs' Request for Judicial

25 Notice ("RJN"), served and filed herewith.)

26

These procedures provide for the establishment of reimbursement rates.

27 Rates are set for four classes ofiCF/DD-Hs and ICF/DD-Ns: 4-6 bed ICF/DD-Hs;

28 7-15 bed ICF/DD-Hs; 4-6 bed ICF/DD-Ns; and 7-15 bed ICF/DD-Ns. (RJN, Exh.

-6-

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 13 of 30 Page ID #:88

1 11 Att. 4.19-D, § I(I)(3)G) & (k), p.5 (eff. Aug. 1, 2004).)

2

The State Plan requires defendants to recalculate reimburse1nent rates for

3 ICFs every year. Prospective rates for each class are developed based on cost

4 reports subtnitted by the ICFs, as adjusted by random audits of a minimum of 15%

5 of the cost repo11s. (RJN, Exh. 11 at p. 9-10, Att. 4.19-D, §§ III(A), p.9 &

6 IV(A)( 1)(f) & (g), p.1 0 (eff. Aug. 1, 2004). ) Providers have the right to appeal

7 findings which may result in an adjustment to program reimbursement rates. (RJN,

8 Exh. 11, Att. 4.19-D, § III(D), p.9 (eff. Aug. 1, 2002).)

9

The reimbursetnent rate per patient day is set at the 65th percentile of

10 projected costs for the class. (RJN, Exh. 11, Att. 4.19-D, § IV(F)(9), p.15 (eff.

11 Aug. 1, 2005).) This is a higher reimbursetnent rate than other classes of long-tenn

12 facilities in recognition of the fact that ICFs serve a disproportionate share of low

13 income patients with special needs. (!d.) Plaintiffs understand that Medi-Cal pays

14 for services provided to over 99% of the ICF patients in California.

15

As long as there is a projected net increase in the California Consu1ner Price

16 Index during the State's fiscal year previous to the new rate year, no prospective

17 rate of reimbursement shall be decreased solely because the class median projected

18 cost is less than the existing rate of reimbursement. (RJN, Exh. 11, Att. 4.19-D, §

19 IV(F)(5), p.14 (eff. Aug. 1, 2002.)

20

In addition, since 2003, the State has made a supplemental Medi-Cal

21 rei1nburse1nent payment on a per diem basis to ICFs over and above the

22 reitnbursetnent rate established through the cost report/audit procedures described

23 above to support the facilities' quality improvement efforts. (Cal. Health & Saf.

24 Code§ 1324.10.) These payments are currently set at 8.99% ofthe reimbursement

25 rate.

26

Since 2003, ICFs are required to re1nit to the State a quality assurance fee

27 C'QAF") on the entire gross receipts of the ICFs. (Cal. Health & Saf. Code §

28 1324.2(a).) The QAF rate is currently 5.5%. The QAF is deposited in the State

- 7-

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 14 of 30 Page ID #:89

1 General Fund. (!d.,§ 1324.8.)

2

D. The Passa7{ Of Assembly Bill 5, Which Freezes ICF

Payments t 2008-09 Rates

3

4

On July 2, 2009, Assembly Bill 5 ("AB4X 5") was introduced during the

5 2009-1 0 Fourth Extraordinary Session to address the California state budget as a

6 placeholder "spot" bill to enact statutory changes relating to the Budget Act of

7 2009. There was no substance to the bill as introduced on July 2, 2009. (AB4X 5,

8 as introduced July 2, 2009, Exh. 5 to RJN.)

9

On July 23, 2009, AB4X 5 was amended to amend, appeal and add various

10 sections of the California Financial Code, Health and Safety Code, Insurance Code

11 and Welfare and Institutions Code. The bill as amended was 98 pages in length.

12 (Sen. Amend. to AB4X_5, July 23, 2009, Exh. 6 to RJN.)

13

One of the changes contained in the amended AB4X 5 was to add

14 subdivision (f)(2) to California Welfare & Institutions Code section 14105.191

15 ("Section 14105.191 (f)(2)"). This amendment reads, in pertinent part, as follows:

16

(f)(2) ... Medi-Cal reimbursement rates applicable to the

17

following classes of facilities for services rendered during

18

the 2009-10 rate year; and each rate year thereafter, shall

19

not exceed the reimbursement rates that were applicable to

20

those facilities and services in the 2008-09 rate year:

21

(A) Facilities identified in paragraph (5) of

22

subdivision (d).

23 (See RJN, Exh. 6 at p. 77.)

24

Paragraph (5) of subdivision (d) identifies, in pertinent part, the following

25 facilities: "Intermediate care facilities for the developmentally disabled licensed

26 pursuant to subdivision (e), (g), or (h) of Section 1250 of the California Health and

27 Safety Code ...." As noted above, subdivisions (e) and (h) of Section 1250 of the

28 Health and Safety Code define ICF/DD-Hs and ICF/DD-Ns.
-8-

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 15 of 30 Page ID #:90

1

AB4X_5 as amended was passed by the Senate on July 23, the day it was

2 introduced, passed by the Assembly later that same day, and was enrolled and sent

3 to the Governor on July 24. (AB4X_5, Complete Bill History, Exh. 4 to RJN.) The

4 Governor approved the bill and it was chaptered by the Secretary of State on July

5 28. (AB4X_5, as chaptered July 28, 2009, Exh. 7 to RJN.) The bill was enacted as

6 an urgency statute and became effective i1n1nediately. Defendants immediately

7 impletnented the rate freeze and have continued to pay the 2008-09 rate. (See Decl.

8 ofP. Dennis Mattson, Ph.D.,~ 4; Decl. of Ronald S. Cohen, Ph.D. ~,f 8, 9, 10.)

9

The legislative history of AB4X 5 does not contain any evidence that either

10 the defendants or the California Legislature considered the "quality of care" or

11 "equal access" provisions of§ 30(A), or whether reimbursetnent rates are

12 reasonably related to provider costs, before its implemented the rate freeze imposed

13 by Section 14105.191(£)(2).

14

Three committee analyses were prepared with respect to AB4X_5. The first

15 bill analysis, dated July 13, 2009, before the bill was amended to add substantive

16 provisions, was two pages long and simply expressed the intent of the Legislature

17 to enact unspecified statutory changes relating to the 2009 Budget Act. (Sen. Rules

18 Com. Analysis of AB4X 5 (2009-1 0) as introduced, Exh. 8 to RJN.)

19

The second bill analysis, dated July 23, 2009, states as follows with respect

20 to the rate freeze at issue in this case:

21

This bill freezes the reimbursetnent rate paid to Level B

22

Nursing homes (AB 1629 homes), as well as other long-

23

term care facilities for a savings of about $95 million

24

(General Fund). This proposal was part of the Governor's

25

May Revision.

26 (Sen. Rules Com. Analysis of AB4X_5 as amended, Exh. 9 to RJN.)

27

The third bill analysis, apparently dated July 24, 2009, after the bill had

28 already been sent to the Governor's office, states with respect to the freeze:

-9-

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 16 of 30 Page ID #:91

1

This bill freezes the reimbursement rate paid to Level B

2

Nursing Homes (AB 1629 hotnes), as well as all other

3

long-tenn care facilities for a savings of about $75 million

4

(GF). This proposal was part of the Governor's May

5

Revision.

6 (Assetn. Budget Com. Analysis of AB4X 5, Exh. 10 to RJN.)

7

There is no evidence in the legislative history or in the Governor's May

8 Revision that any responsible cost studies as required by § 30(A) were relied upon

9 by the California Legislature, the Governor's office, or defendants prior to the

10 adoption and implementation of Section 14105.191(f)(2)(A). (See Governor's

11 2009-10 May Revision, Exh. 1 to RJN; Legislative Analyst Office's Overview of

12 the Governor's 2009-10 May Revision, Exh. 2 to RJN; Macomber decl., ~ 11.)

13

There is also no evidence that a public process was followed, as required by

14 § 13(A) and§ 447.205, in connection with the adoption and impletnentation of

15 Section 14105.191 (f)(2)(A). Contrary to the statements in the cotnmittee analyses,

16 there was no reference to a freeze of reimbursement rates for long-tenn care

17 facilities in the Governor's May Revision. (See Exh. 1 and Exh. 2.) In addition,

18 although a notice of the proposed rate change was published in the California

19 Notice Register, the publication did not occur until July 31, 2009, after the bill had

20 been adopted and signed into law. (Cal. Reg. Notice Register, No. 31-2, publ. July

21 31, 2009, Exh. 3 to RJN.)

22

E. DHCS Calculations Show ICF/DD Reimbursement Rates

Should Have Increased Beginning August I, 2009

23

24

Notwithstanding the enactment of Section 14105.191(£)(2), DHCS collected

25 the rate reports and conducted its audit process as required by the State Plan for the

26 rate year beginning August 1, 2009. (Macotnber decl., ~ 19.)

27

DHCS' calculations for the four classes of stnall ICF/DDs for the rates

28 effective August 1, 2008 and August 1, 2009 are as follows:
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PLAINTIFFS' MEMORANDUM OF

IN SUPPORT

PRELIMINARY INJUNCTION

MOTION FOR

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 17 of 30 Page ID #:92

1

2

Facility Group

Rate

Rate

Percent

3

effective 8/1/2008*

effective /2009*

chang,=:e in

4 ICF/DD-Habilitative
5 4-6 Beds
6
7-15 Beds
7

$185.50 $201.77

$197.45 $201.95

6.44% 0.09%

Weighted ICF/DD-H Rate 8

$186.63

$197.72

6.03o/o

ICF/DD-Nursing
9

10

4-6 Beds

$211.63

$230.74

9.03o/o

1 1

7-15 Beds

$219.79

$232.28

5.68%

12

Weighted ICF/DD-N Rate

$212.00

$230.81

8.87%

13

* Includes s}fplemental payment for quality improvement efforts. (See Macomber
decl., Exhs. and E.)

14

15

The rate study conducted by DHCS shows that were the freeze not in place,

16 rates would have been increased on August 1, 2009, by a weighted average of

17 6.03o/o for ICF/DD-H providers and by 8.87% for ICF/DD-N providers.

18 Accordingly, all ICF/DD-Hs and all ICF/DD-Ns, including plaintiffUCP and the

19 tnetnbers of DSN, are being underpaid for every patient for every day they are

20 rei1nbursed at the 2008-09 rate as a result of the rate freeze.

21 III. DISCUSSION

22

A. Plaintiffs' Application Meets The Well-Established
Standards For 1'he Granting Of' Injunctive Relief' In The

23

Same Manner As 'l'he Medi-Cal Rate Cut And Freeze Cases pfhat Have Preceded This Action

24

25

"A plaintiff seeking a prelitninary injunction must establish that he is likely

26 to succeed on the merits, that he is likely to suffer irreparable harm in the absence

27 of preliminary relief, that the balance of equities tips in his favor, and that an

28 injunction is in the public interest." (Winter v. Natural Resources Defense Council

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Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 18 of 30 Page ID #:93

1 (2008) --U.S.--, 129 S.Ct. 365, 374 [172 L.Ed.2d 249]; Dominguez v.

2 Schwarzenegger (9th Cir. 201 0) 596 F.3d 1087, 1092, pet. for cert. filed Mar. 24, 3 2010; Cal~fornia Pharn:zacists Ass 'n v. Maxwell-Jolly (9th Cir. 2009) 563 F.3d 847,

4 849.)

5

Since the Court of Appeals for the Ninth Circuit issued its first opinion in the

6 Independent Living Center ofSouthern California, Inc. v. Shewry (9th Cir. 2008)

7 543 F.3d 1050, cert. denied June 22, 2009, this Court and other courts have granted

8 preli1ninary injunctive relief in seven cases challenging State laws that reduced or

9 froze Medi-Cal rei1nburse1nent rates as part of budget trailer bills on the grounds

10 that these laws had been enacted in violation of the "quality of care" and "equal

11 access" provisions of§ 30(A) of the Medicaid Act or duty to provide a notice and 12 com1nent process on the rate change pursuant to§§ 13(A) and 447.205. 1

13

As with the plaintiffs who have come before them, the plaintiffs here

14 establish in this application that they are likely to succeed on the merits and are

15 suffering irreparable injury, and that a balancing of the equities and public interest

16 warrant granting of the requested injunctive relief.

17

B. Plaintiffs Are Liket:r To Succeed On The Merits Because

18

Defendants Failed ' o ComStly With Federal Medicaid Law Before Freezing 'l'he Reim ursement Rates

19

The Supremacy Clause of the United States Constitution provides:

20

This Constitution, and the Laws of the United States

21

which shall be made in Pursuance thereof ... shall be the

22

supreme Law of the Land; and the Judges in every State

23

shall be bound thereby, any Thing in the Constitution or

24 1 See Don:zinguez v. Schwarzenegger (9th Cir. 2009) 596 F.3d 1087,p~t. for cert.

filed Mar 24, 201 0; California Pharmacists Ass 'n v. Maxwell-Jolly (Yt 1 Cir. 2009)

25 563 F.3d 847; California Pharmacists Ass 'n v. Maxwell-Jolly (C.D. Cal. 2010) No.

09-08200; California Hospital Ass 'n v. Maxwell-Jolly__ (C.D. Cal. 201 0), No. 09-

26 8642; Managea Pharmacy Care v. Maxwell-Jolly_ (C.D. Cal. 2009) 603 F.Supp.2d

1230, mtn to amend denied by (C.D.Cal. 2009) 2009 WL 926987; Santa Rosa

27 Memorial Hospital v. Shewry (C.D. Cal. 2009), No. 08-05173, qp_p.yending;

Mission H~spztal Regional Medical Center v. Shewry (3d Dist. 200~) 168

28 Cal.App.4t 460 [85 Cal.Rptr.3d 639].

- 12 -

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1

Laws of any State to the Contrary notwithstanding.

2 (U.S. Const., art. VI, cl. 2.)

3

Plaintiffs' Supretnacy Clause claitn is predicated upon federal conflict

4 preemption. "Under general principles of federal preemption, state law is

5 preetnpted only to the extent that it actually conflicts with federal law." (California

6 Pharn:zacists Assn. v. Maxwell-Jolly (C.D. Cal. 2009) 630 F. Supp. 2d 1154, 1158

7 and 630 F. Supp. 2d 1144, 1149, both citing Pacific Gas & Elec. Co. v. State

8 Energy Comm 'n (1983) 461 U.S. 190, 204.) "Conflict preemption arises "when

9 compliance with both federal and state regulations is a physical impossibility, or

10 where state law stands as an obstacle to the accomplishment and execution of the

11 full purposes and objectives of Congress." (Independent Living Center ofSouthern

12 Calfiornia, Inc. v. Maxwell-Jolly (9th Cir. 2009) 572 F.3d 644, 653, quoting PG&E,

13 supra, 461 U.S. at 204.)

14

Conflict preemption in which compliance with both federal and state law was

15 itnpossible sitnply occurs when the State law would allow a different result than the

16 applicable federal law. For example, conflict preemption was found to exist in

17 McDer1nott v. Wisconsin (1913) 228 U.S. 115 [115 S.Ct. 431, 57 L.Ed.754].), in

18 which "a state law 1nade it criminal to offer for sale syrup that was not labeled in

19 compliance with the state law, even though the syrup offered for sale did meet

20 federal labeling requiretnents." (Pharmaceutical Research and Manufacturers of

21 America v. District ofColumbia (2005) 406 F. Supp. 2d 56, 65 n.8, citing

22 McDermott, supra, 228 U.S. 124-27.)

23

Under so-called "obstruction" preetnption, "an aberrant or hostile state rule is

24 preetnpted to the extent it actually interferes with the 'methods by which the federal

25 statute was designed to reach [its] goal."' (Independent Living Center, supra, 572

26 F.3d at 653, citing Ting v. AT&T(9th Cir. 2003) 319 F.3d 1126, 1137 [alteration in

27 original], quoting Int'l Paper Co. v. Gullette (1987) 479 U.S. 481,494. [107 S.Ct.

28 805, 813, 93 L.Ed.2d 883].) "Thus, obstruction preemption focuses on both the

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1 objective of the federal law and the method chosen by Congress to effectuate that

2 objective, taking into account the law's text, application, history and

3 interpretation." (Independent Living Center, supra, 572 F.3d at 653, quoting Ting,

4 supra,319F.3dat1137.)

5

1.

6

7

8

9

As noted above, federal Medicaid law requires California to provide

10 "methods and procedures" for the payment of care and services that (1) are

11 "consistent with efficiency, economy, and quality of care," and (2) ensure their

12 availability to the Medicaid population to the same "extent as they are available to

13 the general population in the geographic area." (42 U.S.C. § 1396a(a)(30)(A).)

14

In Orthopaedic Hospital v. Belshe (9th Cir. 1997), 103 F.3d 1491, 1496, the

15 Ninth Circuit identified the purpose of§ 30(A) as demonstrating that "Congress

16 intended payments to be flexible within a range; payments should be no higher than

17 what is required to provide efficient and econo1nical care, but still high enough to

18 provide for quality care and to ensure access to services." (!d. at 1497; see also

19 Independent Living Center, supra, 572 F.3d at 653.) The Ninth Circuit interpreted

20 § 30(A) to require defendants to set reimbursement rates that "bear a reasonable

21 relationship to efficient and econotnical hospitals' costs of providing quality

22 services, unless the Department shows some justification for rates that substantially

23 deviate from such costs." (!d., see also Independent Living Center, supra, 572 F.3d

24 at 651-52.) To meet this statutory requirement, the Ninth Circuit held that the State

25 "tnust rely on responsible cost studies, its own or others', that provide reliable data

26 as a basis for its rate setting." (Orthopaedic Hospital, supra, 103 F.3d at 1496.)

2 7

As outlined above, there is no evidence in the Governor's May Revision or

28 the legislative history of the bill that any responsible cost studies were relied upon

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Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 21 of 30 Page ID #:96

1 by the State as a basis for its determination that rates for ICF/DD-Hs and ICF/DD-

2 N s should be frozen.

3

It is i1npossible for defendants to co1nply with both the federal law, which

4 requires that rate setting be based on reliable data from responsible cost studies to

5 ensure that the quality of care and equal access standards are met, which in the case

6 do not exist, on the one hand, and the State law, which imposes a rate freeze based

7 solely on the need of the State to address its budget issues and without reliance on

8 responsible cost studies or a finding on the quality of care and equal access issues.

9 Defendants have opted to comply with State law, when under the Supremacy

10 Clause, they are required to comply instead with the federal Medicaid law.

11

In addition, the State law at issue here is preempted because it actually

12 interferes with the 1nethods by which the federal Medicaid statute was designed to

13 reach its goal of ensuring that State rate setting is consistent with quality of care and

14 equal access standards.

15

Under § 30(A), payment must be "consistent with efficiency, economy, and

16 qualify of care" and "sufficient to enlist enough providers so that care and services

17 are available under the plan." In the case ofiCF/DD-Hs and ICF/DD-Ns, rates are

18 set at 65o/o of projected costs for the class. Plaintiffs understand that Medi-Cal pays

19 for services provided over 99% of the ICF/DD-H and ICF/DD-N patients in

20 California. If rates are frozen at the 2008-09 levels, particularly when defendants

21 have already calculated that the weighted ICF/DD-H and ICF/DD-N rates should be

22 increased by 6.03o/o and 8.87%, respectively more than 35% of these facilities will

23 be paid less than costs. Particularly hard hit will be the 4-6 bed ICF/DD-N

24 facilities, which are currently being underpaid by 9.03o/o, according to defendants'

25 calculations. No studies were relied upon to determine how the rate freeze would

26 affect these facilities' ability to continue to provide quality care or even stay open.

27

Accordingly, plaintiffs have a strong likelihood of success on their conflict

28 preetnption argument with respect to § 3_0(A_).
1)

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Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 22 of 30 Page ID #:97

1

2.

2

3

4

As noted above, federal Medicaid law requires California to establish rates

5 for ICF/DD-1-Is and ICF/DD-Ns through a public process that includes publication

6 of the proposed rates and their underlying methodologies, such that "providers,

7 beneficiaries and their representatives, and other concerned State residents are

8 given a reasonable opportunity for review and comment on the proposed rates,

9 methodologies, and justifications." (§ 13(A).) In addition, CMS implementing

10 regulations require that public notice be provided of "any significant proposed

11 change" in the State's "methods and standards for setting paytnent rates for

12 services, with exceptions not relevant here. (§ 447.205.)

13

The ICF/DD rate freeze was written into AB4X_5 on the same day the bill

14 was passed by both the Senate and Assembly, it was signed by the Governor five

15 days later, and notice to the public via publication in the California Notice Register

16 was not given until three days after the Governor had signed the bill into law and

17 the day before the freeze was itnpletnented by defendants.

18

Contrary to the statements made in the legislative committee analyses, there

19 was no mention of a possible freeze in the May Revision. There were no public

20 hearings before the Legislature before or after it amended the bill to include the

21 freeze. The publication in the Notice Register occurred the day before the

22 defendants implemented the freeze. Under this scenario, there was no reasonable,

23 meaningful opportunity for providers, beneficiaries or metnbers of the public to

24 review and comment on this significant proposed change to reimbursement rates

25 before it becatne law.

26

Plaintiffs submit that the analysis and conclusion adopted by the California

27 Court of Appeals in Mission Hospital Regional Medical Center v. Shewry (3d Dist.

28 2008) 168 Cal.App.4th 460 [85 Cal.Rptr.3d 639] is instructive here. The facts of the

- 16-

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1 Mission 1-Jospital case are strikingly similar to those at issue here. In 2004, the

2 California Legislature, as part of adopting a State budget after the Constitutional

3 budget deadline had expired, proposed and enacted over only a three-day period a

4 freeze on the rates the State would use to reimburse certain hospitals that provided

5 services to Medicaid beneficiaries during the upcoming 2004-04 fiscal year. The

6 court noted that the California State Legislature has the power to adopt or waive its

7 own rules when it considers new state law and that the due process principles of

8 notice and opportunity for a hearing do not apply to legislative action as a matter of

9 State constitutional law. However, the court found that the case before it did not

10 concern these principles.

11

Rather, this case concerns the extent to which a federal

12

statute constrains state legislative action; 1nore

13

particularly, a federal statute's imposition of notice and

14

cotnment procedures to acts by a state legislature when

15

the state voluntarily agrees to participate in the federal

16

progra1n. This is a matter of federalism, not

17

administrative law.

18 (!d. at 485) The court further noted that,

19

[B]y agreeing to participate in the Medicaid program, the

20

state subjected itself under the supretnacy clause to

21

comply with all federal Medicaid laws. Under those laws,

22

the state would retain flexibility and discretion as allowed

23

by those laws to develop methods and procedures, but

24

those methods and procedures would have to satisfy the

25

requirements ofthe federal law."

26 (!d. at 486.) The court concluded that "the truncated process" utilized in enacting

27 the budget trailer bill at issue in Mission Hospital "did not satisfy the object and

28 purpose" of§ 13(A). Plaintiffs subtnit that the same is true here, and that,

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Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 24 of 30 Page ID #:99

1 accordingly, plaintiffs are likely to succeed on the merits of their challenge to the

2 rate freeze under § 13(A).

3

3. Plaintiffs are likely to succeed on the merits of the

4

argument that the rate freeze is ~reemsted under the Sufiremacy Clause because t e imp ementation

of' the reeze is inconsistent with the current

5

provisions of' the California State Medicaid Plan

6

The State Plan is a comprehensive written statetnent submitted by the State

7 describing the nature and scope of its Medicaid program and giving assurance that

8 it will be administered in conformity with federal Medicaid law. (42 C.F.R. §

9 430.1 0.) The plan tnust specify comprehensively the methods and standards used

10 by the agency to set paytnent rates in a manner consistent with federal Medicaid

11 law. (42 C.F.R. § 447.252(b).) With respect to rates paid, "The Medicaid agency

12 must pay for ... long tenn care services using rates detennined in accordance with

13 tnethods and standards specified in an approved State Plan." (42 C.F.R. §

14 447.253(i).) "Long-tenn care facility services" include ICF/MRs. (42 C.F.R. §

15 447.251.)

16

As described above, the State Plan requires defendants to recalculate the

17 reitnbursement rate for ICF/DD-Hs and ICF/DD-Ns each year based on cost reports

18 and audits. (See Exh. 11 ofRJN.)

19

Federal Medicaid law requires that whenever a State Medicaid agency makes

20 a change in its methods and standards for ICFs, the agency tnust make a finding

21 that the rates "are reasonable and adequate to meet the costs that must be incurred

22 by efficiently and economically operated providers to provide services in

23 confonnity with applicable State and Federal laws, regulations, and quality and

24 safety standards." (42 C.F.R. § 447.253(b)(1)(i).) The State Medicaid agency must

25 also detnonstrate that it has complied with the public notice requirements in §

26 447.205 when it is proposing significant changes to its methods or standards for

27 setting payment rates for ICF/DD-Hs and ICF/DD-Ns. (42 C.P.R. § 447.253(i).)

28 ///

- 18-

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Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 25 of 30 Page ID #:100

1

Defendants have submitted a request for a State Plan Amendment that would

2 i1nple1nent the ICF/DD-H and ICF/DD-N rate freeze, but that this State Plan

3 Amendment has apparently not been approved. (See Macomber decl., ~~ 12, 15-

4 18.) The Ninth Circuit has held that the State Medicaid Director cannot implement

5 State Plan a1nendments until federal approval has been granted. (Exeter Memorial

6 I-!ospital Ass 'n, supra, 145 F.3d 1106 (California was required to obtain approval

7 from the federal government before implementing amendments to Medi-Cal.);

8 Oregon Ass 'n ofHomes for the Aging, Inc. v. State ofOregon (9th Cir. 1993) 5 F.3d

9 1239, 1241 (A law that effects a change in payment methods or standards without

10 federal approval is invalid.).)

11

ICF/DD-Hs and ICF/DD-Ns submitted their cost reports in accordance with

12 the currently effective State Plan 1nethodology and defendants conducted audits and

13 applied the currently effective State Plan methodology to calculate rates for the

14 2009-10 fiscal year, which are higher than the rates for the 2008-09 fiscal year.

15 (Macotnber decl., ~~ 14, 19.) Until the State Plan is changed, defendants are

16 required to perfonn these calculations and implement the resulting rei1nburse1nent

17 rates. Thus, plaintiffs have a high likelihood of success on the merits of their

18 preetnption argument on the grounds that defendants' current implementation of the

19 rate freeze is inconsistent with and preempted by federal Medicaid law and the

20 existing State Plan. (It should also be noted that even if the State Plan were

21 changed, to the extent that the new provisions conflict with federal law, they could

22 not be legally itnplemented by DHCS; that issue is not currently before the Court.)

23

c. Plaintiffs Are Sufferin~And Will Continue To Suffer

24

Irreparable Injury As l{esult Of 'I'he Rate Freeze

25

In Independent Living Center v. Shewry (9th Cir. 2008) 543 F.3d 1050, 1058,

26 the Ninth Circuit held that health care providers have standing to being an action

27 for injunctive relief under the Supre1nacy Clause if they will be directly injured by

28 loss of gross income as the result of a reduction in Medi-Cal reimbursement rates.

- 19-

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Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 26 of 30 Page ID #:101

1

In California Pharmacists Ass 'n, supra, 563 F.3d 847, 851-52, the Ninth

2 Circuit found that monetary harm in the form of lost revenue before the merits of a

3 challenge to a reduction in Medi-Cal reimbursement rates constitutes hann that is

4 also irreparable because the Eleventh Amendment sovereign immunity of DHCS (a

5 branch of the State of California government) bars providers from recovering

6 damages in federal court. The Ninth Circuit observed that, although datnages 1nay

7 become available to health care providers in State court, persuasive authority

8 suggests that federal courts may consider only what.federal remedies are available.

9 (!d. at 852 n.2, citing United States v. New York (2d Cir. 1983) 708 F.2d 92, 93-94

10 (per curiatn).)

11

Using the defendants' own calculations, each ICF/DD-1-I and ICF/DD-N has

12 been underpaid for every day of service provided to every patient since August 1,

13 2009. Thus, the 49 company members ofplaintiffDSN, including plaintiffUCP,

14 which collectively own and operate approximately 250 ICF/DD-H and ICF/DD-N

15 facilities, are likewise being irreparably harmed by the i1nposition of the AB4X 5

16 rate freeze on the reitnbursement rates for ICF/DD-Hs and ICF/DD-Ns because

17 they cannot recover the unlawfully withheld amounts of the 2009-10

18 reimbursement rates from defendants in federal court. (Mattson Decl., ~ 4.)

19

Unless enjoined, this underpayment will continue for years until a final

20 decision on the merits. As just one example of the hardship, plaintiffUCP's six-

21 bed ICF/DD-N, Newport House in Chatsworth, California, has been underpaid

22 $21,097 for the six-month period August 1, 2009 to January 31, 2010, based on the

23 difference between the 2008-09 rate it was paid and the 2009-10 "unfrozen" rate

24 calculated by DHCS. (Cohen decl., ~ 9.) Moreover, UCP, which owns and

25 operates 12 ICF/DD-H facilities and 9 ICF/DD-N facilities, has been underpaid

26 $3 01 ,946 for all of its facilities for the sa1ne six-month period. (Cohen decl., ~ 10.)

27 Since all ICF/DD-Hs and ICF/DD-Ns would have been paid at a higher rate

28 beginning August 1, 2009, ifDHCS had implemented the "unfrozen" rates as

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1 required by federal law, all me1nbers ofDSN are being monetarily injured every

2 day that they are paid at the 2008-09 levels. (Macomber decl., ~ 20; Mattson decl.,

3 ~ 5.)

4

D. The Balance Of Hardships Tips In Plaintiffs' Favor And

'l'he Granting Of An Injunction Is In Ffhe Public Interest

5

6

The only official reason for the enactlnent of AB4X_5 is to address the State

7 of California budget situation. When it was introduced as a placeholder spot bill,

8 the bill explained that "This act addresses the fiscal emergency declared by the

9 Governor by proclamation on July 1, 2009, pursuant to subdivision (f) of Section

10 10 of Atiicle IV of the California Constitution." (See Exh. 5 of RJN.) The

11 cotnmittee reports give as the only reason for the bill that it "contains necessary

12 changes to enact modifications to the 2009 Budget Act." (See Exh. 8 at p. 1; Exh. 9

13 at p. 1 of RJN.) The only reason given for the freeze on rates for long-term care is

14 to save money. (See Exh. 9 at p. 2, Exh. 10 at p. 2 ofRJN.)

15

The Ninth Circuit has recently and repeatedly recognized that "state

16 Medicaid rate reductions may not be based solely on state budgetary concerns.

17 (Independent Living Center, supra, 572 F.3d 655.) In Dominguez, supra, 596 F.3d

18 1087, 1098, the court noted, "[W]e have repeatedly recognized that individuals'

19 interests in sufficient access to health care trump the State's interest in balancing its

20 budget." The record here supports the conclusion that the State's sole reason for

21 itnposing the cuts was California's fiscal etnergency. (Independent Living Center,

22 supra, 572 F.3d at 655.) As in the Independent Living Center case, the legislation

23 was passed in an emergency session called to address the fiscal emergency declared

24 by the government. (!d.) In Independent Living Center, the Ninth Circuit

25 concluded, "the State's decision to reduce Medi-Cal reimbursement rates based

26 solely on state budgetary concerns violated federal law." Likewise, the State's

27 decision in this case to freeze Medi-Cal reimbursement rates, which was effectively

28 a reduction, based solely on state budgetary concerns, violated federal law.

- 2f-

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1

Since the State's fiscal emergency is not a hardship that warrants Medi-Cal

2 rei1nburse1nent rate reductions or freezes, and plaintiffs have detnonstrated that

3 DSN' s members and UCP are suffering daily hann by being reitnbursed at the

4 "frozen" rate, the balance of hardships tips in plaintiffs' favor, and the public

5 interest is clearly in favor of the issuance of an injunction. As the Ninth Circuit

6 found in the California Pharmacists case,

7

[I]t is clear that it would not be equitable or in the public's

8

interest to allow the state to continue to violate the

9

requirements of federal law, especially when there are no

1 0

adequate remedies available to compensate the Hospital

11

Plaintiffs for the irreparable harm that would be caused by

12

the continuing violation. In such circumstances, the

13

interest of preserving the Supremacy Clause is paramount.

14 (California Pharmacists, supra, 563 F.3d at 852-53.)

15

The frozen rates impose a great hardship to the owners and operators of

16 ICF/DD-Hs and ICF/DD-Ns daily. Per the DHCS's own calculations, depending

17 on the type of facility, these owners and operators should be paid up to 9.03o/o 1nore

18 per patient per day to assist with the cost of caring for this 1nedically needy

19 population. For the facilities serving a particularly fragile population, such as the

20 UCP's Newport House, where residents need 24-hour nursing care, specialized

21 feeding through a g-tube (feeding tube), physical and occupational therapy, and

22 other highly specialized services, costs are higher than the costs of providing care

23 to able-bodied developmentally disabled individuals. (Cohen decl., ~ 5.) For a

24 facility like the Newport House, even the unfrozen 2009-10 rates are significantly

25 below the facility's audited costs ($303 .07 costs per day vs. $211.63 at the 2008-09

26 rates and $230.74 at the unfrozen 2009-10 rates). (Cohen decl., ~ 8.) Moreover, in

27 contrast, the State Developmental Centers, operated by the California Department

28 of Develop1nental Services, receive approximately $500.00 per patient per day for

- 22-

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 29 of 30 Page ID #:104

1 providing comparable services. (Macomber decl., ~~ 3, 21.)

2

Declarants Ronald S. Cohen, Ph.D., P. Dennis Mattson, Ph.D., and Gary

3 Macotnber have each been in the ICF/DD industry for over 20 years. (See Cohen

4 decl., ~,f 2, 3; Mattson decl., ~~ 2, 3; Macotnber decl., ,,~ 2, 3.) They believe that if

5 the frozen rates continue to be paid, it is only a matter oftitne before ICF/00-Hs

6 and ICF/DD-Ns begin to go out of business, which will result in a loss of access to

7 care for the highly needy population served by ICFs as well as a diminution in the

8 quality of care furnished by those ICFs remaining in the program trying to stay

9 afloat while being reimbursed at a level below their costs of operation. (Cohen

10 decl., ,111; Mattson decl., ~ 5; Macotnber decl., ~ 22.) As the cost of gas, food,

11 salaries, and other supplies continue to grow, the gap between costs and the frozen

12 reimbursement rates will continue to grow, as well. (Cohen decl., ~ 11.) As

13 private facilities close, the burden will grow on the State Developtnental Centers,

14 which are litnited in capacity and are reimbursed at a higher rate than private

15 facilities, ultitnately costing the State tnore than continuing to pay private facilities

16 at the federally-mandated unfrozen rates.

17

E.

18

19

On Novetnber 24, 2009, the California Hospital Association filed a lawsuit

20 against defendant Maxwell-Jolly, challenging, among other provisions, the Section

21 14105.191 (f) rate freeze as applied to nursing facilities that are part of hospitals and

22 pediatric subacute care units that are part of hospitals. (California Hospital

23 Association v. Maxwell-Jolly (C.D. Cal.) Case No. CV 09-8642 CAS ("the CHA

24 action").)

25

In the CHA action, the plaintiff alleged that the Section 141 05.191 (f) rate

26 freeze violated§ 30(A) and was therefore invalid under the Supremacy Clause of

27 because neither the Director nor the California Legislature considered the "quality

28

of

care"

and

"equal

access"

provisions

of~
- 2J

30(A), -

or

whether

reimbursement rates
3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-1 Filed 05/10/10 Page 30 of 30 Page ID #:105

1 were reasonably related to provider costs, before its implementation. On February 2 24, 2010, this Court granted the CHA plaintiff's motion for a preliminary 3 injunction, on the grounds, in part, that the plaintiff had de1nonstrated a likelihood 4 of success on the merits of its § 30(A) claim and had sufficiently demonstrated that 5 there was a likelihood that CHA's member hospitals would suffer monetary losses 6 as a result of the AB4X 5 rate freeze.

7

Since the likelihood of success on the merits, showing of irreparable injury,

8 the balance of hardships, and the public interest are essentially the same here, a

9 preliminary injunction is also warranted.

10 IV. CONCLUSION

11

For the foregoing reasons, plaintiffs request that the Court preliminarily

12 enjoin defendants from continuing to imple1nent the rate freeze to the

13 reimburse1nent rates payable to ICF/DD-Hs and ICF/DD-Ns and issue a mandatory

14 injunction requiring defendants to reimburse ICF/DD-Hs and ICF/DD-Ns at the

15 2009-10 unfrozen rates already calculated by defendants.

16 Dated: May _ _, 2010 17

Murphy Austin Adams Schoenfeld LLP

18 19 20 Dated: May __, 2010 21

By: ~K~A~T~H=R~YN~D~O~I~---------JENNY MAE PHILLIPS
Law Offices of DouglasS. Cumming

22

23

24

Attorneys for Plaintiffs

25

DEVELOPMENTAL SERVICES NETWORK; UNITED CEREBRAL

26

PALSY OF LOS ANGELES; and HOME OF GUIDING HANDS

27

28

- 24 -

3745.001-908548.1

PLAINTIFFS' MEMORANDUM OF

IN SUPPORT OF MOTION FOR

PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-5 Filed 05/10/10 Page 1 of 2 Page ID #:200

1 KATHRYN DOl, SBN 121979

Email:

kdoi@,mufJ)hyaustin.com

2 JENNY MAE PHILLIPS, SBN 255458

Email:

jphillips@,mu_l])hyaustin.com

3 MURPHY AUSTIN ADAMS SCHOENFELD LLP

304 "S" Street (95811-6906)

4 Post Office Box 1319

Sacramento, California 95812-1319

5 Telephone: (916) 446-23 00

Facsimile: (916) 503-4000

6

DOUGLAS S. CUMMING, SBN 88580

7 Email:

dsc(a),doug_cummingmedical-law. com

LAW OFFICES 'OF DOUGLAS S. CUMMING

8 542 5th Street

Lincoln, CA 95648

9 Telephone: (916) 434-8719

Facsimile: (916) 645-2997

10

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11 Attorneys for Plaintiffs

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DEVELOPMENTAL SERVICES NETWORK; and

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12 UNITED CEREBRAL PALSY/SPASTIC

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CHILDREN'S FOUNDATION OF LOS 13 ANGELES AND VENTURA COUNTIES

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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17 DEVELOPMENTAL SERVICES
18 NETWORK, et al.,

19

Plaintiffs,

Case No. CV1 0-03284 rPROPOSEDlORDERFOR l>RELIMINAllY INJUNCTION

20 v. 21 DAVID MAXWELL-JOLLY, et al.,

DATE: TIME: DEPT:

June 7, 2010 lO:OOda.m. 5-2" Floor

22

Defendants.

ASSIGNED FOR ALL PURPOSES TO

HON. CHRISTINA A. SNYDER

23

--------------------------~

24

On June 7, 2010, in Courtroom 5 of the above referenced court, located at

25 312 N. Spring Street, Los Angeles, California, plaintiff Developmental Services 26 Network ("DSN"), on behalf of its members, and plaintiff United Cerebral

27 Palsy/Spastic Children's Foundation of Los Angeles and Ventura Counties

28 ("UCP") moved the Court for a preliminary injunction requiring defendants David

- 1-

3745.001-909687.1

PROPOSED ORDER FOR PRELIMINARY INJUNCTION

Case 2:10-cv-03284-CAS-MAN Document 7-5 Filed 05/10/10 Page 2 of 2 Page ID #:201

1 Maxwell-Jolly, Director of the California Department of Health Care Services

2 ("Director") and the California Department of Health Care Services ("DHCS"),

3 their agents, employees, and all persons acting in concert with them discontinue

4 implementation of California Welfare & Institutions Code section

5 14105.191(f)(2)(A) as to the members ofDSN and as to UCP and to immediately

6 reimburse the members of DSN and UCP at the rates calculated by the DHCS to be

7 effective August 1, 2009, for the 2009-10 fiscal year.

8

On reading the complaint on file, the supporting memorandum of points and

9 authorities, the supporting declarations, and other documents listed in support of

10 this notice, and it appearing to the satisfaction of the Court that this is a proper case

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11 for granting a preliminary injunction, and that unless a preliminary injunction is

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12 granted, irreparable injury will result to the members ofDSN and UCP before this

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13 matter can be heard on the trial of the merits.

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IT IS HEREBY ORDERED AS FOLLOWS:

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Defendants Director and the DHCS, their employees, agents, and others

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16 acting in concert with them be, and hereby are, required to immediately discontinue

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17 implementation of California Welfare & Institutions Code section

18 14105.191(f)(2)(A) as to the members ofDSN and as to UCP and to immediately

19 reimburse the members of DSN and UCP at the rates calculated by the DHCS to be

20 effective August 1, 2009, for the 2009-10 fiscal year.

21

LET THE ABOVE ORDER ISSUE.

22 DATED: _____________

23

BY:

24

""HI"7'0""'Nt'T".~c"""'H~R~I7"1'1S'~"~"'~I'...,INETA-r-Ar-.-rs~N~YM"D'I"':""'"'EI"''I"'Rr----

JUDGE OF THE U.S. DISTRICT COURT 25

26

27

28

- 2-

3745 001-909687 I

PROPOSED ORDER FOR PRELIMINARY INJUNCTION

 
 Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 1 of 18 Page ID #:385

1 KATHRYN DOl, SBN 121979

Email:

kdoi~murphyaustin.com

2 JENNY MAE PHltLIPS, SBN 255458

Email:

jphillips@mu~hyaustin.com

3 MURPHY AUSTIN ADAMS SCHOENFELD LLP

304 "S" Street (95811-6906)

4 Post Office Box 1319

Sacramento, California 95812-1319

5 Telephone: (916) 446-2300

FacsImile: (916) 503-4000

6

DOUGLAS S. CUMMING, SBN 88580

7 Email:

dsc~dougcummingmedical-law.com

LAW OFFICES 'OF DOUGLAS S. CUMMING

8 542 5th Street

Lincoln, CA 95648

9 Telephone: (916) 434-8719

FacsImile: (916) 645-2997

10

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11 Attorneys for Plaintiffs

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DEVELOPMENTAL SERVICES NETWORK;

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12 UNITED CEREBRAL PALSY/SPASTIC

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CHILDREN'S FOUNDATION OF LOS 13 ANGELES AND VENTURA COUNTIES

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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17 DEVELOPMENTAL SERVICES
18 NETWORK, et al.,

19

Plaintiffs,

20 v.

Case No. CV10-03284
AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

21 DAVID MAXWELL-JOLLY, et aI.,

22

Defendants.

ASSIGNED FOR ALL PURPOSES TO HON. CHRISTINA A. SNYDER

23

ACTION FILED: 4/30/10

24

25

I.

JURISDICTION AND VENUE

26

27

1. This Court is vested with jurisdiction under 28 U.S.C. section 1331

28 because this action arises under the laws of the United States, including the

- 1-

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 2 of 18 Page ID #:386

1 Supremacy Clause of the United States Constitution (U.S. Const., art. VI, cl.2),

2 federal Medicaid law (Title XIX of the Social Security Act, 42 U.S.C. § 1396 et

3 seq. (the "Medicaid Act"), and the Civil Rights Act, 42 U.S.C. §1983. (See Shaw v.

4 Delta Air Lines, Inc. (1983) 463 U.S. 85,96 n.14 [103 S.Ct. 2890,2899 n.14, 77

5 L.Ed.2d 490].)

6

2. Venue is proper in this Court, the Central District of California,

7 pursuant to 28 U.S.C. section 1391(b) because defendants have an office located in

8 this district and the Attorney General has an office in this district, and because the

9 impact of the defendants actions were felt in this district, including by the plaintiffs

10 in this action whose facilities are located in this district. (See Cal. Code of Civ.

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PARTIES

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3. Plaintiff Developmental Services Network ("DSN") is a statewide

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16 intermediate care facilities for people with developmental disabilities. DSN is

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17 headquartered in Sacramento, California. The members ofDSN are companies

18 operating facilities licensed as either "intermediate care facility/developmentally

19 disabled-nursing" ("ICF/DD-N") pursuant to California Health & Safety Code

20 section 1250(h) or'''intermediate care facility/developmentally disabled-

21 habilitative" ("ICF/DD-H") pursuant to California Health & Safety Code section

22 1250(e). DSN is informed and believes that all of its members are Medi-Cal

23 providers. DSN also has standing, and a right and enforceable interest to maintain

24 this action against defendant Director of defendant Department of Health Care

25 Services under the Supremacy Clause and under the Civil Rights Act, 42 U.S.C. §

26 1983, to enjoin the Director's continuing violation of the federal Medicaid law and

27 to compel the Director to comply with the provisions of the applicable federal

28 Medicaid law.

-2-

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 3 of 18 Page ID #:387

1

4. Plaintiff United Cerebral Palsy/Spastic Children's Foundation of Los

2 Angeles and Ventura Counties, dba United Cerebral Palsy of Los Angeles, Ventura

3 and Santa Barbara Counties ("UCP") is a 501(c)(3) non-profit public benefit

4 association founded in 1945 by a small group of parents who wanted to create

5 community-based services for their children with disabilities. UCP is

6 headquartered in Woodland Hills, California. Today, UCP operates more than 40

7 program sites throughout five counties in Southern California and has extended its

8 mission to serve all people with disabilities. UCP provides services to more than

9 1,000 children and adults with developmental disabilities daily. UCP is also an

10 affiliate of the national United Cerebral Palsy, a nationwide network of over 100

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12 organization located in Washington, D.C. UCP operates 12 lCF/DD-H homes and

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13 9 lCF/DD-N homes. Over 99% of the lCF patients served by UCP are Medi-Cal

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14 eligible and the facilities receive their reimbursement for the care from Medi-Cal.

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15 UCP also has standing, and a right and enforceable interest to maintain this action

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16 against defendant Director of defendant Department of Health Care Services under

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17 the Supremacy Clause and under the Civil Rights Act, 42 U.S.C. § 1983, to enjoin

18 the Director's continuing violation of the federal Medicaid law and to compel the

19 Director to comply with the provisions of the applicable federal Medicaid law.

20

5. Defendant David Maxwell-Jolly is the Director of the Department of

21 Health Care Services for the State of California ("DHCS"), and, in that capacity, is

22 responsible for the overall administration of the Medi-Cal program. (Cal. Welf. &

23 lnst. Code § 14100.1; 22 Cal. Code of Regs., § 50004.)

24

6. Defendant DHCS is, and at all times mentioned herein was, an agency

25 of the State of California. DHCS is the single State agency charged with the

26 administration of the Medi-Cal program. (See Cal. Welf. & lnst. Code §§ 10720, et

27 seq., 14000 et seq.; 22 Cal. Code of Regs., §§ 50000 et seq.)

28 III

-3-

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 4 of 18 Page ID #:388

1

III.

INTRODUCTION

2

3

7. Plaintiffs bring this lawsuit to challenge the State of California's

4 imposition of a permanent "freeze" on the Medi-Cal reimbursement rates paid to

5 intermediate care facilities for the developmentally disabled licensed pursuant to

6 subdivision (e) or (h) of Section 1250 of the California Health and Safety Code.

7

8. The rate freeze was signed into law by California Governor Arnold

8 Schwarzenegger on July 28, 2009, after the California Legislature adopted

9 Assembly Bill 5 of the 2009-10 Fourth Extraordinary Session ("AB 5"), the budget

10 trailer bill for California fiscal year 2009-10, which, among other things, added

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11 subdivision (f)(2)(A) to Section 14105.191 of the California Welfare and

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12 Institutions Code.

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9. Section 1410S.191(f)(2)(A) freezes the Medi-Cal reimbursement rates

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14 for services provided certain classes of intermediate care facilities for the

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15 developmentally disabled "rendered during the 2009-2010 rate year and each rate

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16 year thereafter" at 2008-09 levels. Plaintiff UCP operates and plaintiff DSN

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17 represents members who operate the classes of intermediate care facilities for the

18 developmentally disabled that are directly injured, by loss of gross income, as a

19 result of the rate freeze. This injury is directly traceable to the defendants'

20 implementation of AB 5 and would be redressed by a favorable decision enjoining

21 the rate freeze. Accordingly, plaintiffs have Article III standing to bring this action. 22 (See Independent Living Center v. Shewry (9th Cir. 2008) 543 F.3d 1050, 1065.)

23

10. Plaintiffs allege that AB S is preempted by section 30(A) of the

24 Medicaid Act, 42 U.S.C. § 1396a(a)(30)(A) ("§ 30(A)") because neither the

25 defendants nor the California Legislature considered the "quality of care" or "equal

26 access" provisions of § 30(A), or whether the frozen reimbursement rates are

27 reasonably related to provider costs, before its implementation. Plaintiffs also

28 allege that the rate provisions of AB S were implemented in violation of (1) the

-4 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 5 of 18 Page ID #:389

1 public process provisions of 42 U.S.C. § 1396a(a)(13)(A) ("§ 13(A)"); (2) the

2 public notice provisions of 42 C.F.R. § 447.205 ("§ 447.205"); and (3) the

3 requirements of the Medi-Cal State Plan (the "State Plan").

4

11. Plaintiffs seek declaratory and injunctive relief to restrain the

5 implementation and enforcement of the rate freeze provisions of AB 5 at issue in

6 this case because these State provisions are in violation of federal law and are

7 preempted under the Supremacy Clause of the United States Constitution.

8

IV.

9

BACKGROUND

10 A. Federal Medicaid Law

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12. In 1965, Congress enacted Title XIX of the Social Security Act,

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13 generally referred to as The Medicaid Act, to provide States with funding to furnish

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14 medical assistance to individuals "whose income and resources are insufficient to

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15 meet the costs of necessary medical services." (42 U.S.C. §§ 1396 et. seq.; Wilder

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16 v. Va. Hasp. Ass 'n (1990) 496 U.S. 498, 502 [110 S.Ct. 2510, 2513, 110 L.Ed.2d

:;s

17 455].) The Medicaid program authorizes federal financial support to States for

18 medical assistance to low income persons who are aged, blind, disabled, or

19 members of families with dependent children. The program is jointly financed by 20 the federal and State governments and administered by the States, with the federal

21 financial participation level currently ranging between approximately 50 and 83

22 percent. The States, in accordance with federal law, determine eligibility of

23 particular types of beneficiaries, types and ranges of services, payment levels, and

24 administrative and operative procedures. Payment for services is made directly by

25 States to the individuals or entities that furnish the services. (42 C.F.R. § 430.0.)

26

13. A State's participation in Medicaid is voluntary, but a State that

27 chooses to participate must comply with the provisions of the Medicaid Act and its

28 implementing regulations. (Alaska Dept. ofHealth and Social Servs. v. Centers for

-5-

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 6 of 18 Page ID #:390

Medicare and Medicaid Servs. (9th Cir. 2005) 424 F.3d 931,935.) Each State

2 administers its Medicaid program through a single State agency, which is charged

3 with the responsibility of establishing and complying with a State Medicaid plan

4 that, in turn, must comply with the applicable provisions of federal Medicaid law,

5 including the requirements set forth in 42 U.S.C. § 1396a(a)(I)-(70). (42 U.S.C. §

6 1396a(a)(5); 42 C.F.R. §§ 430.10 & 431.10.) In California, defendant DHCS is the

7 single State agency charged with administration of the California Medicaid

8 program, which is referred to as "Medi-Cal".

9

14. In accordance with the requirements of 42 U.S.C. § 1396a(a)(1)-(70),

10 California must provide "methods and procedures" for the payment of care and

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12 (2) ensure their availability to the Medicaid population to the same "extent as they

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13 are available to the general population in the geographic area." (42 U.S.C. §

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14 1396a(a)(30)(A).) These requirements are known, respectively, as the "quality of

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15. In Orthopedic Hospital v. Belshe (9th Cir. 1997), 103 F.3d 1491, 1496,

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17 the Court of Appeals for the Ninth Circuit interpreted § 30(A) to require defendants

18 to set reimbursement rates that "bear a reasonable relationship to efficient and

19 economical hospitals' costs of providing quality services, unless the Department

20 shows some justification for rates that substantially deviate from such costs." (See 21 also Independent Living Center ofSo. Cal. v. Maxwell-Jolly (9th Cir. 2009) 572

22 F.3d 644, 651-52.) To meet this statutory requirement, the Ninth Circuit held that

23 the State "must rely on responsible cost studies, its own or others', that provide

24 reliable data as a basis for its rate setting." (Orthopedic Hospital, 103 F.3d at

25 1496.)

26

16. In addition, for certain providers, including intermediate care facilities

27 such as plaintiffs and their members, California must establish rates through a

28 public process that includes publication of the proposed rates and their underlying

-6-

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 7 of 18 Page ID #:391

1 methodologies, such that providers are "given a reasonable opportunity for review

2 and comment." (42 U.S.C. § 1396a(a)(13)(A) ("§ 13(A)").)

3

17. In addition, CMS implementing regulations require that public notice

4 be provided of "any significant proposed change" in the State's setting of payment

5 rates for services, with exceptions not relevant here. (42 C.F.R. § 447.205 ("§

6 447.205").)

7 B. 8

The Establishment Of Intermediate Care Facilities Under Federal and State Law

9

18. Prior to 1971, facilities for the developmentally disabled were financed

10 solely by state, local and private funding. In the Act of December 14, 1971 (Public

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The term "intermediate care facility for the mentally

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17

retarded" means an institution (or distinct part thereof) for

18

the mentally retarded or persons with related conditions if

19

(1) the primary purpose of such institution (or distinct

20

part thereof) is to provide health or rehabilitative services

21

for mentally retarded individuals and the institution meets

22

such standards as may be prescribed by the Secretary;

23

(2) the mentally retarded individual with respect to

24

whom a request for payment is made under a plan

25

approved under this subchapter is receiving active

26

treatment under such a program; and

27

(3) in the case of a public institution, the State or

28

political subdivision responsible for the operation of such

-7-

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 8 of 18 Page ID #:392

1

institution has agreed that the non-Federal expenditures in

2

any calendar quarter prior to January 1, 1975, with respect

3

to services furnished to patients in such institution (or

4

distinct part thereof) In the State will not, because of

5

payments made under this subchapter, be reduced below

6

the average amount expended for such services in such

7

institution in the four quarters immediately preceding the

8

quarter in which the State in which such institution is

9

located elected to make such services available under its

10

plan approved under this subchapter.

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11 (42 U.S.C. § 1396d(d).)

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20. The State of California Department of Public Health, in turn, issues

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16 and (4) intermediate care facility/developmentally disabled-nursing ("ICF/DD-N").

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17 (Cal. Health & Safety Code §§ 1250(d), (e), (g) and (h), respectively.)

18

21. Plaintiffs own and operate or represent ICF/DD-H and ICF/DD-N

19 facilities only.

20

22. An ICF/DD-H facility is defined as "a facility with a capacity of 4 to

21 15 beds that provides 24-hour personal care, habilitation, developmental, and

22 supportive health services to 15 or fewer persons with developmental disabilities

23 who have intermittent recurring needs for nursing services, but have been certified

24 by a physician and surgeon as not requiring availability of continuous skilled

25 nursing care." (Cal. Health & Safety Code § 1250(e).)

26

23. An ICF/DD-N facility is defined as "a facility with a capacity of 4 to

27 15 beds that provides 24-hour personal care, developmental services, and nursing

28 supervision for persons with developmental disabilities who have intermittent

-8-

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 9 of 18 Page ID #:393

1 recurring needs for skilled nursing care but have been certified by a physician and

2 surgeon as not requiring continuous skilled nursing care. The facility shall serve

3 medically fragile persons with developmental disabilities or who demonstrate

4 significant developmental delay that may lead to a developmental disability if not

5 treated." (Cal. Health & Safety Code § 1250(h).)

6 C. The Reimbursement Snstem For Intermediate Care Facilities For The Developmentally isa6led - Ha6iIitative and Nursing
7

8

24. The California State Plan establishes the principles of the State of

9 California's reimbursement system for providers of long-term care services to

10 assure compliance with the requirements of Title XIX of the Federal Social

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13 introduction to Attachment 4.19-D of the State Plan (effective August 1, 2005),

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25. These procedures provide for the establishment of reimbursement

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16 rates. Rates are set for four classes of ICF/DD-Hs and ICF/DD-Ns: ICF/DD-Hs

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17 that are 4-6 bed facilities, ICF/DD-Hs that are 7-15 bed facilities; ICF/DD-Ns that

18 are 4-6 bed facilities; and ICF/DD-Ns that are 7-15 bed facilities. (Attachment

19 4.19-D, § I(I)(3)(j) & (k), p.5 (effective August 1,2004).)

20

26. Reimbursement rates for ICFs are required to be recalculated annually.

21 Prospective rates for each class are developed based on cost reports submitted by

22 the ICFs, as adjusted by random audits of a minimum of 15% of the cost reports.

23 (Attachment 4.19-D, §§ III(A), p.9 & IV(A)(I)(f) & (g), p.10 (effective August 1,

24 2004).) Providers have the right to appeal findings which result in an adjustment to

25 program reimbursement or reimbursement rates. (Attachment 4.19-D, § III(D), p.9

26 (effective August 1,2002).)

27

27. The reimbursement rate per patient day is set at the 65th percentile of

28 projected costs for the class. (Attachment 4.19-D, § IV(F)(9), p.15 (effective

-9-

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 10 of 18 Page ID #:394

1 August 1,2005).) This is a higher reimbursement rate than other classes of long-

2 term facilities in recognition of the fact that they serve a disproportionate share of

3 low income patients with special needs. (Jd.) Plaintiffs are informed and believe

4 that Medi-Cal pays for over 99% of the ICF/MR services provided in California.

5

28. As long as there is a projected net increase in the California Consumer

6 Price Index during the State's fiscal year previous to the new rate year, no

7 prospective rate of reimbursement shall be decreased solely because the class

8 median projected cost is less than the existing rate of reimbursement. (Attachment

9 4.19-D, § IV(F)(5), p.14 (effective August 1,2002.)

10

29. In addition, since 2003, the State has made a supplemental Medi-Cal

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13 above to support the facilities' quality improvement efforts. (Cal. Health & Safety

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30. Since 2003, ICFs are required to remit to the State a quality assurance

17 fee ("QAF") on the entire gross receipts of the ICFs. (Cal. Health & Safety Code §

18 1324.2(a).) The QAF rate is currently 5.5%. The QAF is deposited in the State

19 General Fund. (Jd., § 1324.8.)

20

31. California also represents in the State Plan that it has in place a public

21 process that complies with the requirements of Section 1902(a)(13)(A) of the Social

22 Security Act. (Attachment 4.19-D, p.22 (effective August 1,2001.)

23 D. The Passage Of Assembly Bill 5, Which Freezes ICF Payments At 2008-09 Rates
24

25

32. On July 2, 2009, Assembly Bill 5 ("AB 5") was introduced during the

26 2009-10 Fourth Extraordinary Session to address the California state budget as a

27 placeholder bill to enact statutory changes relating to the Budget Act of 2009.

28

33. AB 5 was amended on July 2, 2009, to make numerous changes to the

- 10 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 11 of 18 Page ID #:395

1 Financial, Health & Safety, Insurance and Welfare & Institutions Codes.

2

34. One of the changes contained in the amended AB 5 was to amend

3 Welfare & Institutions Code section 14105.191 to add subdivision (f)(2), which

4 reads, in pertinent part, as follows:

5

(f)(2) ... Medi-Cal reimbursement rates applicable to the

6

following classes of facilities for services rendered during

7

the 2009-10 rate year; and each rate year thereafter, shall

8

not exceed the reimbursement rates that were applicable to

9

those facilities and services in the 2008-09 rate year:

10

(A) Facilities identified in paragraph (5) of

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subdivision (d).

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35. Paragraph (5) of subdivision (d) identifies, in pertinent part, the

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36. As noted in paragraphs 23 and 24, above, subdivisions (e) and (h) of

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17 Section 1250 of the Health and Safety Code define ICF/DD-Hs and ICF/DD-Ns.

18

37. AB 5 was passed by the California State Senate and Assembly on July

19 23,2009, and was approved by the Governor on July 28,2009. The bill was

20 enacted as an urgency statute and became effective immediately. Defendants

21 immediately implemented the rate freeze and have paid the 2008-09 rate for

22 services provided on and after August 1, 2009.

23

38. The legislative history does not contain any evidence that either the

24 defendants or the California Legislature considered the "quality of care" or "equal

25 access" provisions of § 30(A), or whether reimbursement rates are reasonably

26 related to provider costs, before its implemented the rate freeze imposed by Section

27 14105.191(f)(2).

28

39. Plaintiffs are informed and believe and thereon allege that no

- 11 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 12 of 18 Page ID #:396

1 responsible cost studies as required by § 30(A) were relied upon by the California

2 Legislature or defendants in adopting and implementing Section

3 141 05.l91 (f)(2)(A).

4

40. Plaintiffs are further informed and believe and thereon allege that no

5 public process as required by § 13(A) and § 447.205 was followed in connection

6 with the adoption and implementation of Section 14105.l91(f)(2)(A)

7

41. Plaintiffs are further informed and believe and thereon allege that the

8 State Plan has not been amended to conform to Section 14105.191(f)(2)(A) that

9 payment at the 2008-09 rates is in violation of defendants' reimbursement

10 obligations under the State Plan. Plaintiffs allege that defendants are prohibited

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42. Notwithstanding the enactment of Section 14105.191(f)(2) of the

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17 California Welfare & Institutions Code, DHCS collected the rate reports and

18 conducted its audit process as required by the State Plan for the rate year beginning

19 August 1, 2009.

20

43. DHCS' calculations for the four classes of small ICF/DDs for the rates

21 effective August 1, 2008 and August 1, 2009 are as follows:

22 Facility Group
23
24 ICFIDD-Habilitative
25 4-6 Beds
26 7-15 Beds
27 Weighted ICF/DD-H Rate
28

Rate effective 8/1/2008*

Rate effective 8/1/2009*

Percent change in
rates

$185.50 $20l.77 $186.63

$197.45 $20l.95 $197.72

6.44% 0.09% 6.03%

- 12 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 13 of 18 Page ID #:397

1 ICF/DD-Nursing

2 4-6 Beds

$211.63

$230.74

3

7-15 Beds

$219.79

$232.28

4

Weighted ICF/DD-N Rate

$212.00

$230.81

5

* Includes supplemental payment for quality improvement efforts.
6

9.03% 5.68% 8.87%

7

44. The rate study conducted by DHCS demonstrates that were the freeze

8 not in place, rates would have been increased on August 1, 2009, by an average of

9 6.03% for ICF/DD-H providers and by 8.87% for ICF/DD-N providers.

10

45. Since all ICF/DD-Hs and all ICF/DD-Ns would have been reimbursed

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46. On November 24,2009, the California Hospital Association filed a

18 lawsuit against defendant Maxwell-Jolly, challenging, among other provisions, the

19 Section 14105.191(f) rate freeze as applied to nursing facilities that are part of 20 hospitals (distinct part/nursing facilities or "DPINFs") and subacute pediatric

21 subacute care units that are part of hospitals. (California Hospital Association v.

22 Maxwell-Jolly, United States District Court, Central District of California, Western

23 Division, Case No. CV 09-8642 CAS (hereafter referred to as "the CHA action").)

24

47. In the CHA action, as here, the plaintiff alleged that the Section

25 14105.191(f) rate freeze violated § 30(A) of the Medicaid Act and was therefore

26 invalid under the Supremacy Clause of the United States Constitution because 27 neither the Director not the California Legislature considered the "quality of care" 28 and "equal access" provisions of § 30(A), or whether reimbursement rates were

- 13 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 14 of 18 Page ID #:398

1 reasonably related to provider costs, before its implementation. As here, plaintiff

2 alleged that the Director failed to comply with § 13(A), § 447.205, and the State

3 Plan requirements.

4

48. On February 24,2010, this Court granted the CHA plaintiffs motion

5 for a preliminary injunction, on the grounds, in part, that the plaintiff had

6 demonstrated a likelihood of success on the merits of its § 30(A) claim and had

7 sufficiently demonstrated that there was a likelihood that CRA member hospitals

8 will suffer monetary losses as a result of the rate freeze implemented by AB 5.

9

V.

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

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COUNT ONE: DECLARATORY RELIEF

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17 that the rate freeze is invalid and unlawful in violation of federal statute, federal

18 regulations, and the California State Plan, while defendants continue to implement

19 and enforce the rate freeze.

20

51. The Federal Declaratory Judgment Act, 28 U.S.C. § 2201 empowers

21 federal courts to declare the rights and other legal relations of any interested party

22 seeking such declaration, and also provides authority for further necessary and

23 appropriate relief based on its declaratory judgments.

24

52. Rule 57 of the Federal Rules of Civil Procedure provides that the·

25 existence of another adequate remedy does not preclude a judgment for declaratory

26 relief in cases where it is appropriate. In addition, the court may order a speedy

27 hearing of an action for a declaratory judgment and may advance it on the calendar.

28

53. A declaratory judgment is necessary in that plaintiffs contend, and the

- 14 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 15 of 18 Page ID #:399

1 rate freeze imposed by defendants pursuant to California Welfare and Institutions

2 Code section 14105.191(f)(2)(A) is preempted by application of the Supremacy

3 Clause with respect to the services provided by the ICFs, as described above in this

4 Complaint.

5

54. The members of plaintiff DSN and plaintiff UCP have provided and

6 continue to provide intermediate care to developmentally disabled patients and are

7 ready, willing and able to provide these services. The members of plaintiff DSN

8 and plaintiff UCP are suffering severe adverse financial impact by reimbursement

9 for these services at the 2008-09 rates, since the defendants' own cost studies

10 demonstrate that ICF/DD-Hs and ICF/DD-Ns, including the members of plaintiff

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11 DSN and plaintiff UCP, would be paid at a higher rate using the rate-setting

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12 methodology prescribed by the State Plan approved by CMS. Therefore, the

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16 declaratory judgment is necessary to resolve the rights and duties of the parties.

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17

55. Plaintiffs have no administrative remedy, or any plain, speedy, or

18 adequate remedy at law and, unless relief is granted as prayed, defendants will

19 continue to reimburse plaintiffs pursuant to the rate freeze imposed by California

20 Welfare and Institutions Code section 14105.191.

21

WHEREFORE, plaintiffs pray for relief as follows:

22

COUNT TWO: INJUNCTIVE RELIEF

23

56. Plaintiffs reallege and incorporate by reference each of the previous

24 allegations set forth in this complaint.

25

57. An actual controversy has arisen and now exists between the parties

26 relating to whether the rate freeze imposed by defendants pursuant to California

27 Welfare and Institutions Code section 14105.191(f)(2)(1) is a violation of federal

28 law.

- 15 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 16 of 18 Page ID #:400

1

58. The members ofplaintiffDSN and plaintiffUCP have provided and

2 continue to provide intermediate care to developmentally disabled patients and are

3 ready, willing and able to provide these services. The members of plaintiff DSN

4 and plaintiff UCP are suffering severe adverse financial impact by reimbursement

5 for these services at the 2008-09 rates, since the cost studies demonstrate that they

6 would be paid at a higher rate using the rate-setting methodology prescribed by

7 State regulation. Therefore, the controversy between plaintiffs and the defendants

8 regarding reimbursement for these services is imminent and ongoing, there is an

9 ongoing adverse economic impact to the members of plaintiff DSN and plaintiff

10 UCP from the defendants' imposition of the rate freeze, and a mandatory injunction

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59. Plaintiffs seek a mandatory injunction that enjoins defendants from

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13 implementing or continuing to implement or enforce the rate freeze with respect to

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14 ICF/DD-Habilitative and ICF/DD-Nursing facilities and requiring defendants to

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15 reimburse the members ofplaintiffDSN and plaintiffUCP at the unfrozen ICF/DD-

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16 Habilitative and ICF/DD-Nursing reimbursement rates calculated by DHCS to be

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17 effective August 1, 2009, for the 2009-10 fiscal year.

18

60. Plaintiffs have no administrative remedy, or any plain, speedy, or

19 adequate remedy at law and, unless relief is granted as prayed, defendants will

20 continue to impose the rate freeze.

21

WHEREFORE, plaintiffs pray for relief as follows:

22

COUNT THREE: VIOLATION OF 42 U.S.C. § 1983

23

[AGAINST DEFENDANT MAXWELL-JOLLY IN HIS OFFICIAL

24

CAPACITY]

25

61. Plaintiffs reallege and incorporate by reference each of the previous

26 allegations set forth in this complaint.

27

62. Defendant Maxwell-Jolly is a state actor and his conduct in his official

28 capacity is subject to 42 U.S.C. sections 1983 and 1988.

- 16 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 17 of 18 Page ID #:401

1

63. The members ofplaintiffDSN and plaintiffUCP were and remain

2 entitled to the statutorily mandated benefits and protections of 42 U.S.C. sections

3 1396a and 1396d.

4

64. Defendant Maxwell-Jolly has proximately caused the violation of the

5 federal rights of the members ofplaintiffDSN and plaintiffUCP created by 42

6 U.S.C. sections 1396a and 1396d by acting under color of State law, specifically,

7 California Welfare & Institutions Code section 14105.191(£)(2) to freeze

8 reimbursement rates paid to the members of plaintiff DSN and plaintiff UCP.

9

65. The members of plaintiff DSN and plaintiff UCP are entitled to

10 prospective injunctive relief, as well as attorneys' fees and costs, requiring

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13 42 U.S.C. sections 1396a and 1396d and other provisions of the federal Medicaid

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16

WHEREFORE, plaintiffs pray for relief as follows:

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17

VI.

PRAYER FOR RELIEF

18

19

For the reasons stated above, plaintiffs respectfully request that the Court

20 grant the following relief:

21

1. That a declaration issue declaring that the rate freeze established by

22 Section 14105.191(£)(2) of the California Welfare & Institutions Code is invalid

23 and unenforceable as to the members of plaintiff DSN and plaintiff UCP because

24 the rate freeze violates 42 U.S.C. §§ 1396a(a)(30)(A) and 1396a(a)(13), 42 C.F.R. §

25 447.205, and the California State Plan, and is thus invalid and preempted by the

26 Supremacy Clause of the United States Constitution, article IV, clause 2.

27

2. That a declaration issue declaring that it is a violation of the

28 Supremacy Clause of the United States Constitution for defendants to fail or refuse

- 17 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 19 Filed 05/27/10 Page 18 of 18 Page ID #:402

1 to reimburse the members ofplaintiffDSN and plaintiffUCP at the unfrozen

2 ICF/DD-Habilitative and ICF/DD-Nursing reimbursement rates calculated by

3 DHCS to be effective August 1,2009, for the 2009-10 fiscal year.

4

3. That mandatory preliminary and permanent injunctions issue enjoining

5 defendants from implementing or continuing to implement or enforce the rate

6 freeze with respect to ICF/DD-Habilitative and ICF/DD-Nursing facilities and

7 requiring defendants to reimburse the members of plaintiff DSN and plaintiff UCP

8 at the unfrozen ICF/DD-Habilitative and ICF/DD-Nursing reimbursement rates

9 calculated by DHCS to be effective August 1,2009, for the 2009-10 fiscal year.

10

4. That plaintiffs be awarded their costs of litigation, including

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11 reasonable attorneys' fees, as permitted under 42 U.S.C. § 1988 or otherwise; and

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5. That the Court grant plaintiffs such further and additional relief as the

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13 Court may deem just and proper.

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15 Dated: _-----.:=-_ _ _, 2010

Murphy Austin Adams Schoenfeld LLP

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By:___________________________

18

KATHRYNDOI JENNY MAE PHILLIPS

19 Dated: _________, 2010

Law Offices of Douglas S. Cumming

20

21

By:_ _ _ _ _ _ _ _ _ _ __

22

DOUGLAS S. CUMMING

23

Attorneys for Plaintiffs

24

DEVELOPMENTAL SERVICES NETWORK; UNITED CEREBRAL

25

PALSY/SPASTIC CHILDREN'S FOUNDATION OF LOS ANGELES

26

AND VENTURA COUNTIES

27

28

- 18 -

3745.001-920515.1

AMENDED COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

 
 Case 2:10-cv-03284-CAS-MAN Document 51 Filed 05/24/11 Page 1 of 7 Page ID #:1445

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3259 CAS (MANx) CV 10-3284 CAS (MANx)

Date May 24, 2011

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

Present: The Honorable CHRISTINA A. SNYDER

CATHERINE JEANG Deputy Clerk

Not Present Court Reporter / Recorder

N/A Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

Not Present

Not Present

Proceedings: (In Chambers:)

DEFENDANTS’ EX PARTE APPLICATION FOR RECONSIDERATION OF ORDER GRANTING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION OR, IN THE ALTERNATIVE, FOR A STAY OF SAID ORDER PENDING APPEAL (filed 05/18/11)

ORDER ALTERING OR AMENDING PRELIMINARY INJUNCTION ORDER

I. INTRODUCTION

On April 30, 2010, plaintiffs Developmental Services Network and United Cerebral Palsy/Spastic Children’s Foundation of Los Angeles and Ventura Counties, in CV 10-3284 CAS (MANx), and California Association of Health Facilities, in CV 103259 CAS (RZx), filed the instant actions against David Maxwell-Jolly, Director of the California Department of Health Care Services (the “Director”) and the California Department of Health Care Services (the “Department”).1 The Department is a California agency charged with the administration of California’s Medicaid program, Medi-Cal.

1 On June 15, 2010, the Court ordered the two matters consolidated for all

purposes.

CV-90 (06/04)

CIVIL MINUTES - GENERAL

Page 1 of 7

Case 2:10-cv-03284-CAS-MAN Document 51 Filed 05/24/11 Page 2 of 7 Page ID #:1446
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3259 CAS (MANx) CV 10-3284 CAS (MANx)

Date May 24, 2011

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

Plaintiffs are entities that represent certain Medi-Cal providers, specifically intermediate care facilities for the developmentally disabled and the mentally retarded (respectively, “ICF/DD facilities” and “ICF/MR facilities”), and freestanding pediatric subacute facilities (“FSP facilities”).

On July 28, 2009, California Governor Arnold Schwarzenegger signed into law Assembly Bill X4 5 (“AB 5” ), the budget trailer bill for California fiscal year 20092010. AB 5 amends Cal. Welf. & Inst. Code § 14105.191, in part, and effectively “freezes” the Medi-Cal reimbursement rates for certain designated services rendered during the 2009-2010 rate year and each rate year thereafter at 2008-2009 levels. Cal. Welf. & Inst. Code § 14105.191(f). Among the designated services, are services provided by ICF/DD facilities, ICF/MR facilities, and FSP facilities.

On May 6, 2011, the Court preliminarily enjoined the Director from implementing AB 5 on the grounds that plaintiffs are likely to succeed on their claim that the Director’s implementation of the rate freeze in advance of federal approval is unlawful and that absent an injunction, plaintiffs would be irreparably harmed. See Dkt. 49 (“Preliminary Injunction Order”). The Court also denied the Director’s request for a stay of the injunction pending an appeal to the Ninth Circuit. Id.

On May 18, 2011, the Director filed the instant ex parte application for reconsideration of the Court’s Preliminary Injunction Order or, in the alternative, for a stay of said order pending appeal. Plaintiffs filed an opposition to the Director’s application on May 19, 2011.

II. LEGAL STANDARD

Local Rule 7-18 sets forth the bases upon which this Court may reconsider “the decision on any motion:”

A motion for reconsideration of the decision on any motion may be made only on the grounds of: (a) a material difference in fact or law from that

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Case 2:10-cv-03284-CAS-MAN Document 51 Filed 05/24/11 Page 3 of 7 Page ID #:1447
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3259 CAS (MANx) CV 10-3284 CAS (MANx)

Date May 24, 2011

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

presented to the Court before such decision that in the exercise of reasonable diligence could not have been known to the party moving for reconsideration at the time of such decision, or (b) the emergence of new material facts or a change of law occurring after the time of such decision, or (c) a manifest showing of a failure to consider material facts presented to the Court before such decision. No motion for reconsideration shall in any manner repeat any oral or written argument made in support of or in opposition to the original motion.

L.R. 7-18.

III. DISCUSSION

After carefully considering the arguments set forth by both parties, the Court finds that the Director has not met his burden under Local Rule 7-18 to justify reconsideration of the Court’s Preliminary Injunction Order. See L.R. 7-18. The Director contends that reconsideration is warranted because the Court erred by finding that plaintiffs are likely to succeed on the merits of their State Plan Amendment claim, see Dir.’s App. at 3–12, and new facts warrant reconsideration of the Court’s irreparable harm finding, see id. at 13–16. Yet, the Director’s ex parte application merely rehashes arguments that this Court has already rejected.

Specifically, the Court has already considered and rejected the Director’s contention that plaintiffs did not adequately plead their State Plan Amendment claim under 42 U.S.C. § 1983. See Preliminary Injunction Order at 11–12, 12 n.6. The Court’s conclusion was not contrary to law or the facts, and the Director has presented no basis for reconsideration.

Furthermore, the Director’s argument that he was somehow caught off guard by plaintiffs’ decision to seek a preliminary injunction on the State Plan Amendment claim under section 1983 is disingenuous at best. See Dir.’s App. at 10–12. As discussed in the Preliminary Injunction Order, before plaintiffs’ motions for preliminary injunction

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Case 2:10-cv-03284-CAS-MAN Document 51 Filed 05/24/11 Page 4 of 7 Page ID #:1448
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3259 CAS (MANx) CV 10-3284 CAS (MANx)

Date May 24, 2011

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

were heard, the Court granted plaintiffs’ request that a stay in this matter be lifted. See Preliminary Injunction Order at 5–6. In that request, plaintiffs stated specifically that the stay should be lifted because recent case law developments showed that plaintiffs could enforce their State Plan Amendment claim through a “vehicle other than the Supremacy Clause.” See Pl.’s Ex Parte App. to Lift Stay (Dkt. 39) at 8. The case plaintiffs cited to support this point, Cal. Hospital Ass’n v. Maxwell-Jolly, Civ No. 10-3465 FCD/EFB, 2011 WL 836706, at *16–18 (E.D. Cal. Mar. 4, 2011) (“CHA II”), specifically held that a State Plan Amendment claim is enforceable through section 1983. Therefore, it should have been evident to the Director that once the stay was lifted, plaintiffs intended to seek a preliminary injunction on this ground. After the Court lifted the stay, the Director was granted an extra brief and oral argument to address the issue and, in fact, did address it in his supplemental memorandum filed before the preliminary injunction hearing. See Dir.’s Supp. Mem. (Dkt. 46) at 6. Accordingly, the Director’s argument that he did not have a “fair and meaningful opportunity to oppose [plaintiffs’] motion for preliminary injunction” is baseless.2 Dir.’s App. at 11.

Similarly, the Court has already considered and rejected the Director’s contention that plaintiffs’ members will not be irreparably harmed because they will be reimbursed if the rate freeze is disapproved by the Centers for Medicare and Medicaid Services (“CMS”) and the State unsuccessfully exhausts all of its appeals.3 See Preliminary Injunction Order at 14–15. In his application, the Director suggests that he has “new” evidence in the form of a declaration from the Director of the California Department of Health Care Services, promising to retroactively reimburse plaintiffs’ members if CMS

2 The Director’s argument is all the more disingenuous in light of the fact that he was a party to the CHA II case, and the plaintiff in that case is represented by the same legal counsel as plaintiffs in this case.

3 Likewise, the Court already considered and rejected the Director’s arguments that

the injunction will irreparably injure the State because it will interfere with CMS

approval of the State Plan Amendment, see Dir.’s App. at 14–15, and will exacerbate the

State’s fiscal crisis, see id. at 15–16. See Preliminary Injunction Order at 15.

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Case 2:10-cv-03284-CAS-MAN Document 51 Filed 05/24/11 Page 5 of 7 Page ID #:1449
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3259 CAS (MANx) CV 10-3284 CAS (MANx)

Date May 24, 2011

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

disapproves of the pending State Plan Amendment. Dir.’s App. at 14 (citing Declaration of Toby Douglas at 3–4). This declaration is not new evidence, but additional support for a representation that the Director has already made. The Court resolved the issue against the Director not for a lack of evidence, but because the Court may consider only prospective remedies in federal court when evaluating irreparable harm. See Preliminary Injunction Order at 15 (quoting Cal. Pharms. Ass’n v. Maxwell-Jolly, 563 F.3d 847, 852 n.2 (9th Cir. 2009)).

Finally, the Court declines to reconsider its denial of the Director’s motion to stay the preliminary injunction pending an emergency appeal. See Preliminary Injunction Order at 16–17. Irrespective of the Director’s arguments, the Court is not convinced that the Director will be irreparably harmed absent a stay. See Dir.’s App. at 16–18.

In sum, the Court concludes that the Director has failed to establish any grounds warranting reconsideration of the Preliminary Injunction Order.

IV. MOTION TO AMEND OR ALTER PRELIMINARY INJUNCTION ORDER

As part of his ex parte application for reconsideration, the Director seeks to alter or amend the Preliminary Injunction Order on the grounds that it is overbroad and violates the Eleventh Amendment.4 Dir.’s App. at 12–13. First, the Director argues that the language in the Preliminary Injunction Order violates the Eleventh Amendment bar against retroactive relief because it requires the Director to adjust rates upward for services rendered prior to the date of the injunction. Id. (citing Preliminary Injunction Order at 16:6–9 (enjoining the Director from freezing at 2008–2009 levels Medi-Cal reimbursement rates for services provided by intermediate care facilities for the developmentally disabled and the mentally retarded, and freestanding pediatric subacute

4 Although contained in the Director’s ex parte application for reconsideration, the

Director’s arguments are properly characterized as a motion to amend or alter the

Preliminary Injunction Order.

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Case 2:10-cv-03284-CAS-MAN Document 51 Filed 05/24/11 Page 6 of 7 Page ID #:1450
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3259 CAS (MANx) CV 10-3284 CAS (MANx)

Date May 24, 2011

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

facilities “during the 2009–2010 rate year and each rate year thereafter.”)). The Court clarifies that it did not intend to permit retroactive injunctive relief. As such, the Court hereby corrects the Preliminary Injunction Order to clarify that it only applies to services provided by intermediate care facilities for the developmentally disabled and the mentally retarded, and freestanding pediatric subacute facilities on or after May 6, 2011, the date of the Preliminary Injunction Order.5 See Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly, 572 F.3d 644, 660–61 (9th Cir. 2009).

The Director further asserts that the Court should amend its Preliminary Injunction Order because it could be construed as prohibiting the Director from implementing the rate freeze even after CMS approves the rate freeze. Dir.’s App. at 13. The Court finds that this is not a ground to amend or clarify the Preliminary Injunction Order. If CMS approves SPA 09-019, the Director may file a motion to dissolve the preliminary injunction.

Finally, the Director argues that the Preliminary Injunction Order should be modified to apply only to the named plaintiffs. Id. The Court disagrees. Plaintiffs are trade associations that have brought this action in a representational capacity. Accordingly, the preliminary injunction shall extend to all of plaintiffs’ members impacted by the rate freeze, as well as to the named plaintiffs.

V. CONCLUSION

In accordance with the foregoing, the Court hereby DENIES the Director’s ex parte application for reconsideration of the Court’s Preliminary Injunction Order or, in the alternative, for a stay of said order pending appeal.

5 Although plaintiffs never read the Preliminary Injunction Order as applying

retroactively, they do not object to the Court modifying the Preliminary Injunction Order

to “be more precise in terms of the effective date.” Opp’n at 6–7.

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Case 2:10-cv-03284-CAS-MAN Document 51 Filed 05/24/11 Page 7 of 7 Page ID #:1451
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3259 CAS (MANx) CV 10-3284 CAS (MANx)

Date May 24, 2011

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

The Court hereby corrects the Preliminary Injunction Order to clarify that the Director, his agents, servants, employees, attorneys, successors, and all those working in concert with him are ordered to refrain from enforcing Cal. Welf. & Inst. Code § 14105.191(f), including refraining from effectively freezing at 2008–2009 levels the Medi-Cal reimbursement rates for services provided by intermediate care facilities for the developmentally disabled and the mentally retarded, and freestanding pediatric subacute facilities on or after May 6, 2011, the date of the Preliminary Injunction Order.

IT IS SO ORDERED.

Initials of Preparer

00

:

00

CMJ

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 Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 1 of 17 Page ID #:1381

1

2

3

4

5

6

7

8

UNITED STATES DISTRICT COURT

9

CENTRAL DISTRICT OF CALIFORNIA

10

WESTERN DIVISION

11 CALIFORNIA ASSOCIATION OF )

HEALTH FACILITIES,

)

12

)

Plaintiff,

)

13

)

vs.

)

14

)

)

15 DAVID MAXWELL-JOLLY, et al.; )

)

16

Defendants.

)

_______________________________ )

17

)

DEVELOPMENTAL SERVICES

)

18 NETWORK, et al.,

)

)

19

Plaintiffs,

)

)

20 vs.

)

)

21

)

DAVID MAXWELL-JOLLY, et al.; )

22

)

Defendants.

)

23 _______________________________ )

Consolidated Cases: Case No. CV 10-3259 CAS (MANx) Case No. CV 10-3284 CAS (MANx) ORDER GRANTING PLAINTIFFS’ MOTIONS FOR PRELIMINARY INJUNCTION

24

I. INTRODUCTION

25

On April 30, 2010, plaintiffs Developmental Services Network and United

26 Cerebral Palsy/Spastic Children’s Foundation of Los Angeles and Ventura Counties, in

27 CV 10-3284 CAS (MANx), and California Association of Health Facilities, in CV 10-

28 3259 CAS (RZx), filed the instant actions against David Maxwell-Jolly, Director of the

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 2 of 17 Page ID #:1382

1 California Department of Health Care Services (the “Director”) and the California

2 Department of Health Care Services (the “Department”).1 The Department is a

3 California agency charged with the administration of California’s Medicaid program,

4 Medi-Cal. Plaintiffs are entities that represent certain Medi-Cal providers, specifically

5 intermediate care facilities for the developmentally disabled and the mentally retarded

6 (respectively, “ICF/DD facilities” and “ICF/MR facilities”), and freestanding pediatric

7 subacute facilities (“FSP facilities”).

8

On July 28, 2009, California Governor Arnold Schwarzenegger signed into law

9 Assembly Bill X4 5 (“AB 5” ), the budget trailer bill for California fiscal year 2009-

10 2010. AB 5 amends Cal. Welf. & Inst. Code § 14105.191, in part, and effectively

11 “freezes” the Medi-Cal reimbursement rates for certain designated services rendered

12 during the 2009-2010 rate year and each rate year thereafter at 2008-2009 levels. Cal.

13 Welf. & Inst. Code § 14105.191(f). Among the designated services, are services

14 provided by ICF/DD facilities, ICF/MR facilities, and FSP facilities.

15

Plaintiffs seek to enjoin implementation or enforcement of these rate freeze

16 provisions in AB 5 on the grounds that they violate Title XIX of the Social Security Act,

17 42 U.S.C. § 1396 et seq. (the “Medicaid Act”), and therefore are invalid under 42 U.S.C.

18 § 1983 and the Supremacy Clause of the United States Constitution, U.S. CONST. art. VI,

19 cl. 2. CAHF Complaint ¶ 1; DSN Complaint ¶ 1. Specifically, plaintiffs allege that AB

20 5 violates 42 U.S.C. § 1396a(a)(30)(A) of the Medicaid Act (“Section 30(A)”), because

21 neither the Director nor the California legislature considered the “quality of care” and

22 “equal access” provisions of Section 30(A), or whether reimbursement rates are

23 reasonably related to provider costs, before its implementation. CAHF Complaint ¶¶

24 50–51; DSN Complaint ¶¶ 10, 38–39. Plaintiffs further allege that AB 5 is unlawful

25 because the Director implemented the rate freeze through an amendment to the State’s

26

27 1 On June 15, 2010, the Court ordered thetwo matters consolidated for all purposes.
28

2

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 3 of 17 Page ID #:1383

1 Medi-Cal Plan without prior federal approval. CAHF Complaint ¶¶ 57–59; DSN

2 Complaint ¶¶ 10, 41. Finally, plaintiffs allege that AB 5 was enacted in violation of the

3 public process provisions of 42 U.S.C. § 1396a(a)(13)(A) (“Section 13(A)”). CAHF

4 Complaint ¶¶ 52–54; DSN Complaint ¶¶ 10, 40.

5 II. BACKGROUND

6

A. Statutory Background

7

Medicaid is a cooperative federal program whereby the federal government

8 provides funds to participating states to help defray the expense of providing health care

9 services to low income and needy citizens. State participation is voluntary; however,

10 once a state chooses to participate by accepting federal funds, it must comply with

11 requirements imposed by the Medicaid Act. See Orthopaedic Hosp. v. Belshe, 103 F.3d

12 1491, 1493 (9th Cir. 1997) (“Orthopaedic Hospital”). Because California has elected to

13 participate in the Medicaid program, it must administer its state Medicaid program,

14 Medi-Cal, in compliance with a State Medicaid Plan (“State Plan”) that has been pre-

15 approved by the Secretary of the U.S. Department of Health and Human Services, and

16 which complies with federal Medicaid law, including the requirements set forth in 42

17 U.S.C. § 1396a(a)(1)-(70). The State Plan is “a comprehensive written statement . . .

18 describing the nature and scope of [the State’s] Medicaid program and giving assurance

19 that it will be administered in conformity with the specific requirements of [federal

20 Medicaid law].” 42 C.F.R. § 430.10. The agency charged with approving State Plans is

21 the Centers for Medicare and Medicaid Services (“CMS”), an arm of the Department of

22 Health and Human Services. Id. §§ 400.200, 430.12. When a state wishes to make

23 changes to its State Plan, it must submit a State Plan Amendment to CMS. Id. § 430.12.

24 CMS may approve or disapprove of the State Plan Amendment, or it may request more

25 information from the State before making a final determination. Id. § 430.16. If CMS

26 does not act on the State Plan Amendment within 90 days, the amendment is considered

27 approved. Id. § 430.16(a)(1). If CMS requests additional information, however, the 90-

28 day period for CMS action on the State Plan Amendment begins on the day CMS

3

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 4 of 17 Page ID #:1384

1 receives the information. Id. §§ 430.16(a)(2), 447.256.

2

The Medicaid Act further requires that, prior to establishing reimbursement rates,

3 California provide “methods and procedures” for the payment of care and services that

4 (1) are “consistent with efficiency, economy, and quality of care,” and (2) ensure their

5 availability to the Medicaid population to the same “extent as they are available to the

6 general population in the geographic area.” 42 U.S.C. § 1396a(a)(30)(A). These

7 requirements are known, respectively, as the “quality of care” and “equal access”

8 provisions of Section 30(A) of the Medicaid Act. In Orthopaedic Hospital, the Ninth

9 Circuit interpreted Section 30(A) to require the Director to set reimbursement rates that

10 “bear a reasonable relationship to efficient and economical hospitals' costs of providing

11 quality services, unless the Department shows some justification for rates that

12 substantially deviate from such costs.” 103 F.3d at 1496; see also Indep. Living Ctr. of

13 S. Cal. v. Maxwell-Jolly, 572 F.3d 644, 651–52 (9th Cir. 2009) (“ILC II”) (affirming the

14 standards established in Orthopaedic Hospital). To meet this statutory requirement, the

15 Ninth Circuit held that the Director “must rely on responsible cost studies, its own or

16 others', that provide reliable data as a basis for its rate setting.” Orthopaedic Hospital,

17 103 F.3d at 1496. In addition, for certain providers, including hospital service providers,

18 California must establish rates through a public process that includes publication of the

19 proposed rates and their underlying methodologies, such that providers are “given a

20 reasonable opportunity for review and comment.” 42 U.S.C. § 1396a(a)(13)(A).

21 Further, the state must administer Medi-Cal in accordance with Medicaid regulations;

22 applicable state law, as specified in sections 14000 to 14124 of the Welf. & Inst. Code;

23 and Medi-Cal regulations.

24

B. Procedural Background

25

In February 2010, this Court granted a preliminary injunction in another action

26 challenging the same rate freeze as applied to hospital based skilled nursing and

27 subacute facilities. See Cal. Hosp. Ass’n v. Maxwell-Jolly (“CHA I”), Case No. 09-CV-

28 8642, Order (C.D. Cal. Feb. 24, 2010). The Court enjoined the rate freeze on the

4

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 5 of 17 Page ID #:1385

1 grounds that plaintiff was likely to succeed on its claim that the freeze was enacted by

2 the California legislature without complying with Section 30(A). CHA I, No. 09-8642,

3 slip op. at 5–10. Because the Court found that plaintiff demonstrated a likelihood of

4 success on the merits on its section 30(A) claim, the Court did not address the merits of

5 plaintiff’s remaining claims. Id. at 10. The Court further found that plaintiff had

6 sufficiently demonstrated that its member hospitals would suffer irreparable harm absent

7 a preliminary injunction because the rate freeze was causing them to be paid less than

8 they otherwise were entitled and the Eleventh Amendment barred them from pursuing

9 any reimbursement shortfall in an action for damages. Id. at 10–14.

10

In May 2010, plaintiffs filed the instant motions seeking to preliminarily enjoin

11 application of the rate freeze as applied to their members. See Doc. 6. Prior to the

12 hearing on the motion for a preliminary injunction, the Court stayed the case. See Doc.

13 34. The Court found that good cause existed to stay the case because there was then

14 pending before the United States Supreme Court the Director’s petitions for certiorari in

15 Independent Living Center of Southern California, Inc. v. Maxwell-Jolly, U.S.S.C. Case

16 No. 09-958 (“ILC II”), and Maxwell-Jolly v. California Pharmacists Ass’n (“Cal.

17 Pharm.”), U.S.S.C. Case No. 09-1158. On January 18, 2011, the Supreme Court partially

18 granted review in ILC II, limited to the question of whether Medicaid recipients and

19 providers may maintain a private cause of action under the Supremacy Clause to enforce

20 Section 30(A) by asserting that the provision preempts a state law that reduces

21 reimbursement rates.2

22

On March 16, 2011, plaintiffs filed an ex parte application to lift the stay in this

23 case, arguing that during the stay they continued to suffer irreparable harm and

24

25

2 Subsequent to the stay that was issued inthis case, the Director filed a petition for

26 certiorari in Maxwell-Jolly v. Santa Rosa Mem’l Hosp., U.S.S.C. Case No. 10-283, a case

27 concerning some of the same rate reductions at issue in ILC II and Cal. Pharm. The petitions for certiorari in Santa Rosa and Cal. Pharm. raise identical legal issues to those
28 in ILC II and, consequently, the Supreme Court is addressing them together with ILC II.

5

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 6 of 17 Page ID #:1386

1 irrespective of the Supreme Court’s decision in ILC II, the rate freeze is invalid because

2 the Department implemented it without first obtaining federal approval. On March 28,

3 2011, the Court granted plaintiffs’ ex parte application to lift the stay and restored

4 plaintiffs’ motions for a preliminary injunction to the calendar.

5

On April 20, 2011, the parties filed supplemental briefs on the pending motions

6 for preliminary injunction. After carefully considering the arguments set forth by both

7 parties, the Court finds and concludes as follows.

8 III. LEGAL STANDARD

9

A preliminary injunction is an “extraordinary remedy.” Winter v. Natural Res.

10 Def. Council, Inc., 555 U.S. 7, 129 S. Ct. 365, 375 (2008). The Ninth Circuit

11 summarized the Supreme Court’s recent clarification of the standard for granting

12 preliminary injunctions in Winter as follows: “[a] plaintiff seeking a preliminary

13 injunction must establish that he is likely to succeed on the merits, that he is likely to

14 suffer irreparable harm in the absence of preliminary relief, that the balance of equities

15 tips in his favor, and that an injunction is in the public interest.” Am. Trucking Ass’n,

16 Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009); see also Cal Pharms.

17 Ass’n v. Maxwell-Jolly, 563 F.3d 847, 849 (9th Cir. 2009) (“Cal Pharm. I”).

18 Alternatively, “‘serious questions going to the merits’ and a hardship balance that tips

19 sharply toward the plaintiff can support issuance of an injunction, assuming the other

20 two elements of the Winter test are also met.” Alliance for the Wild Rockies v. Cottrell,

21 632 F.3d 1127, 1132 (9th Cir. 2011). A “serious question” is one on which the movant

22 “has a fair chance of success on the merits.” Sierra On-Line, Inc. v. Phoenix Software,

23 Inc., 739 F.2d 1415, 1421 (9th Cir. 1984).

24 IV. DISCUSSION

25

A. Success on the Merits/Serious Legal Questions

26

1. Standing

27

As a threshold matter, the Director contends that plaintiffs have not established

28 that they have Article III standing. Opp’n at 20. In order to establish Article III

6

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 7 of 17 Page ID #:1387

1 standing, a plaintiff must: (1) demonstrate an injury in fact, which is concrete, distinct

2 and palpable, and actual or imminent; (2) establish a causal connection between the

3 injury and the conduct complained of; and (3) show a substantial likelihood that the

4 requested relief will remedy the alleged injury in fact. See McConnell v. Fed. Election

5 Comm’n, 540 U.S. 93, 225-26 (2003). An association has standing to bring suit on

6 behalf of its members where any of its members would have standing in their own right,

7 the interests at stake are germane to the organization’s purpose, and the relief request

8 does not require participation of individual members. Colwell v. Dep’t of Health &

9 Human Servs., 558 F.3d 1112, 1122 (9th Cir. 2009). “The general rule applicable to

10 federal court suits with multiple plaintiffs is that once the court determines that one of

11 the plaintiffs has standing, it need not decide the standing of the others.” Leonard v.

12 Clark, 12 F.3d 885, 888 (9th Cir. 1993).

13

Here, the Court finds that plaintiffs have Article III standing to challenge the rate

14 freeze. CAHF is a trade association representing the interests of hundreds of California

15 long-term care facilities, including all categories of ICF/MR facilities and FPS facilities.

16 See Declaration of Darrly Nixon ¶ 3. DSN is a trade association representing the

17 interests of hundreds of California intermediate care facilities, including ICF/DD

18 facilities. DSN Complaint ¶ 3. The Ninth Circuit has recognized that plaintiffs’

19 individual member facilities would have standing to pursue this action in their own right.

20 Indep. Living Ctr. of S. Cal. v. Shewry, 543 F.3d 1050, 1065 (9th Cir. 2008) (“ILC I”)

21 (holding that Medi-Cal providers have Article III standing to challenge legislation

22 reducing payments to providers). Moreover, plaintiffs have brought the instant actions

23 in their representative capacities in an effort to prevent injury to their members resulting

24 from the implementation of the rate freeze enacted in AB 5. As such, the lawsuit is

25 germane to plaintiffs’ purpose and does not require the individual participation of their

26 members. See Colwell, 558 F.3d at 1122.

27

The Director also argues for the first time in his supplemental opposition that

28 plaintiffs lack prudential standing to challenge the rate freeze because plaintiffs’ claims

7

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 8 of 17 Page ID #:1388

1 (1) violate the rule against third party standing, Warth v. Seldin, 422 U.S. 490, 499

2 (1975); (2) are barred by the prohibition against “generalized grievances,” Valley Forge

3 Christian Coll. v. Ams. United for Separation of Church & State, 454 U.S. 464, 475

4 (1982); and (3) are barred because plaintiffs, as providers, are not within the “zone of

5 interests” protected by the Medicaid Act provisions at issue, Valley Forge, 454 U.S. at

6 475. Dir. Supp. Mem. at 8–9. Unlike the Article III standing requirements, prudential

7 standing doctrines are non-constitutional limitations on the Court’s review. See ILC I,

8 543 F.3d at 1065 n.17 (citing Bd. of Natural Res. v. Brown, 992 F.2d 937, 945–46 (9th

9 Cir. 1993)). To the extent that the Director’s arguments are directed toward plaintiffs’

10 challenges under the Supremacy Clause, they are unavailing for the reasons set forth in

11 ILC I and Cal. Pharm. I. See ILC I, 543 F.3d at 1064–65; Cal. Pharm. I, 563 F.3d at

12 852–53; see also Cal. Hospital Ass’n v. Maxwell-Jolly, Civ No. 10-3465 FCD/EFB,

13 2011 WL 836706, at *19–20 (E.D. Cal. Mar. 4, 2011) (“CHA II”) (rejecting the

14 Director’s prudential standing argument in challenge to similar rate freeze brought by

15 hospital providers).

16

2. Section 30(A)

17

This Court has already found that the rate freeze provisions of AB 5, codified at

18 Cal. Welf. & Inst. Code §§ 14105.191(f), are likely preempted by federal law because

19 the rate freeze was not enacted in compliance with Section 30(A). See CHA I, No. 09-

20 8642, slip op. at 5–10. The Court’s ruling in CHA I was predicated on the Ninth

21 Circuit’s holding that Medicaid recipients and providers may maintain a private cause of

22 action under the Supremacy Clause to enjoin implementation of state legislation

23 preempted by the Medicaid Act. See ILC I, 543 F.3d at 1065–66; ILC II, 572 F.3d at

24 652–53. The Supreme Court has granted certiorari in ILC II and is currently set to

25 review whether Section 30(A) is enforceable in federal court through the Supremacy

26 Clause. See ILC II, U.S.S.C. Case No. 09-958.

27

Notwithstanding the Supreme Court’s review in ILC II, plaintiffs maintain that

28 they are likely to prevail on their Section 30(A) claim. CAHF Supp. Mem. at 1 n.1.

8

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 9 of 17 Page ID #:1389

1 Plaintiffs argue that unless and until the Supreme Court actually reverses the Ninth

2 Circuit’s decision in ILC II, that precedent should control. Id. The Court recognizes

3 that at this time the Ninth Circuit’s ruling in ILC II is still good law and controlling in

4 this circuit. See Hart v. Massanari, 266 F.3d 1155, 1171 (9th Cir. 2001) (“Once a panel

5 resolves an issue in a precedential opinion, the matter is deemed resolved, unless

6 overruled by the court itself sitting en banc, or by the Supreme Court.”). In light of the

7 pending Supreme Court proceedings in ILC II, however, the Court finds that it would be

8 imprudent to resolve the present motions under Section 30(A). For now, suffice it to say

9 that plaintiffs’ claims under Section 30(A) present a “serious question going to the

10 merits.” Wild Rockies, 632 F.3d at 1132.

11

3. Prior Federal Approval of the Rate Freeze

12

Plaintiffs argue that they are likely to succeed on their claim that the Director’s

13 implementation and application of the rate freeze is unlawful because CMS has not

14 approved an amendment to California’s State Plan. CAHF Mot. at 13–14; CAHF Reply

15 at 13–16; CAHF Supp. Mem. at 2–4. After the passage of AB 5, the Department

16 submitted to CMS State Plan Amendment No. 09-019 (“SPA 09-019"), which proposed

17 changes to the rate methodology affecting long term care providers by maintaining the

18 level of reimbursement in effect for the 2009–2010 rate year and each year thereafter.

19 See Declaration of Jordan B. Keville ¶¶ 2–3, Exh. A. On December 4, 2009, CMS

20 requested additional information on SPA 09-019. Id. To date, it appears that CMS is

21 still waiting for additional information, and has not approved SPA 09-019. See Second

22 Supp. Decl. of Gary Macomber ¶ 7; Supp. Decl. of Jordan B. Keville ¶¶ 4–5, Exh. B.

23

The Ninth Circuit has held that the Director must obtain federal approval before

24 implementing amendments to the State Plan. See Exeter Mem’l Hosp. Ass’n v. Belshe,

25 145 F.3d 1106, 1108 (9th Cir. 1998). In Exeter, the Ninth Circuit resolved a split in

26 district court authority over whether federal approval was required before the

27 Department could implement amendments to the State Plan. Id. at 1107. The court

28 affirmed its prior holdings in Or. Ass’n of Homes for the Aging, Inc. v. Oregon, 5 F.3d

9

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 10 of 17 Page ID #:1390

1 1239 (9th Cir. 1993) and Wash. State Health Facilities Ass’n v. Wash. Dep’t of Soc. &

2 Health Servs., 698 F.2d 964 (9th Cir. 1982) (per curiam), that a state Medicaid agency

3 may not implement amendments to a State Plan unless it has received prior federal

4 approval. Exeter, 145 F.3d at 1108. The court based its holding on the “overall

5 statutory framework [of the Medicaid Act] rather than the particular language of the

6 statute relating to amendments to state plans.” Id. (citing Washington, 698 F.2d at 965).

7 More recently, two Eastern District of California cases decided by the Hon. Frank C.

8 Damrell, Jr., have reaffirmed that the lack of prior CMS approval for amendments to the

9 State Plan is grounds for enjoining a rate freeze. See Cal. Ass’n of Rural Health Clinics

10 v. Maxwell-Jolly, 748 F. Supp. 2d 1184, 1198–1200 (E.D. Cal. 2010) (“CARHC”);

11 CHA II, 2011 WL 836706, at *15–18.

12

The Director argues that Exeter is distinguishable because it construed provisions

13 of the Medicaid Act that were repealed in the Boren Amendment.3 Dir. Supp. Mem. at

14 2–4. The Director is correct in noting that the Ninth Circuit in Exeter declined to an

15 express a view as to how the elimination of the Boren Amendment would impact

16 subsequent challenges. See Exeter, 145 F.3d at 1109 (“We express no opinion as to

17 what effect that statute may have upon the validity of any other or future amendments to

18 Medi-Cal.”). As Judge Damrell points out, however, “[t]he Ninth Circuit [in Exeter] did

19 not tie its holding to any specific statutory language, and thus, the subsequent repeal of

20 the Boren Amendment does not render the decision inapposite. . . .” CARHC, 748 F.

21 Supp. 2d at 1199. This interpretation is fortified by Judge Levi’s reasoning in the

22 underlying decision in Exeter. See Exeter Mem’l Hosp. Ass’n v. Belshe, 943 F. Supp.

23 1239, 1242–44 (E.D. Cal. 1996). In reaching the conclusion that the state could not

24

25

3 The Boren Am endment, previously codified at 42 U.S.C. § 1396a(a)(13)(A),

26 required states to set hospital reimbursement rates that were “reasonable and adequate to

27 meet the costs which must be incurred by efficiently and economically operated facilities.” Wilder v. Va. Hosp. Ass’n , 496 U.S. 498, 501–02 (1990) (quoting 42 U.S.C. §
28 1396a(a)(13)(A) (1982 ed., Supp. V)).

10

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 11 of 17 Page ID #:1391

1 implement a new Medicaid reimbursement rate structure prior to federal approval of the

2 State Plan Amendment, Judge Levi relied almost entirely on the importance of the State

3 Plan in the overall structure of the Medicaid Act. See id. at 1242 (“In short, the State

4 must pay the rates approved in the State plan and therefore cannot pay rates proposed in

5 an amendment until the proposed amendment has been approved and made part of the

6 State plan. Any other interpretation of the plain language of the statute and regulations

7 would be inconsistent with the centrality of an approved State plan to the structure of the

8 Act.”).4

9

The Director further maintains that although the Medicaid regulations contemplate

10 CMS approval for material changes to the State Plan, they do not mandate that such

11 approval be obtained before a state implements the change. Dir. Supp. Mem. at 4. As

12 recognized in CARHC, this argument was explicitly rejected by Judge Levi in his

13 opinion in Exeter. See CARHC, 748 F. Supp. 2d at 1200; see also Exeter, 943 F. Supp.

14 at 1243 (to permit implementation of a State Plan amendment pending federal approval

15 “would be inconsistent with the function of the State plan, the approval process for State

16 plans and amendments, and the directive that the States ‘must pay’ reimbursement

17 according to the methods specified in an approved State plan.”).

18

Finally, the Director contends that plaintiffs do not have a private right of action

19 to challenge an amendment to the State Plan. Dir. Supp. Mem. at 5–6.5 Under

20 controlling Ninth Circuit precedent, Medicaid providers may bring a claim under 42

21 U.S.C. § 1983 to enjoin enforcement of changes to Medi-Cal reimbursement rates prior

22

23

4 It also bears mention that the Ninth Circuit rejected the Director’s argument that

the repeal of the Boren Am endment undermined the substantive and procedural

24 requirements of Section 30(A) as set forth in Orthopaedic Hospital. See ILC II, 572 F.3d

25 at 654–55.

26

5At oral argument, the Director requested to submit additional briefing on whether

27 plaintiffs have a private right of action to assert a State Plan Amendment claim. Because the Court finds the briefing on this issue adequate, see Dir. Supp. Mem. at 5–6, the Court
28 denies the Director’s request.

11

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 12 of 17 Page ID #:1392

1 to federal approval of a State Plan Amendment.6 See Exeter, 145 F.3d at 1107; Oregon,

2 5 F.3d at 1240; Washington, 698 F.2d at 965 n.4; see also CARHC, 748 F. Supp. 2d at

3 1199; CHA II, 2011 WL 836706, at *16–17. To the extent the Director urges the Court

4 to ignore settled Ninth Circuit precedent on this issue, the Court declines to do so.

5

Accordingly, the Court finds that plaintiffs are likely to succeed on their claim that

6 the Director’s implementation of the rate freeze in advance of CMS approval is

7 unlawful. Because the Court finds that plaintiffs have demonstrated a likelihood of

8 success on the merits of their State Plan Amendment claim, the Court declines to address

9 plaintiffs’ claim under Section 13(A) for purposes of the present motion.

10

B. Irreparable Harm

11

Plaintiffs assert that their members are being irreparably harmed because they are

12 being reimbursed less now than they otherwise would be absent the rate freeze

13 provisions in AB 5. CAHF Mot. at 14–17; DSN Mot. at 19–21; CAHF Reply at 17–23;

14 CAHF Supp. Mem. at 8–10.

15

Traditionally, monetary losses alone are not irreparable because they can be later

16 remedied by a damage award. L.A. Mem’l Coliseum Comm’n v. Nat’l Football League,

17 634 F.2d 1197, 1202 (9th Cir. 1980). The Ninth Circuit has recognized an exception to

18 this rule where a plaintiff would be unable to recover damages due to a State’s Eleventh

19

20

6 At oral argument, the Director argued that plaintiffs have alleged their State Plan

21

Amendment claim under the Suprem acy Clause and not section 1983. Judge Dam rell rejected this exact same argument in CHA II , and this Court is sim ilarly unmoved. In

22 Paragraph 1 of its com plaint, CAHF alleges that the action is brought pursuant to “the

23

Supremacy Clause and 42 U.S.C. § 1983.” C AHF Complaint ¶ 1. CAHF’s State Plan Amendment claim, although nominally asserted under the Supremacy Clause, incorporates

24 by reference all previous paragraphs of the complaint. “Thus, the complaint can be read

25 as alleging each of the claims for relief under the Supremacy Clause and/or Section 1983.” CHA II, 2011 WL 836706, at *17 (emphasis in original). Moreover, even though DSN’s
26 complaint does not specifically allege a cl aim under section 1983, “the Ninth Circuit

27 recognized in Wash. State Health, that while the plaintiffs there did not plead a claim for relief under Section 1983, ‘it is clear that th ey are properly in federal court under this
28 provision.’” Id. (quoting Washington, 698 F.2d at 965 n.4).

12

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 13 of 17 Page ID #:1393

1 Amendment immunity. Cal. Pharm. I, 563 F.3d at 851–52 (“Because the economic

2 injury doctrine rests only on ordinary equity principles precluding injunctive relief

3 where a remedy at law is adequate, it does not apply where, as here, the Hospital

4 Plaintiffs can obtain no remedy in damages against the state because of the Eleventh

5 Amendment.”). Given that plaintiffs’ members are barred by the Eleventh Amendment

6 from obtaining retroactive relief in federal court from the AB 5 rate provisions, they can

7 establish irreparable harm by demonstrating that their members “will lose considerable

8 revenue through [a] reduction in payments that they will be unable to recover. . . .” Cal

9 Pharms. Ass’n v. Maxwell-Jolly, 596 F.3d 1098, 1113–1114 (9th Cir. 2010) (“Cal.

10 Pharm. II”).

11

The Court finds that plaintiffs have met their burden. Welfare and Institutions

12 Code section 14105.191, as amended by AB 5, effectively freezes at 2008–09 levels

13 reimbursement rates for services rendered by, among other things, ICF/DD facilities,

14 ICF/MR facilities, and FPS facilities, “during the 2009–10 rate year and each rate year

15 thereafter.” Cal. Welf. & Inst. Code § 14105.191(f). Plaintiffs state that but for the

16 application of the rate freeze, the Department would calculate updated rates that would

17 have included an increase to account for inflation. Declaration of Darryl Nixon ¶¶ 8–10.

18 Based on historical rate data and the Department’s own data regarding “unfrozen”

19 ICF/DD, ICF/MR, and FPS rates for the 2009–2010 rate year, plaintiffs argue that it is

20 evident providers operating these facilities are being paid less now than they otherwise

21 would be.7 Declaration of Nancy Hayward ¶¶ 6–8, Exhs. A & B; Declaration of P.

22 Dennis Mattson, Ph.D ¶ 5.

23

By way of example, plaintiffs state that CAHF member Hilldale Habilitation

24

25

7 Although the Department has not released the “unfrozen” rates for the 2010–2011

26 rate year, plaintiffs state that the available da ta demonstrates that this fact rem ains true.

27 CAHF’s Supp. Mem. at 8–9 (citing Second Supp. Decl. ofNancy Hayward (Hayward 2nd Supp. Decl.) ¶¶ 5–6; Second Supp. Decl. of Gary Macomber (Macomber 2nd Supp. Decl.)
28 ¶¶ 5–6.

13

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 14 of 17 Page ID #:1394

1 Center, an ICF/DD facility, is currently being paid for its services at a “frozen” rate of

2 $175.03, while the Department has calculated an “unfrozen” rate for the facility of

3 $179.88 for 2009–2010. Declaration of Nancy Hayward ¶ 8a. Annualized for the entire

4 year, the differential in reimbursement rates results in total losses to the facility of

5 $100,278.60. Id. ¶ 8a, Exh. C. These losses appear to continue for the 2010-2011 rate

6 year. For example, plaintiffs estimate that ICF/DD facilities with 7–15 beds will lose

7 between $56,000 and $73,000 in Medi-Cal reimbursement during the 2010–2011 rate

8 year, and FPS facilities will lose a minimum of nearly $700,000 for the same time

9 period. Hayward 2nd Supp. Decl. ¶ 6, Exh. A; Macomber 2nd Supp. Decl. ¶ 6.

10

Despite these ongoing losses, the Director argues that the Court should deny the

11 request for a preliminary injunction on the basis that plaintiffs “delayed” in initiating this

12 action relative to when the rate freeze went into effect. Opp’n at 21–22. “[D]elay by

13 itself is not a determinative factor in whether the grant of interim relief is just and

14 proper.” Miller v. Cal. Pac. Med. Ctr., 991 F.2d 536, 543–44 (9th Cir. 1993). The factor

15 of delay is only material where the harm sought to be prevented already has occurred

16 and the parties cannot be returned to the status quo. McDermott v. Ampersand Publ’g,

17 LLC, 593 F.3d 950, 965 (9th Cir. 2010). Stated differently, where the delay is such that

18 it places the parties in a position where a preliminary injunction will “not actually make

19 a practical difference,” equitable relief may be denied. Id. That is plainly not the case

20 here. As discussed above, plaintiffs’ members have been subjected to the rate freeze

21 since August 1, 2009, and continue to be paid less now than they otherwise would be

22 absent application of the rate freeze. Because this shortfall cannot be remedied

23 retroactively, plaintiffs’ members continue to suffer irreparable harm.

24

Alternatively, the Director argues that plaintiffs cannot establish irreparable harm

25 because they may recover retroactive relief in a collateral state court action or through an

26 administrative process. Dir. Supp. Mem. at 9–10. The Ninth Circuit rejected this

27 argument in Cal. Pharm. I. There, the court acknowledged that damages may later

28 become available to plaintiffs in state court, but stated that federal courts must “consider

14

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 15 of 17 Page ID #:1395

1 only prospective federal remedies for the purpose of gauging whether the harm caused to

2 [plaintiffs] and their members is irreparable.” Cal. Pharm. I, 563 F.3d at 852 n.2

3 (emphasis in original) (relying on United States v. New York, 708 F.2d 92, 93–94 (2d

4 Cir. 1983) (per curiam)).

5

In sum, the Court finds that plaintiffs have sufficiently demonstrated that there is a

6 likelihood that certain ICF/DD facilities, ICF/MR facilities, and FPS facilities “will lose

7 considerable revenue” as a result of the rate freeze implemented by AB 5. Cal. Pharm.

8 II, 596 F.3d at 1113–14. This harm is irreparable because if the Court does not grant the

9 preliminary injunction, plaintiffs’ members would be barred by the Eleventh

10 Amendment from obtaining retroactive relief in federal court. See Cal. Pharm. I, 563

11 F.3d at 851–52.

12

C. Balance of Hardships and Public Interest

13

While the Court is mindful of the difficulty facing the State of California in light

14 of its fiscal crisis, the Ninth Circuit has held that “[s]tate budgetary considerations do not

15 . . . in social welfare cases, constitute a critical public interest that would be injured by

16 the grant of preliminary relief.” ILC II, 572 F.3d at 659. Further, the Ninth Circuit has

17 determined that “it would not be equitable or in the public's interest to allow the state to

18 continue to violate the requirements of federal law, especially when there are no

19 adequate remedies available to compensate the [plaintiffs] for the irreparable harm that

20 would be caused by the continuing violation.” Cal. Pharm. I, 563 F.3d at 852–53.

21 Given that the State may decide to implement a rate change upon complying with the

22 mandates of federal law, the Court finds that the balance of equities and the public

23 interest weigh in favor of granting the injunction.8

24

25

8 The Court notes that this does not a ppear to be a case where t he balance of

hardships tips sharply in favor of plaintiffs because there is no showing on the present

26 record that Medi-Cal beneficiaries are likely to be forced to go without medical care due

27 to the implementation of the rate freeze. See ILC II, 572 F.3d at 657–58 (“it is not legal

error to conclude, when balancing the medical or financial hardship to Medi-Cal recipients

28

(continued...)

15

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 16 of 17 Page ID #:1396

1 V. CONCLUSION

2

In accordance with the foregoing, the Court hereby GRANTS plaintiffs’ motions

3 for preliminary injunction. The Court hereby ORDERS the Director, his agents,

4 servants, employees, attorneys, successors, and all those working in concert with him to

5 refrain from enforcing Cal. Welf. & Inst. Code § 14105.191(f), including refraining from

6 effectively freezing at 2008–2009 levels the Medi-Cal reimbursement rates for services

7 provided by intermediate care facilities for the developmentally disabled and the

8 mentally retarded, and freestanding pediatric subacute facilities during the 2009–2010

9 rate year and each rate year thereafter.

10

At oral argument, the Director orally moved for a stay of the preliminary

11 injunction pending the Director’s emergency appeal of this order. In deciding whether

12 to issue a stay pending appeal, the Court considers “(1) whether the stay applicant has

13 made a strong showing that he is likely to succeed on the merits; (2) whether the

14 applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will

15 substantially injure the other parties interested in the proceeding; and (4) where the

16 public interest lies.” See Golden Gate Rest. Ass’n v. City & County of S.F., 512 F.3d

17 1112, 1115 (9th Cir. 2008) (citations omitted). The Court finds that the relevant factors

18 do not weigh in favor of granting the Director’s motion. Most importantly, there is no

19 evidence that the Director will suffer irreparable injury absent a stay, and issuance of a

20 stay would substantially injure plaintiffs because their members would continue to lose

21 considerable revenue that cannot be recouped retroactively in federal court.

22

23

8(...continued)

24 against the financial hardship to the state, that the balance of hardships tipped sharply in

25 favor of the plaintiffs.”) (internal quotati ons omitted). Thus, the “serious questions” analysis in Wild Rockies is ina pplicable. Se e Wild Rockies , 632 F.3d at 1132.
26 Nevertheless, the Court finds that it is appropriate to issue the prelim inary injunction

27 because plaintiffs have demonstrated that they are likely to succeed on the merits of their State Plan Amendment claim and the other W inter elements are satisfied. See Am.
28 Trucking, 559 F.3d at 1052.

16

Case 2:10-cv-03284-CAS-MAN Document 48 Filed 05/05/11 Page 17 of 17 Page ID #:1397

1 Accordingly, the Court DENIES the Director’s motion for a stay pending appeal.

2

IT IS SO ORDERED

3 Dated: May 5, 2011 4

________________________________ CHRISTINA A. SNYDER UNITED STATES DISTRICT JUDGE

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17

 
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23 DAVrD MAXWELL-JOLLY, Director

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Services, State of California; and the CALIFORNIA DEPARTMENT OF

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Defendants.

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28 III

- 1COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

3745001·909978, I

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 2 of 21 Page ID #:2

1

I.

JURISDICTION AND VENUE

2

3

1. This Court is vested with jurisdiction under 28 U.S.C. section 1331

4 because this action arises under the laws of the United States, including the

5 Suprelnacy Clause of the United States Constitution (U.S. Const., art. VI, cl.2), and

6 federal Medicaid law (Title XIX of the Social Security Act, 42 U.S.C. § 1396 et

7 seq. (the "Medicaid Act"). (See Shaw v. Delta Air Lines, Inc. (1983) 463 U.S. 85,

8 96 n.14 [103 S.Ct. 2890, 2899 n.14, 77 L.Ed.2d 490].)

9

2. Venue is proper in this Court, the Central District of California,

10 pursuant to 28 U.S.C. section 1391 (b) because defendants have an office located in

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3. Plaintiff Developmental Services Network ("DSN") is a statewide

18 non-profit trade association in California that represents approximately 250 slnall

19 intennediate care facilities for people with developmental disabilities. DSN is

20 headquartered in Sacralnento, California. The members of DSN are companies

21 operating facilities licensed as either "intennediate care facility/developmentally

22 disabled-nursing" ("ICF/DD-N") pursuant to California Health & Safety Code

23 section 1250(h) or "intermediate care facility/developlnentally disabled-

24 habilitative" ("ICF/DD-H") pursuant to California Health & Safety Code section

25 1250(e). DSN is infonned and believes that all of its Inembers are Medi-Cal

26 providers.

27

4. Plaintiff United Cerebral Palsy/Spastic Children's Foundation of Los

28 Angeles and Ventura Counties, dba United Cerebral Palsy of Los Angeles, Ventura

-2-

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 3 of 21 Page ID #:3

1 and Santa Barbara Counties ("UCP") is a 501 (c)(3) non-profit public benefit

2 association founded in 1945 by a small group of parents who wanted to create

3 community-based services for their children with disabilities. UCP is

4 headquartered in Woodland Hills, California. Today, UCP operates more than 40

5 program sites throughout five counties in Southern California and has extended its

6 mission to serve all people with disabilities. UCP provides services to more than

7 1,000 children and adults with developmental disabilities daily. UCP is also an

8 affiliate of the national United Cerebral Palsy, a nationwide network of over 100

9 independent, state and local non-profit affiliates, with a central national

10 organization located in Washington, D.C. UCP operates 12 ICF/DD-H hOlnes and

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6. Defendant DHCS is, and at all times mentioned herein was, an agency

18 of the State of California. DHCS is the single State agency charged with the

19 administration of the Medi-Cal program. (See Cal. Welf. & Inst. Code §§ 10720, et

20 seq., 14000 et seq.; 22 Cal. Code of Regs., §§ 50000 et seq.)

21

III.

INTRODUCTION

22

23

7. Plaintiffs bring this lawsuit to challenge the State of California's

24 imposition of a permanent "freeze" on the Medi-Cal reimbursement rates paid to

25 intermediate care facilities for the developInentally disabled licensed pursuant to

26 subdivision (e) or (h) of Section 1250 of the California Health and Safety Code.

27

8. The rate freeze was signed into law by California Governor Arnold

28 Schwarzenegger on July 28,2009, after the California Legislature adopted

-3-

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 4 of 21 Page ID #:4

1 Assembly Bill 5 of the 2009-10 Fourth Extraordinary Session ("AB 5"), the budget

2 trailer bill for California fiscal year 2009-10, which, among other things, added

3 subdivision (f)(2)(A) to Section 14105.191 of the California Welfare and

4 Institutions Code.

5

9. Section 14105.191(f)(2)(A) freezes the Medi-Cal reilnbursement rates

6 for services provided certain classes of intermediate care facilities for the

7 developmentally disabled "rendered during the 2009-2010 rate year and each rate

8 year thereafter" at 2008-09 levels. Plaintiff UCP operates and plaintiff DSN

9 represents melnbers who operate the classes of intermediate care facilities for the

10 developmentally disabled that are directly injured, by loss of gross income, as a

11 result of the rate freeze. This injury is directly traceable to the defendants'

12 implementation of AB 5 and would be redressed by a favorable decision enjoining

13 the rate freeze. Accordingly, plaintiffs have Article III standing to bring this action. 14 (See Independent Living Center v. Shewry (9th Cir. 2008) 543 F.3d 1050, 1065.)

15

10. Plaintiffs allege that AB 5 is preempted by section 30(A) of the

16 Medicaid Act, 42 U.S.C. § 1396a(a)(30)(A) ("§ 30(A)") because neither the

17 defendants nor the California Legislature considered the "quality of care" or "equal

18 access" provisions of § 30(A), or whether the frozen reimbursement rates are

19 reasonably related to provider costs, before its implementation. Plaintiffs also

20 allege that the rate provisions of AB 5 were implemented in violation of (1) the

21 public process provisions of 42 U.S.C. § 1396a(a)(13)(A) ("§ 13(A)"); (2) the

22 public notice provisions of 42 C.F.R. § 447.205 ("§ 447.205"); and (3) the

23 requirements of the Medi-Cal State Plan (the "State Plan").

24

11. Plaintiffs seek declaratory and injunctive relief to restrain the

25 implelnentation and enforcement of the rate freeze provisions of AB 5 at issue in

26 this case because these State provisions are in violation of federal law and are

27 preempted under the Supremacy Clause of the United States Constitution.

28 III

- 4-
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

3745.001-909978.1

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 5 of 21 Page ID #:5

1
2 A.
3

IV.
BACKGROUND
Federal Medicaid Law

4

12. In 1965, Congress enacted Title XIX of the Social Security Act,

5 generally referred to as The Medicaid Act, to provide States with funding to furnish

6 medical assistance to individuals "whose income and resources are insufficient to

7 Ineet the costs of necessary Inedical services." (42 U.S.C. §§ 1396 et. seq.; Wilder

8 v. Va. Hasp. Ass 'n (1990) 496 U.S. 498, 502 [110 S.Ct. 2510,2513, 110 L.Ed.2d

9 455].) The Medicaid program authorizes federal financial support to States for

10 Inedical assistance to low incolne persons who are aged, blind, disabled, or

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11 melnbers of families with dependent children. The program is jointly financed by

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12 the federal and State governments and administered by the States, with the federal

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13 financial participation level currently ranging between approximately 50 and 83

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14 percent. The States, in accordance with federal law, determine eligibility of

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15 particular types of beneficiaries, types and ranges of services, payment levels, and

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16 administrative and operative procedures. Payment for services is made directly by

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17 States to the individuals or entities that furnish the services. (42 C.F.R. § 430.0.)

18

13. A State's participation in Medicaid is voluntary, but a State that

19 chooses to participate must cOlnply with the provisions of the Medicaid Act and its

20 implementing regulations. (Alaska Dept. ofHealth and Social Servs. v. Centers for 21 Medicare and Medicaid Servs. (9th Cir. 2005) 424 F.3d 931,935.) Each State

22 adlninisters its Medicaid program through a single State agency, which is charged

23 with the responsibility of establishing and complying with a State Medicaid plan

24 that, in tum, must comply with the applicable provisions of federal Medicaid law,

25 including the requirements set forth in 42 U.S.C. § I396a(a)(I)-(70). (42 U.S.C. §

26 1396a(a)(5); 42 C.F.R. §§ 430.10 & 431.10.) In California, defendant DRCS is the

27 single State agency charged with administration of the California Medicaid

28 prograln, which is referred to as "Medi-Cal".
-5-

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 6 of 21 Page ID #:6

1

14. In accordance with the requirements of 42 U.S.C. § 1396a(a)(I)-(70),

2 California must provide "lnethods and procedures" for the payment of care and

3 services that (1) are "consistent with efficiency, economy, and quality of care," and

4 (2) ensure their availability to the Medicaid population to the same "extent as they

5 are available to the general population in the geographic area." (42 U.S.C. §

6 1396a(a)(30)(A).) These requirements are known, respectively, as the "quality of

7 care" and "equal access" provisions of § 30(A) of the Medicaid Act.

8

15. In Orthodedic Hospital v. Belshe (9th Cir. 1997), 103 F.3d 1491, 1496,

9 the Court of Appeals for the Ninth Circuit interpreted § 30(A) to require defendants

10 to set reimbursement rates that "bear a reasonable relationship to efficient and

11 economical hospitals' costs of providing quality services, unless the Departlnent

12 shows some justification for rates that substantially deviate from such costs." (See 13 also Independent Living Center ofSo. Cal. v. Maxwell-Jolly (9th Cir. 2009) 572

14 F.3d 644,651-52.) To meet this statutory requirement, the Ninth Circuit held that

15 the State "must rely on responsible cost studies, its own or others', that provide

16 reliable data as a basis for its rate setting." (Orthopedic Hospital, 103 F.3d at

17 1496.)

18

16. In addition, for certain providers, including intermediate care facilities

19 such as plaintiffs and their members, California must establish rates through a

20 public process that includes publication of the proposed rates and their underlying

21 methodologies, such that providers are "given a reasonable opportunity for review

22 and comment." (42 U.S.C. § 1396a(a)(13)(A) ("§ 13(A)").)

23

17. In addition, CMS implementing regulations require that public notice

24 be provided of "any significant proposed change" in the State's setting of payment

25 rates for services, with exceptions not relevant here. (42 C.F .R. § 447.205 ("§

26 447.205").)

27 III

28 III

-6-
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

3 745 .00 1-909978.1

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 7 of 21 Page ID #:7

1 B. 2

The Establishment Of Intermediate Care Facilities Under Federal and State Law

3

18. Prior to 1971, facilities for the developinentally disabled were financed

4 solely by state, local and private funding. In the Act of Deceinber 14, 1971 (Public

5 Law 92-223), Congress enacted legislation that allowed states to cover services in

6 intermediate care facilities for the developlnentally disabled (referred to as

7 "intermediate care facilities for the mentally retarded" in the federal legislation).

8

19. Under federal law, "intermediate care facility for mentally retarded" is

9 defined as follows:

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The term "intennediate care facility for the Inentally retarded" Ineans an institution (or distinct part thereof) for the mentally retarded or persons with related conditions if
(1) the primary purpose of such institution (or distinct part thereot) is to provide health or rehabilitative services for Inentally retarded individuals and the institution meets such standards as may be prescribed by the Secretary;

18

(2) the mentally retarded individual with respect to

19

whom a request for payment is made under a plan

20

approved under this subchapter is receiving active

21

treatment under such a prograln; and

22

(3) in the case of a public institution, the State or

23 political subdivision responsible for the operation of such

24

institution has agreed that the non-Federal expenditures in

25 any calendar quarter prior to January 1, 1975, with respect

26

to services furnished to patients in such institution (or

27 distinct part thereof) In the State will not, because of

28

-7-

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 8 of 21 Page ID #:8

1

paYlnents made under this subchapter, be reduced below

2

the average alnount expended for such services in such

3

institution in the four quarters immediately preceding the

4

quarter in which the State in which such institution is

5

located elected to make such services available under its

6

plan approved under this subchapter.

7 (42 U.S.C. § 1396d(d).)

8

20. The State of Califomia Department of Public Health, in turn, issues

9 licenses to intennediate care facilities that fall into one of four categories: (1)

10 intermediate care facility; (2) intermediate care facility/developmentally disabled

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11 habilitative ("ICF/DD-H"); (3) intennediate care facility/developmentally disabled;

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12 and (4) intermediate care facility/developmentally disabled-nursing ("ICF/DD-N").

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13 (Cal. Health & Safety Code §§ 1250(d), (e), (g) and (h), respectively.)

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21. Plaintiffs own and operate or represent ICF/DD-H and ICF/DD-N

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15 facilities only.

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22. An ICF/DD-H facility is defined as "a facility with a capacity of 4 to

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17 15 beds that provides 24-hour personal care, habilitation, developmental, and

18 supportive health services to 15 or fewer persons with developmental disabilities

19 who have intermittent recurring needs for nursing services, but have been certified

20 by a physician and surgeon as not requiring availability of continuous skilled

21 nursing care." (Cal. Health & Safety Code § 1250(e).)

22

23. An ICF/DD-N facility is defined as "a facility with a capacity of 4 to

23 15 beds that provides 24-hour personal care, developmental services, and nursing

24 supervision for persons with developmental disabilities who have intermittent

25 recurring needs for skilled nursing care but have been certified by a physician and

26 surgeon as not requiring continuous skilled nursing care. The facility shall serve

27 medically fragile persons with developmental disabilities or who demonstrate

28 significant developmental delay that may lead to a developlnental disability if not

-8-

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 9 of 21 Page ID #:9

1 treated." (Cal. Health & Safety Code § 1250(h).)

2 C.
3

The Reimbursement Snstem For Intermediate Care Facilities For 'the Developmentally isabled - Ha6iIitative and Nursing

4

24. The California State Plan establishes the principles of the State of

5 California's reimbursement system for providers of long-term care services to

6 assure compliance with the requirelnents of Title XIX of the Federal Social

7 Security Act and the Code of Federal Regulations and describes the procedures to

8 be followed by DHCS in determining long-term care reimbursement rates. (See

9 introduction to Attachlnent 4.19-D of the State Plan (effective August 1, 2005),

10 p.l.)

11

25. These procedures provide for the establishment of reimbursement

12 rates. Rates are set for four classes of ICF/DD-Hs and ICF/DD-Ns: ICF/DD-Hs

13 that are 4-6 bed facilities, ICF/DD-Hs that are 7-15 bed facilities; ICF/DD-Ns that

14 are 4-6 bed facilities; and ICF/DD-Ns that are 7-15 bed facilities. (Attachment

15 4.19-D, § 1(1)(3)0) & (k), p.5 (effective August 1,2004).)

16

26. Reilnbursement rates for ICFs are required to be recalculated annually.

17 Prospective rates for each class are developed based on cost reports submitted by

18 the ICFs, as adjusted by randoln audits of a Ininimum of 150/0 of the cost reports.

19 (Attachment 4.19-D, §§ III(A), p.9 & IV(A)(l)(f) & (g), p.10 (effective August 1,

20 2004).) Providers have the right to appeal findings which result in an adjustment to

21 program reimburselnent or reimbursement rates. (Attachlnent 4.19-D, § III(D), p.9

22 (effective August 1, 2002).)

23

27. The reilnburselnent rate per patient day is set at the 65th percentile of

24 projected costs for the class. (Attachment 4.19-D, § IV(F)(9), p.15 (effective

25 August 1, 2005).) This is a higher reimburselnent rate than other classes of long-

26 term facilities in recognition of the fact that they serve a disproportionate share of

27 low income patients with special needs. (Jd.) Plaintiffs are informed and believe

28 that Medi-Cal pays for over 990/0 of the ICF/MR services provided in California.

-9-

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 10 of 21 Page ID #:10

1

28. As long as there is a projected net increase in the California Consulner

2 Price Index during the State's fiscal year previous to the new rate year, no

3 prospective rate of reimbursement shall be decreased solely because the class

4 median projected cost is less than the existing rate of reimbursement. (Attachment

5 4.19-D, § IV(F)(5), p.l4 (effective August 1, 2002.)

6

29. In addition, since 2003, the State has made a supplemental Medi-Cal

7 reimbursement payment on a per diem basis to ICFs over and above the

8 reimbursement rate established through the cost report/audit procedures described

9 above to support the facilities' quality ilnprovement efforts. (Cal. Health & Safety

10 Code § 1324.10.) These paYlnents are currently set at 8.99% of the reimburselnent

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30. Since 2003, ICFs are required to relnit to the State a quality assurance

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13 fee ("QAF") on the entire gross receipts of the ICFs. (Cal. Health & Safety Code §

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31. California also represents in the State Plan that it has in place a public

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17 process that complies with the requirements of Section 1902(a)(13)(A) of the Social

18 Security Act. (Attachment 4.19-D, p.22 (effective August 1,2001.)

19 D. The Passage Of Assembly Bill 5, Which Freezes ICF Payments At
2008-09 Rates
20

21

32. On July 2,2009, Assembly Bill 5 ("AB 5") was introduced during the

22 2009-10 Fourth Extraordinary Session to address the California state budget as a

23 placeholder bill to enact statutory changes relating to the Budget Act of 2009.

24

33. AB 5 was amended on July 2,2009, to make numerous changes to the

25 Financial, Health & Safety, Insurance and Welfare & Institutions Codes.

26

34. One of the changes contained in the amended AB 5 was to amend

27 Welfare & Institutions Code section 14105.191 to add subdivision (£)(2), which

28 reads, in pertinent part, as follows:
- 10-
COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

3745.001-909978.1

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 11 of 21 Page ID #:11

1

(f)(2) ... Medi-Cal reimbursement rates applicable to the

2

following classes of facilities for services rendered during

3

the 2009-10 rate year; and each rate year thereafter, shall

4

not exceed the reilnbursement rates that were applicable to

5

those facilities and services in the 2008-09 rate year:

6

(A) Facilities identified in paragraph (5) of

7

subdivision (d).

8

35. Paragraph (5) of subdivision (d) identifies, in pertinent part, the

9 following facilities: "Intermediate care facilities for the developmentally disabled

10 licensed pursuant to subdivision (e), (g), or (h) of Section 1250 of the Health and

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11 Safety Code ...."

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36. As noted in paragraphs 23 and 24, above, subdivisions (e) and (h) of

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13 Section 1250 of the Health and Safety Code define ICF/DD-Hs and ICF/DD-Ns.

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37. AB 5 was passed by the California State Senate and Assembly on July

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15 23,2009, and was approved by the Governor on July 28,2009. The bill was

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16 enacted as an urgency statute and became effective immediately. Defendants

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17 immediately implelnented the rate freeze and have paid the 2008-09 rate for

18 services provided on and after August 1, 2009.

19

38. The legislative history does not contain any evidence that either the

20 defendants or the California Legislature considered the "quality of care" or "equal

21 access" provisions of § 30(A), or whether reimbursement rates are reasonably

22 related to provider costs, before its ilnplemented the rate freeze ilnposed by Section

23 14105.191(f)(2).

24

39. Plaintiffs are informed and believe and thereon allege that no

25 responsible cost studies as required by § 30(A) were relied upon by the California

26 Legislature or defendants in adopting and implementing Section

27 14105.191 (f)(2)(A).

28 III

- 11 COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

3745.001-909978.1

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 12 of 21 Page ID #:12

1

40. Plaintiffs are further infonned and believe and thereon allege that no

2 public process as required by § 13(A) and § 447.205 was followed in connection

3 with the adoption and implementation of Section 14105.191(f)(2)(A)

4

41. Plaintiffs are further infonned and believe and thereon allege that the

5 State Plan has not been amended to conform to Section 14105.191(f)(2)(A) that

6 payment at the 2008-09 rates is in violation of defendants' reimbursement

7 obligations under the State Plan.

8 E.
9

DHCS Calculation Of Lon~ Term Care Reimbursement Rates
Effective From August 1, 2 09

10

42. Notwithstanding the enactment of Section 14105.191(f)(2) of the

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43. DHCS' calculations for the four classes of slnall ICFIDDs for the rates

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15 effective August 1, 2008 and August 1, 2009 are as follows:

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Facility Group

Rate

Rate

Percent

17

effective

effective

change in

18 ICF/DD-Habilitative
19

8/1/2008* 8/1/2009*

rates

4-6 Beds 20

$185.50

$197.45

6.440/0

7-15 Beds 21

$201.77

$201.95

0.090/0

Weighted ICF/DD-H Rate 22

186.63

$197.72

6.030/0

23 ICF/DD-Nursing

24

4-6 Beds

$211.63

$230.74

9.030/0

25

7-15 Beds

$219.79

$232.28

5.680/0

26

Weighted ICF/DD-N Rate

$212.00

$230.81

8.870/0

27 * Includes supplelnental payment for quality improvement efforts.

28

- 12 -

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 13 of 21 Page ID #:13

1

44. The rate study conducted by DHCS demonstrates that were the freeze

2 not in place, rates would have been increased on August 1, 2009, by an average of

3 6.03% for ICF/DD-H providers and by 8.87% for ICF/DD-N providers.

4

45. Since all ICF/DD-Hs and all ICP/DD-Ns would have been reimbursed

5 on a per dielTI-per bed basis based on the higher rates effective August 1,2009, all

6 ICF/DD-Hs and ICF/DD-Ns, including plaintiffUCP and the lTIelTIbers ofDSN are

7 suffering irreparable injury every day they are reimbursed at the 2008 rate as a

8

9 F.

Rate

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46. On November 24,2009, the California Hospital Association filed a

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12 lawsuit against defendant Maxwell-lolly, challenging, alTIOng other provisions, the

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14 hospitals (distinct part/nursing facilities or "DPlNFs") and subacute pediatric

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17 Division, Case No. CV 09-8642 CAS (hereafter referred to as "the CHA action").)

18

47. In the CHA action, as here, the plaintiff alleged that the Section

19 14105.191(f) rate freeze violated § 30(A) of the Medicaid Act and was therefore

20 invalid under the Supremacy Clause of the United States Constitution because

21 neither the Director not the California Legislature considered the "quality of care"

22 and "equal access" provisions of § 30(A), or whether reilTIbursement rates were

23 reasonably related to provider costs, before its implementation. As here, plaintiff

24 alleged that the Director failed to comply with § 13(A), § 447.205, and the State

25 Plan requirements.

26

48. On February 24,2010, this Court granted the CHA plaintiff's lTIotion

27 for a preliminary injunction, on the grounds, in part, that the plaintiff had

28 demonstrated a likelihood of success on the merits of its § 30(A) claim and had

- 13 -

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 14 of 21 Page ID #:14

1 sufficiently demonstrated that there was a likelihood that CRA lnember hospitals

2 will suffer monetary losses as a result of the rate freeze implemented by AB 5.

3

V.

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

4

5

COUNT ONE: DECLARATORY RELIEF

6

1. Plaintiffs reallege and incorporate by reference each of the previous

7 allegations set forth in this complaint.

8

2. An actual and justiciable controversy has arisen and now exists

9 between the parties relating to the issue of whether the rate freeze is a violation of

10 federal law. Plaintiff DSN, on behalf of its members, and plaintiff UCP contend

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13 and enforce the rate freeze.

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3. The Federal Declaratory Judgment Act, 28 U.S.C. § 2201 empowers

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15 federal courts to declare the rights and other legal relations of any interested party

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16 seeking such declaration, and also provides authority for further necessary and

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17 appropriate relief based on its declaratory judgments.

18

4. Rule 57 of the Federal Rules of Civil Procedure provides that the

19 existence of another adequate remedy does not preclude a judglnent for declaratory

20 relief in cases where it is appropriate. In addition, the court may order a speedy

21 hearing of an action for a declaratory judgment and may advance it on the calendar.

22

5. A declaratory judgment is necessary in that plaintiffs contend, and the

23 rate freeze imposed by defendants pursuant to California Welfare and Institutions

24 Code section 14105.191(f)(2)(A) is preempted by application of the Supremacy

25 Clause with respect to the services provided by the ICFs, as described above in this

26 COlnplaint.

27

6. The members of plaintiff DSN and plaintiffUCP have provided and

28 continue to provide intermediate care to developmentally disabled patients and are

- 14 -

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 15 of 21 Page ID #:15

1 ready, willing and able to provide these services. The Inembers of plaintiff DSN

2 and plaintiff UCP are suffering severe adverse financial impact by reimbursement

3 for these services at the 2008-09 rates, since the defendants' own cost studies

4 demonstrate that ICF/DD-Hs and ICF/DD-Ns, including the members of plaintiff
5 DSN and plaintiff UCP, would be paid at a higher rate using the rate-setting methodology prescribed by the State Plan approved by CMS. Therefore, the
6 controversy between plaintiffs and the defendants regarding reimbursement for
7 these services is imminent and ongoing, there is an ongoing adverse economic
8 impact to plaintiffs from the defendants' imposition of the rate freeze, and a
9 declaratory judgment is necessary to resolve the rights and duties of the parties.

10

7. Plaintiffs have no administrative remedy, or any plain, speedy, or

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11 adequate relnedy at law and, unless relief is granted as prayed, defendants will

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WHEREFORE, plaintiffs pray for relief as follows: COUNT TWO: INJUNCTIVE RELIEF

17

1. Plaintiffs reallege and incorporate by reference each of the previous

18 allegations set forth in this complaint.

19

2. An actual controversy has arisen and now exists between the parties

20 relating to whether the rate freeze imposed by defendants pursuant to California

21 Welfare and Institutions Code section 14105.191(£)(2)(1) is a violation of federal

22 law.

23

3. The melnbers of plaintiff DSN and plaintiff UCP have provided and

24 continue to provide intermediate care to developmentally disabled patients and are

25 ready, willing and able to provide these services. The members ofplaintiffDSN

26 and plaintiff UCP are suffering severe adverse financial impact by reimbursement

27 for these services at the 2008-09 rates, since the cost studies demonstrate that they

28 would be paid at a higher rate using the rate-setting methodology prescribed by

- 15 -

3745.001-909978 .1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 16 of 21 Page ID #:16

1 State regulation. Therefore, the controversy between plaintiffs and the defendants

2 regarding reiInbursement for these services is imminent and ongoing, there is an

3 ongoing adverse econolnic ilnpact to the melnbers of plaintiff DSN and plaintiff

4 UCP from the defendants' imposition of the rate freeze, and a mandatory injunction

5 is necessary to resolve the rights and duties of the parties.

6

4. Plaintiffs seek a mandatory injunction that enjoins defendants from

7 implementing or continuing to implement or enforce the rate freeze with respect to

8 ICF/DD-Habilitative and ICF/DD-Nursing facilities and requiring defendants to

9 reimburse the lnembers of plaintiff DSN and plaintiff UCP at the unfrozen ICFIDD-

10 Habilitative and ICFIDO-Nursing reimburselnent rates calculated by OHCS to be

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11 effective August 1,2009, for the 2009-10 fiscal year.

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5. Plaintiffs have no administrative remedy, or any plain, speedy, or

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WHEREFORE, plaintiffs pray for relief as follows:

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::;::sJ

16

VI. PRAYER FOR RELIEF

17

18

For the reasons stated above, plaintiffs respectfully request that the Court

19 grant the following relief:

20

1. That a declaration issue declaring that the rate freeze established by

21 Section 14105.191(f)(2) of the California Welfare & Institutions Code is invalid

22 and unenforceable as to the members of plaintiff DSN and plaintiff UCP because

23 the rate freeze violates 42 U.S.C. §§ 1396a(a)(30)(A) and 1396a(a)(13), 42 C.F.R. §

24 447.205, and the California State Plan, and is thus invalid and preelnpted by the

25 Supremacy Clause of the United States Constitution, article IV, clause 2.

26

2. That a declaration issue declaring that it is a violation of the

27 Supremacy Clause of the United States Constitution for defendants to fail or refuse

28 to reimburse the members of plaintiff OSN and plaintiff UCP at the unfrozen

- 16 -

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 17 of 21 Page ID #:17

1 ICF/DD-Habilitative and ICF/DD-Nursing reimburselnent rates calculated by

2 DHCS to be effective August 1,2009, for the 2009-10 fiscal year.

3

3. That mandatory preliminary and permanent injunctions issue enjoining

4 defendants from ilnplementing or continuing to ilnplement or enforce the rate

5 freeze with respect to ICF/DD-Habilitative and ICF/DD-Nursing facilities and

6 requiring defendants to reimburse the members of plaintiff DSN and plaintiff UCP

7 at the unfrozen ICF/DD-Habilitative and ICF/DD-Nursing reimburselnent rates

8 calculated by DHCS to be effective August 1, 2009, for the 2009-10 fiscal year.

9

4. That plaintiffs be awarded their costs of litigation, including

10 reasonable attorneys' fees, as permitted; and

1 1

5. That the Court grant plaintiffs such further and additional relief as the

12 Court may deem just and proper.

13

14 Dated: April _ _, 2010 15

Murphy Austin Adams Schoenfeld LLP

16

By:

~KA~T~HR~YN~D~O~I~-----------

17

JENNY MAE PHILLIPS

18

19

Law Offices of Douglas S. Cumlning

20

21

DOOGLAS S. COMMING

22

Attorney for Plaintiffs

23

DEVELOPMENTAL SERVICES NETWORK; and UNITED

24

CEREBRAL PALSY/SPASTIC CHILDREN'S FOUNDATION OF

25

LOS ANGELES AND VENTURA COUNTIES

26

27

28

- 17 -

3745.001-909978.1

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 18 of 21 Page ID #:18
UNITED STAT'ES DISTRICT COURT CEN1'RAL DISTRICT OF CALIFORNIA
NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE FOR DISCOVERY
This case has been assigned to District Judge Otis D. Wright II and the assigned discovery Magistrate Judge is Margaret A. Nagle. The case number on all documents fi.led with the Court should read as follows:
CVIO- 3284 ODW (MANx)
Pursuant to General Order 05-07 of the United States District Court for the Central District of California, the Magistrate Judge has been designated to hear discovery related motions.
All discovery related lnotions should be noticed 011 the calendar of the Magistrate Judge

NOTICE TO COUNSEL

A copy of this notice must be served with the summons and complaint on all defendants (if a removal action is filed, a copy of this notice must be served on atl plaintiffs).

Subsequent documents must be filed at the following location:

[Xl Western Division
312 N. Spring St., Rm. G·8 Los Angeles, CA 900 12

L1 Southern Division

U Eastern Division

411 West Fourth St., Rm. 1-053

3470 Twelfth St., Rm. 134

Santa Ana, CA 92701-4516

Riverside, CA 92501

Failure to file at the proper location will result In your documents being returned to you.

CV-18 (03/06)

NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE FOR DISCOVERY

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 19 of 21 Page ID #:19

/\() '1·10 (Rev 1210'» Summons In a Civil Actioll
UNTTE]) STATES I)ISrrRICfr CC}UR1'
fOI·the
Central District of California
Dl;:VELOPMEN'TI\L SERVICES N!;~Tf~ORK; and UNJ'l'ED C'r'J~EBR/\L Pi\LSY!SP/\STlC CHILDRi~N'.s FOUNDATION OF LOS l\NGl~Lr~S '·,ND vr.;~NTtJl~A COUN'T'; EEl,

Plaillll.!T
v.

H("il'~ th C'IL] FOHN l!\

Civil Action

f)e./i'ndu/I!

To: (!)eji,ndon( 's IJ(}IJJI:' and oddress)

SUMMONS IN A CIVIL ACTION

o

A lawsu it has been filed against you.

Within 21 days after service oUhis summons on you (nol counting the day you received it) or 60 days ifyOll

arc the United States or a United States agency, or an officer or employee of the United States described in Fed. R. Civ.

P. 12 (a)(2) or (3) you must serve on the plaintiff an answer to the attached complaint or a motion under Rule 12 of

the Federal Rules of Civi I Procedure. The answer or motion must be served on the plaintiff or plaintiff's attorney,

whose name and address arc:
Kathryn Doi, SBN: 121979

Douglas S. Cumming, SBN; 88580

Jenny Mae Phillips, SBN; 255458

LAW OFFICES OF DOUGLAS S. CUMMING

MURPHY AUSTIN ADAMS SCHOENFELD LLP

542 5th Street

30t} "S" Street

Lincoln, CA 95648

Sacramento, CA 95811

Tel: (916) 434-8719 Fax: (916) 64::;-2997

Tel; (916) 446-2300 Fax: (916) 503 4000
Iryou f~lil to respond, judgment by default will be entered against you for the rei ief' demanded in the complaint.

YOLI alsu fnllS! (I Ie your answer or motion vI/it/) the court.

Dale:

CLERK OF COURT

Case 2:10-cv-03284-CAS-MAN Document 1 Filed 04/30/10 Page 20 of 21 Page ID #:20

UNITED STATES DIST1UCT COURT, CENTRAL DISTRICT OF CALlFORNIA
CIVIL COVER SHEET

I (a) PLAINTIFFS (Check hox iryollllrc representing yoursdr[J) I)LVI:UWMI~NTAI, .'.; 1:1<. VJCTS NLTWOJ~K: UNITi:!) CI:RU3IV\!.. !'/\LSYI SPASTIC CIIILDREN'S r:'OUNDJH10N OF LOS ANGI~LI:S AND VCNTl:R;\ COUNTII:S

DEFENDANTS l)A VIU MAXWELL-JOLLY, Director ol'lilc DcpanrnlCll! 0/ Ilcilith Care '';crvlu:s, State of California; and lh~ CAUFORNI!\ DEPARTMf:NT 01:
IILALTll CI\ RE SF:RVICI:S

(h) ;\ 1llll11CyS (l:irl11 NCiIlW, Address and Telephone Number. ICyou arc rlCpres<~nllng YOllrscl( provide slime)
Kathryn DOl, .lenny Mill: f'hillips. MURPIIY /\lJSTIN ADAMS SCliOI:NFUJ) LLP, 30!l "S" Sircet. Sacramento. CA (581) (<) 16) '146.. 2300

/\llorncys (If Known)

II. BASIS OF Jt!IHSDlCT!ON Wi<ICC an X III onc box ollly.)
i3 i"cdcraIQllcstiol) (U S.
Cinvcrnmcnt No\ a Pany)

m. CITIZENSIIIP OF PIHNCIPAL PARTIES, For Diversity Cases Only
(place illl X In one box I(lf pia intlff and olle t~H dcrcndanL)

Cili/.en olThls Sll11C

PTF [J I

DEI" ;:] I

Incorporated or Principal 1)lacc
of n\lSIl'I<'~SS ill llil, Slate

PTF DEF LI ,1 LJ 4

!...\!. U.S. (jOVCrt1ll1CI\\ Defendanl

Diversity (Inliicl\\c Citizenship Cili:;,ell 01' Anolher Slate of'Parlic, in Item III)
Clli/,en or SlIbJect of 11 I'nn;lgn C\l\llllry [) 3 [J .1

Incorporated Illal l)nncipuIIJlact: or HlIslncss 111 Another State
hlrcign Nall(JJ1

D L.J ()

1\', (HUGIN (i'lan';l1l X II) ont: htl;: oilly )

:/'I Orig.incri P!'lH..:eedlllg.

Rerllnvcd frolll Stale Cnllrt

v, !U:QUESTED IN COMPLAINT

RCllwnded from Appellale COlin
,nm\' DE;'\'1AND: [J't'c:,;

Rl.;lllsllited or [J 5 Transfern:d I'rom another distl'lcl ('reeil'y)' (l tvltllti- U 7 (\ppctll \(1 Dis[rlct

R<':opclll'd

Di:;tnct

.ludg\.' (rom

Litig,ltioll

Mugislr!lle Judge

rl No (Check 'Y~s' only il- dtrnullded illwmriaint.) Pr.eJ. iminal.'Y lTljunct iO!l

CLASS ACTION under F,R.C.P. 23: [J y<;;,' liN 0

0 MONEY DEMAND!::!) IN COIVIPLAlNT: $

\' I. LA liSE () F ACTION (Cite the U.S. Civil Statute under which
,~ilt\ undcJ~ SUpT\'~Hl(H.:y Cl.'H~3C that. St:i~~:C. ::It a !.:. 1.1 tC.:-1 l)!~lit i.ng

are filing and wrile 11 brief statement of causc. Do 110\ clle Jllflodictional statutes unless diversity)
payment:f3 violate che fcd(-!l:'t3.:~ Medlcaid ~\ct, lnc. 42 U,S.C. l::H~C. l'JQ(5a(i'l.! (i \1 {t\) ;1,nd t;\'·(:~ pn:.~('mpl':(-

\' II. NATU~,E OF SUIT (1'1(1(:(' ;Ill X in onc box only.)

OTHER STATUTE$

CONTRACT

TORTS

.'

;T9RJ'S

.:

'PR1SO:NER

I'"

'L,A)30R

400 SIn Ie Reapportionment 0110 Insurance

[j'IIO !\ntitrlls\ . U() Banks and Bal1kill~

[J120 Marine
o 13() Millcr Act

i.J'1.50 Cnmmclct:./ICC Ratt:.s/ctc

[1140 Negotiable Instrument
ID 150 Recovtl)'of

i 14hO Dcporli1tinn

Overpayment &

i] 47() Racketeer l\ln\\cn~<;d

Enforcemen\ of

and Currupt

.Judgment

Org:lI1il.lll ions
!J'IW COllsumer Credit '190 Cable/Sat TV

[J 151 Mcdicare Act
rJ 152 Recovery or DelilUltcd
Student Loan (E.xcl

IXIO Selcctivc Service

V(;[CnlIlS)

X50 Scell ritiesiC0111l1lodi! ics! 0153 Recovery () r

I~xcl1ange

Overpayment. of

) irIS Custol1ler Chalkng,(; 12

Vetcran', Benefits

USC 34 \ ()

[J 160 Stockholders'Suits

"IXYO Other Statutory ,;\t:lions [I 19() Other Conlract

iX\)1 AglICultural Act

[1 195 Contract Product

I gi)2 l:t:Ollomie Swbi)izatioJ)

Lwbility

PERSONAL INJUR Y [J 310 ;\ il 1311111<.' 0315 Airplane Product
Liabiiity [) 320 I\SSilult, Libel &
Slander 0330 F~d. Employers'
Liability U:W) tvlurinc [] 345 Murine Product
Liability [] 3St) Motor Vehicle [J 355 Mo(or V~llicic
Product Liability 1.::) 360 Other Pw;{)nai
Injury l] 362 f'crsonallnlllry-
Med Maipfl\ctic~
[J 365 Personal 111.luryProduct Liilbiltty

PERSONAL

PETITICiNS

[] 710 i-air Labor Standards

PROPERTY [J 370 Other Fnltld

[) 510 Motions 10

Act

no Vacate Senlence o

Labor/Mgml.

[] 371 TI'uth in Lending

Ilab,as Corpus

Rc/(llions

[] 3110 Other Personal !D5.30 G:;:ll<.:ml

[j no Labor/Mgm!

Property Damage IJ 535 Death f\;nalty

l\i;P(lrtlllg &

[) 3X5 Property Damage [J 54() i'vland<ltnusl

[)isclo~lIfc /\cl

Product l.iahil it>,

Other

1174() Railway I.abo!' Act

BANKRUPTOY [] 550 Civil Rigl1t~

[1790 Other Labor

[] 422 Appcal 28 USc: 0555 I)rison Condition

Litig:atilm

158

FORPEl~rUREJ [J 791 Empl. ReI. Inc.

!J 423 Withdrawal 211

PENAL'TY

Sc(;urily lId

USC 157

IJ olD Agriculture

PROPERTY RIGHTS

ClVIL RIGHTS

[)620 Othi:r Food & iL 82() Cop:r'riglils

L] 4,11 Voting

Drug

C:: SJO Patcilt

[] ,142 Employment

,__ 625 Drug Related I] 84(J Trademark

[] 443 Housillg/A(;w-

Scil.lln.: 0['

SOC1AL SECURITY

I1llllodatiolls

l)mpcr1y 21 USC [] R61 lilA (13 l)Srt)

Cl444 Welfare

(~81

U Xfl2 [Hack Lung (923)

i\ct

[] 196 Frallt.:hlsc

[J 368 AsbeslOs l'er,OI1:I) [] 445 (\mericnn With [j63tJ I_lquor Laws

lj XIl3 [)IWClDIW\V

I g(n
:i 1194
']Wh
Il)!)O
:v{l)')()

l:.r\v imlllll(.'nia I Ma!ll:fS
Lncrgy Allocation Act Freet/I.\111 or Inlc). l\d
or ,\pp<:al h:<: Dct~nni-
natioll Under Equal Access 10 Justice Cons(itutiollalityor Stille Statutcs

REAL PROPERl'Y C210 Land Condemnation U 21.0 FnrccloslIfC [] 23() 1~<;l1t I.cn,c & r:jcct 111(; III 0240 Torts to Land !O 245 Tor! Product Liability 0290 All Other Real Property

Injury ProUtlC[
Llabilily IMMIGRATION [) /~62 NUllll<dizatiol1
AppllCa! ion 0463 Habeas
Alien 0465 Other IImnigratlOn
ACIiOIl::i

[J 446
O,j(1{)

Dlsa hi Iit ics Emp!uYI1l(;1I1 American \vlth Disahiltttcs Other Other C'ivil Rights

[l()i)() R R. & Truck 1] 650 Airl ille Regs LIMO OCCli patlO1\il I
~a!C\y Illcalth
0690 Other

(405(g))
ClRM SSJ[) Title XVI [J 865 RSI (405(g»)
FEm.:RAL TAX SUITS it In!) Ta)(c~ (US Plaintiff
or Defendant) 0871 IRS-Third Pany 26
USC 7609

FOH OFFICE liSE ONLY: Case Number: _ _~~_ _ _ _.
AFTER CO!\IPLETI'\iG TilE FIU)NT SIDE OF FOHM CV-71, cm"rI' LETE THE INFORMATION REQUESTED BELOW.
'V-7i

Case 2:10-cUvN-0IT3E2D84S-TCAATESS-MDAISNTRIDCTocCuOmUeRnTt, 1CENFTiRleAdL 0D4I/S3T0R/1IC0T OPFaCgAeL2I1FOoRfN2I1A Page ID #:21
CIVIL COVER SHEET

VIII(a). IDENTICAL CASES: Has this action been prcviously filed in this court and dismissed, remanded or closed? ~No 0 Yes
If yes, list case number(s): _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

No [{Yes
rI yes, Iist case number( s): -=.:...:.:...:::......:....:......:~::....:..;::...L~.c._=__=__:.:......:...::....::..:::..:....::..;.~_"_'__''_''_'_=::..::....;:....:...;'_=__''_'__=_..:._.:...::...L'__''_'_..c:...c.__.::;....:::...::...:.:...::'_'__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

Civil cases are deemed related if a pJ'eviously filed case and the present case:
r.f (( 'heck all boxes that apply) A. Arise from the same or c10scly related transactions, happenings, or events; or
r,{B. Call for determination of the same or substantially related or similar questions of law and Elct; or
DC. For other reasons would entail substantial duplication of labor ifheard by dilTerentjudges; or
D. Involve the same patent, trademark or copyright, and one of the factors identified above in a, b or c also is present.

IX. VENlIE: (When completing the

use an ad(Jltlon,al

(a) List the County in this District; California County outside of this District; State il'other than California; or Foreign Country, in which EACH named plaintiffresides. 0 Check here if the government, its agencies or employees is a named plaintiff. If this box is checked, go to item (b).

County in this District:*

California County outside of this District; State, if other than California; or Foreign Country

Los Angeles County

Sacramento County San Diego County

(b) List the County in this District; California County outside of this District; State if other than California; or Foreign Country, in which EACH named defendant resides. [~ Check here if the government, its agencies or employees is a named defendant If this box is checked, go to item (c)

I County in this District:*

California County outside of this District; State, if other than California; or Foreign Country

:c) List the County in this District; California County outside of this District; State if other than California; or Foreign Country, in which EACH claim arose. Note: In land condemnation cases, use the location of the tract ofland involved.

County in this District:*
All counties

California County outside of this District; State, if other than California; or Foreign Country
All counties

k Los Angeles, Onlngc, San Benllll"dino, RivCl'side, Ventura, Santa Barbara, OJ" San Luis Obispo Counties

X. SIGNATURE OF ATTORNEY (qR PRO PER): _ _ _--'-_-="---=--'-_ _ _ _ _ _ _ __

Date __'_'_-;__________-L__________________________

Noticc to Cou nscllParties: The CV-71 (.IS-44) Civil Cover Sheet and the information contained herein neither replace nor supplement the fiI ing and service of plead ings or other papers as required by law. This form, approved by the .Judicial Conference of the United States in September 1974, is required pursuant to Local Rule 3-1 is not filed but is used by the Clerk of the Court for the purpose of statistics, venue and initiating the civil docket sheet. (For more detailed instructions, see separate instructions sheet.)

[(ey to Statistical codes NatUl'c of Suit Code

Abbrcviation

Substantive Statemcnt of Cause of Action

861

lilA

All claims for health insurance benefits (Medicare) under Title 18, Part A, of the Social Security Act, as amended.

Also, include claims by hospitals, skilled nursing facilities, etc., for certification as providers of services under the

program. (42 U.S.c. 1935FF(b))

862

BL

All claims for "Black Lung" benefits under Title 4, Part B. of the Federal Coal Mine Health and Safety Act of 1969.

(30 USc. 923)

863

DIWC

All claims filed by insured workers for disability insurance benefits under Title 2 of the Social Security Act, as

amended; plus all claims filed for child's insurance benefits based on disability. (42 U.S.c. 405(g)

863

DIWW

All claims filed for widows or widowers insurance benefits based on disability under Title 2 of the Social Security

Act, as amended. (42 U.S.c. 405(g))

864

SSlD

All claims for supplemental security income payments bas,ed upon disability filed under Title 16 orthe Social Security

Act, as amended.

865

RSI

All claims for retirement (old age) and survivors benefits under Title 2 of the Social Security Act, as amended. (42

U,S.c. (g»

~=V-71 (05/08)

CIVIL COVER SHEET

Page 2 01'2

 
 Case 2:10-cv-03259-CAS-MAN Document 31 Filed 06/15/10 Page 1 of 2 Page ID #:1242

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3284 CAS (MANx) CV 10-3259 CAS (RZx)

Date June 15, 2010

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

Present: The Honorable CHRISTINA A. SNYDER

CATHERINE JEANG Deputy Clerk

NOT PRESENT Court Reporter / Recorder

N/A Tape No.

Attorneys Present for Plaintiffs:

Attorneys Present for Defendants:

NOT PRESENT

NOT PRESENT

Proceedings:

(In Chambers:) DEFENDANT’S MOTION TO CONSOLIDATE ACTIONS (filed 05/24/10)

The Court finds this motion appropriate for decision without oral argument. Fed. R. Civ. P. 78; Local Rule 7-15. The hearing date of June 21, 2010, is hereby vacated and the matter is hereby taken under submission.

Having reviewed the submitted papers, the Court finds it appropriate to consolidate Case No. CV 10-3284 CAS (MANx) with Case No. 10-3259 CAS (RZx). Fed. R. Civ. P. 42(a) provides that “[i]f actions before the court involve a common question of law or fact, the court may: (1) join for hearing or trial any or all matters at issue in the actions; (2) consolidate the actions; or (3) issue any other orders to avoid unnecessary cost or delay.” A court has broad discretion when deciding whether to grant a motion to consolidate. Perez-Funez v. District Director, I.N.S., 611 F. Supp. 990, 994 (C.D. Cal. 1984). If the commonality requirement is satisfied, the court must then “balance the saving of time and effort consolidation will produce against any inconvenience, delay, confusion or prejudice that may result.” Takeda v. Turbodyne Technologies, Inc., 67 F. Supp. 2d 1129, 1132 (C.D. Cal. 1999).

The Court finds that the two instant actions involve common questions of law and fact, and therefore should be consolidated for all purposes. Both actions are brought by entities that are or represent certain Medi-Cal providers, specifically intermediate care facilities for the developmentally disabled (“ICF/DD”) and freestanding pediatric

CV-90 (06/04)

CIVIL MINUTES - GENERAL

Page 1 of 2

Case 2:10-cv-03259-CAS-MAN Document 31 Filed 06/15/10 Page 2 of 2 Page ID #:1243

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA

Case No. Title

CIVIL MINUTES - GENERAL

CV 10-3284 CAS (MANx) CV 10-3259 CAS (RZx)

Date June 15, 2010

CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v. DAVID MAXWELL-JOLLY; ET AL.; AND DEVELOPMENTAL SERVICES NETWORK; ET AL. v. DAVID MAXWELL-JOLLY; ET AL.

subacute facilities (“FSP facilities”), which seek to enjoin implementation or enforcement of amendments to Cal. Welf. & Inst. Code § 14105.191 on the grounds that said provisions violate 42 U.S.C. § 1396a(30)(A) of the Medicaid Act and are thus preempted under the Supremacy Clause. Accordingly, the Court GRANTS defendant’s motion and hereby orders that the two matters be consolidated. Each side is directed to hereinafter submit only one brief. However, upon a showing of good cause, the Court may grant a request to increase the page limits of said briefs beyond those set forth in the Local Rules of Court. Counsel are advised that the Court will allow oversized briefs in only rare instances.

IT IS SO ORDERED.

Initials of Preparer

00

:

00

CMJ

CV-90 (06/04)

CIVIL MINUTES - GENERAL

Page 2 of 2

 
 Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 11 of 36 Page ID #:1827

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 MARK E. REAGAN (State Bar No. 143438) E-Mail: mreagan@health-law.com
2 JORDAN B. KEVILLE (State Bar No. 217868) E-Mail: jkeville@health-law.com
3 HOOPER, LUNDY & BOOKMAN, P.C. 1875 Century Park East. Suite 1600
4 Los Angeles, California 90067 Telephone: (310) 551-8111
5 Facsimile: (310) 551-8181

6 Attorneys for Plaintiffs

7

UNITED STATES DISTRICT COURT

8

CENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION

9

10 CALIFORNIA ASSOCIATION OF HEALTH FACILITIES,
11 DEVELOPMENTAL SERVICES NETWORK; UNITED CEREBRAL
12 PALSY/SPASTIC CHILDREN’S FOUNDATION OF LOS ANGELES
13 AND VENTURA COUNTIES,

14

Plaintiffs,

Consolidated Cases: Case No. CV 10-03259 Case No. CV 10-03284 AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

15

vs.

16 TOBY DOUGLAS, Director of the

17

State Department Services, State of

CofaHlifeoarlnthiaC;1are

KATHLEEN SEBELIUS, Secretary of

18 the United States Department of Health and Human Services,

19 Defendants.

20

21

22 / / /

23 / / /

24

25 26 1 Toby Douglas is the current director of the California Department of Health Care
Services and has, therefore, been substituted for his predecessor, David Maxwell27 Jolly. See Fed. R. Civ. Proc. 25(d)
28

1110201.2

AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 12 of 36 Page ID #:1828

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

JURISDICTION AND VENUE

2

1. Plaintiffs California Association of Health Facilities (“CAHF”),

3 Developmental Services Network (“DSN”) and United Cerebral Palsy/Spastic

4 Children’s Foundation of Los Angeles and Ventura Counties (“UCP”) (collectively

5 “Plaintiffs”) bring this complaint pursuant to 28 United States Code (“U.S.C.”)

6 § 1331, the Supremacy Clause, 42 United States Code (“U.S.C.”) § 1983 (Shaw v.

7 Delta Air Lines, Inc., 463 U.S. 85, 96 n. 14 (1983)) and the Administrative

8 Procedure Act (“APA”), as codified at 5 U.S.C. § 706, et seq. This court further

9 may compel Defendants Toby Douglas, Director of the California Department of

10 Health Care Services (the “Director”) and Kathleen Sebelius, Secretary of the

11 United States Department of Health and Human Services (“Secretary”), to comply

12 with the mandatory provisions of the federal Medicaid law and the APA pursuant to

13 28 U.S.C. § 1361.

14

2. Venue lies in this judicial district under 28 U.S.C. § 1391, in that the

15 Director has offices within this judicial district and is thus deemed to reside within

16 this judicial district and also in that Plaintiffs and/or their members are located and

17 reside within this judicial district and the consequences of Defendants’

18 unauthorized, unlawful and arbitrary activities are occurring within this judicial

19 district.

20

21

INTRODUCTION

22

3. The State of California continues to disregard the mandates of federal

23 law when making decisions that impact the rates of reimbursement afforded to

24 health care providers under California’s Medicaid program, Medi-Cal. On two

25 separate occasions in 2008, as part of the enactment of the State budget, the

26 California Legislature passed statutes that called for flat percentage reductions in the

27 payment rates for various classes of services covered under Medi-Cal. The majority

28 of these payment rate reductions were enjoined by federal courts because they were

1110201.2

1
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 13 of 36 Page ID #:1829

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 not enacted or implemented in a manner consistent with the federal Medicaid Act,

2 which requires that states consider certain factors and take certain procedural steps

3 before altering the rates paid to health care providers. Indeed, these rate reductions

4 resulted in three, published decisions from the Ninth Circuit Court of Appeals

5 establishing clearly that, to the extent it undertakes the task of setting Medi-Cal

6 payment rates, the Legislature must comply with the mandates of federal law and, if

7 it does not, the offending State statutes will be preempted.

8

4. The Legislature’s effort to balance California’s budget for the

9 2009-2010 fiscal year resulted in legislation that again reduced Medi-Cal payment

10 rates solely in the name of financial savings and without adherence to the

11 requirements of the Medicaid Act. Although the form of the 2009-2010 rate

12 reductions may have differed slightly from the flat percentage reductions that were

13 enjoined previously, the process through which those limitations were enacted was

14 virtually identical to the process that led to the enjoined cuts. The State should not

15 be permitted to continue to violate established federal law when setting Medi-Cal

16 payment rates.

17

5. By this action, organizations representing the interests of California

18 Intermediate Care Facilities For The Mentally Retarded (“ICF/MR facilities”)

19 and/or Freestanding Pediatric Subacute facilities (“FPS facilities”), as well as an

20 entity that operates providers of ICF/MR services, seeks an injunction to invalidate

21 and stop the continued application of the Medi-Cal rate limitation, which went into

22 effect on August 1, 2009, that applies to payment rates for services rendered by

23 ICF/MR facilities and FPS facilities. This payment limitation has and will continue

24 to improperly deprive Medi-Cal participating ICF/MR facilities and FPS facilities,

25 including a large number of small facilities, of reimbursement to which they

26 otherwise are lawfully entitled.

27

6. The payment limitation is illegal because, as it has multiple times

28 before, the California Legislature failed to fulfill its legal mandate to consider

1110201.2

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AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 14 of 36 Page ID #:1830

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 whether the resulting reimbursement rates are consistent with efficiency, economy

2 and quality of care, reasonably related to provider costs, and sufficient to enlist

3 enough providers so that Medi-Cal beneficiaries have access to the impacted

4 services to the extent such services are available to the general public. The payment

5 limitation also is unlawful because the rates resulting therefrom are not, in fact,

6 reasonably related to costs or consistent with efficiency, economy and quality of

7 care. The State further violated federal law, like it has done before, by enacting the

8 reimbursement limitation without the proper public process required for payment

9 rate adjustments.

10

7. Notwithstanding the legal infirmities described above, the federal

11 agency charged with administering the Medicaid program, the Centers for Medicare

12 and Medicaid Services ("CMS"), has found that the rate reduction is consistent with

13 Medicaid Act requirements. CMS’ decision is inconsistent not only with governing

14 case law concerning what the Medicaid Act requires, but also the evidence that was

15 before it concerning the rate cut. CMS’ decision therefore was arbitrary, capricious,

16 an abuse of discretion and contrary to law and should be overturned under the APA.

17

8. Moreover, the imposition of the rate limitation has caused, and will

18 continue to cause, irreparable harm to California ICF/MR facilities and FPS

19 facilities in the form of improperly reduced payments that cannot be recovered in

20 federal court through an action at law. These unlawful payment reductions are

21 taking their toll on impacted providers and now are pushing many close to the point

22 that they will have to scale back services, modify admissions policies or shutdown

23 outright if the rate reduction remains in place.

24

9. Accordingly, by this action, Plaintiffs CAHF and DSN, on behalf of

25 their respective members, and Plaintiff UCP, seek declaratory and injunctive relief

26 to stop the continued application of the rate limitation to ICF/MR facilities and FPS

27 facilities and to set aside CMS’ improper approval of that rate limitation.

28

1110201.2

3
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 15 of 36 Page ID #:1831

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

FEDERAL MEDICAID LAW

2

10. Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., the

3 Medicaid Act, authorizes federal financial support to states for medical assistance to

4 low-income persons who are aged, blind, disabled, or members of families with

5 dependent children. The program is jointly financed by the federal and state

6 governments and administered by the states. The states, in accordance with federal

7 law, decide eligible beneficiary groups, types and ranges of services, payment level

8 for services, and administrative and operative procedures. Payment for services is

9 made directly by states to the individuals or entities that furnish the services.

10 42 Code of Federal Regulations (“C.F.R.”) § 430.0.

11

11. In order to receive matching federal financial participation, states must

12 agree to comply with the applicable federal Medicaid law and regulations, 42 U.S.C.

13 §§ 1396 et seq. Once a state has decided to participate in the Medicaid program,

14 compliance with the federal Medicaid law and regulations is mandatory.

15

12. At the state level, the Medicaid program is administered by a single

16 state agency, which is charged with the responsibility of establishing and complying

17 with a state Medicaid plan (the “State Plan”) that, in turn, must comply with the

18 provisions of applicable federal Medicaid law. 42 U.S.C. § 1396a(a)(5) and

19 42 C.F.R. §§ 430.10 and 431.10. The State Plan must be submitted to the Secretary

20 of the United States Department of Health and Human Services (the “Secretary”) for

21 approval and must describe the policies and methods to be used to set payment rates

22 for each type of service included in the state Medicaid plan. 42 C.F.R. §§ 430.10

23 and 447.201(b). Changes to the State Plan may not be implemented by the state

24 prior to being approved by the Secretary.

25

13. The Secretary's review and approval of any Medicaid state plan

26 amendment as satisfying the requirements of the Medicaid Act is reviewable under

27 the APA, 5 U.S.C. § 706, et seq. Under the APA, agency action may be set aside

28 where it is found to be arbitrary and capricious, an abuse of discretion or otherwise

1110201.2

4
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 16 of 36 Page ID #:1832

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 unsupported by substantial evidence. Among other things, an agency acts arbitrarily

2 and capriciously when it fails to follow governing law with respect to a particular

3 decision or action. Further, to comply with the APA, the Secretary must develop a

4 record demonstrating adequate consideration of the relevant factors and a rational

5 basis for her decision on the relevant SPA.

6

14. For ICF/MR facilities, FPS facilities, and certain other institutional

7 providers, states must establish rates through a public process that includes:

8 (a) publication of proposed rates, the methodologies underlying the establishment of

9 such rates, and justifications for the rates; (b) a reasonable opportunity for comment

10 on the proposed rates, methodologies and justifications by providers, beneficiaries

11 and their representatives, and other concerned State residents; and (c) publication of

12 the final rates, the methodologies underlying the establishment of such rates, and

13 justifications for such final rates. See 42 U.S.C. § 1396a(a)(13)(A) (hereinafter

14 “Section 13(A)”); 42 C.F.R. § 447.205.

15

15. Each state's Medicaid plan must "provide such methods and

16 procedures . . . relating to the utilization of, and the payment for, care and services

17 available under the plan which may be necessary . . . to assure that payments are

18 consistent with efficiency, economy, and quality of care and are sufficient to enlist

19 enough providers so that care and services are available under the plan at least to

20 the extent that such care and services are available to the general public in the

21 geographic area . . . ." 42 U.S.C. § 1396a(a)(30)(A) (hereinafter "Section 30(A)")

22 (emphasis added); 42 C.F.R. § 447.204. Section 30(A) has been interpreted by the

23 Ninth Circuit Court of Appeals to require state Medicaid agencies to consider

24 provider costs, based on “reasonable cost” studies, when setting Medi-Cal payment

25 rates, and that that payment rates must actually bear a reasonable relationship to

26 provider costs, and to preclude states from basing Medicaid rate setting decisions

27 solely on budgetary factors.

28

1110201.2

5
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 17 of 36 Page ID #:1833

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

CALIFORNIA’S MEDI-CAL PROGRAM

2

16. The State of California has elected to participate in the Medicaid

3 program. California has named its program “Medi-Cal.” See Cal. Welf. & Inst.

4 Code §§ 14000 et seq.; 22 Cal. Code of Regs. §§ 50000 et seq.

5

17. The Medi-Cal program covers services provided to persons with

6 developmental disabilities whose health and well-being are compromised to the

7 point that they need to reside in ICF/MR facilities. The term ICF/MR facilities is

8 used to refer to intermediate care facilities for the mentally retarded as defined in

9 42 U.S.C. § 1396d(c), including those facilities known in the State of California

10 (and defined in Title 22, Cal. Code Regs. §§ 51164-51165.2 and 51243-51243.2) as

11 Intermediate Care Facilities/Developmentally Disabled (“ICF/DD”), Intermediate

12 Care Facilities/Developmentally Disabled-Habilitative (“ICF/DD-H), and

13 Intermediate Care Facilities/Developmentally Disabled-Nursing (“ICF/DD-N”) that

14 serve this dependent population.

15

18. The Medi-Cal program also covers pediatric subacute services for

16 children who need highly intensive specialized services in order to rehabilitate

17 and/or survive. Subacute services are more intensive than skilled nursing care, but

18 slightly less intensive than care provided in an acute, inpatient setting. Medi-Cal

19 coverage extends to subacute services provided by both hospital-based and

20 freestanding providers. The term FPS facilities is used to refer to freestanding

21 subacute facilities licensed as skilled nursing facilities or congregate living facilities

22 that provide services to this dependent population, as defined in Title 22, Cal. Code

23 Regs. §§ 51124.6, 51215.6, 51215.8-51215.11 and 51335.6.

24

19. The vast majority of funding provided to ICF/MR facilities and FPS

25 facilities comes from the Medi-Cal program. As a result, these facilities are

26 completely dependent on the Medi-Cal program for their funding and financial

27 survival.

28

1110201.2

6
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 18 of 36 Page ID #:1834

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

MEDI-CAL PAYMENTS TO ICF/MR AND FPS FACILITIES

2

20. Payments from the Medi-Cal fee for service program for various

3 categories of services are governed by various statutes, regulations, the State Plan,

4 and in some instances, informal handbooks, manuals or bulletins.

5

21. Payments for services provided by ICF/MR facilities are governed by

6 Title 22, Cal Code Regs. §§ 51510.1-51510.3 and Attachment 4.19-D to the State 7 Plan. Reimbursement is established at a per diem rate calculated at the 65th

8 percentile of audited costs incurred by each of the categories of ICF/MR facilities

9 referred to in paragraph 14, separated by bed size. Payments for services provided

10 by FPS facilities are governed by Title 22, Cal. Code Regs. § 51511.6 and

11 Attachment 4.19-D to the State Plan. FPS facilities are reimbursed pursuant to

12 either of two predetermined flat rates, one for patients who are ventilator dependent

13 and one for patients who are not. The rates that FPS facilities are paid are based on

14 a model that projects the costs FPS facilities will incur in treating Medi-Cal patients.

15 Under the State Plan, the Department is required to re-evaluate Medi-Cal payment

16 rates for ICF/MR facility and FPS facility services on a yearly basis. The

17 Department generally is required to make updates to payment rates each year to

18 account for certain economic conditions in the industry, which reflect an assumption

19 that provider costs will generally increase every year due to, at minimum, inflation.

20

22. For the Medi-Cal rates years from and including the 2009-2010 rate

21 year (beginning on August 1, 2009 and ending on July 31, 2010) to the 2011-2012

22 rate year (beginning on August 1, 2011 and ending on July 31, 2012), based on the

23 Department’s own calculations, the average Medi-Cal rates determined by the

24 Department to be paid under the State Plan generally would have increased for

25 ICF/MR and FPS facilities, but for the applicability of the rate limitation being

26 challenged here.

27

28

1110201.2

7
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 19 of 36 Page ID #:1835

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

THE AB 5 RATE REDUCTIONS OF 2009

2

23. On July 28, 2009, after four extra legislative sessions, Governor

3 Schwarzenegger signed into law Assembly Bill X4 5 ("2009 AB 5"), the budget

4 trailer bill for California fiscal year 2009 – 2010. Although, unlike the prior two

5 California budget trailer bills, 2009 AB 5 did not make any flat percentage

6 reductions to Medi-Cal payment rates, the bill enacted or amended multiple statutes

7 in order to limit Medi-Cal reimbursement for several classes of health care services.

8

24. Among other things, 2009 AB 5 amended Welfare and Institutions

9 Code § 14105.191 to effectively "freeze" the Medi-Cal payment rates for, among

10 other things, ICF/MR and FPS facility services at 2008 – 2009 levels. Specifically,

11 the statute provides that, for the designated services, "reimbursement rates . . . for

12 services rendered during the 2009 – 10 rate year and each rate year thereafter, shall

13 not exceed the reimbursement rates that were applicable to those classes of

14 providers in the 2008-09 rate year." In effect, the amended version of the statute

15 indefinitely suspends the annual payment updates for these classes of services that

16 are otherwise required by the State Plan.

17

25. The reimbursement limitation described in paragraphs 32 above and

18 established by the amendment to Welfare and Institutions Code § 14105.191, as

19 enacted by 2009 AB 5, is hereinafter referred to as the “2009 AB 5 Reimbursement

20 Freeze.”

21

26. Plaintiffs are informed and believe and thereon allege that 2009 AB 5,

22 which included the 2009 AB 5 Reimbursement Freeze, did not go through the public

23 process that is normally characteristic of legislation and was instead the product of

24 mostly behind-closed-doors budget negotiations. 2009 AB 5 was first introduced as

25 a spot budget trailer bill on July 2, 2009, had no substantive content at the time, and

26 was intended to provide a vehicle to enact budget related items that were under

27 negotiation. The substantive provisions of the bill, including the 2009 AB 5

28 Reimbursement Freeze, were added to the bill on July 23, 2009. It was passed by

1110201.2

8
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 20 of 36 Page ID #:1836

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 both the Senate and Assembly that same day and then forwarded on to the Governor

2 for signature the next day, July 24, 2009. The bill was signed into law by the

3 Governor on July 28, 2009. The bill was enacted as urgency legislation to become

4 effective immediately. In enacting 2009 AB 5, both the Senate and Assembly

5 suspended rules that otherwise limit how quickly a bill can be passed after

6 amendment.

7

27. Plaintiffs are informed and believe and thereon allege that, prior to

8 enacting 2009 AB 5, neither the Legislature nor the Director engaged in any type of

9 public notice and comment process related to the payment rates that would result

10 from the 2009 AB 5 Reimbursement Freeze.

11

28. Plaintiffs are is further informed and believe and thereon allege that,

12 prior to enacting or implementing 2009 AB 5, no studies or other analyses were

13 conducted by the Legislature or by the Director to determine whether the Medi-Cal

14 payment rates resulting from the 2009 AB 5 Reimbursement Freeze would be

15 consistent with efficiency, economy and quality of care or reasonably related to the

16 costs of providing the services affected by the rate reduction.

17

29. Plaintiffs are informed and believe and thereon allege that prior to

18 enacting or implementing 2009 AB 5, no studies or other analyses were conducted

19 by the Legislature or by the Director to determine the impact the 2009 AB 5

20 Reimbursement Freeze would have on the ability of Medi-Cal beneficiaries to have

21 access to the impacted ICF/MR facility and FPS facility services to the same extent

22 as the general public.

23

24 FEDERAL APPROVAL OF THE 2009 AB 5 REIMBURSEMENT FREEZE

25

30. As required by federal law, in or around September 2009, DHCS

26 submitted a proposed State Plan Amendment or “SPA” to CMS that sought federal

27 approval of the 2009 AB 5 Reimbursement Freeze and incorporation of that rate

28 limitation into California’s Medi-Cal State Plan.

1110201.2

9
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 21 of 36 Page ID #:1837

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

31. According to information available to Plaintiffs, at the time the SPA

2 concerning the 2009 AB 5 Reimbursement Freeze, designated by DHCS as SPA 09-

3 019, was submitted to CMS, it was not accompanied by any materials purporting to

4 evaluate whether the proposed rate reduction was consistent with the requirements

5 of the Medicaid Act.

6

32. While the SPA was pending with CMS in October and November

7 2009, respectively, both DSN and CAHF submitted letters to CMS explaining why

8 SPA 09-019 should not be approved and noting specifically that the State did not

9 satisfy the requirements imposed by Section 30(A) when adopting and

10 implementing the 2009 AB 5 Reimbursement Freeze. In particular, these letters

11 explained that the reimbursement freeze was developed and enacted by the State for

12 purely budgetary reasons, without the State ever engaging in a reasonable cost study

13 to determine the probable impact of the rate reduction on quality of care or

14 beneficiary access to services. Moreover, DSN’s letter noted that the rate limitation,

15 if approved, likely would have an adverse impact on ICF/MR provider participation

16 in Medi-Cal.

17

33. On December 4, 2009, CMS issued a letter to DHCS, which responded

18 to SPA 09-019 by asking DHCS to submit additional information concerning the

19 proposed reimbursement freeze. This Request for Additional Information ("RAI")

20 was fairly extensive and included a list of numerous inquiries that CMS felt DHCS

21 needed to address in order to allow CMS to appropriately assess whether the rate

22 limitation called for in the SPA 09-019 would be consistent with the Medicaid Act.

23

34. In February and March 2010, while CMS was still considering SPA 09-

24 019, DSN and other impacted providers provided additional information to CMS

25 concerning the invalidity of the 2009 AB 5 Reimbursement Freeze. Among other

26 things, DSN noted that DHCS’ own “rate studies,” based on provider cost data,

27 showed that, but for application of the reimbursement freeze, ICF providers

28 generally would be entitled to significant rate increases. The letters also explained

1110201.2

10
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 22 of 36 Page ID #:1838

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 that many of the cost increases that impacted providers were experiencing were the

2 result of efforts to comply with State regulatory mandates concerning such things as

3 staffing ratios.

4

35. Plaintiffs are informed and believe and thereon allege that there was

5 little or no activity at the CMS level related to SPA 09-019 between the RAI that

6 was issued in December 2009 and March 24, 2011. On March 24, 2011, apparently

7 in conjunction with discussions between CMS and DHCS concerning various

8 pending SPAs, CMS asked DHCS to address “access questions” related to the

9 pending SPAs, including SPA 09-019, and as part of its response, to specifically

10 deal with concerns raised in the letters submitted by CAHF, DSN and ICF providers

11 to CMS regarding SPA 09-019. Plaintiffs are informed and believe and thereon

12 allege that CMS’ was not requesting DHCS to address potential issues arising from

13 SPA 09-019 other than access concerns.

14

36. Plaintiffs are informed and believe and thereon allege that CMS never

15 rendered a decision as to whether to approve SPA 09-019. However, on October 27,

16 2011, CMS issued a letter to DHCS concerning various other pending SPAs, some

17 of which had been previously disapproved by CMS. The letter indicated that, based

18 on information CMS submitted initially on March 25, 2011, CMS was approving the

19 SPAs because “the State was able to provide metrics that adequately demonstrated

20 beneficiary access.” Those "metrics" included information about "total numbers of

21 providers by type and geographic location" participating in Medi-Cal, "total number

22 of Medi-Cal beneficiaries by eligibility type," and "utilization of services over

23 time." CMS also indicated that it accepted DHCS' plan to monitor access to services

24 going forward. There is no reference in the October 27, 2011 letter from CMS

25 approving the SPAs to any considerations of the impact of the various rate

26 limitations on quality of care or efficiency.

27

37. Although the October 27, 2011 letter from CMS did not reference SPA

28 09-019 specifically, attached to the letter were “approved plan pages,” several of

1110201.2

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AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 23 of 36 Page ID #:1839

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 which set forth the rate freeze for ICF/MR and FPS facilities called for 2009 AB 5.

2 Accordingly, Plaintiffs are informed and believe and thereon allege that CMS never

3 formally ruled on SPA 09-019, but effectively merged that SPA with another SPA

4 that was specifically approved through the October 27, 2011 letter. The October 27,

5 2011 CMS letter indicated that its approval of the 2009 AB 5 Reimbursement

6 Freeze was effective retrospectively to August 1, 2009.

7

8

THE ILLEGALITY OF 2009 AB 5

9

38. The State has violated, and continues to violate federal Medicaid

10 statutes, federal Medicaid regulations and the State Plan by failing to analyze

11 Medi-Cal reimbursement rates for the services affected by the 2009 AB 5

12 Reimbursement Freeze in order to ensure that those rates are consistent with

13 efficiency, economy and quality of care, reasonably related to provider costs, and

14 sufficient to ensure that beneficiaries of the Medi-Cal program have access to

15 services to the same extent as the general public.

16

39. Violation of Federal Statute: The 2009 AB 5 Reimbursement Freeze is

17 invalid and may not lawfully be implemented because it violates federal Medicaid

18 law, and is therefore preempted by the Supremacy Clause, because:

19

(a) The 2009 AB 5 Reimbursement Freeze violates Section 30(A) in

20 the following ways:

21

(i) Neither the Director nor the Legislature considered the

22 factors of efficiency, economy, quality of care, and access to services prior to

23 enacting and/or implementing the 2009 AB 5 Reimbursement Freeze;

24

(ii) Neither the Director nor the Legislature demonstrated a

25 reasonable connection between rates resulting from the 2009 AB 5 Reimbursement

26 Freeze and the efficient and economical provision of quality care, or ensuring access

27 to services, prior to enacting and/or implementing the 2009 AB 5 Reimbursement

28 Freeze;

1110201.2

12
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 24 of 36 Page ID #:1840

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

(iii) Neither the Legislature nor the Director considered the

2 costs of providing quality care or demonstrated a reasonable connection between

3 Medi-Cal rates resulting from the 2009 AB 5 Reimbursement Freeze and provider

4 costs prior to enacting and/or implementing the 2009 AB 5 Reimbursement Freeze;

5

(iv) Plaintiffs are informed and believe and thereon allege that

6 the rates resulting from the 2009 AB 5 Reimbursement Freeze are not consistent

7 with efficiency, economy, and quality of care, reasonably related to provider costs,

8 or sufficient to ensure that Medi-Cal beneficiaries have access to the impacted

9 ICF/MR facility and FPS facility services to the same extent as the general

10 population.

11

(b) The 2009 AB 5 Reimbursement Freeze violates Section 13(A) as

12 to the impacted ICF/MR facility and FPS facility services because it was not

13 adopted through the public process required by this provision. In addition to a claim

14 of preemption under the Supremacy Clause, the State’s failure to comply with

15 Section 13(A) gives rise to a private right of action under 42 U.S.C. § 1983, as

16 violation of the civil rights of CAHF’s members.

17

40. Violation of Federal Regulations: The 2009 AB 5 Reimbursement

18 Freeze is invalid and may not lawfully be implemented because it violates federal

19 Medicaid regulations, and is therefore preempted by the Supremacy Clause, in that

20 public notice of the reimbursement limitation as to the impacted ICF/MR facility

21 and FPS facility services was not given in accordance with the terms of 42 C.F.R.

22 § 447.205.

23

24

THE SECRETARY'S APPROVAL

25

OF THE 2009 AB 5 REIMBURSEMENT FREEZE

26

41. Consistent with the foregoing, the Secretary's approval of the 2009 AB

27 5 Reimbursement Freeze, as set forth originally in SPAs 09-019, is invalid because

28 it is arbitrary, capricious, an abuse of discretion and inconsistent with governing law

1110201.2

13
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 25 of 36 Page ID #:1841

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 for the following reasons:

2

(a) Because California is within the jurisdiction of the Ninth Circuit

3 Court of Appeals, the Secretary is bound to apply the Ninth Circuit's interpretation

4 of the Medicaid Act, including Section 30(A), when evaluating California SPAs for

5 compliance with the Medicaid Act. The Ninth Circuit has held that Section 30(A)

6 requires that Medicaid payment rates must be based on credible cost studies and

7 must bear a reasonable relationship to provider costs in order to be consistent with

8 quality of care and sufficient to ensure that beneficiaries have equal access to

9 services. Plaintiffs are informed and believe, and on that basis allege, that the

10 Secretary has not applied the Ninth Circuit's interpretation of Section 30(A) in

11 reviewing and approving the relevant SPA, but purported to consider only whether

12 the rates may actually cause a reduction in beneficiary access to services. The

13 Secretary has thus failed to follow and apply the applicable law.

14

(b) The question of whether Medi-Cal payment rates for ICF/MR

15 and FPS services are reasonably related to facility costs is a relevant factor in the

16 determination of whether the rates comply with Section 30(A). Plaintiffs are

17 informed and believe, and based thereon allege, that the Secretary did not consider

18 whether the Medi-Cal payment rates for ICF/MR and FPS facilities after the

19 implementation of the 2009 AB 5 Reimbursement Freeze would bear a reasonable

20 relationship to hospital costs in deciding to approve the relevant SPA.

21

(c) Plaintiffs are informed and believe and thereon allege that

22 payment rates resulting from the 2009 AB 5 Reimbursement Freeze would generally

23 reimburse ICF/MR and FPS less than their costs. Accordingly, the Secretary could

24 not have reasonably concluded that the rates resulting from the 2009 AB 5

25 Reimbursement Freeze bear a reasonable relationship to costs. It was therefore

26 arbitrary, capricious and an abuse of discretion for the Secretary to approve the

27 relevant SPA.

28

1110201.2

14
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 26 of 36 Page ID #:1842

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

(d) Plaintiffs are informed and believe and thereon allege that the

2 Secretary did not consider other relevant factors in evaluating California's SPA

3 related to the 2009 AB 5 Reimbursement Freeze in that the Secretary did not

4 adequately consider, among other things, the impact of the rate reduction on the

5 quality of ICF/MR and FPS care, whether the payment reductions would impact the

6 promptness with which Medicaid beneficiaries are able to obtain ICF/MR and FPS

7 services and whether the reduction would impact the efficiency with which Medi-

8 Cal services are delivered.

9

(e) The Secretary's review and approval of the 2009 AB 5

10 Reimbursement Freeze also is arbitrary and capricious because it occurred in

11 manner that was inconsistent with the Secretary's own regulations, as well as public

12 statements concerning the need for "transparency" in the SPA approval process. As

13 mentioned, inconsistent with governing regulations, the Secretary never formally

14 reached a decision on the SPA that originally sought to incorporate the 2009 AB 5

15 Reimbursement Freeze into California’s State Plan, but instead approved the rate

16 limitation in conjunction with a different SPA. Further, interested parties, including

17 CAHF and DSN, were not afforded meaningful access to the information that was

18 being exchanged between CMS and DHCS concerning the SPA. By reaching a

19 decision on the relevant SPA without affording interested parties an adequate

20 opportunity to review the information DHCS submitted in response to CMS' RAI,

21 the Secretary effectively rendered meaningless any public participation it had

22 allowed in the process before that.

23

24

THE PARTIES

25

42. Defendant TOBY DOUGLAS is the Director of the Department of

26 Health Care Services and, as such, has the responsibility to administer the Medi-Cal

27 program consistent with the Medicaid Act. The Director is sued in his official

28 capacity. The Department is the single state agency charged with the administration

1110201.2

15
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 27 of 36 Page ID #:1843

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 of California's Medicaid program, known as Medi-Cal. See California Welf. & Inst.

2 Code §§ 14000 et seq. The Director has an office in the County of Los Angeles.

3

43. Defendant KATHLEEN SEBELIUS, the Secretary of the United States

4 Department of Health and Human Services, is the federal officer responsible for

5 administering the Medicaid program at the federal level. The Secretary, through her

6 designated agent, CMS, is responsible for reviewing and approving policy changes

7 that states make to their Medicaid program. The Secretary has approved the policy

8 changes that California has made to Medi-Cal, which Plaintiffs are challenging

9 herein.

10

44. Plaintiff CAHF is, and at all times mentioned herein was, a non-profit

11 association representing, among other long-term care providers, 519 licensed

12 ICF/MR facilities and FPS facilities in the State of California, a number of which

13 are located within the Central District of California, Western Division. These

14 members are affected by the State’s failure to pay for services provided to Medi-Cal

15 beneficiaries at the rates required by federal law and the State Plan. The protection

16 of these interests are germane to CAHF’s purpose. CAHF is bringing this action on

17 its own behalf and as the “representative” of its member ICF/MR facilities and FPS

18 facilities. The individual participation of CAHF’s members is not required for the

19 claims asserted or the relief requested.

20

45. Plaintiff DSN is a statewide non-profit trade association in California

21 that represents approximately 250 small intermediate care facilities for people with

22 developmental disabilities. DSN is headquartered in Sacramento, California. The

23 members of DSN are companies operating facilities licensed as either ICF/DD-N

24 pursuant to California Health & Safety Code section 1250(h) or ICF/DD-H

25 pursuant to California Health & Safety Code section 1250(e). DSN is informed

26 and believes that all of its members are Medi-Cal providers. DSN is bringing this

27 action on its own behalf and as the “representative” of its member ICF/MR

28 facilities. The individual participation of DSN’s members is not required for the

1110201.2

16
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 28 of 36 Page ID #:1844

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 claims asserted or the relief requested.

2

46. Plaintiff UCP is a 501(c)(3) non-profit public benefit association

3 founded in 1945 by a small group of parents who wanted to create community-based

4 services for their children with disabilities. UCP is headquartered in Woodland

5 Hills, California. Today, UCP operates more than 40 program sites throughout five

6 counties in Southern California and has extended its mission to serve all people with

7 disabilities. UCP provides services to more than 1,000 children and adults with

8 developmental disabilities daily. UCP is also an affiliate of the national United

9 Cerebral Palsy, a nationwide network of over 100 independent, state and local non-

10 profit affiliates, with a central national organization located in Washington, D.C.

11 UCP operates 12 ICF/DD-H homes and 9 ICF/DD-N homes. Over 99% of the ICF

12 patients served by UCP are Medi-Cal eligible and the facilities receive their

13 reimbursement for the care from Medi-Cal.

14

15

CAHF AND DSN HAVE ASSOCIATIONAL STANDING

16

47. All of CAHF’s ICF/MR facility and FPS facility members are

17 Medi-Cal providers, as are all of DSN’s members. These Medi-Cal providers will

18 suffer, and have suffered, a concrete economic injury in the form of reduced

19 payments for services by the unlawful implementation of the 2009 AB 5

20 Reimbursement Freeze.

21

48. CAHF and DSN, as associations representing the interests of California

22 ICF/MR facilities and/or FPS facilities that participate in the Medi-Cal program and

23 as parties seeking to compel the Secretary and Director to comply with the law and

24 their respective public duties as defined by federal law, have a right and an

25 enforceable interest to maintain this action to: (1) enjoin Defendants’ continuing

26 violation of federal law; and (2) compel Defendants to comply with the provisions

27 of applicable federal laws.

28

1110201.2

17
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 29 of 36 Page ID #:1845

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

49. Moreover, CAHF and DSN have a right and an enforceable interest to

2 maintain this action against the Director and Secretary under the Supremacy Clause

3 of the United States Constitution, the Civil Rights Act, 42 U.S.C. § 1983, and the

4 APA to enjoin the Director's continuing violation of the federal Medicaid law and to

5 compel the Director to comply with the provisions of the applicable federal

6 Medicaid law, as well as to challenge the Secretary's decision to approve the

7 Director's implementation of the unlawful rate limitation.

8

50. Under 28 U.S.C. § 2201, CAHF and DSN are entitled to a declaration

9 of their rights, their members’ rights, under the United States Constitution, federal

10 Medicaid law and the APA

11

12

FIRST CAUSE OF ACTION

13 (VIOLATION OF 42 U.S.C. § 1396a(a)(30)(A)/SUPREMACY CLAUSE)

14

(Against Defendant Director)

15

51. Plaintiffs hereby incorporate by reference paragraphs 1 through 50,

16 inclusive, as though fully set forth herein.

17

52. The 2009 AB 5 Reimbursement Freeze violates Section 30(A) of the

18 Medicaid Act because:

19

(a) Neither the Director nor the Legislature considered the factors of

20 efficiency, economy, quality of care, and access to services prior to enacting and/or

21 implementing the 2009 AB 5 Reimbursement Freeze;

22

(b) Neither the Director nor the Legislature demonstrated a

23 reasonable connection between the payment rates resulting from 2009 AB 5

24 Reimbursement Freeze and the provision of quality care in an efficient and

25 economic manner, or ensuring access to services, prior to enacting and/or

26 implementing the 2009 AB 5 Reimbursement Freeze;

27

(c) Neither the Legislature nor the Director considered the costs of

28 providing quality care or demonstrated that the Medi-Cal payment rates resulting

1110201.2

18
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 30 of 36 Page ID #:1846

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 from the 2009 AB 5 Reimbursement Freeze are reasonably related to provider costs

2 prior to enacting and/or implementing the 2009 AB 5 Reimbursement Freeze; and

3

(d) Plaintiffs are informed and believe and thereon allege that the

4 rates resulting from the 2009 AB 5 Reimbursement Freeze are not consistent with

5 efficiency, economy, and quality of care, nor are they reasonably related to provider

6 costs, and also are not sufficient to enlist enough providers so that Medi-Cal

7 beneficiaries have access to the impacted ICF/MR facility and FPS facility services

8 at least to the extent that such services are available to the general population.

9

10

SECOND CAUSE OF ACTION

11

(VIOLATION OF 42 U.S.C. § 1396a(a)(13)(A)/SUPREMACY

CLAUSE/42 U.S.C. § 1983)

12 (Against Defendant Director)

13

53. Plaintiffs hereby incorporate by reference paragraphs 1 through 50,

14

inclusive, as though fully set forth herein.

15

54. The 2009 AB 5 Reimbursement Freeze violates Section 13(A) as to the

16

impacted ICF/MR facility and FPS facility services because it was not adopted

17

through a public process as required by this provision.

18

55. The 2009 AB 5 Reimbursement Freeze is thus preempted by the

19

Supremacy Clause of the United States Constitution, art. IV. and violates the civil

20

rights of CAHF’s members, which are enforceable through 42 U.S.C. § 1983.

21

22 THIRD CAUSE OF ACTION
23 (VIOLATION OF 42 C.F.R. § 447.205/SUPREMACY CLAUSE)
24 (Against Defendant Director)
25 56. Plaintiffs hereby incorporate by reference paragraphs 1 through 50,
26 inclusive, as though fully set forth herein.
27

28

1110201.2

19
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 31 of 36 Page ID #:1847

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

57. The 2009 AB 5 Reimbursement Freeze is invalid and may not lawfully

2 be implemented because it violates 42 C.F.R. § 447.205 as to the impacted ICF/MR

3 facility and FPS facility services, and is therefore preempted by the Supremacy

4 Clause, in that public notice of the reimbursement limitation was not given in

5 accordance with the terms of 42 C.F.R. § 447.205.

6

7

FOURTH CAUSE OF ACTION

8

(VIOLATION OF TAKINGS CLAUSE /

9

SUPREMACY CLAUSE 42 U.S.C. § 1983)

10

(Against Defendant Director)

11

58. Plaintiffs hereby incorporate by reference paragraphs 1 through 50

12 inclusive, as though fully set forth herein.

13

59. California law places restrictions on the ability of certain categories of

14 facilities, including ICF/MR and FPS facilities, to both withdraw from Medi-Cal

15 and cease operations. See, e.g. Cal. Health & Safety Code § 1336.2 and Cal. Welf.

16 & Inst. Code § 14022.4. Such facilities are not permitted to immediately stop

17 treating patients, but rather must take extensive steps to ensure that their patients are

18 transferred to other patient facilities. However, in some instances, this class of

19 facilities may be required, by statute, to continue treating particular patients who

20 refuse transfer to other facilities. Along these lines, impacted facilities, including

21 ICF/MR and FPS facilities, may only effectively withdraw from the Medi-Cal

22 program when all Medi-Cal patients have left the care of the facility. California law

23 therefore compels certain facilities, including ICF/MR and FPS facilities, to furnish

24 services to Medi-Cal beneficiaries, which constitutes an appropriation of these

25 facilities and taking of their property by the State of California. Due to the low rates

26 at which the Medi-Cal program is compensating ICF/MR and FPS facilities through

27 application of the 2009 AB 5 Reimbursement Freeze, Plaintiff CAHF and DSN’s

28 members that operate ICF/MR or FPS facilities, as well as Plaintiff UCP, will not be

1110201.2

20
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 32 of 36 Page ID #:1848

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 justly compensated by the State for their property in violation of the Fifth and

2 Fourteenth Amendments of the United States Constitution.

3

60. The 2009 AB 5 Reimbursement Freeze has been enacted by the

4 California Legislature, and implemented by the Department, under color of State

5 law. CAHF and DSN represents the interests of facilities, and UCP operates

6 facilities, that have been improperly deprived of their privately enforceable right to

7 be free of government imposed takings of private property without just

8 compensation that is guaranteed under the United States Constitution. Accordingly,

9 the Director has violated 42 U.S.C. § 1983 with respect to the enactment and

10 implementation of the 2009 AB 5 Reimbursement Freeze.

11

61. Also, the 2009 AB 5 Reimbursement Freeze is preempted by the

12 Supremacy Clause of the United States Constitution, art. IV because the Director

13 cannot simultaneously comply with the provisions of California law requiring the

14 implementation of the rate reduction and the Constitutional prohibition on taking

15 private property without adequate compensation.

16

17

FIFTH CAUSE OF ACTION

18

(VIOLATION OF

19

ADMINISTRATIVE PROCEDURE ACT, 5 U.S.C. §§ 701-706)

20

(Against Defendant Secretary)

21

62. Plaintiffs hereby incorporate by reference paragraphs 1 through 50,

22 inclusive, as though fully set forth herein.

23

63. Under the APA, 5 U.S.C. §§ 701-706, courts must overturn agency

24 action that is arbitrary, capricious, an abuse of discretion or not otherwise in

25 accordance with the law.

26

64. The Secretary’s approval of the 2009 AB 5 Reimbursement Freeze is

27 the act of an administrative agency and subject to review under the APA. The

28 Secretary's approval of the relevant SPA is invalid under the APA because it is

1110201.2

21
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 33 of 36 Page ID #:1849

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1 arbitrary, capricious and an abuse of discretion, and otherwise inconsistent with

2 governing law, for the following reasons:

3

(a) Because California is within the jurisdiction of the Ninth Circuit

4 Court of Appeals, the Secretary is bound to apply the Ninth Circuit's interpretation

5 of the Medicaid Act, including Section 30(A), when evaluating California SPAs for

6 compliance with the Medicaid Act. The Ninth Circuit has held that Section 30(A)

7 requires that Medicaid payment rates must be based on credible cost studies and

8 must bear a reasonable relationship to provider costs in order to be consistent with

9 quality of care and sufficient to ensure that beneficiaries have equal access to

10 services. Plaintiffs are informed and believe, and on that basis allege, that the

11 Secretary has not applied the Ninth Circuit's interpretation of Section 30(A) in

12 reviewing and approving the relevant SPA, but purported to consider only whether

13 the rates may actually cause a reduction in beneficiary access to services. The

14 Secretary has thus failed to follow and apply the applicable law.

15

(b) The question of whether Medi-Cal payment rates for ICF/MR

16 and FPS services are reasonably related to facility costs is a relevant factor in the

17 determination of whether the rates comply with Section 30(A). Plaintiffs are

18 informed and believe, and based thereon allege, that the Secretary did not consider

19 whether the Medi-Cal payment rates for ICF/MR and FPS facilities after the

20 implementation of the 2009 AB 5 Reimbursement Freeze would bear a reasonable

21 relationship to hospital costs in deciding to approve the relevant SPA.

22

(c) Plaintiffs are informed and believe and thereon allege that

23 payment rates resulting from the 2009 AB 5 Reimbursement Freeze would generally

24 reimburse ICF/MR and FPS less than their costs. Accordingly, the Secretary could

25 not have reasonably concluded that the rates resulting from the 2009 AB 5

26 Reimbursement Freeze bear a reasonable relationship to costs. It was therefore

27 arbitrary, capricious and an abuse of discretion for the Secretary to approve the

28 relevant SPA.

1110201.2

22
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 34 of 36 Page ID #:1850

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

(d) Plaintiffs are informed and believe and thereon allege that the

2 Secretary did not consider other relevant factors in evaluating California's SPA

3 related to the 2009 AB 5 Reimbursement Freeze in that the Secretary did not

4 adequately consider, among other things, the impact of the rate reduction on the

5 quality of ICF/MR and FPS care, whether the payment reductions would impact the

6 promptness with which Medicaid beneficiaries are able to obtain ICF/MR and FPS

7 services and whether the reduction would impact the efficiency with which Medi-

8 Cal services are delivered.

9

(e) The Secretary's review and approval of the 2009 AB 5

10 Reimbursement Freeze also is arbitrary and capricious because it occurred in

11 manner that was inconsistent with the Secretary's own regulations, as well as public

12 statements concerning the need for "transparency" in the SPA approval process. As

13 mentioned, inconsistent with governing regulations, the Secretary never formally

14 reached a decision on the SPA that originally sought to incorporate the 2009 AB 5

15 Reimbursement Freeze into California’s State Plan, but instead approved the rate

16 limitation in conjunction with a different SPA. Further, interested parties, including

17 CAHF and DSN, were not afforded meaningful access to the information that was

18 being exchanged between CMS and DHCS concerning the SPA. By reaching a

19 decision on the relevant SPA without affording interested parties an adequate

20 opportunity to review the information DHCS submitted in response to CMS' RAI,

21 the Secretary effectively rendered meaningless any public participation it had

22 allowed in the process before that.

23

24

SIXTH CAUSE OF ACTION

25

(DECLARATORY RELIEF)

26

(Against All Defendants)

27

65. Plaintiffs hereby incorporate by reference paragraphs 1 through 50,

28 inclusive, as though fully set forth herein.

1110201.2

23
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 35 of 36 Page ID #:1851

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

66. An actual and justiciable controversy exists between Plaintiffs and

2 Director regarding the validity of the 2009 AB 5 Reimbursement Freeze. Plaintiffs

3 CAHF and DSN, on behalf of their respective members, and Plaintiff UCP, contend

4 that the reimbursement limitation is invalid and unlawful in violation of federal

5 statute, federal regulations, and the State Plan, while the Director contends that the

6 reimbursement limitation is valid in all respects.

7

67. An actual and justiciable controversy exists between Plaintiffs and

8 Defendant Secretary regarding whether the SPA setting forth the 2009 AB 5

9 Reimbursement Freeze, to the extent any such SPA was actually approved,

10 complied with the requirements of the federal Medicaid Act. Plaintiffs contend that

11 the Secretary's approval of the relevant SPA was arbitrary, capricious, an abuse of

12 discretion and not in accordance with applicable law, while the Secretary contends

13 that she properly approved the SPA as in compliance with the Medicaid Act and

14 APA.

15

68. Accordingly, pursuant to 28 U.S.C. § 2201, Plaintiffs request this Court

16 to declare that the 2009 AB 5 Reimbursement Freeze is invalid, unlawful and

17 preempted by federal Medicaid law and that the Secretary’s approval of that rate

18 limitation was arbitrary, capricious an abuse of discretion and not in accordance

19 with applicable law.

20

69. No administrative appeal process or other administrative remedy is

21 available to Plaintiffs and/or their members, as applicable, to challenge the 2009

22 AB 5 Reimbursement Freeze.

23

70. All of the said injuries are great, immediate, and irreparable, for which

24 damages at law are inadequate, and for which Plaintiffs, and/or their members, as

25 applicable, have no plain, adequate or speedy relief at law or otherwise.

26 / / /

27 / / /

28 / / /

1110201.2

24
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:10-cv-03259-CAS-MAN Document 77-2 Filed 02/13/12 Page 36 of 36 Page ID #:1852

HOOPER, LUNDY & BOOKMAN, INC.
1875 CENTURY PARK EAST, SUITE 1600 LOS ANGELES, CALIFORNIA 90067-2517 TEL: (310) 551-8111 • FAX: (310) 551-8181

1

WHEREFORE, Plaintiffs pray for judgment as follows:

2

1. For an Order declaring that the 2009 AB 5 Reimbursement Freeze

3 violates 42 U.S.C. §§ 1396a(a)(30)(A) and 1396a(a)(13), 42 C.F.R. § 447.205, the

4 Takings Clause of the United States Constitution and is thus invalid and preempted

5 by the Supremacy Clause of the United States Constitution, art. IV;

6

2. For an Order declaring that it was arbitrary, capricious, an abuse of

7 discretion and not in accordance with applicable law for the Secretary to approve

8 any SPA purporting to incorporate the 2009 AB 5 Reimbursement Freeze into

9 California's State Plan;

10

3. For an Order setting aside the Secretary's approval of any SPA

11 purporting to incorporate the 2009 AB 5 Reimbursement Freeze into California's

12 State Plan;

13

4. For an Order preliminarily and permanently enjoining the Director

14 from effectuating or otherwise applying the 2009 AB 5 Reimbursement Freeze or

15 reducing to any degree the Medi-Cal rates for services rendered by ICF/MR

16 facilities and FPS facilities that are affected by Welfare and Institutions Code

17 §§ 14105.191, as amended by 2009 AB 5; and

18

5. For the costs of suit, including reasonable attorneys' fees incurred by

19 Plaintiffs, as permitted under 42 U.S.C. § 1988 or otherwise, and

20

6. Such other and further relief as may be just and proper.

21

22 DATED: February 13, 2012

HOOPER, LUNDY & BOOKMAN, P.C.

23

24

By: /s/ JORDAN B. KEVILLE

25

Attorneys for Plaintiffs CALIFORNIA ASSOCIATION OF HEALTH FACILITIES,

26

DEVELOPMENTAL SERVICES NETWORK; UNITED CEREBRAL PALSY/SPASTIC

27

CHILDREN’S FOUNDATION OF LOS ANGELES AND VENTURA COUNTIES

28

1110201.2

25
AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

 
 Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 1 of 11
(MANx), CLOSED, DISCOVERY, LEADTR, MANADR, RELATED−G
UNITED STATES DISTRICT COURT for the CENTRAL DISTRICT OF CALIFORNIA (Western Division − Los Angeles)
CIVIL DOCKET FOR CASE #: 2:10−cv−03259−CAS−MAN

California Association of Health Facilities v. David Maxwell−Jolly Assigned to: Judge Christina A. Snyder Referred to: Magistrate Judge Margaret A. Nagle Member case: (View Member Case) Related Case: 2:08−cv−03315−CAS−MAN
Case in other court: 9th CCA, 11−55852 Cause: 28:2201 Constitutionality of State Statute(s)
Plaintiff

Date Filed: 04/30/2010 Date Terminated: 03/19/2012 Jury Demand: None Nature of Suit: 950 Constitutional − State Statute Jurisdiction: Federal Question

California Association of Health Facilities

represented by Craig J Cannizzo Hooper Lundy and Bookman PC 575 Market Street 23rd Floor San Francisco, CA 94105 415−875−8500 Fax: 415−875−8519 Email: ccannizzo@health−law.com ATTORNEY TO BE NOTICED

Jordan Brian Keville Hooper Lundy &Bookman PC Watt Plaza 1875 Century Park East Suite 1600 Los Angeles, CA 90067−2799 310−551−8111 Fax: 310−551−8181 Email: jkeville@health−law.com ATTORNEY TO BE NOTICED

Mark E Reagan Hooper Lundy &Bookman Inc 575 Market Street Suite 2300 San Francisco, CA 94105 415−875−8500 Fax: 415−875−8519 Email: mreagan@health−law.com ATTORNEY TO BE NOTICED

V.
Defendant
David Maxwell−Jolly Director of the Department of Health Care Services, State of California

represented by Chara L Crane CAAG − Office of the Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90013 213−897−2458 Fax: 213−897−2805 Email: chara.crane@doj.ca.gov ATTORNEY TO BE NOTICED
Eric D Bates CAAG − Office of Attorney General of California 300 S Spring St, Suite 1700

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 2 of 11
Los Angeles, CA 90013 213−897−2457 Fax: 213−−897−2805 Email: eric.bates@doj.ca.gov ATTORNEY TO BE NOTICED
Jennifer M Kim CAAG − Office of CA Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90012 213−897−2443 Fax: 213−897−2805 Email: jennifer.kim@doj.ca.gov ATTORNEY TO BE NOTICED
Richard T Waldow CAAG − Office of Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90013−1230 213−897−2456 Fax: 213−897−2805 Email: docketinglaawt@doj.ca.gov ATTORNEY TO BE NOTICED
S Paul Bruguera CAAG Office of Attorney General of California 300 S Spring Street, Suite 9 N Los Angeles, CA 90013−1230 213−897−2000 Email: Paul.Bruguera@doj.ca.gov ATTORNEY TO BE NOTICED
Tara L Newman CAAG − Office of the Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90013−1230 213−897−2464 Email: tara.newman@doj.ca.gov ATTORNEY TO BE NOTICED
Tracey L Angelopoulos CAAG − Office of the Attorney General California Department of Justice 110 West A Street, Suite 1100 San Diego, CA 92101 619−645−2067 Fax: 619−645−2067 ATTORNEY TO BE NOTICED
Kenneth Kai−Chun Wang CAAG − Office of the Attorney General 300 South Spring Street Suite 1702 Los Angeles, CA 90013 213−897−2451 Fax: 213−897−2805 Email: kenneth.wang@doj.ca.gov ATTORNEY TO BE NOTICED

Date Filed

# Docket Text

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 3 of 11

04/30/2010 04/30/2010 04/30/2010 04/30/2010 04/30/2010 05/07/2010
05/11/2010
05/11/2010 05/14/2010
05/14/2010 05/18/2010
05/19/2010
05/19/2010
05/20/2010

1 COMPLAINT against Defendants David Maxwell−Jolly. Case assigned to Judge Christina A. Snyder for all further proceedings. Discovery referred to Magistrate Judge Ralph Zarefsky. (Filing fee $ 350 PAID.), filed by Plaintiff California Association of Health Facilities.(et) (mg). (Entered: 04/30/2010)
21 DAY Summons Issued re Complaint − (Discovery) 1 as to Defendant David Maxwell−Jolly. (et) (Entered: 04/30/2010)
2 NOTICE AND CERTIFICATE of Interested Parties filed by Plaintiff California Association of Health Facilities. (et) (mg). (Entered: 04/30/2010)
3 NOTICE TO PARTIES OF ADR PILOT PROGRAM filed. (et) (Entered: 04/30/2010)
4 NOTICE of Related Case(s) filed by Plaintiff California Association of Health Facilities. Related Case(s): CV 08−3315 CAS (MANx); CV 09−0382 CAS (MANx) see attachment for more details. (et) (mg). (Entered: 04/30/2010)
5 PROOF OF SERVICE Executed by Plaintiff California Association of Health Facilities, upon Defendant David Maxwell−Jolly served on 5/5/2010, answer due 5/26/2010. Service of the Summons and Complaint were executed upon Director in compliance with Federal Rules of Civil Procedure by personal service. Original Summons returned. (Keville, Jordan) (Entered: 05/07/2010)
6 NOTICE OF MOTION AND MOTION for Preliminary Injunction re: Rate Freeze filed by Plaintiff California Association of Health Facilities. Motion set for hearing on 6/14/2011 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Memorandum, # 2 Declaration Part 1, # 3 Declaration Part 2, # 4 Declaration Part 3, # 5 Declaration, # 6 Declaration, # 7 Declaration, # 8 Proposed Order, # 9 Supplement Request for Judicial Notice)(Keville, Jordan) (Entered: 05/11/2010)
7 PROOF OF SERVICE filed by Plaintiff California Association of Health Facilities, re MOTION for Preliminary Injunction re: Rate Freeze 6 served on 05/11/2010. (Keville, Jordan) (Entered: 05/11/2010)
8 ORDER RE TRANSFER PURSUANT TO Local Rule 83−1.3.1 and General Order 08.05 −Related Case− filed. Related Case No: CV 08−03315 CAS(MANx). Case referred from Magistrate Judge Ralph Zarefsky to Magistrate Judge Margaret A. Nagle for DISCOVERY. The case number will now read as follows: CV 10−03259 CAS(MANx). Signed by Magistrate Judge Margaret A. Nagle. (rn) (Entered: 05/14/2010)
9 FIRST STIPULATION Extending Time to Answer the complaint as to David Maxwell−Jolly answer now due 6/11/2010,, STIPULATION for Hearing re MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly.(Wang, Kenneth) (Entered: 05/14/2010)
10 First STIPULATION for Order ORDER ON STIPULATION TO EXTEND THE TIME TO RESPOND TO THE INITIAL COMPLAINT BY NOT MORE THAN 30 DAYS (L.R. 8−3) AND TO CONTINUE THE HEARING ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION filed by Defendant David Maxwell−Jolly.(Crane, Chara) (Entered: 05/18/2010)
11 NOTICE of Change of Attorney Information for attorney Kenneth Kai−Chun Wang counsel for Defendant David Maxwell−Jolly. Adding Richard T. Waldow as attorney as counsel of record for Defendant David Maxwell−Jolly for the reason indicated in the G−06 Notice. Filed by Defendant David Maxwell−Jolly (Wang, Kenneth) (Entered: 05/19/2010)
12 NOTICE of Change of Attorney Information for attorney Kenneth Kai−Chun Wang counsel for Defendant David Maxwell−Jolly. Adding Jennifer M. Kim as attorney as counsel of record for Defendant David Maxwell−Jolly for the reason indicated in the G−06 Notice. Filed by Defendant David Maxwell−Jolly (Wang, Kenneth) (Entered: 05/19/2010)
13 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Proposed Order on Stipulation to Extend the Time to Respond to the Initial Complaint by Not More Than 30 Days and to Continue the Hearing on Plaintiff's

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 4 of 11

05/20/2010
05/24/2010 05/25/2010 05/26/2010 05/28/2010 05/28/2010 05/31/2010 06/03/2010 06/07/2010

Motion for Preliminary Injunction filed 5/18/2010 10 . The following error(s) was found: This document tendered for the judge's approval should have been submitted as a separate PDF attachment to a Notice of Lodging. In response to this notice the court may order (1) an amended or correct document to be filed (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (gk) (Entered: 05/21/2010)
15 ORDER ON STIPULATION TO EXTEND the Time to Respond to the Initial Complaint by not more than 30 days (L.R. 8−3) and to Continue the Hearing on Plainiff's Motion for Preliminary Injunction 9 by Judge Christina A. Snyder: The Court, having read and considered the Stipulation to Extend The Time To Respond To The Initial Complaint By Not More Than 30 Days (L.R. 8−3) And To Continue The Hearing On Plaintiff's Motion for Preliminary Injunction, hereby orders that (1) the hearing on the Motion for Preliminary Injunction (Motion) is continued to June 28, 2010 at 10:00 a.m. (2) Defendant's Opposition to the Motion is now due on or before June 7, 2010, and (3) Defendant's responsive pleading to the Complaint is due on or before June 11, 2010. (bm) (Entered: 05/25/2010)
14 NOTICE OF MOTION AND MOTION to Consolidate Cases, as to CV10−03284, filed by Defendant David Maxwell−Jolly. Motion set for hearing on 6/21/2010 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Declaration DECLARATION OF TARA L. NEWMAN IN SUPPORT OF DEFENDANTS MOTION TO CONSOLIDATE ACTIONS, # 2 Proposed Order [PROPOSED] ORDER ON MOTION TO CONSOLIDATE ACTIONS)(Kim, Jennifer) (Entered: 05/24/2010)
16 NOTICE of Change of Attorney Information for attorney Kenneth Kai−Chun Wang counsel for Defendant David Maxwell−Jolly. Adding Tracey L. Angelopoulos as attorney as counsel of record for David Maxwell−Jolly for the reason indicated in the G−06 Notice. Filed by Defendant David Maxwell−Jolly (Wang, Kenneth) (Entered: 05/25/2010)
17 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: MOTION to Consolidate Cases as to CV10−03284 14 . The following error was found: Local Rule 7.1−1 No Certification of Interested Parties and or no copies. In response to this notice the court may order (1) an amended or correct document to be filed (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (pp) (Entered: 05/27/2010)
18 OPPOSITION to MOTION to Consolidate Cases, as to CV10−03284, 14 filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 05/28/2010)
19 CERTIFICATION AND NOTICE OF INTERESTED PARTIES of Interested Parties filed by Defendant David Maxwell−Jolly, identifying DAVID MAXWELL−JOLLY, Director of the Department of Health Care Services of the State of California; and the CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES. (Kim, Jennifer) (Entered: 05/28/2010)
20 NOTICE OF MOTION AND MOTION to Dismiss Case, MOTION to Dismiss for Lack of Jurisdiction, MOTION to Stay Case pending Resolution of state law issues filed by Defendant David Maxwell−Jolly. Motion set for hearing on 6/28/2010 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Memorandum Memorandum of Points and Authorities, # 2 Exhibit Request for Judicial Notice, # 3 Proposed Order)(Bruguera, S) (Entered: 05/31/2010)
21 NOTICE TO COUNSEL by Judge Christina A. Snyder. This case has been assigned to the calendar of Judge Christina A. Snyder. Refer to document for details of the Order. (pso) (Entered: 06/04/2010)
22 MEMORANDUM in Opposition to MOTION to Dismiss Case MOTION to Dismiss for Lack of Jurisdiction MOTION to Stay Case pending Resolution of state law issues 20 filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Supplement REQUEST FOR JUDICIAL NOTICE)(Keville, Jordan) (Entered: 06/07/2010)

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 5 of 11

06/07/2010 06/07/2010 06/07/2010
06/07/2010 06/08/2010 06/08/2010 06/14/2010 06/14/2010 06/15/2010
06/22/2010

23 REPLY SUPPORT OF MOTION MOTION to Consolidate Cases, as to CV10−03284, 14 filed by Defendant David Maxwell−Jolly. (Kim, Jennifer) (Entered: 06/07/2010)
24 OBJECTION opposition re: MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly. (Kim, Jennifer) (Entered: 06/07/2010)
25 OPPOSITION TO MOTION FOR A PRELIMINARY INJUNCTION re: MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Declaration DECLARATION OF SANDRA YIEN IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION, # 2 Declaration DECLARATION OF SUSAN FLORES IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION, # 3 Declaration DECLARATION OF TIMOTHY MATSUMOTO IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION, # 4 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 1−50), # 5 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 51−100), # 6 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 101−150), # 7 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 151−200), # 8 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 201−250), # 9 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 251−301))(Wang, Kenneth) (Entered: 06/07/2010)
26 REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR A PRELIMINARY INJUNCTION re MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 06/07/2010)
27 NOTICE OF ERRATA filed by Defendant David Maxwell−Jolly. correcting Motion Related Document 26 Request for Judicial Notice (Wang, Kenneth) (Entered: 06/08/2010)
28 REQUEST FOR JUDICIAL NOTICE in Support of Defendant's Opposition to Motion for Preliminary Injunction filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 06/08/2010)
29 REPLY in Support of MOTION to Dismiss Case MOTION to Dismiss for Lack of Jurisdiction MOTION to Stay Case pending Resolution of state law issues 20 filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 06/14/2010)
30 RESPONSE IN SUPPORT of MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Declaration Supplemental Declaration of Nancy Hayward)(Keville, Jordan) (Entered: 06/14/2010)
31 MINUTES: Proceedings: (In Chambers:) DEFENDANT'S MOTION TO CONSOLIDATE ACTIONS (filed 05/24/10) by Judge Christina A. Snyder: The Court finds this motion appropriate for decision without oral argument. FRCP 78; Local Rule 7−15. The hearing date of 6/21/2010, is hereby vacated and the matter is hereby taken under submission. The Court GRANTS Defendant's Motion 14 and hereby orders that the two matters be Consolidated. Each side is directed to hereinafter submit only one brief. However, upon a showing of good cause, the Court may grant a request to increase the page limits of said briefs beyond those set forth in the Local Rules of Court. Counsel are advised that the Court will allow oversized briefs in only rare instances. (jp) (Entered: 06/17/2010)
32 EX PARTE APPLICATION to Stay Case pending Ruling on Petition for Cert filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Declaration of S. Paul

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 6 of 11

06/24/2010 06/24/2010
08/06/2010 02/09/2011 03/14/2011 03/15/2011 03/16/2011 03/18/2011 03/20/2011 03/28/2011
04/14/2011 04/15/2011 04/20/2011

Bruguera and Exhibits, # 2 Proposed Order)(Bruguera, S) (Entered: 06/22/2010)
33 OPPOSITION to EX PARTE APPLICATION to Stay Case pending Ruling on Petition for Cert 32 filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Declaration re Joint Opposition)(Keville, Jordan) (Entered: 06/24/2010)
34 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: The Court GRANTS Defendant's Ex Parte Application for Stay of the Case Proceedings 32 and hereby orders the instant consolidated matters stayed. Within 45 days from the date of this order, or upon the disposition of the petitions for certiorari, whichever occurs first, the parties shall file a joint status report. Plaintiffs' motions for preliminary injunction 6 and defendant's motion to dismiss 20 are hereby taken off calendar and the hearing set for 6/28/2010, is hereby vacated pending further order of this Court. Court Reporter: Not Present. (gk) (Entered: 06/24/2010)
35 STATUS REPORT Joint filed by Defendant David Maxwell−Jolly. (Bruguera, S) (Entered: 08/06/2010)
36 NOTICE of Decision: OF GRANTING OF CERTIORARI filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 02/09/2011)
37 REQUEST to Substitute attorney Mark E. Reagan &Jordan B. Keville in place of attorney Douglas S. Cumming &Kathryn Doi filed by PLAINTIFF California Association of Health Facilities. (Attachments: # 1 Proposed Order Approving Substitution of Attorney(s))(Keville, Jordan) (Entered: 03/14/2011)
38 ORDER by Judge Christina A. Snyder: Granting 37 Request to Substitute Attorney Mark E. Reagan &Jordan B. Keville in place of attorney Douglas S. Cumming &Kathryn Doi for Plaintiff California Association of Health Facilities. (mg) (Entered: 03/15/2011)
39 EX PARTE APPLICATION to Lift Stay re: PROCEEDINGS EFFECTIVE JUNE 24, 2010 filed by PLAINTIFFS California Association of Health Facilities. (Attachments: # 1 Memorandum, # 2 Proposed Order)(Keville, Jordan) (Entered: 03/16/2011)
40 Defendant David Maxwell−Jolly's Opposition in Opposition to re: EX PARTE APPLICATION to Lift Stay re: PROCEEDINGS EFFECTIVE JUNE 24, 2010 39 filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Declaration of Timothy Matsumoto in Oppsosition to Plaintiff's Ex Parte Application to Lift Stay of Proceedings)(Wang, Kenneth) (Entered: 03/18/2011)
41 REPLY In Support Of EX PARTE APPLICATION to Lift Stay re: PROCEEDINGS EFFECTIVE JUNE 24, 2010 39 Reply In Support of Ex Parte Application filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 03/20/2011)
42 (IN CHAMBERS) MINUTE ORDER re: Plaintiff's Ex Parte Application To Lift Stay of the Case 39 by Judge Christina A. Snyder: Court GRANTS plaintiffs' ex parte application to lift the stay. Plaintiffs' motion for a preliminary injunction is hereby restored to the calendar, and a hearing shall be set for 5/2/11 at 12:00 PM. Parties may each file one supplemental brief, not to exceed 10 pages in length, on or before 4/15/11. (kpa) (Entered: 03/29/2011)
43 STIPULATION for Extension of Time to File Stipulation to Extend The Time to File Supplemental Briefing to Plaintiffs' Motion for Preliminary Injunction filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Proposed Order Re Stipulation to Extend The time to File Supplemental Briefing to Plaintiffs' Motion for Preliminary Injunction)(Bates, Eric) (Entered: 04/14/2011)
44 ORDER by Judge Christina A. Snyder, re Stipulation for Extension 43 . The Court extends the time for submission of the supplemental briefs from 4/15/2011 to 4/20/2011. (vdr) (Entered: 04/15/2011)
45 MEMORANDUM in Support of MOTION for Preliminary Injunction re: Rate Freeze 6 [SUPPLEMENTAL] filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Declaration (Supplemental) Jordan Keville, # 2

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 7 of 11

04/20/2011 04/25/2011 04/28/2011 05/02/2011 05/05/2011 05/12/2011
05/12/2011 05/18/2011
05/19/2011

Declaration (Second Supplemental) Gary Macomber, # 3 Declaration (Second Supplemental) Nancy Hayward)(Keville, Jordan) (Entered: 04/20/2011)
46 Defendant's David Maxwell−Jolly's Supplemental Brief in OPPOSITION in Opposition re: MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Request for Judicial Notice)(Wang, Kenneth) (Entered: 04/20/2011)
47 NOTICE of Change of Attorney Information for attorney Craig J Cannizzo counsel for Plaintiff California Association of Health Facilities. Adding Craig J. Cannizzo as attorney as counsel of record for California Association of Health Facilities for the reason indicated in the G−06 Notice. Filed by Plaintiff California Association of Health Facilities (Cannizzo, Craig) (Entered: 04/25/2011)
48 NOTICE OF ERRATA filed by Defendant David Maxwell−Jolly. correcting Objection/Opposition (Motion related), Objection/Opposition (Motion related) 46 Notice of Errata to Defendant David Maxwell−Jolly's Request for Judicial Notice filed with Defendant's Supplemental Brief in Opposition to Motion for Preliminary Injunction (Attachments: # 1 Exhibit A, # 2 Declaration Certificate of Service)(Bates, Eric) (Entered: 04/28/2011)
50 MINUTES by Judge Christina A. Snyder: Proceedings: Plaintiffs' Motion for Preliminary Injunction 6 filed 5/11/11 and 5/10/11. Hearing held and counsel are present. Tentative order provided. The Court confers with counsel and counsel argue. The Court takes plaintiffs' Motion for Preliminary Injunction under submission. Court Reporter: Laura Elias. (mg) (Entered: 05/06/2011)
49 ORDER by Judge Christina A. Snyder: granting 6 Motion for Preliminary Injunction. (rrey) (Entered: 05/06/2011)
51 TRANSCRIPT for proceedings held on Monday, 05/02/2011; 12:03 PM. Court Reporter: Theresa Lanza, phone number www.theresalanza.com. Transcript may be viewed at the court public terminal or purchased through the Court Reporter before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Notice of Intent to Redact due within 7 days of this date. Redaction Request due 6/2/2011. Redacted Transcript Deadline set for 6/12/2011. Release of Transcript Restriction set for 8/10/2011. (Lanza, Theresa) (Entered: 05/12/2011)
52 NOTICE OF FILING TRANSCRIPT filed for proceedings Monday, 05/02/2011; 12:03 PM (Lanza, Theresa) (Entered: 05/12/2011)
53 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE,, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 filed by Defendants David Maxwell−Jolly. (Attachments: # 1 Defendants' Memorandum of Points and Authorities in Support of Their Ex Parte Application for Reconsideration of Order Granting Plaintiffs' Motion for Preliminary Injuction or, in the Alternative, for a Stay of Said Order Pending Appeal, # 2 Declaration of Toby Douglas in Support of Defendants' Ex Parte Application for Reconsideration of Order Granting Plaintiffs' Motion for Preliminary Injuction or, in the Alternative, for a Stay of Said Order Pending Appeal, # 3 Declaration of Maria Enriquez in Support of Defendants' Ex Parte Application for Reconsideration of Order Granting Plaintiffs' Motion for Preliminary Injuction or, in the Alternative, for a Stay of Said Order Pending Appeal, # 4 [Proposed] Order Granting Defendants' Ex Parte Application for Reconsideration of Order Granting Plaintiffs' Motion for Preliminary Injuction or, in the Alternative, for a Stay of Said Order Pending Appeal)(Wang, Kenneth) (Entered: 05/18/2011)
54 OPPOSITION re: EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 EX PARTE APPLICATION for Reconsideration re Order on Motion

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 8 of 11

05/24/2011
05/26/2011 05/26/2011 05/27/2011 06/01/2011
06/02/2011
06/06/2011 06/06/2011 06/07/2011

for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 53 ; and Declaration of Jordan B. Keville filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 05/19/2011)
55 MINUTES (IN CHAMBERS): DEFENDANTS' EX PARTE APPLICATION FOR RECONSIDERATION OF ORDER GRANTING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION OR, IN THE ALTERNATIVE, FOR A STAY OF SAID ORDER PENDING APPEAL by Judge Christina A. Snyder: The Court hereby DENIES the Director's ex parte application for reconsideration of the Court's Preliminary Injunction order or, in the alternative, for a stay of said order pending appeal. denying 53 Ex Parte Application for Reconsideration ; denying 53 Ex Parte Application to Stay (bp) (Entered: 05/25/2011)
56 NOTICE OF APPEAL to the 9th CCA filed by Defendant David Maxwell−Jolly. Appeal of Order on Motion for Preliminary Injunction 49 (Appeal fee FEE NOT PAID.) (Wang, Kenneth) (Entered: 05/26/2011)
58 NOTIFICATION by Circuit Court of Appellate Docket Number 11−55852 9th CCA regarding Notice of Appeal to 9th Circuit Court of Appeals 56 as to Defendant David Maxwell−Jolly. (dmap) (Entered: 05/27/2011)
57 APPEAL FEE PAID: re Notice of Appeal to 9th Circuit Court of Appeals 56 as to Defendant David Maxwell−Jolly; Receipt Number: LA017572 in the amount of $455. (dmap) (Entered: 05/27/2011)
59 MINUTE ORDER IN CHAMBERS by Judge Christina A. Snyder: This action is hereby removed from this Courts active caseload until further application by the parties or order of this Court. IT IS FURTHER ORDERED that counsel shall file a joint report detailing the status of the case within 30 days and every quarter thereafter until the action has been reactivated on this Courts active caseload or a stipulation for dismissal is filed. This Court retains full jurisdiction over this action and this Order shall not prejudice any party to this action. All dates in this action are hereby VACATED. SEE ORDER. (Made JS−6. Case Terminated.) (im) (Entered: 06/03/2011)
63 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. The appeal filed May 26, 2011 is preliminary injunction appeal. Accordingly, Ninth Circuit Rule 3−3 shall apply. If they have not already done so, within 7 calendar days after the filing date of this order, the parties shall make arrangements to obtain from the court reporter an official transcript of proceedings in the district court that will be included in the record on appeal. The briefing schedule shall proceed as follows: the opening brief and excerpts of record are due not later than June 23, 2011; the answering brief is due July 21, 2011 or 28 days after service of the opening brief, whichever is earlier; and the optional reply brief is due within 14 days after service of the answering brief. See 9th Cir. R. 3−3(b). Failure to file timely the opening brief shall result in the automatic dismissal of this appeal by the Clerk for failure to prosecute. See 9th Cir. R. 42−1. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
60 Plaintiffs' Request that Court Set Status Conference re Compliance re: Order on Motion for Preliminary Injunction 49 (Keville, Jordan) (Entered: 06/06/2011)
61 TRANSCRIPT DESIGNATION AND ORDERING FORM For Dates: 5/2/11; Court Reporter: Theresa A. Lanza; Court of Appeals Case Number: 11−55852; Re: 56 (Wang, Kenneth) (Entered: 06/06/2011)
64 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. Based on a review of the Mediation Questionnaire, these cases are not selected for inclusion in the

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 9 of 11

06/13/2011
06/22/2011 06/24/2011 06/28/2011
06/30/2011 07/05/2011 07/29/2011

Mediation Program. The existing briefing schedules remain in effect. Counsel for any party interested in obtaining assistance from the court in pursuing settlement of the case on appeal or learning more about the Mediation Program is encouraged to contact Roxane G. Ashe, Circuit Mediator, by fax (415) 355−8566. The communication will be kept confidential, if requested, from the other parties in the case. Counsel are requested to send copies of this order to their clients. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
62 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Plaintiffs' Request that Court Set Status Conference Re Defendants' Compliance with Preliminary Injunction Order filed 6/6/2011 60 . The following error(s) was found: Incorrect event selected. The correct event is: Requests − Hearing. Miscellaneous Document event utilized in docketing this filing. Proposed order not submitted pursuant to Local Rule 52−4.1. In response to this notice the court may order (1) an amended or correct document to be filed (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (gk) (Entered: 06/13/2011)
65 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. The is court sua sponte consolidates these preliminary injunction appeals. The currently established briefing schedule remain in effect. All parties on a side are encouraged to join in a single brief to the greatest extent practicable. See 9th Cir. R. 28−4. All pending motions shall be addressed by separate order. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
66 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. The joint opening brief submitted on June 23, 2011 is filed. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
67 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. These are consolidated preliminary injunction appeals. Appellants' and appellees' unopposed motions to take judicial notice are granted. Appellants' opposed emergency motions to stay the district court's May 6, 2011 order pending appeal are granted. See Leiva−Perez v. Holder, 640 F.3d 962, 966−67(9th Cir. 2011)(per curiam)(citing Nken v. Holder, 129 S. Ct. 1749 (2009) and Hilton v. Braunskill, 481 U.S. 770(1987). Appellants' opposed motions to expedite proceedings are granted in part. The previously established briefing schedule remains in effect. These consolidated appeals will be calendared for oral argument for the week of October 11, 2011, at The Richard H. Chambers Courthouse in Pasadena, California. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
68 STATUS REPORT Joint Status Report filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 06/30/2011)
69 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: The Court is in receipt of the Joint Status Report filed 6/30/2011. The Court vacates its 6/1/2011 minute order 59 , only to the extent that the parties were to file quarterly joint reports detailing the status of the case. The parties shall file a Joint Status Report after the Ninth Circuit has issued its ruling on the appeal. Court Reporter: Not Present. (gk) (Entered: 07/06/2011)
70 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly CCA # 11−55852. These are consolidated preliminary injunction appeals. We refer appellees July 22, 2011 joint motion requesting judicial notice to the panel that will hear the merits of this appeal for whatever consideration the panel deems appropriate. The motion for reconsideration raises issues that warrant a response. See 9th Cir. R. 27−10. Accordingly, within 14 days after the filing date of this order, appellants shall file and serve a response in these consolidated appeals. The optional reply brief is due on or before August 9, 2011. Order received in this district on 7/29/2011. (dmap) (Entered: 08/01/2011)

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 10 of 11

08/19/2011 08/24/2011
11/30/2011 01/10/2012 01/10/2012 01/18/2012 02/13/2012 02/27/2012 03/05/2012 03/13/2012 03/19/2012 03/19/2012

71 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly CCA # 11−55852. Appellees August 15, 2011 motion for leave to file a reply to the response to the motion for reconsideration is denied. The motion for reconsideration will be addressed by separate order. Briefing is complete. Order received in this district on 8/190/2011. (dmap) (Entered: 08/22/2011)
72 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. Order received in this district on 08/24/11. The opposed motion for reconsideration of the June 28, 2011 order is denied. We refer Appellants' August 9, 2011 motion requesting judicial notice, submitted in conjunction with the optional reply brief, to the panel that will hear the merits of this appeal for whatever consideration the panel deems appropriate. Briefing is complete. (cbr) (Entered: 08/26/2011)
73 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly CCA # 11−55852. Appellants Request for Judicial Notice dated June 3, 2011, Appellants Request for Judicial Notice dated August 8, 2011, and Appellees Request for Judicial Notice dated July 21, 2011, are denied. (dmap) (Entered: 12/02/2011)
74 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. The motion for leave to file brief of amicus curiae Thomas J. Betlach in support of Defendant/Appellant's petition for rehearing is DENIED. Order received in this district on 1/10/12. (car) (Entered: 01/11/2012)
75 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. Appellant's Petition for Rehearing is DENIED. Order received in this district on 1/10/12. (car) (Entered: 01/11/2012)
76 MANDATE of 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 49 CCA # 11−55852. The decision of the district court is vacated and remanded. Mandate received in this district on 1/18/2012. (dmap) (Entered: 01/20/2012)
77 NOTICE OF MOTION AND MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 filed by Plaintiff California Association of Health Facilities. Motion set for hearing on 3/19/2012 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Memorandum, # 2 Declaration, # 3 Proposed Order)(Keville, Jordan) (Entered: 02/13/2012)
78 OPPOSITION to re: MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 77 filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 02/27/2012)
79 REPLY IN SUPPORT MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 77 DECLARATION; AND EXHIBIT THERETO filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 03/05/2012)
80 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: THE COURT REVIEWS the mandate (judgment or order) of the Ninth Circuit Court of Appeals 76 : Remanding, vacating. The Court sets a Status Conference re: Filing and Spreading of the Mandate on 3/19/2012 10:00 AM before Judge Christina A. Snyder. (Case reopened. MD JS−5.) Court Reporter: Not Present. (gk) (Entered: 03/14/2012)
81 MINUTES: Proceedings: Plaintiffs' Motion for Leave to File Amended Comlaint 77 ;before Judge Christina A. Snyder: The Court hereby GRANTS plaintiffs' motion tofile an amended complaint. Court Reporter: Rosalyn Adams. (jp) (Entered: 03/20/2012)
82 MINUTES: Proceedings: Status Conference Re: Filign and Spreading of 9th Circuit Mandates Hearing held before Judge Christina A. Snyder: That this action is hereby removed from this Court's active caseload until further application by the

Case: 2:10-cv-3259 As of: 09/12/2012 11:55 PM PDT 11 of 11

05/18/2012 05/21/2012

parties or order of this Court. FURTHER ORDERED that counsel shall file a joint report detailing the status of the case within 60 days and every quarter thereafter until the action has been reactivated on this Courts active caseload or a stipulation for dismissal is filed. This Court retains full jurisdiction over this action and this Order shall not prejudice any party to this action. Court Reporter: Rosalyn Adams. (Made JS−6. Case Terminated.) (jp) (Entered: 03/20/2012)
83 STATUS REPORT OF THE PARTIES [JOINT] filed by Plaintiff California Association of Health Facilities, Defendant David Maxwell−Jolly. (Keville, Jordan) (Entered: 05/18/2012)
84 NOTICE OF ERRATA filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Amended Status Report)(Keville, Jordan) (Entered: 05/21/2012)

 
 Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 1 of 11
(MANx),CLOSED,DISCOVERY,LEADTR,MANADR,RELATED−G
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA (Western Division − Los Angeles)
CIVIL DOCKET FOR CASE #: 2:10−cv−03259−CAS−MAN

California Association of Health Facilities v. David Maxwell−Jolly Assigned to: Judge Christina A. Snyder Referred to: Magistrate Judge Margaret A. Nagle Related Case: 2:08−cv−03315−CAS−MAN
Case in other court: 9th CCA, 11−55852 Cause: 28:2201 Constitutionality of State Statute(s)
Plaintiff

Date Filed: 04/30/2010 Date Terminated: 06/10/2014 Jury Demand: None Nature of Suit: 950 Constitutional − State Statute Jurisdiction: Federal Question

California Association of Health Facilities

represented by Craig J Cannizzo Hooper Lundy and Bookman PC 575 Market Street 23rd Floor San Francisco, CA 94105 415−875−8500 Fax: 415−875−8519 Email: ccannizzo@health−law.com ATTORNEY TO BE NOTICED

Jordan Brian Keville Hooper Lundy & Bookman PC Watt Plaza 1875 Century Park East Suite 1600 Los Angeles, CA 90067−2799 310−551−8111 Fax: 310−551−8181 Email: jkeville@health−law.com ATTORNEY TO BE NOTICED

Mark E Reagan Hooper Lundy & Bookman Inc 575 Market Street Suite 2300 San Francisco, CA 94105 415−875−8500 Fax: 415−875−8519 Email: mreagan@health−law.com ATTORNEY TO BE NOTICED

V.
Defendant
David Maxwell−Jolly Director of the Department of Health Care Services, State of California

represented by Chara L Crane CAAG − Office of the Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90013 213−897−2458 Fax: 213−897−2805 Email: chara.crane@doj.ca.gov ATTORNEY TO BE NOTICED
Eric D Bates CAAG − Office of Attorney General of California 300 S Spring St, Suite 1700 Los Angeles, CA 90013 213−897−2457 Fax: 213−−897−2805

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 2 of 11
ATTORNEY TO BE NOTICED
Jennifer M Kim CAAG − Office of CA Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90012 213−897−2443 Fax: 213−897−2805 Email: jennifer.kim@doj.ca.gov ATTORNEY TO BE NOTICED
Richard T Waldow CAAG − Office of Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90013−1230 213−897−2456 Fax: 213−897−2805 Email: richard.waldow@doj.ca.gov ATTORNEY TO BE NOTICED
S Paul Bruguera CAAG Office of Attorney General of California 300 S Spring Street, Suite 9 N Los Angeles, CA 90013−1230 213−897−2000 Email: Paul.Bruguera@doj.ca.gov ATTORNEY TO BE NOTICED
Tara L Newman CAAG − Office of the Attorney General California Department of Justice 300 South Spring Street Suite 1702 Los Angeles, CA 90013−1230 213−269−6216 Fax: 213−897−2805 Email: tara.newman@doj.ca.gov ATTORNEY TO BE NOTICED
Tracey L Angelopoulos CAAG − Office of the Attorney General California Department of Justice 110 West A Street, Suite 1100 San Diego, CA 92101 619−645−2067 Fax: 619−645−2067 ATTORNEY TO BE NOTICED
Kenneth Kai−Chun Wang CAAG − Office of the Attorney General 300 South Spring Street Suite 1702 Los Angeles, CA 90013 213−897−2451 Fax: 213−897−2805 Email: kenneth.wang@doj.ca.gov ATTORNEY TO BE NOTICED

Date Filed 04/30/2010

# Docket Text
1 COMPLAINT against Defendants David Maxwell−Jolly. Case assigned to Judge Christina A. Snyder for all further proceedings. Discovery referred to Magistrate Judge Ralph Zarefsky. (Filing fee $ 350 PAID.), filed by Plaintiff California Association of

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 3 of 11

04/30/2010 04/30/2010 04/30/2010 04/30/2010 05/07/2010
05/11/2010
05/11/2010 05/14/2010
05/14/2010 05/18/2010
05/19/2010
05/19/2010
05/20/2010

Health Facilities.(et) (mg). (Entered: 04/30/2010)
21 DAY Summons Issued re Complaint − (Discovery) 1 as to Defendant David Maxwell−Jolly. (et) (Entered: 04/30/2010)
2 NOTICE AND CERTIFICATE of Interested Parties filed by Plaintiff California Association of Health Facilities. (et) (mg). (Entered: 04/30/2010)
3 NOTICE TO PARTIES OF ADR PILOT PROGRAM filed. (et) (Entered: 04/30/2010)
4 NOTICE of Related Case(s) filed by Plaintiff California Association of Health Facilities. Related Case(s): CV 08−3315 CAS (MANx); CV 09−0382 CAS (MANx) see attachment for more details. (et) (mg). (Entered: 04/30/2010)
5 PROOF OF SERVICE Executed by Plaintiff California Association of Health Facilities, upon Defendant David Maxwell−Jolly served on 5/5/2010, answer due 5/26/2010. Service of the Summons and Complaint were executed upon Director in compliance with Federal Rules of Civil Procedure by personal service. Original Summons returned. (Keville, Jordan) (Entered: 05/07/2010)
6 NOTICE OF MOTION AND MOTION for Preliminary Injunction re: Rate Freeze filed by Plaintiff California Association of Health Facilities. Motion set for hearing on 6/14/2011 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Memorandum, # 2 Declaration Part 1, # 3 Declaration Part 2, # 4 Declaration Part 3, # 5 Declaration, # 6 Declaration, # 7 Declaration, # 8 Proposed Order, # 9 Supplement Request for Judicial Notice)(Keville, Jordan) (Entered: 05/11/2010)
7 PROOF OF SERVICE filed by Plaintiff California Association of Health Facilities, re MOTION for Preliminary Injunction re: Rate Freeze 6 served on 05/11/2010. (Keville, Jordan) (Entered: 05/11/2010)
8 ORDER RE TRANSFER PURSUANT TO Local Rule 83−1.3.1 and General Order 08.05 −Related Case− filed. Related Case No: CV 08−03315 CAS(MANx). Case referred from Magistrate Judge Ralph Zarefsky to Magistrate Judge Margaret A. Nagle for DISCOVERY. The case number will now read as follows: CV 10−03259 CAS(MANx). Signed by Magistrate Judge Margaret A. Nagle. (rn) (Entered: 05/14/2010)
9 FIRST STIPULATION Extending Time to Answer the complaint as to David Maxwell−Jolly answer now due 6/11/2010,, STIPULATION for Hearing re MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly.(Wang, Kenneth) (Entered: 05/14/2010)
10 First STIPULATION for Order ORDER ON STIPULATION TO EXTEND THE TIME TO RESPOND TO THE INITIAL COMPLAINT BY NOT MORE THAN 30 DAYS (L.R. 8−3) AND TO CONTINUE THE HEARING ON PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION filed by Defendant David Maxwell−Jolly.(Crane, Chara) (Entered: 05/18/2010)
11 NOTICE of Change of Attorney Information for attorney Kenneth Kai−Chun Wang counsel for Defendant David Maxwell−Jolly. Adding Richard T. Waldow as attorney as counsel of record for Defendant David Maxwell−Jolly for the reason indicated in the G−06 Notice. Filed by Defendant David Maxwell−Jolly (Wang, Kenneth) (Entered: 05/19/2010)
12 NOTICE of Change of Attorney Information for attorney Kenneth Kai−Chun Wang counsel for Defendant David Maxwell−Jolly. Adding Jennifer M. Kim as attorney as counsel of record for Defendant David Maxwell−Jolly for the reason indicated in the G−06 Notice. Filed by Defendant David Maxwell−Jolly (Wang, Kenneth) (Entered: 05/19/2010)
13 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Proposed Order on Stipulation to Extend the Time to Respond to the Initial Complaint by Not More Than 30 Days and to Continue the Hearing on Plaintiff's Motion for Preliminary Injunction filed 5/18/2010 10 . The following error(s) was found: This document tendered for the judge's approval should have been submitted as a separate PDF attachment to a Notice of Lodging. In response to this notice the court may order (1) an amended or correct document to be filed (2) the document stricken or (3) take

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 4 of 11

05/20/2010
05/24/2010 05/25/2010 05/26/2010 05/28/2010 05/28/2010 05/31/2010 06/03/2010 06/07/2010 06/07/2010

other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (gk) (Entered: 05/21/2010)
15 ORDER ON STIPULATION TO EXTEND the Time to Respond to the Initial Complaint by not more than 30 days (L.R. 8−3) and to Continue the Hearing on Plainiff's Motion for Preliminary Injunction 9 by Judge Christina A. Snyder: The Court, having read and considered the Stipulation to Extend The Time To Respond To The Initial Complaint By Not More Than 30 Days (L.R. 8−3) And To Continue The Hearing On Plaintiff's Motion for Preliminary Injunction, hereby orders that (1) the hearing on the Motion for Preliminary Injunction (Motion) is continued to June 28, 2010 at 10:00 a.m. (2) Defendant's Opposition to the Motion is now due on or before June 7, 2010, and (3) Defendant's responsive pleading to the Complaint is due on or before June 11, 2010. (bm) (Entered: 05/25/2010)
14 NOTICE OF MOTION AND MOTION to Consolidate Cases, as to CV10−03284, filed by Defendant David Maxwell−Jolly. Motion set for hearing on 6/21/2010 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Declaration DECLARATION OF TARA L. NEWMAN IN SUPPORT OF DEFENDANTS MOTION TO CONSOLIDATE ACTIONS, # 2 Proposed Order [PROPOSED] ORDER ON MOTION TO CONSOLIDATE ACTIONS)(Kim, Jennifer) (Entered: 05/24/2010)
16 NOTICE of Change of Attorney Information for attorney Kenneth Kai−Chun Wang counsel for Defendant David Maxwell−Jolly. Adding Tracey L. Angelopoulos as attorney as counsel of record for David Maxwell−Jolly for the reason indicated in the G−06 Notice. Filed by Defendant David Maxwell−Jolly (Wang, Kenneth) (Entered: 05/25/2010)
17 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: MOTION to Consolidate Cases as to CV10−03284 14 . The following error was found: Local Rule 7.1−1 No Certification of Interested Parties and or no copies. In response to this notice the court may order (1) an amended or correct document to be filed (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (pp) (Entered: 05/27/2010)
18 OPPOSITION to MOTION to Consolidate Cases, as to CV10−03284, 14 filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 05/28/2010)
19 CERTIFICATION AND NOTICE OF INTERESTED PARTIES of Interested Parties filed by Defendant David Maxwell−Jolly, identifying DAVID MAXWELL−JOLLY, Director of the Department of Health Care Services of the State of California; and the CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES. (Kim, Jennifer) (Entered: 05/28/2010)
20 NOTICE OF MOTION AND MOTION to Dismiss Case, MOTION to Dismiss for Lack of Jurisdiction, MOTION to Stay Case pending Resolution of state law issues filed by Defendant David Maxwell−Jolly. Motion set for hearing on 6/28/2010 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Memorandum Memorandum of Points and Authorities, # 2 Exhibit Request for Judicial Notice, # 3 Proposed Order)(Bruguera, S) (Entered: 05/31/2010)
21 NOTICE TO COUNSEL by Judge Christina A. Snyder. This case has been assigned to the calendar of Judge Christina A. Snyder. Refer to document for details of the Order. (pso) (Entered: 06/04/2010)
22 MEMORANDUM in Opposition to MOTION to Dismiss Case MOTION to Dismiss for Lack of Jurisdiction MOTION to Stay Case pending Resolution of state law issues 20 filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Supplement REQUEST FOR JUDICIAL NOTICE)(Keville, Jordan) (Entered: 06/07/2010)
23 REPLY SUPPORT OF MOTION MOTION to Consolidate Cases, as to CV10−03284, 14 filed by Defendant David Maxwell−Jolly. (Kim, Jennifer) (Entered: 06/07/2010)

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 5 of 11

06/07/2010 06/07/2010
06/07/2010 06/08/2010 06/08/2010 06/14/2010 06/14/2010 06/15/2010
06/22/2010 06/24/2010

24 OBJECTION opposition re: MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly. (Kim, Jennifer) (Entered: 06/07/2010)
25 OPPOSITION TO MOTION FOR A PRELIMINARY INJUNCTION re: MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Declaration DECLARATION OF SANDRA YIEN IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION, # 2 Declaration DECLARATION OF SUSAN FLORES IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION, # 3 Declaration DECLARATION OF TIMOTHY MATSUMOTO IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION, # 4 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 1−50), # 5 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 51−100), # 6 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 101−150), # 7 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 151−200), # 8 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 201−250), # 9 Declaration DECLARATION OF ALLAN HARJALA IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR PRELIMINARY INJUNCTION (PAGES 251−301))(Wang, Kenneth) (Entered: 06/07/2010)
26 REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF DEFENDANTS OPPOSITION TO MOTION FOR A PRELIMINARY INJUNCTION re MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 06/07/2010)
27 NOTICE OF ERRATA filed by Defendant David Maxwell−Jolly. correcting Motion Related Document 26 Request for Judicial Notice (Wang, Kenneth) (Entered: 06/08/2010)
28 REQUEST FOR JUDICIAL NOTICE in Support of Defendant's Opposition to Motion for Preliminary Injunction filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 06/08/2010)
29 REPLY in Support of MOTION to Dismiss Case MOTION to Dismiss for Lack of Jurisdiction MOTION to Stay Case pending Resolution of state law issues 20 filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 06/14/2010)
30 RESPONSE IN SUPPORT of MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Declaration Supplemental Declaration of Nancy Hayward)(Keville, Jordan) (Entered: 06/14/2010)
31 MINUTES: Proceedings: (In Chambers:) DEFENDANT'S MOTION TO CONSOLIDATE ACTIONS (filed 05/24/10) by Judge Christina A. Snyder: The Court finds this motion appropriate for decision without oral argument. FRCP 78; Local Rule 7−15. The hearing date of 6/21/2010, is hereby vacated and the matter is hereby taken under submission. The Court GRANTS Defendant's Motion 14 and hereby orders that the two matters be Consolidated. Each side is directed to hereinafter submit only one brief. However, upon a showing of good cause, the Court may grant a request to increase the page limits of said briefs beyond those set forth in the Local Rules of Court. Counsel are advised that the Court will allow oversized briefs in only rare instances. (jp) (Entered: 06/17/2010)
32 EX PARTE APPLICATION to Stay Case pending Ruling on Petition for Cert filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Declaration of S. Paul Bruguera and Exhibits, # 2 Proposed Order)(Bruguera, S) (Entered: 06/22/2010)
33 OPPOSITION to EX PARTE APPLICATION to Stay Case pending Ruling on Petition for Cert 32 filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Declaration re Joint Opposition)(Keville, Jordan) (Entered:

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 6 of 11

06/24/2010
08/06/2010 02/09/2011 03/14/2011 03/15/2011 03/16/2011 03/18/2011 03/20/2011 03/28/2011
04/14/2011 04/15/2011 04/20/2011 04/20/2011

06/24/2010)
34 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: The Court GRANTS Defendant's Ex Parte Application for Stay of the Case Proceedings 32 and hereby orders the instant consolidated matters stayed. Within 45 days from the date of this order, or upon the disposition of the petitions for certiorari, whichever occurs first, the parties shall file a joint status report. Plaintiffs' motions for preliminary injunction 6 and defendant's motion to dismiss 20 are hereby taken off calendar and the hearing set for 6/28/2010, is hereby vacated pending further order of this Court. Court Reporter: Not Present. (gk) (Entered: 06/24/2010)
35 STATUS REPORT Joint filed by Defendant David Maxwell−Jolly. (Bruguera, S) (Entered: 08/06/2010)
36 NOTICE of Decision: OF GRANTING OF CERTIORARI filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 02/09/2011)
37 REQUEST to Substitute attorney Mark E. Reagan & Jordan B. Keville in place of attorney Douglas S. Cumming & Kathryn Doi filed by PLAINTIFF California Association of Health Facilities. (Attachments: # 1 Proposed Order Approving Substitution of Attorney(s))(Keville, Jordan) (Entered: 03/14/2011)
38 ORDER by Judge Christina A. Snyder: Granting 37 Request to Substitute Attorney Mark E. Reagan & Jordan B. Keville in place of attorney Douglas S. Cumming & Kathryn Doi for Plaintiff California Association of Health Facilities. (mg) (Entered: 03/15/2011)
39 EX PARTE APPLICATION to Lift Stay re: PROCEEDINGS EFFECTIVE JUNE 24, 2010 filed by PLAINTIFFS California Association of Health Facilities. (Attachments: # 1 Memorandum, # 2 Proposed Order)(Keville, Jordan) (Entered: 03/16/2011)
40 Defendant David Maxwell−Jolly's Opposition in Opposition to re: EX PARTE APPLICATION to Lift Stay re: PROCEEDINGS EFFECTIVE JUNE 24, 2010 39 filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Declaration of Timothy Matsumoto in Oppsosition to Plaintiff's Ex Parte Application to Lift Stay of Proceedings)(Wang, Kenneth) (Entered: 03/18/2011)
41 REPLY In Support Of EX PARTE APPLICATION to Lift Stay re: PROCEEDINGS EFFECTIVE JUNE 24, 2010 39 Reply In Support of Ex Parte Application filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 03/20/2011)
42 (IN CHAMBERS) MINUTE ORDER re: Plaintiff's Ex Parte Application To Lift Stay of the Case 39 by Judge Christina A. Snyder: Court GRANTS plaintiffs' ex parte application to lift the stay. Plaintiffs' motion for a preliminary injunction is hereby restored to the calendar, and a hearing shall be set for 5/2/11 at 12:00 PM. Parties may each file one supplemental brief, not to exceed 10 pages in length, on or before 4/15/11. (kpa) (Entered: 03/29/2011)
43 STIPULATION for Extension of Time to File Stipulation to Extend The Time to File Supplemental Briefing to Plaintiffs' Motion for Preliminary Injunction filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Proposed Order Re Stipulation to Extend The time to File Supplemental Briefing to Plaintiffs' Motion for Preliminary Injunction)(Bates, Eric) (Entered: 04/14/2011)
44 ORDER by Judge Christina A. Snyder, re Stipulation for Extension 43 . The Court extends the time for submission of the supplemental briefs from 4/15/2011 to 4/20/2011. (vdr) (Entered: 04/15/2011)
45 MEMORANDUM in Support of MOTION for Preliminary Injunction re: Rate Freeze 6 [SUPPLEMENTAL] filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Declaration (Supplemental) Jordan Keville, # 2 Declaration (Second Supplemental) Gary Macomber, # 3 Declaration (Second Supplemental) Nancy Hayward)(Keville, Jordan) (Entered: 04/20/2011)
46 Defendant's David Maxwell−Jolly's Supplemental Brief in OPPOSITION in Opposition re: MOTION for Preliminary Injunction re: Rate Freeze 6 filed by Defendant David Maxwell−Jolly. (Attachments: # 1 Request for Judicial

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04/25/2011 04/28/2011 05/02/2011 05/05/2011 05/12/2011 05/12/2011 05/18/2011
05/19/2011

Notice)(Wang, Kenneth) (Entered: 04/20/2011)
47 NOTICE of Change of Attorney Information for attorney Craig J Cannizzo counsel for Plaintiff California Association of Health Facilities. Adding Craig J. Cannizzo as attorney as counsel of record for California Association of Health Facilities for the reason indicated in the G−06 Notice. Filed by Plaintiff California Association of Health Facilities (Cannizzo, Craig) (Entered: 04/25/2011)
48 NOTICE OF ERRATA filed by Defendant David Maxwell−Jolly. correcting Objection/Opposition (Motion related), Objection/Opposition (Motion related) 46 Notice of Errata to Defendant David Maxwell−Jolly's Request for Judicial Notice filed with Defendant's Supplemental Brief in Opposition to Motion for Preliminary Injunction (Attachments: # 1 Exhibit A, # 2 Declaration Certificate of Service)(Bates, Eric) (Entered: 04/28/2011)
50 MINUTES by Judge Christina A. Snyder: Proceedings: Plaintiffs' Motion for Preliminary Injunction 6 filed 5/11/11 and 5/10/11. Hearing held and counsel are present. Tentative order provided. The Court confers with counsel and counsel argue. The Court takes plaintiffs' Motion for Preliminary Injunction under submission. Court Reporter: Laura Elias. (mg) (Entered: 05/06/2011)
49 ORDER by Judge Christina A. Snyder: granting 6 Motion for Preliminary Injunction. (rrey) (Entered: 05/06/2011)
51 TRANSCRIPT for proceedings held on Monday, 05/02/2011; 12:03 PM. Court Reporter: Theresa Lanza, phone number www.theresalanza.com. Transcript may be viewed at the court public terminal or purchased through the Court Reporter before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Notice of Intent to Redact due within 7 days of this date. Redaction Request due 6/2/2011. Redacted Transcript Deadline set for 6/12/2011. Release of Transcript Restriction set for 8/10/2011. (Lanza, Theresa) (Entered: 05/12/2011)
52 NOTICE OF FILING TRANSCRIPT filed for proceedings Monday, 05/02/2011; 12:03 PM (Lanza, Theresa) (Entered: 05/12/2011)
53 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE,, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 filed by Defendants David Maxwell−Jolly. (Attachments: # 1 Defendants' Memorandum of Points and Authorities in Support of Their Ex Parte Application for Reconsideration of Order Granting Plaintiffs' Motion for Preliminary Injuction or, in the Alternative, for a Stay of Said Order Pending Appeal, # 2 Declaration of Toby Douglas in Support of Defendants' Ex Parte Application for Reconsideration of Order Granting Plaintiffs' Motion for Preliminary Injuction or, in the Alternative, for a Stay of Said Order Pending Appeal, # 3 Declaration of Maria Enriquez in Support of Defendants' Ex Parte Application for Reconsideration of Order Granting Plaintiffs' Motion for Preliminary Injuction or, in the Alternative, for a Stay of Said Order Pending Appeal, # 4 [Proposed] Order Granting Defendants' Ex Parte Application for Reconsideration of Order Granting Plaintiffs' Motion for Preliminary Injuction or, in the Alternative, for a Stay of Said Order Pending Appeal)(Wang, Kenneth) (Entered: 05/18/2011)
54 OPPOSITION re: EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 EX PARTE APPLICATION for Reconsideration re Order on Motion for Preliminary Injunction 49 OR, IN THE ALTERNATIVE, EX PARTE APPLICATION to Stay pending Appeal re: Order on Motion for Preliminary Injunction 49 53 ; and Declaration of Jordan B. Keville filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 05/19/2011)

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 8 of 11

05/24/2011
05/26/2011 05/26/2011 05/27/2011 06/01/2011
06/02/2011
06/06/2011 06/06/2011 06/07/2011
06/13/2011

55 MINUTES (IN CHAMBERS): DEFENDANTS' EX PARTE APPLICATION FOR RECONSIDERATION OF ORDER GRANTING PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION OR, IN THE ALTERNATIVE, FOR A STAY OF SAID ORDER PENDING APPEAL by Judge Christina A. Snyder: The Court hereby DENIES the Director's ex parte application for reconsideration of the Court's Preliminary Injunction order or, in the alternative, for a stay of said order pending appeal. denying 53 Ex Parte Application for Reconsideration ; denying 53 Ex Parte Application to Stay (bp) (Entered: 05/25/2011)
56 NOTICE OF APPEAL to the 9th CCA filed by Defendant David Maxwell−Jolly. Appeal of Order on Motion for Preliminary Injunction 49 (Appeal fee FEE NOT PAID.) (Wang, Kenneth) (Entered: 05/26/2011)
58 NOTIFICATION by Circuit Court of Appellate Docket Number 11−55852 9th CCA regarding Notice of Appeal to 9th Circuit Court of Appeals 56 as to Defendant David Maxwell−Jolly. (dmap) (Entered: 05/27/2011)
57 APPEAL FEE PAID: re Notice of Appeal to 9th Circuit Court of Appeals 56 as to Defendant David Maxwell−Jolly; Receipt Number: LA017572 in the amount of $455. (dmap) (Entered: 05/27/2011)
59 MINUTE ORDER IN CHAMBERS by Judge Christina A. Snyder: This action is hereby removed from this Courts active caseload until further application by the parties or order of this Court. IT IS FURTHER ORDERED that counsel shall file a joint report detailing the status of the case within 30 days and every quarter thereafter until the action has been reactivated on this Courts active caseload or a stipulation for dismissal is filed. This Court retains full jurisdiction over this action and this Order shall not prejudice any party to this action. All dates in this action are hereby VACATED. SEE ORDER. (Made JS−6. Case Terminated.) (im) (Entered: 06/03/2011)
63 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. The appeal filed May 26, 2011 is preliminary injunction appeal. Accordingly, Ninth Circuit Rule 3−3 shall apply. If they have not already done so, within 7 calendar days after the filing date of this order, the parties shall make arrangements to obtain from the court reporter an official transcript of proceedings in the district court that will be included in the record on appeal. The briefing schedule shall proceed as follows: the opening brief and excerpts of record are due not later than June 23, 2011; the answering brief is due July 21, 2011 or 28 days after service of the opening brief, whichever is earlier; and the optional reply brief is due within 14 days after service of the answering brief. See 9th Cir. R. 3−3(b). Failure to file timely the opening brief shall result in the automatic dismissal of this appeal by the Clerk for failure to prosecute. See 9th Cir. R. 42−1. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
60 Plaintiffs' Request that Court Set Status Conference re Compliance re: Order on Motion for Preliminary Injunction 49 (Keville, Jordan) (Entered: 06/06/2011)
61 TRANSCRIPT DESIGNATION AND ORDERING FORM For Dates: 5/2/11; Court Reporter: Theresa A. Lanza; Court of Appeals Case Number: 11−55852; Re: 56 (Wang, Kenneth) (Entered: 06/06/2011)
64 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. Based on a review of the Mediation Questionnaire, these cases are not selected for inclusion in the Mediation Program. The existing briefing schedules remain in effect. Counsel for any party interested in obtaining assistance from the court in pursuing settlement of the case on appeal or learning more about the Mediation Program is encouraged to contact Roxane G. Ashe, Circuit Mediator, by fax (415) 355−8566. The communication will be kept confidential, if requested, from the other parties in the case. Counsel are requested to send copies of this order to their clients. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
62 NOTICE TO FILER OF DEFICIENCIES in Electronically Filed Documents RE: Plaintiffs' Request that Court Set Status Conference Re Defendants' Compliance with Preliminary Injunction Order filed 6/6/2011 60 . The following error(s) was found: Incorrect event selected. The correct event is: Requests − Hearing. Miscellaneous

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 9 of 11

06/22/2011 06/24/2011 06/28/2011
06/30/2011 07/05/2011 07/29/2011
08/19/2011 08/24/2011 11/30/2011

Document event utilized in docketing this filing. Proposed order not submitted pursuant to Local Rule 52−4.1. In response to this notice the court may order (1) an amended or correct document to be filed (2) the document stricken or (3) take other action as the court deems appropriate. You need not take any action in response to this notice unless and until the court directs you to do so. (gk) (Entered: 06/13/2011)
65 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. The is court sua sponte consolidates these preliminary injunction appeals. The currently established briefing schedule remain in effect. All parties on a side are encouraged to join in a single brief to the greatest extent practicable. See 9th Cir. R. 28−4. All pending motions shall be addressed by separate order. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
66 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. The joint opening brief submitted on June 23, 2011 is filed. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
67 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. These are consolidated preliminary injunction appeals. Appellants' and appellees' unopposed motions to take judicial notice are granted. Appellants' opposed emergency motions to stay the district court's May 6, 2011 order pending appeal are granted. See Leiva−Perez v. Holder, 640 F.3d 962, 966−67(9th Cir. 2011)(per curiam)(citing Nken v. Holder, 129 S. Ct. 1749 (2009) and Hilton v. Braunskill, 481 U.S. 770(1987). Appellants' opposed motions to expedite proceedings are granted in part. The previously established briefing schedule remains in effect. These consolidated appeals will be calendared for oral argument for the week of October 11, 2011, at The Richard H. Chambers Courthouse in Pasadena, California. Order received in this district on 6/28/2011. (lr) (Entered: 06/30/2011)
68 STATUS REPORT Joint Status Report filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 06/30/2011)
69 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: The Court is in receipt of the Joint Status Report filed 6/30/2011. The Court vacates its 6/1/2011 minute order 59 , only to the extent that the parties were to file quarterly joint reports detailing the status of the case. The parties shall file a Joint Status Report after the Ninth Circuit has issued its ruling on the appeal. Court Reporter: Not Present. (gk) (Entered: 07/06/2011)
70 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly CCA # 11−55852. These are consolidated preliminary injunction appeals. We refer appellees July 22, 2011 joint motion requesting judicial notice to the panel that will hear the merits of this appeal for whatever consideration the panel deems appropriate. The motion for reconsideration raises issues that warrant a response. See 9th Cir. R. 27−10. Accordingly, within 14 days after the filing date of this order, appellants shall file and serve a response in these consolidated appeals. The optional reply brief is due on or before August 9, 2011. Order received in this district on 7/29/2011. (dmap) (Entered: 08/01/2011)
71 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly CCA # 11−55852. Appellees August 15, 2011 motion for leave to file a reply to the response to the motion for reconsideration is denied. The motion for reconsideration will be addressed by separate order. Briefing is complete. Order received in this district on 8/190/2011. (dmap) (Entered: 08/22/2011)
72 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. Order received in this district on 08/24/11. The opposed motion for reconsideration of the June 28, 2011 order is denied. We refer Appellants' August 9, 2011 motion requesting judicial notice, submitted in conjunction with the optional reply brief, to the panel that will hear the merits of this appeal for whatever consideration the panel deems appropriate. Briefing is complete. (cbr) (Entered: 08/26/2011)
73 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly CCA # 11−55852. Appellants Request for Judicial

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 10 of 11

01/10/2012 01/10/2012 01/18/2012 02/13/2012 02/27/2012 03/05/2012 03/13/2012 03/19/2012 03/19/2012
05/18/2012 05/21/2012 06/07/2013 11/05/2013

Notice dated June 3, 2011, Appellants Request for Judicial Notice dated August 8, 2011, and Appellees Request for Judicial Notice dated July 21, 2011, are denied. (dmap) (Entered: 12/02/2011)
74 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. The motion for leave to file brief of amicus curiae Thomas J. Betlach in support of Defendant/Appellant's petition for rehearing is DENIED. Order received in this district on 1/10/12. (car) (Entered: 01/11/2012)
75 ORDER from 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 filed by David Maxwell−Jolly, CCA # 11−55852. Appellant's Petition for Rehearing is DENIED. Order received in this district on 1/10/12. (car) (Entered: 01/11/2012)
76 MANDATE of 9th CCA filed re: Notice of Appeal to 9th Circuit Court of Appeals 56 49 CCA # 11−55852. The decision of the district court is vacated and remanded. Mandate received in this district on 1/18/2012. (dmap) (Entered: 01/20/2012)
77 NOTICE OF MOTION AND MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 filed by Plaintiff California Association of Health Facilities. Motion set for hearing on 3/19/2012 at 10:00 AM before Judge Christina A. Snyder. (Attachments: # 1 Memorandum, # 2 Declaration, # 3 Proposed Order)(Keville, Jordan) (Entered: 02/13/2012)
78 OPPOSITION to re: MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 77 filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 02/27/2012)
79 REPLY IN SUPPORT MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 MOTION to AMEND Complaint − (Discovery), Complaint − (Discovery) 1 77 DECLARATION; AND EXHIBIT THERETO filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 03/05/2012)
80 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: THE COURT REVIEWS the mandate (judgment or order) of the Ninth Circuit Court of Appeals 76 : Remanding, vacating. The Court sets a Status Conference re: Filing and Spreading of the Mandate on 3/19/2012 10:00 AM before Judge Christina A. Snyder. (Case reopened. MD JS−5.) Court Reporter: Not Present. (gk) (Entered: 03/14/2012)
81 MINUTES: Proceedings: Plaintiffs' Motion for Leave to File Amended Comlaint 77 ;before Judge Christina A. Snyder: The Court hereby GRANTS plaintiffs' motion tofile an amended complaint. Court Reporter: Rosalyn Adams. (jp) (Entered: 03/20/2012)
82 MINUTES: Proceedings: Status Conference Re: Filign and Spreading of 9th Circuit Mandates Hearing held before Judge Christina A. Snyder: That this action is hereby removed from this Court's active caseload until further application by the parties or order of this Court. FURTHER ORDERED that counsel shall file a joint report detailing the status of the case within 60 days and every quarter thereafter until the action has been reactivated on this Courts active caseload or a stipulation for dismissal is filed. This Court retains full jurisdiction over this action and this Order shall not prejudice any party to this action. Court Reporter: Rosalyn Adams. (Made JS−6. Case Terminated.) (jp) (Entered: 03/20/2012)
83 STATUS REPORT OF THE PARTIES [JOINT] filed by Plaintiff California Association of Health Facilities, Defendant David Maxwell−Jolly. (Keville, Jordan) (Entered: 05/18/2012)
84 NOTICE OF ERRATA filed by Plaintiff California Association of Health Facilities. (Attachments: # 1 Amended Status Report)(Keville, Jordan) (Entered: 05/21/2012)
85 NOTICE Defendants' Notice of Supplemental Authority filed by Defendants David Maxwell−Jolly. (Attachments: # 1 Exhibit A)(Bruguera, S) (Entered: 06/07/2013)
86 MINUTES (IN CHAMBERS) STAY OF PROCEEDINGS by Judge Christina A. Snyder: By order dated 7/8/2013, the Court directed the parties in these matters to submit a joint status report. Dkt. #242, in case no. 2:11−CV−09688−CAS(MANx).

Case: 2:10-cv-3259 As of: 06/01/2019 12:38 PM PDT 11 of 11

02/07/2014 05/27/2014 06/02/2014
06/09/2014 06/10/2014

The joint status report was filed on 7/23/2013. Dkt. #243, in case no. 2:11−CV−09688−CAS(MANx). The Court has reviewed the parties' positions set forth therein, as well as the issues presented by the petition for writ of certiorari now pending in the United States Supreme Court, see Supreme Court Docket No. 13−253. Based on the foregoing, the Court finds that there is good cause to stay the proceedings or, if applicable, to continue the existing stay of the proceedings in the above−entitled cases, pending notification from this Court. The parties are directed to file a joint status report with this Court within 14 days after the Supreme Court has taken any action with respect to the above−referenced petition for writ of certiorari. Court Reporter: Not Present. (gk) (Entered: 11/06/2013)
87 STATUS REPORT of the Parties filed by Defendant David Maxwell−Jolly. (Wang, Kenneth) (Entered: 02/07/2014)
88 ANSWER to Complaint − (Discovery), 1 filed by Defendant David Maxwell−Jolly.(Bruguera, S) (Entered: 05/27/2014)
89 MINUTES (IN CHAMBERS) by Judge Christina A. Snyder: The Court hereby lifts the stay in the actions, Case Nos. CV 10−03259 CAS (MANx) and CV 10−03284 CAS (MANx). (Case reopened. MD JS−5.) Court Reporter: Not Present. (gk) (Entered: 06/03/2014)
90 NOTICE OF MOTION AND Joint MOTION to Dismiss Case Pursuant to FRCP 41 filed by Plaintiff California Association of Health Facilities. (Keville, Jordan) (Entered: 06/09/2014)
91 ORDER ON JOINT STIPULATION FOR DISMISSAL (Fed. R. Civ. Proc. 41) by Judge Christina A. Snyder: The Court having been advised that the parties hereto have agreed to entry of an Order of Dismissal with prejudice of all claims pending in the within consolidated actions 90 , THE WITHIN CONSOLIDATED ACTIONS ARE HEREBY ORDERED DISMISSED. Each party is to bear its own attorney's fees and costs. ( MD JS−6. Case Terminated ) (gk) (Entered: 06/10/2014)

 
 666 F.3d 540 United States Court of Appeals,
Ninth Circuit.
DEVELOPMENTAL SERVICES NETWORK; United Cerebral Palsy/Spastic Children’s
Foundation of Los Angeles and Ventura Counties, Plaintiff–Appellee, v.
Toby DOUGLAS,* Director of the Department of Health Care Services, State of California;
California Department of Health Care Services, Defendants–Appellants.
California Association of Health Facilities, Plaintiff–Appellee, v.
Toby Douglas, Director of the Department of Health Care Services, State of California, Defendant–Appellant.
Nos. 11–55851, 11–55852. | Argued and Submitted Oct. 12, 2011. | Filed Nov. 30, 2011.
Synopsis Background: Trade associations that represented health care facilities brought action against Director of California Department of Health Care Services under § 1983, challenging implementation of amendments to California’s Medicaid Plan that limited reimbursement rates for health care providers. Associations requested preliminary injunction precluding enforcement of amendments. The United States District Court for the Central District of California, Christina A. Snyder, J., granted injunction. Director appealed.
Holdings: The Court of Appeals, Fernandez, Circuit Judge, held that:
[1] California was obligated to submit amendments to its Medicaid plan to the Secretary of the Department of Health and Human Services and obtain approval before implementation of the amendments, but
[2] no individual cause of action existed under § 1983 to enforce California’s obligation.
Vacated and remanded.

Attorneys and Law Firms
*542 Kenneth K. Wang, Office of the Attorney General of California, Los Angeles, CA, and Tracey L. Angelopoulos, Office of the Attorney General of California, San Diego, CA, for the defendants-appellants.
Jordan B. Keville and Craig Cannizzo, Hooper, Lundy & Bookman, P.C., San Francisco, CA, for the plaintiffsappellees.
Appeal from the United States District Court for the Central District of California, Christina A. Snyder, District Judge, Presiding. D.C. Nos. 2:10–cv–03284– CAS–MAN, 2:10–cv–03259–CAS–MAN.
Before: FERDINAND F. FERNANDEZ and CONSUELO M. CALLAHAN, Circuit Judges, and RALPH R. ERICKSON,** District Judge.
Opinion
OPINION
FERNANDEZ, Circuit Judge:
Toby Douglas, the Director of the California Department of Health Care Services,1 appeals the district court’s preliminary injunction precluding enforcement of California Welfare and Institutions Code § 14105.191(f), which amended California’s Medicaid Plan and set provider reimbursement rates for the 2009–2010 rate year, and for each year thereafter. The Developmental Services Network and the United Cerebral Palsy/Spastic Children’s Foundation of Los Angeles and Ventura County, and the California Association of Health Facilities2 challenged the law under 42 U.S.C. § 1983 and the Supremacy *543 Clause3 because the State did not obtain federal approval of its State Plan Amendment (“SPA”) prior to implementing the rate changes. The State argues that the district court abused its discretion in ordering the preliminary injunction because the Providers have not shown a likelihood of success on the merits, or irreparable harm, or that the balance of equities and the public interest warrant an injunction. We vacate the preliminary injunction and remand.
BACKGROUND
1

The Providers are trade associations representing, among other facilities, intermediate care facilities for the mentally retarded and for the developmentally disabled, and free standing pediatric subacute facilities. The Providers filed suit in federal district court on April 30, 2011. They alleged that the State’s implementation of Welfare and Institutions Code § 14105.191(f), which limited reimbursement rates under California’s Medicaid program, violated federal law. The section amended the State’s Medicaid Plan so that the reimbursement rates “for services rendered during the 2009–10 rate year and each rate year thereafter, shall not exceed the reimbursement rates that were applicable to those classes of providers in the 2008–09 rate year.” Cal. Welf. & Inst.Code § 14105.191(f). The Providers argued, along with other claims, that implementation of the statute was unlawful because it violated 42 U.S.C. § 1396a(a)(30)(A)’s requirement that the State consider quality of care in setting Medicaid payment rates4 and because the State implemented the section before obtaining federal approval5 of what amounted to an amendment of the State Medicaid Plan.6 The district court then stayed the Providers’ cases on June 24, 2010, after the Supreme Court had granted certiorari in two Ninth Circuit cases7 to consider whether a private party may sue under the Supremacy Clause to enforce 42 U.S.C. § 1396a(a)(30)(A). On March 28, 2011, the district court lifted the stay. The court then granted the motion for a preliminary injunction. It concluded that it was likely that the Providers would succeed on the merits of their 42 U.S.C. § 1983 claim that the State had unlawfully failed to obtain federal approval of the SPA effected by section 14105.191(f) prior to implementing it. In addition, the district court determined that the Providers were likely to suffer irreparable harm, and that the balance of hardships and the public interest weighed in favor of granting the injunction.8 After its motion for reconsideration was denied, the State timely appealed.
*544 JURISDICTION AND STANDARD OF REVIEW
The district court had jurisdiction pursuant to 28 U.S.C. § 1331. We have jurisdiction pursuant to 28 U.S.C. § 1292(a)(1).
[1] [2] [3] We review the grant of a preliminary injunction for abuse of discretion. Am. Trucking Ass’ns, Inc. v. City of L.A., 559 F.3d 1046, 1052 (9th Cir.2009). Our review is “limited and deferential, and [w]e do not review the underlying merits of the case.” Id. (internal quotation marks omitted). “Nevertheless, a district court necessarily

abuses its discretion when it bases its decision on an erroneous legal standard or on clearly erroneous findings of fact.” Id. (internal quotation marks omitted).
DISCUSSION
[4] [5] [6] “Plaintiffs seeking a preliminary injunction in a case in which the public interest is involved must establish that they are likely to succeed on the merits, that they are likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in their favor, and that an injunction is in the public interest.” Cal. Pharmacists Ass’n v. Maxwell–Jolly, 563 F.3d 847, 849 (9th Cir.2009). We have glossed that standard by adding that there is a “sliding scale”9 approach which allows a plaintiff to obtain an injunction where he has only shown “ ‘serious questions going to the merits’ and a balance of hardships that tips sharply towards the plaintiff ... so long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction is in the public interest.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir.2011). Nevertheless, if a plaintiff fails to show that he has some chance on the merits, that ends the matter. Global Horizons, Inc. v. U.S. Dep’t of Labor, 510 F.3d 1054, 1058 (9th Cir.2007).
Here the State attacks the district court’s decision on all four parts of the preliminary injunction test and on other bases as well. We, however, will only consider whether the Providers can succeed on the merits, for, as we will show, our conclusion on that ground requires that we vacate the preliminary injunction and remand for further proceedings. While we agree with the district court that the State was required to obtain approval of the amendment wrought in its Medicaid Plan by section 14105.191(f)’s provisions, we disagree with its determination that the Providers have a cause of action pursuant to 42 U.S.C. § 1983.
I. Approval of the Change [7] “Medicaid is a cooperative federal-state program through which the Federal Government provides financial assistance to States so that they may furnish medical care to needy individuals.” Wilder v. Va. Hosp. Ass’n, 496 U.S. 498, 502, 110 S.Ct. 2510, 2513, 110 L.Ed.2d 455 (1990). “To qualify for federal assistance, a State must submit to the Secretary [of the Department of Health and Human Services] and have approved a ‘plan for medical assistance,’ § 1396a(a)” that complies with statutory requirements. Id. If CMS determines that a state plan or
2

plan amendment does not comply with those requirements, it may deny the state federal funds. 42 C.F.R. §§ 430.15, 430.18; see also San Lazaro Ass’n, Inc. v. Connell, 286 F.3d 1088, 1092 (9th Cir.2002).
*545 The State argues that although it must obtain approval before its Medicaid plan goes into effect, it may make and implement material amendments to the plan before the amendments are approved, even though it is undoubtedly required to submit an SPA to CMS. See 42 C.F.R. § 430.12. We disagree with that counterintuitive and banausic argument.
We say counterintuitive because it would be surprising if a state were required to adhere to a complex list of requirements10 in order to obtain approval of a plan in the first place, but then, perhaps immediately after approval, materially change that plan to its heart’s content without first having the changes themselves approved. For example, despite the fact that a plan must “assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area,”11 the State suggests that if it adopted changes that did not meet those requirements, even though it must submit an SPA, it could implement the changes forthwith. We suppose that the law could have been written that way, but we question why it would have been. As it turns out, we have previously held that it was not.
Our first foray into this area was over twenty-five years ago. See Wash. State Health Facilities Ass’n v. Wash. Dep’t of Soc. & Health Servs., 698 F.2d 964 (9th Cir.1982) (per curiam). We were then faced with a claim that a state could enforce a state regulation which conflicted with the approved Medicaid plan before it obtained approval of the amendment. Id. at 964–65. We would have none of it. We held:
We previously have held that proper [DHHS] evaluation and approval is a prerequisite to enforcement of a state Medicaid plan. In addition, federal regulations specify the procedures a state must follow if it wishes to amend provisions of its federally approved plan. Accordingly, we find without merit appellants’ contention that [the state] may enforce changes in its method of reimbursing nursing care facilities without receiving federal approval.

Id. at 965 (citations and footnote references omitted).
Nor was that our only visit to this territory. In 1993, a state, again, insisted that it could change its standards and methods under Medicaid before it submitted an SPA. Or. Ass’n of Homes for the Aging, Inc. v. Oregon, 5 F.3d 1239, 1241 (9th Cir.1993). We rejected that position again. We noted that the state plan must be amended to reflect “material changes in state law, organization, policy, or operation” and that the amendments “must be submitted for ... approval.” Id. We went on to point out that: “[a] law that effects a change in payment methods or standards without [DHHS] approval is invalid.” Id.
Finally, in 1998, we were again required to enter that territory. See Exeter Mem’l Hosp. Ass’n v. Belshe, 145 F.3d 1106, 1108 (9th Cir.1998) ( Exeter II ), adopting 943 F.Supp. 1239 (E.D.Cal.1996) (Exeter I ). That time the State asked us to hold that it could implement changes before the federal government approved them. Id. at 1107. We were no more impressed with the argument than we had been some sixteen years earlier. We rejected it and said:
*546 Most important, our opinion in Washington was premised on the overall statutory framework rather than the particular language of the statute relating to amendments to state plans. That framework required then, and at all relevant times since, that all plans receive approval by the federal government before they may be implemented, and that all amendments to plans must also be federally approved. In Washington, we held that from these requirements logically flows the requirement that amendments to plans be approved before implementation. See Washington, 698 F.2d at 965. That conclusion is as valid now as it was then....
Id. at 1108. But here we are again. Why?
Well, the State now says that our prior cases were decided when the Boren Amendment12 was in effect, but that the current version of the statute has removed the Boren Amendment language.13 No doubt there is some truth in that statement.14 We, however, fail to see how it makes even a minim of difference for this purpose. The fact remains that the State’s obligation to follow the substantive provisions of 42 U.S.C. § 1396a did not change;15 nor has there been a material change in
3

regulations regarding the submission of amendments.16 And as we carefully explained in Exeter II, 145 F.3d at 1108, the framework in place made it apparent that just as all plans require federal approval, “all amendments to plans must also be federally approved.” Id. And that must occur “before implementation.” Id.
[8] Thus, we repeat an old refrain: the State was obligated to submit and obtain approval of its SPA before implementation. But that leads us to the next question before us, and there the Boren Amendment repeal has a bit more bite.
II. Cause of Action Under Section 1983 [9] [10] [11] It is pellucid that the mere fact that an action by the State, like obtaining approval of a SPA before implementation, is required does not mean that the Providers have a cause of action under § 1983. See San Lazaro, 286 F.3d at 1097 (“ ‘[i]n order to seek redress through § 1983, ... a plaintiff must assert the violation of a *547 federal right, not merely a violation of federal law.’ ”). Moreover, it is well known that when Congress repealed the Boren Amendment, it hoped to reduce litigation, which would clog the system, and “[i]n doing so, Congress intended that there be no ‘cause of action for [providers] relative to the adequacy of the rates they receive.’ ” Alaska Department of Health, 424 F.3d at 941. Because Washington,17 Homes for the Aging,18 and Exeter II19 were decided on the law as it existed before the Boren Amendment was repealed, that does give some pause, although it is not dispositive.
More important is the relatively recent refinement of federal law by the Supreme Court. As the Court noted, when our court considered a claim that plaintiffs were entitled to child support services, we had held that a right of action was based on the overall scheme of the statute in question. Blessing v. Freestone, 520 U.S. 329, 332–33, 117 S.Ct. 1353, 1356, 137 L.Ed.2d 569 (1997). The Court eschewed that approach and declared:
In order to seek redress through § 1983, however, a plaintiff must assert the violation of a federal right, not merely a violation of federal law. We have traditionally looked at three factors when determining whether a particular statutory provision gives rise to a federal right. First, Congress must have intended that the provision in question benefit the plaintiff. Second, the plaintiff must demonstrate that the right

assertedly protected by the statute is not so “vague and amorphous” that its enforcement would strain judicial competence. Third, the statute must unambiguously impose a binding obligation on the States. In other words, the provision giving rise to the asserted right must be couched in mandatory, rather than precatory, terms.
Id. at 340–41, 117 S.Ct. at 1359 (citations omitted). The Court vacated our decision. Id. at 349, 117 S.Ct. at 1363. Lest there be any doubt, the Court returned to the issue a few years later. Gonzaga Univ. v. Doe, 536 U.S. 273, 122 S.Ct. 2268, 153 L.Ed.2d 309 (2002). There, the Court emphasized: “We now reject the notion that our cases permit anything short of an unambiguously conferred right to support a cause of action brought under § 1983.” Id. at 283, 122 S.Ct. at 2275. And it concluded by stating that if Congress wants to create “new rights enforceable under § 1983, it must do so in clear and unambiguous terms....” Id. at 290, 122 S.Ct. at 2279; see also Watson v. Weeks, 436 F.3d 1152, 1158–59 (9th Cir.2006); Sanchez v. Johnson, 416 F.3d 1051, 1059–60 (9th Cir.2005).
[12] We do not overlook the fact that Washington20 and Homes for the Aging21 did allow for a § 1983 action, but neither actually discussed the question about what specific provision conferred a cause of action upon providers; they were quite general, even ambiguous, in that regard. In fact, in Exeter I,22 which we adopted in Exeter II,23 the district court stated that the parties had agreed that a § 1983 action *548 was available.24 For our part, we made it quite clear that Washington was decided based upon “the overall statutory framework rather than the particular language of the statute.” Exeter II, 145 F.3d at 1108. Also, while Exeter II itself was issued after Blessing, its adoption of Exeter I demonstrates that it was not really focused on the question of whether a § 1983 action was available, and, of course, it came before the added clarification in Gonzaga University.
Therefore, when we consider Congress’ intent in repealing the Boren Amendment, the fact that no provision appears to unambiguously confer a right upon the Providers, the fact that the requirement of the submission of SPAs to the federal authority appears to be a general25 or administrative26 provision rather than one which confers individual entitlements, and the fact that our prior cases do not require a different decision under the circumstances, we are constrained to the view that notwithstanding our prior cases,27 no individual right has been created for the Providers.28
4

[13] The Providers also argue that the federal authorities are of the opinion that SPAs must be approved before they are implemented, a proposition with which we agree. But, as we have already noted, an agency cannot create a right enforceable through § 1983 where Congress has not done so. See Guzman, 552 F.3d at 952; Save Our Valley v. Sound Transit, 335 F.3d 932, 939 (9th Cir.2003). Nor is there a basis for deciding that an agency can accomplish the same result by taking a litigating position as an amicus in one or more cases, or by issuing dire warnings that a private individual might sue.
In fine, the Providers have not shown that they have an unambiguously conferred right to bring a § 1983 action. That being so, we must hold that there is no likelihood of success on the merits and that the preliminary injunction cannot stand.29 See Global Horizons, 510 F.3d at 1058; Gonzales v. DHS, 508 F.3d 1227, 1242 (9th Cir.2007).

*549 CONCLUSION
Despite our contrary holdings over the past decades, the State has allowed its economic difficulties to obnebulate its analysis and render it purblind to the simple fact that it cannot properly implement changes to its Medicaid plan before the federal government (DHHS through CMS at this time) has approved a submitted SPA. Yet, while it is regrettable that the State refuses to abide by the law, that does not mean that a right which will support a cause of action under § 1983 has been unambiguously conferred upon the Providers; they cannot maintain an action under that section. Therefore, we must vacate the preliminary injunction.
VACATED and REMANDED.

Footnotes

*

Toby Douglas is the current Director of the California Department of Health Care Services and has, therefore, been automatically

substituted for his predecessor, David Maxwell–Jolly. See Fed.R.Civ.P. 25(d).

**

The Honorable Ralph R. Erickson, Chief United States District Judge for the District of North Dakota, sitting by designation.

1

Toby Douglas, as Director, is referred to as “the State” hereafter.

2

Together, all of these entities are referred to as “the Providers” hereafter.

3

U.S. Const. art. VI, cl. 2.

4

As pertinent here, the section provides that state plans must: “assure that payments are consistent with efficiency, economy, and

quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the

extent that such care and services are available to the general population in the geographic area....”

5

To obtain approval of a state Medicaid plan, the state must submit the plan or plan amendment to the Centers for Medicare &

Medicaid Services (“CMS”), which is a division of the Department of Health and Human Services (“DHHS”). See 42 C.F.R. §

430.12(b), (c).

6

It still had not been obtained when the district court ruled.

7

See Cal. Pharmacists Ass’n v. Maxwell–Jolly, 596 F.3d 1098 (9th Cir.2010), cert. granted, ––– U.S. ––––, 131 S.Ct. 992, 178

L.Ed.2d 824 (2011); Indep. Living Ctr. of S. Cal., Inc. v. Maxwell–Jolly, 572 F.3d 644 (9th Cir.2009), cert. granted, ––– U.S. ––––,

131 S.Ct. 992, 178 L.Ed.2d 824 (2011). The Court limited its review to the Supremacy Clause issue.

8

The district court did not revisit the Supremacy Clause issue or base its decision on that Clause.

9

We quote this phrase with some trepidation because we have questioned the use of a “sliding scale” metaphor: “nothing ‘slides’ ”

and it is “unnecessary and potentially confusing.” Abatie v. Alta Health & Life Ins. Co., 458 F.3d 955, 968 (9th Cir.2006) (en

banc).

5

10

See 42 U.S.C. § 1396a(a) (setting out more than 80 requirements for plan contents).

11

42 U.S.C. § 1396a(a)(30)(A).

12

The Boren Amendment, previously codified at 42 U.S.C. § 1396a(a)(13)(E), required that the state plan provide for payment to

skilled nursing facilities and intermediate care services:

which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which

must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with

applicable State and Federal laws, regulations, and quality and safety standards....

Omnibus Reconciliation Act of 1980, Pub.L. No. 96–499, § 962, 94 Stat. 2599, 2650–51; see also Exeter II, 145 F.3d at 1108 n.

1.

13

The current version of § 1396a(a)(13) no longer requires a state to make “assurances” that its reimbursement rates will achieve

certain objectives. Rather, a state now must provide “a public process for determination of rates of payment” for nursing facilities,

and intermediate care facilities that allows for provider participation. See § 1396a(a)(13)(A) (2006).

14

Our first foray did refer to the Boren Amendment, but it also referred to the pre-Boren Amendment statute. Washington, 698 F.2d

at 965. Nevertheless, in Exeter II, 145 F.3d at 1108, we deemed Washington to be addressing the law under the Boren Amendment,

for whatever that was worth.

15

See Alaska Dep’t of Health & Soc. Servs. v. Ctrs. for Medicare & Medicaid Servs., 424 F.3d 931, 941 (9th Cir.2005).

16

See 45 C.F.R. §§ 201.3–201.7 (2010); see also 45 C.F.R. §§ 201.3–201.7 (1979).

17

698 F.2d at 964.

18

5 F.3d at 1239.

19

145 F.3d at 1106.

20

698 F.2d at 965 n. 4. We recognize that the court also relied upon agency regulations, but regulations alone cannot create rights

enforceable under § 1983. See Guzman v. Shewry, 552 F.3d 941, 952 (9th Cir.2009).

21

5 F.3d at 1241.

22

943 F.Supp. at 1239.

23

145 F.3d at 1108.

24

943 F.Supp. at 1241.

25

See Sanchez, 416 F.3d at 1059–60 (finding no right to enforce 42 U.S.C. § 1396a(a)(30)(A)).

26

San Lazaro, 286 F.3d at 1099 (finding no right to enforce single state agency requirement).

27

Miller v. Gammie, 335 F.3d 889, 899–900 (9th Cir.2003) (en banc) (panel can deem prior opinions of the court to be “effectively

overruled”).

28

We have not overlooked the Providers’ claim that the so called “Suter fix” shows that they can bring an action here. See 42 U.S.C.

§§ 1320a–2, 1320a–10; Suter v. Artist M., 503 U.S. 347, 112 S.Ct. 1360, 118 L.Ed.2d 1 (1992). But those provisions make it clear

that they are not intended to “expand the grounds for determining the availability of private actions to enforce State plan

requirements....” 42 U.S.C. §§ 1320a–2, 1320a–10. They do not help to answer the question before us, which is, precisely, whether

6

a private action is available.

29

The Providers and the State each devote a small handful of pages to the question of whether the injunction can be upheld under the

Supremacy Clause. We decline to decide that issue. The district court expressly refused to proceed on that basis, and it should

decide the issue in the first instance. See Am. Trucking, 559 F.3d at 1060; see also Warren v. Comm’r, 302 F.3d 1012, 1015 (9th

Cir.2002). Moreover, because the Supremacy Clause issue is now before the Supreme Court, see n. 7, supra, prudence suggests

that consideration of the issue should be put off for another day. After all, the preliminary injunction order did not even touch on

that issue. We also see no reason to take up other issues raised by the State; they would not affect our ultimate decision.

	  

7

 
 2010 WL 2612694 Only the Westlaw citation is currently available.
This decision was reviewed by West editorial staff and not assigned editorial enhancements.
United States District Court, C.D. California.
CALIFORNIA ASSOCIATION OF HEALTH FACILITIES v.
David MAXWELL-JOLLY; et al. and
Developmental Services Network; et al. v.
David Maxwell-Jolly; et al.
Nos. CV 10-3284 CAS (MANx), CV 10-3259 CAS (MANx). | June 24, 2010.
Attorneys and Law Firms
Douglas S. Cumming, Douglas Cumming Law Offices, Lincoln, CA, Jenny Mae Phillips, Kathryn Doi, Murphy Austin Adams Schoenfeld LLP, Sacramento, CA, for Developmental Services Network, United Cerebral Palsy/Spastic Children’s Foundation of Los Angeles and Ventura Counties.
Jennifer M. Kim, S. Paul Bruguera, Tara L. Newman, CAAG-Office of CA Attorney General, Los Angeles, CA, for David Maxwell-Jolly, California Department of Health Care Services.
Opinion
Proceedings: (In Chambers:) DEFENDANT’S EX PARTE APPLICATION FOR STAY OF THE CASE
PROCEEDINGS (filed 6/22/10)
CHRISTINA A. SNYDER, Judge.
*1 Catherine Jeang, Deputy Clerk.
I. INTRODUCTION & BACKGROUND On April 30, 2010, plaintiffs Developmental Services Network and United Cerebral Palsy/Spastic Children’s Foundation of Los Angeles and Ventura Counties, in CV

10-3284 CAS (MANx), and California Association of Health Facilities, in CV 10-3259 CAS (RZx), filed the instant actions against David Maxwell-Jolly, Director of the California Department of Health Care Services (the “Director”) and the California Department of Health Care Services (the “Department”).1 The Department is a California agency charged with the administration of California’s Medicaid program, Medi-Cal. Plaintiffs are entities that represents certain Medi-Cal providers, specifically intermediate care facilities for the developmentally disabled and the mentally retarded (respectively, “ICF/DD facilities” and “ICF/MR facilities”), and freestanding pediatric subacute facilities (“FSP facilities”).
On July 28, 2009, California Governor Arnold Schwarzenegger signed into law Assembly Bill X4 5 (“AB 5”), the budget trailer bill for California fiscal year 2009-2010. AB 5 amends Cal. Welf. & Inst.Code § 14105.191, in part, and effectively “freezes” the Medi-Cal reimbursement rates for certain designated services rendered during the 2009-2010 rate year and each rate year thereafter” at 2008-2009 levels. Cal. Welf. & Inst.Code § 14105.191(f). Among the designated services, are services provided by ICF/DD facilities, ICF/MR facilities, and FSP facilities. In the instant actions, plaintiffs seek to enjoin implementation or enforcement of these rate freezes, codified at Cal. Welf. & Inst.Code § 14105.191 on the grounds, among others, that these rate provisions violate 42 U.S.C. § 1396a(30)(A) of the Medicaid Act and are thus preempted under the Supremacy Clause.
On June 22, 2010, defendant filed the instant ex parte application for stay of the case proceedings in the instant consolidated matters. On June 24, 2010, plaintiffs filed their opposition. After carefully considering the arguments set forth by both parties, the Court finds and concludes as follows.
II. LEGAL STANDARD A district court has discretionary power to stay proceedings in its own court. See Landis v. North American Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936). Accordingly, the court “may, with propriety, find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the case.” Leyva v. Certified Grocers of Cal. Ltd., 593 F.2d 857, 863 (9th Cir.1979). However, case management concerns alone are not necessarily a sufficient ground to stay proceedings. See Dependable
1

Highway Express v. Navigators Ins. Co., 498 F.3d 1059, 1066 (9th Cir.2007). “ ‘[I]f there is even a fair possibility that the stay ... will work damage to someone else,’ the stay may be inappropriate absent a showing by the moving party of ‘hardship or inequity.’ ” Id. (quoting Landis, 299 U.S. at 255). Further, “being required to defend a suit, without more, does not constitute a ‘clear case of hardship or inequity’ within the meaning of Landis.” Lockyer v. Mirant Corp., 398 F.3d 1098, 1112 (9th Cir.2005).
III. DISCUSSION *2 For the same reasons the Court found that good cause exists to stay the related matter of Independent Living Center of Southern California, et al. v. Sandra Shewry, Case No. 08-3315 CAS (MANx) (“Independent Living” ), recent events justify an immediate stay of the instant consolidated matters pending resolution of defendant’s petitions for certiorari in Independent Living and California Pharmacists, Ass’n v. David Maxwell-Jolly, Case No. 09-8200 (“Cal.Pharmacists” ). First, on May 24, 2010, the Supreme Court invited the Solicitor General to file a brief in Independent Living. In addition, the Ninth

Circuit stayed the appellate proceedings in the related matter of California Hospital Assoc. v. David MaxwellJolly, Case. No. 09-8642 CAS (“CHA” ), in light of the pending petitions for certiorari in Independent Living and Cal. Pharmacists. The CHA plaintiffs challenge the same rate freeze enacted by AB 5, and codified at Cal. Welf. & Inst.Code § 14105.191(f), which is at issue in the instant matters.
Accordingly, the Court GRANTS defendant’s ex parte application and hereby orders the instant consolidated matters stayed. Within 45 days from the date of this order, or upon the disposition of the petitions for certiorari, whichever occurs first, the parties shall file a joint status report.
Plaintiffs’ motions for preliminary injunction, filed May 10 and 11, 2010, and defendant’s motion to dismiss, filed May 31, 2010, are hereby taken off calendar and the hearing set for June 28, 2010, is hereby vacated pending further order of this Court.
IT IS SO ORDERED.

Footnotes

1

On June 15, 2010, the Court ordered the two matters consolidated for all purposes.

	  

2