Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_15-cv-01926/USCOURTS-caed-2_15-cv-01926-3/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:2201 Declaratory Judgement

---

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

1

UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF CALIFORNIA 

ST. ANTHONY MEDICAL CENTERS, 

Plaintiff, 

v. 

KENT, et al., 

Defendants. 

No. 2:15-cv-01926-KJM-DB 

ORDER 

Plaintiff St. Anthony Medical Centers (“St. Anthony”), a federally-qualified health 

center (“FQHC”), brings this action against the California Department of Health Care Services 

(“DHCS”) and Jennifer Kent, in her capacity as Director of DHCS, alleging it was unlawful for 

DHCS to not set a new initial prospective payment services rate (“PPS rate”) for the Medi-Cal 

services it provided for the period beginning March 18, 2004. On March 2, 2016, the court 

dismissed the complaint under the applicable statute of limitations but granted plaintiff leave to 

amend if it could cure the deficiency. ECF No. 22 (“Prev. Order”). Plaintiff filed an amended 

complaint, ECF No. 23 (“FAC”), and defendants’ motion to dismiss the amended complaint is 

now before the court, ECF No. 25 (“Mot.”). Plaintiff opposes the motion, ECF No. 28 (“Opp’n”), 

and defendants have replied, ECF No. 29 (“Reply”). The court held a hearing on May 6, 2016, at 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 1 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

2

which Kathryn Doi appeared for plaintiff and Karli Eisenberg appeared for defendants. As 

explained below, the court GRANTS defendants’ motion, this time without leave to amend. 

I. BACKGROUND 

A. Review of Statutory Background 

In 1965, Congress enacted Title XIX of the Social Security Act, 42 U.S.C. § 1396 

et seq., known as the “Medicaid Act,” to provide funding for state-administered Medicaid 

programs. See FAC ¶ 9. The states, in accordance with federal law, determine eligibility of 

particular types of beneficiaries, types and ranges of services, payment levels, and administrative 

and operative procedures. Id. Payment for services is made directly by states to the individuals 

or entities that furnish the services. Id. (citing 42 C.F.R. § 430.0). A state’s participation in the 

Medicaid program is voluntary, but when a state chooses to participate, it must comply with the 

provisions of the Medicaid Act and its implementing regulations. Alaska Dep’t of Health & 

Social Servs. v. Ctrs. for Medicare & Medicaid Servs., 424 F.3d 931, 935 (9th Cir. 2005). 

California participates in the Medicaid program through the California Medical Assistance 

Program (“Medi-Cal”), and has designated DHCS as the agency responsible for its 

administration. See Cal. Welf. & Inst. Code §§ 10720, 14000 et seq.; Cal. Code Regs. tit. 22, 

§ 50000 et seq. 

The Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) created the 

FQHC program and made FQHC services mandatory. See 42 U.S.C. § 1396d(a)(2)(C). FQHCs 

are health care providers located in medically underserved areas that receive Section 330 Public 

Health Service Act (“PHS”) grants. See FAC ¶ 13. Other entities that meet the requirements for 

receiving a PHS grant (“FQHC look-alikes”) also qualify as FQHCs. 42 U.S.C. § 1396d(l)(2)(B). 

To participate in the federal Medicaid program, state plans must reimburse clinics for FQHC 

services rendered. See 42 U.S.C. §§ 1396a(a)(15), 1396d(a)(2)(C), (l)(2)(B); see also Cal. Welf. 

& Inst. Code § 14132.100(a), (b), & (g). The Fourth Circuit has provided a thorough overview of 

the evolution of the federal payment requirements:

From 1989 through 2000, the federal Medicaid program required 

States to reimburse FQHCs for “100 percent . . . of [each FQHC’s] 

costs which are reasonable.” 42 U.S.C. § 1396a(a)(13)(C) 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 2 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

3

(repealed 2000). Congress’ purpose in passing this “100 percent 

reimbursement” requirement was to ensure that health centers 

receiving funds under § 330 of the Public Health Services Act 

would not have to divert Public Health Services Act funds to cover 

the cost of serving Medicaid patients. The report of the House 

Budget Committee accompanying the 1989 legislation describes 

this payment guarantee specifically as follows:

. . . 

To ensure that Federal [Public Health Service] Act grant 

funds are not used to subsidize health center or program 

services to Medicaid beneficiaries, States would be required 

to make payment for these [FQHC] services at 100 percent 

of the costs which are reasonable and related to the cost of 

furnishing those services. 

H.R. Rep. No. 101–247, reprinted in 1989 U.S.C.C.A.N. 1906, 

2118–19. 

To relieve health centers from having to supply new cost data every 

year, Congress amended the Medicaid Act in 2000 to implement a 

new prospective payment system based on average historical costs 

plus a cost-of-living factor . . . . 

Three Lower Ctys. Cmty. Health Servs., Inc. v. Maryland, 498 F.3d 294, 297–98 (4th Cir. 2007) 

(emphasis in original); see FAC ¶ 16. 

The prospective payment system, which began with fiscal year 2001, requires state 

Medicaid plans to establish an initial year PPS reimbursement rate for each FQHC. 42 U.S.C. 

§ 1396a(bb)(2), (bb)(4); Cal. Welf. & Inst. Code § 14132.100(i)(1). With respect to clinics that 

first qualified as FQHCs before the fiscal year 2000, the initial year PPS rate must equal “100 

percent of the average of the costs of the center or clinic of furnishing such services during fiscal 

years 1999 and 2000 which are reasonable and related to the cost of furnishing such services.” 42 

U.S.C. § 1396a(bb)(2). With respect to clinics that first qualified as FQHCs after fiscal year 

2000, the initial year PPS rate must be calculated based on the average of the per-visit rates of 

other health centers located in the same or adjacent area with a similar case load (“the 

Comparables Methodology”). 42 U.S.C. § 1396a(bb)(4); Cal. Welf. & Inst. Code 

§ 14132.100(i)(1)(A). For each year after the initial year PPS rate is established, the rate of the 

preceding fiscal year is increased by the percentage increase in the applicable Medicare Economic 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 3 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

4

Index (“MEI”)1 for that year, and is adjusted to take into account any increase or decrease in the 

scope of such services furnished by the center or clinic during that year. 42 U.S.C. 

§ 1396a(bb)(3). In other words, the initial year PPS rate serves as a “baseline per-visit rate to be 

applied in all future years, adjusted by a cost-of-living index (the [MEI]) and any change in the 

scope of services.” Three Lower Ctys. Cmty. Health Servs., Inc., 498 F.3d at 298.

Notwithstanding any other provision, federal and state law also allow state plans to 

use alternative methodologies to provide for payment in any fiscal year if the methodologies 

(1) are agreed to by the state and the FQHC; and (2) result in payment to the FQHC of an amount 

that is at least equal to the amount required to be paid under § 1396a(bb). 42 U.S.C. 

§ 1396a(bb)(6); Cal. Welf. & Inst. Code § 14132.100(i)(1)(D). 

B. Factual Allegations 

The operative first amended complaint makes the following allegations. St. 

Anthony first qualified as an FQHC look-alike on April 9, 2001, and DHCS established an initial 

year PPS rate for St. Anthony. FAC ¶¶ 31, 38. St. Anthony did not file its application for 

recertification with the Health Resources and Services Administration (“HRSA”), so its FQHC 

status was terminated in May 2003. Id. ¶ 32. Termination of its FQHC status resulted in 

termination of St. Anthony’s Medicare and Medicaid Provider Agreements. Id. St. Anthony was 

required to repay to the Medi-Cal program the difference between its higher FQHC PPS rates and 

the lower Medi-Cal fee for service rates for the period after its FQHC status was terminated. Id. 

In order to regain FQHC status for its clinic sites, St. Anthony was required to 

submit an initial FQHC designation application to HRSA. Id. ¶ 33. St. Anthony’s application 

was approved by HRSA and the Centers for Medicare and Medicaid Services (“CMS”) with an 

effective date of March 18, 2004. Id. ¶ 34. St. Anthony then reenrolled in Medicaid and 

Medicare as an FQHC. Id. ¶ 35. An e-mail from a CMS attorney to St. Anthony dated April 1, 

 1

 The MEI is “[a] measure of (physician) practice cost inflation developed in 1975 as a 

way of estimating annual changes in physicians’ operating costs and earning levels.” Medical 

Economic Index, Segen’s Medical Dictionary (2011), available at http://medicaldictionary.thefreedictionary.com/Medicare+Economic+Index (last viewed July 26, 2016). 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 4 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

5

2004 advised: “St. Anthony’s has received a ‘new’ designation therefore the State has to calculate 

its prospective payment system (PPS) visit rate to determine reimbursement as well as issue new 

provider numbers.” Id. ¶ 36. St. Anthony submitted a cost report to DHCS for the fiscal period 

ended June 30, 2004, and DHCS rejected the report, stating that “[i]n order to establish the [PPS] 

rate, a full year cost report must be submitted for the clinics [sic] first full year; fiscal period 

ended June 30, 2005.” Id. ¶ 37. St. Anthony interpreted the e-mail from CMS and the letter from 

DHCS as confirming it was necessary to calculate a new PPS rate for the clinic. Id. ¶¶ 36–37. 

However, rather than establishing a new initial year PPS rate for St. Anthony using the 

Comparables Methodology, DHCS continued to reimburse the clinic at an interim rate based on 

the PPS rate it had established for the earlier period of St. Anthony’s FQHC designation, adjusted 

annually by the MEI. Id. ¶ 38. 

The first amended complaint asserts a claim under 42 U.S.C. § 1983 based on a 

violation of 42 U.S.C. § 1396a(bb), which provides that a “State plan shall provide for payment 

for services . . . furnished by a Federally-qualified health center . . . in accordance with the 

provisions of this subsection,” id. § 1396a(bb)(1). See FAC ¶¶ 48–49. Specifically, the first 

amended complaint alleges it was unlawful for DHCS to not set a new initial year PPS rate for St. 

Anthony based on the Comparables Methodology in 2004. Id. ¶¶ 38–40. As a result, each time 

DHCS annually adjusted the preceding year’s rate by the MEI, the resulting amount was less than 

what DHCS was required to pay under § 1396a(bb). Id. ¶¶ 43–45. The first amended complaint 

alleges “[e]ach instance of Defendants making incorrect payments to [St. Anthony] is an 

independent, wrongful, discrete act that [St. Anthony] challenges by way of this action.” Id. ¶ 46. 

The first amended complaint notes that St. Anthony has had “continuous 

discussions” with DHCS over the years in an attempt to convince DHCS to recalculate its PPS 

rate, and sent DHCS a demand letter on July 23, 2015, after their most recent meeting. Id. ¶¶ 40–

41. When DHCS did not respond to the demand letter, St. Anthony filed this litigation. Id. ¶ 41. 

St. Anthony seeks: (1) a declaration that it was a new FQHC for purposes of setting an initial year 

PPS rate for the period beginning March 18, 2004; (2) a declaration that DHCS’s current payment 

rate for St. Anthony is, and since at least October 2013 has been, unlawful under federal and state 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 5 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

6

law governing Medi-Cal; (3) a declaration that DHCS is presently obligated to engage in a ratesetting process for St. Anthony consistent with federal and state law governing Medi-Cal; and 

(4) an injunction requiring DHCS to recalculate St. Anthony’s rates beginning October 1, 2013 to 

comport with the requirements of the laws governing Medi-Cal. Id. at 1–2. 

II. LEGAL STANDARDS 

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) tests the 

court’s subject matter jurisdiction. See, e.g., Savage v. Glendale Union High Sch., 343 F.3d 1036, 

1039–40 (9th Cir. 2003). When a party moves to dismiss for lack of subject matter jurisdiction, 

“the plaintiff bears the burden of demonstrating that the court has jurisdiction.” Boardman v. 

Shulman, No. 12-00639, 2012 WL 6088309, at *2 (E.D. Cal. Dec. 6, 2012), aff’d sub nom. 

Boardman v. C.I.R., 597 F. App’x 413 (9th Cir. 2015). 

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to 

dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed. R. Civ. 

P. 12(b)(6). The motion may be granted only if the complaint “lacks a cognizable legal theory or 

sufficient facts to support a cognizable legal theory.” Hartmann v. Cal. Dep’t of Corr. & Rehab., 

707 F.3d 1114, 1122 (9th Cir. 2013) (citation omitted). A claim may be dismissed under Rule 

12(b)(6) where the facts and dates alleged in the complaint establish that the claim is barred by 

the applicable statute of limitations. Von Saher v. Norton Simon Museum of Art at Pasadena, 592 

F.3d 954, 969 (9th Cir. 2010). 

Although a complaint need contain only “a short and plain statement of the claim 

showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), in order to survive a motion 

to dismiss this short and plain statement “must contain sufficient factual matter . . . to ‘state a 

claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something 

more than “an unadorned, the-defendant-unlawfully-harmed-me accusation” or “‘labels and 

conclusions’ or ‘a formulaic recitation of the elements of a cause of action.’” Id. (quoting 

Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss 

for failure to state a claim is a “context-specific task that requires the reviewing court to draw on 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 6 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

7

its judicial experience and common sense.” Id. at 679. Ultimately, the inquiry focuses on the 

interplay between the factual allegations of the complaint and the dispositive issues of law in the 

action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984). 

In making this context-specific evaluation, this court must construe the complaint 

in the light most favorable to the plaintiff and accept its factual allegations as true. Erickson v. 

Pardus, 551 U.S. 89, 93–94 (2007). This rule does not apply to “a legal conclusion couched as a 

factual allegation,” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 

(1986)), “allegations that contradict matters properly subject to judicial notice,” Sprewell v. 

Golden State Warriors, 266 F.3d 979, 988–89 (9th Cir. 2001), or material attached to or 

incorporated by reference into the complaint, see id. A court’s consideration of documents 

attached to a complaint, documents incorporated by reference in the complaint, or matters of 

judicial notice will not convert a motion to dismiss into a motion for summary judgment. United 

States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003); Parks Sch. of Bus. v. Symington, 51 F.3d 

1480, 1484 (9th Cir. 1995); cf. Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th 

Cir. 2002) (noting that even though court may look beyond pleadings on motion to dismiss, 

generally court is limited to face of the complaint on 12(b)(6) motion). 

III. DISCUSSION 

A. State Sovereign Immunity 

The court first considers defendants’ argument that St. Anthony’s claims are 

barred by the Eleventh Amendment, Mot. 17–20, because this argument implicates the court’s 

jurisdiction, see Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 98 (1984).2

 The 

Eleventh Amendment bars suits against states in federal court “unless they consent to it in 

unequivocal terms or unless Congress, pursuant to a valid exercise of power, unequivocally 

expresses its intent to abrogate the immunity.” Green v. Mansour, 474 U.S. 64, 68 (1985); see 

 2

 In its March 2, 2016 order resolving defendants’ motion characterized as brought under 

Rule 12(b)(6), the court reached only defendants’ statute of limitations argument, because it 

found dismissal was warranted on that basis alone. Prev. Order 9. The court should have first 

addressed defendants’ sovereign immunity argument, however, because it is jurisdictional. 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 7 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

8

also P.R. Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144 (1993). In Ex 

parte Young, 209 U.S. 123 (1908), the Supreme Court created an exception to this general 

principle by holding that the Eleventh Amendment did not bar a suit seeking prospective 

injunctive relief against a state official designed to prevent a continuing violation of federal law. 

Id. at 159–60; see Green, 474 U.S. at 68. The Court later explained that “[r]emedies designed to 

end a continuing violation of federal law are necessary to vindicate the federal interest in assuring 

the supremacy of that law.” Green, 474 U.S. at 68. However, the Court has refused to extend the 

Ex parte Young exception to claims for retrospective relief. Id.; Edelman v. Jordan, 415 U.S. 

651, 664–65 (1974). An injunction or declaratory judgment is not available if it “would have 

much the same effect as a full-fledged award of damages or restitution by the federal court.” 

Green, 474 U.S. at 73. For example, in Green, the petitioners had asserted no ongoing violation 

of federal law, so “the award of a declaratory judgment . . . would [have been] useful in resolving 

the dispute . . . only if it might [have been] offered in state-court proceedings as res judicata on 

the issue of liability, leaving to the state courts only a form of accounting proceeding whereby 

damages or restitution would be computed.” Id.

Here, DHCS is immune from suit, because it is a nonconsenting state entity, and 

Congress has not abrogated its immunity. See Windward Partners v. Ariyoshi, 693 F.2d 928, 929 

(9th Cir. 1982) (“[S]ection 1983 does not abrogate or ‘override’ the sovereign immunity of the 

states under the eleventh amendment.” (quoting Quern v. Jordan, 440 U.S. 332, 341 (1979)); 

Nat’l Audubon Soc’y, Inc. v. Davis, 307 F.3d 835, 847 (9th Cir. 2002) (finding state agencies 

immune from suit). In addition, Ms. Kent, who is sued in her official capacity as the Director of 

DHCS, is immune from suit insofar as St. Anthony seeks to recover additional payments for past 

services or a declaratory judgment that defendants violated the law in the past. See FAC at 2, 21 

(seeking declaration that DHCS’s payments since at least October 2013 have been unlawful and 

seeking injunctive relief requiring DHCS to engage in a rate-setting retroactively to a time period 

beginning at least as early as October 1, 2013); Green, 474 U.S. at 68, 73. However, under the Ex 

parte Young exception, St. Anthony is not barred from seeking an injunction requiring Ms. Kent 

to recalculate its PPS rate with respect to prospective payments or from seeking a complementary 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 8 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

9

declaratory judgment that Ms. Kent is currently violating the law, because such relief is designed 

to end a continuing violation of federal law. See Green, 474 U.S. at 68–69. 

The court DISMISSES all of St. Anthony’s claims against DHCS and DISMISSES 

St. Anthony’s claims against Ms. Kent for injunctive and declaratory relief with respect to past 

payments. This leaves St. Anthony’s claims against Ms. Kent for injunctive and declaratory relief 

with respect to future payments, if they are not dismissed on other grounds. 

B. Statute of Limitations 

Defendants argue the remaining claims against Ms. Kent should once again be 

dismissed as time barred. As the court found in its March 2, 2016 order, the applicable statute of 

limitations for 42 U.S.C. § 1983 is two years, see Wallace v. Kato, 549 U.S. 384, 387 (2007); 

Cology Cove Props., LLC v. City of Carson, 640 F.3d 948, 956 (9th Cir. 2011), which begins to 

accrue when the plaintiff “knows or has reason to know” of the injury forming the basis for the 

action, Bagley v. CMC Real Estate Corp., 923 F.2d 758, 760 (9th Cir. 1991) (citation omitted). 

Prev. Order 5. 

The parties agree that claims arising from the initial year PPS rate-setting are time 

barred unless the continuing violation doctrine applies, because St. Anthony did not file the 

instant action until September 11, 2015, more than ten years after it was recertified as an FQHC. 

See Mot. 7; Opp’n 8–13; cf. Knox v. Davis, 260 F.3d 1009, 1013 (9th Cir. 2001) (the continuing 

violation doctrine applies to § 1983 actions). As explained in the court’s previous order, under 

the continuing violation doctrine, a defendant’s independent, wrongful, discrete acts restart the 

running of the statute of limitations, whereas the continuing inevitable effects of a defendant’s 

prior decision are not actionable. Prev. Order 6–8; Pouncil v. Tilton, 704 F.3d 568, 576–81 (9th 

Cir. 2012) (comparing Knox, 260 F.3d 1009 (inevitable effects), and Del. State Coll. v. Ricks, 449 

U.S. 250 (1980) (same), with Nat’l R.R. Passenger Corp. v. Morgan, 536 U.S. 101 (2002) 

(discrete acts), and Cherosky v. Henderson, 330 F.3d 1243 (9th Cir. 2003) (same)). 

In its March 2, 2016 order, the court dismissed the complaint as time barred, 

finding the complaint “[did] not allege defendants took any acts that violated the Medicaid Act 

///// 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 9 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

10

after 2004.” Prev. Order 8. The court reasoned, 

[P]laintiff [did] not allege defendants, in calculating the rates for 

any year after 2004, increased the rate of the preceding year by an 

incorrect MEI percentage or failed to adjust the rate to take into 

account a change in the scope of services furnished under 

§ 1396a(bb)(3). The sole complaint [was] that the initial base rate 

established in 2004 was incorrect under § 1396a(bb)(4), which, as a 

result of the formula for calculating payments, inherently led all 

subsequent payments to be incorrect. 

Id. Under Knox, the court found “the allegedly incorrect subsequent payments constitute[d] 

inevitable continuing effects of the 2004 decision, rather than independent subsequent violations 

or continuing unlawful practices.” Id. (citing 260 F.3d at 1013–15). 

St. Anthony now advances two theories in an attempt to bring its claim within the 

statute of limitations. First, it argues the Knox and Ricks line of authorities discussed in Pouncil 

does not apply here because defendants never made a final “decision” regarding St. Anthony’s 

“permanent” initial year PPS rate, and instead have reimbursed St. Anthony at a rate based on the 

PPS rate established for the earlier period of St. Anthony’s FQHC designation. Opp’n 8–11; see 

FAC ¶¶ 31–39, 55. Second, it argues that each time defendants fail to reimburse St. Anthony at 

the rate required to be paid under § 1396a(bb) constitutes a discrete violation of the Medicaid Act 

that restarts the running of the statute of limitations. FAC ¶¶ 44, 46, 62–63; Opp’n 12–13. 

St. Anthony has changed the packaging but not the substance of its claim. With 

respect to its first theory, the analysis in Knox and Ricks did not turn on whether the defendant 

had made a final “decision,” but on when the alleged wrongful acts and resulting injury occurred. 

Here, St. Anthony is challenging defendants’ acts of using the methodology for previouslyexisting FQHCs under § 1396a(bb)(3) rather than the Comparables Methodology for newlyestablished FQHCs under § 1396a(bb)(4) when reimbursing it for the services it provided for the 

period beginning March 18, 2004. It seeks “a declaration that it was a new FQHC for purposes of 

an initial [PPS] rate for the Medi-Cal services it provided for the period beginning March 18, 

2004.” FAC at 1. Defendants were not required to issue an official notice to start the running of 

the statute of limitations. Federal claims accrue when a plaintiff “knows or has reason to know” 

of its injury, see Bagley, 923 F.2d at 760, and the first amended complaint establishes that St. 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 10 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

11

Anthony knew or had reason to know of its injury beginning at least as early as 2005, when it 

began communicating with DHCS about the PPS rate for the period beginning March 18, 2004, 

see FAC ¶¶ 37–38. When asked at hearing, St. Anthony clarified that it is not making an 

equitable estoppel argument based on its reliance on any representations made by defendants 

during their communications, see, e.g., FAC ¶ 40. St. Anthony’s act of sending defendants a 

demand letter in July 2015 did not somehow independently restart the running of the limitations 

period. See Opp’n 10; FAC ¶¶ 40–41. Such an exception would eviscerate the purpose of a 

statute of limitations. 

The court rejects St. Anthony’s second theory for the same reasons discussed in its 

March 2, 2016 order. St. Anthony again does not allege defendants, in calculating the rates for 

any year after 2004, increased the rate of the preceding year by an incorrect MEI percentage or 

failed to adjust the rate to take into account a change in the scope of services furnished under 

§ 1396a(bb)(3). Instead, it once more alleges the PPS rates in the succeeding fiscal years were 

incorrect solely because the initial year PPS rate for the period beginning March 18, 2004 was not 

calculated using the Comparables Methodology for “new” FQHCs under § 1396a(bb)(4). See 

FAC ¶¶ 38–39, 44, 62–63. St. Anthony has added the allegation that “[e]ach instance of 

Defendants making incorrect payments to [St. Anthony] is an independent, wrongful, discrete act 

that [St. Anthony] challenges by way of this action,” id. ¶ 46; see also id. ¶¶ 44, 62–63, but this 

statement is a legal conclusion that the court need not accept as true, see Iqbal, 556 U.S. at 678. 

Although St. Anthony emphasizes that the purpose behind the reimbursement requirement is to 

ensure Federal Public Health Service Act grant funds are not used to subsidize health services to 

Medicaid beneficiaries, Congress provided specific methodologies for calculating an all-inclusive 

per-visit rate. See 42 U.S.C. § 1396a(bb). When DHCS recalculates the PPS rate each year, it 

has no independent duty under the Medicaid Act to review the rate for the preceding fiscal year to 

ensure it fully reimbursed the FQHC’s reasonable costs for that year. See 42 U.S.C. 

§ 1396a(bb)(3). Section 1396a(bb)(3) only requires the state plan to adjust the rate for the 

preceding year by the MEI and to account for any changes in the scope of services, and St. 

Anthony does not dispute this is what defendants did. 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 11 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

12

It is apparent that the heart of St. Anthony’s claim is that it was entitled to an 

initial year PPS rate based on the Comparables Methodology as a “new” FQHC for the period 

beginning March 18, 2004. St. Anthony alleges no new facts that alter the court’s previous 

analysis in its March 2, 2016 order, and artful pleading cannot evade the time bar. Cf. Pouncil, 

704 F.3d at 574–76, 581–83 (carefully considering how to best characterize the nature and 

“heart” of the plaintiff’s claim). The court again dismisses the first amended complaint as time 

barred and does not reach defendants’ remaining arguments under Rule 12(b)(6). 

C. Leave to Amend 

Having found dismissal warranted, the court next considers whether to give leave 

to amend. Federal Rule of Civil Procedure 15(a)(2) states “[t]he court should freely give leave [to 

amend the pleadings] when justice so requires” and the Ninth Circuit has “stressed Rule 15’s 

policy of favoring amendments,” Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th 

Cir. 1989). “In exercising its discretion [to grant or deny leave to amend] ‘a court must be guided 

by the underlying purpose of Rule 15—to facilitate decision on the merits rather than on the 

pleadings or technicalities.’” DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 186 (9th Cir. 1987) 

(quoting United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981)). However, “liberality in 

granting leave to amend is subject to several limitations . . . . includ[ing] undue prejudice to the 

opposing party, bad faith by the movant, futility, and undue delay.” Cafasso, U.S. ex rel. v. Gen. 

Dynamics C4 Sys., Inc., 637 F.3d 1047, 1058 (9th Cir. 2011) (internal citations and quotation 

marks omitted). In addition, a court should look to whether the plaintiff has previously amended 

the complaint, as “the district court’s discretion is especially broad ‘where the court has already 

given a plaintiff one or more opportunities to amend [its] complaint.’” Ascon, 866 F.2d at 1161 

(quoting Leighton, 833 F.2d at 186 n.3). 

Here, St. Anthony cannot cure the deficiencies in light of the Eleventh 

Amendment bar. Accordingly, the court dismisses the claims against DHCS and the claims 

against Ms. Kent for injunctive and declaratory relief with respect to past payments without leave 

to amend as futile. 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 12 of 13
1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

13

The court previously allowed St. Anthony leave to amend the complaint if it could 

cure the deficiencies as to the statute of limitations, and it has been unable to do so. St. Anthony 

has not pled new allegations supporting application of the continuing violation doctrine or 

establishing an independent, cognizable claim that arose within the limitations period. Because 

amendment would be futile, the court dismisses the remaining claims without leave to amend. 

IV. CONCLUSION 

For the foregoing reasons, the court GRANTS defendants’ motion to dismiss the 

first amended complaint without leave to amend. CASE CLOSED. 

IT IS SO ORDERED. 

DATED: August 6, 2016. 

Case 2:15-cv-01926-KJM-DB Document 33 Filed 08/08/16 Page 13 of 13