FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MANAGED PHARMACY CARE, a

California corporation;

INDEPENDENT LIVING CENTER OF

SOUTHERN CALIFORNIA, INC., a

California corporation; CALIFORNIA

FOUNDATION FOR INDEPENDENT

LIVING CENTERS, a California

corporation; GERALD SHAPIRO,

PHARM D, DBA Upton Pharmacy

and Gift Shoppe; SHARON STEEN,

DBA Central Pharmacy; TRAN

PHARMACY, INC., a California

corporation, DBA Tran Pharmacy;

ODETTE LEONELLI, DBA KovacsFrey Pharmacy; MARKET

PHARMACY, INC., DBA Market

Pharmacy; MARK BECKWITH,

Plaintiffs-Appellees,

v.

KATHLEEN SEBELIUS, Secretary of

the United States Department of

Health and Human Services,

Defendant,

and

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California,

Defendant-Appellant.

No. 12-55067

D.C. No.

2:11-cv-09211-

CAS-MAN
2 MANAGED PHARMACY CARE V. SEBELIUS

CALIFORNIA HOSPITAL

ASSOCIATION,

Plaintiff-Appellee,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California,

Defendant-Appellant,

and

KATHLEEN SEBELIUS, Secretary of

the United States Department of

Health and Human Services,

Defendant.

No. 12-55068

D.C. No.

2:11-cv-09078-

CAS-MAN
MANAGED PHARMACY CARE V. SEBELIUS 3

CALIFORNIA MEDICAL

TRANSPORTATION ASSOCIATION,

INC., a California corporation; GMD

TRANSPORTATION, INC., a California

corporation; LONNY SLOCUM, an

individual,

Plaintiffs-Appellees,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California,

Defendant-Appellant,

and

KATHLEEN SEBELIUS, Secretary of

the United States Department of

Health and Human Services,

Defendant.

No. 12-55103

D.C. No.

2:11-cv-09830-

CAS-MAN
4 MANAGED PHARMACY CARE V. SEBELIUS

CALIFORNIA MEDICAL

ASSOCIATION; CALIFORNIA DENTAL

ASSOCIATION; CALIFORNIA

PHARMACISTS ASSOCIATION;

NATIONAL ASSOCIATION OF CHAIN

DRUG STORES; CALIFORNIA

ASSOCIATION OF MEDICAL PRODUCT

SUPPLIERS; AIDS HEALTHCARE

FOUNDATION; AMERICAN MEDICAL

RESPONSE WEST; JENNIFER ARNOLD,

Plaintiffs-Appellees,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California,

Defendant-Appellant,

and

KATHLEEN SEBELIUS, Secretary of

the United States Department of

Health and Human Services,

Defendant.

No. 12-55315

D.C. No.

2:11-cv-09688-

CAS-MAN
MANAGED PHARMACY CARE V. SEBELIUS 5

CALIFORNIA HOSPITAL

ASSOCIATION,

Plaintiff-Appellee,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California,

Defendant,

and

KATHLEEN SEBELIUS, Secretary of

the United States Department of

Health and Human Services,

Defendant-Appellant.

No. 12-55331

D.C. No.

2:11-cv-09078-

CAS-MAN
6 MANAGED PHARMACY CARE V. SEBELIUS

MANAGED PHARMACY CARE, a

California corporation;

INDEPENDENT LIVING CENTER OF

SOUTHERN CALIFORNIA, INC., a

California corporation; CALIFORNIA

FOUNDATION FOR INDEPENDENT

LIVING CENTERS, a California

corporation; GERALD SHAPIRO,

PHARM D, DBA Upton Pharmacy

and Gift Shoppe; SHARON STEEN,

DBA Central Pharmacy; TRAN

PHARMACY, INC., a California

corporation, DBA Tran Pharmacy;

ODETTE LEONELLI, DBA KovacsFrey Pharmacy; MARKET

PHARMACY, INC., DBA Market

Pharmacy; MARK BECKWITH,

Plaintiffs-Appellees,

v.

KATHLEEN SEBELIUS, Secretary of

the United States Department of

Health and Human Services,

Defendant-Appellant,

and

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California,

Defendant.

No. 12-55332

D.C. No.

2:11-cv-09211-

CAS-MAN
MANAGED PHARMACY CARE V. SEBELIUS 7

CALIFORNIA MEDICAL

TRANSPORTATION ASSOCIATION,

INC., a California corporation; GMD

TRANSPORTATION, INC., a California

corporation; LONNY SLOCUM, an

individual,

Plaintiffs-Appellees,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California,

Defendant,

and

KATHLEEN SEBELIUS, Secretary of

the United States Department of

Health and Human Services,

Defendant-Appellant.

No. 12-55334

D.C. No.

2:11-cv-09830-

CAS-MAN
8 MANAGED PHARMACY CARE V. SEBELIUS

CALIFORNIA MEDICAL

ASSOCIATION; CALIFORNIA DENTAL

ASSOCIATION; CALIFORNIA

PHARMACISTS ASSOCIATION;

NATIONAL ASSOCIATION OF CHAIN

DRUG STORES; CALIFORNIA

ASSOCIATION OF MEDICAL PRODUCT

SUPPLIERS; AIDS HEALTHCARE

FOUNDATION; AMERICAN MEDICAL

RESPONSE WEST; JENNIFER ARNOLD,

Plaintiffs-Appellees,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California,

Defendant,

and

KATHLEEN SEBELIUS, Secretary of

the United States Department of

Health and Human Services,

Defendant-Appellant.

No. 12-55335

D.C. No.

2:11-cv-09688-

CAS-MAN
MANAGED PHARMACY CARE V. SEBELIUS 9

CALIFORNIA HOSPITAL

ASSOCIATION; G. G., an individual;

I. F., an individual; R. E., an

individual; A. W., an individual;

A. G., an individual,

Plaintiffs-Appellants,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California; KATHLEEN

SEBELIUS, Secretary of the United

States Department of Health and

Human Services,

Defendants-Appellees.

No. 12-55535

D.C. No.

2:11-cv-09078-

CAS-MAN
10 MANAGED PHARMACY CARE V. SEBELIUS

CALIFORNIA MEDICAL

ASSOCIATION; CALIFORNIA DENTAL

ASSOCIATION; CALIFORNIA

PHARMACISTS ASSOCIATION;

NATIONAL ASSOCIATION OF CHAIN

DRUG STORES; CALIFORNIA

ASSOCIATION OF MEDICAL PRODUCT

SUPPLIERS; AIDS HEALTHCARE

FOUNDATION; AMERICAN MEDICAL

RESPONSE WEST; JENNIFER ARNOLD,

Plaintiffs-Appellants,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California; KATHLEEN

SEBELIUS, Secretary of the United

States Department of Health and

Human Services,

Defendants-Appellees.

No. 12-55550

D.C. No.

2:11-cv-09688-

CAS-MAN
MANAGED PHARMACY CARE V. SEBELIUS 11

CALIFORNIA MEDICAL

TRANSPORTATION ASSOCIATION,

INC., a California corporation;

LONNY SLOCUM, an individual;

GMD TRANSPORTATION, INC., a

California corporation,

Plaintiffs-Appellants,

v.

TOBY DOUGLAS, Director of the

Department of Health Care Services

of the State of California; KATHLEEN

SEBELIUS, Secretary of the United

States Department of Health and

Human Services,

Defendants-Appellees.

No. 12-55554

D.C. No.

2:11-cv-09830-

CAS-MAN

ORDER AND

OPINION

Appeal from the United States District Court

for the Central District of California

Christina A. Snyder, District Judge, Presiding

Argued and Submitted

October 10, 2012—Pasadena, California

Filed May 24, 2013

Before: Stephen S. Trott, Andrew J. Kleinfeld,

and M. Margaret McKeown, Circuit Judges.

Order;

Opinion by Judge Trott
12 MANAGED PHARMACY CARE V. SEBELIUS

 This summary constitutes no part of the opinion of the court. It has

*

been prepared by court staff for the convenience of the reader.

SUMMARY

*

Medicaid / Preliminary Injunctions

The panel withdrew its prior opinion and published a

superseding opinion reversing the district court’s decisions in

four cases and vacating preliminary injunctions prohibiting

the California Department of Health Care Services and its

Director from implementing Medi-Cal reimbursement rate

reductions authorized by the California legislature and

approved by the Secretary of the Department of Health and

Human Services.

Asserting claims against the Secretary under the

Administrative Procedures Act and against the Director under

the Supremacy Clause, various Medi-Cal providers and

beneficiaries claimed that the reimbursement rate reductions

did not comply with 42 U.S.C. § 1396a(a)(30)(A). They

relied on Orthopaedic Hosp. v. Belshe, 103 F.3d 1491 (9th

Cir. 1997), which interpreted § 30(A) as requiring a state

seeking to reduce Medicaid reimbursement rates first to

consider the costs of providing medical services subject to the

rate reductions.

The panel held that Orthopaedic Hosp. did not control

because it did not consider the Secretary’s interpretation of

§ 30(A). Agreeing with the D.C. Circuit, the panel held that

the Secretary’s approval of California’s requested

reimbursement rates, including her permissible view that

prior to reducing rates states need not follow any specific
MANAGED PHARMACY CARE V. SEBELIUS 13

procedural steps, was entitled to Chevron deference, and that

the Secretary’s approval complied with the Administrative

Procedures Act. The panel further held that the plaintiffs

were unlikely to succeed on the merits of their Supremacy

Clause claims against the Director because, even assuming

that the Supremacy Clause provides a private right of action,

the Secretary had reasonably determined that the State’s

reimbursement rates complied with § 30(A). Finally, the

panel held that none of the plaintiffs had a viable takings

claim because Medicaid, as a voluntary program, does not

create property rights.

The panel dismissed cross-appeals as moot.

COUNSEL

Lindsey Powell, United States Attorneys’ Office,

Washington, D.C., for Defendant-Appellant Kathleen

Sebelius.

Kamala D. Harris, California Attorney General; Julie WengGutierrez, Senior Assistant Attorney General; Karin S.

Schwartz (argued), Susan M. Carson, and Jennifer M. Kim,

Supervising Deputy Attorneys General; Gregory D. Brown,

Joshua N. Sondheimer, and Jonathan E. Rich, Deputy

Attorneys General, San Francisco, California, for DefendantAppellant Toby Douglas.

Lynn S. Carman, Medicaid Defense Fund, San Anselmo,

California; Lloyd A. Bookman and Jordan B. Keville,

Hooper, Lundy & Bookman, P.C., Los Angeles, California;

Stanley L. Friedman, Law Offices of Stanley L. Friedman,

Los Angeles, California; Craig J. Cannizzo, Hooper, Lundy
14 MANAGED PHARMACY CARE V. SEBELIUS

& Bookman, P.C., San Francisco, California; for PlaintiffsAppellees-Cross-Appellants.

Jessica Lynn Ellsworth, Hogan Lovells US LLP, Washington,

D.C., for amicus curiae.

ORDER

The Opinion filed December 13, 2012, and appearing at

705 F.3d 934 (9th Cir. 2012) is withdrawn. It may not be

cited as precedent by or to this court or any district court of

the Ninth Circuit. A superseding opinion will be filed

concurrently with this order.

The panel as constituted above has voted to deny the

petitions for rehearing. Judge McKeown has voted to deny

the petitions for rehearing en banc and Judges Trott and

Kleinfeld so recommend.

The full court has been advised of the suggestion for

rehearing en banc and no judge of the court has requested a

vote on it. Fed. R. App. P. 35(b).

The petitions for rehearing and the petitions for rehearing

en banc are DENIED.

No future petitions for panel rehearing or rehearing en

banc shall be entertained.
MANAGED PHARMACY CARE V. SEBELIUS 15

OPINION

TROTT, Circuit Judge:

In the four cases giving rise to these eleven consolidated

appeals, Kathleen Sebelius, Secretary of the Department of

Health and Human Services (“HHS”), and Toby Douglas,

Director of the California Department of Health Care

Services (“DHCS”), appeal the district court’s grant of

preliminary injunctions in favor of various providers and

beneficiaries of Medi-Cal, California’s Medicaid program

(“Plaintiffs”). The injunctions prohibit the Director and

DHCS from implementing reimbursement rate reductions

authorized by the California legislature and approved by the

Secretary. The injunctions also stay the Secretary’s approval.

Plaintiffs cross-appeal the court’s modification of its orders

to allow the rate reductions as to Medi-Cal services provided

before the injunctions took effect.

Plaintiffs assert claims against the Secretary under the

Administrative Procedures Act (“APA”) and against the

Director under the Supremacy Clause of the United States

Constitution, claiming that the reimbursement rate reductions

do not comply with 42 U.S.C. § 1396a(a)(30)(A) (hereafter

“§ 30(A)”). In support of their claims, Plaintiffs rely

primarily on our decision in Orthopaedic Hospital v. Belshe,

103 F.3d 1491 (9th Cir. 1997). In Orthopaedic Hospital, the

federal government was not a party. As such, we did not

address whether deference was owed to the Secretary’s

interpretation of the statute. Instead, we interpreted § 30(A)

as requiring a state seeking to reduce Medicaid

reimbursement rates first to consider the costs of providing

medical services subject to the rate reductions. DHCS did not

consider such studies in all of the Medicaid services subject

to the rate reductions. The Secretary points out that Congress
16 MANAGED PHARMACY CARE V. SEBELIUS

expressly delegated to her the authority and responsibility to

approve state Medicaid plans. She argues that her approval

of the rate reductions, including her view that § 30(A) does

not necessarily require cost studies (or any other particular

methodology), is entitled to deference, overrides Orthopaedic

Hospital, and complies with the APA.

In addition to joining the Secretary’s arguments, the

Director contends that Plaintiffs cannot maintain a direct

cause of action under the Supremacy Clause for violation of

§ 30(A). Although we have previously discussed this issue in

a case where the Secretary had not acted, Independent Living

Center of Southern California v. Shewry, 543 F.3d 1050 (9th

Cir. 2008), the Director argues that our holding in that case is

not binding in a situation where, as here, the Secretary has

already exercised her discretion to approve the rate reductions

as consistent with federal law.

The district court held that Plaintiffs in all four cases were

likely to succeed on the merits of their APA and Supremacy

Clause claims, and that the Plaintiffs in one case were likely

to succeed on their claim under the Takings Clause of the

United States Constitution. The court also concluded that

Plaintiffs would suffer irreparable harm absent the injunctions

and that the injunctions favored the public interest. We have

jurisdiction under 28 U.S.C. § 1292(a)(1), and we conclude

that the district court misapplied the applicable legal rules and

thus did not appropriately exercise its discretion.

We hold that (1) Orthopaedic Hospital does not control

the outcome in these cases because it did not consider the key

issue here – the Secretary’s interpretation of § 30(A), (2) the

Secretary’s approval of California’s requested reimbursement

rates – including her permissible view that prior to reducing

rates states need not follow any specific procedural steps,
MANAGED PHARMACY CARE V. SEBELIUS 17

such as considering providers’ costs – is entitled to deference

under Chevron, U.S.A., Inc. v. Natural Resources Defense

Council, Inc., 467 U.S. 837 (1984), and (3) the Secretary’s

approval complies with the APA. We further hold that

Plaintiffs are unlikely to succeed on the merits of their

Supremacy Clause claims against the Director because –

assuming that the Supremacy Clause provides a private right

of action even where the Secretary has acted – the Secretary

has reasonably determined that the State’s reimbursement

rates comply with § 30(A). Finally, we hold that none of the

Plaintiffs has a viable takings claim because Medicaid, as a

voluntary program, does not create property rights. The

district court’s orders concluding that Plaintiffs are likely to

succeed on their claims must be reversed, the preliminary

injunctions vacated, and the cases remanded for further

proceedings consistent with this opinion. We dismiss

Plaintiffs’ cross-appeals as moot.

I

BACKGROUND

“Medicaid is a cooperative federal-state program through

which the federal government reimburses states for certain

medical expenses incurred on behalf of needy persons.”

Alaska Dep’t of Health and Soc. Servs. v. Ctrs. for Medicare

& Medicaid Servs. (“Alaska DHSS”), 424 F.3d 931, 934 (9th

Cir. 2005). States do not have to participate in Medicaid, but

those that choose to do so “must comply both with statutory

requirements imposed by the Medicaid Act and with

regulations promulgated by the Secretary of [HHS].” Id. at

935. Every State’s Medicaid plan must

provide such methods and procedures relating

to the utilization of, and the payment for, care
18 MANAGED PHARMACY CARE V. SEBELIUS

and services available under the plan . . . as

may be necessary to safeguard against

unnecessary utilization of such care and

services and to 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.

42 U.S.C. § 1396a(a)(30)(A) (emphasis added).

Recognizing that availability and access to health care,

particularly for children, is of vital national importance,

Congress established in 2009 the Medicaid and CHIP

Payment and Access Commission (“MACPAC”). Children’s

Health Insurance Program Reauthorization Act of 2009, Pub.

L. No. 111-3, § 506, 123 Stat. 8, 91 (codified at 42 U.S.C.

§ 1396(a)). MACPAC is charged with studying beneficiary

access to health care under the Medicaid and CHIP programs

and “mak[ing] recommendations to Congress, the Secretary,

and States concerning . . . access policies.” 42 U.S.C.

§ 1396(b)(1)(B). MACPAC reviewed 30 years of research

and issued its first report to Congress in March 2011. See

MACPAC, March 2011 Report to the Congress on

Medicaid and CHIP, p. 126, available at

http://www.macpac.gov/reports. MACPAC came up with a

three-part framework for analyzing access in light of the

factors set forth in § 30(A) – MACPAC’s analysis considers

(1) the needs of enrollees, (2) provider availability, and (3)

utilization of services. Id. at 127; see also 76 Fed. Reg.

26342, 26343 (May 6, 2011) (notice of proposed rule

interpreting and implementing § 30(A)).
MANAGED PHARMACY CARE V. SEBELIUS 19

Congress expressly delegated to the Secretary the

responsibility and the authority to administer the Medicaid

program and to review state Medicaid plans and plan

amendments for compliance with federal law. 42 U.S.C.

§ 1396a(b) (“The Secretary shall approve any plan which

fulfills” the statutory requirements). The Secretary, in turn,

delegated that responsibility and authority to the regional

administrator for the Center for Medicare and Medicaid

Services (“CMS”). 42 C.F.R. § 430.15(b); see also Alaska

DHSS, 424 F.3d at 935. CMS must review and approve or

reject any proposed amendment to a state Medicaid plan.

Such an amendment is referred to as a State Plan Amendment

(“SPA”).

The State of California has tried on several occasions to

reduce reimbursement rates to providers of certain Medi-Cal

services through the SPA process. The rates involved in

these appeals were initiated by Assembly Bill 97, where the

legislature stated,

In order to minimize the need for drastically

cutting enrollment standards or benefits

during times of economic crisis, it is crucial to

find areas within the program where

reimbursement levels are higher than

required under the standard provided in

[§ 30(A)] and can be reduced in accordance

with federal law.

Cal. Welf. & Inst. Code § 14105.192(a)(2) (emphasis added).

The statute granted the Director the authority to identify

where reimbursement rates could be reduced and instructed

the Director not to implement any reductions unless and until

the Director (1) determined that the reductions “will comply
20 MANAGED PHARMACY CARE V. SEBELIUS

with applicable federal Medicaid requirements” and (2)

obtained federal approval. Id. § 14105.192(m), (o)(1).

Pursuant to that authority, DHCS studied the potential

impact of rate reductions on many Medi-Cal services,

reviewing data collected and analyzed over several years in

the process. The Director concluded that reimbursement rates

could be reduced consistently with federal law for pharmacy

services; durable medical equipment; emergency and nonemergency medical transportation; certain physician, clinic,

and dental services; and services provided by “distinct part

nursing facilities” (“DP/NFs”). DP/NFs are skilled nursing

facilities operated by hospitals as distinct parts within those

hospitals. Rates for most of these services were to be reduced

ten percent from current rate levels, though some were to be

reduced ten percent from rate levels as they existed in 2008

to 2009.

DHCS prepared two SPAs for submission to CMS.

Federal officials were in frequent contact with the Director

during this process. SPA 11-010 requested approval of the

rate reductions for DP/NF services; SPA 11-009 requested

approval of the rate reductions for all of the other services at

issue.

In support of SPAs 11-009 and 11-010, DHCS submitted

access studies for each of the affected services. These studies

reviewed data focused primarily on enrollee needs, provider

availability, and utilization of services – the same factors

MACPAC uses in its access analyses. Although DHCS

included studies of providers’ costs with respect to some of

the services, such as certain pharmacy costs and costs

incurred by DP/NFs, it did not review cost data with respect

to most of the services subject to the rate reduction. The
MANAGED PHARMACY CARE V. SEBELIUS 21

studies concluded that SPAs 11-009 and 11-010 are unlikely

to diminish access.

DHCS also submitted an 82-page monitoring plan, which

identified 23 different measures DHCS will study on a

recurring basis to ensure the SPAs do not negatively affect

beneficiary access. These measures address the three

categories of factors MACPAC identified as affecting access:

beneficiary data, provider availability data, and service

utilization data. Included among the data DHCS will monitor

are changes in Medi-Cal and dental enrollment, primary care

supply ratios, provider participation rates, bed vacancy rates,

visits to emergency rooms, and preventable hospitalization

rates.

Various providers and provider groups, including some of

the Plaintiffs, offered extensive input to CMS as well. For

example, the California Hospital Association (“CHA”) wrote

to the agency multiple times to express its disapproval of the

SPAs. CMS considered a special report commissioned by

CHA; the report concluded most DP/NFs operate at a loss.

CHA and the California Medical Association (“CMA”)

submitted a survey purporting to show that the reductions

would inhibit access. As CMS later noted, there were several

shortcomings with this survey, including that it was

conducted over nine days and involved only 763 California

residents.

CMS approved both SPAs. The approval letters were

succinct, but they explained that, “[i]n light of the data CMS

reviewed, the monitoring plan, and [CMS’s] consideration of

stakeholder input,” DHCS had submitted sufficient

information to show that its SPAs complied with § 30(A).

“As part of the analysis of this amendment, the State was able

to provide metrics which adequately demonstrated
22 MANAGED PHARMACY CARE V. SEBELIUS

beneficiary access,” including (1) the “[t]otal number of

providers by type and geographic location and participating

Medi-Cal providers by type and geographic area,” (2) the

“[t]otal number of Medi-Cal beneficiaries by eligibility type,”

(3) “[u]tilization of services by eligibility type over time,”

and (4) an “[a]nalysis of benchmark service utilization where

available.” CMS approved the reduced rates retroactively to

June 1, 2011.

Four groups of Plaintiffs filed suit against the Secretary

and the Director in the United States District Court for the

Central District of California. Managed Pharmacy Care v.

Sebelius, D. Ct. No. 2:11-cv-09211-CAS-MAN (Appeal Nos.

12-55067 & 12-55332) (“the MPC case”), was filed by five

pharmacies, a pharmacy organization, an independent living

center, a state association of independent living centers, and

a Medi-Cal beneficiary. California Medical Association v.

Douglas, D. Ct. No. 2:11-cv-09688-CAS-MAN (Appeal Nos.

12-55335, 12-55315, & 12-55550) (“the CMA case”), was

filed by professional associations representing the interests of

physicians, dentists, pharmacists, suppliers of durable

medical equipment, providers of care for AIDS patients,

providers of emergency medical transportation, and a MediCal beneficiary. California Medical Transportation

Association v. Douglas, D. Ct. No. 2:11-cv-09830-CASMAN (Appeal Nos. 12-55334, 12-55103, & 12-55554) (“the

CMTA case”), was filed by a provider of non-emergency

medical transportation services, a trade association

representing other such providers, and a Medi-Cal

beneficiary. California Hospital Association v. Douglas, D.

Ct. No. 2:11-cv-09078-CAS-MAN (Appeal Nos. 12-55331,

12-55068, & 12-55535) (“the CHA case”), was filed by five

Medi-Cal beneficiaries and a trade association representing

the interests of DP/NFs.
MANAGED PHARMACY CARE V. SEBELIUS 23

The district court declined to defer to the Secretary’s

approval of the SPAs and granted Plaintiffs’ motions for

preliminary injunctions. The court determined that our

decision in Orthopaedic Hospital required the State to

consider cost data prior to submitting the SPAs to CMS and

disagreed with DHCS’s research methodologywith respect to

the potential impact of the reductions on beneficiary access.

For example, the district court determined that the State’s

participating pharmacy list incorrectly included some

pharmacies, that the analysis of DP/NFs improperly

considered freestanding nursing facilities, and that DHCS’s

geographic analysis was flawed because it focused on an

urban-rural county model rather than one based on physical

location. The court determined also that CMS’s acceptance

of the monitoring plan was inappropriate because “at best the

monitoring plan creates a potential response after a quality

deficiency has been identified.” Thus, the district court held,

Plaintiffs were likely to succeed on their APA claims that the

SPAs violate § 30(A). The court also held that the

Supremacy Clause provides a private right of action to

challenge the reimbursement rates as violating § 30(A) and

that Plaintiffs were likely to prevail on those claims as well.

In the CHA case, the district court entered the preliminary

injunction on the additional ground that because state law

places certain restrictions on how and when DP/NFs may stop

treating Medicaid patients, CHA would likely succeed on its

takings claim.

In the MPC, CMTA, and CHA cases, the injunctions

initially prohibited the Director from applying the rate

reductions to any services rendered after June 1, 2011. In the

CMA case, however, the court determined that enjoining the

reductions as to services rendered before the injunctions took

effect would violate the State’s Eleventh Amendment

sovereign immunity and limited its injunction accordingly.
24 MANAGED PHARMACY CARE V. SEBELIUS

On motions of the Director, the district court modified the

other injunctions along the same lines.

The Secretary and the Director appeal. Plaintiffs crossappeal the district court’s decision to allow the new rates with

respect to Medicaid services rendered before the effective

date of the injunctions.

II

STANDARD OF REVIEW

A preliminary injunction is an “extraordinary remedy”

and is appropriate only when the party seeking the injunction

“establish[es] that he is likely to succeed on the merits, that

he is likely to suffer irreparable harm in the absence of

preliminary relief, that the balance of equities tips in his

favor, and that an injunction is in the public interest.” Winter

v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24, 20 (2008).

We review the district court’s grant of a preliminary

injunction for abuse of discretion. Beno v. Shalala, 30 F.3d

1057, 1063 (9th Cir. 1994). We must first determine whether

the district court “identified and applied the correct legal rule

to the relief requested.” United States v. Hinkson, 585 F.3d

1247, 1263 (9th Cir. 2009) (en banc). If not, that error of law

necessarily constitutes an abuse of discretion. Id. at 1261. If,

however, the district court identified and applied the correct

legal rule, we will reverse only if the court’s decision

“resulted from a factual finding that was illogical,

implausible, or without support in inferences that may be

drawn from the facts in the record.” Id. at 1263.

In considering Plaintiffs’ APA claims, we must follow

“additional requirements for review.” Earth Island Inst. v.
MANAGED PHARMACY CARE V. SEBELIUS 25

Carlton, 626 F.3d 462, 468 (9th Cir. 2010). Under the APA,

we may not set aside agency action unless that action is

“arbitrary, capricious, an abuse of discretion, or otherwise not

in accordance with law.” 5 U.S.C. § 706(2)(A). This

standard is met only where the party challenging the agency’s

decision meets a heavy burden of showing that “the agency

has relied on factors which Congress has not intended it to

consider, entirely failed to consider an important aspect of the

problem, offered an explanation for its decision that runs

counter to the evidence before the agency, or is so

implausible that it could not be ascribed to a difference in

view or the product of agency expertise.” Motor Vehicle

Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,

43 (1983).

III

APA CLAIMS AGAINST THE SECRETARY

A

We first consider whether our decision in Orthopaedic

Hospital is dispositive of the issues in these appeals.

In Orthopaedic Hospital, a hospital and hospital

association challenged California’s reduction of

reimbursement rates for providers of hospital outpatient

services, arguing that DHCS reduced the rates “without

proper consideration of the effect of hospital costs” on the

§ 30(A) factors of efficiency, economy, quality of care, and

beneficiary access. 103 F.3d at 1492. The State did not

dispute that it had not considered providers’ costs of offering

Medicaid services, but argued that its reductions nonetheless

complied with § 30(A) because the statute did not require it

to study such costs.
26 MANAGED PHARMACY CARE V. SEBELIUS

HHS was not a party in Orthopaedic Hospital, and we did

not have the benefit of the agency’s position regarding the

requirements of § 30(A). We owed no deference to the

State’s position that § 30(A) does not require cost studies

because “[a] state agency’s interpretation of federal statutes

is not entitled to the deference afforded a federal agency’s

interpretation of its own statutes.” Id. at 1495. We thus had

to determine “the proper interpretation” of the statute on our

own. Id. at 1496.

We interpreted § 30(A) as requiring the State to consider

providers’ cost of services prior to setting reimbursement

rates for those services:

The statute provides that payments for services must be

consistent with efficiency, economy, and quality of care,

and that those payments must be sufficient to enlist

enough providers to provide access to Medicaid

recipients. [DHCS] cannot know that it is setting rates

that are consistent with efficiency, economy, quality of

care and access without considering the costs of providing

such services. It stands to reason that the payments for

hospital outpatient services must bear a reasonable

relationship to the costs of providing quality care incurred

by efficiently and economically operated hospitals.

Id.

Plaintiffs contend that a simple application of

Orthopaedic Hospital decides these cases. We disagree, for

two reasons.

First, we recognized in Orthopaedic Hospital that our

standard of review might have been different had the agency

spoken on the issue. Id. at 1495 (noting “the deference
MANAGED PHARMACY CARE V. SEBELIUS 27

afforded a federal agency’sinterpretation of its own statutes”

under Chevron). This is because “Chevron’s policy

underpinnings emphasize the expertise and familiarity of the

federal agency with the subject matter of its mandate and the

need for coherent and uniform construction of federal law

nationwide.” Id. (internal quotation marks omitted). Because

the agency was not a party to the litigation and had not yet set

forth its position on the requirements of § 30(A), there was no

issue of whether we should defer to the agency. These

appeals, however, present just that question.

Second, the Secretary has now set forth her interpretation,

through her approvals of the SPAs, that § 30(A) does not

prescribe any particular methodology a State must follow

before its proposed rates may be approved. CMS explicitly

approved California’s SPAs as consistent with the

requirements of § 30(A) even though cost data was not

available with respect to all of the services, thereby

determining that the lack of cost studies did not preclude

California from reducing Medi-Cal reimbursement rates. “A

court’s prior judicial construction of a statute trumps an

agency construction otherwise entitled to Chevron deference

only if the prior court decision holds that its construction

follows from the unambiguous terms of the statute and thus

leaves no room for agency discretion.” Nat’l Cable &

Telecomm. Ass’n v. Brand X Internet Servs. (“Brand X”),

545 U.S. 967, 982 (2005); Garfias-Rodriguez v. Holder, No.

09-72603, ___ F.3d ___, slip op. 12583, 12599, 2012 WL

5077137, *7 (9th Cir. Oct. 19, 2012) (en banc) (concluding

that, pursuant to Brand X, our prior construction of two

provisions of the Immigration and Nationality Act did not

survive a contrary reading by the Board of Immigration

Appeals). Although Orthopaedic Hospital was grounded in

the language of the statute – as are all of our statutory

interpretation cases – we did not hold that our view of
28 MANAGED PHARMACY CARE V. SEBELIUS

§ 30(A) represented the only reasonable interpretation of that

statute. We read the statute in the absence of an authoritative

agency construction and decided the case accordingly. And

although we cited Orthopaedic Hospital with approval in

Alaska DHSS, there was no Brand X issue to consider in that

case. See Alaska DHSS, 424 F.3d at 940.

For these reasons, Orthopaedic Hospital does not

automatically render the SPA approvals arbitrary and

capricious.

B

We now consider whether the Secretary’s approval based

on her view that § 30(A) does not impose a particular process

on the States is entitled to Chevron deference. This familiar

standard requires a court to abide by an agency’s

interpretation or implementation of a statute it administers if

Congress has not directly spoken “to the precise question at

issue” and if the agency’s answer is “permissible” under the

statute. Chevron, 467 U.S. at 842–43.

But not every administrative act is entitled to Chevron

deference. United States v. Mead Corp., 533 U.S. 218

(2001). In reviewing an “administrative implementation of

a particular statutory provision,” we defer to the agency’s

decision (1) “when it appears that Congress delegated

authority to the agency generally to make rules carrying the

force of law,” and (2) “the agency interpretation claiming

deference was promulgated in the exercise of that authority.”

Id. at 226–27.

Arguably, the Supreme Court has already concluded that

SPA approvals meet the Chevron/Mead standard by stating

that “[t]he Medicaid Act commits to the federal agency the
MANAGED PHARMACY CARE V. SEBELIUS 29

power to administer a federal program. And here the agency

has acted under this grant of authority [by approving a SPA].

That decision carries weight.” Douglas v. Indep. Living Ctr.

of S. Cal., ___ U.S. ___, 132 S. Ct. 1204, 1210 (2012).

Because the DouglasCourt also recognized that the deference

question had not been fully argued, id. at 1211, we proceed

with our own analysis. We keep in mind, however, that we

afford “considered dicta from the Supreme Court . . . a weight

that is greater than ordinary judicial dicta as prophecy of what

that Court might hold.” United States v. Montero-Camargo,

208 F.3d 1122, 1132 n.17 (9th Cir. 2000) (en banc) (internal

quotation marks omitted).

The first prong of the Mead standard is easily satisfied in

these cases: “The Secretary shall approve any plan which

fulfills the conditions specified” in the statute. 42 U.S.C.

§ 1396a(b). Congress expressly delegated to the Secretary

the authority to interpret § 30(A) and to determine whether a

State’s Medicaid program conforms to federal requirements.

The second Mead prong – whether the Secretary

interpreted § 30(A) and approved California’s SPAs within

the exercise of her delegated authority – depends on the

“form and context” of the approvals. Price v. Stevedoring

Servs. of Am., Inc., 697 F.3d 820, 826 (9th Cir. 2012) (en

banc). “Delegation of such authority may be shown in a

variety of ways, as by an agency’s power to engage in

adjudication or notice-and-comment rulemaking, or by some

other indication of a comparable congressional intent.” Mead

Corp., 533 U.S. at 227.

We have already considered the application of Chevron

to the SPA process. In Alaska DHSS, the Secretary

disapproved a SPA, concluding that Alaska’s proposal to

raise reimbursement rates was inconsistent with § 30(A)’s
30 MANAGED PHARMACY CARE V. SEBELIUS

standards of efficiency and economy. 424 F.3d at 940. In

doing so, CMS exercised its authority, delegated by

Congress, to review Medicaid plans. Thus, we deferred to the

agency’s disapproval, holding that the statutory terms

“efficiency” and “economy” left a “gap that [CMS]

permissibly filled via case-by-case adjudication.” Id.

There does not appear to be any logical reason why

Congress would delegate to the Secretary the discretion to

decide that a proposed SPA violates § 30(A), but choose to

withhold from her that same discretion if she decides the SPA

complies with § 30(A). The nature of her authority is the

same in both instances. Nonetheless, the district court

distinguished Alaska DHSS because that case relied in part on

“the formal administrative process afforded the State” in the

case of a SPA disapproval. Alaska DHSS, 424 F.3d at 939.

When the Secretary disapproves a proposed plan

amendment, a State has the “opportunities to petition for

reconsideration, brief its arguments, be heard at a formal

hearing, receive reasoned decisions at multiple levels of

review, and submit exceptions to those decisions.” Id. In the

case of an approval, however, the Medicaid program does not

provide interested parties with similar opportunities (although

they may certainly avail themselves of the formal process

provided in a suit under the APA). This difference, argue the

Plaintiffs, shows that Chevron deference is not appropriate to

CMS’s SPA approvals.

It is true that Alaska DHSS relied on the formal petition

process afforded the State in the case of a disapproval. But

that was not the only reason we deferred to the agency’s

decision. Section 30(A)’s “undefined terms ‘efficiency’ and

‘economy’ leave a gap that [CMS] permissibly filled,” and

the agency appropriately “elucidate[d] the meaning of the
MANAGED PHARMACY CARE V. SEBELIUS 31

statute . . . via case-by-case adjudication.” Id. at 940. CMS

did the same thing here.

Importantly, we recognized in Alaska DHSS that the

formal process afforded the State was “clear evidence that

Congress intended [the agency’s] final determination to carry

the force of law.” Id. at 939 (emphasis added) (internal

quotation marks and alteration omitted). But formal process

is not the only evidence of such congressional intent. In the

absence of formal procedures, courts must determine whether

there are “any other circumstances reasonably suggesting”

that Congress intended deference to an agency decision.

Mead Corp., 533 U.S. at 231 (emphasis added). There are

many such circumstances to consider. For example, “the

interstitial nature of the legal question, the related expertise

of the [a]gency, the importance of the question to

administration of the statute, the complexity of that

administration, and the careful consideration the [a]gency has

given the question over a long period of time” are all factors

favoring Chevron deference. Barnhart v. Walton, 535 U.S.

212, 222 (2002).

Considering all the evidence of Chevron delegation in

these cases, we hold that the balance tips to the side of

deference. The language of § 30(A) is “broad and diffuse.”

Sanchez v. Johnson, 416 F.3d 1051, 1060 (9th Cir. 2005).

The statute uses words like “consistent,” “sufficient,”

“efficiency,” and “economy,” without describing any specific

steps a State must take in order to meet those standards. The

statute’s amorphous language “suggest[s] that the agency’s

expertise is relevant in determining its application.” Douglas,

132 S. Ct. at 1210.

Medicaid administration is nothing if not complex.

Determining a plan’s compliance with § 30(A), as well as its
32 MANAGED PHARMACY CARE V. SEBELIUS

 In a letter submitted pursuant to Rule 28(j) of the Federal Rules of 1

Appellate Procedure, the CMA and CHA Plaintiffs rely on Price in

support of their argument that Chevron does not apply to SPA approvals.

But Price considered whether a statutory interpretation advanced by an

agency in litigation was entitled to deference. Undertaking a

Chevron/Mead analysis, we concluded that Congress did not intend the

litigating positions of the Director of the Office of Workers’

Compensation Programs to have the force of law. Price, 697 F.3d at

830–31. The Secretary’s decision here is a very different animal.

compliance with a host of other federal laws, is central to the

program because a State cannot participate in Medicaid

without a plan approved by the Secretary as consistent with

those laws. The executive branch has been giving careful

consideration to the ins and outs of the program since its

inception, and the agency is the expert in all things Medicaid.

And let us not forget that “a very good indicator of delegation

meriting Chevron treatment [is an] express congressional

authorization[] to engage in the process of rulemaking or

adjudication that produces regulations or rulings for which

deference is claimed.” Mead Corp., 533 U.S. at 229. That

express delegation is preciselywhat we have here. Therefore,

despite the lack of formal procedures available for interested

parties, the Secretary’s exercise of discretion in the “form and

context” of a SPA approval deserves Chevron deference.

Price, 697 F.3d at 826.1

In holding that Chevron applies to SPA approvals, we

reach a conclusion similar to that reached by the D.C. Circuit.

In Pharmaceutical Research and Manufacturers of America

v. Thompson, 362 F.3d 817, 819 (D.C. Cir. 2004), thenSecretary Thompson of HHS approved a Michigan SPA

designed to implement “a low-cost state prescription drug

coverage program [] for beneficiaries of Medicaid.” The

plaintiffs there, as here, argued that SPA approvals “are not
MANAGED PHARMACY CARE V. SEBELIUS 33

the result of a formal administrative process” and are

therefore “akin to ‘interpretations contained in policy

statements, agency manuals, and enforcement guidelines,’

which are ‘beyond the Chevron pale.’” Id. at 821 (quoting

Mead Corp., 533 U.S. at 234).

The D.C. Circuit rejected this argument because it

overlooks the nature of the Secretary’s

authority. This is not a case of implicit

delegation of authority through the grant of

general implementation authority. In the case

of the Medicaid payment statute, the Congress

expressly conferred on the Secretary authority

to review and approve state Medicaid plans

as a condition to disbursing federal Medicaid

payments. . . . In carrying out this duty, the

Secretary is charged with ensuring that each

state plan complies with a vast network of

specific statutory requirements . . . . Through

this “express delegation of specific

interpretive authority,” Mead, 533 U.S. at

229, 121 S. Ct. at 2172, the Congress

manifested its intent that the Secretary’s

determinations, based on interpretation of the

relevant statutory provisions, should have the

force of law.

Id. at 821–22 (emphasis added). Therefore, the court deferred

to the agency’s approval of the Michigan SPA and also

determined that the agency did not violate the APA. Id. at

825–27.

We agree with the D.C. Circuit’s reasoning. See Alaska

DHSS, 424 F.3d at 939 (citing Pharm. Research Mfrs. of Am.
34 MANAGED PHARMACY CARE V. SEBELIUS

with approval). The Medicaid program is a colossal

undertaking, jointly funded bythe federal government and the

States. Congress explicitly granted the Secretary authority to

determine whether a State’s Medicaid plan complies with

federal law. The Secretary understands the Act and is

especially cognizant of the all-important yet sometimes

competing interests of efficiency, economy, quality of care,

and beneficiary access. It is well within the Secretary’s

mandate to interpret the statute via case-by-case SPA

adjudication.

Because Congress intended SPA approvals to have the

force of law, we now ask whether the Secretary’s

interpretation that § 30(A) requires a result, not a particular

methodology such as cost studies, is based on a “permissible”

reading of § 30(A). Chevron, 467 U.S. at 843. We have no

doubt that it is.

The statute says nothing about cost studies. It says

nothing about any particular methodology. See Holder v.

Martinez Gutierrez, ___ U.S. ___, 132 S. Ct. 2011, 2017

(2012) (deferring to the Board of Immigration Appeals’

reading of 8 U.S.C. § 1229b(a) because the statute “does not

mention imputation [of a parent’s years of residence to a

child], much less require it”). Rather, by its terms § 30(A)

requires a substantive result – reimbursement rates must be

consistent with efficiency, economy, and quality care, and

sufficient to enlist enough providers to ensure adequate

beneficiary access. Congress did not purport to instruct the

Secretary how to accomplish these substantive goals. That

decision is left to the agency.

The idea that a State should consider providers’ costs

prior to reducing reimbursement rates seems at first blush to

be logical. As we stated in Orthopaedic Hospital, “costs are
MANAGED PHARMACY CARE V. SEBELIUS 35

an integral part of the consideration.” 103 F.3d at 1496. But

even then, we acknowledged that beneficiary access to

Medicaid services “appears to be driven to a degree by factors

independent of costs of the services.” Id. at 1498. An

agency’s interpretation “prevails if it is a reasonable

construction of the statute, whether or not it is the only

possible interpretation or even the one a court might think

best.” Martinez Gutierrez, 132 S. Ct. at 2017. The position

that costs might or might not be one appropriate measure by

which to study beneficiary access, depending on the

circumstances of each State’s plan, is entirely reasonable.

Each State participating in Medicaid has unique, local

interests that come to bear. The Secretary must be free to

consider, for each State, the most appropriate way for that

State to demonstrate compliance with § 30(A).

Moreover, the term “cost” is not as free from ambiguity

as the Plaintiffs would have us believe. When one shops at

a retail outlet and sees a price on an item, the cost to the

consumer is that price, period. But when one attempts to

determine how the price or cost to the consumer has been

calculated, a whole host of intangibles come into play, such

as cost of goods, depreciation, profit, overhead, deferred

compensation, advertising, etc. The term “cost” may also

include items such as contract prices to suppliers and service

providers, which may themselves be negotiated and reduced

if reimbursement rates are reduced. Nowhere in this record

have we been able to find a description by the Plaintiffs of a

useful definition of costs; and that term is anything but a

talisman solving all problems or providing answers to

complicated questions.

We note that our sister circuits have agreed that § 30(A)

“does not require any ‘particular methodology’ for satisfying

its substantive requirements as to modifications of state
36 MANAGED PHARMACY CARE V. SEBELIUS

plans.” Rite-Aid of Pa., Inc. v. Houstoun, 171 F.3d 842, 851

(3d Cir. 1999); Minn. Homecare Ass’n, Inc. v. Gomez,

108 F.3d 917, 918 (8th Cr. 1997) (per curiam) (“The

Medicaid Act . . . does not require the State to utilize any

prescribed method of analyzing and considering said

factors.”); Methodist Hospitals, Inc. v. Sullivan, 91 F.3d

1026, 1030 (7th Cir. 1996) (“Nothing in the language of

§ 1396a(a)(30), or any implementing regulation, requires a

state to conduct studies in advance of every modification. It

requires each state to produce a result, not to employ any

particular methodology for getting there.”). Today, we join

them.

We defer to the Secretary’s decision that SPAs 11-009

and 11-010 comply with § 30(A). The district court’s failure

to give Chevron deference is an error of law that necessarily

constitutes an abuse of discretion. Hinkson, 585 F.3d at 1263.

C

Our final inquiry with respect to Plaintiffs’ APA claims

is whether the agency’s approvals were arbitrary and

capricious. Agency action is arbitrary and capricious when

the agency relies on factors Congress has not intended it to

consider, fails to consider an important aspect of the problem,

or offers an explanation that runs counter to the evidence

before the agency. Motor Vehicle Mfrs. Ass’n, 463 U.S. at

43. We must uphold an agency action -- even if it is made

with “less than ideal clarity” -- as long as “the agency’s path

may reasonably be discerned” from the record. Id. (internal

quotation marks omitted).

Plaintiffs urge us to conclude that the SPA approvals are

arbitrary and capricious because the agency “failed to

independently assess the statutory factors” of efficiency,
MANAGED PHARMACY CARE V. SEBELIUS 37

economy, quality of care, and beneficiary access and, in fact,

made “no reference” to these requirements when approving

the SPAs. But that is not an accurate representation of the

record.

CMS’s approvals themselves refute Plaintiffs’ argument,

stating, “We conducted our review of your submittal with

particular attention to the statutory requirements at

[§ (30)(A)].” (emphasis added). CMS concluded that the

SPA “complies with all applicable requirements.” With

respect to the access requirement of § 30(A), the approvals

state that the lower rates are permissible because the State

“provide[d] metrics which adequately demonstrated

beneficiary access.” DHCS’s analysis considered (1) the

“[t]otal number of providers by type and geographic location

and participating Medi-Cal providers by type and geographic

area,” (2) the “[t]otal number of Medi-Cal beneficiaries by

eligibility type,” (3) “[u]tilization of services by eligibility

type over time,” and (4) an “[a]nalysis of benchmark service

utilization where available.” This approach tracks

MACPAC’s three-prong framework for analyzing access: (1)

the needs of Medicaid beneficiaries, (2) the availability of

providers, and (3) the utilization of services. See MACPAC

March 2011 Report, p. 127.

The agency also appropriately considered the State’s

monitoring plan. The district court rejected the monitoring

plan because it “merely creates a potential response after an

access or quality deficiency has been identified.” We do not

agree that the State’s 82-page comprehensive plan is

irrelevant or superfluous. The statute cannot logically require

that every single potential problem – no matter how unlikely

– be predicted, identified, and resolved before SPA approval.

DHCS’s monitoring plan supports the reasonable conclusion

that the rate reductions are not expected negatively to impact
38 MANAGED PHARMACY CARE V. SEBELIUS

beneficiary access, but that if such problems occur, the State

can quickly respond and address them. It was not arbitrary or

capricious for the agency to consider California’s monitoring

plan.

The district court delved into the minutiae of the

Secretary’s approval, picking apart DHCS’s research and

finding potential flaws – an inappropriate exercise when

reviewing agency action under the APA. Hundreds of pages

of analysis submitted by DHCS support the Secretary’s

conclusion that the SPAs comply with § 30(A) and are

unlikely to affect beneficiary access in a detrimental way.

Plaintiffs cite to other evidence that contradicts DHCS’s

evidence of sufficient beneficiary access. But CMS

considered this “stakeholder input” when making its

determinations, and the agency’s decision to credit DCHS’s

evidence over that submitted by other parties was reasonable.

“[W]here there is conflicting evidence in the record, the

[agency’s] determination is due deference – especially in

areas of [its] expertise.” Nat’l Parks & Conserv. Ass’n v.

U.S. Dep’t of Transp., 222 F.3d 677, 682 (9th Cir. 2000).

The “Secretary shall approve” plans and plan

amendments that comply with the requirements set forth in

§ 30(A). 42 U.S.C. § 1396a(b). How should the Secretary

determine that compliance? Under the APA the answer must

be, in any way that is not “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law.”

5 U.S.C. § 706(2). CMS’s decision that SPAs 11-009 and 11-

010 meet the requirements of § 30(A) neither failed to

consider an important aspect of the problem, nor relied on

factors Congress did not intend it to consider. Because the

agency’s path can reasonably be discerned, Plaintiffs cannot

succeed on their APA claims.
MANAGED PHARMACY CARE V. SEBELIUS 39

IV

SUPREMACY CLAUSE CLAIMS AGAINST THE

DIRECTOR

Although § 30(A) does not create any substantive rights

enforceable under 42 U.S.C. § 1983, Sanchez, 416 F.3d at

1060 (9th Cir. 2005), we held in Independent Living Center

of Southern California v. Shewry (“ILC I”) that “a plaintiff

seeking injunctive relief under the Supremacy Clause on the

basis of federal preemption need not assert a federally created

‘right’ . . . but need only satisfy traditional standing

requirements.” 543 F.3d 1050, 1058 (9th Cir. 2008). The

Supreme Court denied certiorari. 129 S. Ct. 2828 (2009).

We reaffirmed ILC I’s holding in a later appeal in the same

case. See Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly (“ILC

II”), 572 F.3d 644, 650 n.7 (9th Cir. 2009) (vacated sub nom.,

Douglas, 132 S. Ct. 1204).

The Supreme Court granted certiorari in ILC II, along

with a number of other Ninth Circuit cases, to consider

whether the Supremacy Clause grants a private cause of

action for violation of § 30(A). The Secretary was not a party

in any of the cases. At the time of the oral argument, the

Secretary had not yet approved the reimbursement rates at

issue, which had been authorized by California Assembly

Bills 5 and 1183. Later, however, the Secretary did approve

the new rates, concluding that they complied with § 30(A).

After receiving supplemental briefing on the effect of the

Secretary’s action, the Supreme Court vacated those cases in

Douglas v. Independent Living Center of Southern California,

132 S. Ct. at 1208.

All of the Justices agreed that the Secretary’s approval of

California’s rate reductions “does not change the underlying
40 MANAGED PHARMACY CARE V. SEBELIUS

substantive question, namely whether California’s statutes are

consistent with [§30(A)].” Id. at 1210; see also id. at

1213–14 (Roberts, C.J., dissenting) (“[T]he CMS approvals

have no impact on the question before this Court.”). Justice

Breyer’s majority opinion concluded, however, that the

approvals “may change the answer” and that in the new

posture of the cases it was appropriate to remand for us to

consider the Supremacy Clause issue in the first instance.

The cases vacated and remanded by Douglas are currently

in mediation. The question we face in those cases is whether

the Supremacy Clause allows a private party to enforce a

federal statute that creates no substantive rights, even where

the administrative agency charged with the implementation

and enforcement of the statute has already acted. Douglas

did not resolve that question, and we need not do so here.

Even assuming there were a cause of action under the

Supremacy Clause where, as here, the Secretary has acted –

a position we do not necessarily believe the Court would

endorse – at this stage it is sufficient to say that Plaintiffs are

unlikely to succeed on the merits on their Supremacy Clause

claim against the Director for the very same reason they are

unlikely to prevail on their APA claims against the Secretary.

The Secretary has reasonably decided that SPAs 11-009 and

11-010 comply with federal law. That is the end of the matter

for the purposes of this appeal of the injunction.

V

CHA’S TAKINGS CLAIM

The Takings Clause of the Constitution prohibits the

government from taking private property for public use

without just compensation. U.S. Const., amend. V. Because
MANAGED PHARMACY CARE V. SEBELIUS 41

participation in Medicaid is voluntary, however, providers do

not have a property interest in a particular reimbursement

rate. See Erickson v. U.S. ex rel. HHS, 67 F.3d 858, 862 (9th

Cir. 1995) (“[P]laintiffs do not possess a property interest in

continued participation in Medicare, Medicaid, or the

federally-funded state health care programs.”). Despite this

well-established principle, the district court held that CHA

was likely to succeed on its takings claim because, as a result

of state laws restricting the expulsion of patients from skilled

nursing facilities, “the hospitals’ continued participation in

Medi-Cal is compulsory at least until such time as alternate

arrangements are made for patients receiving skilled nursing

services.” The district court was not persuaded by the fact

that “the hospitals in this case accepted the restrictions to

their services when they voluntarily elected to participate in

Medi-Cal” because “they did so before the State enacted

[Assembly Bill] 97.”

But regardless of when providers decide to participate in

Medi-Cal, they can hardly expect that reimbursement rates

will never change. The fact that States may submit SPAs and

request approval for lower rates is enough to end the inquiry.

Neither the State nor the federal government “promised,

explicitly or implicitly,” that provider reimbursement rates

would never change. Cervoni v. Sec’y of Health, Educ. &

Welfare, 581 F.2d 1010, 1018 (1st Cir. 1978) (holding that a

provider of Medicare does not have a property interest in

continued payments under Part B); see also Franklin Mem’l

Hosp. v. Harvey, 575 F.3d 121, 129–30 (1st Cir. 2009)

(holding that there can be no unconstitutional taking where a

provider “voluntarily participates in a regulated program”).

CHA cannot succeed on its takings claim.
42 MANAGED PHARMACY CARE V. SEBELIUS

V

CONCLUSION

For the foregoing reasons, we reverse the district court’s

decisions and vacate the preliminary injunctions in all four

cases. We remand for further proceedings consistent with

this opinion.

Appeal Nos. 12-55067, 12-55332, 12-55331, 12-55068,

12-55334, 12-55103, 12-55335, and 12-55315 are

REVERSED, the INJUNCTIONS VACATED, and the

cases REMANDED.

Appeal Nos. 12-55535, 12-55554, and 12-55550 are

DISMISSED as MOOT.