F OR P UB LIC AT ION



### U N I TED STA TES C O U R T O F A PPEA LS F O R T H E N IN T H C IR C U IT

M ANAGE D P HAR MAC Y C A RE , a California c orporation; I ND E P E ND E NT L I VI NG C EN TER OF S OUTHE R N C A LIF O R N IA , I NC ., a Ca lif or nia c or po ratio n; C A LIF O R N IA F O U N D A T I O N F O R I NDE PE NDE NT L I VI NG C EN T ERS , a

Ca lif or nia
c or po ratio n; G ER AL D S H A PI RO , P HA R M D, DBA Upton Pharmac y and Gift Shoppe; S HAR ON S TEEN , D B A C e n t r a l P h ar

m a c y; T R AN P H A RM A CY , I

NC ., a Ca lif or nia corp orat io n, DBA T r anP h ar m a c y; O DETT E L EO N ELLI , DBA Ko va c sF r e y P h ar m a c y; M ARKE T P H A RM A CY , I

NC ., DBA Marke t P h ar m a c y; M A RK B E C K W I TH ,

Plaintif fs-Appellee

s ,
v. K ATHL EE N S EB EL I US , Secre tary of the United States De partment of He a lthand

Human Se rv ic e s,

Defendant , and

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of Ca lifornia,

Defendant-

Appellant

. No. 12-55067

D.C. No. 2:11-cv-09211- CAS-MANM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

2

C AL I F OR NI A H OS PI TAL A S S OC I ATI ON , Plaintif f-Appellee ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of Ca lifornia,

Defendant-

Appellant , and

K ATHL EE N S EB EL I US , Secre tary of the United States De partment of He a lthand

Human Se rv ic e s,

Defendant

. No. 12-55068

D.C. No. 2:11-cv-09078- CAS-MANM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 3

C AL I F OR NI A M ED I C AL T R ANS PO R TATI ON A S S OC I ATI ON , I NC ., a Ca lif or nia c or po ratio n; G MD T R ANS PO R TATI ON , I NC ., a Ca lif or nia
c or po ratio n; L ONNY S L OC UM , an ind ivi du a l, Plaintif

fs-Appellee

s ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of Ca lifornia,

Defendant-

Appellant , and

K ATHL EE N S EB EL I US , Secre tary of the United States De partment of He a lthand

Human Se rv ic e s,

Defendant

. No. 12-55103

D.C. No. 2:11-cv-09830- CAS-MANM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

4

C AL I F OR NI A M ED I C AL A S S OC I ATI ON ; C AL I F OR NI A D EN TAL A S S OC I ATI ON ; C A LIF O R N IA P H A RM A CI ST S A S S OC I ATI ON ; N A T I O N A L A SSO CI A T I O N O F C H A IN D R UG S TO RE S ; C A LIF O R N IA A SSO CI A T I O N O F M ED I CA L P ROD U CT S U PPLI ERS ; AI DS H EA LTH CARE F OUNDATI ON ; A MER I C AN M ED I C AL R ES PONSE W EST ; J EN N I FER A RN O LD ,

Plaintif fs-Appellee

s ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of Ca lifornia,

Defendant-

Appellant , and

K ATHL EE N S EB EL I US , Secre tary of the United States De partment of He a lthand

Human Se rv ic e s,

Defendant

. No. 12-55315

D.C. No. 2:11-cv-09688- CAS-MANM ANAGE D P HAR MAC Y C ARE V

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C AL I F OR NI A H OS PI TAL A S S OC I ATI ON , Plaintif f-Appellee ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of Ca lifornia, Defendant ,

and

K ATHL EE N S EB EL I US , Secre tary of the United States De partment of He a lthand

Human Se rv ic e s, Defendant-

Appellant

. No. 12-55331

D.C. No. 2:11-cv-09078- CAS-MANM ANAGE D P HAR MAC Y C ARE V

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6

M ANAGE D P HAR MAC Y C A RE , a California c orporation; I ND E P E ND E NT L I VI NG C EN TER OF S OUTHE R N C A LIF O R N IA , I NC ., a Ca lif or nia c or po ratio n; C A LIF O R N IA F O U N D A T I O N F O R I NDE PE NDE NT L I VI NG C EN T ERS , a

Ca lif or nia
c or po ratio n; G ER AL D S H A PI RO , P HA R M D, DBA Upton Pharmac y and Gift Shoppe; S HAR ON S TEEN , DBA C e n t r a l P h ar

m a c y; T R AN P H A RM A CY , I

NC ., a Ca lif or nia corp orat io n, DBA T r anP h ar m a c y; O DETT E L EO N ELLI , DBA Ko va c sF r e y P h ar m a c y; M ARKE T P H A RM A CY , I

NC ., DBA Marke t P h ar m a c y; M A RK B E C K W I TH ,

Plaintif fs-Appellee

s ,

v.

K ATHL EE N S EB EL I US , Secre tary of the United States De partment of He a lthand

Human Se rv ic e s, Defendant-

Appellant , and

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of Ca lifornia, Defendant

. No. 12-55332

D.C. No. 2:11-cv-09211- CAS-MANM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 7

C AL I F OR NI A M ED I C AL T R ANS PO R TATI ON A S S OC I ATI ON , I NC ., a Ca lif or nia c or po ratio n; G MD T R ANS PO R TATI ON , I NC ., a Ca lif or nia
c or po ratio n; L ONNY S L OC UM , an ind ivi du a l, Plaintif

fs-Appellee

s ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of Ca lifornia, Defendant ,

and

K ATHL EE N S EB EL I US , Secre tary of the United States De partment of He a lthand

Human Se rv ic e s, Defendant-

Appellant

. No. 12-55334

D.C. No. 2:11-cv-09830- CAS-MANM ANAGE D P HAR MAC Y C ARE V

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8

C AL I F OR NI A M ED I C AL A S S OC I ATI ON ; C AL I F OR NI A D EN TAL A S S OC I ATI ON ; C A LIF O R N IA P H A RM A CI ST S A S S OC I ATI ON ; N A T I O N A L A SSO CI A T I O N O F C H A IN D R UG S TO RE S ; C A LIF O R N IA A SSO CI A T I O N O F M ED I CA L P ROD U CT S U PPLI ERS ; AI DS H EA LTH CARE F OUNDATI ON ; A MER I C AN M ED I C AL R ES PONSE W EST ; J EN N I FER A RN O LD ,

Plaintif fs-Appellee

s ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of Ca lifornia, Defendant ,

and

K ATHL EE N S EB EL I US , Secre tary of the United States De partment of He a lthand

Human Se rv ic e s, Defendant-

Appellant

. No. 12-55335

D.C. No. 2:11-cv-09688- CAS-MANM ANAGE D P HAR MAC Y C ARE V

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C AL I F OR NI A H OS PI TAL A S S OC I ATI ON ; G. G. , a

n in div idu a l; I. F ., an in div idu a l; R. E., an individual; A. W., an in div idu a l; A. G. , a n in div idu a l, Plain tif fs- Ap pe lla nts ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of

Ca lif or nia ; K AT HL EEN S EB EL I US , Secre tary

of the United States Depa

rtment of He alth and Human Se rv ic e s,

Defendants-A

ppellees

. No. 12-55535

D.C. No. 2:11-cv-09078- CAS-MANM ANAGE D P HAR MAC Y C ARE V

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10

C AL I F OR NI A M ED I C AL A S S OC I ATI ON ; C AL I F OR NI A D EN TAL A S S OC I ATI ON ; C A LIF O R N IA P H A RM A CI ST S A S S OC I ATI ON ; N A T I O N A L A SSO CI A T I O N O F C H A IN D R UG S TO RE S ; C A LIF O R N IA A SSO CI A T I O N O F M ED I CA L P ROD U CT S U PPLI ERS ; AI DS H EA LTH CARE F OUNDATI ON ; A MER I C AN M ED I C AL R ES PONSE W EST ; J EN N I FER A RN O LD ,

Plain tif fs- Ap pe lla nts ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of

Ca lif or nia ; K AT HL EEN S EB EL I US , Secre tary

of the United States Depa

rtment of He alth and Human Se rv ic e s,

Defendants-A

ppellees

. No. 12-55550

D.C. No. 2:11-cv-09688- CAS-MANM ANAGE D P HAR MAC Y C ARE V

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C AL I F OR NI A M ED I C AL T R ANS PO R TATI ON A S S OC I ATI ON , I NC ., a California

corpor ation; L ONNY S L OC UM , a

n in div idu a l; GM D T R ANS PO R TATI ON , I NC ., a California c orporation,

Plain tif fs- Ap pe lla nts ,

v.

T OB Y D OUGL AS , Direc tor of the Depa rtment of He alth Care Ser vices of the State of

Ca lif or nia ; K AT HL EEN S EB EL I US , Secre tary

of the United States Depa

rtment of He alth and Human Se rv ic e s,

Defendants-A

ppellees

. No. 12-55554

D.C. No. 2:11-cv-09830- CAS-MAN

ORDER AND OPI NI ON

Appea l from the United States District Court fo r t he Ce ntr a l D istri c t of

Ca lif or nia Christina A. Sny der, D istrict J udg e, Presiding

Argued and Submitted Oc tob e r 1 0, 20 12 —Pa sa de na , Ca lif or nia

Filed Ma y 24, 2013

Be fore : Stephen S. Trott, Andrew J. Kleinfeld,
and M. Marg are t Mc Ke ow n, Cir c uit Judg e s.
Orde r; Op ini on by Judg e Tr ottM ANAGE D P HAR MAC Y C ARE V

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12

T hi s s umma r y cons t i t ut es no par t of t he op i ni on of

t he cour t

. I t ha s * b een p repa red b y co urt s t af f f o r t he co nveni ence o f

t he read er. SUMMAR

Y *

M e dic aid / P r e lim ina r y I nj unc ti ons The pa nel withdrewits prior op i nion and published a
su pe rs e din g op ini on re ve rs ingthe dis tr ic t c ourt ’s de c isi on s in four c ases a

nd vacating p re liminary

injunctions prohibiti ng the Ca lif or nia De pa rt me nt o f H e a lthCare Se rv ic e s and its Di re c tor fr om i mpl e me nti ngMe di- Ca l r e imb ur sement r a te reduc tion s authorized by the California le g islature and approve d by

the Secr etar

y of the De part m en t of He alth and Human Se rv ic e s.
As sertingclaims ag ainst the Secre tary under the Administrative Procedur es Ac t and ag ainst the Direc tor under the Supremac y

Clause, var ious Medi-Cal providers and benef iciarie s claimed that the reimbursement r ate r eductions d i d not comply

with 42 U.S.C. § 1396a(a)( 30)(A) . They relied on Orthopaedic Hosp. v . Belshe , 1 03 F .3d 149 1 ( 9th Cir . 1 99 7) , w hic h inte rp re te d § 30 (A ) a s r e qu ir in g a st a te
se e kin g to r e du c e Me dic a id r e imb ur se me nt r a te s f ir st t o consider the costs of providing medical se rvice s subject to the
ra te re du c tio ns

.
T h e p an e l h e l d

t h a t Or thopaedic Hosp. did not control beca u s e i t did not consider the Sec reta ry ’s interpre tation of § 30(A). A g ree ing with the D.C. Circuit, the pane l held that the S ecr etary ’s approval of C aliforni a ’ s r e quested reimburse ment rate s, in cl uding he r per missibl e view that pr ior to r e du c ingrate s st a te s n e e d n ot f oll owany

sp e c if icM ANAGE D P HAR MAC Y C ARE V

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proce dural steps, was e ntitled to Chevron defe renc e, and that the Secr etar

y ’s appr o v al complied with the Administrative Procedur es Ac t. The pane l furth er h el d that the plaintiffs
wer e unlikely

to succe ed o n t h e mer its of their Supremac y Clause claims ag ainst th e Director be cause , even a ssuming that the Supremac y

Clause provides a

private r ight of

action, the S ecr etar

y had re asonably

deter mined that the State’s reimbur s ement rates complied with § 30(A) . Finally , the p an el h el d

t h a tn o n e o f t h e p l ai n t i ff s h ada v i ab l e t ak i n gs claim bec ause Medicaid, as a voluntary

prog ram, doe s not
c re a te pr op e rt

y ri g hts

. Th e pa ne l di smi sse d c ro ss- a

pp e a ls a s mo ot.

CO UN SEL

L indsey Pow el l , Un i t ed S t at es Attorney s’ Off ice, Washington, D.C., for D efe ndant-Appe llant Kathleen Se be liu s.

Ka m al a D

. Ha rr i s , C al i fo rn i a At t o rn ey Ge n er al ; J u l i e W en gGutie rr e z, Se nio r A ssi sta nt Att or ne y Ge ne ra l; K ari n S. Sc hw art z (argue d) , Su san M . Ca rs on , a nd Jenn if e r M . K im, Supervising D eputy

Attor n ey s Gene ral; Gre g ory D. B rown, Joshu a N

. S o n dh e i m e r , an d

Jo n a t h anE

. R i c h , D e p u ty Attor ne y s G e ne ra l, San F ra

nc isc o, Ca lif

or nia , f or De fe nd antAp pe lla nt T ob y Do ug la s.

L y nn S. Carman, Medic aid Def ense F und, San Anselmo, California; L loy d A. B ookman and Jordan B . Keville, Hoope r, Lundy

& B ookman, P.C., L os Ang eles, California ; Stanley L . Fr iedman, L aw Of

fice s of Stanley

L . Fr iedman, L os Ang eles, California ; Craig J . Cannizz o, Hooper , LundyM ANAGE D P HAR MAC Y C ARE V

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14

& B oo kma

n, P.C. , Sa

n F ra nc isc o, Ca liforni a ; f

or Pla int if fs

Ap pe lle e s- Cr os s- Ap pe lla nts

. J essica L y nn Ellsworth, Hog an L ovells US L L P, W ashing ton, D.C., for amicus curiae

.

OR DE R The Opinion filed De cembe r 13, 2012, and appea ring at 705 F.3d 934 ( 9th Cir. 2012) is withdr aw n

. I t may not be cited as pr ece dent by or to this court or any district court of the Ninth Circuit. A su perse ding opinion will be filed
concur rently with this order.

T h e p an e l a s c o n s ti tute d a b o v e h a s v o te d to d e n y

the petitions for rehe aring . J udg e McK eown ha s voted to deny the petitions for re hear ing e n banc a nd J udg es T rot t and Kleinfe ld so recommend.

The full cour

t has bee n advised of the sug g estion for rehe aringen banc and no judg e of the court has r equeste d a vote on it. Fed. R. App. P. 35(b)

. The pe titions for rehe aring and the petitions for re hear ing en banc are DE NI ED

. No future petitions for pane l rehe aringor re h ea ri ng en banc sha ll be enter

tained.M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 15

OP IN ION
TROTT, Circuit J udg e:

I n the four c ases g iving r ise to these ele ven consolidate d appea ls, Kathleen Sebe lius, S ecr etar y of the De partme n t of He a lthand

Human Se rv ic e s ( “ HH S” ), and To by Do ug la s, Direc tor of the Califor nia Depa rtment of He alt h Care Service s (“DH CS”), appea l the district court’s g rant of preliminary

injunctions in fa v o r of var ious providers and benef iciarie s o f M edi-Cal, California ’s Medica id prog ram (“Plaintiffs”) . The injunctions prohibit the Di rec tor and DHCS from implementing r eimbursement r ate r eductions authorized by

the California le g islature and approve d by the Se c re tary . T he inj un c tio ns a lso sta y the Se c re tary ’s a

pp ro va l. Plaintiffs cross-a

ppeal the court’s modi fication of its orders to allow the rate reduc tions as to Medi-Cal ser vices provide d be fo re the inj un c tio ns too k e ff e c t.
Plaintiffs assert cla ims ag ainst the Secret ary under the Administrative Proce d u res Act (“A PA”) a nd ag ainst the Direc tor under the Supremac y Clause of the United S t ates Constit ution, claiming that the reimburse ment rate reduc tions do not comply

with 42 U.S.C. § 1396a(a)( 30)(A) (her eaf ter “§ 3 0( A) ” ). I n s up po rt of the ir c la ims , Pl a int if

fs re ly primarily on our decision in Orthopaedic Hospital v. Be lshe , 103 F.3d 1491 ( 9th Cir. 1997). I n Orthopaedic Hospital , the fede ral g o v er n m ent was not a party . As such, we did not addre ss whether

defe renc e wa s owed to the Sec reta ry ’s interpre tation of the statute. Instead, we interpre ted § 30(A)
a s r e qu ir inga state se e kin g to r e du c e Me dic a id reimburse ment rate s first to consider the co sts of providing medical se rvice s subject to the rate re ductions. DHCS did not consider su ch st udies in all of the Medic aid servic es subject to t he rate re du c tio ns . T he Se c re tary po int s out th a t Co ng re ssM ANAGE D P HAR MAC Y C ARE V

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16

e xpre ssl y de le g a te d to he r the a uth or ity and re sp on sib ili ty

to approve state Medica id plans. She ar gues that her approva l of the r at e reduc tions, including her view that § 30(A ) does not nece ssarily

require cost studies (o r any other pa rticular
me tho do logy

), is e nti tle d to d e f

e re nc e , o ve rr ide s Or tho

pa e dic Hospital , and complies with the APA.

I n addit ion to joini ng the Secr etar y ’s ar g uments, the Direc tor contends that Plaintiffs ca nnot maintain a dire ct
cause of action under the Supremac y Clause for violation of § 3 0( A) . A lth ou g h w e have pr e vio us ly dis c us se d th is i ssu e in
a ca se whe re the Secre tary had not acted, Indepe ndent Living Ce nte r o f Sout he rn Cal ifo rn ia v. Sh e wry , 5 43 F .3 d 1 05 0 ( 9th Cir . 2 00 8) , th e Di re c tor argue s that ou r h old ingin t

hat c a se is not bin d i n g in a situation where , as her e, the Sec reta ry has alre ady exercised he r discre tion to approve the rate reduc tions as consistent with fede ral law

. The dist rict court held t hat P laintiffs in all four ca ses wer e likely to succe ed on the m erits of their A PA and Supremac y Cla us e c la ims , a

nd that th e Pla int if

fs in on e c a se we re lik e ly to succe ed on their c laim under the Ta kin gs C lause of the United States Constit ution. The cou rt al so conclude d that Plaintiffs would suf

f e r ir r e p a r able ha rm absent the injunctions and that the injunctions favor ed the public interest. We have jurisdiction under 28 U.S.C. § 1 2 92(a) (1), a nd we c onclude that the district court misapplied the applica ble leg al rules a

nd thus did not appropriately exercise its discre tion.

We h o ld th a t ( 1 ) Or t h o

paedic Hospital

does not control the outcome in these case s beca use it did not c onsider the ke y issue here – the Secr etar

y ’s interpre tation of § 30(A) , (2) the Secre tary ’s appr oval of California ’s r e q u e s te d r eimbursement rate s – including he r per

missibl e view that pr ior to reduc ing
rat e s s t a t e s n e e d n o t f

o l l o w an y s p e c i f

i c p r o c e d ur a l ste ps ,M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 17

such as considering providers’ costs – is entitled to defer ence under Che v ro n, U. S. A. , I nc . v . Na tural R eso ur ces Def e ns e Council, Inc. , 467 U.S. 837 (19 8 4 ), and (3) the Secr etar y ’s approva l complies with th e AP A. We further hold that Pla int if fs are un lik e ly to su c c e e d o n th e me ri ts o f t he ir Supremac y C l au se cla ims ag ainst the Direc tor bec ause – assuming that the Supremac y Clause provides a private rig ht of action eve n wher e the Sec reta ry has ac ted – the Secr etar

y has re asonably

deter mined that the State’s re imbursement rate s comply

with § 30(A). F inally , we hold that none of the Pla int if fs ha s a via ble taki ngs c la im b e c a

us e Me dic a id, a s a voluntary prog ram, doe s not create prope rty rig hts. The dis tr ic t c ourt ’s or de rs c on c lud ingthat Pla int if fs are lik e ly

to
succe ed on their c laims must be r ever sed, the pre liminary injunctions vacate d, an d t h e ca ses re manded f or fur ther pr oc e e din g s c on sis te nt w ith th is opi nio n. We d ism iss Pla int if fs ’ c ro ss- a

pp e a ls a s mo ot.

I

BACK GR OUND

“M ed i ca i d

i s a c o o p er at i v e f

ed er al -s t at e p ro gra mt h ro u gh wh ic h th e fe de ra l g ov e rnme nt r e imburs e s st a te s f or c e rt a in medical e x penses incur

red on be half of ne edy

persons.” Alas k a D e p’ t of He alt h an d So c

. Se rv

s. v . Ct rs. for Me dic ar e & Me dic aid

Se rv s. (“ Alaska DHSS

” ), 42 4 F .3 d 9 31 , 9 34 (9 th Cir. 2005). States do not have to participate i n Medica id, but those that choose to do so “must comply both with statutory
re qu ir e me nts imp os e d by the Me dic a id Ac t and wi th regulations promulgated by the Secr etar

y of [HHS] .” Id. at 93 5. Ev e ry

State ’s Me dic a id p lan mu st provide such methods and proc edure s relating to the utiliz ation of, and the pay ment for, c areM ANAGE D P HAR MAC Y C ARE V

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18

and serv ic e s av a il a b le u n d e r th e p la n

. . . as may be n e c e ssa

ry to s a fe g ua

rd a g a ins t
unnece ssary

utiliz ation of s u ch care and service s and to a ssu retha t pa y me nts ar e consistent with e

f f iciency , econom y, and qu ali ty of c ar e an d a resu

ffi c ie nt to e nli

st
e no ug h p ro v ide rs so that car e and se rvice s are available under the p lan at lea st to the ex tent that such care and s ervic es ar e ava ilable to the g ener al population in the g eog raphic are a. 42 U.S.C. § 1396a(a) (30)( A) (e mphasis added)

. Recog nizi ng that availabilit y and ac cess to hea lth care , particula rly for c hildren, is of vital national import ance , C o n g r e s s e s t a

b l i s h e d i n2 0 0 9 t h e M e d i c a i d a n dC H IP Pay ment and Ac cess Commission (“MACPAC”). Children’s Hea lth Insuranc e Prog ram Reauthorization A ct of 2009, Pub. L . N o. 11 1- 3, § 5 06 , 1 23 Stat. 8 , 9 1 ( c od if ied a t 42 U. S.C. § 1396(a) ). MACPAC is char g ed with study i n g b eneficiary
a c c e ss t o h e a lthc are un de r t he Me dic a id and CH I P pr og ra ms an d “ m ak [ i n g ] r e c o m m e n d a t i o n s t o C o n g r e s s , th e S e c r e t ar y, a n d S t a t e s c o n c e r

n i n g

. . . a c c e s s p o l i c i e s

. ” 4 2 U. S.C. § 1396(b)( 1)(B ). MACPAC revi ew ed 30 y ear s of re sear ch and issued its first repo rt t o C o ng ress in Mar ch 2011. See M AC PAC, March 2011 Repor t to the Congre ss on M ed i ca i d an d C HIP , p. 126, a v a il a ble at http:// www.mac pac.g ov/reports. MACPAC came up w ith a three -par t frame work for

analy zing ac cess in ligh t of the fac tors set forth in § 30(A) – MACPAC’s analy sis considers (1) the ne eds of e nrollees, ( 2) provider availability , and (3) uti l ization of services. Id. a t 12 7; se e als o 7 6 Fe d

. R eg. 2634 2, 26 34 3 ( May

6, 20 11 ) ( no tic e of

pr op os e d r

ule interpre ting a

nd implementing § 30( A)).M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 19

Congr ess expressly

deleg ated to the Sec ret ary the
re sp on sib ili ty

and the a uth or ity to admi nis te r t

he Me dic a id prog ram a

nd to revie w s tate Medic aid plans and pla n a me n dm e n t s f

o r c o mp l i an c e w i t hf

e d e r a l l aw

. 4 2 U .S. C. § 1396a(b) (“The Secre tary s h al l approve any plan which fulfills” the statutory

require ments). The Sec reta ry , in turn, deleg ated that r espo n s i bility and author ity

to the reg ional
a dmi nis tr a tor

fo r t he Ce nte r f

or Me dic are and

Me dic a id Se rv ic e s ( “ CMS” ). 42 C.F .R. § 430 .1 5( b) ; see also Alaska DHSS , 424 F.3d at 935. CMS must review an d ap prove or rej ec t any

proposed amendment to a state Me dicaid plan. Such an amendment is r efe rre d to a s a State Plan Amendment (“SPA”).

Th e State of

Ca lif or nia ha s tr ie d o n s e ve ra l oc c a sio ns to reduc e re imbursement rate s to pr oviders of cer tain Medi-Cal
se rv ic e s thro ug h th e SPA pr oc e ss. Th e rat e s invo lve d in these a ppeals we re initiated by

Assembly

Bill 9 7 , where the leg islature stated,

I n o rd er to m ini mize the ne e d f or dr a sti c a lly
c utt inge nr ol lme nt s tand ard s o r b e ne fi ts duri ngtim e s o f e c on omi c c ri sis , it is c ru c ia l to fi nd are a s w ith in t

he pr og ra

m wher e reimburseme nt levels are highe r than required un de r t he sta ndard pr ov ide d in [§ 3 0 ( A ) ] an d can be re duced in ac cordance with f ederal law

. Cal. Welf. & Inst. Code § 14105.192(a) (2) (emphasis adde d). The statute g rante d the Dire ct o r t he author ity to identify wher e re imbursement rates could be r educe d and inst ru ct ed the Dire ctor not to i mpl e me nt a ny re du c tio ns un le ss a

nd un til the Di re c tor

(1 ) d e te rm ine d that the re du c tio ns “ wi ll c omp lyM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

20 with applicable f

eder al Medica i d require ments” and ( 2) obtained fe dera l approva l. Id. § 14105.192(m), (o) (1). Pursuant to that authority , DHCS studied the poten t ial imp a c t of

rate reduc tio ns on

many Me di- Ca l se rv ic e s, re vie wi ngdata

c oll e c ted a

nd ana ly zed ov e r s e ve ra l y e ars in the proc ess. The D irec tor conc luded that re imbursement rates could be r educe d consistently with fede ral law for pha

rmac y service s; durable medic al equipment; emer g ency an dnonemer g ency

medical tra

nsportation; cer

tain phy sician, clinic, and denta l service s; and ser v i ces pr ovided by “distinct part nursing fac iliti es” ( “DP/NFs” ). DP/NFs a re skilled nursing fa c ili tie s o perated by

ho sp ita ls a s d ist inc t pa

rt s w ith in t

ho se hospitals. Rates for most of these ser vices we re to be reduc ed ten per cent f

rom curr ent rate levels, thoug h some wer e to be reduc ed ten pe rce nt from rate levels a s they exis ted in 2008 to 2009. DHCS pr e pa

re d tw o SPA s f

or su bmi ssi on to C MS. Fe dera l officials we re in fr equent c ontact wi th the Direc tor during this process. SPA 11-010 reques t ed approva l of the rate reduc tions for DP/NF ser vices; SPA 11-009 reque sted approva l of the rate re ductions for a ll of the other se rvice s at issue.

I n support of SPAs 11- 009 and 11-010, D HCS submi tted
acc ess studies for e ach of the affec ted servic es. These studies revie wed data foc used primarily on enrollee needs, pr ovider
ava il a b il it y , an d u ti li zati o no f

s e r v ic e s – th e s ame f

a c tors MACP AC us e s in

its a c c e ss a

na ly se s. Al tho ug h D HC S included studies of provide rs’ c osts with respect to som e of the se rv ic e s, su c h a s c e rt a in ph arma c y c os ts a nd c os ts incurre d by DP/NFs, it did not r eview c ost data with respe ct to m o s t o f th e s e r

v ic e s s u b je c t to th e r a te r e d

u c ti o n

. TheM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 21

stu die s c on c lud e d th a t SPA s 1 1- 00 9 a nd 11 -0 10 are un lik e ly to d imi nis h a c c e ss.
DHCS a lso submitted an 82-pag e monitoring plan, which identified 23 diffe rent mea sures DH C S wi ll study on a rec urringbasis to ens u re t h e S PAs do not neg atively aff ect benef ic ia r y a c c e s s

. T h e s e me a s u r e s a d dr e s s th e thr ee c a te g or ie s o f f

a c tor s MA CPA C id e nti fi e d a s a ff e c tin g a c c e ss: benef iciary data, pr ovider av ailability data, a nd service utiliz ation data. I ncluded among the data DHCS will m onitor
are chang es i n Medi-Cal and dental enrollment, primary car e su pp ly ratio s, pr ov ide r p art ic ipatio n rate s, be d v a c anc y rate s, visits t o emer g ency

rooms, and pre ventable hos p i t alization
ra te s.
Var ious providers a

nd provider groups, including some of the Pl a inti f

f s , o f f e r e d e xte n s iv e in

p u t to CM S a s w e ll

. For
e xamp le , th e Ca lif

or nia Ho sp ita l As so c iatio n (“ CH A” ) wro te to the ag ency

multipl e times to express its disapproval of the S PAs

. CMS considered a spe cial re port commissioned by CH A; the re po rt

c on c lud e d mo st D P/N F s o pe ra te a t a los s. CHA and the Califor

nia Medica l A ssociation (“CMA” ) submitt ed a sur

vey purportingto show that t h e re ductions would inhibit ac cess. As CMS l ater noted, there wer e seve ral shortcoming s with this s u rvey , including that it was
c on du c te d ov e r nin e da

y s and inv olv e d on ly 763 C alif or nia
re sid e nts

. CMS approved both SPAs. The approva l l ett ers we re su c c inc t, but

the y e xpla ine d th a t, “ [i]n li g ht o f t he data CMS revie wed, the monitoring plan, and [CMS ’s] consideration of stakeholder

input,” DHCS had s ubmitted sufficient information to show that i ts SP As complied with § 30(A)

. “ As pa rt of the ana ly sis of thi s ame ndme nt, the State wa s a ble to p r o v id e me tr ic s w h ic ha d e qu a te ly d e monstratedM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

22

benef iciary acc ess,” i ncluding (1) the “ [t ]ot al number of providers by

ty pe and g eog raphic l o ca t i on and par ticipating Medi-Cal provider s by

ty pe and g eog raphic are a,” (2 ) the “[t] otal number of Medi-Cal bene ficiar ies by elig ibilit y

ty pe,” (3) “[ u ]t iliz ation of ser

vices by elig ibilit y

ty pe over time,” and (4) an “[ a]naly sis of benchmark service utili zation where
ava ila ble .” CMS a

pp ro ve d th e re du c e d r a te s r e tr oa c tiv e ly to J une 1, 2011.

Four g roups of Plaintiffs f iled suit a g ainst the S ecretar y and the Dir ector

in the Uni t ed States District Court for the Ce n tr a l D is tr ic t o f Ca li f

o r n ia

. Ma naged Pharmac

y Care v. Sebelius , D

. Ct. No . 2 :11 -c v- 09 21 1- CA S- MA N ( Ap pe a l N os

. 1 2

- 5 5 0 6 7 & 1 2

- 5 5 3 3 2 ) ( “ the MPC case ”), w as filed by five pharma cies, a pharma cy

org anization, an independe nt living cente r, a state association of independe nt living ce nters, and a Medi-Ca l benef

iciary

. Calif

ornia Medica l A ssociation v. Douglas , D . Ct . N o. 2:1 1- c v- 09 68 8- CA S- MA N( A p p e a l N os

. 1 2-55335, 12-55315, & 12-55550) ( “the CMA case ”), w as filed by profe ssional associations repr esentingthe intere sts of ph y sic ians , d e nti sts , p ha rm a c ist s, su

pp lie rs of

dura ble
me dic a l e qu ipm e nt, pr ov ide rs of c are fo r A I DS p a tie nts , pr ov ide rs of e me rg e nc y me dic a l trans po rt a tio n, and a Me diCal benef

iciary

. Calif

ornia M edical T r a nsportation As s o ci ation v. Douglas , D . Ct . N o. 2:1 1- c v- 09 83 0- CA SMAN (Appe al Nos. 12-55334, 12-55103, & 12- 55554) (“ the CM TA case ”), w as filed by

a provide r of non- emer g ency medical transportation servic es, a tra de assoc iation repr esentingother such pr o viders, and a Medi-Cal benef iciary

. Calif

ornia Hospital Ass ociation v. Douglas , D. Ct. No. 2:11-cv-09078-CAS-MAN(Appe al Nos. 12-55331, 12-55068, & 12-55535) ( “the CHA case ”), was filed b y five M ed i -Cal bene ficiar ies and a trade association re prese nting the int e re sts of

DP/ NF s.M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 23

The dist ri ct cour

t declined to def

er to the Sec reta

ry ’s approva l of the SPAs and g rante d Plaintiffs’ m o t i ons for preliminary

injun ct i ons. The cour t determined that our decision in Orthopaedic Hospital re qu ir e d th e State to consider c ost data prior to submitting the SPAs to C MS and dis a g re e d w ithDH CS’ s re se arc h metho do logy wi th re sp e c t to the po te nti a l impact o f t

he re du c tio ns on

be ne fi c iary

a c c e ss. For example, the d i strict court de termined that the State’ s pa rt ic ipatin g ph arm acy

lis t in c or

re c tly inc lud e d s ome pharm a c ie s, tha

t th e ana ly sis of

DP/ NF s im pr op e rl y considered fre estandingnursing fac iliti es, and that DHCS’s g eog raph i c ana ly sis was flawe d beca use it focuse d on an urban- rura l county

model rathe r than one based o n phy sical location. The court deter mined also that CM S ’s acc eptanc e of the monitoring plan w as inappropr iate bec ause “ at best the
mon ito ri ngpla

n c re a te s a

po te nti a l r e sp on se a ft e r a qu a lity defic iency

has bee n identified.” Thus, the district court he ld, Plaintiffs were likely to suc cee d on their APA cla ims that the SPAs vi olate § 30(A ). T h e co urt also held that the Sup re ma c y

Cla us e pr ov ide s a

pr ivate ri g ht o f a c tio n to challeng e the r eimbursement r ates a s violating § 30(A ) and that Pla int if

fs we re lik e ly to pr e va il on tho se c la ims a s w e ll. I n the CHA case , the district co urt enter ed the pr eliminary injunction on the additional gr oun d that beca use state law place s cer tain restric tions on how and when DP/NFs may stop tr e a tin g Me dic a id patie nts , CHAwo uld lik e ly su c c e e d o n it s takin g s c la im.

I n the MPC , CM

TA , an d CHA case s, the injunctions ini tia lly pr oh ibi te d th e Di re c tor fr om a pp lyingthe rate reduc tions to any service s rende red afte r J une 1, 2011. In the CMA case , howeve r, the c ourt deter mined that enjoining the reduc tions a s to se rvice s rende red befor e the injunctions took eff ect would violate the State’s Eleve nth Amendment
s o v e r e i g ni m m u n i t y an d l i m i t e d i t s i n j u n c t i o na c c o r d i n g l y.M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

24

On motions of the Direc tor, the distr i ct co u rt modified the oth e r i nju nc tio ns a lon g the same lin e s.
Th e Se c re tary

and the Di re c tor

a pp e a l. P la int if

fs c ro ssa pp e a l the dis tr ic t court ’s de c isi on to al low the ne w r a te s w ith respe ct to Medica id service s rende red be fore the ef fe ct ive date of the inj un c tio ns

.
II

STA ND AR

D O F RE VI EW

A p r e l i m i n ar

y i n j u n c t i o ni s an“ e x t r a o r d i n ar y r e m e dy” and is appropr iate only

when the pa

rty seekingthe injunction “e s ta b li s h [e s ] th a t h e is li k e ly to s u c c e e d o n th e me r its, that he is likely

to suffer

irrepa rable harm in the a

bsence of pr e l i m i n ar

y r e l i e f , t h a t t h e b a l an c e o f e qu i t i e s t i p s i nhis favor , and that an injunction is in the public interest.” W inter v. Natural Res. Def. Council, Inc. , 555 U.S. 7, 24, 20 (2008).

We reviewthe distr ict court’s g rant of a preliminary in ju n c ti o n f o r a b u s e o f d is c r e ti on. Be no v . S ha lal a , 30 F.3d 1057, 1063 (9th Cir. 1994). We must fir st determine whe ther the dis tr ic t c ourt “ ide nti fi e d and a pp lie d th e c or

re c t le g a l r

ule to the relief reque sted.” United States v. Hink son , 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc)

. I f not , that err or of law
nece ssarily constitutes an abuse of discre tion. Id. at 1261. I f, howeve r, the district cour t identified and a

pplied the cor

rec t leg al rule, we wi ll rever se only if the cour

t’s decision

“ re su lte d f

ro m a fa c tua l f

indi ng that w a s il log ic a l, im p la u s ib le , o r w it

h o u t s u p p o rt in in f

e r e n c e s th a t may

be drawn from the f

acts in the re cord.” Id. at 1263.

I n consideringPlaintiffs’ APA claims, we must follow “additional re quirements for revie w.” Earth Island Inst. v.M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 25

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

. Under the APA,
we may no t se t a sid e a g e nc y

a c tio n unle ss t

hat act ion is “ar bitrary , capr icious, an abuse of di scre tion, or otherw ise not in a c c or da

nc e wi th l aw. ” 5 U.S .C. § 7 06 (2 )( A) . T his standard is met only wher e the party challeng ing the ag ency ’s decision mee ts a heavy

bu rden of showing that “the a g ency ha s r e lie d o n f

a c tors whic h Co ng re ss h a s n ot i nte nd e d it to consider, e ntirely

failed to consider an important aspect of the problem, off

ere d an explanation for its dec ision that runs
c ounte r t o th e e vid e nc e be fo re the a g e nc y , o r i s so imp la us ibl e that it

c ou ld not be asc ri be d to a dif fe re nc e in view or the product o f age ncy expertise.” Mo tor

Ve hic le Mf r s

. A s s ’n v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43 (1983).

III

APA CLAIMS AGAI NST THE SECRET ARY

A

We first consider whether ou r d ecision in Or tho

pa e dic Hospital is d isp os iti ve of

the iss ue s in

the se a pp e a ls.

I n Orthopaedic Hospital , a hospital and ho s p ital association cha lleng ed California ’s re duction of reimburs ement rates for pr oviders of hospital outpatient
ser vices, a

rguing that DHCS reduce d the rates “without proper c o n s id e r a ti o n o f th e e f f e c t o f h o s p it a l c o s ts ” o nthe § 30(A) fac tors of eff

iciency , economy , quality of ca re , and benef iciary acc ess. 1 0 3 F. 3d at 1492. The State did not dispute that it ha d not considere d providers’ costs of off ering Me dic a id s e rv ic e s, but argue d that its re du c tio ns no ne the le ss c omp lie d w ith§ 3 0( A) be c a us e the statut e did

no t r e qu ir e it to s tud y su c h c os ts.M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

26 HHS was not a pa

rty in Orthopaedic Hospital , a nd we did not have the be nefit of the a g ency ’s p o s i tion reg ardingthe require ments of § 30(A). We owe d no defe renc e to the State’s position that § 30(A ) does not require c ost studies becau se “[a] state ag ency ’s interpre tation of fede ral statutes is not entitled to the defe renc e aff orded a fede ral agen cy ’s interpre tation of its own statutes.” Id. at 1495. We thus had to determine “ the prope r interpr etation” of the statute on our
own. Id. at 1496. We interprete d § 30(A) as requiring the S tate to consider providers’ cost of ser

vices prior

to setting reimbursement
ra te s f or tho se se rv ic e s:

T h e s t a tu t e p r o v i d e s tha t pa y me nts for se rvice s must be consistent with eff

iciency , economy , and quality of ca re, and that those pa

y me nts mus t be su ffi cie nt to e nli st
e no ug h p rovide rs to p ro vid e a c c e ss t o M e dic a id
rec ipients. [ DHCS] ca n n o t k now that it is setting rates that are consistent with ef ficienc y , economy , quality of
car e and a cce ss w ithout conside ring the costs of providing such ser vices. It s t an d s t o rea son that the pa y me nts for ho sp ita l outpatie nt service s mu st b e ar a re a so na ble relationship t o the costs of providingquality car e incur

red by e ff ic ie ntl y and e c on omi c a lly

op e rate d h os pit a ls.

Id.

Plaintiffs contend t h at a simple application of Orthopaedic Hospital

decide s these ca ses. We disag ree , for tw o r e a so ns

.
F ir s t, w e r e c o g n iz e d

in Or thopaedic Hospital that our standard of

revie w m ight have been di ffe rent had the ag ency spoken on the issue. Id. at 1495 (noting “the de fer enceM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 27

a ff or de d a fe de ra l a g e nc y ’s int e rp re tatio n of its ow n s tatut e s” under Chevron ). This is beca use “ Chevron ’s policy underpinning s emphasize the ex pertise and familiarity of the fede ral a g ency with the subject matter of its mandate and the need f or cohe rent a

nd un i form construc tion of fede ral law nationwide.” Id. (i nte rn a l quot a tio n mar ks omi tte d) . Be c a

us e the ag ency

was not a party to the l itigation and ha d not y et set forth it s position on the requirements of § 30(A), the re w as no iss ue of wh e the r w e sh ou ld d e fer t o th e a g e nc y . T he se appea ls, however , prese nt just t hat question.
Second, the Sec reta

ry has now set f

orth her inter

pretation, throug h her a

pprovals o f the SPAs, that § 30(A) doe s not presc ribe a

ny particula r m ethodolog y

a State must follow be fo re its pr op os e d rate s may be a pp ro ve d. CM S explic itl y approve d California’s SPAs as consistent with the require ments of § 30(A) even thoug h cost data w as not available with respec t to all of the serv i ces, the reby deter mining that the lac k of cost studi es d i d not prec lude California fr om reduc ing Me di-Cal reimburse ment rate s. “A court’s pr ior judicial construc tion o f a s t atute trumps an ag ency construction other

wise entitled to Chevron defe renc e only if the prior c ourt deci s ion holds that it s construction follows from the unambiguous ter ms o f t he statute a

nd thus lea v es no room for a g ency discretion.” Nat’l Cabl e & Te le c om m. As s’n v . B rand X I nte rn e t Se rv

s. (“ Brand X ”), 54 5 U. S. 96 7, 98 2 ( 20 05 ); Garfias-Rodriguez v. Holder , No. 0 9-72603,

_

_ _ F

. 3 d

_

_ _ , s li p o p

. 1 2 5 8 3 , 1 2 5 9 9 , 2 0 1 2 WL 5077137, *7 (9th Cir. Oct. 19, 2 0 1 2 ) (en banc) (conc luding th a t, p u r s u an t to Brand X , our prior c onstruction of two provisions of the I mmigration and Nationality Act d id not survive a c ontrary

rea ding by the B oard of I mmigration Appea ls). Although Orthopaedic Hospital wa s g ro un de d in the l an g u a g e o f

th e s tatute –

a s ar e a ll o f

o ur s tatutory interpre tati o n case s – we did not hold that our view ofM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

28 § 30(A) r epre sented the on ly rea sonable interpre tation of that statute. We r ead the statute in the absenc e of a n authoritative ag ency construction and decide d the case acc ording ly

. And althoug h we c ited Orth o p a ed ic Hospital

wi th a pp ro va l in Alaska DHSS, there was no Brand X issue to consider in that
case

. See A laska DHSS, 424 F.3d at 940.

For th ese reasons, Orthopaedic Hospital does not autom atically

rende r the SPA approva ls arbitrar y and
c a pr ic iou s.

B

We now consider whether the Secre tary ’s appr oval base d
on he r v ie w that § 30 (A ) doe s not impo se a pa rt ic ula r p ro c e ss on the States is entitled to Chevron defe renc e. This familiar standard r equire s a court to abide by an ag ency ’s int e rp re tatio n o r i mpl e me ntatio n of a statut e it a dmi nis te rs if Congr ess has not direc tly spoken “to the pr ecise question at issue” and if

the ag ency ’s answe r is “per missibl e” under the statute. Chevron , 467 U.S. at 842–43.

But not every

administrative ac t is entitl ed to Chevron defe renc e. United States v. Me ad Corp. , 5 3 3 U.S. 218 (2001). In revie wing an “a dminis t ra t i ve implementation of a par ticular statutory p ro vision,” we de fer to the ag ency ’s decision (1) “whe n i t appea rs that Cong ress de leg ated aut h o ri t y to the ag ency

g ener ally to make rule s car

rying the forc e of la

w,” a nd (2) “ the age n cy

interpre tation claiming defe renc e wa s promulgated in the exercise of that authority .” Id. at 226–27. Arguably , the S upreme Court has alre ady conclude d that SPA app rovals meet the Chevron / Mead standard by

stating that “[t] he Medic aid Act comm its to t he fe dera l ag ency theM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 29

power to administer a fede ral progr am. And here the a g ency h a s a c te d u n d e r th is g r an t o f a u th o r it y [b y a p p r o v in g a

SP A ]. That dec ision carr ies weig ht.” Do ug las v . I nd e p. Liv ing Ctr

. of S . Ca l. , ___ U.S. _

_ _ , 1 3 2 S. Ct . 1204, 1210 (2012). Be cause the Douglas Court also rec og nized that the defe renc e question had not be en fu l l y ar g ued, id. at 1211, we pr ocee d with our own ana ly sis. W e k ee p in mind, however, that we aff ord “c onsidered dic ta from the Supre me Court . . . a we ight that is gr eate r than ordina

ry judicial dicta as prophe cy of what that Court might hold.” United States v. Monte ro-Camargo , 208 F.3d 1122, 1132 n.17 ( 9th Cir. 2000) (en banc) (interna l quotation marks omitted). The first prong of the Mead sta nd ard is e a sil y

satis fi e d in these c ases: “T he Secr etar y shall approve any

plan which fu lf ill s th e con dit ion s sp e c if ie d” in t he statut e . 4 2 U .S. C. § 1396a(b) . Congr ess expressly deleg ated to the Secreta ry the authority

to interpret § 30( A) a

nd to determine whether

a State ’s Me dic a id p ro g ra

m c on fo rm s to fe de ra l r e qu ir e me nts

. The secon d Mead

prong– whether

the Secr etar

y int e rp re te d § 30 (A ) a

nd a pp ro ve d Ca lif

or ni a’s SPA s w ith in the e xe r c is e o f h e r d e le g a te d a u th o r it y

– d e p e n d s on the “for m and context” of the a

pprovals

. Price v . Steve doring Servs. of Am., I

nc. , 697 F.3d 820, 8 2 6 (9th Cir. 2012) (e n banc) . “De leg ation of s uch author ity may be shown in a
va ri e ty of wa y s, a s b y an a g e nc y ’s po we r t o e ng a g e in
a dju dic a tio n or n oti c e -a

nd -c omm e nt r

ule makin g , o r b y

so me other indication of a compar able c ong ressional intent.” Mead Corp. , 533 U.S. at 227.

We have a lrea d y considere d the application of Chevron t o t h e SPA proce ss. I n Alaska DHSS, th e Se c r e tary disappr o ved

a SPA , c on c lud ingtha

t A la sk a ’s pr op os a l to raise r eimbursement r ates wa s inconsistent with § 30(A )’sM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

30

s t an d ar d s o f e ff

i ci en cy an d ec o n o m y

. 4 2 4 F. 3 d

at 9 4 0

. In doing s o , CMS ex erc ised its authority , deleg ated by Congr ess, to revie w Medica id plans. Thus, we de fer red to the
a g e n c y ’ s d i s a

p p r o v a l , h o l d i n g t h a tt h e s t a tu t o r y te rm s

“ e ff ic ie nc y ” and

“ e c on omy” le ft

a “ g a p th a t [CMS] permissibly

filled via ca se-by -ca se adjudication.” Id.

There does not appe ar t o b e any logic al re ason why Con g re ss w ou ld d e le g a te to t he Se c re tary

the dis cre tio n to decide that a propose d SPA v iol ate s § 30 (A ), but ch oo se to wi thh old fr om he r that sam e dis c re tio n if s he de c ide s th e SPA
c om pli es with § 30(A). The nature of her autho ri t y i s the same in both instances

. Nonetheless, the district court distinguished Alaska DHSS beca use that ca se re lied in part on “the formal admini strative proc ess af forde d the State” in the
case of a SPA disapprova l. Alaska DHSS, 424 F.3d at 939.

When the Secre tary

disapproves a

proposed plan amendment, a

State has the “ opportunit i es to petition for
rec onsideration, brie f its arguments, b e hear d at a f ormal hear ing, r ece ive re asoned de cisions at m u l t i p le levels of revie w, and submit exceptions to those decisions.” Id. In the
case of an approval, howe ver, the Medica id prog ram doe s not p ro v i d e i n t er es t edparties with simil ar o p p o rt un i t i es (a l th o u gh the y may c e rt a inl y ava il the mse lve s o f t

he for mal p ro c e ss provided in a suit under

the APA). This differ ence , argue the Pla int if fs , s ho ws tha

t Chevron de fe re nc e is n ot a pp ro pr iate to CMS’ s SPA

a pp ro va ls.

I t is tr ue that Alaska DHSS relied on the formal petition proce ss affor ded the State in the case of a disapprova l. But that was not the only re ason we defe rre d to the ag ency ’s decision. Section 30(A)’s “unde fined ter ms ‘eff iciency ’ and ‘ec onomy ’ leave a g ap that [CMS ] permissibl y filled,” a nd the a g e n c y a

p p r o p r iate ly “ e lu c id a te [d ] th e me an in g o f theM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 31

statute

. . . via ca se-by -ca se adjudication.” Id. a t 940. CMS did the same thing here

.
I mportantly , we recog nized in Alaska DHSS that the formal process a ffor ded the State wa s “cle ar evide nce that Congr ess intended [the ag ency ’s] final deter mination to car

ry the forc e of la

w.” Id. at 9 3 9 (empha sis added) ( internal qu otatio n ma

rk s and a lte ratio n o mitte d) . B ut f or ma l pr oc e ss is not the only

evidenc e of suc h cong ressional intent. In the absenc e of formal procedure s, courts must determine whether t h e r e ar e “ an y other

ci rc u m s t a n c e s re as o n ab l y s u gges t i n g” that Co n gre ss intended def ere nce to a

n ag ency decision. Mead Corp. , 533 U.S. at 231 (empha sis added). The re a re many such circ ums t an ces to c onsider. F or example, “the int e rs tit ial natur e of

the le g a l qu e sti on , th e re late d e xpe rt ise of the [a]g e nc y , the imp or tanc e of the qu est io n to administration of the statute, the co m plexi ty of that administration, a

nd the car eful c onsideration the [a]ge ncy has g iven the question over

a long period of t ime” ar e all fa ctors fa v o ri n g Chevron defe renc e. Barnhart v. W alton , 5 35 U. S. 212, 222 (2002). Considering all the evidenc e of Chevron de le g a tio n in these c ases, we hold that the balanc e tips t o t h e side of defe renc e. The languag e o f § 30(A) is “ broad a nd diffuse.” Sanch ez v. Johnson , 416 F.3d 1051, 1060 ( 9th Cir. 2005). The statute use s words like “consistent,” “suff icient,”

“ e ff ic ie nc y ,” and “ e c on omy ,” wi tho ut d e sc ri bin g any sp e c if ic steps a State must take in order t o meet those standa rds. The statute’s amorphous la

ng uag e “sug g est[s] that the ag ency ’s expertise is releva

nt in determining its application.” Dou glas , 132 S. Ct . at 1210.

M e d ic a id a dministr a ti o nis n o th in g if n o t c o mp le x. De te rm ini nga

pla n’ s com pli anc e wi th § 30( A) , a s w e ll a s it sM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

32

In a l e t t e r s u b m i t t e d p u r s u a n t t o Ru l e 2 8 ( j ) o f t h e F e d e r a l Ru l e s of 1 A p p el l at e P roce d ure, t he C M A and C H A P l ai nt i f f s rel y on Pr i ce in

su p p o rt o f t h e ir a rg u m e n t t h a t Chev r on d o es no t ap p l y t o S P A ap p ro va l s. B u t P r i ce cons i dere d whet her a s t at ut ory i nt erpre t at i on adva nce d by an
a g e n c y i n l i t i gat i on was ent i t l ed t o de f erence. U nd ert aki ng a Chev r on /

M ead anal y si s, we co n c lud e d t hat C o ngres s d i d not i nt end t he l i t i gat i ng pos i t i ons o f t he D i rec t o r o f t he O f f i ce o f W o r k ers’ C o m p e n sa tio n P ro g ra m s to h a v e the fo rc e o f l a w

. P r i ce , 697 F. 3d at 8 3 0

– 3 1 . T h e S e c re ta ry’s d e c isio n he re is a v e ry d iff e re n t an im a l. compliance with a host of other f eder al laws, is centr al to the pr og ra m be c a us e a State c ann ot p art ici pate i n M e dic a id without a plan appr oved by theSecr e tar ya s c on sis te nt w ith those laws. The execut i v e b ranc h has bee n g iving c are ful
c on sid e ratio n to the ins and outs o f t he pr og ra m si nce it s inception, and the ag ency is the expert in all things Medica id. And let us not forg et that “a very g ood indicator of de leg ation
m er i t i n g Chevron treatment [ is an] ex press c ong ressional authorization[ ] t o eng ag e in t h e p roce ss of rulemakingor adjudicatio n that produce s regulations or ruling s for whic h defe renc e is claimed.” Mead Corp. , 533 U.S. at 229. That express deleg ation is prec isely what we have he re. The ref ore, despite the lack of formal proce dures a vailable f or intere sted parties, the Sec reta

ry ’s exercise of discretion in the “for m and
c on te xt” o f a

SPA appro va l de se rv e s Chevron defe renc e. Price , 697 F.3d at 826. 1

I n h old ingtha

t Chevron applies to SPA approvals, we
re a c h a c on c lus ion

sim ila r t o that re a c he d b y

the D. C. C ir c uit

. I n Pharmace utical Researc h and Manufacturers of Ame rica v. Thompson , 362 F.3d 817, 819 ( D.C. Cir. 2004), thenSe c re tar y Thom

ps on of HH S a pp ro ve d a

Mic hig an SPA desig ned to implement “a low- cost state pre scription drug
cover ag e prog ram [] for be nefic iaries of Medica id.” The plaintiffs t h er e, as here, ar g ued that SPA approva ls “are notM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 33

the re sult of a forma l admini s t rative pr ocess” and ar e there fore “ak i n to ‘interpre tations contained in policy statements, ag ency

manuals, and e nforc ement gui d elines,’ wh i ch are ‘beyond the Chevron pale.’ ” Id. a t 8 2 1 ( qu oting Mead Corp. , 533 U.S. at 234).

Th e D. C. C ir c uit

re je c te d th is a

rgume nt b e c a

us e it

overlooks the nature of the Secre tary ’s
a uth or ity . T his is no t a c as e of imp lic it de le ga tio n o f au tho rit ythr o u gh the g rant of g e ne ra l imple me ntatio n au tho ri ty . I n th e c a se of the Medic aid pay

ment statute, the Congr ess e x pr essl yc on fe rre d o n t

h eS e c re tar yau tho rit y to review and approv e state Medicaid plans
as a c on dit ion to dis bu rsi ngfe de ra l M e dic aid pa yme nts

. . . . I nc ar

r yin go u t t h is d u ty , the Secre tary is c harg ed with e nsuring that eac h state plan c ompli es with a vast networ k of
s p ec i fi c s t at u t o ry

re qu i re m en t s

. . . . T h ro u gh th is “ex pres s d ele gati on of s peci fi c interpre tive authority ,” Mead , 533 U.S. at 22 9, 12 1 S. Ct. a t 21 72 , th e Con g re ss mani fested its i ntent that the Secr etar y ’s deter minations, based on inter

pretation of the rele vant statutory provisions, should have the forc e of la

w.
Id. at 821–22 (e mphasis added) . There fore , the cour t defe rre d to t he a g e nc y ’s a

pp ro va l of

the Mic hig an SPAand a lso deter m i n ed that the ag ency

did not violate the APA. Id. at 825–27.
We ag ree with the D.C. Circuit’s rea soning. See A laska DHSS , 4 2 4 F. 3 d

at 9 3 9 (c i t i n g Pharm. Rese arch Mfrs. of Am.M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

34 with approva l). The Me dicaid prog ram is a colossal undertaking, jointly

funded by the fede ral g overnme nt and the State s. Con g re ss e xplic itl y g ra nte d th e Se c re tary

a uth or ity to de te rm ine wh e the r a

Stat e ’s Me dic a id p lan c omp lie s w ith fe dera l law . T he Se c re tary un de rs tand s th e Ac t and is espec ially cog nizant of the all-important y et sometimes competinginterests of e fficie ncy , economy , qual i t y of ca re, and bene ficiar

y acc ess. I t is well within t he Secr et ar y ’s
mand a te to i nte rpret the statut e via c a se -b y -c a se SPA adjudication.

Be cause Congr ess intended SPA appro v al s to have the forc e o f law, w e now a sk whether the Secr etar

y ’s interpre tation that § 30(A) r equire s a re su lt , not a par

ticular methodology such as cost studies, is based on a “ permissible”
rea ding of § 30(A). Chevron , 467 U.S. at 843. We have no do ub t th a t it

is.

T h e s t a t u t e s ays n o t h i n g a

b o u tc o s ts tu d i e s

. It s ays nothing about any particula r methodology

. S

ee Hol der v. Martinez Gutierrez , ___ U.S. ___, 132 S. C t. 2011, 2 017 (2 01 2) (d e fe rring to the B oa rd of I mmi g ra tio n App e a ls’
rea ding of 8 U.S.C. § 1229b(a) beca use the statute “ does not mention imputation [ of a pa rent’s year s of r es i d en ce to a child], m uch l es s require it”). Rather , by its terms § 30(A) require s a substantiv e re sult – reimbursement rates must be consistent with effic iency , econ omy , and quality car e, and
su ff ic ie nt to e nli st e no ug h p ro vid e rs to e ns ur e a de qu a te benef iciary acc ess. Cong ress did not purport t o instruct the S e c r e t ar y how to acc omplish t h es e subst antive g oals. That d e c i s i o ni s l e f

tt o t h e a g e n c y.
Th e ide a tha t a State sh ou ld c on sid e r p ro vid e rs ’ c os ts pr ior to r e du c ing re imb ur se me nt rate s see ms at fi rs t bl us h to be logic al. As we state d in Orthopaedic Hospital , “costs ar eM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 35

an integ ral pa

rt of the c onsideration.” 103 F .3d at 1496. B ut
e ve n then, we a c kn ow le dg e d th a t be ne fi c iary a c c e ss t o Medica id service s “appe ars to be driven to a deg ree by fac tors independe nt of costs of the se rvice s.” Id. at 1498. An
a g e nc y ’s int e rp re tatio n “ pre va ils if it i s a re a so na ble
c on str uc tio n of the statut e , wh e the r or no t it is the onl y possible interpretat i on or eve n the one a court mig ht think best.” Martinez Gutierrez , 132 S. Ct . at 2017. The position that costs might or mig ht not be one appropriate me asure by which to s t u d y

benef iciary acc ess, depe nding on the circ ums tance s of ea ch State’s plan, is e ntirely rea sonable. Eac hSt a te p arti c ip a ti n g in M e d ic a id

h a s un iq

u e , lo cal in tere sts that c ome to b e ar. Th e Se c re tary mus t be fr e e to conside r , f

o r e a c hSt a te , th e mo s t a

p p r o p r iate w ay

f o r tha t State to demonstrate c ompliance with § 30(A ).

Mo re ov e r, the te rm

“ c os t” is n ot as free fr om a mbi g uit y as the Plaintiffs would have us believe. When o n e s hops at
a re tail outlet and sees a price on an item, th e co s t t o the
c on sume r i s th a t pr ic e , p e ri od . B ut whe n o ne a tte mpt s to deter mine how the price or cost to the consume r has be en calc ulated, a whole host of intan gibles come into play , such as cost of g oods, depre ciation, prof it, overhea d, defe rre d
c omp e ns a tio n, a dv e rt isi ng , e tc . T he te rm “cos t” may

a lso include items such as c ontrac t prices to suppl iers and se rvice providers, which may

themselves be neg otiated and r educe d if reimburse ment ra t es are reduc ed. Nowhe re in this rec ord have w e been able to find a descr iption by the Plaintiffs of a useful de fi ni ti on of cos ts; and tha t te rm is a ny thi ngbut a ta lis man so lvi ng a ll pr ob le ms or pr ov idi ng ans wers to
c omp lic a te d q

ue sti on s.
We note that our sister circ uits have ag ree d that § 30(A) “does not re quire a

ny ‘par ticular methodology ’ for satisfying its su bs tanti ve re qu ir e me nts a s to mod if ic a tio ns of

stateM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

36 plans.” Rite-Aid of Pa., Inc. v. Houstoun , 171 F.3d 842, 851 (3 d Ci r. 19 99 ); Minn. Home care Ass’n, Inc. v . Gomez , 108 F.3d 917, 918 (8 th Cr. 1997) (per curiam) (“T he Med i ca i d Ac t . . . does not requir e the State to utiliz e any pr e sc ri be d me tho d of ana ly zing and c on sid e ri ng sa id fa c tor s. ” ); Methodist Hospitals, Inc. v. Sullivan , 91 F.3d 1026, 1030 (7th Cir. 1996) (“ Nothing i n t he languag e of § 1 39 6a (a )( 30 ), or

any imp le me nti ngre g ulatio n, req uir e s a s t a t e t o c o n d

u c t s tu d i e s i n a dv an c e o f

e v e r y m o d i f i c at i o n

. It require s eac h state to produce a re su lt , not to em p loy

any pa rt ic ula r m e tho do logy

fo r getti ngthe re .” ). To da y , w e joi n the m.
We defe r t o the Secr etar y ’s dec ision that S PAs 11-009 and 11-010 comply with § 30(A). The district court’ s failure to give Chevron de fe re nc e is a n e rr or of law that ne c e ssa

ri ly constitutes a

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

C

Our f ina l in qu ir

y wi th r e sp e c t to Pla int if

fs ’ APA c la ims is whether the ag ency ’s approva ls w ere arbitr ar y and capr icious. Ag ency

action is arb i t rar

y and ca pricious when the a g e nc y

re lie s o n facto rs Con g re ss h a s n ot i nte nd e d it to
c on sid e r, fa ils to c on sid e r a n im po rt ant a sp e c t of the pr ob le m, or off ers a n explanation that ru n s co u nter to the e vidence befor e the a g ency

. Motor Vehicle Mfrs. Ass’n , 463 U.S. at 43. We must uphol d an ag ency ac tion -- eve n if it is made wi th “ le ss t

ha n id e a l c lari ty”

-- a s lon g a s “ the a g e nc y ’s path may rea sonably

be disce rned” from the r ecor d. Id. (i n t er n al quotation marks omitted).

Plaintiffs ur g e us to conc lude that the SPA approva ls are
arb itr ary and c a pr ic iou s b e c a

us e the a g e nc y “ fa ile d to i n d e p e n d e n t l y a s s e s s t h e s t a tu t o r y f a c t o r s ” o f

e f f i c i e n c y,M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 37

e c on omy , q

ua lity of c are , and be ne fi c iary a c c e ss and , in f a c t, made “ no ref

ere nce” to these re quirements whe n approving the SPA s

. But that is not an ac curate re prese ntation of the
rec ord.

CMS’ s app ro va ls the mse lve s r e fute Pla int if fs ’ a rgume nt, statin g, “ We c on du c te d o ur re vie w o f your s ub mitta l with particul a r

attention to the stat utory requireme nts at [ § (30 )(A)] .” (e mphasis added) . CMS concluded t hat the SPA “ c omp lie s w itha ll a pp lic a ble re quir e me nts .” With
re sp e c t to the a c c e ss r e qu ir e me nt o f § 30 (A ), the a pp ro va ls state that th e low e r rates are pe rm iss ibl e be c a us e the State “p ro v i d e[ d ] m et ri cs wh i ch adequately demonstrated benef iciary acc ess.” DHC S ’s ana ly sis considered ( 1) the “[t] otal number of providers by ty pe and g eog raphic location
and pa rt ic ipatin g Me di- Ca l pr ov ide rs by ty pe and g e og ra ph ic
are a,” ( 2) the “ [t ]ot al number of Medi-Cal bene fi ci aries by
e lig ibi lity ty pe ,” (3 ) “ [u]til ization of

se rv ic e s b y

e lig ibi lity ty pe over time,” and (4) an “[a]naly sis of benchma rk ser vice utiliz ation wher e ava ilable.” This appr oach tr acks MACPAC’s thre e-pr ong fra mework for a

naly zing ac cess: (1) the nee ds of Medica id benef iciaries, (2) the availability of providers, and (3) the utilization of service s. SeeMACPAC Marc h 2011 Report, p. 127.

The a g ency

also appropr iately

consid ere d the State’s monitoring plan. The district court re jected the monitoring plan bec ause it “me rely

cre ates a potential response after

an acc ess or quality defic iency has been identified.” We do not
a g re e that th e State ’s 82 -p age c omp re he ns ive pla n is irrele vant or super fluous. The statute c annot log ically require that eve ry sin g le po te nti a l pr ob le m – n o matte r h owun lik e ly

– be predic ted, identified, and r esolved be for e SPA a

pp ro va l. DHCS’s monitoring plan supports the re asonable conclusion that the rate re ductions are not e x pecte d neg atively to impactM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

38

be ne fi c iary

a c c e ss, but that if

su c h p ro ble ms o c c ur , th e State
can quickly respond and addre ss them. I t was not arbitra ry or capr icious for the ag ency to consider Califor nia’s monitoring plan.

The district cour

t delved into the minutia e of the Secre tary ’s appr oval, pickingapar t D HC S ’s resear ch and findin g p o tential flaws – a n inappropriate exercise when revie wing ag ency action under the APA. Hundre ds of pag es of ana ly sis submi tted by DHC S support the Secre tary ’s conclusion that the SPAs com p ly with § 30(A) a

nd are
u n l i k e l y t o a f

f e c tb e n e f i c i ar y a c c e s s i na

d e tr i m e n t a l w ay. Plaintiffs cite to other evide nce that contra dicts DHCS’s
e vid e nc e of su ff

ic ie nt b e ne fi c iary

a c c e ss. B ut C MS
c on sid e re d th is “ sta

keholde r i np ut” wh e n ma kin gits deter minations, and the ag ency ’s dec ision t o cr edit DCHS’s evidenc e over that submitt ed by other pa rties was r easona

ble. “[W ]here ther e is conflictingevidence in the re cord, the [ag e nc y ’s ] de te rm inatio n is du e de fe rence – e sp e c ia lly in
are as of [its] expertise.” Nat’l Parks & Co n s erv. Ass’n v. U.S. Dep’ t of Tr ansp. , 222 F.3d 677, 682 ( 9th Cir. 2000).

The “ Se cr etar

y shall approve ” plans a nd plan
ame ndme nts that c omp ly wi th t he re qu ir e me nts set f

or th i n § 30(A). 42 U .S.C. § 1396a(b). Howshould the Secr etar y de te rm ine that com

pli anc e ? Un de r the APAthe ans we r m us t b e , in an y w ay th a t is n o t “ ar b it r ar y , c a p r ic io u s , an abuse of discretion, or othe rwise not i n acc ordanc e with law.” 5 U.S.C. § 706(2). CMS’s decision that SPAs 11-009 and 11- 01 0 me e t th e re quir e me nts of § 3 0( A) ne ith e r f

a ile d to consider a

n important aspect of the problem, nor relied on fac tors Congr ess did not intend it to cons i der. B eca use the ag ency ’s path ca

n rea sonably be dis cer

ned, Plaintiffs ca

nnot
su c c e e d o n th e ir

APAc la ims

.M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 39

IV

SUP RE M AC Y C LA USE CL AI M S AGAI NST THE

DI RE CT OR

Al tho ug h § 30 (A ) d oe s n ot c re a te a ny su bs tanti ve ri g hts enfo rc eable under 42 U .S.C. § 1983, Sanchez , 416 F.3d at 1060 (9th Cir. 2005), we he ld in Indepe ndent Livin g C en t er of S ou the rn Cal ifo rn ia v . S

he wry (“ I LC I ”) that “a pla intiff seekinginjunctive relief

under the Supremac y Clause on the basis of federa l pree mption need not asser t a federa lly

cre ated ‘rig ht’ . . . but n ee d only satisfy traditional standing require ments.” 543 F. 3 d 1050, 1058 (9th Cir. 2008). The Supreme Court denie d cer tiorari. 1 2 9 S. Ct . 2828 (2009). We rea ffirme d IL C I ’s ho ldi ng in a late r a pp e a l in the same case

. Se e In de

p. Liv ing Ctr . o f S. Cal . v . M

ax we ll- J oll y(“ IL C II ”), 572 F.3d 644, 650 n.7 (9th Cir. 2009) ( vacate d sub nom., Douglas , 132 S. Ct . 1204). The Supreme C o u rt g rante d cer tiorari in ILC II

, along with a nu mb e r o f o th e r N inth Ci r c u it c a s e s , to c o n s ider whether the Su p remacy

Clause g rants a pr ivate ca use of
a c tio n f or vio latio n of § 30 (A ). Th e Se c re tary wa s no t a pa rt y in any of the c ases. At the time of the ora l argument, the Secre tary had not y et appr oved the r eimbursem en t rates at iss ue , w hic h h a d b e e n au th or ize d b y Ca lif or nia As se mbl y B i l l s 5 an d 1 1 8 3

. L a t e r , h o w e v e r , t h e S e c r e t ar y did approve the new r ates, c oncluding that t h ey complied with § 30(A). After rec eiving supplemental b ri ef i ng on the ef

fec t of the Se c re tary ’s a c tio n, the Sup re me Court va c a te d thos e c a se s in Do ugla s v. Ind

epen den t L ivi ng

Ce nt er o f S ou th ern C ali for nia , 132 S. Ct . at 1208.

All of the Jus tices ag ree d that the S ecr etar y ’s appr oval of California’s r ate r eductions “does not c hang e the under lyingM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

40 substantive question, namely whether Ca li f o r n ia ’ s s ta tutes are consistent with [ §30(A)].” Id. a t 12 10 ; see also id. at 12 13 –1 4 ( Rob e rt s, C.J., di sse nti ng ) ( “ [T]he CMS a pp ro va ls have no impact on the question befor e this Court.”). Just ice Br ey er’ s majority

opinion concluded, howe ver, that the approva ls “may

chang e the a

nswer” and that i n t he new po sture of

the c a ses it w a s a

pp ro pr iate to r e mand

fo r u s to consider the Supremac y

Clause issue in the first instance

.
T h e c a s e s v a c a t e d an d

r e m an d e d

b y Douglas are c ur

re ntl y in mediation. The question we fac e in those case s is whether the Supremac y

Clau s e all ows a private par ty to enforc e a fede ral statute that cre ates no substantive rig hts, even whe re the administrative ag ency char g ed with the implementation
an d e n f o r c e me n t o f

th e s tatute h a s a lr e a dy acte d. Douglas did not resolve that question, and w e nee d not do so here.

E ven assumingthere wer e a c ause of action under

the Supremac y

Clause wher e, as he re, the Se cr etary has ac ted –
a po sit ion we do no t ne c e ssa

ri ly be lie ve the C ourt

wo uld endorse – at this stage it is sufficient to say that Plaintiffs are
un lik e ly to s uc c e e d on the me ri ts o n th e ir Sup re ma c y

Cla us e claim ag ainst the Direc tor fo r the ver y same re ason they

are u n l i k e l y t o p r e v a i l o n t h e i r A P A c l a i m s a g a i n s tt h e S e c r e t ar y. The Sec reta

ry has re asonably

decide d that SPAs 11-009 and 11-010 comply

with fede ral law . That i s the end of t he matter for the pur

poses of this appea l of the injunction.

V

CH A’ S TA KIN G S CL AI M

The Takin g s Clause of the Constitution prohibi ts the g ov e rnme nt f

ro m takin g pr ivate pr op e rt y fo r pu bl ic us e wi tho ut j us t c omp e ns a tio n. U. S. Co ns t., ame nd . V . B e c a us eM ANAGE D P HAR MAC Y C ARE V

. S EB EL I US 41

participation in Medica id is voluntary , howeve r, provider s do not h av e a

p r o p e rty inte r e s t i na

p arti c u la r r e im b ur s e me nt rate

. See E

rickson v. U.S. ex re l. HHS , 6 7 F .3 d 8 58 , 8 62 (9 th Cir . 1 99 5) (“ [P]la int if

fs do no t po sse ss a

pr op e rt y int e re st i n continued par

ticipation in Medicare, Medica id, or the fe de ra lly -f

un de d s tate heal th c are pr og ra ms. ” ). De sp ite thi s well-e stablished principle, the district c ourt h eld that CHA
wa s li ke ly

to s uc c e e d o n it s ta

kin g s cla im be c a

us e , a s a re su lt of state law s restrictingthe expulsi on of patients fr om skill ed
nurs ingfa c ili tie s, “the ho sp ita ls’ c on tin ue d p art ic ipatio n in Me di- Ca l is c omp uls or

y a t least un til su c h ti me a s a lte rn a te
arr ang ements are made for patients rece iving skilled nursing service s.” The di s t ri ct court was not persua ded by the fa ct that “ the ho sp ita ls i n th is c a se a c c e pte d th e re str ic tio ns to the ir se rv ic e s w he n th e y

vo luntari ly

e le c te d to pa

rt ic ipate in Medi-Cal” be cause “they did s o befor e the State e nacte d [Assembly

Bill] 97.”

B ut re g ard le ss of wh e n pro vid e rs de c ide to p art ic ipa te in Medi-Cal, they

can ha rdly expect that re i m bursement r ates will never chang e. The fact that States may submit S PAs and
r e qu e s ta p p r o v a l f o r l o w e r r a t e s i s e n o u g ht o e n d th e i n qu i r

y. Neither the State nor the f eder al g overnme nt “promised, expli citly or implicitly ,” that provide r re imbursement rates
wo u l d n ever cha

ng e. Cervoni v. Se c’y

of Health, Educ. & W e lfa re , 5 81 F .2 d 10 10 , 1 01 8 ( 1s t Cir . 1 97 8) (h old ingtha t a pr ov ide r o f M e dic are do e s n ot h ave a pr op e rt y inte re st i n c on tin ue d pa y me nts un de r P art

B ); see also Franklin Me m’l Hosp. v. Harv ey , 575 F.3d 121, 129–30 ( 1 s t Cir. 2009) (holding that there can be no unconstitutional taking whe re a provider “voluntarily participates in a regulat ed p rog ram” ). CH A c ann ot s uc c e e d o n it s ta kin g s c la im.M ANAGE D P HAR MAC Y C ARE V

. S EB EL I US

42

V

CO NC LU SION

For the fore g oing r easons, we reve rse the district c ourt’s decisions and va cate the pre liminary injunctions in all four
c a se s. We r e mand

fo r f ur ther pr oc e e din g s c on sis te nt w ith this opini on. Appeal Nos. 12-55067, 12-55332, 12- 55331, 12-55068, 12-55334, 12-55103, 12 -55335, an d 12-55315 are RE VERS ED, t he IN JU NC TIO NS V AC AT ED , a nd t he cases REM ANDED. Appeal Nos. 12-55535, 12-55554, and 12-5555 0 are DI SM ISSED as M OOT.