Court Opinion

ID: 2658850
Source: CourtListenerOpinion
Date Created: 2014-03-31 13:19:41.132717+00
Date Added: 2024-06-11T09:14:09.464341
License: Public Domain

UNITED STATES DISTRICT COURT_
FOR THE DISTRICT OF COLUMBIA

NB, et al., )
)

Plaintiffs, )

)

v. ) Civil Case No. 10-01511 (RJL)

)

THE DISTRICT 0F COLUMBIA, et al., )
)

Defendants. ) F I |" E D
+1...- MAR 3 1 2014
  clerk u.s. District & Bankruptcy
Mar°h  2014 [## 10= 461 cuurié forma miami m columbia

Nine Medicaid recipients ("plaintiffs") bring this suit against the District of
Columbia, the Mayor of D.C., and the Director of D.C.’s Department of Health Care
Finance (collectively, "defendants"), alleging that defendants denied Medicaid coverage
of their prescription drugs without providing the procedural protections required by law.
See generally Am. Compl. [Dkt. # 43]. In particular, plaintiffs allege that D.C. "denied,
terminated, reduced, or delayed" their prescription drug coverage, and did so without
giving them adequate written notice, the opportunity for a fair hearing, and the
opportunity for reinstated coverage pending a hearing decision, in violation of federal and
D.C. law. See Am. Compl. 111 l-2. Plaintiffs, therefore, allege violations of the Due
Process Clause of the Fifth Amendrnent of the Constitution, Title XIX of the Social
Security Act, 42 U.S.C. § 1396 et seq., and District of Columbia law, D.C. Code § 4-
201 .O1, et seq., and they seek declaratory and injunctive relief under 42 U.S.C. § 1983.

See Am. Compl. 1111 181-195; id. at 49.

This Court previously granted defendants’ Motion to Dismiss ("Defs.’ First Mot.")
[Dkt. # l0] on the ground that plaintiffs lacked standing, see NB v. Distrz'ct of Columbia,
800 F. Supp. 2d 51 (D.D.C. 201 l), but plaintiffs successfully appealed that ruling, see NB
ex rel. Peacock v. District of Columbz`a, 682 F.3d 77 (D.C. Cir. 2012). Following remand
from our Circuit Court, now pending before this Court are the remaining grounds in
defendants’ first Motion to Dismiss, as well as defendants’ subsequent Motion to
Dismiss, or, in the Alternative, for Summary Judgment ("Defs.’ Second Mot.") [Dkt. #
46] and Memorandum of Points and Authorities in Support ("Defs.’ Second Mem.")
[Dkt. # 46-1]. Upon consideration of the pleadings and relevant law, defendants’
Motions to Dismiss are GRANTED.

BACKGROUND
I. Medicaid Statutory and Regulatory Framew0rk

Congress established the Medicaid program under Title XIX of the Social Security
Act ("Grants to States for Medical Assistance Programs"), 42 U.S.C. § 1396 et seq.
Medicaid is a "cooperative federal-state program that provides federal funding for state
medical services to the poor." Frew v. Hawkz`ns, 540 U.S. 431, 433 (2004). Rather than
directly providing health care services to eligible individuals or providing them with
hinds to purchase health care, Medicaid typically functions as a provider payment
program, wherein the program reimburses approved providers for their services. See 42
U.S.C. § l396a(a)(32); Am. Compl. ‘1] 2l.

Medicaid is financed by both the federal and state governments and is

administered by state agencies that are responsible for deciding eligibility, services

2

and was told that the pharmacy’s computer showed NB as ineligible for Medicaid). In
plaintiffs’ telling, when a Medicaid recipient presents a prescription and the pharmacy,
using the ECM system, submits an electronic claim to Xerox "to determine coverage," if
the pharmacy receives a reply message indicating the prescription is not covered by
Medicaid, the claim has been "denied." Am. Compl. 1111 33-34.5 Similarly, when a
pharmacy gives a Medicaid recipient a substitute drug, or a quantity of the prescribed
drug that is different from the prescription, plaintiffs contend that the claim has been
"denied and/or reduced." Id. 11 35.

But while this Court must construe the complaint in a light favorable to the
plaintiffs and accept as true plaintiffs’ reasonable factual inferences, see Howard, 580 F .
Supp. 2d at 89-90, I need not accept as true "a legal conclusion couched as a factual
allegation." Trudeau, 456 F.3d at 193 (quoting Papasan v. Allain, 478 U.S. 265, 286
(l986) (internal quotation marks omitted)). And that is precisely what plaintiffs have
done in their complaint when they allege, as a factual matter, that plaintiffs’ prescriptions
were "denied," which is a legal conclusion. Notwithstanding plaintiffs’ understandable
frustrations at experiencing delays or the "run-around" at pharmacies when trying to
procure prescription medications, I am persuaded that, for many of the instances alleged,
plaintiffs were not "denied" a covered Medicaid benefit in any legal sense. Moreover, to
the extent they have adequately alleged that pharmacies refused to fill prescriptions that

were, in fact, covered, there was no state action by D.C.

5 If the claim is "denied," Xerox’s electronic reply message gives the pharmacy a "rejection
code" identifying the reason for the "denial." See Am. Compl. 11 34.

ll

First, under the plain language of the federal Medicaid statute and applicable
regulations, plaintiffs have failed to state a claim because they have not alleged, when a
pharmacy refused to fill a certain subset of prescriptions, that defendants "denied,"

"terminated," "suspended," or "reduced" their "covered services"_i.e. covered

prescription drugs. See 42 C.F.R. § 43l.206(b), (c)(2); id. § 431.201; Defs.’ Second Mot.

at l-2; Defs.’ Second Mem. at 9-lO. In short, if a prescription does not meet certain
threshold criteria established by state laW, it is not a "covered" drug, and therefore a
pharmacy’s refusal to fill it is not a legal "denial" of a covered benefit.
lt is undisputed that federal law permits states to place restrictions on prescription

drugs covered by Medicaid. See 42 U.S.C. § l396r-8(d)(l), (5) (permitting prior
authorization programs subject to certain requirements); 42 C.F.R. § 440.230(d) ("The
agency may place appropriate limits on a service based on such criteria as medical
necessity or on utilization control procedures."); D.C. MUN. REGS. tit. 29, § 2706
("Limitations and Requirements for Certain Services"); see also Pharm. Research and
Mfrs. of Am. v. Walsh, 538 U.S. 644, 665 (2003) ("the Medicaid Act gives the States
substantial discretion to choose the proper mix of amount, scope, and duration limitations
on coverage, as long as care and services are provided in the best interest of the
recipients" (internal quotation marks and citation omitted)). Pursuant to that authority,
D.C. has mandated certain coverage restrictions, including a "prior authorization"

requirement for certain drugs-such as "nonpreferred" drugs listed on the Preferred Drug

12

List ("PDL"),G medically necessary brand-name medications with generic equivalents,
certain medications with quantity limits, and Schedule ll narcotics and certain inj ectable
drugs. See Am. Compl. 1111 36-37; D.C. MUN. REGS. tit. 29, § 2706. For drugs requiring
prior authorization, the prescribing physician must submit documentation and obtain
approval from DHCF before Medicaid will cover the prescription. See Am. Compl. 1111
36-37. In addition, a state may substitute prescription drugs and formularies for those on
the PDL, or substitute generic drugs that are the therapeutic equivalent. See D.C. MUN.
REGS. tit. 29, §§ 2703.1, 2706.3, 2704.1.

Tellingly, plaintiffs acknowledge in their complaint that a pharmacy will receive a
rejection code from the ECM system when the prescribed drug requires prior
authorization and the prescribing doctor has not submitted one, see Am. Compl. 1]1] 36-37,
39-41,7 and many of plaintiffs’ allegations involve such a scenario, see supra Factual
Background. But in such circumstances a pharrnacy’s refusal to fill is not a legal
"denial" of a covered benefit, because such a prescription is not "covered" in the first
place-at least not without prior authorization. See 42 U.S.C. § l396r-8(d)(5) (a state
prior authorization program "may require, as a condition of coverage or payment for a
covered outpatient drug . . . the approval of the drug before its dispensing . . ." (emphasis
6 Pursuant to its authority to impose coverage restrictions, D.C. has established a Preferred Drug
List ("PDL"), which lists, for a given drug class, the "preferred" drugs that Medicaid covers, as
well as the "non-preferred" drugs, which Medicaid will not cover without "prior authorization."

See Am. Compl. 1111 36-37. The PDL is a public document, available at
https://dc.fhsc.com/providers/PDL.asp.

7 Additionally, if the pharmacy submits a claim for a drug with quantity limits and the
prescription exceeds those limits, Xerox will send the pharmacy an electronic message rejecting
the prescription. Am. Compl. 11 4l.

13

added)). Indeed, as defendants point out, in order for Medicaid to cover a prescription, it
must meet certain prerequisites: it must be validly prescribed, must be presented at a
Medicaid-participating pharmacy, and must have a prior authorization, if necessary. See
Defs.’ Second Mem. at 15. Accordingly, if a Medicaid recipient shows up at a pharmacy
without a prescription and as a result does not receive medication, this would not be a
"denial" entitling him to notice and a hearing. Ia'. So too if he presents a valid
prescription at a non-participating pharmacy and as a result the pharmacist refuses to fill
it. Ia’. In either case, he may very well have existing Medicaid coverage for the
prescribed drug, but the pharmacy’s refusal to fill his prescription in those circumstances
would clearly not be a "termination, suspension, or reduction" of his covered Medicaid
benefits So too, then, if the patient presents a prescription that lacks a prior
authorization. And similarly, since D.C. may permissibly substitute prescription drugs
and forrnularies for those on the PDL, or substitute generic drugs that are the therapeutic
equivalent, it follows that when a pharmacy makes such a permissible substitution, it
does not constitute a legal "denial" of the original prescription.

Simply put, just because a Medicaid recipient is entitled to coverage of
prescription drugs in general does not mean he is entitled to receive any drug under the
sun. Nor, therefore, is he entitled to receive notice and a hearing when a pharmacy
declines to fill just any prescription whatsoever. To the contrary, the term "covered

services" means those drugs that are covered by Medicaid, which drugs are

14

circumscribed by the limits D.C. has lawfully imposed.g Accordingly, defendants’
obligation to comply with the notice requirements of Medicaid law only arises where
there has been a "termination, suspension, or reduction" of a benefit created by the
Medicaid program,- i.e. a covered drug. See Defs.’ Second Mem. at 10. Thus, to the
extent plaintiffs have made factual allegations regarding prescriptions refused for lack of
prior authorization or failure to meet other valid restrictions, or regarding receipt of
substitute drugs, no legal "denial" occurred, and no due process rights are due.9
Next, to the extent plaintiffs have adequately alleged in their other factual

allegations that any covered drug was rejected by a pharmacy (or filled with a lower
quantity or dosage), plaintiffs have still failed to state a statutory claim because they have

failed to allege whether and how defendants took any state action that would render such

8 Plaintiffs contend that the argument that a Medicaid recipient is not entitled to due process in
the event his prescription has been rejected on the basis it is not a "covered service" is "contrary
to federal law." Pls.’ Second Opp’n at 21 n.2. In support, they rely in part on 42 C.F.R. §

43 1 .220(a)(2), which provides that a state Medicaid agency "must grant an opportunity for a
hearing" to "[a]ny beneficiary who requests it because he or she believes the agency has taken an
action erroneously." Ia'. (emphasis added). But this regulation, which sets forth "[w]hen a
hearing is required," is simply inapposite. Nowhere do plaintiffs allege that they requested a
hearing from D.C. and did not receive one. Instead, their legal claims tum on lack of notice,
which_as discussed above_is govemed by a different regulation (42 C.F.R. § 431.206(0)(2))
and is required under different circumstances (when the state takes "any action affecting [a
recipient’s] claim").

9 Plaintiffs inaccurately assert that our Circuit Court "specifically found that ‘ [i]n their
complaint, plaintiffs recount multiple instances in which they were denied prescription coverage
without written notice of either the reason for the denial or their procedural rights."’ Pls.’
Second Opp’n at 13-14 (quoting NB ex rel. Peacock, 682 F.3d at 81). Our Circuit Court "found"
no such thing; that statement is taken from a paragraph in which the court merely summarized
the allegations in plaintiffs’ complaint. And, in any event, the court only analyzed plaintiffs’
allegations for purposes of a standing analysis and did not reach the merits of plaintiffs’ claims.
See NB ex rel. Peacock, 682 F.3d at 82 ("In assessing plaintiffs’ standing, ‘we must assume they
will prevail on the merits’ of their claims . . ." (quoting LaRoque v. Holder, 650 F.3d 777, 785
(D.C. Cir. 201l))); id. at 85 ("assuming plaintiffs are correct that such notice is required (as we
must in evaluating standing) . . .").

15

rejections legal "denials" within the meaning of the statute and regulations. See Rosen v,
Goetz, 410 F.3d 919, 926 (6th Cir. 2005) ("These [Medicaid] provisions apply where . . .
a State takes an ‘actz'on, ’ which the regulations define as ‘a termination, suspension, or
reduction of Medicaid eligibility or covered services."’ (citing 42 C.F.R. § 431.201)
(emphasis added)).

As defendants point out, plaintiffs’ complaint is replete with detailed factual
allegations concerning the actions of doctors and pharmacies that led to problems for
plaintiffs in filling prescriptions. See Defs.’ First Mot. at 20-21; Defs.’ Second Mem. at
22. For instance, plaintiffs allege that doctors failed to submit or renew prior
authorizations, pharmacies experienced computer problems, and pharmacists made
errors, including individual decisions not to fill prescriptions or requested formularies.
See supra F actual Background.

According to plaintiffs’ own complaint, then, their inability to procure medications
on certain occasions is attributable to a range of acts or omissions by private actors-
including errors or oversights by doctors and pharmacists (and perhaps the patients
themselves). But since D.C. did not perform any of those acts (or omissions), it follows
that none of those circumstances involved state action in terminating, suspending, or
reducing plaintiffs’ Medicaid coverage for prescription drugs. See Rosen, 410 F.3d at
926. And, in comparison to these specific allegations regarding doctors and pharmacists,
plaintiffs’ allegations in their complaint against D.C. are merely conclusory. See, e.g.,
Am. Compl. TH[ 48-53 (alleging facts regarding plaintiff NB_including that NB’s mother

attempted to fill a prescription, was told by the pharmacist that NB was ineligible for

16

Medicaid coverage, paid out-of-pocket for the medication, and then was reimbursed by
the pharmacy one week later when the pharmacist informed her that the pharmacy
computer now showed NB as eligible_and then alleging, in conclusion, that
"[d]efendants’ actions deprived NB of her due process notice and hearing rights" without
any further mention of defendants). Put simply, plaintiffs set forth no facts, apart from
conclusory statements, indicating that they were denied coverage by the defendants. See
Twombly, 550 U.S. at 555 ("a plaintiff’s obligation to provide the grounds of his
entitle[ment] to relief requires more than labels and conclusions" (alteration in original)
(internal quotation marks and citation omitted)).lo
In sum, plaintiffs have failed to state a claim that they experienced any

"termination, suspension, or reduction" of their Medicaid "covered services," by
defendants, that would have triggered their right to notice and any further due process

under federal Medicaid law.

10 One further example helps illustrate the absence of state action by D.C. when a pharmacy
rejected a certain prescription. Plaintiff Rucker alleges that when he presented a prescription,
"the pharmacy told him that his Medicaid coverage had been denied and that he was not eligible
for Medicaid." Am. Compl. 11 l0l. When Rucker subsequently called DHCF’s telephone
hotline, however, he was told that he was indeed eligible for Medicaid and that the pharmacy had
submitted the wrong Medicaid identification number for him. Id. 11 102. Rucker called the
pharmacy the next day and was told that the pharmacy computer still showed him as ineligible
and that the computer system was "experiencing problems." Ia’. 11 103. Rucker then continued to
call the pharmacy back for three to four days "until the problem was finally fixed." Ia’. Under
these facts, no state action by D.C. terminated, suspended, or reduced Rucker’s coverage for
prescription drugs. On the contrary, at no point did Rucker’s Medicaid coverage status for the
drug change at all, much less change at the hands of D.C. The only conduct that led to rejection
of the prescription in this scenario was pharmacist or computer error.

17

II. Failure to State a Claim Under the Constitution

In their complaint, plaintiffs also allege a constitutional procedural due process
violation. Asserting that they have a protected property interest in receiving Medicaid
benefits, plaintiffs contend that "Medicaid recipients are entitled to a pre-termination
evidentiary hearing before Medicaid benefits are discontinued," Am. Compl. 11 183, and
defendants deprived them of these benefits without providing such process, id. 11 184.
For similar reasons as those discussed above regarding their claim under federal
Medicaid 1aw, however, plaintiffs also fail to state a claim under the Fifth Amendment.
How so?

First, for a certain subset of prescriptions-those refused for lack of prior
authorization or failure to meet other valid restrictions, or those for which patients
received substitute drugs_plaintiffs have failed to adequately allege that they suffered a
deprivation of a protected property interest. And second, to the extent they have alleged
a deprivation for other alleged instances of prescription rej ections, they have nonetheless
failed to adequately allege any state action by defendants that caused such a deprivation.
In either case, a necessary prerequisite for triggering constitutional due process
protections is lacking

To bring a constitutional procedural due process claim, a plaintiff must show (l) a
deprivation by the government, (2) of a liberty or property interest, (3) without due
process of law. See Lightfoot v. District of Columbia, 273 F.R.D. 3 l4, 319 (D.D.C.

201 l) (citing Propert v. District ofColumbz`a, 948 F.Zd 1327, l33l (D.C. Cir. 1991)).

Accordingly, such a claim requires the Court first to determine whether plaintiffs have

18

asserted a liberty or property interest protected by the due process clause, and, if they
have, next to determine whether a state actor caused any deprivation of that interest
(before deciding what, if any, process was due). See Simms v. Distrz'ct of Columbz`a, 699
F. Supp. 2d 2l7, 224 (D.D.C. 20l0) ("In order to trigger the Due Process Clause . . . there
must be a ‘state action."’); Propert, 948 F.2d at 1331. Similarly, in order to succeed on a
constitutional claim under 42 U.S.C. § 1983, plaintiffs must show that a person acting
under color of state law violated a right secured by the Constitution or laws of the United
star@s. see 42 U.S.C. § 1983;1\40ne11v. Dep’z @fs@c. Servs., 436 U.S. 658, 690 (1978).“
Private conduct thus falls outside the scope of a due process claim brought under Section
l983. See Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 50 (1999) ("Like the state-
action requirement of the Fourteenth Amendment, the under-color-of-state-law element
of § 1983 excludes from its reach merely private conduct, no matter how discriminatory
or wrongful." (internal quotation marks and citations omitted)).

Here, defendants concede, as they must, that plaintiffs have a protected property
interest in the receipt of Medicaid prescription drug benefits. See Defs.’ Reply in Supp.
of Mot. to Dismiss ("Defs.’ First Reply") [Dkt. # 24] at l5; Ba'. of Regents of State Colls.
v. Roth, 408 U.S. 564, 576 (l972) ("a person receiving welfare benefits under statutory
and administrative standards defining eligibility for them has an interest in continued

receipt of those benefits that is safeguarded by procedural due process" (citing Gola'berg

11 "Where . . . the plaintiff seeks to hold a municipality liable under Section l983, the inquiry
divides into two: the plaintiff must first establish a predicate constitutional violation; thereafter,
the plaintiff must establish that a ‘policy or custom’ of the municipality caused the constitutional
violation." Lz'ghtfoot, 273 F.R.D. at 319 (citing Brown v. Dz'strict of Columbz'a, 514 F.3d 1279,
1283 (D.C. Cir. 2008)).

19

v. Kelly, 397 U.S. 254 (1970))). Defendants go on to qualify this concession, however,
arguing that while plaintiffs may have a protected property interest in the receipt of
Medicaid benefits as a general matter, they lack such an interest under the particular
factual circumstances alleged in the complaint because, absent the prescriptions meeting
certain threshold criteria, they have no "legitimate claim of entitlement" to those
particular prescription benefits. See Defs.’ Reply in Supp. of Mot. to Dismiss, or, in the
Alternative, for Summ. J. ("Defs.’ Second Reply") [Dkt. # 5l] at 3-5; Roth, 408 U.S. at
577 (to have a property interest in a benefit, a person "must . . . have a legitimate claim of
entitlement to it").

Property interests "are created and their dimensions are defined by existing rules
or understandings that stem from an independent source such as state law . . ." Roth, 408
U.S. at 577. Accordingly, "the welfare recipients in Goldberg v. Kelly . . . had a claim of
entitlement to welfare payments that was grounded in the statute defining eligibility for
them." Ia’. So too here: Medicaid recipients have a property interest in prescription drug
benefits insofar as the federal Medicaid statute and regulations, and D.C. law and
regulations, define that interest. Accordingly, defendants argue here that Medicaid
recipients’ claim of entitlement to their prescription drug benefits is not "legitimate"
without meeting some threshold criteria defined by federal and state law_including that
the recipients must "l) be Medicaid recipients whose coverage has not lapsed due to their
own error; 2) possess a complete prescription (i.e. including prior authorization, if
necessary); 3) for a covered drug or service; and 4) submit that prescription accurately to

DHCF." See Defs.’ Second Reply at 4-5. I agree.

20

provided, and all related procedures. See 42 U.S.C. § l396a(a)(2), (5); 42 C.F.R. § 430.0.

ln the District of Columbia, the Department of Health Care Finance ("DHCF") is the
state agency responsible for administering D.C.’s Medicaid program. See 42 U.S.C. §
1396a(a)(5); 42 C.F.R. § 431.10; D.C. Code § 7-771.07(l).

States electing to participate in Medicaid must comply with requirements imposed
by federal law, including procedural protections for Medicaid recipients. NB ex rel.
Peacock, 682 F.3d at 80. As relevant in this case, the state must provide a Medicaid
recipient with written notice of his right to a hearing "at the time" the state takes "any
action affecting his . . . claim." 42 C.F.R. § 43l.206(b), (c)(2). Such notice must contain
a statement of what action the state intends to take, the reasons for that action, the
specific regulations supporting the action, the individual’s right to request a hearing, and
an explanation of the circumstances under which coverage will be continued if a hearing
is requested. 42 C.F.R. § 431.210. District of Columbia law imposes similar
requirements. See D.C. Code § 4-205.55.1

D.C.’s Medicaid program includes coverage for prescription drugs: DHCF
provides reimbursement to licensed, participating pharmacies for covered out-patient
drugs dispensed to eligible Medicaid recipients. Am Compl. 11 32. As encouraged by the
Medicaid statute and regulations, D.C. uses an electronic claims management ("ECM")

system in order to facilitate the processing of Medicaid claims for prescription drug

1 D.C. Code § 4-205.55(a) provides that the state "shall give timely and adequate notice in cases
of intended action to discontinue, withhold, terminate, suspend, reduce assistance, or make
assistance subject to additional conditions, or to change the manner or form of payment to a
protective, vendor, or 2-party payment."

While I decline to define the precise contours of a Medicaid recipient’s protected
property interest in his receipt of prescription drugs, for purposes of deciding these
motions to dismiss, l agree with defendants that plaintiffs have failed to allege a
"legitimate claim of entitlement" at least with regard to that subset of prescriptions they
allege were refused for lack of prior authorization or failure to meet other valid
restrictions_i.e. prescriptions that were not "covered"_or where substitute drugs were
dispensed. J ust as, under Medicaid law, a recipient is not entitled to receive just any drug
but instead only those drugs that are covered by Medicaid (as circumscribed by lawful,
state-imposed restrictions), so too a recipient does not have a constitutional "legitimate
claim of entitlement" to just any prescription drug whatsoever. Put differently, just
because a Medicaid recipient walks into a pharmacy and expects that he will receive
whatever is written on his prescription, that does not mean he is then entitled to notice
and a hearing when he does not. See Roth, 408 U.S. at 577 ("To have a property interest
in a benefit, a person clearly must have more than an abstract need or desire for it. He
must have more than a unilateral expectation of it. He must, instead, have a legitimate

claim of entitlement to it.").lz

12 Plaintiffs argue, by contrast, that "[f] ederal courts have explicitly rejected arguments by state
Medicaid agencies that notice and a hearing are not required when the Medicaid benefit was
denied based on defendants’ contention that the service requested is not a covered service." Pls.’
Second Opp’n at 21 n.9. In support of their argument, plaintiffs rely in part on Haymons v.
Williams, 795 F. Supp. 1511 (M.D. Fla. 1992), in which the court emphasized the word "claim"
in Roth ’s "legitimate claim of entitlement" formulation and held that "[p]laintiff`s in the present
case do not have to show that they are entitled to the home health care benefits in question, only
that they have a legitimate claim of entitlement to such benefits." Id. at l523. Setting aside that
Haymons is not binding on this Court, I find that case distinguishable because it involved the
termination of already-granted benefits: the state of Florida terminated two home health care
service providers, which provided nursing services to Medicaid-eligible mentally ill and mentally

21

Next, to the extent plaintiffs have adequately alleged that any covered drug to
which they were legitimately entitled was rejected by a pharmacy_and thereby have
adequately alleged a "deprivation"_they have nonetheless failed to allege facts showing
that they suffered that deprivation at the hands of D. C. State action requires that "the
party charged with the deprivation must be a person who may fairly be said to be a state
actor," and a court’s approach to this inquiry "begins by identifying the specific conduct
of which the plaintiff complains." Am. Mfrs. Mut. Ins. C0., 526 U.S. at 50-51 (internal
quotation marks and citations omitted). In this case, "careful attention to the gravamen of
[plaintiffs’] complaint," Blum v. Yaretsky, 457 U.S. 99l, 1003 (1982), reveals that
plaintiffs allege suffering deprivation of Medicaid prescription drug benefits as the result
of the actions of doctors and pharmacies. As discussed above in greater detail, plaintiffs’
complaint includes detailed factual allegations concerning the actions of doctors and
pharmacies, whose individual acts or errors led to problems for plaintiffs in filling
prescriptions, (and by comparison includes only conclusory allegations as to how the
defendants fit in this factual picture). See Defs.’ First Mot. at 20-21; Defs.’ Second Mem.
at 22.

But, generally, private actors, such as doctors and pharmacists, are not acting
under color of state law. See, e.g., San Francisco Arts & Athletics v. Um'ted States

Olympic Comm ’n, 483 U.S. 522, 543-47 (1987). And in the Medicaid context

retarded individuals residing in "Adult Congregate Living Facilities," without giving those
Medicaid recipients notice or an opportunity for a hearing. Here, by contrast, the issue is
whether plaintiffs have, in the first instance, a legitimate claim of entitlement to any given claim
for a prescription drug that they present at a pharmacy.

22

specifically, courts have found that independent decisions made by private parties, such
as doctors, are not state action. See Blum, 457 U.S. at 1002-1008 (holding that nursing
home resident Medicaid recipients, who challenged as due process violations nursing
homes’ decisions to discharge or transfer them to lower levels of care without notice or
an opportunity for a hearing, failed to establish state action because those decisions were
made by physicians and nursing home administrators, who are private parties, and
"ultimately turn on medical judgments made by private parties").

There are exceptions to the state action doctrine, of course, under which the
conduct of private actors may be deemed state action for purposes of a constitutional
claim. See Brentwooa' Acaa’. v. Tennessee Secona’ary Sch. Athletic Ass0c., 531 U.S. 288,
295 (200l) ("state action may be found if, though only if, there is such a ‘close nexus
between the State and the challenged action’ that seemingly private behavior ‘may be
fairly treated as that of the State itself"’ (quoting Jackson v. Metro. Ea’ison C0., 419 U.S.
345, 351 (1974)); see also Blum, 457 U.S. at 1004 ("The purpose of this [nexus]
requirement is to assure that constitutional standards are invoked only when it can be said
that the State is responsible for the specific conduct of which the plaintiff complains.").
Nowhere, however, do plaintiffs allege, nor could they, that the acts of doctors and
pharmacists should be deemed state action.

Plaintiffs do nonetheless argue that the rejections of prescriptions they experienced
involved state action, but, curiously, they attempt to do so by focusing on defendants’
alleged failure to provide notice. Relying on their conclusory factual inference that

D.C.’s ECM system "decides" or "adjudicates" claims at the point of sale, and thus state

23

action (by D.C. or its agent, Xerox) is necessarily involved when any claim is processed
and any rejection code is retumed, see Pls.’ Opp’n to Defs.’ Mot. to Dismiss ("Pls.’ First
Opp’n") [Dkt. # 18] at 26-28; Pls.’ Second Opp’n at l5-l6_an inference I reject as
unreasonable, see Howard, 580 F. Supp. 2d at 89-90_plaintiffs argue that the fact that
errors committed by doctors and pharmacies cause rejections is beside the point because
what plaintiffs challenge as due process violations are not those errors themselves, but
instead the failure of defendants to provide notice and the opportunity for a hearing when
those errors occurred. See Pls.’ First Opp’n at 26; Pls.’ Second Opp’n at 20-23. But that
argument puts the cart before the horse. Simply put, if no state action caused a
deprivation of a protected property interest in the first place-as none did here-then a

due process requirement for the state to provide notice and a hearing never arose.n

13 Our Circuit Court’s prior decision on standing in this case is not at odds with my ruling on
state action today. In that opinion, our Circuit Court found that plaintiff Doe met the causation
element of Article III standing and rejected D.C.’s argument that Doe’s injuries were traceable
not to DHCF’s actions, but instead to the actions of private physicians who failed to obtain
required prior authorizations, or to Doe’s need for more medication than was allowed by
Medicaid rules. See NB ex rel. Peacock, 682 F.3d at 86. Observing that D.C.’s "arguments
conflate the cause of Doe’s coverage denials-such as lack of prior authorization and Medicaid
coverage restrictions_with the cause of his alleged [procedural] injury," the court held that
"[f]or purposes of Doe ’s standing, it makes no difference that a physician may cause a coverage
denial by failing to seek prior authorization, for the injury he alleges is not the initial denial of
coverage, but rather DHCF’S failure to provide the information he needs to remedy that denial
and obtain medically necessary prescriptions without undue cost or delay." Ia’. (emphasis
added). This discussion of causation is not applicable to the state action inquiry, however,
because for purposes of assessing standing, our Circuit Court was required to assume that
plaintiffs would prevail on the merits of their claims. See id. at 82 (citing Lakoque, 650 F.3d at
785). In other words, the Circuit Court had to assume that Doe had suffered a denial or
deprivation of coverage that triggered his right to procedural protections. By contrast, in
assessing the sufficiency of plaintiffs’ legal claims on a motion to dismiss, I must first determine
whether plaintiffs’ have adequately alleged that state action by defendants caused a deprivation
cfa protected property interest in the first place, for otherwise any due process requirements for
D.C. to provide notice and the opportunity for a hearing are not triggered at all.

24

In sum, plaintiffs have failed to state a claim that they suffered any deprivation, by
defendants, of their property interest in receiving Medicaid prescription drug benefits that
would have triggered their right to notice and any further due process protections under
the Constitution.

III. Dismissal of Claims Under D.C. Law

Finally, because I have found that plaintiffs have failed to allege a substantial
federal cause of action, I will dismiss plaintiffs’ D.C. law claims for lack of pendent
jurisdiction. See Clifton Terrace Ass0cs., Lta'. v. United Techs. Corp., 929 F.2d 714, 723
(D.C. Cir. l991). `

CONCLUSION

Thus, for all of the foregoing reasons, the Court GRANTS defendants’ Motions to

Dismiss. A separate Order consistent with this decision accompanies this Memorandum

Opinion.

    

RICHARD J. L
United States District Judge

25

coverage at the point of sale. See Am. Compl. 1111 33-34; 42 U.S.C. § l396r-8(h); 42
C.F.R. § 456.722. DHCF contracts with a third party coinpany, Xerox_, 2 to process
claims using an ECM system. A1n. Co1npl. 1[ 33.

II. Factual Background

Plaintiffs, who suffer from various ailments that necessitate treatment with
prescription drugs, all receive Medicaid benefits in the District of Columbia. Am.
Compl. 1111 5-13. They allege that on various occasions their prescription drug coverage
under Medicaid was "denied, terminated, reduced, or delayed," and that D.C. took such
actions without providing them with legally-required timely and adequate written notice
of the reasons for coverage denials or reductions, the right to request a hearing, and the
circumstances under which coverage would be reinstated if a hearing was requested. Ia’.
1111 48-l74.

More specifically, in their complaint plaintiffs allege multiple instances in which
they went to fill prescriptions at pharmacies, were told by the pharmacies that Medicaid
would not cover the prescriptions, and were not given written notice of either the reasons
for the rejections or their procedural rights. Id. As a result, plaintiffs allege that in some
cases they had to pay out-of-pocket for medication. E.g., id. 1111 50, 52 (plaintiffNB); ia’.
117 67-68, 77 (plaintiff Doe). ln other cases, plaintiffs allege that they were able to obtain

their prescriptions, covered by Medicaid, at a different pharmacy, e.g. , id. 11 57 (plaintiff

2 D.C. contracted with Affiliated Computer Services, Inc. ("ACS”) at the time plaintiffs filed
their complaint. Subsequently, Xerox acquired ACS, and now D.C. contracts with Xerox to
process prescription drug claims using the ECM system. See Pls.’ Opp’n to Defs.’ Mot. to
Dismiss, or, in the Alternative, for Summ. J. ("Pls.’ Second Opp’n") [Dl682 F.3d 77 (D.C. Cir. 2012); see also Comcast Corp. v. FCC,
579 F.3d l, 6 (D.C. Cir. 2009) ("if one party has standing in an action, a court need not

reach the issue of the standing of other parties when it makes no difference to the merits

of the case" (intemal quotation marks and citation omitted)). Accordingly, the remaining
grounds for dismissal in defendants’ first Motion to Dismiss are still pending.

Following remand from our Circuit Court, plaintiffs moved to amend their
complaint to add four new plaintiffs and new facts. See Pls.’ Consent Mot. for Leave to
Amend and to Supplement their Compl. and to Add Pls. [Dkt. # 42]. l granted the
motion, and on June 21, 2013, plaintiffs filed their Amended Complaint [Dkt. # 43],
which made no changes to their legal causes of action.3 Thereafter, defendants filed a
new motion seeking dismissal, or in the alternative summary judgment. See Defs.’
Second Mot.

STANDARD OF REVIEW

A motion to dismiss for failure to state a claim under Rule l2(b)(6) tests whether
the plaintiff has pleaded facts sufficient to "raise a right to relief above the speculative
level," assuming that the facts alleged are true. Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007). "While a complaint should not be dismissed unless the court determines that
the allegations do not support relief on any legal theory, the complaint nonetheless must
set forth sufficient information to suggest that there is some recognized legal theory upon
which relief may be granted." District of Columbz'a v. Air Flcz., Inc., 750 F.Zd 1077, 1078
(D.C. Cir. 1984). "[A] plaintiffs obligation to provide the grounds of his entitle[ment] to

relief requires more than labels and conclusions, and a formulaic recitation of the

3 Both plaintiffs’ original Complaint and their Amended Complaint are class action complaints
that reflect their intent to bring suit on behalf of themselves and all other D.C. Medicaid
recipients similarly situated, see Compl. 11 13; Am. Compl. 11 l7, but Plaintiffs’ Motion for Class
Certif`ication [Dkt. # ll] remains pending.

elements of a cause of action will not do." Twombly, 550 U.S. at 555 (a1teration in
original) (internal quotation marks and citation omitted); see also Ashcroj"t v. Iqbal, 556
U.S. 662, 678 (2009) ("Nor does a complaint suffice if it tenders ‘naked assertion[s]’
devoid of ‘further factual enhancemen ."’ (citing Twombly, 550 U.S. at 557)). Indeed,
"Where the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged_but it has not ‘show[n]’_‘that the
pleader is entitled to relief."’ Iqbal, 556 U.S. at 679 (alteration in original) (quoting Fed.
R. Civ. P. 8(a)(2)).

In considering a motion under Rule 12(b)(6), a court must construe the complaint
in a light favorable to the plaintiff and must accept as true plaintiffs reasonable factual
inferences. See Howara' v. Fenly, 580 F. Supp. 2d 86, 89-90 (D.D.C. 2008); Smith v.
Um`tea’ States, 475 F. Supp. 2d 1, 7 (D.D.C. 2006) (citing EEOC v. St. Francis Xavz`er
Parochial Sch., 117 F.3d 621, 624 (D.C. Cir. 1997)). However, courts need not accept as
true "a legal conclusion couched as a factual allegation," nor an inference “unsupported
by the facts set out in the complaint." Trudeau v. Fea'. Trade Comm ’n, 456 F.3d 17 8, 193
(D.C. Cir. 2006) (internal quotation marks and citations omitted). The court "may
consider only the facts alleged in the complaint, any documents either attached to or
incorporated in the c0mplaint[,] and matters of which [the court] may take judicial
notice." EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d at 624.

ANALYSIS
Plaintiffs’ complaint can be distilled to one basic claim: any time a Medicaid

recipient presents a prescription at a pharmacy (Which may occur hundreds or thousands

8

of times per day in D.C., see Am. Compl. 111 44-45), is informed by the pharmacy that
Medicaid will not cover the drug (for any number of reasons), and the pharmacy visit
ends with the recipient being unable to obtain the medication or having to pay out-of-
pocket, the recipient has suffered both a "denial" of his claim for the prescription drug, in
violation of federal Medicaid law, and a "deprivation" of his property interest in
receiving that drug, in violation of the Constitution. Therefore, according to plaintiffs,
the recipient is entitled to individually-tailored written notice explaining the reasons for
the rejection and an opportunity for a hearing. See, e.g., Am. Compl. 11 53; see Pls.’
Opp’n to Defs.’ Mot. to Dimiss, or, in the Alternative, for Summ. J. ("Pls.’ Second
Opp’n") [Dkt. # 48] at 43.

Much ink has been spilled by the parties on the threshold issue of whether the
various alleged instances in which plaintiffs were unable to fill prescriptions constitute
"denials" or "deprivations" of covered Medicaid benefits, by a state actor, sufficient to
trigger the need for notice, a hearing, or any further due process of law. I find they do
not. First, on many of the occasions alleged, plaintiffs did not suffer any "termination,
suspension, or reduction" of Medicaid "covered services," but when they did, it was not
the result of state action. Therefore they have failed to state a statutory claim under
federal Medicaid law. Second, for similar reasons, plaintiffs have failed to state a claim
under the Fifth Amendment: plaintiffs did not suffer any "deprivation" of a protected
property interest for many of the alleged prescription rej ections, but when they did, there
was no state action. Finally, because I find that plaintiffs have failed to state any federal

law claim, I will dismiss their D.C. law claims,

9

I. Failure to State a Claim Under Federal Medicaid Law

Under Title XIX of the Social Security Act, D.C. must provide an opportunity for
a fair hearing to a Medicaid recipient "whose claim for medical assistance under the
[state] plan is denied or is not acted upon with reasonable promptness." 42 U.S.C. §
l396a(a)(3). "Medical assistance" means "payment of part or all of the cost of’ various
"care and services," including "prescribed drugs." Id. § l396d(a)(12). Although the
statute does not define "denied," the implementing regulations restrict this term by
delineating the specific circumstances in which a Medicaid recipient is entitled to written
notice of his right to a hearing-that is, "at the time" the state takes "any action affecting
his . . . claim." 42 C.F.R. § 431.206(b), (c)(2). And "action," in tum, means "a
termination, suspension, or reduction of Medicaid eligibility or covered services." Id. §
431.201. Accordingly, in order to state a claim under the federal Medicaid statute,
plaintiffs must adequately allege that a state actor terminated, suspended, or reduced their
Medicaid benefits for covered prescription drugs.4

Not surprisingly, plaintiffs have cast their factual allegations in just such language.
See, e.g., Am. Compl. 11 l (alleging that defendants have a policy of failing to provide
notice and an opportunity for a hearing "when [plaintiffs’] prescription drug coverage is
denied terminated, reduced, or delayed"); ia'. 1111 48-53 (alleging that "coverage of NB’s

prescription was being denied" when NB’s mother presented a prescription at a pharmacy

4 Plaintiffs concede that neither DHCF nor Xerox "make[s] decisions regarding a recipient’s
eligibility for Medicaid at the time Xerox responds to a pharmacy claim." Pls.’ Second Opp’n at
19 (emphasis added). lnstead, they claim that "DHCF through Xerox is deciding only whether
the prescription drug claim will be covered." Id.

lO