By Jeffrey H. Brochin, J.D.
The HHS Secretary’s approval of a state plan amendment (SPA) retroactively implementing a 10 percent rate reduction for outpatient services provided to beneficiaries of California’s Medicaid program (Medi-Cal) violated 42 U.S.C. § 1396(a)(30)(A) of the Medicaid Act because HHS failed to include any consideration regarding Medi-Cal beneficiaries’ access to care relative to that of the general public, a federal appeals court has ruled. The agency was not entitled to a Chevron deference because Congress unambiguously stated its intention in the statute. Furthermore, the appeals court found that HHS’ action was to be set aside under the Administrative Procedures Act (APA) (5 U.S.C. §§ 500 et seq.) as being arbitrary and capricious (Hoag Memorial Hospital Presbyterian v. Price, August 7, 2017, Wilson, S.).
Background. On October 27, 2011, HHS approved California’s tendered SPA which included a temporary 10 percent rate reduction for hospital outpatient services. The Secretary’s approval letter stated that the State’s documentation adequately demonstrated compliance with section 1902(a)(30)(A) of the Social Security Act (SSA), as it specifically related to "reimbursement rates that are sufficient to enlist enough providers so that care and services are available at least to the extent that care and services are available to the general population in the geographic area."
Subsequently, 57 hospitals that provide outpatient services to Medicaid beneficiaries challenged the Secretary’s approval of the SPA which retroactively implemented the 10 percent rate reduction for outpatient services provided to Medi-Cal beneficiaries. In September, 2015, the district court granted summary judgment for HHS finding that Section 1396(a)(30)(A) required only a substantive result and did not prescribe procedures for achieving that result. The district court further reasoned that the Secretary’s approval of the SPA, albeit absent information comparing the level of services available to Medi-Cal beneficiaries to that of the general public, was permissible, as the statute did not expressly require any particular procedurefor assessing compliance with its mandated equal-access result. Finally, the district court held that the Secretary’s SPA approval was neither arbitrary nor capricious, as required for reversal under the APA. The hospitals appealed, and for the reasons cited below, the appeals court reversed and remanded.
Where the Chevron deference applies. HHS claimed that the principle of the Chevron deference applied. The court responded to this assertion by explaining that when considering an agency’s construction of a statute under Chevron, the court must first ask "whether Congress has directly spoken to the precise question at issue," and if the statute is clear, then the court must give effect to the unambiguously expressed intent of Congress, regardless of the agency’s interpretation. If, however, the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute. Where the Chevron deference does not apply, the court may nevertheless seek guidance from the agency’s position depending upon the degree of the agency’s care, its consistency, formality, and relative expertness, and the persuasiveness of the agency’s position.
Chevron inapplicable. The court analyzed the text of Section 1396(a)(30)(A) and found that Congress had in fact unambiguously expressed its intent in the statute, and, therefore, the Chevron deference to the agency did not apply.
Statute requires substantive result. HHS contended that precedential case law prescribed that by its terms, Section 1396(a)(30)(A) required only a substantive result and that the statute was to be read as not requiring HHS to follow any particular methodology in achieving that result including consideration of cost studies. However, the appeals court noted that how the Secretary determines sufficiency of rates for the purpose of achieving "efficiency, economy, and quality of care" may be within his discretion, but the text of Section 1396(a)(30)(A) clearly contemplated an approval process targeting the particular "substantive result" of equal access. Accordingly, the appeals court found that the Secretary’s approval of the SPAs in this case violated Section 1396(a)(30)(A), as it failed to include any consideration regarding Medi-Cal beneficiaries’ access to care relative to that of the general public.
Setting aside an agency decision. Next, the appeals court examined the issue of whether HHS’ application of Section 1396(a)(30)(A) was arbitrary and capricious. Under the APA, the court may set aside agency action that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." To meet the standard for reversal set by the APA, it must be shown that the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.
The appeals court found that the Secretary’s approval of the SPA in the instant matter was arbitrary and capricious because he entirely failed to consider an important aspect of the problem, namely, whether Section 1396(a)(30)(A)‘s equal-access requirement would be satisfied. The Secretary approved rates that must ensure equal access to care for members of two groups, yet considered only the level of access provided to one of those two groups.
Based on the foregoing, the appeals court reversed the decision of the district court and remanded the matter for further proceedings consistent with the appellate court’s opinion.
The case is No. 15-56547.
Attorneys: Robert C. Leventhal (Foley & Lardner LLP) for Hoag Memorial Hospital Presbyterian. Benjamin Leon Berwick, U.S. Department of Justice, for Tom Price.
Companies: Hoag Memorial Hospital
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