The opinion of the court was delivered by: Christina A. Snyder United States District Judge
ORDER GRANTING PRELIMINARY INJUNCTION
I. INTRODUCTION AND BACKGROUND
On November 1, 2011, plaintiffs filed the instant action against Toby Douglas, Director of the California Department of Health Care Services (the "Director") and Kathleen Sebelius, Secretary of the U.S. Department of Health and Human Services (the "Secretary"). Plaintiffs filed their First Amended Complaint ("FAC") on November 18, 2011.
The California Department of Health Care Services ("DHCS") is a California agency charged with the administration of California's Medicaid program, Medi-Cal. The Secretary is responsible for administering the Medicaid program at the federal level. Through her designated agent, the Centers for Medicare and Medicaid Services ("CMS"), the Secretary is responsible for reviewing and approving policy changes that states make to their Medicaid programs.
Plaintiff California Hospital Association ("CHA") is a trade association representing the interests of hospitals in the State of California. Many of CHA's member hospitals operate skilled nursing facilities that are distinct units within the hospital, commonly referred to as "DP/NFs." Plaintiffs G.G., A.G., I.F., R.E., and A.W. are beneficiaries of the Medi-Cal program who require skilled nursing services.
On March 25, 2011, California Governor Edmund G. Brown Jr. signed into law Assembly Bill 97 ("AB 97"), the health budget trailer bill for California fiscal year 2011--2012. AB 97 enacted significant payment reductions for many classes of services provided under the Medi-Cal program. Most significantly for the purposes of the instant action, AB 97 enacted California Welfare and Institutions Code § 14105.192, which authorizes the Director to reduce the Medi-Cal payment rates for various categories of services, effective June 1, 2011. Most of the rate reductions called for are flat 10 percent reductions. However, pursuant to Welfare and Institutions Code § 14105.192(j), reimbursement for certain services may not exceed the reimbursement rates that were applicable to those claims of providers in the 2008--09 rate year, reduced by 10 percent. Among the services impacted by this provision are DP/NF services.
DHCS submitted proposed State Plan Amendment ("SPA") 11-010 to CMS on June 30, 2011, seeking federal approval of the rate reduction and incorporation of that reduction into California's Medi-Cal State Plan. On September 27, 2011, CMS issued a letter to DHCS requesting additional information concerning the proposed rate reduction. This Request for Additional Information ("RAI") focused on the impact of the rate reduction on access to services. DHCS responded with an "Access Analysis" and a plan for monitoring access. On October 27, 2011, in a letter from the Associate Regional Administrator of the Division of Medicaid & Children's Health Operations, CMS provided notice to the Director and DHCS that it had approved the SPA.
Plaintiffs seek a declaration that the rate reduction violates the Takings Clause of the Fifth Amendment to the United States Constitution, the Takings Clause of the California Constitution,*fn1 numerous provisions of the Medicaid Act,*fn2 and the Administrative Procedure Act ("APA"), 5 U.S.C. § 706 et seq. Prayer for Relief ¶ 1. Plaintiffs further seek a declaration that it was arbitrary, capricious, and an abuse of discretion for the Secretary to approve the SPA incorporating the rate reduction into California's State Plan. Id. ¶ 2. Plaintiffs also request that the Court set aside the Secretary's approval, and enjoin the Director from effectuating the rate reduction. Id. ¶¶ 3, 4.
On November 21, 2011, plaintiffs filed the present motion seeking a preliminary injunction restraining the Director from implementing the rate reduction. On December 2, 2011, the Court denied the Director's ex parte application for a stay of the proceedings. On December 5, 2011, the Director and the Secretary filed separate oppositions to plaintiffs' motion.*fn3 Plaintiffs replied on December 9, 2011. The Court heard oral argument on December 19, 2011. After carefully considering the parties' arguments, the Court finds and concludes as follows.
A preliminary injunction is an "extraordinary remedy." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 9 (2008). The Ninth Circuit summarized the Supreme Court's recent clarification of the standard for granting preliminary injunctions in Winter as follows: "[a] plaintiff seeking a preliminary injunction must establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest." Am. Trucking Ass'n, Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009); see also Cal. Pharms. Ass'n v. Maxwell-Jolly, 563 F.3d 847, 849 (9th Cir. 2009) ("Cal. Pharms. I"). Alternatively, "'serious questions going to the merits' and a hardship balance that tips sharply towards the plaintiff can support issuance of an injunction, so long as the plaintiff also shows a likelihood of irreparable injury and that the injunction is in the public interest." Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011); see also Indep. Living Ctr. of So. Cal. v. Maxwell-Jolly, 572 F. 3d 644, 657--58 (9th Cir. 2009) ("ILC II"). A "serious question" is one on which the movant "has a fair chance of success on the merits." Sierra On-Line, Inc. v. Phoenix Software, Inc., 739 F.2d 1415, 1421 (9th Cir. 1984).
Before turning to the merits of plaintiffs' motion, the Court first addresses the Director's arguments that plaintiffs lack standing to bring this case.
The Director argues that plaintiffs have not alleged an "actual and imminent injury" because plaintiffs' alleged injury relies on a "tenuous thread of assumptions contingent upon possibilities." Director's Opp'n at 2.
The Court rejects this argument because plaintiffs' alleged injuries are concrete rather than speculative or conjectural. In order to establish standing to assert a claim, a plaintiff must: (1) demonstrate an injury in fact, which is concrete, distinct and palpable, and actual or imminent; (2) establish a causal connection between the injury and the conduct complained of; and (3) show a substantial likelihood that the requested relief will remedy the alleged injury in fact. See McConnell v. Fed'l Election Comm'n, 540 U.S. 93, 225-26 (2003). In this case, plaintiffs allege that if implemented, the challenged rate reduction would inflict concrete financial injury on Medi-Cal participating hospitals. See Indep. Living Ctr. of So. Cal. v. Shewry, 543 F. 3d 1050, 1065 (9th Cir. 2008) ("ILC I"). ILC I also establishes that Medi-Cal beneficiaries have standing to challenge a Medi-Cal rate reduction when they allege they will by "'put at risk of injury by implementation of the . . . payment cuts' because those cuts will reduce . . . access to quality services." Id. Accordingly, there can be little doubt that plaintiffs have Article III standing.
The Director argues that plaintiffs' lack prudential standing to enforce Sections (a)(19)*fn4 and 30(A)*fn5 because plaintiffs seek to enforce rights belonging to a third party, CMS. According to the Director, these Sections do not confer individual entitlements on any private parties, but instead serve as "yardsticks" by which the federal government may assess a state's performance under the Medicaid Act. Director's Opp'n at 3. Moreover, to the extent that plaintiffs' claims rely on the Supremacy Clause, the Director argues that they run afoul of the bar against considering generalized grievances in that plaintiffs are not attempting to vindicate any right personal to them, but instead invoke the Supremacy Clause as an "all-purpose cause of action to compel a state's compliance with federal law." Id. at 4 (citing Valley Forge Christian Coll. v. Amer. United for Sep. of Church and State, 454 U.S. 464, 483 (1982)).
The Court finds the Director's prudential standing arguments unavailing. In assessing prudential standing, a court need not "inquire whether there has been a congressional intent to benefit the would-be plaintiff," but instead must determine only whether the plaintiff's interests are among those "arguably . . . to be protected" by the statutory provision. Nat'l Credit Union v. First Nat'l Bank & Trust Co., 552 U.S. 478, 489 (1998). This "zone of interest" test "is not meant to be demanding." Clarke v. Secs. Indus. Ass'n, 479 U.S. 388, 399--400 (1987). To this end, Section (a)(19) mandates that state Medicaid agencies set policies consistent with the "best interests" of Medicaid beneficiaries, while Section 30(A) establishes standards by which payments to providers are set. Accordingly, Medi-Cal beneficiaries and providers are undoubtedly within the zone of interests protected by Sections (a)(19) and 30(A). Further, the Court finds that contrary to the Director's assertion, plaintiffs are not alleging a "generalized grievance." This is so because plaintiffs have alleged that CHA's member hospitals and the individual-beneficiary plaintiffs will be directly harmed by the implementation of the rate reduction.
3. Associational Standing
The Director maintains that CHA cannot establish associational standing. Specifically, the Director argues that CHA does not have associational standing on behalf of hospitals because any injury suffered by a hospital will be particular to that hospital. Director's Opp'n at 4--5. The Director further contends that CHA does not have standing on behalf of Medi-Cal beneficiaries because CHA represents the interests of its member hospitals, rather than the patients of those hospitals, because CHA fails to allege how representing Medi-Cal recipients' interests is germane to CHA's purpose, and because whether an individual beneficiary has a claim under §§ (a)(8) and (a)(19) will require individualized determinations. Id. at 5--6.
The Director's associational standing arguments also fail. An association has standing to sue on behalf of its members if (1) they would have standing to sue in their own right; (2) the interests it seeks to protect are germane to the organization's purpose; and (3) participation by the individual members is not necessary to resolve the claim. Hunt v. Wash. State Apple Advertising Comm'n, 432 U.S. 333, 343 (1997). The Ninth Circuit has recognized that when an association is pursuing an action for only declaratory and injunctive relief on behalf of its members, participation in the action by individual members is not required. See Associated Gen'l Contractors of Am. v. Metropolitan Water Dist. of So. Cal., 159 F. 3d 1178, 1181 (9th Cir. 1998). Here, plaintiffs are not seeking monetary relief, so participation of individual CHA member hospitals is not required. Next, other courts have held that because individual medical providers would have third-party standing to represent the interests of their patients, associations representing those providers can also represent the interests of patients. See, e.g., Penn. Psychiatric Soc'y v. Green Spring Health Srvs., Inc., 280 F. 3d 278, 288--94 (3d Cir. 2002); New Jersey Protection & Advocacy v. New Jersey Dep't of Educ., 563 F. Supp. 2d 474, 481--84 (D.N.J 2008). Accordingly, in this case, CHA's member hospitals would have standing to represent the interests of ...