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Title California Hospital Association; et al. v. Toby Douglas; et al.

March 8, 2012

TITLE CALIFORNIA HOSPITAL ASSOCIATION; ET AL.
v.
TOBY DOUGLAS; ET AL.



The opinion of the court was delivered by: Honorable Christina A. Snyder

CIVIL MINUTES - GENERAL

Present: The Honorable CHRISTINA A. SNYDER

CATHERINE JEANG Not Present N/A

Deputy Clerk Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiffs: Attorneys Present for Defendants: Not Present Not Present

Proceedings: (In Chambers:) ORDER RE: SCOPE OF PRELIMINARY INJUNCTION

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,

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. ¶¶

On December 28, 2011, the Court issued an order granting a preliminary injunction. That order ...


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