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Tulare Local Health Care District v. California Department of Health Care Services

United States District Court, N.D. California

May 11, 2017

TULARE LOCAL HEALTH CARE DISTRICT, et al., Petitioners,
v.
CALIFORNIA DEPARTMENT OF HEALTH CARE SERVICES, et al., Respondents.

          ORDER DENYING MOTION FOR RECONSIDERATION

          PHYLLIS J. HAMILTON United States District Judge.

         Before the court is petitioners' motion for leave to file a motion for reconsideration of the court's September 9, 2015, order denying the motion to remand, and motion for reconsideration of the order denying the motion to remand. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court hereby DENIES the motion for leave to file a motion for reconsideration.

         This case was filed in May 2015 as a petition for writ of mandamus under California Code of Civil Procedure § 1085, and for declaratory relief under California Code of Civil Procedure § 1060. The petition was originally filed in the Superior Court of California, County of San Francisco, and was removed to this court by respondents California Department of Health Care Services ("DHCS") and Director of DHCS on June 17, 2015, on the basis of federal question jurisdiction.

         Petitioners are 12 California hospitals or health care districts. They challenge the implementation of statutes enacted by the California Legislature, which reduced payments to certain MediCal (California Medicaid) providers. Petitioners allege that they are all "non-contract" hospitals (hospitals not paid under a negotiated rate) and that DHCS has imposed 100% of the burden of the MediCal rate cuts solely on non-contract hospitals.

         The federal agency that administers Medicaid, the Centers for Medicare and Medicaid Servics ("CMS") ultimately approved some of the rate reductions, and California withdrew others. The rate cuts were in effect for approximately a two-year period. In 2011, the Legislature enacted another statute, which eliminated the 2008 and 2009 hospital rate cuts on a prospective basis, effective April 13, 2011, but left the prior rate cuts in effect. In the present case, petitioners seek to have the prior rate cuts declared unlawful, and allege that they should be reimbursed for the money they lost as a result of the rate cuts.

         Petitioners allege two causes of action. In the first cause of action, they seek a writ of mandate for violation of "federal and state statutes and regulations." The principal federal statute at issue here is 42 U.S.C. § 1396a(a)(30) ("§ 30(A)"), which requires (among other things) that Medicaid payments be "consistent with efficiency . . . and economy." The terms "efficiency" and "economy" are defined under California law. See 22 C.C.R. § 51545(a)(30). Petitioners allege that it is impossible for the rate cuts to take into account the "efficiency" and "economy" of hospitals; and also assert that the rate cuts were enacted for budgetary reasons, which does not comport with the requirement that the payments be consistent with "efficiency" and "economy."

         In the second cause of action, petitioners seek a writ of mandate for "violation of California and U.S. Constitutions, " specifically alleging that the rate reductions discriminate against non-contract hospitals in favor of contract hospitals, in violation of the Equal Protection clauses of both the state and federal constitutions. They assert that statewide, non-contract hospitals provide 13.9% of the total inpatient days of care provided to MediCal patients, yet those noncontract hospitals are being forced to assume 100% of the burden of the rate reductions.

         After the case was removed, it was assigned to Judge Samuel Conti. Petitioners filed a motion to remand, arguing that there was no viable claim under federal law. They asserted that there was no viable claim under § 30(A), based on the U.S. Supreme Court's March 2015 ruling that providers do not have a private right of action to assert a claim under § 30(A) in federal court, and that there is no separate right to proceed in equity under § 30(A). See Armstrong v. Exceptional Child Center, Inc., 135 S.Ct. 1378 (2015). Petitioners also argued that there was no viable claim under the Equal Protection Clause, because the Ninth Circuit has held that § 30(A) does not create an individual right enforceable under 42 U.S.C. § 1983 by either a Medicaid recipient or a provider of Medicaid services. See Sanchez v. Johnson, 416 F.3d 1051, 1060 (9th Cir. 2005).

         On September 9, 2015, Judge Conti issued an order denying the motion to remand, finding (1) that petitioners' complaint raised a number of issues of federal law, including the adequacy of MediCal reimbursements under § 30(A) and the Equal Protection Clause of the Fourteenth Amendment, and that the fact that the federal claims were raised by way of a state law cause of action did not preclude a finding that the right to relief under state law required resolution of a substantial question of federal law, which was sufficient to create federal question jurisdiction; (2) that Armstrong held that § 30(A) does not confer a private right of action, and that the sole remedy provided by Congress for a state's failure to comply with § 30(A) is the withholding of Medicaid funds by the Secretary of HHS; and (3) that petitioners' claim that they lacked standing in federal court because of lack of redressability was without merit, but that regardless of whether petitioners had standing, the petition still asserted a claim of violation of the Fourteenth Amendment's Equal Protection Clause, clearly a federal claim.

         Two months later, on November 3, 2015, following Judge Conti's retirement from the court, the case was reassigned to the undersigned. At the February 4, 2016, further Case Management Conference, petitioners requested that the court stay the case pending the Ninth Circuit's resolution of the pending appeal of C-08-5173-SC, Santa Rosa Mem. Hosp. v. DHCS, which had previously been dismissed without prejudice, based in part on the ruling in Armstrong.

         Alternatively, petitioners requested that the case be "instantly remanded" to San Francisco Superior Court, so it could be properly coordinated with a similar case pending there, Santa Rosa Mem. Hosp. v. Maxwell-Jolly, Case No. CPF 09-509658, which had been originally filed in state court in 2009, and which also sought a writ of mandamus under § 1085 alleging violation of § 30(A) in connection with the MediCal rate cuts, and asserted an Equal Protection claim under the state and federal constitutions.

         The court denied the informal renewed request to remand the case to state court, and alternative request to stay the case pending the Ninth Circuit's resolution of the appeal of the dismissal of C-08-5173-SC. The court directed that no later than March 9, 2016, petitioners could file a motion for leave to file a motion for reconsideration of the prior order denying remand.

         Rather than seeking leave to file a motion for reconsideration, however, plaintiffs' counsel simply filed a motion for reconsideration on March 8, 2016. Petitioners argued that the case should be remanded because they had a viable § 30(A) cause of action in state court, and this case should be decided in state court where another § 30(A) MediCal case was on the verge of being decided (referring to Santa Rosa Mem. Hosp. v. Maxwell-Jolly). They also noted that under 28 U.S.C. § 1367(a), the court could accept supplemental jurisdiction over the state law claim for retroactive reimbursement, or could simply remand such claims to state court; and asserted that Armstrong did not preclude a remedy in state court.

         On March 30, 2016, petitioners filed a request for leave to file an analysis of a decision issued nine and a half years previously by a judge of this court, granting a motion to remand in Cal. Healthcare Ass'n v. Shewry, Case No. C-06-4027-JSW, 2006 WL 2587123 (N.D. Cal. Sept. 8, 2006) ("CHA"). They asserted that in light of the fact that counsel had become aware of the CHA remand order only after respondents had filed their opposition to the motion for reconsideration, they felt that the court ...


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