9th Cir.: Medi-Cal cuts create irreparable injury for hospitals

The Ninth Circuit granted an emergency motion for preliminary injunction pending appeal against Medi-Cal reimbursement cuts for hospitals.

 The court rejected the contention that hospitals could only invoke their own injuries for purposes of establishing irreparable harm, stating that defendants were improperly trying to “important an ‘intended beneficiary’ concept back into the case” following rejection of the state’s standing and cause-of-action arguments. The court also held that the unavailability of damages due to sovereign immunity can render monetary harms irreparable for purposes of preliminary relief. Calif. Pharmacists Ass’n v. Maxwell-Jolly, --- F.3d ----, 2009 WL 975458 (9th Cir. Apr. 6, 2009) (No. 09-55365).

 

          The same panel previously held that Medi-Cal providers and beneficiaries may challenge reimbursement cuts adopted by the legislature by asserting that they are preempted by 42 U.S.C. § 1396a(a)(30)(A), without regard to whether the federal law creates individual “rights” enforceable under 42 U.S.C. § 1983. Indep. Liv. Ctr. of So. Cal. v. Shewry (ILC), 543 F.3d 1050 (9th Cir. 2008) (summary), pet. for certiorari filed Apr. 1, 2009. This separate suit asserts similar claims on behalf of a different set of providers. The district court held that the hospital plaintiffs had not demonstrated irreparable harm. The panel agreed with the district court that plaintiffs made a “strong showing” of likelihood of success on the merits, because the legislature failed to consider efficiency, economy, quality of care, and access before adopting the rate cuts. Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir. 1997). The state agency’s post-hoc studies could not cure this defect, because the agency had no discretion to change the rates.

 

          The panel rejected the state’s argument that only harm to Medi-Cal beneficiaries, not to the hospitals themselves, was relevant to the “irreparable harm” inquiry. The court observed that ILC held that providers did not need to establish statutory “rights” in order to pursue their preemption claim, and that providers’ own direct economic injury established standing. Elaborating these recent holdings, the court explained:

A cause of action based on the Supremacy Clause…obviates the need for reliance on third-party rights because the cause of action is one to enforce the proper constitutional structural relationship between the state and federal governments and therefore is not rights-based….Essentially, the line of cases on which we relied [in ILC] held that private parties could enforce the structural relationship between the federal and state governments so long as they had Article III standing as, essentially, private enforcers of the Supremacy Clause; the specific relationship of those parties to the federal statute on which the Supremacy Clause cause of action is premised does not matter.

      Given these underpinnings of ILC, there is little basis on which to import an “intended beneficiary” concept back into the case for purposes of determining irreparable injury.

 

          The state also invoked the traditional rule that “monetary harm does not constitute irreparable harm.” Examining the circuit and Supreme Court precedents establishing this rule, the court said that “economic damages are not traditionally considered irreparable because the injury can later be remedied by a damage award.” The court reasoned that “the economic injury doctrine rests only on ordinary equity principles precluding injunctive relief where a remedy at law is adequate,” and agreed with the Tenth Circuit’s holding that this rule does not apply when state sovereign immunity would bar retroactive damages. Kan. Health Care Ass’n v. Kan. Dep’t of Soc. & Rehab. Servs., 31 F.3d 1536, 1543 (10th Cir. 1994). In a footnote, the court acknowledged the possibility that “damages may become available” in state court, but took the view that “federal courts may consider only what federal remedies are available.” Compare United States v. New York, 708 F.2d 92, 93–94 (2d Cir. 1983) (per curiam) (taking this view), with Kan. Health Care Ass’n, 31 F.3d at 1543 (relying on unavailability of state remedies).

 

          Finally, the court concluded that “the impact of a stay on the budget crisis will be minimal at most,” and that moreover “it would not be equitable or in the public’s interest to allow the state to continue to violate the requirements of federal law,” especially when it would create irreparable harm. In such a case, the court said, “the interest of preserving the Supremacy Clause is paramount.” Accordingly, the court ordered that the rate cuts for hospitals be stayed pending appeal of the denial of a preliminary injunction.