D.Haw.: Medicaid managed care provisions enforceable under § 1983

Hawaii’s federal district court held that Medicaid’s freedom of choice provision, along with several provisions establishing requirements for Medicaid managed care organizations, create rights enforceable by recipients under 42 U.S.C. § 1983.

 However, the court held that plaintiffs could not assert parallel claims based on preemption because they did not identify any state law that conflicted with federal law. The court refused to dismiss a claim that the federal government arbitrarily and capriciously approved the state’s managed care contracts. G. ex rel. K. v. Hawaii, Dept. of Hum. Servs., 2009 WL 1322354 (D.Haw. May 11, 2009) (Nos. 08-00551, 09-00044).

This is the third in a series of challenges to the implementation of Hawaii’s Medicaid managed care program. Plaintiffs are Medicaid recipients who contend that the state has contracted with managed care organizations (MCOs) that do not meet federal requirements for solvency, licensure and provider networks. They also claim that the Centers for Medicare and Medicaid Services (CMS) wrongly approved the contracts and granted a waiver of various Medicaid provisions. Plaintiffs asserted claims under § 1983 and the Supremacy Clause against the state, and under the Administrative Procedure Act against CMS.

 

Section 1983

 

The court applied the three-prong test of Blessing v. Freestone, 520 U.S. 329 (1997) (state must be intended to benefit plaintiff, not be vague and amorphous, and unambiguously impose a binding obligation on the state). The court noted that under Ninth Circuit precedent, statutory text is the “primary source of congressional intent to confer a right,” but implementing regulations and legislative history could also be considered in establishing Congress’s intent.

 

The court held that 42 U.S.C. § 1396(a)(23), which guarantees beneficiaries a free choice of providers, creates enforceable rights. The court relied heavily on Harris v. Olszewski, 442 F.3d 456 (6th Cir. 2006), noting that the Ninth Circuit had previously relied on that decision in analyzing a different Medicaid provision.  The court found that the provision’s key language – “any individual…may obtain…” – sufficiently individually focused, and said this view was reinforced by legislative history and implementing regulations.

 

The court next considered the provisions establishing limited exceptions to the freedom of choice provision in the managed care context.  The court held that § 1396u-2(a)(1)(A)(ii) – under which states “may restrict” the number of managed care providers “if such restriction does not substantially impair access to services” – does not create § 1983 rights. Following Hawaii Coalition for Health v. Dept. of Hum. Servs., 576 F.Supp.2d 1114 (D.Haw. 2008) (summary), the court said that the provision was too broadly focused.

 

The court held that the remaining managed care provisions – Sections 1396u-2(a)(1)(A)(i), 1396u-2(b)(5), and 1396b(m)(1) – did create enforceable rights. Because of their interlocking nature, the court analyzed these provisions as a whole, along with a related provision, 1396(a)(3)(A) .Together, these provisions permit to require enrollment with an MCO, on condition that (1) beneficiaries can choose from at least two MCOs, each of which (2) offers an appropriate range of services and a sufficient number, mix, and geographic distribution of providers, and (3) meets state solvency standards or is licensed as a risk-bearing entity. The court looked to the key language in § 1396u-2(a)(1)(A)(i): the state “must permit an individual to choose” from at least two MCOs that meet the other requirements. The court said these requirements “were plainly intended to benefit the individual” by ensuring access to adequate services and protecting beneficiaries from liability for an MCO’s debts. In light of this key language and clear purpose, as well as supportive legislative history, the court held that all of these provisions were intended to benefit Medicaid recipients.  The court also held that the provisions met the other requirements of the Blessing test.

 

The court distinguished AlohaCare v. Dept. of Hum. Servs., 567 F.Supp.2d. 1238 (D.Haw. 2008) (summary), which held that these provisions create no rights for providers, but suggested the analysis might be different for beneficiaries. It also distinguished Hawaii Coalition for Health: while that decision rejected § 1983 claims under §§ 1396(a)(1)(A)(i) and 1396u-2(b)(5), it did not consider these provisions in light of the rights created by § 1396(a)(23) and 1396u2-(a)(3)(A). The court said that, “when those provisions are factored into the analysis,” the other provisions were intended to benefit recipients.

 

The court’s § 1983 analysis is significant for two reasons. First, the court was willing to look to legislative history and even regulations to supplement its analysis of the statutory text. Second, the court was willing to analyze closely related provisions as a whole, without looking for “rights-creating language” in each discrete subsection. This kind of unified analysis is most likely to be successful where the provisions expressly incorporate or refer to one another.

 

Preemption

 

          Plaintiffs also asserted preemption claims based on the same Medicaid provisions. The state did not challenge plaintiffs’ standing and right of action to pursue these claims, and the court noted this was consistent with Indep. Liv. Ctr. v. Shewry, 543 F.3d 1050 (9th Cir. 2008) (summary). However, the court said that plaintiffs had failed to identify any “state law,” such as a state statute or regulation, that purportedly conflicts with federal law. The court suggested that preemption claims are only available to challenge positive law created by legislation, executive pronouncements, or common law doctrines.

 

Administrative Procedure Act

 

          Plaintiffs also asserted claims against CMS under the APA, contending that CMS’s approval of the contracts and grant of the waiver were arbitrary and capricious. They sought declaratory relief, and an injunction against any payments to the companies. The federal government argued that plaintiffs could not compel CMS to enforce the Medicaid Act or to investigate the veracity of representations made by MCOs. They also argued that plaintiffs lacked a private right of action under Medicaid or the APA. The court rejected these arguments, holding that CMS’s compliance with its duty to review managed-care contracts and waiver is reviewable under the APA; that such review is not barred by anything in the Medicaid Act; and that the relevant provisions are “not drawn in such broad terms that in a given case there is no law to apply.”

 

Waiver of special needs and dual eligible exemptions

 

          Plaintiffs also claimed that the state wrongly required dual eligibles and children with special needs to enroll with an MCO in violation of § 1396u-2(a)(2). States have to ways around the freedom of choice requirement of § 1396(a)(23): the statutory exceptions discussed above and waiver by the Secretary of Health and Human Services. Section 1396u-2(a)(2) makes clear that the statutory exceptions do not apply to these two populations. The court held, however, that this section does not limit the Secretary’s authority to waiver the freedom of choice requirement, even with respect to these populations.