Independent Accept v. State

• Decision Date: 09 March 2000
• Docket Number: No. 98-16533,98-16533
• Citation: 204 F.3d 1247
• Parties: (9th Cir. 2000) INDEPENDENT ACCEPTANCE COMPANY, dba San Bruno Convalescent Hospital; CALIFORNIA ASSOCIATION OF HEALTH FACILITIES, a California non-profit corporation, Plaintiffs-Appellants, v. STATE OF CALIFORNIA; CA DEPT. HEALTH SVCS; KIMBERLY BELSHE, Defendants, And DEPARTMENT OF HEALTH AND HUMAN SERVICES; DONNA E. SHALALA, Defendants-Appellees
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1247

204 F.3d 1247 (9th Cir. 2000)

INDEPENDENT ACCEPTANCE COMPANY, dba San Bruno Convalescent Hospital; CALIFORNIA ASSOCIATION OF HEALTH FACILITIES, a California non-profit corporation, Plaintiffs-Appellants, v. STATE OF CALIFORNIA; CA DEPT. HEALTH SVCS; KIMBERLY BELSHE, Defendants And DEPARTMENT OF HEALTH AND HUMAN SERVICES; DONNA E. SHALALA, Defendants-Appellees.

No. 98-16533

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted November 4, 1999

Filed March 9, 2000

COUNSEL: J. Mark Waxman, Mark E. Reagan, Foley & Lardner, San Francisco, California, for the plaintiffs-appellants.

Edmund F. Brennan, Assistant United States Attorney, Sacramento, California; Erin M. Weeks, United States Department of Health and Human Services, Washington, D.C.; Janice Hoffman, United States Department of Health and Human Services, Baltimore, Maryland, for the defendants-appellees.

Appeal from the United States District Court for the Eastern District of California; David F. Levi, District Judge, Presiding. D.C. No. CV-96-01833-DFL/JFM

Before: William C. Canby, Jr., Cynthia Holcomb Hall, and Susan P. Graber, Circuit Judges.

CANBY, Circuit Judge:

This case arises from efforts of the State of California to amend its state plan of medical assistance under the Medicaid Act by changing its method of reimbursement for both stateoperated and non-state-operated long-term care facilities. The main issue before us is whether the Secretary of Health and Human Services acted arbitrarily or capriciously in approving State Plan Amendments ("SPAs") 90-20A and 90-20B and other subsequent amendments. We conclude that the Secretary's approval of the SPAs at issue was neither arbitrary nor capricious.¹

THE PARTIES

Plaintiff-Appellant Independent Acceptance Co. (dba San Bruno Convalescent Hospital) is a long-term care facility, and plaintiff-appellant California Association of Health Facilities ("CAHF") is an association of long-term care providers participating in the California Medicaid Program. Defendants Appellees are the United States Department of Health and Human Services and its Secretary, Donna E. Shalala. ² Within the Department, the Secretary has delegated to the Health Care Financing Administration the authority to review and approve state plans for medical assistance.

BACKGROUND

I. The Medicaid Program

Title XIX of the Social Security Act, 42 U.S.C.SS 13961396u, provides for the establishment of the Medicaid program. The Medicaid program is a cooperative federal-state program whereby the federal government provides financial assistance to the states so they may furnish medical care to needy individuals. See id.; see also Alexander v. Choate, 469 U.S. 287, 289 n.1 (1985). The states' participation in the program is entirely voluntary; those states that choose to participate, however, must comply with the Medicaid statutes and the regulations promulgated by the Secretary. See Alexander, 469 U.S. at 289 n.1; see also 42 U.S.C.S 1396a.

To qualify for federal assistance, states must submit to the Secretary, and secure the Secretary's approval of, a plan for medical assistance. See 42 U.S.C. S 1396a(a) (submission), 1396a(b) (approval); see generally 42 C.F.R.S 430, subpt. B. A state plan must contain a comprehensive statement describing the scope of the state's Medicaid program. See 42 C.F.R. S 430.10; 42 U.S.C. S 1396a(a). The state plan is usually an evolving document, reflecting changes in federal and state law, policy, and initiatives. See 42 C.F.R.S 430.12(c). The process for amending state plans allows states to change their Medicaid programs without submitting an entirely new state plan. See 42 C.F.R. S 430.12.

The Boren Amendment, former 42 U.S.C. S 1396a(a)(13) (1994), governed Medicaid payments for long-term care facility services during the period relevant to this appeal.³ It was enacted to "give the states more responsibility for and flexibility in determining reimbursement rates, in order to reduce rising Medicaid costs." Kansas Health Care Ass'n v. Kansas Dep't of Social & Rehab. Servs., 31 F.3d 1536, 1539 n.3 (10th Cir. 1994). The Boren Amendment establishes requirements that a state's reimbursement methodology (for health care providers) must meet in order for it to receive federal payments. See 42 U.S.C. S 1396a(a)(13)(A) (1994).⁴

II. California's State Plan for Medical Assistance

This appeal challenges the validity of several SPAs submitted by the State of California to the Secretary. Among the matters in dispute are the validity of the original public notice of a plan amendment, the adequacy of that notice to serve for later versions of the amendment, and the validity of retroactive approval of amendments. The sequence of events is thus of considerable importance.

On or about December 24, 1990, the State submitted SPA 90-20 for the Secretary's review and approval. SPA 90-20 advanced two changes to the State's reimbursement methodology. First, SPA 90-20 proposed a change in the reimbursement method for state-operated facilities, moving from a prospective to a cost-based method. Second, it suggested changes to the reimbursement method for non-state-operated facilities in order to comply with federal court orders and stipulated judgments arising from prior litigation. The State published its disputed notice of proposed SPA 90-20 on December 28, 1990.

By letter of December 24, 1991, the Secretary notified the State of her decision to disapprove SPA 90-20 because the State did not supply a satisfactory "upper limits " assurance and other supporting documentation for the portion of the amendment pertaining to state-operated facilities. ⁵ This letter also informed the State that it could request reconsideration of the Secretary's decision.

Pursuant to 42 C.F.R. S 430.18, the State timely petitioned for reconsideration of the Secretary's decision to disapprove the amendment. The Secretary scheduled a hearing for reconsideration and published a notice of the hearing in the Federal Register. Subsequently, the State sought and obtained a stay of reconsideration proceedings to permit further negotiations. On May 13, 1994, the Secretary proposed a division of SPA 90-20 into two phases, SPA 90-20A and SPA 90-20B. SPA 90-20A included all of the provisions of the original amendment except those relating to state-operated facilities. SPA 9020B incorporated all of the provisions of the original amendment, including those pertaining to state-operated facilities.

The Secretary proposed to approve SPA 90-20A (which did not include state-operated facilities), to be effective October 1, 1990. The Secretary decided, however, to delay the effective date of SPA 90-20B because it could be argued that the State, which by then had supplied the requested "upper limit" assurances for the state-operated facilities, had done so too late to permit an effective date of October 1, 1991. The Secretary accordingly proposed an effective date of August 1, 1991, for SPA 90-20B. The Secretary then approved both plan amendments, with the two effective dates proposed by the Secretary, on August 28, 1996.

In the meantime, after having submitted SPAs 90-20A and 90-20B, the State had presented two further plan amendments, SPAs 91-23 and 92-08, which the Secretary approved at the same time or after her approval of SPAs 90-20A and 90-20B. Plaintiffs contend that these two later amendments are invalid solely because of the defects in, and invalidity of, the earlier amendments.

Plaintiffs subsequently challenged in district court the Secretary's approval of all of these amendments, seeking to enjoin the State from using the reimbursement rates set forth in the SPAs. The district court granted the Secretary's motion for summary judgment. Plaintiffs now appeal to this court. See 28 U.S.C. S 1291.

ISSUES

The general question that we must answer is whether the Secretary's approval of the challenged SPAs was arbitrary or capricious. Four sub-issues arise in considering whether the Secretary acted arbitrarily or capriciously by approving the SPAs:

(1)Whether the public notice for SPA 90-20 was sufficient, on its face and as later applied to SPAs 90-20A and 90-20B, to permit the Secretary to accept the State's assurances of notice.

(2) Whether the Secretary's approval of SPAs 9020A and 90-20B, in light of the assurances submitted by the State, was arbitrary or capricious.

(3) Whether the Secretary's setting of the effective dates for SPAs 90-20A and 90-20B was arbitrary or capricious.

(4) Whether, in light of the above issues, the Secretary's approval of subsequent SPAs 91-23 and 92-08 was arbitrary or capricious.

We conclude that the Secretary's approval of the SPAs at issue was neither arbitrary nor capricious. The Secretary's approval of the SPAs is consistent with the Medicaid statute and regulations and is supported by substantial evidence in the record.

STANDARD OF REVIEW

We review de novo the district court's granting of the Secretary's motion for summary judgment. See Bianchi v. Walker, 163 F.3d 564, 569 (9th Cir. 1998), cert. denied, 120 S. Ct. 50 (1999). Pursuant to the Administrative Procedure Act, 5 U.S.C. S 706, an agency's action must be set aside if it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law" or if it is "unsupported by substantial evidence." 5 U.S.C. S 706(2)(A), (E); see also Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 413-14 (1971); Natural Resources Defense Council v. United States Dep't of Interior, 113 F.3d 1121, 1123-24 (9th Cir. 1997). This standard of review is "highly deferential, presuming the agency action to be valid and affirming the agency action if a reasonable basis exists for its decision." California Hosp. Ass'n v. Schweiker, 559 F. Supp. 110, 116 (C.D. Cal. 1982) (citing Hotel Emp. Ass'n of S.F. v. Gorsuch, 669 F.2d 1305, 1307 (9th Cir. 1982)), aff'd, 705 F.2d 466 (9th Cir. 1983). Moreover, we must give the...