Alohacare v. Hawaii, Dept. of Human Services

• Decision Date: 14 July 2009
• Docket Number: No. 08-16589.,08-16589.
• Citation: 572 F.3d 740
• Parties: ALOHACARE, Plaintiff-Appellant, v. State of HAWAII, DEPARTMENT OF HUMAN SERVICES; Lillian B. Koller, Director, State of Hawaii, Department of Human Services, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

572 F.3d 740

ALOHACARE, Plaintiff-Appellant, v. State of HAWAII, DEPARTMENT OF HUMAN SERVICES; Lillian B. Koller, Director, State of Hawaii, Department of Human Services, Defendants-Appellees.

No. 08-16589.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 15, 2009.

Filed July 14, 2009.

James L. Feldesman (argued), Feldesman Tucker Leifer Fidell LLP, Washington, DC; Edward C. Kemper, Kemper & Watts, Honolulu, HI, for the plaintiff-appellant.

John F. Molay, Deputy Attorney General, Department of the Attorney General, Honolulu, HI; Charles A. Miller (argued), Covington & Burling, LLP, Washington, DC, for the defendants-appellees.

Appeal from the United States District Court for the District of Hawaii, Susan Oki Mollway, District Judge, Presiding. D.C. No. 1:08-cv-00212-SOM-BMK.

Before: ALEX KOZINSKI, Chief Judge, JAY S. BYBEE and CONSUELO M. CALLAHAN, Circuit Judges.

BYBEE, Circuit Judge:

AlohaCare submitted a proposal to provide managed health care to Medicaid-eligible aged, blind, and disabled individuals. When the Hawaii Department of Human Services awarded the contract to two other health plans, AlohaCare brought suit under 42 U.S.C. § 1983, alleging that the state had violated the Medicaid Act. We must decide whether 42 U.S.C. § 1396b(m) confers a federal right to contract eligibility on AlohaCare that can be remedied under § 1983. For the reasons discussed below, we conclude that it does not and thus affirm the judgment of the district court.

I

A

Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., (the "Act" or "Medicaid Act"), provides federal funding to "enabl[e] each State, as far as practicable ... to furnish ... medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services." 42 U.S.C. § 1396-1. Medicaid is a jointly financed federal-state program that is administered by the States in accordance with federal guidelines. See Children's Hosp. & Health Ctr. v. Belshe, 188 F.3d 1090, 1093 (9th Cir.1999). Medicaid is overseen at the federal level by the Department of Health and Human Services ("HHS") through HHS's Centers for Medicare and Medicaid Services ("CMS"). See Robert F. Kennedy Med. Ctr. v. Leavitt, 526 F.3d 557, 558 (9th Cir.2008).

The Act, among other things, outlines detailed requirements for plan eligibility, id. § 1396a, erects a complex scheme for allocating and receiving federal funds, id. § 1396b, and imposes detailed requirements on States that wish to delegate the provision of health care services through contracts with managed care organizations ("MCOs"), id. § 1396u-2. Hawaii's compliance with these federal laws is the subject of the current dispute.

B

Hawaii has established the Department of Human Services ("DHS") as the "single State agency" responsible for administering and supervising Hawaii's Medicaid program. See HAW. REV. STAT. § 26-14; 42 U.S.C. § 1396a(a)(5). Medicaid generally requires a State to conform with federal guidelines prior to receiving federal funds; however, under 42 U.S.C. § 1315, CMS may waive compliance for certain "experimental, pilot, or demonstration project[s]." Id. § 1315(a). Pursuant to § 1315, in 1993 Hawaii obtained approval from CMS to operate a managed care model known as QUEST. QUEST is a statewide demonstration project that allows Hawaii to contract with health-maintenance organizations ("HMOs") and provide health care coverage to populations outside the normal reach of Medicaid.

In 1993, a group of Hawaii's federally qualified health care organizations ("FQHCs") formed AlohaCare, a non-profit organization whose central purpose is to provide and arrange for health care services for Medicaid-eligible individuals in Hawaii. AlohaCare obtained approval to participate as an HMO under the QUEST program. At the time of this suit, AlohaCare was the second largest QUEST health plan in Hawaii and the third largest health plan in the state overall.

FQHCs are organizations, funded by the federal government under 42 U.S.C. § 254b, that provide medical health services to "medically underserved" populations. 42 U.S.C. § 254b(a)(1); see also id. § 1396d(l)(2)(A)-(B); id. § 1395x(aa)(3)(B). The Medicaid Act has a number of provisions that place FQHCs on more favorable footing than other health care organizations. For example, because a number of requirements usually applicable to MCOs do not apply to FQHCs, FQHCs can often become eligible for managed care contracts more easily than other health care organizations. See id. § 1396b(m)(1)(C)(ii)(IV), (2)(B)(i)(I), (2)(G).

C

In January 2005, DHS sought to implement a revised version of QUEST, called QUEST Expanded Access ("QEXA"). The purpose of this program was to build on the existing QUEST program and offer managed care services to Medicaid-eligible aged, blind, and disabled individuals. As with the original QUEST program, DHS had to obtain a waiver for QEXA from CMS under 42 U.S.C. § 1315 as an experimental demonstration project. DHS submitted its application in January 2005, and CMS approved the waiver in February 2008.

In 2007, DHS issued a request for proposals ("RFP") for qualified health care plans to provide managed care under QEXA, and AlohaCare submitted a proposal in response. After conducting an internal review, DHS concluded that AlohaCare did not meet the RFP's technical requirements and thus did not consider AlohaCare as a viable candidate for the QEXA program. Ultimately, DHS awarded contracts to two other health plans: Ohana Health Plan and Evercare. AlohaCare filed a protest, arguing that its proposal was not properly evaluated. This protest was denied by Lillian Koller, the Director of DHS, and AlohaCare filed a request for reconsideration with the State Procurement Office.

In 2008, before Hawaii had responded to the request for reconsideration, AlohaCare filed a complaint in federal district court against DHS and Koller (collectively "the Defendants") pursuant to 42 U.S.C. § 1983. AlohaCare alleged that the Defendants violated at least five provisions of the Medicaid Act: (1) 42 U.S.C. § 1396b(m) (by awarding contracts in violation of the statute's requirements for MCOs and by finding AlohaCare ineligible for the contract); (2) § 1396u-2(b)(5) (by awarding a contract to an MCO without obtaining adequate assurances that the MCO's network of providers has sufficient capacity to serve the relevant population); (3) § 1396b(i)(17) (by providing rebates to the winning bidders); (4) § 1396u-2(a)(2)(A) (by imposing managed care on the population under the age of nineteen); and (5) § 1396u-2(a)(1)(A) (by restricting the number of entities eligible for managed care contracts).¹ The complaint sought a declaration that the awards made to the selected contractors were null and void, an injunction prohibiting the Defendants from proceeding with the awarded contracts, an order to force DHS to conform its contract requirements to federal law, and an order to force DHS to consider AlohaCare as an eligible applicant in any future procurements.

Shortly after AlohaCare filed suit, Aaron Fujioka, the state's Chief Procurement Officer, denied AlohaCare's request for reconsideration, concluding that there was no evidence that AlohaCare's proposal was improperly evaluated. Defendants filed a motion to dismiss AlohaCare's suit for failure to state a claim, which the district court granted. Based on the three-pronged analysis in Blessing v. Freestone, 520 U.S. 329, 117 S.Ct. 1353, 137 L.Ed.2d 569 (1997), the district court found that AlohaCare could not bring claims for violations of the Medicaid Act under § 1983. The court also found that AlohaCare did not have third-party standing to bring these claims on behalf of the aged, disabled, and blind population in Hawaii or AlohaCare's member FQHCs. AlohaCare filed a timely appeal. We have jurisdiction pursuant to 28 U.S.C. § 1291.²

II

On appeal, AlohaCare argues that the district court erred by (1) failing to analyze its claims under the Supremacy Clause, (2) concluding that AlohaCare could not bring claims pursuant to § 1983 for violations of the Medicaid Act, and (3) failing to conclude that AlohaCare has associational standing to bring claims on behalf of its member FQHCs. We address each of these claims in turn.

A

"Absent exceptional circumstances, we generally will not consider arguments raised for the first time on appeal, although we have discretion to do so." El Paso City of Tex. v. Am. W. Airlines, Inc. (In re Am. W. Airlines, Inc.), 217 F.3d 1161, 1165 (9th Cir.2000). We may exercise this discretion "(1) to prevent a miscarriage of justice; (2) when a change in law raises a new issue while an appeal is pending; and (3) when the issue is purely one of law." Kimes v. Stone, 84 F.3d 1121, 1126 (9th Cir.1996) (internal quotation marks omitted). However, we will not "reframe [an] appeal to review what would be (in effect) a different case than the one the district court decided below." Robb v. Bethel Sch. Dist. No. 403, 308 F.3d 1047, 1052 n. 4 (9th Cir.2002).

AlohaCare's claims under the Supremacy Clause have not been preserved for appeal because they were never raised below. There is an important distinction between a claim brought under the Supremacy Clause and a claim brought under § 1983: the latter "require[s] a plaintiff to show the deprivation of `an unambiguously conferred right' in order to support a cause of action," while the former "is presumptively available to remedy a state's ongoing violation of federal law." Ind. Living Ctr. of S. Cal. v. Shewry, 543 F.3d 1050, 1062, 1064 (9th Cir.2008).

AlohaCare's complaint specifically states that its claims were brought "pursuant to 42 U.S.C. § 1983." AlohaCare never raised an argument under the Supremacy Clause before the district court, and consistently pressed its arguments under the framework of § 1983 cases. We...