Appalachian Reg'l Healthcare v. Coventry Health & Life Ins. Co., CIVIL ACTION NO. 5:12-CV-114-KSF

• Decision Date: 28 March 2013
• Docket Number: CIVIL ACTION NO. 5:12-CV-114-KSF
• Parties: APPALACHIAN REGIONAL HEALTHCARE, et al. PLAINTIFF v. COVENTRY HEALTH AND LIFE INSURANCE COMPANY, et al. DEFENDANTS
• Court: U.S. District Court — Eastern District of Kentucky

APPALACHIAN REGIONAL HEALTHCARE, et al. PLAINTIFF
v.
COVENTRY HEALTH AND LIFE
INSURANCE COMPANY, et al. DEFENDANTS

CIVIL ACTION NO. 5:12-CV-114-KSF

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY CENTRAL DIVISION at LEXINGTON

March 28, 2013

OPINION AND ORDER

This matter is before the Court on the motion of Plaintiffs Appalachian Regional Healthcare, Inc., and ARH Mary Breckinridge Health Services, Inc., collectively "ARH," to file a Second Amended Complaint. For the reasons discussed below, the motion will be granted.

I. BACKGROUND

Much of the background in this case was described in the Court's prior Opinion and Order granting a preliminary injunction in favor of ARH on June 20, 2012 [DE 67], which Order is currently on appeal to the Sixth Circuit. At present, ARH seeks to file an amended complaint against the federal Centers for Medicare and Medicaid Services ("CMS") for failing to follow various statutory directives when it approved Kentucky's Managed Care Waiver. The Second Amended Complaint alleges that the action of the Department of Health and Human Services' Secretary in approving the Section 1915(b) Waiver for the Kentucky Medicaid Program violates the Administrative Procedure Act ("APA") because it is arbitrary, capricious, an abuse of discretion and not in accordance with law. DE 122-1; 5 U.S.C. § 706(2)(A). The proposed complaint also seeks a declaration that the approval of the Waiver was similarly in violation of the Medicaid Act and that the Waiver is unlawful and invalid. See ¶ 122. No new claims are added against Coventry Health and Life Insurance Company ("Coventry") or the Kentucky Cabinet for Health and Family Services ("Cabinet").

Page 2

The Cabinet opposes the motion to amend, claiming the proposed amendment is futile because it could not withstand a Rule 12(b)(6) motion to dismiss. DE 128 at 2. It argues sovereign immunity and the absence of any waiver through the Medicaid Act. It argues that states have the statutory right to challenge disapproval of a state plan or waiver through administrative proceedings, but no right is given to hospitals to challenge favorable action approving a waiver. Id. at 3. The Cabinet contends that "Plaintiffs want this Court to order CMS to sanction Kentucky by withholding federal FFP [federal financial participation] funds" based on speculative claims that it would result in more generous reimbursement rates for ARH. Id. at 4. It further argues that the APA is not an independent grant of subject matter jurisdiction and that judicial review of a federal agency action is precluded if the action is "committed to agency discretion by law." Id. at 5. It claims that Kentucky hospitals "lack standing to force CMS to exercise its enforcement discretion" and that a decision not to prosecute or enforce "is a decision generally committed to an agency's absolute discretion." Id. at 5-6. The Cabinet also cites various authorities holding that there is no cause of action for hospitals to challenge the adequacy of the rates they receive, nor is there a "takings" claim. Id. at 7. Because approval of...