California Ass'n of Bioanalysts v. Rank

• Decision Date: 23 December 1983
• Docket Number: No. CV 82-4347 MRP.,CV 82-4347 MRP.
• Court: U.S. District Court — Central District of California
• Parties: CALIFORNIA ASSOCIATION OF BIOANALYSTS, a California nonprofit corporation, and California Clinical Laboratory Association, a California nonprofit corporation, Plaintiffs, v. Peter RANK, Director of the State Department of Health Services, State of California, and the State Department of Health Services, Defendants.

577 F. Supp. 1342

CALIFORNIA ASSOCIATION OF BIOANALYSTS, a California nonprofit corporation, and California Clinical Laboratory Association, a California nonprofit corporation, Plaintiffs, v. Peter RANK, Director of the State Department of Health Services, State of California, and the State Department of Health Services, Defendants.

No. CV 82-4347 MRP.

United States District Court, C.D. California.

December 23, 1983.

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Weissburg & Aronson, Inc., Peter Aronson, Patric Hooper, Los Angeles, Cal., for plaintiffs.

James E. Ryan, Deputy Atty. Gen., Los Angeles, Cal., for defendants.

OPINION

PFAELZER, District Judge.

This action seeks to invalidate § 53(9) of California Assembly Bill No. 799 ("AB 799"), which mandated a reduction of MediCal reimbursement rates for laboratory and pathology services by an overall average of 25%. The action also attacks the manner in which § 53(9) was implemented by defendant Department of Health Services of the State of California ("DHS"). Plaintiffs are professional associations whose members are owners and operators of clinical laboratories in California, licensed to provide laboratory and pathology services. DHS is the designated and approved "single state agency" charged with administering California's Medicaid program, "Medi-Cal." Defendant Peter Rank is the Director of DHS.

I. BACKGROUND

Prior to July 1, 1982, the effective date of AB 799, federal agencies repeatedly had criticized Medi-Cal reimbursement rates for laboratory and pathology services as excessive, and had recommended that DHS reduce these rates. The Department of Finance of the State of California, moreover, had conducted a survey which indicated that 53% of the providers of laboratory and pathology services in California ("laboratories") employed dual pricing practices, billing Medi-Cal at rates approximately 34% higher than those charged physicians for identical services.

As stated in AB 799,¹ "In order to effectuate savings under the Medi-Cal program for the 1982-83 fiscal year," § 53 directed DHS to reduce maximum reimbursement rates, and even eliminate coverage, for a wide variety of provider services. For most of these services,² DHS was directed to reduce the maximum rates of reimbursement by 10%.³ Section 53(9), however, directed DHS to

reduce rates of reimbursement for laboratory and pathology services, ... performed by all but hospital inpatient providers, by an overall average of 25 percent ... with rates for individual procedures to be adjusted by more or less than the overall 25 percent reduction to reflect changes in technology based on appropriate relative value studies.

Section 57(c) of AB 799 authorized DHS to implement the provisions of § 53 by way of emergency regulations effective immediately upon filing with the Secretary of State of the State of California.

On July 30, 1982, DHS issued regulations implementing the § 53 reductions, which went into effect on August 1, 1982. See 22 Cal.Adm.Code § 51529. In accordance with the legislative mandate, DHS selected a more current relative value study as the basis for calculating the new maximum reimbursement rates for laboratory and pathology services. Prior to August 1, 1982, DHS calculated maximum reimbursement rates for laboratories by using the 1969 California Relative Value Studies ("CRVS"), published by the California Medical Association. On August 1, 1982, however, DHS began using the 1974 CRVS, which took into account technological changes since 1969, and therefore more accurately reflected the current costs of conducting various tests. This resulted in substantial changes in reimbursement rates for individual laboratory and pathology procedures, independent of the mandated 25% average reduction. In conjunction with that reduction, it caused reimbursement rate reductions for individual procedures to fluctuate widely on both sides of the 25% average. For example, reimbursement rates declined by 41% for glucose blood counts and actually increased by 6% for culture screenings.

DHS provided two types of public notice for the reimbursement rates reductions. First, in late July 1982, DHS's fiscal intermediary, Computer Sciences Corporation, published Medical Services Bulletin No. 47. This bulletin, which plaintiffs' members received in early August 1982, gave a detailed description of the emergency regulations implementing the changes in the reimbursement rates. Second, on August 11, 1982, DHS published notice of the emergency regulations in the California Administrative Register. See 82 Cal.Adm.Reg. B-11 (August 11, 1982). The notice stated that the effective date of the regulations was August 1, cited the relevant statutory authority, noted the overall 25% reduction, provided a number to call for further information, and gave an estimate of the regulations' proposed revenue effect.

The new maximum reimbursement rates were not established pursuant to the methodology set forth in Attachment 4.19-B of the California State Medicaid Plan ("State Plan"), Cal.Welf. & Inst.Code § 14000 et seq., as it existed prior to July 1, 1982. Attachment 4.19-B specified the procedural requirements for establishing reimbursement rates.⁴ As a consequence, DHS forwarded to the Health Care Financing Administration ("HFCA"), an agency of the United States Department of Health and Human Services ("USDHHS"), the following proposed amendment to Attachment 4.19-B: "(e) Notwithstanding any other provisions of the State Plan pertinent to methods and levels of reimbursement to providers, rates may be adjusted when required by State Statute." The HCFA received the proposed amendment on August 2, 1982 and approved it on August 20, 1982. The approval purported to be retroactively effective as of July 1, 1982. DHS did not issue public notice of any kind regarding this amendment to the State Plan.

II. PLAINTIFFS' STANDING

As a threshold matter, defendants argue that because plaintiff associations have alleged harm to individual laboratories, as associations they lack standing to represent the interests of their individual members.⁵ Defendants correctly point out that as a general principle, a need for individual participation in litigation is enough to defeat associational standing. See, e.g., Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 343, 97 S.Ct. 2434, 2441, 53 L.Ed.2d 383 (1977). However, the application of that principle is untenable here. Plaintiff associations are seeking prospective injunctive relief, not damages on behalf of individual members. See, e.g., Warth v. Seldin, 422 U.S. 490, 514-15, 95 S.Ct. 2197, 2213-2214, 45 L.Ed.2d 343 (1975). That being so, their standing cannot be disputed. See Hunt, 432 U.S. 333, 97 S.Ct. 2434; Warth, 422 U.S. 490, 95 S.Ct. 2197.

Defendants make the further argument that even if plaintiffs establish associational standing, only Medicaid recipients have standing to sue for alleged violations of the federal Medicaid laws. This argument is without merit. In order to have standing to assert the violation of a federal statute, a plaintiff must: "(1) suffer an injury in fact; (2) fall arguably within the zone of interests protected by the statute allegedly violated; and (3) show that the statute itself does not preclude the suit." Fentron Industries, Inc. v. National Shopmen Pension Fund, 674 F.2d 1300, 1304 (9th Cir.1982). See also Data Processing Service Organization v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 829-830, 25 L.Ed.2d 184 (1970). It is clear that plaintiffs have satisfied this triparite test.⁶ They therefore have standing to challenge the 25% reimbursement rate reduction under the Medicaid statutes.⁷

III. REQUIREMENT OF PUBLIC NOTICE

Plaintiffs contend that the 25% rate reduction is invalid because of the state's failure to afford proper notice of two changes in its Medi-Cal program. First, plaintiffs argue that the notice of the 25% reduction provided by DHS failed to satisfy the requirements of 42 C.F.R. § 447.205 (1982). Second, plaintiffs contend that DHS failed to give any notice of the amendment to the State Plan, which exempted legislatively mandated changes in reimbursement rates from ordinary procedural requirements, also in violation of § 447.205.

With respect to the first contention, the Court has concluded that although the notice of the 25% reduction failed to satisfy the requirements of § 447.205, the reduction was not invalidated thereby. As to the second contention, the State Plan Amendment did not trigger the requirements of § 447.205 and therefore is not invalid on the ground of inadequate notice.

A. Public Notice of the 25% Reduction

Plaintiffs argue that DHS's notice of the 25% reduction in rates did not comply with 42 C.F.R. § 447.205. That regulation, with which states participating in the Medicaid program must comply, requires state agencies to "provide public notice of any significant proposed change in its methods and standards for setting payment rates for services." § 447.205(a). The notice must be published before the proposed effective date of the change and appear in one of several listed publications, one of which is a state register. § 447.205(d). Furthermore, the notice must

(1) Describe the proposed change in methods and standards;

(2) Give an estimate of any expected increase or decrease in annual aggregate expenditures;

(3) Explain why the agency is changing its methods and standards;

(4) Identify a local agency in each county ... where copies of the proposed changes are available for public review;

(5) Give an address where written comments may be sent and reviewed by the public; and

(6) If there are public hearings, give the location, date and time for hearings or tell how this information may be obtained.

§ 447.205(c).

A partial exception to the full notice requirements of § 447.205 exists for certain legislatively mandated agency action. This exception is based on the rationale that changes...