California v. Azar, Case No. 19-cv-02552-VC

• Decision Date: 17 November 2020
• Docket Number: Case No. 19-cv-02552-VC
• Citation: 501 F.Supp.3d 830
• Parties: State of CALIFORNIA BY AND THROUGH Attorney General Xavier BECERRA, et al., Plaintiffs, v. Alex M. AZAR, et al., Defendants.
• Court: U.S. District Court — Northern District of California

501 F.Supp.3d 830

State of CALIFORNIA BY AND THROUGH Attorney General Xavier BECERRA, et al., Plaintiffs,

v.Alex M. AZAR, et al., Defendants.

Case No. 19-cv-02552-VC

United States District Court, N.D. California.

Signed November 17, 2020

Kathleen Boergers, Nimrod Pitsker Elias, Anna Margaret Rich, California Department of Justice, Oakland, CA, for Plaintiff State of California by and through Attorney General Xavier Becerra.

Margaret Q. Chapple, Attorney General of Connecticut, Hartford, CT, William Tong, for Plaintiff State of Connecticut.

Ellen F. Rosenblum, Jeanne Nicole DeFever, Oregon Dept. of Justice, Portland, OR, for Plaintiffs State of Oregon, Kate Brown.

Cynthia Mark, Pro Hac Vice, Mass Office of Atty General, Boston, MA, for Plaintiff Commonwealth of Massachusetts.

Alicia O. Young, Pro Hac Vice, John Paul DesJardien, Pro Hac Vice, Washington State Office of the Attorney General Social and Health Services Olympia, Olympia, WA, Robert W. Ferguson, for Plaintiff State of Washington.

Elizabeth Morris, Pro Hac Vice, Office of the Illinois Attorney General, Chicago, IL, for Plaintiff State of Illinois.

Sophie Kaiser, Carol Federighi, United States Department of Justice, Washington, DC, for Defendants Alex M. Azar, II, U.S. Department of Health and Human Services.

Rebekah Millard, Freedom Foundation, Olympia, WA, for Defendant Providers Bruckshaw, Joyner, Juvonen, Martin, Mendivil, Murphy, Sumner, Toussi, Velador, Wright.

Stacey Leyton, P. Casey Pitts, and Stefanie Wilson of Altshuler Berzon LLP represent all Plaintiff-Intervenors.

Nicole Berner and Renee Gerni of Service Employees International Union (SEIU) represent Plaintiff-Intervenor SEIU Local 503.

Judith Rivlin, Teague Patterson, and Fernando Colon of American Federation of State, County and Municipal Employees represent Plaintiff-Intervenor United Domestic Workers of America, AFSCME Local 3930.

ORDER DENYING DEFENDANTS’ MOTION TO DISMISS AND MOTION FOR SUMMARY JUDGMENT; GRANTING PLAINTIFFS’ CROSS-MOTIONS FOR SUMMARY JUDGMENT

Re: Dkt. Nos. 84, 85, 87, 89, 90, 91, 95, 105

VINCE CHHABRIA, United States District Judge

As part of their Medicaid programs, states offer low-income and disabled residents the option of receiving care at home. To help both the patients receiving this care and the workers providing it, many of these states use a payroll system that processes the workers’ voluntary deductions for things like health insurance, union dues, and taxes before sending the workers their paychecks. Some states have done this for nearly three decades. In 2018, however, the federal government banned these payroll practices. It claimed it was required to do so because the practices are unequivocally barred by the Medicaid statute.

This was legal error. There is no clear prohibition on these payroll practices in the Medicaid statute. At a minimum, the statute is ambiguous regarding their permissibility. In fact, considering the language of the statute as a whole, along with its legislative history and programmatic purpose, arguably the only reasonable interpretation of the statute is that it does not bar the payroll practices. Because the federal government's 2018 action was based on an erroneous interpretation of the Medicaid statute, that action must be vacated.

I. Background

A. Medicaid's Anti-Reassignment Provision

Medicaid is a program through which the federal government helps the states ensure that low-income and disabled residents can access health care services. The program is incredibly complicated. How it operates depends on the state, and on the particular services provided. But at the highest level of generality, the federal government and the states work together to ensure that health care providers receive payment for services offered to low-income and disabled patients who qualify for Medicaid assistance. In the typical example, a doctor will provide care to a Medicaid patient and then submit a claim for reimbursement to the state. The state will make the payment so long as the provision of services was consistent with its Medicaid plan. The Medicaid plan is crafted by the state, but must be submitted to the federal government for approval. If the federal government determines that the state plan complies with certain requirements, the federal government approves the plan and makes a major financial contribution to help the state implement it. The federal government also conducts oversight. The federal entity that administers the Medicaid program is the Center for Medicaid Services ("CMS"), which is located within the Department of Health and Human Services.

The dispute in this case involves one discrete portion of Medicaid's vast statutory scheme: 42 U.S.C. § 1396a(a)(32). Section 1396a(a)(32) contains one of the many requirements that state Medicaid plans must follow before receiving federal approval and funds. All parties refer to this section as the "anti-reassignment provision," and they appear to have no disagreement about the purpose of its adoption. After Congress established Medicaid, the program began experiencing an unanticipated problem. Doctors and other health care professionals would provide services to Medicaid patients, but instead of submitting claims to the states for reimbursement themselves, they would sell those claims to companies for a percentage of their value. The companies would then undertake the effort and expense of submitting those claims to the states and would keep the reimbursement payments for themselves. This practice is known as "factoring." Although everyone seems to agree that there is nothing inherently wrong with factoring, the practice often led to the submission of inflated or false claims, raising concerns that the factoring industry was a breeding ground for Medicaid fraud. The anti-reassignment provision was Congress's response to this problem.

The original version of the provision was adopted in 1972. The language was quite broad, appearing to prohibit a vast range of conduct beyond just factoring. It stated: "no payment under the plan for any care or service to an individual by a ... practitioner shall be made to anyone other than such individual or such ... practitioner," with a few exceptions discussed below. Social Security Amendments of 1972, Pub. L. No. 92-603, § 236(b), 86 Stat. 1329, 1415 (1972). To be sure, the provision was described throughout the legislative history as a response to the problem of factoring and as a "prohibition against reassignment of claims to benefits." H.R. REP. NO. 92-231, at 104 (1972), reprinted in 1972 U.S.C.C.A.N. 4989, 5090; S. REP. NO. 92-1230, at 204 (1972). But the actual text did not zero in on factoring or assignments of claims; it focused more broadly on who could and could not receive payments from the state.

In 1977, Congress amended the anti-reassignment provision to close what it perceived to be a loophole that the factoring companies were exploiting. The companies had stopped paying health care providers a fraction of the value of the reimbursement claims in exchange for assignment of those claims, and instead had providers give them power of attorney to pursue reimbursement claims on the providers’ behalf. Although there was no actual assignment, the upshot of the arrangement was the same—the providers would get a percentage of the value of the claim, and the companies would get anything above that in exchange for undertaking the effort of submitting the claims to the state. As with the earlier arrangements, states apparently continued to receive inflated and incorrect reimbursement claims. The purpose of the 1977 amendment to the anti-reassignment provision, as all parties appear to agree, was to close this perceived loophole.¹

To accomplish this goal, Congress added language to specify that a company couldn't get around the anti-reassignment provision simply by avoiding an actual assignment. The amended provision states (again, subject to certain exceptions that will be discussed later) that "no payment under the plan for any care or service provided to an individual shall be made to anyone other than such individual or the person or institution providing such care or service, under an assignment or power of attorney or otherwise. " 42 U.S.C. § 1396a(a)(32) (emphasis added). As stated in the House Report, this new phrase was added "to preclude the use of a power of attorney as a device to circumvent the existing ban on the use of ‘factoring’ arrangements in connection with the payments of claims." H. REP. NO. 95-393(II), at 48 (1977), reprinted in 1977 U.S.C.C.A.N. 3039, 3051; see also S. REP. NO. 95-453, at 6 (1977).

This case is primarily about the meaning of this revised version of the anti-reassignment provision, and whether that provision applies to the system some states use for compensating home care workers who serve Medicaid patients.

B. Compensation of Home Care Workers

Many Medicaid patients need care at home. They receive this care from home care workers who assist patients with things like bathing, eating, dressing, taking medicine, general housekeeping, and going to appointments. According to the undisputed evidence in the record, this kind of home-based assistance helps patients avoid institutional living arrangements that will often cause their health to deteriorate, and that will end up costing the government more money in the long run. Although the work is physically and psychologically demanding, home care workers can be as poor as the Medicaid patients they serve, with median hourly earnings of $10.49 nationwide. These conditions make it difficult to recruit and retain home care workers despite increasingly high demand for the services that they offer. And the high turnover rate can affect the quality of care that Medicaid patients receive.

Some states have attempted to address these recruitment and retention problems by designing systems to improve conditions for home care workers, thus improving the quality of care Medicaid patients...