Cares Cmty. Health v. U.S. Dep't of Health & Human Servs.

• Decision Date: 28 September 2018
• Docket Number: Civil Action No. 17-2774 (JEB)
• Citation: 346 F.Supp.3d 121
• Parties: CARES COMMUNITY HEALTH, Plaintiff, v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.
• Court: U.S. District Court — District of Columbia

346 F.Supp.3d 121

CARES COMMUNITY HEALTH, Plaintiff,

v.UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al., Defendants.

Civil Action No. 17-2774 (JEB)

United States District Court, District of Columbia.

Signed September 28, 2018

David Alan Bender, Matthew Sidney Freedus, James L. Feldesman, Feldesman Tucker Leifer Fidell LLP, Washington, DC, for Plaintiff.

Jason Lee, U.S. Department of Justice, Joshua L. Rogers, U.S. Attorney's Office for the District of Columbia, Nikhel Sus, Citizens for Responsibility and Ethics in Washington, Washington, DC, for Defendants.

MEMORANDUM OPINION

JAMES E. BOASBERG, United States District Judge

Plaintiff Cares Community Health provides a variety of services to people in the Sacramento, California, area regardless of their ability to pay. Cares also operates a pharmacy there that offers prescription drugs under Medicare Part D, and a federal program enables Cares to procure those drugs from manufacturers at a discount. Cares, however, does not necessarily retain the benefit of that discount; rather, at least one insurance company has altered its contract with Cares to reimburse it at a discounted rate. As a result, Cares has now sued the U.S. Department of Health and Human Services and certain officials, contending that the Government has ignored a statutory duty to regulate those contracts in order to require companies to pay Cares the market rate for discounted drugs. Defendants now move to dismiss under Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 12(b)(7). Finding that Cares has standing but has failed to state a claim, the Court will grant the Motion.

I. Background

The Court will provide some brief background on the Medicare Part D program and Federally Qualified Health Centers (FQHCs) — of which Cares is an example — before delving into the facts of this particular dispute.

A. Statutory Framework

Medicare Part D subsidizes prescription drugs for Medicare beneficiaries. See 42 U.S.C. § 1395w-101(a)(1). To administer Part D, the Centers for Medicare and Medicaid Services (CMS) contracts with private entities known as Part D plan "Sponsors." Id. § 1395w-115. The Government contracts only with those Sponsors, and not directly with pharmacies, to deliver Part D benefits. Id. § 1395w-27(a). Sponsors then enter into contracts with pharmacies to reimburse them for providing prescription drugs to Part D beneficiaries. Id. § 1395w-104(b).

FQHCs receive grants from the Government to provide health-care services to communities that HHS has designated "medically underserved." See 42 U.S.C. §§ 254b, 1396d(l)(2)(B) ; 42 U.S.C. § 1395x(aa)(4)(A)(i). FQHCs can bill CMS for providing Medicare or Medicaid services. Id. §§ 1395k(a)(2)(D)(ii), 1396a(bb)(2). In addition, they may purchase prescription drugs from manufacturers at discounted prices pursuant to the Section 340B program. See 42 U.S.C. § 256b(a)(4)(A).

At issue in this case is a statutory provision governing payment for FQHC services. To summarize, it provides that FQHCs must be paid "not less than" non-FQHC entities for Medicare services. See 42 U.S.C. § 1395w-27(e)(3)(A). CMS has implemented this FQHC payment requirement by promulgating regulations providing that "[t]he contract between the [Sponsor] organization and CMS must specify that ... [t]he [Sponsor] organization must pay a[n] [FQHC] a similar amount to what it pays other providers for similar services." 42 C.F.R. § 422.527(a). The dispute centers on whether this provision also applies to Part D prescription drugs.

B. Factual History

Cares is an FQHC located in Sacramento, California, providing "services to all persons within [its] designated medically underserved area ... regardless of whether those persons can pay for the services they receive." ECF No. 13 (Am. Compl.), ¶¶ 7–8. In 2009, it entered into a Pharmacy Provider Agreement with Part D plan Sponsor Humana Health Plan, Inc. Id., ¶ 34. The Agreement governed Humana’s payment to Cares for any "Retail Pharmacy Services" provided to Humana’s enrollees and covered all plans Humana offered, including Part D. Id. When, in December 2014, Humana proposed amending the contract to reduce the Part D payment rates for "340B pharmacy services," Cares objected. Id., ¶¶ 37–38. The parties went to arbitration, but the arbitrator concluded that "the ultimate ‘legal question [of whether Humana was required to pay Cares under the pay ‘not less than’ standard] require[d] the reconciliation of conflicting policies’ — in other words, an interpretation of federal law had to be made, which was something the Arbitrator found was not arbitratable." Id., ¶ 39.

Cares then filed this suit against HHS, its Secretary, and the CMS Administrator, claiming that they had "unlawfully withheld" agency action in violation of the APA, see 5 U.S.C. § 706(1), because they failed to "carry out [their] mandatory duty to include the [FQHC payment] requirement in contracts" with Part D plan Sponsors. See ECF No. 1 (Complaint), ¶ 58. After Defendants moved to dismiss that Complaint, contending that the § 706(1) claim was deficient because the FQHC payment requirement does not apply to Part D contracts, see ECF No. 9 (Def. First MTD) at 16–18, Cares filed the Amended Complaint. Although the Amended Complaint contains only one count, it appears to assert two distinct but related claims under the APA — one for unlawfully withheld agency action under § 706(1) and, alternatively, one for arbitrary and capricious agency action under § 706(2)(A). See Am. Compl., ¶¶ 44–50.

Cares seeks an order: (1) declaring that the FQHC payment requirement applies to Part D drugs; (2) declaring "that [D]efendants have failed to exercise their nondiscretionary duty to include the FQHC pay ‘not less than’ term in the Part D contracts it has entered into with [Sponsors]"; (3) enjoining "[D]efendants from entering into future Part D contracts ... that do not include" the FQHC payment requirement; and (4) requiring, "[r]egarding existing Part D contracts, ... [that] [D]efendants ... take such actions as may be necessary to ensure that the ... recipients of those contracts provide for payment to FQHCs with which they have contracts at a level and amount that is not less than what they would pay other (non-FQHC) providers for similar services." Id. at 21. Defendants now move to dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(6), and 12(b)(7). See ECF No. 14 (Def. MTD).

II. Legal Standard

In evaluating Defendants' Motion to Dismiss, the Court must "treat the complaint’s factual allegations as true ... and must grant [P]laintiff ‘the benefit of all inferences that can be derived from the facts alleged.’ " Sparrow v. United Air Lines, Inc., 216 F.3d 1111, 1113 (D.C. Cir. 2000) (quoting Schuler v. United States, 617 F.2d 605, 608 (D.C. Cir. 1979) ) (citation omitted); see also Jerome Stevens Pharm., Inc. v. FDA, 402 F.3d 1249, 1250 (D.C. Cir. 2005). The pleading rules are "not meant to impose a great burden upon a plaintiff," Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 347, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005), and it must thus be given every favorable inference that may be drawn from the allegations of fact. Sparrow, 216 F.3d at 1113.

Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of an action where a complaint fails "to state a claim upon which relief can be granted." Although "detailed factual allegations" are not necessary to withstand a Rule 12(b)(6) motion, "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citation omitted). The Court need not accept as true, then, "a legal conclusion couched as a factual allegation," nor an inference unsupported by the facts set forth in the Complaint. Trudeau v. Fed. Trade Comm'n, 456 F.3d 178, 193 (D.C. Cir. 2006) (quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986) ) (internal quotation marks omitted). For a plaintiff to survive a 12(b)(6) motion, the facts alleged in the complaint "must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555–56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citing Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) ).

Under Rule 12(b)(1), Plaintiff bears the burden of proving that the Court has subject-matter jurisdiction to hear its claims. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). A court also has an "affirmative obligation to ensure that it is acting within the scope of its jurisdictional authority." Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F.Supp.2d 9, 13 (D.D.C. 2001). For this reason, " ‘the [p]laintiff’s factual allegations in the complaint ... will bear closer scrutiny in resolving a 12(b)(1) motion’ than in resolving a 12(b)(6) motion for failure to state a claim." Id. at 13–14 (quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1350 (2d ed. 1987) (alteration in original) ).

As this Court does not reach the Rule 12(b)(7) argument, it need not lay out that standard.

III. Analysis

Defendants seek dismissal of Cares’s Amended Complaint on three grounds: first, Plaintiff lacks standing; second, it has not stated a claim for unlawfully withheld agency action or for arbitrary and capricious agency action; and third, it has failed to join necessary parties. The standing requirement is a matter of Article III jurisdiction, and so the Court will begin with that question before moving to the merits. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94–101, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). Concluding that Cares has standing but has not sufficiently stated a claim, the Court will dismiss the case without addressing the joinder issue.

A. Standing

Not every disagreement...