NB ex rel. Peacock v. Dist. of Columbia

• Decision Date: 17 July 2015
• Docket Number: No. 14–7054.,14–7054.
• Citation: 794 F.3d 31
• Parties: NB, by her Parent and Next Friend, Michelle PEACOCK, et al., Appellants v. DISTRICT OF COLUMBIA, a Municipal Corporation, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

794 F.3d 31

NB, by her Parent and Next Friend, Michelle PEACOCK, et al., Appellants

v.DISTRICT OF COLUMBIA, a Municipal Corporation, et al., Appellees.

No. 14–7054.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 24, 2015.

Decided July 17, 2015.

Jane M. Liu argued the cause for appellants. With her on the briefs were Bruce J. Terris and Kathleen L. Millan.

John C. Keeney, Jr. was on the brief for amici curiae The Legal Society of the District of Columbia, et al., in support of appellant.

Richard S. Love, Senior Assistant Attorney General, Office of the Attorney General for the District of Columbia, argued the cause for appellees. With him on the brief were Irvin B. Nathan, Attorney General at the time the brief was filed, Todd S. Kim, Solicitor General, and Loren L. AliKhan, Deputy Solicitor General.

Before: GRIFFITH and SRINIVASAN, Circuit Judges, and SENTELLE, Senior Circuit Judge.

Opinion

Opinion for the Court filed by Circuit Judge SRINIVASAN.

SRINIVASAN, Circuit Judge:

The plaintiffs in this case are Medicaid recipients who unsuccessfully sought coverage for prescription drugs. They filed a lawsuit contending that the defendants—the District of Columbia and certain of its officials—unlawfully failed to afford them notice of their entitlement to a hearing before denying their prescription drug claims. They alleged that the lack of notice infringed Title XIX of the Social Security Act and its implementing regulations, the Due Process Clause of the Fifth Amendment of the U.S. Constitution, and D.C. law. The district court dismissed the federal claims, concluding that neither Title XIX nor the Due Process Clause required the written notice the plaintiffs sought. The court also dismissed the claims under D.C. law because jurisdiction over those claims depended on jurisdiction over the dismissed federal claims.

We affirm the district court's dismissal of the Title XIX claims, but we reverse the dismissal of the due process claims and remand for further proceedings. On remand, the district court can reconsider its jurisdiction over the D.C.-law claims in light of our partial reversal.

I.

A.

Medicaid, established under Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq., is a “cooperative federal-state program that provides federal funding for state medical services to the poor.” Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 433, 124 S.Ct. 899, 157 L.Ed.2d 855 (2004). States participate in Medicaid on a voluntary basis, but states electing to avail themselves of the federal funding available under Title XIX must comply with conditions imposed by federal law. Id.; see Nat'l Fed'n of Indep. Bus. v. Sebelius, ––– U.S. ––––, 132 S.Ct. 2566, 2607–08, 183 L.Ed.2d 450 (2012). The District of Columbia qualifies as a state for purposes of this litigation. See 42 U.S.C. § 1301(a)(1).

Under federal law, states choosing to participate in Medicaid must provide a core set of mandatory services to qualified beneficiaries. See id. §§ 1396a(a)(10)(A), 1396d(a). For example, state Medicaid plans must provide coverage to qualified beneficiaries for “inpatient hospital services” and “laboratory and X-ray services.” Id. §§ 1396a(a)(10)(A), 1396d(a)(1), (3). In addition to those mandatory services, a state may also elect to cover other categories of services. Those optional services then become part of the state's Medicaid plan, in which event the optional services become subject to the requirements of federal law. Doe 1–13 ex rel. Doe, Sr. 1–13 v. Chiles, 136 F.3d 709, 714 (11th Cir.1998). Prescription drug coverage is one of those optional services, see 42 U.S.C. §§ 1396a(a)(10)(A), 1396d(a)(12), and the District has elected to offer coverage of certain prescription drugs under Medicaid. The District's Department of Health Care Finance (DHCF) implements the prescription drug portion of the District's Medicaid program. See D.C.Code § 7–771.07.

When a state elects to cover prescription drugs, as the District has done, it can limit or condition coverage in certain ways. First, Title XIX affords participating states some latitude to determine which classes of prescription drugs to cover. The statute specifies categories of drugs that a state may entirely “exclude[ ] from coverage.” 42 U.S.C. § 1396r–8(d)(2). Consistent with that authority, the District has opted categorically to exclude from coverage certain classes of prescription drugs, including, for instance, those prescribed for conditions such as weight loss or erectile dysfunction

. See D.C. Mun. Regs. tit. 29, § 2706.3(d), (i). The District will cover those drugs only if they have been “specifically placed” on the District's “Medicaid Preferred Drug List.” Id.; see DHFC, Pharmacy Preferred Drug List (PDL) (June 17, 2015), available at https://dc.fhsc.com/downloads/providers/DCRx_PDL_listing.pdf.

Second, for non-excluded drugs, Title XIX enables a state to limit the circumstances under which it will provide coverage. A state may, for example, subject a drug to “prior authorization” requirements. Id. § 1396r–8(d)(1)(A). The District has established a prior authorization requirement for certain drugs. Under the District's prior authorization requirement, a prescribing physician must obtain pre-approval from DHCF and submit certain documentation before the District's Medicaid plan will cover the prescription. See NB ex rel. Peacock v. District of Columbia (NB II ), 682 F.3d 77, 80 (D.C.Cir.2012).

According to the allegations in the complaint, DHCF uses a third-party contractor, Xerox, to process prescription drug claims under Medicaid. When a potential Medicaid claimant presents a prescription to a pharmacist at a Medicaid-participating pharmacy in the District, the pharmacist submits an electronic claim to Xerox. Xerox then provides an immediate computerized reply indicating whether Medicaid will cover the prescription. Xerox determines, among other things, whether the drug is covered by Medicaid or instead is excluded from Medicaid coverage, and whether the patient satisfies all other applicable threshold coverage restrictions (e.g., whether the patient has met any applicable prior authorization requirements). If Xerox determines that all requirements for coverage are met, Xerox's reply so informs the pharmacist, and the pharmacist fills the prescription. If Xerox determines that coverage should be denied, the patient has the option to pay out-of-pocket for the drugs.

B.

Title XIX and its implementing regulations afford certain procedural protections to Medicaid beneficiaries. The statute provides that a state Medicaid plan “must” provide “for granting an opportunity for a fair hearing before the State agency to any individual whose claim for medical assistance under the plan is denied or is not acted upon with reasonable promptness.” 42 U.S.C. § 1396a(a)(3). “Medical assistance” includes “payment of part or all of the cost” of “prescribed drugs.” Id. § 1396d(a)(12). Under the statute, consequently, denial of a claim for payment of “prescribed drugs” occasions the grant of an “opportunity for a fair hearing before the State agency.”

Regulations implementing § 1396a(a)(3) elaborate on the requirement to give an opportunity for a hearing. Under the regulations, the District must “grant an opportunity for a hearing” to “[a]ny applicant who requests it because his claim for services is denied or is not acted upon with reasonable promptness,” and also to “[a]ny beneficiary who requests it because he or she believes the agency has taken an action erroneously.” 42 C.F.R. § 431.220(a)(1)-(2).

The regulations also specify circumstances in which notice of the right to a hearing must be provided, as well as the content of that notice. In particular, the District must, at the time specified in paragraph (c) of this section, inform every applicant or beneficiary in writing—

(1) Of his right to a hearing;

(2) Of the method by which he may obtain a hearing; and

(3) That he may represent himself or use legal counsel, a relative, a friend, or other spokesman.

Id. § 431.206(b)(1)-(3). Section 431.206(c)—i.e., “paragraph (c) of th[at] section”—sets forth the times when that notice must be afforded to a beneficiary, and requires notice “[a]t the time of any action affecting his or her claim.” Id. § 431.206(c)(2) (emphasis added). And the regulations in turn define “[a]ction” as a “termination, suspension, or reduction of Medicaid eligibility or covered services.” Id. § 431.201. The regulatory notice requirements thus are triggered by, inter alia, a “termination, suspension, or reduction of Medicaid eligibility or covered services.”

When § 431.206(b)'s notice requirements come into play because of a termination, suspension, or reduction of Medicaid eligibility or covered services, a separate regulation spells out additional content that must be included in the notice. The District must include: (a) a statement of what action it intends to take; (b) the reasons for the intended action; (c) the specific regulations that support the action; (d) an explanation of the individual's right to a hearing; and (e) an explanation of the circumstances that Medicaid coverage will continue in the interim if a hearing is requested.Id. § 431.210(a)-(e).

D.C. law imposes similar requirements. See NB II, 682 F.3d at 80 (citing D.C.Code § 4–205.55 ).

C.

1. The named plaintiffs in this case are nine D.C. Medicaid recipients. They contend that the District, the Director of DHCF, and the Mayor of D.C. have systematically failed to provide Medicaid recipients with “adequate and timely notice, the opportunity for a fair hearing, and the opportunity for reinstated coverage pending a hearing decision” when denying prescription drug coverage. Pls.' Amend. Compl. ¶ 1. Those actions, the plaintiffs allege, violate Title XIX and its implementing regulations, the Due Process Clause of the Fifth Amendment of the Constitution, and D.C. law. The plaintiffs seek no compensation (although they do ask for costs and attorneys'...