Ron Grp., LLC v. Azar

Citation574 F.Supp.3d 1094
Decision Date29 November 2021
Docket NumberCIVIL ACT. NO. 2:20-cv-1038-ECM
Parties RON GROUP, LLC d/b/a Blue Sky Specialty Pharmacy, Plaintiff, v. Stephanie McGee AZAR, in her official capacity as Commissioner of the Alabama Medicaid Agency, Defendant.
CourtU.S. District Court — Middle District of Alabama

Hunter Wade Pearce, Scott Burnett Smith, Bradley Arant Boult Cummings LLP, Huntsville, AL, for Plaintiff.

Brenton Merrill Smith, James William Davis, State of Alabama Office of the Attorney General, Nicholas Skyler Hines, Alabama Medicaid Agency, Montgomery, AL, for Defendant.




Now pending before the Court is a motion to dismiss the amended complaint filed by Defendant Stephanie McGee Azar, in her official capacity as Commissioner of the Alabama Medicaid Agency ("Commissioner"). (Doc. 26). Ron Group, LLC d/b/a Blue Sky Specialty Pharmacy ("Plaintiff," "Ron Group," or "Blue Sky"), an Alabama Medicaid provider, brought this action against the Commissioner pursuant to 42 U.S.C. § 1983. In its amended complaint, (doc. 24), Blue Sky alleges that the Commissioner violated Blue Sky's constitutional rights in her efforts to hold Blue Sky liable for the debt of another Medicaid provider, HemaCare Plus, LLC ("HemaCare"), without giving Blue Sky prior notice and an opportunity to defend itself. Specifically, Blue Sky brings claims against the Commissioner for deprivation of procedural due process in violation of the Fourteenth Amendment (Count 1); unreasonable seizure in violation of the Fourth Amendment (Count 2); taking Blue Sky's property for public use without just compensation in violation of the Fifth Amendment's Takings Clause (Count 3); and an unconstitutional exaction under the Fifth Amendment (Count 4).1 Blue Sky seeks declaratory and injunctive relief as well as attorney's fees.

In her motion, the Commissioner requests dismissal of Blue Sky's amended complaint in its entirety, raising numerous jurisdictional, prudential, and substantive arguments. The motion is fully briefed and ripe for review. For the reasons that follow, the Commissioner's motion (doc. 26) is due to be DENIED.


The Court has original subject matter jurisdiction pursuant to 28 U.S.C. § 1331. Personal jurisdiction and venue are uncontested, and the Court concludes that venue properly lies in the Middle District of Alabama. See 28 U.S.C. § 1391.


A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint against the legal standard set forth in Rule 8: "a short and plain statement of the claim showing that the pleader is entitled to relief." FED. R. CIV. P. 8(a)(2). "To survive a motion to dismiss, 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) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).

"Determining whether a complaint states a plausible claim for relief [is] ... a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937 (citation omitted). The plausibility standard requires "more than a sheer possibility that a defendant has acted unlawfully." Id. at 678, 129 S.Ct. 1937. Conclusory allegations that are merely "conceivable" and fail to rise "above the speculative level" are insufficient to meet the plausibility standard. Twombly , 550 U.S. at 555–56, 127 S.Ct. 1955. This pleading standard "does not require ‘detailed factual allegations,’ but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (citation omitted). Indeed, "[a] pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ " Id. (citation omitted).

A motion to dismiss for lack of subject matter jurisdiction, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, may be a factual or facial attack on subject matter jurisdiction.

Barnett v. Okeechobee Hosp. , 283 F.3d 1232, 1238 (11th Cir. 2002). A factual attack permits the district court to weigh evidence outside the pleadings to satisfy itself of the existence of subject matter jurisdiction in fact. Id. at 1237. However, a facial attack merely questions the sufficiency of the pleading. Id. Under a facial attack, as here, the district court accepts the plaintiff's allegations as true and need not look beyond the face of the complaint to determine whether the court has subject matter jurisdiction. Id.

A. Regulatory Background

Medicaid is a joint federal-state program that funds healthcare services for poor and disabled patients. See generally 42 U.S.C. § 1396a et seq. (the "Medicaid Act"). "Although participation in the Medicaid program is entirely optional, once a State elects to participate, it must comply with the requirements of [the Medicaid Act]." Harris v. McRae , 448 U.S. 297, 301, 100 S.Ct. 2671, 65 L.Ed.2d 784 (1980).

Federal law requires state Medicaid plans to establish programs to identify and recoup overpayments to providers. See 42 U.S.C. § 1396a(a)(42)(B)(i). When a state identifies an overpayment, it has one year to attempt to recover the overpayment before it must repay the federal share of the overpayment. See id. § 1396b(d)(2)(C); 42 C.F.R. § 433.316(a).

Federal regulations establish the following "Requirements for Notification" that states must follow in recouping overpayments from providers:

Unless a State official or fiscal agent of the State chooses to initiate a formal recoupment action against a provider without first giving written notification of its intent, a State Medicaid agency official or other State official must notify the provider in writing of any overpayment it discovers in accordance with State agency policies and procedures and must take reasonable actions to attempt to recover the overpayment in accordance with State law and procedures.

42 C.F.R. § 433.316(b) (emphases added). Thus, federal law requires Alabama Medicaid to follow its own procedures in notifying providers about overpayments.

Alabama regulations state that Medicaid "will actively seek recovery of all misspent Medicaid funds ... recoverable under federal law." Ala. Admin. Code r. 560-X-33-.01. "By entering into a contract with Medicaid, the provider acknowledges that payments thereunder are subject to review, audit, adjustment and recoupment actions." Id. 560-X-1.13(3). One purpose of the recoupments is "to correct erroneous payments to providers" through "solicitation of voluntary reimbursement and administrative and legal remedies in keeping with limitations set by federal guidelines." Id. 560-X-33-.02.

Alabama regulations also mandate a procedure for recoupment of overpayments to a provider. When Medicaid originally identifies an overpayment that may be subject to recoupment, "a letter will be sent to the recipient/authorized representative or provider outlining the allegations and stating the amount of reimbursement and the specific dates when overpayment or recoverable benefits occurred." Id. 560-X-33-.04(1). This letter takes the form of a Draft Audit Report. After receiving a Draft Audit Report, providers have an opportunity to respond in writing and provide supporting documentation to challenge Medicaid's findings. See id. (stating that providers are "offered the opportunity to present evidence to rebut the requirement for recoupment or to submit the reimbursement"). Medicaid then reviews the provider's response and reevaluates the amount of overpayments accordingly. Medicaid then issues a Final Audit Report stating the amount of overpayments it believes the provider is responsible for repaying. The Final Audit Report also notifies the provider that, unless the provider agrees to directly reimburse Medicaid, Medicaid will recoup the overpayments from the provider's future claims. See id. ; id. 560-X-33-.04(3)(b).

Alabama regulations permit Medicaid to seek recoupment from both the original provider who received the overpayments and any successor provider: "In the event of any transfer, sale, assignment, merger or replacement between and among providers, Medicaid may look both to the original provider and any successor, transferee or replacement provider for recovery of any funds improperly paid." Id. 560-X-1.13(3). Thus, "[p]roviders should take this right of Medicaid into account and make appropriate provision therefor in their business transactions." Id.

If a provider is aggrieved by Medicaid's decision related to recoupment, it may appeal by requesting a fair hearing. Id. 560-X-33-.07. The fair hearing is an adversarial proceeding: it is conducted before an impartial hearing officer, the provider may be represented by counsel, and either side may call witnesses and put on evidence. Id. 560-X-3-.04. However, recoupment is not automatically abated during the fair hearing. Pursuant to the Alabama Administrative Procedure Act, an adverse decision after a fair hearing may be appealed to the Circuit Court of Montgomery County and from there to the Alabama Court of Civil Appeals or the Alabama Supreme Court. ALA. CODE § 41-22-20, -21.

B. Blue Sky and HemaCare
1. Blue Sky Becomes a Medicaid Provider

Blue Sky is a specialty pharmacy serving, among others, low-income Alabamians who suffer from hemophilia

.3 A "significant portion" of Blue Sky's Alabama patients are on Medicaid. (Doc. 24 at 1–2, para. 1). Blue Sky submits claims for reimbursement to the Alabama Medicaid Agency, which in turn pays the claims through a fiscal intermediary.

On February 14, 2020, Blue Sky entered into an Asset Purchase Agreement with HemaCare, an Alabama Medicaid provider that operated a specialty pharmacy in Daphne, Alabama. Under the terms of the Asset Purchase...

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