State v. Centers For Medicare & Medicaid Serv., Case No. 08–CV–881–MEF.

CourtUnited States District Courts. 11th Circuit. Middle District of Alabama
Citation780 F.Supp.2d 1219
Docket NumberCase No. 08–CV–881–MEF.
PartiesThe State of ALABAMA, Plaintiff,v.CENTERS FOR MEDICARE & MEDICAID SERVICES, et al., Defendants.
Decision Date18 February 2011

780 F.Supp.2d 1219

The State of ALABAMA, Plaintiff,

Case No. 08–CV–881–MEF.

United States District Court, M.D. Alabama, Northern Division.

Feb. 18, 2011.

[780 F.Supp.2d 1222]

Cheairs Mayes Porter, Troy Robin King, Laszlo Daniel Morris, Jr., Office of the Attorney General, Montgomery, AL, James F. Segroves, Malcolm J. Harkins, III, Proskauer Rose LLP, Washington, DC, for Plaintiff.Michelle R. Bennett, U.S. Department of Justice–Federal Programs Branch, Washington, DC, William R. Morris, Michigan Department of Attorney General, Lansing, MI, for Defendant.
MARK E. FULLER, Chief Judge.

The Plaintiff the State of Alabama (“Alabama”) filed this lawsuit against the Centers for Medicare & Medicaid Services (“CMS”), the Department of Health and Human Services (“HHS”), and individuals working for CMS and HHS including Herb B. Kuhn (“Kuhn”), Kerry N. Weems (“Weems”), and Michael O. Leavitt (“Leavitt”), all in their official capacities (collectively, “Defendants”). (Doc. # 18). Alabama asks this Court to declare the “Dear State Health Official” letter (“SHO letter” or “letter”) dated October 28, 2008 invalid on the basis that CMS did not engage in notice and comment rule making before it issued the SHO letter.1 Id. Alabama has filed a motion for summary judgment and the Defendants have filed a motion for judgment on the pleadings pursuant to Rule 12(c), or in the alternative, for summary judgment. (Doc. # 42, 44). Additionally, the Michigan Department of Community Health has intervened and filed an amicus curiae brief with the Court. (Doc. # 49). For the foregoing reasons, Defendants' motion is DENIED and Alabama's motion is GRANTED.

[780 F.Supp.2d 1223]


Alabama argues that subject matter jurisdiction in this case is properly exercised pursuant to 28 U.S.C. § 1331. As explained below, Defendants contend that jurisdiction is not proper in this case because the federal government has not waived its sovereign immunity as to the SHO letter. As further explained, the Court finds that jurisdiction is proper pursuant to § 1331. The parties do not dispute either that the Court has personal jurisdiction over them or that venue is proper pursuant to 28 U.S.C. § 1391(c).

A. Fed.R.Civ.P. 12(c)

Fed.R.Civ.P. 12(c) allows a party to move for judgment on the pleadings after the pleadings are closed, but a reasonable time before trial. Because Defendants' 12(c) motion requests dismissal based on a lack of subject matter jurisdiction, the Court will apply the appropriate 12(b)(1) standard when ruling on the motion for judgment on the pleadings. See Reed Island–MLC, Inc. v. United States, 67 Fed.Cl. 27, 33 (Fed.Cl.2005); 5C Charles Alan Wright & Arthur Miller, Federal Practice and Procedure § 1367 (3d Ed. 2004) (“[I]f any of these procedural defects are asserted upon a Rule 12(c) motion, presumably the district court will apply the same standards for granting the appropriate relief or denying the motion as it would have employed had the motion been brought prior to the defendant's answer under Rules 12(b)(1), (6), or (7)”).

A 12(b)(1) motion can contain two different types of attacks—a facial attack or a factual one. McElmurray v. Consol. Gov't of Augusta–Richmond Cnty., 501 F.3d 1244, 1251 (11th Cir.2007). If a facial attack is made, the Court need only look to the pleadings to determine whether it has subject matter jurisdiction over the case. Id. A factual attack requires the Court to look beyond the pleadings and review testimony and affidavits. Id. In this case, the Defendants “do not believe that it is necessary to review any materials outside the pleadings to decide the remaining issues in this case.” (Doc. # 44 at 10). Therefore, the Court will treat this as a facial attack on Alabama's Amended Complaint.

When ruling on a facial attack, the Court must afford the plaintiff the “safeguards similar to those retained when a Rule 12(b)(6) motion to dismiss for failure to state a claim is raised. Accordingly, the court must consider the allegations in the plaintiff's complaint as true.” McElmurray, 501 F.3d at 1251.

B. Fed.R.Civ.P. 56(a)

Summary judgment pursuant to Federal Rule of Civil Procedure 56(a) is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” A party may demonstrate the existence of or absence of a genuine dispute as to any material fact by pointing to materials in the record “including depositions, documents, electronically stored information, affidavits, or declarations, stipulations ... admissions, interrogatory answers, or other materials.” Fed.R.Civ.P. 56(c). The movant “always bears the initial responsibility of informing the district court of the basis for its motion,” and identifying those evidentiary submissions “which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The movant can meet this burden by presenting evidence showing there is no dispute of material fact, or by showing the non-moving party has failed to present evidence in support of some element of its case on which it bears

[780 F.Supp.2d 1224]

the ultimate burden of proof. Id. at 322–23, 106 S.Ct. 2548.

Once the moving party has met its burden, Rule 56 “requires the nonmoving party to go beyond the pleadings” and by its own evidentiary submissions or those on file, demonstrate that there is a genuine factual dispute for trial. Id. at 324, 106 S.Ct. 2548. The Court must draw all justifiable inferences from the evidence in the non-moving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). After the nonmoving party has responded to the motion for summary judgment, the court must grant summary judgment if there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(a).


CMS is a federal agency within HHS charged with administering the national Medicaid program. Medicaid is a program through which the state provides medical assistance to low-income individuals. It is funded both with federal and state dollars, according to the terms of the Medicaid Act, codified at 42 U.S.C. §§ 1396–1396v. Four times per year, each state must submit to HHS a report estimating the total amount the state will expend on Medicaid for the upcoming quarter. Based on the report, HHS then pays each state the federal share of the amount that will be needed to cover services in the upcoming quarter. This federal share will be “reduced or increased to the extent of any overpayment or underpayment ... for any prior quarter and with respect to which adjustment has not already been made.” 42 U.S.C. § 1396b(d)(2)(A).

Overpayments are made in some instances based on the fraud of third parties. For example, Alabama sued several pharmaceutical manufacturers alleging that the manufacturers had submitted inflated pricing data, thereby causing Alabama to overpay for prescription drugs. To reflect the overpayment, HHS would reduce the federal share for the upcoming quarter by the amount of such overpayment for prescription drugs which occurred in a previous quarter. In other words, the federal government accounts for overpayments of the federal share of Medicaid in a given quarter by reducing the federal share distributed to the state in a later quarter.

States often bring suit against fraud-and-abuse defendants, so called because they are alleged to have committed fraud against the Medicaid program, therefore causing the state to make overpayments. Once the state receives a settlement or judgment against a fraud-and-abuse defendant, a portion of that recovery must be reported to HHS so that HHS can reduce the state's federal share for the upcoming quarter, as described above. In order to provide the states with more information regarding how much must be reported and when, CMS issued a SHO letter on October 28, 2008.

The letter was signed by Kuhn in his official capacity as Deputy Administrator of CMS and Acting Director of CMS's Center for Medicaid and State Operations. (Doc. # 18 Ex. 1). The SHO letter states that it merely “explains” CMS's policy “regarding the refunding of the Federal share of Medicaid overpayments” when a state recovers from fraud-and-abuse defendants including the amount that must be returned and the time frame for returning it. Id. The SHO letter provides that if a state takes action to recover overpayments, the state must seek both the state and federal share of damages. Id. If a state recovers damages, it must return to the federal government not only a portion of any compensatory damages but also a share of any double or treble damages. Id. The state

[780 F.Supp.2d 1225]

must calculate the federal share of damages before deducting any legal fees or administrative costs from the recovery. Id. The federal share of recovery must be reported to the federal government “[w]hen a settlement occurs or judgment is rendered.” Id. Therefore, once a state receives a trial court judgment or enters into a settlement agreement in its favor, the state must report the federal share of the judgment or settlement to CMS regardless of whether the state has successfully collected on the judgment or settlement.

Alabama claims that the provisions of the SHO letter harm the state in several ways. Alabama has no way of knowing what portion of a settlement amount will need to be returned to the federal government, and therefore is limited in its ability to negotiate settlements in cases involving Medicaid fraud and abuse. Additionally, the state fears it will have to return millions of dollars based on settlement offers or judgments, even if the state has not received any funds from the...

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