Stewart v. Azar

• Decision Date: 27 March 2019
• Docket Number: Civil Action No. 18-152 (JEB)
• Citation: 366 F.Supp.3d 125
• Parties: Ronnie Maurice STEWART, et al., Plaintiffs, v. Alex M. AZAR II, et al., Defendants.
• Court: U.S. District Court — District of Columbia

366 F.Supp.3d 125

Ronnie Maurice STEWART, et al., Plaintiffs,

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

Civil Action No. 18-152 (JEB)

United States District Court, District of Columbia.

Signed March 27, 2019

Catherine A. McKee, Jane Perkins, National Health Law Program, Carrboro, NC, Devi M. Rao, Ian Heath Gershengorn, Lauren J. Hartz, Natacha Y. Lam, Thomas J. Perrelli, Zachary Michael Spiegel Blau, Jenner & Block LLP, Samuel Jacobson, U.S. Federal Trade Commission, Washington, DC, for Plaintiffs.

James Mahoney Burnham, Matthew Charles Skurnik, Deepthy Kishore, Ethan Price Davis, Vinita B. Andrapalliyal, U.S. Department of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

JAMES E. BOASBERG, United States District Judge

This Court again takes up a challenge to the federal approval of Kentucky HEALTH, an experimental project proposed by the Commonwealth of Kentucky intended to "comprehensively transform" its Medicaid program. The Secretary of Health and Human Services has authority to approve such experimental proposals — or "demonstration projects" — as long as they promote the objectives of the Medicaid Act. Kentucky HEALTH, which the Secretary initially approved on January 12, 2018, would condition Medicaid eligibility for a large portion of its beneficiaries on work or community-engagement requirements and impose several additional obligations intended to make Medicaid more like commercial insurance.

Plaintiffs, Kentucky residents currently enrolled in the Commonwealth's Medicaid program, believed HHS's approval unlawful. In a ruling last summer, this Court agreed. Finding that the "Secretary never adequately considered whether Kentucky HEALTH would in fact help the state furnish medical assistance to its citizens" and thus promote a central objective of the Medicaid Act, the Court concluded that this "signal omission render[ed] his determination arbitrary and capricious." Stewart v. Azar, 313 F.Supp.3d 237, 243 (D.D.C. 2018). In particular, it found that the Secretary had not grappled with Kentucky's estimate that a substantial number of people were likely to lose coverage under Kentucky HEALTH. Id. at 260. The Court, consequently, vacated the approval and remanded to HHS for further review.

The bell now rings for round two. Following the Court's remand and an additional notice-and-comment period, the Secretary reapproved the program last November, this time relying on somewhat different reasoning. Plaintiffs now challenge the reapproval, contending principally that the Secretary has not remedied the defects that rendered his prior action unlawful. Specifically, they maintain that he has still not adequately considered Kentucky HEALTH's likelihood to cause significant coverage loss. The Secretary, by contrast, believes that this time around he has cured any critical omission. Defendants now rely primarily on a new argument to that effect — namely that, although Kentucky HEALTH may cause nearly 100,000 people to lose coverage, that number will be dwarfed by the approximately 450,000 people who would suffer that fate if Kentucky ends its coverage entirely of those who have joined the Medicaid rolls via the Affordable Care Act, as it has threatened to do if this project is not approved.

The Supreme Court, in holding that Congress could not require states to adopt that Medicaid expansion by conditioning all their Medicaid funding on a decision to do so, explained that the states could not be compelled to engage in a program they had not bargained for with "a gun to the head." Nat'l Fed. of Indep. Business v. Sebelius, 567 U.S. 519, 581, 132 S.Ct. 2566, 183 L.Ed.2d 450 (2012). Kentucky, it seems, has now picked up that gun by threatening to de-expand Medicaid. Defendants urge the Court to adopt the proposition that the Secretary need not grapple with the coverage-loss implications of a state's proposed project as long as it is accompanied by a threat that the state will de-expand — or, indeed, discontinue all of Medicaid. By definition, so this argument goes, any number of people covered by an experimental Medicaid program would be greater than the number if there were no Medicaid at all; as a result, any demonstration project that leaves any individual on a state's Medicaid rolls promotes coverage. The Court cannot concur that the Medicaid Act leaves the Secretary so unconstrained, nor that the states are so armed to refashion the program Congress designed in any way they choose. As a consequence, once again finding the reapproval was both contrary to the Act and arbitrary and capricious, the Court will vacate it and remand to HHS for further review.

I. BACKGROUND

The details of the statutory scheme and the facts of the dispute will be familiar to readers of the Court's prior Opinion. See Stewart I, 313 F.Supp.3d 237. The Court nevertheless offers a brief refresher on both before setting out the Secretary's actions on remand.

A. Statutory Scheme

Medicaid is a cooperative federal-state scheme that aims to provide medical assistance to certain vulnerable populations. See 42 U.S.C. § 1396-1. Specifically, Congress implemented the program "[f]or the purpose of enabling each state, as far as practicable ... to furnish (1) medical assistance ... [to] individuals[ ] whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence and self-care." Id. The Centers for Medicare and Medicaid Services (CMS), a federal agency within HHS, has primary responsibility for overseeing the Medicaid program. To receive federal funding, states must submit their "plans for medical assistance" for the HHS Secretary's approval. Id. Currently, all states have chosen to participate in the program.

The Medicaid Act sets out certain minimum requirements to which all state plans must conform. See 42 U.S.C. § 1396a. Those provisions ensure that individuals receive a minimum level of coverage and stipulate that state plans "mak[e] medical assistance available" to certain sets of low-income individuals. See 42 U.S.C. § 1396a(a)(10)(A). Originally, that group included only pregnant women, children, and their families; some foster children; the elderly; and people with certain disabilities. Id. In 2010, the passage of the Affordable Care Act, colloquially known as Obamacare, gave states a choice to expand their Medicaid coverage to include additional low-income adults under the age of 65 who would not otherwise qualify — a group now commonly referred to as the "expansion population." 42 U.S.C. § 1396a(10)(A)(i)(VIII).

The Act also allows states wishing to deviate from either the original or the additional requirements of Medicaid to obtain a waiver from the Secretary of HHS. See 42 U.S.C. § 1315. Section 1115 of the Social Security Act, accordingly, permits the Secretary to approve "experimental, pilot, or demonstration project[s]" in state plans that would otherwise fall outside the Medicaid Act's parameters. The Secretary, however, can approve only those projects that "in [her] judgment ... [are] likely to assist in promoting the [Act's] objectives." 42 U.S.C. § 1315(a). If a project, in the Secretary's judgment, passes muster, she can then waive compliance with the terms of § 1396a"to the extent and for the period ... necessary to enable [the] State ... to carry out such project." 42 U.S.C. § 1315(a)(1).

B. Factual Background

1. Kentucky HEALTH

In 2018, CMS released a State Medical Director (SMD) letter that indicated its new commitment to "support[ing] state efforts to test incentives that make participation in work or other community engagement a requirement for continued Medicaid eligibility" and that encouraged states to apply for § 1115 waivers for this purpose. See AR 90. The Commonwealth of Kentucky submitted one such waiver application. As the Court has previously detailed, its application has multiple components. See Stewart I, 313 F.Supp.3d at 246. Relevant here is its Kentucky HEALTH program, which "applies only to adult beneficiaries who do not qualify for Medicaid on the basis of a disability." Id. (internal quotation marks and citation omitted). That is, it targets primarily — though not exclusively — the ACA expansion population. Id. Kentucky "believed that this project would ‘transform’ the state's Medicaid program by, among other things, predicating Medicaid eligibility for most of the expansion population on workforce participation or community service." Id. (quoting AR 2, 15–16).

Just one day after releasing the SMD letter, the Secretary approved Kentucky HEALTH, granting the Commonwealth waivers to implement the following six features: first, a community-engagement requirement mandating that beneficiaries spend at least 80 hours per month on qualifying activities (including employment, job-skills training, education, community service, and participation in Substance Use Disorder (SUD) treatment) or lose Medicaid coverage; second, elimination — except for pregnant women and former foster-care youth — of the three-month period of retroactive eligibility for benefits; third, monthly premiums based on income and/or length of time enrolled in Medicaid; fourth, elimination — except for former foster-care youth, pregnant women, or the medically frail — of the Commonwealth's obligation to assure non-emergencymedical transportation to and from providers; fifth, reporting requirements; and sixth, lockouts allowing the Commonwealth to deny coverage for up to six months to any beneficiary who failed to meet her premium or reporting requirements and has an income above 100% of the federal poverty line. Id. at 246–47. The Kentucky HEALTH program also includes features similar to health-insurance plans on the commercial market, including "an incentive and savings account called My Rewards ." Id. at 247 (citations omitted).

2. Stewart I

Two weeks after the Secretary's approval of Kentucky...