In 2008 and 2009, the California Legislature passed three statutes modifying the State's Medicaid plan. Under the Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., such modifications must be approved by the Department of Health and Human Services Centers for Medicare and Medicaid Services (CMS) prior to being implemented. In September and December 2008, California submitted amendment proposals to CMS that incorporated most of the rate reductions the Legislature had already included in these statutes. Before CMS had completed its review the amendments, this suit and several others seeking injunctions to prevent the rate reductions were filed.

The plaintiffs in this case were a group of several associations of California medical professionals, pharmacies, and hospitals. On January 29, 2009, the plaintiffs filed a complaint in the Central District of California against the Director of the Department of Health Care Services of the State of California. Private counsel represented the plaintiffs in this action and the Attorney General of California represented the defendant. The group of plaintiffs sought an injunction to invalidate the cutbacks to California's Medicaid program ("Medi-Cal") mandated by the State Legislature. On September 18, 2008, Governor Schwarzenegger had signed into law AB 1183, which included a five percent rate reduction for payments to certain intermediate care facilities under the Medi-Cal fee-for-service program, a five percent rate reduction to payments to pharmacies and adult day health care, and a one percent rate reduction for all other Medi-Cal fee-for-service benefits. This was an amended version of AB 5, passed earlier in 2008, which had reduced such payments by 10 percent and had been struck down by the U.S. District Court for the Central District of California in Independent Living Center of Southern California v. Shewry (see related case PB-CA-16.) The plaintiffs in the instant case alleged that the amended rate reductions violated Title XIX, because they had not been approved by CMS and because the State had failed to study the potential effects of the rate reductions on the quality of and level of access to care available to Medi-Cal recipients. Plaintiffs argued that California had not shown that, were the rate reductions to go into effect, the State would be able to enlist enough providers as to make Medi-Cal services sufficiently available to benefit recipients, as required by 42 U. S. C. §1396a(a)(30)(A). The plaintiffs alleged that because these rate reductions violated federal Medicaid law they were therefore preempted by the Supremacy Clause. The plaintiffs sought declaratory and injunctive relief, asking the court to find that AB 1183 was in violation of federal law and to prevent its enforcement.

On February 11, 2009, the plaintiffs filed a motion for preliminary injunction to prevent the implementation of rate reductions for pharmacies and adult day health care centers. A second motion for preliminary injunction followed on February 13, 2009 regarding the rate reductions for hospital services. On March 9, 2009, Judge Christina Snyder issued orders on these motions for preliminary injunction granting the motion as to adult health care centers and denying the motion as to hospitals. For the motion relating to hospitals, Judge Snyder found that the plaintiffs had demonstrated a likelihood of success on the merits but had not shown a likelihood of irreparable harm. Cal. Pharmacists Assoc. v. Maxwell-Jolly, 630 F.Supp.2d 1144 (C.D. Cal. 2009). The defendants and plaintiffs then appealed the orders granting preliminary injunction and denying preliminary injunction, respectively, to the Ninth Circuit. On April 6, 2009, the Ninth Circuit found that the district court had abused its discretion in not granting the preliminary injunction as to hospitals and granted the plaintiff's motion for stay pending appeal. On March 3, 2010, the Ninth Circuit found that in implementing the rate reductions the State had not relied on responsible costs studies or studied the impact of the contemplated rate changes prior to setting the rates, and was therefore in violation of 42 U. S. C. §1396a(a)(30)(A). The Ninth Circuit therefore affirmed the district court's order granting the plaintiffs' motion for a preliminary injunction. Cal. Pharmacists Assoc. v. Maxwell-Jolly, 563 F.3d 847 (9th Cir. 2009). In light of this, on April 16, 2010, Judge Snyder issued an order vacating her March 9, 2009 order and granting the plaintiffs' motion for preliminary injunction with regard to hospitals.

On March 24, 2010, the defendants petitioned the United States Supreme Court to review the decision of the Ninth Circuit holding that the Supremacy Clause of the U.S. Constitution could serve as a basis for a cause of action in this case. The Supreme Court granted certiorari review on January 18, 2011, consolidating this case with four others that raised the same issue, 131 S.Ct. 992 (2011). These four cases were Independent Living Center of Southern California, Inc. v. Shewry (Clearinghouse case code PB-CA-0016), Managed Pharmacy Care v. Maxwell-Jolly (PB-CA-0019), Dominguez v. Schwarzenegger (DR-CA-0031), and Santa Rosa Memorial Hospital v. Shewry (Docket #: 3:08-cv-05173-SC). On June 1, 2011, Judge Snyder issued an order removing this action from the list of active District Court cases pending the decision of the Supreme Court.

Oral argument before the Supreme Court took place on October 3, 2011. After oral argument, while the cases were pending in the Supreme Court, CMS approved California's amendments to its Medicaid plan. In light of this, the Supreme Court declined to issue a ruling on whether the Supremacy Clause could serve as a basis for a private suit to enforce Title XIX against a state. Instead, the Supreme Court vacated the Ninth Circuit Court's decision and remanded the case to the Ninth Circuit for reconsideration, with instructions to take into account CMS's approval of the amendments. Douglas v. Independent Living Center of Southern California, 132 S. Ct. 1204 (U.S. 2012).

As of the time of this writing, July 2013, this case and three of the four cases that had been consolidated before the Supreme Court are in joint settlement mediation in the Ninth Circuit Court of Appeals.

David Priddy - 10/30/2011
Alex Colbert-Taylor - 07/17/2013


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