cma 10 percent cut amended complaint

8/3/2019 Cma 10 Percent Cut Amended Complaint

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CRAIG J. CANNIZZO (State Bar No. 70379)E-Mail: ccannizzo@health-law. cornFELICIA Y SZE (State Bar No. 233441)E-Mail: [email protected] B SHERMAN (State Bar No. 253832)E-Mail: gsherman(2i)health-law.comHOOPER, LUNDY& BOOKMAN, P.C.575 Market Street, Suite 2300San Francisco, California 94105Telephone: (415) 875-8500Facsimile: (415) 875-8519Attorneys for Plaintiffs

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UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA, WESTERN DIVISION

CALIFORNIA MEDICAL CASE NO. CV 11-09688 CAS(MANx)ASSOCIATION, CALIFORNIADENTAL ASSOCIATION, FIRST AMENDED COMPLAINTCALIFORNIA PHARMACISTS FOR INJUNCTIVE ANDASSOCIATION, NATIONAL DECLARATORY RELIEFASSOCIATION OF CHAIN DRUGSTORES, CALIFORNIAASSOCIATION OF MEDICALPRODUCT SUPPLIERS, AIDSHEALTHCARE FOUNDATION,AMERICANMEDICAL RESPONSEWEST, JENNIFER ARNOLD andDOES 1 through 25 , inclusive,

Plaintiffs,vs.

TOBY DOUGLAS, DIRECTOR,CALIFORNIA DEPARTMENT OFHEALTH CARE SERVICES,KATHLEEN SEBELIUS,SECRETARY, UNITED STATESDEPARTMENT OF HEALTH &HUMAN SERVICES,Defendants.

2042281.2FIRST AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF

Case 2:11-cv-09688-CAS-MAN Document 18 Filed 12/30/11 Page 1 of 29 Page ID #:79


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1 JURISDICTION AND VENUE2 1. Plaintiffs, CALIFORNIA MEDICAL ASSOCIATION, CALIFORNIA3 DENTAL ASSOCIATION, CALIFORNIA PHARMACISTS ASSOCIATION,4 NATIONAL ASSOCIATION OF CHAIN DRUG STORES, CALIFORNIA5 ASSOCIATION OF MEDICAL PRODUCT SUPPLIERS, AIDS HEALTHCARE6 FOUNDATION, AMERICAN MEDICAL RESPONSE WEST, JENNIFER7 ARNOLD and DOES 1 through 25 , bring this complaint pursuant to 28 United8 States Code (U.S.C.) 1331, the Administrative Procedure Act (APA) as9 codified at 5 U.S.C. 701 et seq., 42 U.S.C. 1983 and the Supremacy Clause of10 the United States Constitution to compel Defendants Toby Douglas, Director of the

11 California Department ofHealth Care Services (the Director) and Kathleenz 12 Sebelius, Secretary of the United States Department ofHealth and Human Services

13 (Secretary), to comply with the mandatory provisions of the federal Medicaid lawo < 14 pursuant to 28 U.S.C. 1361.>-I-.15 2. Venue lies in this judicial district under 28 U.S.C. 1391, in that the-J 16 Director has offices within this judicial district and is thus deemed to reside within0.. If)ONZ 17 this judicial district and also in that plaintiffs or their members are located and reside18 within this judicial district and the consequences ofDefendants unauthorized and19 arbitrary activities are occurring within this judicial district.2021 INTRODUCTION22 3. The State of California is set to once again attempt to salve its23 economic woes on the backs of health care providers that participate in Californias24 Medicaid program, known as Medi-Cal. The State intends to unleash a ten percent25 rate reduction to a vast array ofmedical services, including: adult physician26 services, adult clinic services, optometry services, dental services, non-emergency27 medical transportation, emergency medical transportation, durable medical28 equipment (DME) and medical supplies, pharmacy services and drugs, the

2042281.2 1FIRST AMENDED COMPLAINT FOR INJUNCTIVE AND RELIEF



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1 services provided by the few remaining adult day health care centers and the2 services provided by intermediate care facilities. Th e State of California did not3 consider the costs to providers of providing any of these services when it adopted4 these rate reductions, despite numerous injunctions by the federal courts enjoining5 many of the States previous attempts to reduce rates for that precise reason.6 4. Somewhat miraculously, the federal agency charged with administering7 the Medicaid program, the Centers for Medicare and Medicaid Services (CMS),8 acting as the Secretarys agent, determined, without a reasonable basis, that these9 reductions are consistent with Medicaid Act requirements and pose no risk that

10 Medi-Cal beneficiary access to these healthcare services will be impacted. Aside11 from being wholly inconsistent with governing case law concerning what the12 Medicaid Act requires, CMS decision simply defies reason and logic. It strains13 credulity to its breaking point to accept that a 10 percent cu t to rates that have14 already caused significant gaps in access for Medi-Cal beneficiaries will not have

g 15 any adverse impact on provider participation levels in Medi-Cal. Nevertheless, asZ()- 16 discussed below, that is effectively what CMS determined.


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1 rulings by this Court and the Ninth Circuit Court of Appea ls concerning the2 obligations imposed by the Medicaid Act.3 7. Consistent with the forego ing, Plaintiffs seek declaratory and injunctive4 relief to prevent the State of California from implementing and/or enforc ing this5 unlawful, enormous payment reduction and se tting as ide CMS app roval of it.67 THE PARTIES8 8. Defendant TOBY DOUGLAS is the Director of the California9 Department of Health Care Service s (DHCS or the Department) and as such,

10 ha s th e responsibility to administer the Medi-Cal program consistent with the11 federal Medicaid Act. The Director is sued in his official capacity . The Department

8 12 is the single state agency charged with the administration ofCalifornias Medicaid13 program, known as Medi-Cal. See California Welf. & Inst. Code 14000 et seq.14 The Director has an office in the Coun ty of Lo s Angeles.

g 15 9. Defendant KATHLEEN SEBELIUS, the Sec retary of the Unite d StatesZ- 16 Department ofHealth and Human Services (Secretary), is the federal of fice r

17 responsible for administering the Medicaid program a t th e fede ral level . Th eoln


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1 brings this action on its ow n behalf and in its representative capacity on behalf of its2 members, many of whom are providers under Californias Medi-Cal program and3 will be directly and adversely affected by the threatened rate reductio n, and on4 behalf of its members Medi-Cal pa tie nts.5 11. Plaintiff CALIFORNIA DENTAL ASSOCIATION (CDA) is a6 nonprofit, professional association representing more than 22 ,000 dentists7 throughout the State of California. This number reflects approximately 70 percent8 of all California licensed dentists. Founded in 1870, CDA is the la rges t constituent9 member of the American Denta l Association. CDA is incorporated in the State of

10 California with its principal office in Sacramento , California. Through public11 policy, advocacy, education and other means, CDA has promoted the health of the

8 12 public, the profession and the individuals it serves fo r over a century. CDA brin gs; 13 this ac tion on its own behalf and in its representative capacity on behalf of its

14 members, many of whom are providers under Californias Medi-Cal program and8 15 will be directly and adversely affected by the threatened rate reduction, and onZF-CDW 16 behalf of its members Medi-Cal patients.

17 12. Plaintiff CALIFORNIA PHARMACISTS ASSOCIATION (CPhA)o


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1 (NACDS) is a national association whose members include 18 pharmacy chains2 in California with over 3,100 individual pharmacies within the State employing3 over 12,000 pharmacists. NACDS mission includes ensuring its members are4 adequately reimbursed by federal and s tate healthcare programs and ensuring5 patient access to pharmaceutical care. Members of NACDS participate in6 Californias Medi-Cal program. NACDS brings this action on its ow n behalf and in7 its representative capacity on behalf of its members who will be directly and8 adversely affected by the rate reduction, and on behalf of the Medi-Cal patients9 serviced by its members.

10 14. Plaintiff CALIFORNIA ASSOCIATION OF MEDICAL PRODUCT11 SUPPLIERS (CAMPS) is a nonprofit, statewide trade association representing

ci u8 12 the California DME and medical supply industry. CAMPS representsjN 13 approximately 150 DME providers with over 200 branches in California. DME isQU) . . .14 reusable medical equipment for the treatment or rehabilitation of a patients medical

15 conditions, typically in the patients home or non-hospital sett ing. This equipmentDS 16 can be related to: (1) respiratory conditions (e.g., oxygen or continuous positiveLiJ 17 airway pressure (CPAP) equipment), (2) mobility (e.g., wheelchairs and walkers),

18 or (3) daily living,(e.g., hospital beds, bathroom aids, etc.). Disposable medical19 supplies span a wide array of disease management, including diabetic supplies,20 ostomy, urological, incontinence, and enteral nutrition. Incontinence medical21 supplies include disposable supplies fo r incontinent individuals, including22 disposable diapers and briefs, underpads, undergarments, l iners, and pads. The23 mission of CAMPS is to deliver to its members services and products that enable24 the members to excel in the provision of service to their patients. The services25 offered by CAMPS include, government relations and advocacy, educational26 programs and resource materials, liaison between members and claims payors, and27 advocacy fo r users of home medical equipment. Pursuant to CAMPS mission, it28 brings this action in its representative capacity on behalf of its members, many of




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1 whom are providers under Californias Medi-Cal program and have been and will2 continue to be directly and adversely affected by the ten percent rate reductions, and3 on behalf of its members patients.4 15. CMA, CDA, CPhA, NACDS and CAMPS are collectively referred to5 herein as the Associational Plaintiffs.6 16. PlaintiffAIDS HEALTHCARE FOUNDATION (AHF) is a7 California nonprofit corporation. It is the largest private provider of AIDS medical8 care in California. AHF operates licensed community clinics and pharmacies9 throughout California, and provides direct medical and pharmacy services to

10 approximately 6,000 Californian with HIV/AIDS. AHF and its physicians are11 providers under Californias Medi-Cal program. AT-IF and the beneficiaries it

8 12 serves will be directly and adversely affected by the ten percent rate reductions.13 AHF brings this action on its own behalf and on behalf of its Medi-Cal patients.

QU) . . . .14 17. PlaintiffAmerican Medical Response West (AMR) is a Californiag 15 corporation. AMR provides emergency transport services in the State of CaliforniaZF-nDW .- 16 and participates in the Medi-Cal program.

17 18. Plaintiff JENNIFER ARNOLD is an individual residing in ReddingZ 18 California. Ms. Arnolds infant son is a beneficiary of the Medi-Cal program. As a

19 result of the ten percent rate reductions at issue in this action, Ms. Arnolds son will20 have reduced access to needed medical services, including access to the drug21 Synagis. Ms. Arnold brings this action on her own behalf and on behalf of her son.22 19. Plaintiffs DOES 1 through 25 are individuals residing in the State of23 California that are beneficiaries of the Medi-Cal program and require outpatient24 services including physician services, clinical services, dentistry services and25 pharmacy services. These individual Medi-Cal beneficiary plaintiffs have been26 receiving outpatient services from physicians, dentists and pharmacists that are27 members the Associational Plaintiffs and have been andlor will be adversely28 affected by the Medi-Cal payment rate reductions at issue in this action.

2042281.2 6FIRST AMENDED COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF



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12 FEDERAL MEDICAID LAW3 20. Title XIX of the Social Security Act, 42 U.S.C. 1396 et seq., the4 Medicaid Act, authorizes federal financial support to states for medical assistance to5 low-income persons who are aged, blind, disabled, or members of families with6 dependent children. The program is jointly financed by the federal and state7 governments and administered by the states. The states, in accordance with federal8 law, decide eligible beneficiary groups, types and ranges of services, payment level9 fo r services, and administrative and operative procedures. Payment fo r services is

10 made directly by states to the individuals or entities that furnish the services. 4211 Code of Federal Regulations (C.F.R.) 430.0.

8 12 21. In order to receive matching federal financial participation, states must13 agree to comply with the applicable federal Medicaid law and regulations, 42 U.S.C.14 1396 et seq. Once a state has decided to participate in the Medicaid program,

g 15 compliance with the federal Medicaid law and regulations is mandatory.DW .- 16 22 . At the state level, the Medicaid program is administered by a single


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1 with efficiency, economy, and quality of care and are sufficient to enlist enough2 providers so that care and services are available under the plan at least to the extent3 that such care and services are available to the general public in the geographic area4 . . . . 42 U.S.C. 1396a(a)(30)(A) (hereinafter Section 30(A)) (emphasis added);5 42 C.F.R. 447.204.6 24. Section 3 0(A) has been interpreted by the Ninth Circuit Court of7 Appeals to require state Medicaid agencies to consider provider costs, based on8 reasonable cost studies, when setting Medi-Cal payment rates and to preclude9 states from basing Medicaid rate setting decisions solely on budgetary factors. The

10 Ninth Circuit has further held that these credible cost studies must be considered11 prior to the implementation of the rate reduction. In addition, as interpreted by the

C) Uo. 8 12 Ninth Circuit Court ofAppeals, Section 3 0(A) requires that the rates paid by a

13 Medicaid program fo r services must bear a reasonable relationship to the costs thatQU)o . . . .14 an efficiently and economically operated provider incurs in rendering such services.

g 15 25. The Secretarys review and approval of any State Plan AmendmentZF-fl- 16 (SPA) as satisfying the requirements of the Medicaid Act is reviewable under thec

17 APA. 5 U.S.C. 706 et seq. Under the APA, agency action may be set aside where18 it is found to be arbitrary and capricious, an abuse of discretion or otherwise19 unsupported by substantial evidence. Among other things, an agency acts arbitrarily20 and capriciously when it fails to follow governing law with respect to a particular21 decision or action. Further, to comply with the APA, the Secretary must develop a22 record demonstrating adequate consideration of the relevant factors and a rational23 basis for her decision on the relevant SPA. The decision to approve the 2011 Rate24 Reductions was arbitrary and capricious under the APA and, therefore, contrary to25 law.2627 CALIFORNIAS MEDI-CAL PROGRAM28 26. The State of California has elected to participate in the Medicaid



C C S


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1 prog ram. California has named its program Medi-Cal. See Ca l. Weif. & Inst.2 Code 14000 etseq.; 22 Cal. Code of Regs. (C.C.R.) 50000 etseq.3 27. Medi-Cal healthcare payments are disbursed in two ways . The first is a4 fee for service process whereby DHCS determines whether the healthcare service s5 were covered and furn ished to an el ig ible beneficiary, and, if so, pays the service6 providers directly. Alternatively, the Department administers Medi-Cal through7 various managed care models operated by public and pr ivate entities under contract.8 This action concerns only payments made under the fee-for-service component of9 the Medi-Cal program.

10 28. Payments from the Medi-Cal fee fo r service program to providers are11 governed by various statutes, regulations, the State Plan, and in some instances,

8 12 in form al handbooks, manuals or bulletins .ZN- 13 29. Specific payments for different providers include the following:

14 a. Physician Services: Medi-Cal pays physicians for their servicesg 15 pursuant to a physician service fee schedule. Physician payment rates are set forthZ-Lfl 16 in22C.C.R.51503.ci

cma 10 percent cut amended complaint

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