" Supreme Court,PlLEI~

No,fl ~- ~ P’ ~ I=l:’l~ 1~ ?fl111

~n t~eSupreme Court of

DAVID MAXWELL-JOLLY, DIRECTOR OF THEDEPARTMENT OF HEALTH CARE SERVICES,

STATE OF CALIFORNIA,

Petitioner,V.

INDEPENDENT LIVING CENTEROF SOUTHERN CALIFORNIA, INC.,

A NONPROFIT CORPORATION, et al.,

Respondents.

On Petition For Writ Of CertiorariTo The United States Court Of Appeals

For The Ninth Circuit

PETITION FOR WRIT OF CERTIORARI

EDMUND G. BROWN JR. 455 Golden Gate Avenue,Attorney General of California Suite 11000MANUEL M. MEDEIROSState Solicitor GeneralDAVID S. CHANEYChief Assistant

Attorney GeneralGORDON BURNSDeputy Solicitor GeneralDOUGLAS M. PRESSSenior Assistant

Attorney GeneralRICHARD W. WALDOWKARIN S. SCHWARTZCounsel of RecordJENNIFER M. KIMSupervising Deputy

Attorneys GeneralCARMEN SNUGGSDeputy Attorney General

San Francisco, CA94102-7004

Telephone: (415) 703-1382Fax: (415) 703-5480Email: Karin.Schwartz@

doj.ca.gov

Of counsel:DAN SCHWEITZER2030 M Street, NW,

8th FloorWashington, DC 20036(202) 326-6010

Counsel for Petitioner

COCKLE LAW BRIEF PRINTING CO. (800) 225-6964OR CALL COI.LECT (402) 342-2831

QUESTIONS PRESENTED

Under 42 U.S.C. § 1396a(a)(30)(A) of the Medi-caid Act, a state that accepts federal Medicaid fundsmust adopt a state plan containing methods and pro-cedures to "safeguard against unnecessary utilization

of ... [Medicaid] services and ... assure thatpayments are consistent with efficiency, economy, andquality of care and are sufficient to enlist enoughproviders so that care and services are available ...at least to the extent that such care and services areavailable to the general population." The NinthCircuit, along with virtually all of the circuits to haveconsidered the issue since this Court’s decision inGonzaga University v. Doe, 536 U.S. 273 (2002),concluded that this provision does not confer any"rights" on Medicaid providers or recipients that areenforceable under 42 U.S.C. § 1983, and respondentsdo not contend otherwise. Nonetheless, in the present

case, the Ninth Circuit held that § 1396a(a)(30)(A)preempted a state law reducing Medicaid reimburse-ment payments because the State failed to produceevidence that it had complied with requirements thatdo not appear in the text of the statute, and becausethe reductions were motivated by budgetary con-siderations.

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QUESTIONS PRESENTED - Continued

The questions presented are:

1. Whether Medicaid recipients and providersmay maintain a cause of action under the SupremacyClause to enforce § 1396a(a)(30)(A) by asserting thatthe provision preempts a state law reducing re-imbursement rates?

2. Whether a state law reducing Medicaid re-imbursement rates may be held preempted by§ 1396a(a)(30)(A) based on requirements that do notappear in the text of the statute?

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PETITION FOR WRIT OF CERTIORARI ..........

OPINIONS BELOW .............................................

STATEMENT OF JURISDICTION .....................

CONSTITUTIONAL AND STATUTORY PRO-VISIONS INVOLVED .......................................

STATEMENT OF THE CASE ..............................

REASONS FOR GRANTING THE PETITION ...

I.

TABLE OF CONTENTS

Page

1

1

1

2

3

12

Review Is Warranted to Consider Whethera Private Party May Bring a PreemptionChallenge Under a Spending ClauseStatute, 42 U.S.C. § 1396a(a)(30)(A), ThatMay Not Be Enforced by Private PartiesUnder 42 U.S.C. § 1983 ...............................15

II. Review Is Also Warranted to ConsiderWhether a State Statute That ReducesMedicaid Reimbursement Payments toCertain Providers May Be PreemptedBased on Requirements That Do NotAppear in the Text of the Statute ................26

III. The Issues Presented Are Important andRecurring ......................................................36

Conclusion ............................................................39

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TABLE OF CONTENTS - Continued

Page

Appendix

Opinion, Indep. Living Ctr. of S. Cal. v.Maxwell-Jolly, Nos. 08-56422, 56554 (9thCir. July 9, 2009) ..............................................App. 1

Order, Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly, Nos. 08-56422, 56554 (9th Cir. Dec. 21,2009) ............................................................... App. 41

Order, Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly, Nos. 08-56422, 56554 (9th Cir. Jan. 6,2010) ............................................................... App. 52

Memorandum, Indep. Living Ctr. of S. Cal. v.Maxwell-Jolly, No. 08-57016 (9th Cir. Aug. 7,2009) ............................................................... App. 54

Opinion, Indep. Living Ctr. of S. Cal. v.Maxwell-Jolly, No. 08-56061 (9th Cir. Sept.17, 2008) ......................................................... App. 58

Order Granting in Part and Denying in PartPetitioners’ Motion for PreliminaryInjunction, Indep. Living Ctr. of S. Cal. v.Shewry, No. CV 08-3315 CAS (MANx) (C.D.Cal. Aug. 18, 2008) ......................................... App. 94

Civil Minutes - General, Indep. Living Ctr. ofS. Cal. v. Shewry, No. CV 08-3315 CAS(MAnx) (C.D. Cal. Aug. 27, 2008) ................ App. 125

Civil Minutes - General, Indep. Living Ctr. ofS. Cal. v. Shewry, No. CV 08-3315 CAS(MANx) (C.D. Cal. Sept. 15, 2008) .............. App. 127

TABLE OF CONTENTS - Continued

Page

Order Granting Petitioners’ Third Motion forPreliminary Injunction, Indep. Living Ctr. ofS. Cal. v. Shewry, No. CV 08-3315 CAS(MANx) (C.D. Cal. Nov. 17, 2008) ................ App. 133

Order, Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly, Nos. 08-56422, 56554 (9th Cir. Oct. 29,2009) ............................................................. App. 154

Order, Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly, Nos. 08-57016 (9th Cir. Sept. 23,2009) ............................................................. App. 157

Welf. & Inst. Code § 14105.19 (eff. Feb. 16,2008-Sept. 29, 2008) ..................................... App. 158

Welf. & Inst. Code § 14105.19 (eff. Sept. 30,2008-Dec. 31, 2009) ...................................... App. 162

Respondent’s Summary of Declarations Filedby Respondent in Opposition to Petitioners’Motion for Preliminary Injunction, Indep.Living Ctr. of S. Cal. v. Shewry, No. CV 08-03315 CAS (MANx) (C.D. Cal. Aug. 4,2008) .............................................................App. 166

State Plan Amendment 08-009 .......................App. 187

List of Independent Living-Type SupremacyClause Cases ................................................ App. 211

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TABLE OF AUTHORITIES

Page

CASES

Alexander v. Sandoval, 532 U.S. 275 (2001) ....16, 17, 20

Arkansas Med. Soc’y, Inc. v. Reynolds, 6 F.3d519 (8th Cir. 1993) ............................................29, 32

Bell v. Hood, 327 U.S. 678 (1946) ...............................25

Bellsouth Telecomm. v. Town of Palm Beach,252 F.3d 1169 (llth Cir. 2001) ................................23

Blessing v. Freestone, 520 U.S. 329 (1997) ................18

Cal. Pharmacists Ass’n v. Maxwell-Jolly, 630F. Supp. 2d 1144 (C.D. Cal. 2009) ...........................35

Cal. Pharmacists Ass’n v. Maxwell-Jolly, 630F. Supp. 2d 1154 (C.D. Cal. 2009), staygranted, 563 F.3d 847 (9th Cir. 2009) .....................35

Cal. Pharmacists Ass’n v. Maxwell-Jolly, 563F.3d 847 (9th Cir. 2009) ..........................................35

Chapman v. Houston Welfare Rights Org., 441U.S. 600 (1979) ........................................................20

Cort v. Ash, 422 U.S. 66 (1975) ..........................passim

Dennis v. Higgins, 498 U.S. 439 (1991) .....................20

Equal Access for E1 Paso, Inc. v. Hawkins, 509F.3d 697 (5th Cir. 2007), cert. denied, 129S. Ct. 34 (2008) ....................................................6, 27

Evergreen Presbyterian Ministries Inc. v. Hood,235 E3d 908 (5th Cir. 2000), overruled inpart on other grounds, Equal Access for ElPaso v. Hawkins, 509 E3d 697 (5th Cir.2007) ...................................................... 27, 29, 31, 32

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TABLE OF AUTHORITIES - Continued

Page

Golden State Transit Corp. v. City of LosAngeles, 493 U.S. 103 (1989) ............................20, 24

Gonzaga Univ. v. Doe, 536 U.S. 273 (2002) .......passim

Lankford v. Sherman, 451 F.3d 496 (8th Cir.2006) ........................................................................21

Legal Environmental Assistance Foundation,Inc. v. Pegues, 904 F.2d 640 (11th Cir. 1990) ....22, 23

Long Term Care Pharmacy Alliance v. Fer-guson, 362 F.3d 50 (1st Cir. 2004) .................. passim

Managed Pharmacy Care v. Maxwell-Jolly, 603F. Supp. 2d 1230 (C.D. Cal. 2009) ..........................35

Mandy R. ex rel. Mr. & Mrs. R. v. Owens, 464F.3d 1139 (10th Cir. 2006), cert. denied, 549U.S. 1305 (2007) ........................................................6

Methodist Hosps., Inc. v. Sullivan, 91 F.3d 1026(7th Cir. 1996) ....................................... 27, 28, 29, 33

Minn. HomeCare Ass’n v. Gomez, 108 F.3d 917(8th Cir. 1997) ....................................... 27, 28, 29, 33

Minn. Pharmacists Ass’n v. Pawlenty, No. 09-2723, 2010 U.S. Dist. LEXIS 11620 (D. Minn.Feb. 10, 2010) ......................................................7, 36

N.Y. Ass’n of Homes & Servs. for the Aging, Inc.v. DeBuono, 444 F.3d 147 (2d Cir. 2006) ..................6

Orthopaedic Hosp. v. Belshe, 103 F.3d 1491(9th Cir. 1997), cert. denied, 522 U.S. 1044(1998) ............................................... 10, 31, 32, 34, 36

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TABLE OF AUTHORITIES - Continued

Page

Owasso Indep. Sch. Dist. v. Falvo, 534 U.S. 426(2002) .......................................................................25

Pa. Pharmacists Ass’n v. Houstoun, 283 F.3d531 (3d Cir. 2002) ............................................ passim

Pediatric Specialty Care, Inc. v. Ark. Dep’t ofHuman Servs., 443 F.3d 1005 (8th Cir. 2006),cert. granted, judgment vacated in part, 551U.S. 1142 (2007) ........................................................7

Pennhurst State Sch. & Hosp. v. Halderman,451 U.S. 1 (1981) ............................................. passim

PhRMA v. Concannon, 249 F.3d 66 (1st Cir.2001), aff’d on other grounds, 538 U.S. 644(2003) .......................................................................21

PhRMA v. Thompson, 362 F.3d 817 (D.C. Cir.2004) ..................................................................21, 24

PhRMA v. Walsh, 538 U.S. 644 (2003) ...............passim

Planned Parenthood of Houston & Se. Tex. v.Sanchez, 403 F.3d 324 (5th Cir. 2005) ........ 21, 24, 25

Rite Aid of Pa., Inc. v. Houstoun, 171 F.3d 842(3d Cir. 1999) ................................... 27, 28, 31, 32, 33

Sanchez v. Johnson, 416 F.3d 1051 (9th Cir.2005) ....................................................................6, 19

Shaw v. Delta Air Lines Inc., 463 U.S. 85(1983) ....................................................... 7, 22, 23, 24

St. Thomas-St. John Hotel & Tourism Ass’n v.Virgin Islands, 218 F.3d 232 (3d Cir. 2000) ...........22

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TABLE OF AUTHORITIES - Continued

Page

Stoneridge Inv. Partners v. Scientific-Atlanta,Inc., 552 U.S. 148 (2008) ...................................16, 24

The Conqueror, 166 U.S. 110 (1897) ..........................37

Touche Ross & Co. v. Redington, 442 U.S. 560(1979) .......................................................................17

Transamerica Mortg. Advisors Inc. v. Lewis,444 U.S. 11 (1979) ...................................................17

U.S.v. Martinson, 809 F.2d 1364 (9th Cir.1987) ........................................................................12

Verizon Md., Inc. v. Public Serv. Comm’n, 535U.S. 635 (2002) ..................................................14, 25

W. Air Lines, Inc. v. Port Auth. of N.Y. & N.J.,817 F.2d 222 (2d Cir. 1987) .....................................22

Westside Mothers v. Olszewski, 454 F.3d 532(6th Cir. 2006) ...........................................................6

Wilder v. Va. Hosp. Ass’n, 496 U.S. 498 (1990) ...4, 5, 32

Wilderness Soc’y v. Kane County, 581 F.3d 1198(10th Cir. 2009) ...........................................22, 23, 24

Wyeth v. Levine, 129 S. Ct. 1187 (2009) .....................19

STATUTES

28 U.S.C. § 1254(1) .......................................................2

28 U.S.C. § 1331 .........................................................23

42 U.S.C. § 1396 ...........................................................4

42 U.S.C. § 1396a .....................................................4, 6

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TABLE OF AUTHORITIES - Continued

Page

42 U.S.C. § 1396a(a)(13)(A) (1982 ed., Supp. V) ....5, 32

42 U.S.C. § 1396a(a)(17) .......................................21, 36

42 U.S.C. § 1396a(a)(30)(A) ................................passim

42 U.S.C. § 1396c ..........................................................4

42 U.S.C. § 1983 .................................................passim

American Recovery and Reinvestment Act of2009, H.R. 1, 111th Cong., Pub. L. No. 111-5(1st Sess. 2009) ..................................................15, 36

Boren Amendment, Balanced Budget Act of1997, Pub. L. No. 105-33, § 4711, 111 Stat.251, 507-08 (1997) .....................................................5

Cal. Welf. & Inst. Code § 14105.19(b)(1) ......3, 4, 11, 16

Cal. Welf. & Inst. Code § 14105.191(b) (West2009) (eft. Sept. 30, 2008) ...................................3, 35

Cal. Welf. & Inst. Code § 14105.191(h) (West2009) (eft. Sept. 30, 2008) .......................................35

CONSTITUTIONAL PROVISIONS

Commerce Clause, United States Constitution,Article I, § 8, clause 3 ..............................................20

Spending Clause, United States Constitution,Article I, § 8, clause 1 ...................................... passim

Supremacy Clause, United States Constitution,Article VI, clause 2 .................................... 2, 8, 22, 23

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TABLE OF AUTHORITIES - Continued

Page

OTHER AUTHORITIES

42 C.F.R. § 430.35 .........................................................4

Brief for Respondents in Opposition, Maxwell-Jolly v. Ind. Living Ctr. of S. Cal., Inc. No.08-1223 (S. Ct. May 22, 2009) ..................................8

Brief for the United States as Amicus Curiae,Belshe v. Orthopaedic Hosp., No. 96-1742(S. Ct. Nov. 26, 1997), 1997 WL 33561790 .............32

California’s General Fund Cash Outlook for theMonths of January-December 2010, http://www.sco.ca.gov/Files-EO/01-22-10cashbalanceojpg ........38

Controller John Chiang, Statement of GeneralFund Cash Receipts and Disbursements:January 2010 Summary Analysis, http://www.sco.gov/Press-Releases/2010/01-10summary.pdf .......38

Eugene Gressman et al., Supreme CourtPractice 81 (9th ed. 2007) .......................................37

H.R. Rep. No. 105-149 (1997) .......................................6

Reply Brief in Support of Motions to Vacate/Rescind Opinion and Dismiss Appeal forLack of Jurisdiction and to Recall theMandate, Ind. Living Ctr. of S. Cal. v.Maxwell-Jolly Nos. 08-56422, 08-56554 (9thCir. Dec. 14, 2009) ...................................................12

PETITION FOR WRIT OF CERTIORARI

The Attorney General of the State of California,on behalf of David Maxwell-Jolly, Director, Depart-ment of Health Care Services, State of California,respectfully petitions for a writ of certiorari to reviewtwo judgments of the United States Court of Appealsfor the Ninth Circuit in this case.

OPINIONS BELOW

This petition seeks review of two opinions of theNinth Circuit, one reported at 572 F.3d 644 (Inde-pendent Living II), App., infra, 1, and one not reported(Independent Living III), App., infra, 54. A prioropinion in the case is reported at 543 F.3d 1050 (Inde-pendent Living I), App., infra, 58. The opinions of thedistrict court that led to the Ninth Circuit decisions(App., infra, 94, 125, 127, 133) are unreported.

STATEMENT OF JURISDICTION

The Ninth Circuit issued its decision in Inde-pendent Living H on July 9, 2009, App., infra, 1, anddenied DHCS’s Petition for Rehearing and RehearingEn Banc on October 29, 2009. App., infra, 154. TheNinth Circuit issued its opinion in Independent LivingIII on August 7, 2009, App., infra, 54, and denied aPetition for Rehearing and Rehearing En Banc onSeptember 23, 2009. App., infra, 157. On January 15,2010, Justice Kennedy extended the time in which to

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file a petition for writ of certiorari in IndependentLiving H and III to, respectively, February 22 and 19,2010 (Justice Kennedy had previously extended thetime to file in Independent Living III to January 22,2010). The jurisdiction of this Court is invoked under

28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORYPROVISIONS INVOLVED

The Supremacy Clause of the United StatesConstitution states:

This Constitution, and the Laws of theUnited States which shall be made inPursuance thereof; and all Treaties made, orwhich shall be made, under the Authority ofthe United States, shall be the supreme Lawof the Land; and the Judges in every Stateshall be bound thereby, any Thing in theConstitution or Laws of any State to theContrary notwithstanding.

U.S. Const. art. VI, cl. 2.

The Medicaid Act, 42 U.S.C. § 1396a(a)(30)(A),states in pertinent part:

(a) Contents

A State plan for medical assistance must -

(30)(A) provide such methods and proce-dures relating to the utilization of, and the

3

payment for, care and services availableunder the plan ... as may be necessary tosafeguard against unnecessary utilization ofsuch care and services and to assure thatpayments are consistent with efficiency,economy, and quality of care and are suffi-cient to enlist enough providers so that careand services are available under the plan atleast to the extent that such care and ser-vices are available to the general populationin the geographic area ....

STATEMENT OF THE CASE

At issue is a statutory reduction of the rates paidto certain Medicaid providers that California enactedin February 2008 as part of a comprehensive effort toaddress the State’s fiscal crisis in a responsible man-ner. See App., infra, 162. California Welfare andInstitutions Code § 14105.19(b)(1) reduced by 10percent payments under the fee-for-service programto physicians, dentists, pharmacies, adult day healthcare centers, clinics, health systems, and other pro-viders of Medicaid services in California (known asMedi-Cal). Respondents contend that § 14105.19(b)(1)is preempted by the Medicaid Act, 42 U.S.C.§ 1396a(a)(30)(A), because the State purportedly failedto conduct a pre-enactment study to ensure that thereduced rates would comply with § 1396a(a)(30)(A)and bear a reasonable relationship to providers’ costs,as they contended was required by Ninth Circuitprecedent. Accepting respondents’ arguments, the

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Ninth Circuit affirmed injunctions of § 14105.19(b)(1)as to certain types of Medi-Cal providers. In so ruling,the Ninth Circuit has deprived the State of a criticalmethod for dealing with its budget crisis, underminedthe limitations on private rights of action thisCourt has recognized, and added requirements to§ 1396a(a)(30)(A) that do not appear in the statute’stext and that conflict with the holdings of five othercircuits.

1. Medicaid is a cooperative federal-state pro-gram that provides federal financial assistance toparticipating states to reimburse certain costs ofmedical treatment for the poor, elderly, and disabled.42 U.S.C. § 1396. A state’s participation in Medicaidis voluntary, but if it chooses to participate, it mustcomply with the Medicaid Act and implementingregulations promulgated by the Secretary of Healthand Human Services (HHS). See Wilder v. Va. Hosp.Ass’n, 496 U.S. 498, 502 (1990). To receive funds, astate must administer its Medicaid program througha state plan approved by HHS. 42 U.S.C. § 1396a.Receipt of federal funding is expressly conditioned oncompliance with the Medicaid Act, and HHS maywithhold funds for noncompliance. 42 U.S.C. § 1396c;see also 42 C.F.R. § 430.35. Under the Medicaid Actprovision at issue, 42 U.S.C. § 1396a(a)(30)(A), a stateplan must include "methods and procedures" as nec-essary to, inter alia, assure that Medicaid reimburse-ment rates will neither be so high as to be inefficientor uneconomical, nor so low as to result in inadequateaccess to care or quality of care as described by the

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statute. California submitted a State Plan Amend-ment for the reductions at issue to HHS onSeptember 30, 2008, which remains pending. App.,

infra, 187.

This Court has not previously considered whether§ 1396a(a)(30)(A) is privately enforceable. However,in Wilder, this Court considered whether a nowrepealed provision of the Medicaid Act, 42 U.S.C.§ 1396a(a)(13)(A) (1982 ed., Supp. V), known as theBoren Amendment, could be privately enforced under42 U.S.C. § 1983. The Boren Amendment requiredstates, as part of their state plans, to find and makeassurances that payments to hospitals under Medicaidwere reasonable and adequate to meet the costsincurred by efficiently and economically operatedfacilities. Wilder, 496 U.S. at 502-03; see also Pa.Pharmacists Ass’n v. Houstoun, 283 F.3d 531, 537 (3dCir. 2002). In Wilder, this Court held that the BorenAmendment conferred a "right" on providers, enforce-able under § 1983, to "the adoption of reimbursementrates that are reasonable and adequate to meet thecosts of an efficiently and economically operatedfacility." 496 U.S. at 510.

Congress subsequently repealed the BorenAmendment. Balanced Budget Act of 1997, Pub. L.

No. 105-33, § 4711, 111 Stat. 251, 507-08 (1997). In sodoing, it stated its intent not only to reverse Wilder,but to preclude provider challenges to Medicaid rates.A House Report noted that under the Boren Amend-ment, "[a] number of Federal courts have ruledthat State systems failed to meet the test of

6

’reasonableness’ and some States have had to in-crease payments to these providers as a result ofthese judicial interpretations." H.R. Rep. No. 105-149,at 590 (1997). Therefore, the House Report stated: "Itis the Committee’s intention that, following enact-ment of this Act, neither this nor any other provisionof [§ 1396a] will be interpreted as establishing acause of action for hospitals and nursing facilitiesrelative to the adequacy of the rates they receive."Id. at 591.

Since the Boren Amendment’s repeal, eight cir-cuits have considered whether § 1396a(a)(30)(A) maybe enforced by Medicaid providers or beneficiariesunder § 1983. The First, Second, Third, Fifth, Sixth,Ninth, and Tenth Circuits have concluded that it maynot, a conclusion that respondents do not dispute.Long Term Care Pharmacy Alliance v. Ferguson, 362F.3d 50, 56-59 (lst Cir. 2004) (not enforceable byproviders); N.Y. Ass’n of Homes & Servs. for theAging, Inc. v. DeBuono, 444 F.3d 147 (2d Cir. 2006)(not enforceable by providers); Pa. Pharmacists, 283F.3d at 541-42 (not enforceable by providers) (Alito,J.); Equal Access for El Paso, Inc. v. Hawkins, 509F.3d 697, 702-03 (5th Cir. 2007) (not enforceable bybeneficiaries of services or providers), cert. denied,129 S. Ct. 34 (2008); Westside Mothers v. Olszewski,454 F.3d 532, 541-43 (6th Cir. 2006) (not enforceableby providers or recipients of services); Sanchez v.

Johnson, 416 F.3d 1051, 1062 (9th Cir. 2005) (notenforceable by providers or recipients of services);Mandy R. ex rel. Mr. & Mrs. R. v. Owens, 464 F.3d

1139, 1146-48 (10th Cir. 2006) (not enforceable byproviders or recipients of services), cert. denied, 549U.S. 1305 (2007). The Eighth Circuit alone hasreached a contrary result. Pediatric Specialty Care,Inc. v. Ark. Dep’t of Human Servs., 443 F.3d 1005,1013-16 (8th Cir. 2006) (enforceable by providers andrecipients of services), cert. granted, judgment vacatedin part, 551 U.S. 1142 (2007) (mem.).1

2. Nonetheless, on September 17, 2008, theNinth Circuit held that a private lawsuit challenginga reduction in Medicaid reimbursement rates couldproceed as a claim for purely prospective relief(Independent Living I). App., infra, 58. The NinthCircuit held that "a party may seek injunctive reliefunder the Supremacy Clause regardless of whetherthe federal statute at issue confers any substantiverights on would-be plaintiffs." App. infra, 83. In sup-port, the court cited several of this Court’s decisionsthat permitted preemption claims to proceed withoutengaging in any threshold analysis of whether thefederal statutes at issue created privately enforceablerights. App., infra, 68-72 (citing, inter alia, Shaw v.

Delta Air Lines, Inc., 463 U.S. 85 (1983)). The NinthCircuit also interpreted Pharmaceutical Research and

Manufacturers of America (PhRMA) v. Walsh, 538U.S. 644 (2003) as "affirm[ing a provider’s] ability to

1 Earlier this month, a Minnesota district court declined tofollow Pediatric Specialty Care, citing intervening changes in thelaw. Minn. Pharmacists Ass’n v. Pawlenty, No. 09-2723, 2010U.S. Dist. LEXIS 11620 (D. Minn. Feb. 10, 2010).

8

bring suit under the Supremacy Clause sub silentio,"regardless of whether the suit could be brought under§ 1983. App., infra, 81. Accordingly, the Ninth Circuitreversed a district court’s order that denied respon-dents’ first motion for preliminary injunction. App.,infra, 93. DHCS filed a petition for writ of certiorariseeking review of this judgment, which this Court

denied on June 22, 2009.2

3. The proceedings on remand led to the instantpetition. On remand, the district court consideredbriefing and heard argument on two separate motionsfor preliminary injunction filed by different providergroups. In opposition to the motions, DHCS submit-ted 18 declarations that analyzed the reductions andtheir potential impact.~ Among other things, DHCSdemonstrated that beneficiaries’ access to serviceswould not decline as a result of the reductions, andhad not declined in the first month after the

2 In opposing certiorari in Independent Living I, respon-

dents’ lead argument was that the "case is not an appropriatevehicle to address" the question presented because "subsequentappeals in the Ninth Circuit in this action, currently pendingafter briefing and oral argument, could resolve the controversyin petitioner’s favor." Brief for Respondents in Opposition at 11,Maxwell-Jolly v. Ind. Living Ctr. of S. Cal., Inc., No. 08-1223(S. Ct. May 22, 2009). That "vehicle" issue no longer exists. Thispetition seeks review of the Ninth Circuit’s ruling on thosesubsequent appeals, which, as discussed below, were adverse topetitioner.

3DHCS filed a summary of the declarations filed inconnection with the motion for preliminary injunction that led tothe Independent Living H appeal. App., infra, at 166.

9

reductions took effect as compared to the same periodin the previous year. See App., infra, at 168-86. Whereprovider cost data was available, DHCS determinedthat the 10% reduced payments would compensate ahigh percentage of provider costs. See, e.g., App.,infra, at 171, 177 (concluding that payments wouldcover 86 to 110% of costs of certain nursing facilityservices, and 93% to 135% of costs for prescriptiondrugs). However, DHCS explained that, as to someforms of services - specifically physician, dental, homehealth, and non-emergency transportation (NEMT)services - there was no mechanism to collect cost data.

On August 18, 2008 and November 17, 2008, thedistrict court entered two orders enjoining DHCSfrom implementing § 14105.19(b)(1) as to, inter alia,pharmacists, physicians, dentists, adult day healthcare centers, and providers of NEMT and home healthservices. App., infra, 94, 133; see also App., infra, 125,127 (amending and correcting prior orders). Thedistrict court considered itself bound by the NinthCircuit’s prior decisions, including IndependentLiving I. App., infra, 102-06, 141-44. Despite the 18declarations submitted by DHCS, the court concludedthat DHCS had not "proffered any evidence showingthat the Department considered any of the ’relevantfactors,’ in making the ten percent rate reductionchallenged here." App., infra, 106, 144-45. On August27, 2008, the district court amended its August 18,2008 injunction to provide for only prospective relief.App., infra, 125-26.

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DHCS appealed these orders, and certain pro-viders appealed the August 27, 2008 order. The NinthCircuit affirmed both injunctions in two opinions, onepublished, App., infra, 1 (Independent Living H), andone not, App., infra, 54 (Independent Living III). Thecourt noted that it previously has "interpreted§ 30(A) to require the Director to set reimbursementrates that ’bear a reasonable relationship to the effi-cient and economical hospitals’ costs of providingquality services,’" unless DHCS shows a justificationfor deviating from such costs. App., infra, 11 (quotingOrthopaedic Hosp. v. Belshe, 103 F.3d 1491 (9th Cir.1997), cert. denied, 522 U.S. 1044 (1998)); see alsoApp., infra, at 56. The court then held that "it is clear"

that the rate reductions violated § 1396a(a)(30)(A)given the State’s failure "to provide any evidence thatthe Department or the legislature studied the impactof the ten percent rate reduction on the statutoryfactors of efficiency, economy, quality, and access tocare prior to enacting AB 5," or to "demonstrate thatthe Department considered reliable cost studies whenadjusting its reimbursement rates." App., infra, 11;see also App., infra, 56.

Notably, the court distinguished its "process-oriented" approach to § 1396a(a)(30)(A) compliance,with its emphasis on a pre-enforcement study, fromthe "’substantive compliance’ standard espoused" byother circuits. App., infra, 23-24. Thus, the courtfaulted the State for the timing of its analysis (whichit characterized as "post hoc"), App., infra, 11 n.9,without regard to whether the evidence demonstrated

11

that the reduced reimbursement payments complied"substantive[ly]" with § 1396a(a)(30)(A). App., infra,

at 23. The Ninth Circuit also held that, "quite apartfrom any procedural requirements ... , the State’sdecision to reduce Medi-Cal reimbursement ratesbased solely on state budgetary concerns violatedfederal law." App., infra, 20.

In addition to affirming the preliminary injunc-tions, the court held that providers in IndependentLiving H were entitled to "retrospective" monetaryrelief from the date that § 14105.19(b)(1) took effect(i.e., July 1, 2008) until the date that the injunctionwas entered (i.e., August 18, 2008). App., infra, 29-37;see also App., infra, 47.4

DHCS sought rehearing and rehearing en bancon numerous grounds, including those raised herein,in both Independent Living I and H. The NinthCircuit denied both petitions.

By the time that the Ninth Circuit issued itsdecision in Independent Living H - affirming thepreliminary injunction - the reductions at issue hadsunset, meaning there was nothing left to enjoin. SeeApp., infra, 162. On November 25, 2009, DHCSfiled a motion to vacate the Independent Living H

4 Although petitioner herein challenges the basis for a court

to award any form of relief, petitioner is not seeking review atthis time of the Ninth Circuit’s holding that the State could berequired to pay retroactive monetary damages because it pur-portedly had waived its sovereign immunity. App., infra, 37.

12

decision as potentially moot. However, DHCS con-ceded that its own appeal in the case was not mootbecause reversal of the preliminary injunction (by theNinth Circuit or this Court) could result in an orderdirecting respondents to reimburse DHCS for theadditional payments it was forced to make while the10 percent rate reduction was wrongly enjoined.~ OnDecember 21, 2009, the Ninth Circuit denied DHCS’smotion, expressly holding that it had jurisdiction overDHCS’s appeal because it continued to present a livecontroversy. App., infra, 44-48.

REASONS FOR GRANTING THE PETITION

The Ninth Circuit held that a private litigantmay invoke the Supremacy Clause to enforce afederal Spending Clause statute, § 1396a(a)(30)(A),even though that statute does not create any "rights"that are privately enforceable under § 1983, and de-spite evidence of Congressional intent to precludeprivate challenges to the adequacy of Medicaid pay-ments. If the decisions in the present case remainunreviewed, the Ninth Circuit’s holdings will negate

5 Reply Brief in Support of Motions to Vacate/RescindOpinion and Dismiss Appeal for Lack of Jurisdiction and toRecall the Mandate at 7, Ind. Living Ctr. of S. Cal. v. Maxwell-Jolly, Nos. 08-56422, 08-56554 (9th Cir. Dec. 14, 2009) (" ’So longas the court may order relief responsive to the wrong alleged,the appeal is not moot.’") quoting U.S.v. Martinson, 809 F.2d1364, 1368 (9th Cir. 1987)).

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the limitations on private enforcement of federalstatutes that this Court has carefully crafted andapplied over several decades. See, e.g., Cort v. Ash,422 U.S. 66 (1975); Pennhurst State Sch. & Hosp. v.Halderman, 451 U.S. I (1981); Gonzaga Univ. v. Doe,536 U.S. 273 (2002). Under the reasoning adopted bythe Ninth Circuit, a cause of action to enforce afederal statute and enjoin state conduct exists anytime a private party alleges a conflict between stateand federal law.

The need for this Court’s review is compellingbecause the D.C., Fifth, Eighth, and Ninth Circuitshave all now erroneously concluded that this Courtalready has resolved the question presented here. Inholding that private litigants may sue directly underthe Supremacy Clause, these circuits cited this Court’spractice, in a series of preemption decisions culmi-nating in PhRMA v. Walsh, of reaching the merits ofplaintiffs’ claims without analyzing whether suchclaims created "rights" enforceable under § 1983; thecourts interpreted this Court’s willingness to enter-tain such claims as carrying an "implicit" holdingthat such claims were valid. Three of these circuitswent further, and held (incorrectly) that Walsh hadforeclosed precisely the argument that petitioner ad-

vances here. However, Walsh did not address whetherplaintiff had stated a valid cause of action under theMedicaid provision at issue, but simply rejected itsclaim on the merits. The courts of appeals’ conclu-sions that this Court has already "implicitly" reachedthe validity of plaintiffs’ causes of action in Walsh and

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its other preemption cases, which they saw as "juris-dictional," were clear error under this Court’s prece-

dent. See Verizon Md., Inc. v. Public Serv. Comm’n,535 U.S. 635, 642-43 (2002). Moreover, the EleventhCircuit has squarely rejected the analysis adopted bythe Ninth Circuit here, as did Judge McConnell in adissent in a very recent decision issued by the TenthCircuit in a non-Spending Clause context.

The Ninth Circuit also held that, in order tocomply with § 1396a(a)(30)(A), a state must provideevidence that it studied of the potential impact of anystatutory Medicaid reimbursement payment reductionon the § 1396a(a)(30)(A) factors, and on providers’costs, in order to ensure that the payments will beara reasonable relationship to providers’ costs, beforeenacting the reduction. The text of the statute doesnot require such a study, nor does it require any sortof relationship between reimbursement paymentsand providers’ costs. And the Ninth Circuit heldthat the State’s purported decision to reduce rates"based solely on state budgetary concerns violatedfederal law," even though nothing in the text of§ 1396a(a)(30)(A) precludes such consideration solong as its substantive requirements are met. ThisCourt’s review is warranted to resolve a circuit splitbetween the Ninth Circuit and virtually every othercircuit to have addressed these issues, namely, theFirst, Third, Fifth, Seventh, and Eighth Circuits. Inaddition, the Ninth Circuit’s willingness to preemptstate law based on procedures and requirementsthat do not appear in any statute or implementing

15

regulation conflicts with this Court’s precedent, in-cluding Pennhurst, which rejected the notion thatstates may be subject to "massive" liability based onconditions that are, at best, "implicit" in federalSpending Clause legislation.

The issues presented are important and recurring.The Ninth Circuit’s decisions have already encouragedthe filing of over 30 cases around the countryespousing similar Supremacy-Clause theories. Whilemany of these cases are premised on § 1396a(a)(30)(A),other Medicaid provisions have been invoked, as hasthe American Recovery and Reinvestment Act of 2009.California’s losses from such suits is fast approaching$1 billion based on money paid or due providersunder existing injunctions. The federalism concernsare significant: while Congress intended for HHS tobe the primary arbiter of states’ compliance with theMedicaid Act, the Ninth Circuit’s approach hasallowed private actors and courts to review anddisapprove the states’ actions instead.

I. REVIEW IS WARRANTED TO CONSIDERWHETHER A PRIVATE PARTY MAYBRING A PREEMPTION CHALLENGEUNDER A SPENDING CLAUSE STATUTE,42 U.S.C. § 1396A(a)(30)(A), THAT MAYNOT BE ENFORCED BY PRIVATE PAR-TIES UNDER 42 U.S.C. § 1983

1. Review is warranted to prevent nullificationof over 30 years of Court precedent establishinglimitations on private suits against the states. Under

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the Ninth Circuit’s theory, to state a valid privatecause of action, all a plaintiff need do is allegethe existence of a conflict between a state statute(here, § 14105.19(b)(1)) and a federal law (here,§ 1396a(a)(30)(A)). Such an exceptionally broad-brushapproach cannot be reconciled with the limitations onprivate suits that this Court has recognized in twoseparate lines of causes: Cort v. Ash and its progeny,addressing when causes of actions may be implieddirectly under federal statutes; and Pennhurst StateSchool and Hospital v. Halderman and its progeny,including Gonzaga University v. Doe, addressing whenfederal statutes may be enforced by a § 1983 suit.

While there are analytical differences, in bothlines of cases this Court has explained that theremust be clear and unambiguous evidence that Con-gress intended for the federal provision at issue to beprivately enforceable before a private suit may beimplied or recognized. See Gonzaga, 536 U.S. at 283("[T]he inquiries overlap in one meaningful respect -in either case we must first determine whetherCongress intended to create a [privately enforceable]federal right."). This is because Congress, as theauthority that enacts federal statutes, has the pre-rogative to determine when and how they may beprivately enforced. Alexander v. Sandoval, 532 U.S.275, 286 (2001) ("Like substantive federal law itself,private rights of action to enforce federal law must becreated by Congress."); see also Stoneridge Inv.Partners v. Scientific-Atlanta, Inc., 552 U.S. 148, 164-65 (2008).

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Thus, in Cort v. Ash, this Court placed significantlimitations on when a private cause of action may beimplied directly under a federal statute. The relevantconsiderations are: (1)"does the statute create afederal right in favor of the plaintiff"; (2) "is thereany indication of legislative intent, explicit or ira-plicit, either to create such a remedy or to deny one";(3) "is it consistent with the underlying purposes ofthe legislative scheme to imply such a remedy for theplaintiff"; and (4)"is the cause of action one tradi-tionally relegated to state law, in an area basicallythe concern of the States, so that it would be inappro-priate to infer a cause of action based solely onfederal law?" 422 U.S. at 78. Since its decision inCort, this Court has focused on the overarching im-portance of the second factor, requiring clear evidenceof Congressional intent to create both a private rightand a private remedy. See, e.g., Sandoval, 532 U.S. at286 ("The judicial task is to interpret the statuteCongress has passed to determine whether it displaysan intent to create not just a private right but also aprivate remedy."); Transamerica Mortg. Advisors Inc.v. Lewis, 444 U.S. 11, 24 (1979) ("The dispositive ques-tion remains whether Congress intended to createany such remedy."); Touche Ross & Co. v. Redington,

442 U.S. 560, 568 (1979).

The Court has also adopted significant limitationson when a private suit may be brought under § 1983.Here, specifically with respect to Spending Clauselegislation such as the Medicaid Act, this Court hasheld that, "unless Congress ’speak[s] with a clear

18

voice,’ and manifests an ’unambiguous’ intent to con-fer individual rights, federal funding provisionsprovide no basis for private enforcement." Gonzaga,536 U.S. at 280 (quoting Pennhurst, 451 U.S. at 17,28 & n.21). Thus, a "’plaintiff must demonstrate thatthe right assertedly protected by the statute is not so"vague and amorphous" that its enforcement wouldstrain judicial competence,’" and the provision "’mustbe couched in mandatory, rather than precatory,terms.’" Id. at 282 (quoting Blessing v. Freestone, 520U.S. 329, 340-41 (1997)). "[W]here the text and struc-ture of a statute provide no indication that Congressintends to create new individual rights, there is nobasis for a private suit, whether under § 1983 orunder an implied right of action." Id. at 286.

These limitations are especially important as toSpending Clause legislation such as the Medicaid Act.Here, "the typical remedy for state noncompliancewith federally imposed conditions is not a privatecause of action for noncompliance but rather actionby the Federal Government to terminate funds to theState." Pennhurst, 451 U.S. at 28; see also Gonzaga,

536 U.S. at 280; Walsh, 538 U.S. at 675 (Scalia, J.,concurring in judgment) ("I would reject petitioner’sstatutory claim on the ground that the remedy for theState’s failure to comply with the obligations it hasagreed to undertake under the Medicaid Act ... isset forth in the Act itself: termination of funding bythe Secretary of the Department of Health andHuman Services." (citations omitted)); 538 U.S. at682 (Thomas, J., concurring in judgment).

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The theory adopted by the Ninth Circuit wouldundermine the Cort and Pennhurst-Gonzaga linesof cases by authorizing a Supremacy Clause-basedcause of action that does not require consideration ofCongressional intent, judicial enforceability, or any ofthe other factors considered so important by thisCourt. The potential impact of such a theory isdramatically demonstrated by its application in thepresent case, where the Ninth Circuit used it torevive a type of claim that heretofore was precludedby this Court’s and the Ninth Circuit’s own prece-dents. See Sanchez, 416 F.3d at 1059-61 (applyingGonzaga to hold that § 1396a(a)(30)(A) does notcreate rights enforceable under § 1983); see alsoLong Term Care Pharmacy Alliance, 362 F.3d at58 (concluding, based on structure and text of§ 1396a(a)(30)(A), that "plan review by the Secretaryis the central means of enforcement intended byCongress").

Dressing the lawsuit up as a preemption chal-lenge should not change the conclusion that thestatute is not privately enforceable. Here, too, Con-gressional intent is relevant and potentiallydispositive. See Wyeth v. Levine, 129 S. Ct. 1187, 1194(2009) (Congressional intent is the "’ultimate touch-stone in every pre-emption case’"). It is entirelyillogical to consider evidence of Congressional intentbefore permitting a cause of action to be implieddirectly under the statute itself (or to authorize suitunder § 1983), but to ignore such evidence in apreemption case - indeed, to authorize a claim to

20

proceed despite evidence that Congress intended topreclude private suits. See Pa. Pharmacists, 283 F.3dat 540 n.15 (Alito, J.) (discussing Congressionalintent in repeal of the Boren Amendment). Further,allowing private preemption claims to proceed basedon any purported conflict with any and all federalstatutes, independent of Congressional intent, wouldnegate the principle that "private rights of action toenforce federal law must be created by Congress."Sandoval, 532 U.S. at 286.

Finally, this Court already has twice rejectedefforts to convert what are, fundamentally, statutoryclaims into constitutional claims via the SupremacyClause. See Golden State Transit Corp. v. City of LosAngeles, 493 U.S. 103, 107 (1989) (agreeing that "theSupremacy Clause, of its own force, does not createrights enforceable under § 1983" (footnote omitted));Chapman v. Houston Welfare Rights Org., 441 U.S.600, 615 (1979) (holding that "an allegation of incom-patibility between federal and state statutes andregulations does not, in itself, give rise to a claim’secured by the Constitution’ within the meaning of§ 1343(3)"). Indeed, the Court has contrasted the Su-premacy Clause, which cannot of its own force createa right of action, with the Commerce Clause, whichcan. Dennis v. Higgins, 498 U.S. 439, 450 (1991) ("Bycontrast, the Commerce Clause of its own forceimposes limitations on state regulation of commerceand is the source of a right of action in those injuredby regulations that exceed such limitations.").

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2. Review also is justified by the need to resolveconfusion and conflict among the courts of appealregarding the issue presented here.

a. As the Ninth Circuit noted in IndependentLiving I, the D.C., Fifth, and Eighth Circuits havealso recently permitted preemption claims to proceedbased on the theory it adopted. App., infra, 81-83,85-87; see Planned Parenthood of Houston & Se. Tex.v. Sanchez, 403 F.3d 324, 330-35 (5th Cir. 2005)(authorizing preemption challenge based on Title X ofthe Public Health Service Act and Title XX of theSocial Security Act, and rejecting the state’s argu-ment that, "even with federal jurisdiction over theclaim, it was improper for the district court to resolveit because Appellees were not seeking to vindicateany right or to enforce any duty running to them");Lankford v. Sherman, 451 F.3d 496, 509-13 (8th Cir.2006) (holding that preemption claim based on regu-lation implementing 42 U.S.C. § 1396a(a)(17) couldproceed even though the federal statute itself doesnot create an "individual right"); see also PhRMA v.Thompson, 362 F.3d 817, 819 n.3 (D.C. Cir. 2004)(rejecting claim that a state’s prior authorizationrequirement was preempted by the Medicaid Act onthe merits, despite State’s argument that plaintiffs"have no private right of action for injunctive relief").While not reaching the precise question presentedhere, the First Circuit also has indicated a willing-ness to entertain preemption claims based on Spend-ing Clause statutes that are not enforceable under§ 1983. PhRMA v. Concannon, 249 F.3d 66, 73 (1st

22

Cir. 2001) (stating, in the context of a Medicaidpreemption challenge, that "a state or territorial lawcan be unenforceable as preempted by federal laweven when the federal law secures no individualsubstantive rights for the party arguing preemption"(internal quotations omitted)), aff’d on other grounds,538 U.S. 644 (2003).6

By contrast, in Legal Environmental AssistanceFoundation, Inc. v. Pegues, 904 F.2d 640 (11th Cir.1990), the Eleventh Circuit squarely rejected thenotion that a "cause of action.., may be implied fromthe Supremacy Clause" as to a federal statute that isnot itself a source of privately enforceable rights. 904F.2d at 642. The court recognized that some author-ities have suggested that the Supremacy Clausecreates an implied right of action for injunctive relief,and noted that "[plaintiff] cites dicta in footnotesfrom Shaw v. Delta Air Lines and Franchise TaxBoard v. Construction Laborers Vacation Trust, whichsuggest that a federal cause of action might be

6 The remaining circuits do not appear to have addressedwhether a Spending Clause statute that does not create any pri-vately enforceable rights may nonetheless be the basis for a pre-emption claim under the Supremacy Clause. However, severalcircuits have held that at least some preemption claims may bebrought under non-Spending Clause statutes regardless ofwhether the federal statutes create privately enforceable rights.See, e.g., W. Air Lines, Inc. v. Port Auth. of N.Y. & N.J., 817 F.2d222, 225-26 (2d Cir. 1987); St. Thomas-St. John Hotel & TourismAss’n v. Virgin Islands, 218 F.3d 232, 241 (3d Cir. 2000);Wilderness Soc’y v. Kane County, 581 F.3d 1198, 1215-16 (10thCir. 2009).

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implied to permit a declaratory adjudication thatfederal law pre-empts a contrary state law, even if thefederal statute does not expressly provide a cause ofaction." Id. at 643 (footnotes omitted). However, thecourt explained that "[t]hese expressions do no morethan indicate that the Supremacy Clause providesfederal jurisdiction ... for a cause of action impliedfrom the statute." Id. (citing 28 U.S.C. § 1331) (foot-note omitted); cf. Bellsouth Telecomm. v. Town ofPalm Beach, 252 F.3d 1169, 1189-92 (11th Cir. 2001)(applying Cort factors in assessing whether a pre-emption claim could proceed).

A recent decision from the Tenth Circuit deservesmention for its lengthy dissent by Judge McConnellalso arguing against recognition of Supremacy Clauseclaims based on federal statutes that do not createprivately enforceable rights. In Wilderness Society v.Kane County, 581 F.3d 1198 (10th Cir. 2009), environ-mental organizations sued to enjoin a county ordi-nance that opened federal land to off-highway vehicleuse as preempted by federal law and regulations,including the Federal Land Policy and ManagementAct. In affirming summary judgment for plaintiffs,the court’s opinion held that plaintiffs could suedirectly under the Supremacy Clause even thoughthey could not "establish[] an associated statutoryright of action." Id. at 1216 & n.10 (citing Shaw v.Delta Air Lines and Independent Living I). However,Judge McConnell, in a dissenting opinion, rejected"the astounding idea that any time a state actionarguably conflicts with a federal law, a cause of action

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exists." Id. at 1233. He noted that the fact that someearlier Tenth Circuit decisions had allowed privateparties to use a preemption theory, untethered from a"statutory right," as a "defense" to state enforcementproceedings did not mean that anyone "can bring afreestanding claim to enforce compliance with federallaw, as if ’preemption’ were a cause of action." Id.Most significantly, Judge McConnell observed that,under Gonzaga and Stoneridge, the obligation toprovide for private enforcement of federal law falls toCongress, and suggested that the judiciary wouldimproperly "’extend[] its authority to embrace a dis-pute Congress has not assigned it to resolve’" were itto recognize Supremacy Clause claims in the absenceof a "right" created by Congress - exactly the argu-ment that DHCS raises here. Id. at 1234.

b. Review also is justified because those circuitsthat have permitted the preemption claims similar tothe present one to proceed under Spending Clausestatutes have misinterpreted this Court’s precedents,including PhRMA v. Walsh, Shaw, and Golden StateTransit, as having already (at least implicitly) decidedthe issue presented here. See App., infra, at 68-72, 78-82; Lankford, 451 F.3d at 509-10; Planned Parent-hood, 403 F.3d at 332; Thompson, 362 F.3d at 819n.3. In reaching their holdings, both the Fifth andNinth Circuit placed substantial weight on the factthat this Court has "repeatedly entertained" preemp-tion claims without (expressly) requiring the stan-dards for § 1983 claims to be met. App., infra, 68;Planned Parenthood, 403 F.3d at 332. That this

25

Court recently did so in a Medicaid preemption case,PhRMA v. Walsh, has led these courts of appeals toconclude that the Court has "implicitly" authorizedpreemption claims based on purported conflicts withthe Medicaid Act, regardless of whether the purport-edly preempting provision of the Act creates privatelyenforceable "rights." App., infra, 80-81; PlannedParenthood, 403 F.3d at 331-32; Thompson, 362 F.3dat 819 n.3.

This Court should intervene to set the lawstraight in these circuits. Because the absence of avalid cause of action is not a jurisdictional flaw, seeVerizon, 535 U.S. at 642-43; Bell v. Hood, 327 U.S.678, 682 (1946), this Court has often been willing toassume - without deciding - that a valid cause ofaction existed in order to reach the merits of plain-tiffs’ claims. See, e.g., Owasso Indep. Sch. Dist. v.Falvo, 534 U.S. 426, 431 (2002). Each time the Courthas proceeded on this basis, it has not "implicitly"recognized that a valid cause of action existed, butmerely deferred reaching the issue. Thus, in Owasso,this Court assumed without deciding that a validcause of action existed under a provision of theFamily Educational Rights and Privacy Act, but thenheld later in the same term that no such cause ofaction actually existed. Gonzaga, 536 U.S. 273. Re-view is warranted, therefore, because only this Courtcan correct the lower courts’ persistent misunder-standing of this Court’s precedents.

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II. REVIEW IS ALSO WARRANTED TO CON-SIDER WHETHER A STATE STATUTETHAT REDUCES MEDICAID REIMBURSE-MENT PAYMENTS TO CERTAIN PRO-VIDERS MAY BE PREEMPTED BASEDON REQUIREMENTS THAT DO NOTAPPEAR IN THE TEXT OF THE STATUTE

Review also is warranted to address whether astate statute reducing Medicaid payments may bepreempted based on requirements that do not appearanywhere in § 1396a(a)(30)(A) or its implementingregulations. The Ninth Circuit held that Californiafailed to provide evidence that, prior to enactment ofthe reductions, it (1) studied the impact of the reduc-tions on the federal statutory factors of efficiency,economy, quality, and access to care; and (2) consid-ered reliable studies of providers’ costs, to ensure thatthe reduced rates would bear a reasonable relation-ship to those costs. But, while § 1396a(a)(30)(A)arguably sets some substantive objectives - that ratesnot be set so high as to be inefficient or uneconomical,or so low as to create an access or quality of careproblem for beneficiaries - it does not specify anyprocedure that the States must follow to achievethose objectives, leaving that issue to be addressedthrough the "methods and procedures" identified byeach state in its state plan. The court also held thatthe rate reduction could be preempted because itwas motivated "solely" by ’%udgetary concerns." But§ 1396a(a)(30)(A) does not preclude a state fromreducing rates to address a budgetary crisis, so longas the substantive requirements of the statute are

27

met. Review is warranted to resolve circuit splitsbetween the Ninth Circuit and the other circuits thathave considered these issues, and because the NinthCircuit’s atextual approach conflicts with this Court’sprecedent.

1.a. The Ninth Circuit’s requirement that a stateproduce evidence that it conducted a pre-enactmentstudy of the impact of any reduction, that includes ananalysis of provider costs, conflicts with virtuallyevery other circuit to consider the issue. See Long

Term, 362 F.3d at 56; Rite Aid of Pa., Inc. v. Hous-toun, 171 F.3d 842, 851 (3d Cir. 1999); EvergreenPresbyterian Ministries Inc. v. Hood, 235 F.3d 908,933 n.33 (5th Cir. 2000), overruled in part on othergrounds, Equal Access for El Paso, 509 F.3d at 704;Methodist Hosps., Inc. v. Sullivan, 91 F.3d 1026, 1030

(7th Cir. 1996); Minn. HomeCare Ass’n v. Gomez, 108F.3d 917, 918 (8th Cir. 1997).7

The Seventh Circuit’s decision in Methodist Hos-pitals was the first to expressly reject that any sortof pre-enactment study is required. There, hospitalsand physicians challenged Indiana’s decision to stop

7 These cases from other circuits involved claims broughtunder 42 U.S.C. § 1983 at a time when there was uncertainty asto whether § 1396a(a)(30)(A) was enforceable under § 1983.After the majority view developed that § 1396a(a)(30)(A) is notprivately enforceable under § 1983, there was a lull in such cases.The Ninth Circuit’s decisions have revived § 1396a(a)(30)(A) as avehicle for challenging the adequacy of Medicaid reimbursementrates, and the present issues along with it.

28

reimbursing Medicaid services at the provider’s cus-tomary billing rate, and instead to base reimburse-ments on a new formula. 91 F.3d at 1028. Plaintiffscontended, in the court’s words, that § 1396a(a)(30)(A)"require[s] comprehensive studies prior to any changein a state’s plan of reimbursement - studies thatwould put an environmental impact study to shameand make it all but impossible for a state to amend itsplan." Id. at 1029. In a decision by Judge Easter-brook, the court rejected this argument: "Nothing inthe language of § 1396a(a)(30)(A), or any imple-menting regulation, requires a state to conductstudies in advance of every modification." Id. at 1030.Instead, "states may behave like other buyers ofgoods and services in the marketplace: they may saywhat they are willing to pay and see whether thisbrings forth an adequate supply. If not, the state may(and under § 1396a(a)(30)(A), must) raise the priceuntil the market clears." Id.

Following the Seventh Circuit’s decision, theThird and Eighth Circuits reached the same conclu-sion. Rite Aid, 171 F.3d at 851 ("We agree with theCourt of Appeals for the Seventh Circuit that section(30)(A) requires the state to achieve a certain resultbut does not impose any particular method or processfor getting to that result."); Minn. HomeCare, 108F.3d at 918 (holding that the Medicaid Act "does notrequire the State to utilize any prescribed method ofanalyzing and considering said factors"); see also id.at 919 (arguing that § 1396a(a)(30)(A) does not im-pose any procedural requirements with respect to

29

Medicaid ratemaking by state legislators) (Loken, J.,concurring). The First and Fifth Circuits also haveconcluded, at least implicitly, that no pre-enforcementstudy is required. Long Term Care PharmacyAlliance, 362 F.3d at 56, 59 (stating that "the statutedoes not provide any procedure for the determinationof such ’methods and procedures,’" and observing"[n]or, in the abstract, is there anything patentlywrong with the [state’s] arguing that it has power toact on an emergency basis, or its desire to see wheth-er supply can be maintained after a 1% reduction");Evergreen, 235 F.3d at 933 n.33 ("While we do notreach the merits of this conclusion, we note that stud-ies, while helpful, are not required by the language ofsection 30(A). Accord Methodist Hosps., Inc., 91 F.3d

at 1030.").

The Eighth Circuit’s decision in Minnesota Home-care left intact an earlier decision that held thata change in reimbursement procedures could beenjoined because the state failed to adequately "con-sider" the impact of the rate change before imple-menting it. See Arkansas Med. Soc’y, Inc. v. Reynolds,6 F.3d 519, 531 (8th Cir. 1993) (affirming judgmentagainst state because, in reducing reimbursementrates to noninstitutional Medicaid providers by 20%,the state "failed to consider the rate reduction’s im-pact on equality of access, efficiency, economy, andquality of care"); Minn. HomeCare, 108 F.3d at 918.Arkansas Medical Society is the only circuit courtdecision that even comes close to the Ninth Circuit’sapproach.

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That said, if "consideration" is the test, thenCalifornia met it here. See App., infra, App. 168-86.DHCS offered 18 declarations analyzing the impact ofthe reductions on the § 1396a(a)(30)(A) factors. Thisconsidered analysis was rejected as either untimely(i.e., "post hoc") or as insufficient because it failed, insome cases, to be based on cost data where DHCSconceded it had no mechanism in place to collect suchdata. App., infra, 11-12 & n.9. The Ninth Circuit’sdecisions require the State, before enacting a ratereduction, to conduct a study that, in the words of theSeventh Circuit, would "put an environmental impactstudy to shame.’’8

b. The Ninth Circuit’s approach is unique amongthe circuits in two additional ways. First, because theNinth Circuit characterized the requirements under§ 1396a(a)(30)(A) as "process-oriented," it did notassess (or require the district court to assess) whetherthe reduced reimbursement rates are "substantively"adequate under § 1396a(a)(30)(A). DHCS submittedevidence to show that they were, App., infra, 166,which the Ninth Circuit apparently deemed ir-relevant (as inappropriately "post hoc"). So far asDHCS can determine, the Ninth Circuit is the onlycircuit to have adopted a rule under which Medi-caid reimbursement rates may be enjoined under

8 Indeed, Medi-Cal rates are established for more than12,000 different physician procedures covered by the program,and the Ninth Circuit’s approach would appear to require theState to conduct a cost study for each of these procedures.

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§ 1396a(a)(30)(A) based solely on a purported "proc-ess" defect: that is, without determining whether thenew rates meet the substantive requirements of

§ 1396a(a)(30)(A).

Second, the Ninth Circuit stands alone inrequiring state Medicaid reimbursement rates to beara reasonable relationship to providers’ costs. No othercircuit has held that § 1396a(a)(30)(A) imposes such arequirement. To the contrary, the Third Circuit ex-plained in Pennsylvania Pharmacists that "Section

30(A), unlike the Boren Amendment, does not de-mand that payments be set at levels that aresufficient to cover provider costs." 283 F.3d at 538.And in Evergreen, the Fifth Circuit explained that astate could set Medicaid reimbursement payments solow as to force some providers into bankruptcy, solong as other (presumably more efficient) providersremained to provide the services at issue. 235 F.3d at929.9 Moreover, the federal government previously

advised this Court, in an invitation brief filed inOrthopaedic, that "[w]e agree ... that the court ofappeals [in Orthopaedic] erred in reading Section

9 Cf Long Term Care, 362 F.3d at 56-57 (noting that"nothing in subsection 30(A) expressly provides that those whofurnish Medicaid services ... have any specific rights to ...substantive (e.g., just and reasonable rates) protections"); RiteAid, 171 F.3d at 853 ("[W]e think it consistent with our readingof section 30(A) that a finding of the pharmacies’ costs is notmandated: within the agency’s discretion, pharmacies’ costs maybe considered or not, so long as its process of decision-making isreasonable and sound.").

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1396a(a)(30)(A) as imposing on States an obligationto set payment rates for outpatient services that"’substantially reimburse providers their costs.’" Brief

for the United States as Amicus Curiae at 6, Belshe v.Orthopaedic Hosp., No. 96-1742 (S. Ct. Nov. 26, 1997),1997 WL 33561790 (citing Wilder and the nowrepealed Boren Amendment).

c. Finally, there is conflict among the circuitsregarding the role that budgetary concerns may playin a state’s decision to reduce rates. The Ninth Circuitindicated that, "quite apart from any procedural re-quirements established by Orthopaedic Hospital, theState’s decision to reduce Medi-Cal reimbursementrates based solely on state budgetary concernsviolated federal law." App., infra, at 20. The Thirdand Eighth Circuits have made similar statements.Ark. Med. Soc’y, 6 F.3d at 531 (state "may take statebudget factors into consideration," but that they"cannot be the conclusive factor"); Rite Aid, 171 F.3dat 856. The Fifth Circuit, however, reversed aninjunction where "[t]he district court held that [thestate’s] primary reason for the rate reduction wasbudgetary," holding that the court had engaged in"the wrong inquiry." Evergreen, 235 F.3d at 932; cf. id.at 921 (holding that published statement that ratechange was "being taken in order to avoid a budgetdeficit in the medical assistance program" was"sufficient" to satisfy Medicaid Act’s public noticerequirement, 42 U.S.C. § 1396a(a)(13)(A)).

2. Review is also warranted because the NinthCircuit’s decisions are erroneous and conflict with

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this Court’s precedent. None of the bases for pre-emption identified by the Ninth Circuit - the State’sfailure to conduct a pre-enactment study, the require-ment for a State to show a "reasonable relationship"between costs and rates, the prohibition on budget-motivated rate reductions - is set forth in the text ofthe statute or in its implementing regulations. Rather,§ 1396a(a)(30)(A) sets some substantive objectionsand leaves to the States the means to accomplishthem (subject to approval by HHS). See MethodistHosps., 91 F.3d at 1030; see also Rite Aid, 171 F.3d

at 851-52; Minn. HomeCare, 108 F.3d at 918. Andwhile a full description of the legislative history of§ 1396a(a)(30)(A) is beyond the scope of this petition,DHCS notes that the relevant history reflects Con-gress’s intention to give the states more flexibility intheir rate-setting rather than to impose the type offormal fact-finding requirements that existed underthe Boren Amendment (at least as it was judiciallyconstrued until its repeal). See Pa. Pharmacists, 283F.3d at 540-43.

The Ninth Circuit’s decisions also conflict withthis Court’s precedent. In Pennhurst, this Court madeclear that, with respect to Spending Clause legisla-tion such as the Medicaid Act, "if Congress intends toimpose a condition on the grant of federal moneys, itmust do so unambiguously." 451 U.S. at 17. This isbecause such legislation "is much in the nature of acontract," and only if an obligation is imposed unam-biguously may a state exercise its choice to enter intothe contract "knowingly [and] cognizant of the

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consequences of [its] participation." Id. Thus, "wemay assume that Congress will not implicitly attemptto impose massive financial obligations on the States."Id. The Ninth Circuit disregarded these principleswhen it read into § 1396a(a)(30)(A) requirements forwhich Congress did not "unambiguously" provide,therefore subjecting California to massive liabilitythat it did not anticipate.

Worse, the atextual requirements imposed by theNinth Circuit have expanded with each successivejudicial opinion, making it impossible for the Stateto anticipate and comply with them, thereby expos-ing the State to more and more liability. WhileOrthopaedic required the State to "rely on responsiblecost studies, its own or others," in setting rates, thatdecision did not require any study to be completedpre-implementation; rather, the State was permittedto implement the rate reductions while its costanalysis was underway. See 103 F.3d at 1494, 1496.To comply with Orthpaedic, in the present case,DHCS submitted declarations that analyzed theimpact of the rate reductions on the § 1396a(a)(30)(A)factors, and on providers’ costs, including cost datawhere it was available. But this was held insufficientbecause the Ninth Circuit added yet more require-ments to Orthopaedic’s already atextual requirements:that any studies occur before the cuts are "imple-ment[ed]," App., infra, 4, and that they be prepared"in anticipation" of the rate reduction. App., infra, 11-12 & n.9. Then, in September 2008, the Californialegislature enacted subsequent Medicaid reductions

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(the "ABl183 reductions") and delayed their imple-mentation until March 2009, thereby enabling DHCSto analyze their impact prior to their implementation.See Cal. Welf. & Inst. Code § 14105.191(b),(h) (West2009) (eft. Sept. 30, 2008). In an effort to comply withthe Ninth Circuit’s rulings to date, DHCS preparedstudies of the ABl183 reductions in the monthsbefore they were to take effect. Nonetheless, thedistrict court enjoined many of the reductions, findingthat the pre- and post-enactment studies cited byDHCS were unsatisfactory, after engrafting yet moreatextual requirements: now, that there must be evi-dence that any study was conducted (or possibly atleast considered) by the Legislature rather thanDHCS, and any study must be completed not just pre-implementation but also pre-enactment. ManagedPharmacy Care v. Maxwell-Jolly, 603 F. Supp. 2d1230, 1238 (C.D. Cal. 2009); Cal. Pharmacists Ass’n v.Maxwell-Jolly, 630 F. Supp. 2d 1154, 1161 (C.D. Cal.2009), stay granted, 563 F.3d 847 (9th Cir. 2009); Cal.Pharmacists Ass’n v. Maxwell-Jolly, 630 F. Supp. 2d1144, 1151 (C.D. Cal. 2009). In a published decisionissued on April 6, 2009, the same panel that decidedIndependent Living accepted this expansion, holdingthat providers in California Pharmacists (challengingthe AB 1183 reductions) had "made a strong showingof... likelihood" of success, and granted a stay ofstatutory reductions at issue that the district courthad previously denied. 563 F.3d 850.

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III. THE ISSUES PRESENTED ARE IMPOR-TANT AND RECURRING

1. The issues presented here are important andrecurring. The Ninth Circuit’s decisions in Inde-pendent Living I, II, and III have spawned a new,national wave of Medicaid litigation. So far as DHCScan determine, at least 33 additional cases of thistype have been filed in the last two years, including17 in California, and 16 in other states, includingArizona, Connecticut, Delaware, Hawai’i, Idaho, Lou-isiana, Maine, Minnesota, New York, Pennsylvania,and Washington. App., infra, 211-23.1° While§ 1396a(a)(30)(A) has been the primary basis for suchclaims, the courts have also now permitted the Su-premacy Clause to animate claims based on 42 U.S.C.§§ 1396a(a)(17) and the American Recovery and Re-investment Act of 2009, among others. App., infra, at213, 217, 221, 222. All of these lawsuits are proceed-ing under statutes as to which Congress chargedHHS with reviewing state compliance and did notcreate any privately enforceable rights.

2. Through its three decisions in this case, andits earlier ruling in Orthopaedic, the Ninth Circuithas set out the legal rules that govern this case andthat will govern similar pending cases. Furtherproceedings under the fundamentally flawed legal

lo Two cases were omitted from the Appendix. See Minn.Pharmacists Ass’n, No. 09-2723, 2010 U.S. Dist. LEXIS 11620(D. Minn. Feb. 10, 2010); Pharmacists Soc’y of the State of N.Y.v.Paterson, No. 09-CV-1100 (N.D.N.Y.).

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framework adopted by the Ninth Circuit will simplyperpetuate that court’s legal error, while critical timeis lost in enabling the states to address Medicaidreform as part of their ongoing budget crises. Giventhe importance of the issues presented, the now well-developed nature of the case law, and the rapidlyexpanding impact of the Ninth Circuit’s decisions inIndependent Living I, H, and III, review is meritednow. This Court has used its certiorari jurisdiction toreview interlocutory decisions that raise "importantlegal or constitutional issues," where the circum-stances justify an "’earlier interposition.’" EugeneGressman et al., Supreme Court Practice 81 (9th ed.2007) (quoting The Conqueror, 166 U.S. 110, 114(1897)). That is precisely the case here.

In California, based on the Independent Livingdecisions, the courts have already issued six injunc-tions of Medicaid reform efforts, with almost a dozenadditional challenges still pending. App., infra, 211-19. The losses to California from these injunctions arefast approaching $1 billion, consisting of almost $700million paid or due under existing injunctions as ofFebruary 1, 2010, plus an additional $250 million inretroactive damages claimed by providers in thepresent case. App., infra, 211-14. The State will incuran additional $34 million loss each month that theexisting injunctions remain in effect, assuming nofurther injunctions are added. App., infra, 211-14.

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These losses could not come at a worse time, asCalifornia grapples with a financial crisis of unprece-dented proportions.11 The Ninth Circuit’s holding thatMedicaid payment reductions cannot be motivated bybudgetary considerations leaves California in animpossible position, as much of its current legislativeeffort is being directed to address its crisis, andMedicaid expenditures represent the second largestcomponent in its budget (after K-12 education).Further exacerbating the problem is the uncertaintyin the law: specifically the ever-shifting series ofatextual requirements that the Ninth Circuit con-tinues to impose, but the State has been unable toanticipate and meet, in contravention of Pennhurstand the cooperative federalism that animates theMedicaid program. In practical terms, the Ninth Cir-cuit’s holdings have made it difficult-to-impossible forCalifornia to project its Medicaid budget shortfalls(and budget for them) or to address its ongoing fiscalcrisis through sensible Medicaid reform.

11 California now has an accrued deficit of $24.8 billion andgrowing: for the first six months of the current fiscal year(through December 31, 2009), general fund receipts were $375million below budget, and disbursements were $762 millionabove budget. Controller John Chiang, Statement of GeneralFund Cash Receipts and Disbursements: January 2010 Sum-mary Analysis, http://www.sco.ca.gov/Press-Releases/2010/01-10summary.pdf; see also California’s General Fund Cash Outlookfor the Months of January-December 2010, http://www.sco.ca.gov/Files-EO/01-22-10cashbalance.jpg.

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CONCLUSION

For the foregoing reasons, the petition for a writof certiorari should be granted.

Dated: February 16, 2010

Respectfully submitted,

EDMUND G. BROWN JR.

Attorney General of California~IANUEL M. MEDEIROS

State Solicitor GeneralDAVID S. CHANEY

Chief Assistant Attorney GeneralGORDON BURNS

Deputy Solicitor GeneralDOUGLAS M. PRESSSenior Assistant Attorney GeneralRICHARD W. WALDOW

KARIN S. SCHWARTZ*JENNIFER M. KIM

Supervising DeputyAttorneys General

CARMEN SNUGGS

Deputy Attorney General

*Counsel of Record

Counsel for PetitionerDavid Maxwell-Jolly, Director,California Department ofHealth Care Services

Of counsel:DAN SCHWEITZER2030 M Street, NW, 8th FloorWashington, DC 20036(202) 326-6010