Opinion
CV-03-121-ST
December 8, 2003
FINDINGS AND RECOMMENDATIONS
INTRODUCTION
On January 28, 2003, plaintiffs, Elizabeth A. Spry, Gary Spry, Demon Harvey, Michael McCarthy, and Mary Gaye Reyes, on behalf of themselves and approximately 80,000 other similarly situated participants in the low-income Oregon Health Plan ("OHP"), filed this action against defendants, Tommy Thompson, Secretary of the United States Department of Health and Human Services ("HHS"), Thomas Scully, Administrator of Centers for Medicare and Medicaid Services, and Jean Thorne ("Thorne"), Director of the Oregon Department of Human Services ("ODHS").
The Centers for Medicare and Medicaid Services ("CMS") is a federal agency within the HHS that administers the Medicaid program on behalf of the Secretary.
On June 13, 2003, plaintiffs filed a Second Amended Complaint alleging eleven claims based on a denial of healthcare because of premium and co-payment charges included in a revised version of OHP known as the Oregon Health Plan 2 ("OHP2").
This court issued Findings and Recommendation on October 17, 2003 (docket # 77) dismissing plaintiffs' claim for a violation of the Due Process Clause of the Fourteenth Amendment (Ninth Claim). The plaintiffs' remaining claims against Tommy Thompson and Thomas Scully (the "federal defendants") allege violations of the following statutes: 42 U.S.C. § 3515b (First Claim); 42 U.S.C. § 1315 (Second, Third, Fourth and Fifth Claims); and 42 U.S.C. § 1396o(f) and 5 U.S.C. § 552(a)(1)(D) and (E) (Sixth Claim). Plaintiffs' remaining claims against Thorne (the "state defendant") allege violations of the following: 42 U.S.C. § 1396o(b)(1) (Seventh Claim); 42 U.S.C. § 1396o(b)(3) (Eighth Claim); the Equal Protection Clause of the Fourteenth Amendment (Tenth Claim); and 42 U.S.C. § 1983 based on violations of §§ 1315 and 1396o and the Fourteenth Amendment (Eleventh Claim).
Plaintiffs' Second Amended Complaint seeks to certify a class, enjoin co-payment and premium requirements, and declare that: (1) the federal defendants abused their discretion by approving the OHP2 waiver; (2) the state defendant's imposition of non-nominal co-payment and premium requirements unrelated to an individual's income violates 42 U.S.C. § 3515b and 1396o; and (3) the state defendant's imposition of such premiums and co-payments occurs in a manner that treats equally situated classes differently without a rational basis for this distinction, thereby violating the Equal Protection Clause of the Fourteenth Amendment. Alternatively, plaintiffs seek to enjoin the federal defendants' approval of premium and co-payment requirements in OHP2 until HHS determines that the requirements of 42 U.S.C. § 3515b, 1315 and 1396o(f) have been met.
Plaintiffs filed a Motion for Summary Judgment against both the state and federal defendants (docket #34). The state defendant responded with a Cross-Motion for Summary Judgment (docket #57), as did the federal defendants (docket #61). These motions are now before this court. This court has original jurisdiction over the plaintiffs' federal statutory claims under 28 U.S.C. § 1331.
Plaintiffs Motion to Certify the Class (docket # 46) has been stayed (docket #55) pending a final ruling on the Findings and Recommendation issued by this court (docket # 77) on the state defendant's Motion to Dismiss (docket #11).
For the reasons stated below, all motions should be granted in part and denied in part.
LEGAL STANDARDS
FRCP 56(c) authorizes summary judgment if "no genuine issue" exists regarding any material fact and "the moving party is entitled to judgment as a matter of law." The moving party must show an absence of an issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party does so, the nonmoving party must "go beyond the pleadings" and designate specific facts showing a "genuine issue for trial." Id at 324, citing FRCP 56(e). The court must "not weigh the evidence or determine the truth of the matter, but only determines whether there is a genuine issue for trial." Balint v. Carson City, 180 F.3d 1047, 1054 (9th Cir 1999) (citation omitted). A "` scintilla of evidence,' or evidence that is `merely colorable' or `not significantly probative,'" does not present a genuine issue of material fact. United Steelworkers of Am. v. Phelps Dodge Corp., 865 F.2d 1539, 1542 (9th Cir), cert denied, 493 U.S. 809 (1989) (emphasis in original) (citation omitted).
The substantive law governing a claim or defense determines whether a fact is material. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 631 (9th Cir 1987). The court must view the inferences drawn from the facts "in the light most favorable to the nonmoving party." Id (citation omitted). Thus, reasonable doubts about the existence of a factual issue should be resolved against the moving party. Id at 631.
BACKGROUND ON THE MEDICAID ACT
The structure of the Medicaid program and its enabling statute are the chief subjects of all three motions for summary judgment. The following are the uncontested background facts surrounding these issues.
I. Basic Medicaid Program
Congress created the Medicaid program in 1965 by adding Title XIX to the Social Security Act, 42 U.S.C. § 1396-1396v ("Medicaid Act"). The Medicaid program "authorizes federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons." Pharmaceutical Research and Mfrs. of Am. v. Walsh, 123 S. Ct. 1855, 1861 (2003). The root statutory authorization for Medicaid states that the program is designed:
For the purpose of enabling each State, as far as practicable under the conditions in such State, to furnish (1) medical assistance on behalf of families with dependent children and of aged, blind, or disabled individuals, whose income and resources are insufficient to meet the costs of necessary medical services, and (2) rehabilitation and other services to help such families and individuals attain or retain capability for independence or self-care [.]42 U.S.C. § 1396.
Medicaid is administered by each state that chooses to enroll. While participation is voluntary, a participating state is bound by the Medicaid Act's statutory and regulatory requirements.
In order to participate in the Medicaid program, a state must have a plan for medical assistance approved by the Secretary of HHS ("Secretary"). 42 U.S.C. § 1396a(a) and (b) (" § 1396a"). A state plan defines the categories of individuals eligible for benefits and the specific kinds of medical services that are covered. Id. The plan must provide coverage for the "categorically needy" (also known as "mandatory") and, at the state's option, may also cover the "medically needy" (also known as "optional"):
The "categorically needy" groups include individuals eligible for cash benefits under the Aid to Families with Dependent Children (AFDC) program, the aged, blind, or disabled individuals who qualify for supplemental security income (SSI) benefits, and other low-income groups such as pregnant women and children entitled to poverty-related coverage. § 1396a(a)(10)(A)(i).
The "medically needy" are individuals who meet the nonfinancial eligibility requirements for inclusion in one of the groups covered under Medicaid, but whose income or resources exceed the financial eligibility requirements for categorically needy eligibility. § 1396a(a)(10)(C).Pharmaceutical. Research, 123 S. Ct. at 1861 nn 4, 5.
The Personal Responsibility And Work Opportunity Reconciliation Act of 1996, PL 104-193 replaced the AFDC program with block grants to states for Temporary Assistance for Needy Families ("TANF"). However, categorical Medicaid eligibility remains linked to eligibility under the state's AFDC program, as it was in effect at the time PL 104-193 was enacted. Specifically, references to eligibility under Title IV-A of the Social Security Act (formerly the citation to the AFDC program, but now where TANF provisions are located) are deemed by statute to be references to eligibility under the AFDC state plan in that state "as of July 16, 1996." See 42 U.S.C. § 1396u-l.
The Medicaid Act also mandates that specified types of health services be covered in a state plan (for example, physician services), but allows states the option of covering other types of services (for example, pharmaceuticals). The Medicaid Act has numerous other requirements and restrictions that apply to a state plan. The restriction most relevant to this case is in 42 U.S.C. § 1396o ("§ 1396o"), which prohibits a state plan from charging premiums or co-payments higher than a certain amount for some categories of recipients.
Once the Secretary approves a state plan setting out which categories of individuals and kinds of medical services will be covered, the state may seek federal payment for a specified percentage of the amounts "expended . . . as medical assistance under the State plan." 42 U.S.C. § 1396b(a)(1); see also 42 U.S.C. § 1396d(b).
II. Medicaid Waivers
Although not contained in the Medicaid Act, 42 U.S.C. § 1315 (" § 1315") is part of Title XI of the Social Security Act and allows HHS to waive a variety of the specific requirements that states must follow not only in the traditional Medicaid program, but also in other categorical assistance programs, such as SSI and the TANF program. Beno v. Shalala, 30 F.3d 1057, 1068 (9th Cir 1994). Such waivers provide the flexibility needed to enable states to try new or different approaches to the efficient and cost-effective delivery of health care services. Most importantly, § 1315 permits the HHS to expand Medicaid eligibility to groups of people, known as "expansion populations," that would not be eligible under traditional Medicaid programs. A program, like OHP2, must continue to serve the mandatory populations and may serve optional populations, even without a waiver, but a § 1315 waiver can add expansion populations, such as low-income, childless, non-disabled adults.
FACTS
For each motion for summary judgment, this court must view the material facts in the light most favorable to the non-movant. A review of the parties' facts, as well as the other materials submitted by the parties, including the certified Administrative Record ("Admin. R."), affidavits, and declarations reveal the following facts.I. The Oregon Health Plan
In 1994, using Medicaid waivers granted by HHS under § 1315, Oregon launched OHP, a medical assistance program designed to expand healthcare coverage to low-income Oregonians with incomes above the federal poverty level ("FPL"). Admin. R. 94. To offset the cost of expanding coverage to these individuals, Oregon developed the concept of the prioritized list of medical conditions, paired with their most effective treatments. Id at 96-97. Based upon the availability of state and federal funds, the state legislature then drew a line, and the services above the funding line were covered instead of the services mandated by the Medicaid Act. Id.
In recent years, the sustainability of the program has declined based on Oregon's budgetary crisis and rising healthcare costs. Id at 92, 95-96, 99. Thus, the 2001 Oregon Legislature directed ODHS to create OHP2, a restructuring program designed to "sustain the current program, expand coverage to higher income levels to stabilize insurance coverage and reach more uninsured Oregonians, and leverage private insurance, particularly employer-sponsored coverage." Id at 94. Numerous community meetings and commissions provided recommendations to ODHS during the development of OHP2. Id at 98-99. Finally, on May 31, 2002, ODHS submitted a § 1315 waiver application to HHS in order to permit implementation of OHP2. Id at 93-204. HHS approved the application on October 15, 2002, effective February 21, 2003. Id at 41-80.
The final version of OHP2 expands coverage to populations serviced by Medicaid and the State Children's Health Insurance Program ("SCHIP") (Title XXI of the Social Security Act). It also increases enrollment in the Family Health Insurance Assistance Program ("FHIAP"), which subsidizes premiums for employer-sponsored and private market health insurance for individuals with incomes up to 170% of the FPL.
OHP2 contains two different benefit packages provided to different categories of Medicaid recipients. Id at 55. What was formerly known as OHP became known as "Oregon Health Plan Plus" ("OHP Plus"), which continued to provide the same benefit package (based upon the prioritized list) to the mandatory populations and some optional populations as before, without cost-sharing other than nominal co-payments on prescription drugs and outpatient services. Id at 55, 61-62, 105-07. Certain other optional populations not previously covered under OHP were included in OHP Plus. Id at 41-42, 55, 105, 188. A handful of expansion populations were also included in OHP Plus, such as pregnant women with incomes from 170% to 185% of the FPL. Id at 46.
The second benefit package included in OHP2, which did not exist at all in OHP, is known as "Oregon Health Plan Standard" ("OHP Standard"). OHP Standard expands care to two expansion populations who would not be eligible for Medicaid without a 1315 waiver: (1) uninsured parents of children eligible under Medicaid and SCHIP with family incomes below 185% of the FPL and who are not eligible for Medicare; and (2) uninsured childless adults with incomes below 185% of the FPL who are not covered under Medicare. Id at 55, 105. As discussed below, plaintiffs are covered under OHP Standard because they fall in the latter category. The cost of this OHP Standard expansion was offset by reducing the benefit package offered under OHP Standard compared with OHP Plus and imposing monthly premiums and co-payments beginning February 1, 2003, regardless of the individual's ability to pay these costs. Id at 62-63, 107-09. Those beneficiaries who fail to pay the required premiums for OHP Standard are disqualified from OHP2 for a minimum of six months regardless of the reason for nonpayment. Id at 8, 26, 63-64, 109, 196. An OHP Standard recipient's failure to pay co-payments will not lead to disenrollment, but can result in a provider refusing to provide a service (except in the case of an emergency). Id at 13, 26, 63-64, 109, 196.
OHP Standard also covers several optional groups not previously covered by OHP. Admin. R. 188.
Although OHP Standard was authorized to apply to certain populations with incomes up to 185% of the FPL, ODHS chose to implement the expansion incrementally, beginning with an increase to 110% of the FPL. Id at 40. However, this incremental expansion never took place. The Oregon Legislative Emergency Board originally delayed the expansion to people with incomes below 110% of the FPL until July 1, 2003 ( Id. at 34-35) and has now presumably delayed it indefinitely. This delay in expansion of care under OHP Standard has not affected the applicability of the new premiums and co-payments to people with incomes below 100% of the FPL. II. Plaintiffs' Class
Plaintiffs previously received Medicaid coverage under OHP. See Declarations of Mary Gaye Reyes, Michael McCarthy, Demon Harvey, Elizabeth A. Spry, and Gary Spry. Under OHP2, the plaintiffs are not eligible for coverage under OHP Plus because they are either single or married childless adults who are neither disabled nor blind. See § 1396a(a)(10). Although they qualify for coverage under OHP Standard, they are homeless and destitute and lack the ability to pay the premiums and co-payments required. See Declarations of Mary Gaye Reyes, Michael McCarthy, Demon Harvey, Elizabeth A. Spry, and Gary Spry. As a result, some have lost their OHP Standard coverage and cannot reapply for any OHP Standard coverage until six months after their termination date. Id. They need prescription medications for serious health concerns, including cardiac arrhythmia, traumatic arthritis, depression, grand mal seizures, emphysema, and other respiratory problems. Id.
Plaintiffs challenge the HHS waivers that establish OHP2 as a demonstration project and authorize premiums and co-payments for certain OHP2 eligibility groups that include plaintiffs.
DISCUSSION
I. Preliminary Matters
Before moving on to the merits of plaintiffs' claims, defendants raise several preliminary issues regarding plaintiffs' right to sue.
A. Article III Standing
To have standing under Article III of the United States Constitution, a plaintiff must show (1) he has suffered an "injury in fact" that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury must be fairly traceable to the challenged action of the defendant; and (3) that it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. See Friends of the Earth, Inc. v. Laidlaw Envtl Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000), quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992); see also Beno, 30 F.3d at 1064. Injury must be established separately for each claim asserted. Franklin v. Massachusetts, 505 U.S. 788, 802 (1992).
The federal defendants argue that plaintiffs lack standing to challenge OHP2 because they have not been injured by the expansion of Medicaid coverage under OHP2, notwithstanding the higher premiums and co-payments. Instead, they argue that the expansion of coverage provided under OHP2 benefits plaintiffs, who, as members of an expansion population, would not otherwise receive any medical coverage. Furthermore, they argue that any injury plaintiffs suffer from the increased premiums and co-payments of OHP2 are not likely to be redressed by a favorable decision from this court. They assert that this court has no power to enjoin the imposition of premiums and co-payments on plaintiffs, but can, at best, remand the matter to HHS for additional investigation or explanation.
Although it is true that the plaintiffs would not receive coverage but for the existence of OHP2, the injury and causation prongs are still met here. If OHP2 were terminated, then plaintiffs would not receive coverage under any new Medicaid program (unless some type of waiver were involved) because they are do not fall in either the mandatory or optional category. However, plaintiffs have still suffered an injury caused by the change from OHP to OHP2. Plaintiffs received coverage under OHP and were exempted from premium and co-payment requirements because they were homeless and/or had no income. Under OHP2, plaintiffs are subject to co-payments and premiums, and as a result of their inability to pay them, all but one of them has been disqualified from OHP2. An injury occurred for the simple reason that under OHP they were able to obtain care and under OHP2 they are not. The fact that Oregon might choose not to offer any coverage to plaintiffs if OHP2 ends does not reduce the injury caused by the change from OHP to OHP2.
Despite the federal defendants' assertions, it is by no means certain that if Oregon created a new demonstration program, it would exclude the plaintiffs. The premiums and co-payments in OHP Standard were created with a primary purpose of funding the expansion of coverage to certain categories of people making up to 185% of the FPL. Admin. R. 62-63, 107-09. However, plaintiffs were already covered under OHP. They did not require the passage of the expansion in OHP2 to become covered. The federal defendants might be correct, but it is also possible that if the Oregon Legislature chooses to create a new demonstration project, it will remove the premiums and co-payments while covering the plaintiffs in the same manner as did OHP, even if the state must eliminate coverage for some populations with higher income levels to whom OHP2 extended coverage.
The redressability prong is met here as well. Courts have made it clear that to have standing, "a federal plaintiff must only show that a favorable decision is likely to redress his injury, not that a favorable decision will inevitably redress his injury." Beno, 30 F.3d at 1065, citing Lujan, 504 US at 559-60 (emphasis in original). Therefore, even if this court only has the power to remand the waiver to HHS, and the Secretary might again issue a waiver to OHP2 on remand, plaintiffs' standing is not defeated. Id. What matters is the requirement that a favorable ruling is likely to redress plaintiffs' injury. This requirement is met here because the Oregon statutes explicitly require ODHS to get HHS approval for OHP2, and OHP2 cannot continue without proper approval. Admin. R. 101, 146; See Beno, 30 F.3d at 1065. Therefore, if this court finds that HHS improperly approved the waiver, then it is possible on remand that a newly improved waiver could redress the plaintiffs' injuries, such as by excluding the premium and co-payment requirements. See Beno, F.3d at 1065. B. Statutory Standing
This court rejects the proposition that it does not have the authority to enjoin the co-payments in OHP2, as discussed below in Section VI.
In cases challenging an agency's decision pursuant to the Administrative Procedures Act ("APA"), "the interest sought to be protected by the complainant must be arguably within the zone of interests to be protected or regulated by the statute . . . in question." National Credit Union Admin, v. First Nat'l Bank Trust Co., 522 U.S. 479, 488 (1998). Because this court reviews the Secretary's decision to approve the OHP2 waiver pursuant to the APA, the federal defendants argue that plaintiffs must show that they fall within the "zone of interests" to be protected or regulated by the underlying Medicaid statute. They assert that plaintiffs are not within the "zone of interests" of the Medicaid Act because they are neither mandatory nor optional beneficiaries under the statute and would not receive Medicaid assistance in the absence of a § 1315 waiver.
The Court defines its "zone of interests" test as follows:
Our prior cases, therefore, have consistently held that for a plaintiff's interests to be arguably within the "zone of interests" to be protected by a statute, there does not have to be an "indication of congressional purpose to benefit the would-be plaintiff." The proper inquiry is simply "whether the interest sought to be protected by the complainant is arguably within the zone of interests to be protected . . . by the statute." Hence in applying the "zone of interests" test, we do not ask whether, in enacting the statutory provision at issue, Congress specifically intended to benefit the plaintiff. Instead, we first discern the interests "arguably . . . to be protected" by the statutory provision at issue; we then inquire whether the plaintiffs interests affected by the agency action in question are among them.Id at 492 (internal citations omitted; emphasis in original).
The federal defendants incorrectly argue that the only statute in question in this case is the Medicaid Act in Title XIX of the Social Security Act. Plaintiffs are also challenging the propriety of the Secretary's decision to approve the OHP2 waiver under § 1315 (Title XI of the Social Security Act). Section 1315 permits the expansion of Medicaid to individuals normally ineligible, such as plaintiffs. Therefore, plaintiffs are within the "zone of interests" of that statute when a new waiver under § 1315 removes their coverage.
Plaintiffs also are arguably within the zone of interests of the Medicaid Act. The interest to be protected by the Medicaid Act is the health of needy persons. Plaintiffs are in the expansion populations, not in the mandatory or optional populations, but they also are needy individuals for whom expenditures for health care are made under 42 U.S.C. § 1396b ("§ 1396b"), albeit as a result of the waiver in § 1315(a)(2)(A). Therefore, they arguably fall within the zone of interests of the Medicaid Act, because their interest in the expenditure of funds under § 1369b has been threatened as a result of the new OHP2 demonstration project.
C. Private Cause of Action
The state defendant argues that no private right of action under the Medicaid Act is involved in this case. This court rejected this argument in its Findings and Recommendation (docket # 77) on the state defendant's Motion to Dismiss (docket #11). This court will not reexamine those issues here.
II. Can HHS Waive the Co-Payment and Premium Restrictions in § 1396o. or is a Waiver Necessary at All?
Plaintiffs argue that § 1315 only permits HHS to waive the requirements of § 1396a for the purposes of OHP2, not the premium and co-payment restrictions found in § 1396o. Therefore they conclude that HHS abused its discretion under § 1315 by authorizing OHP2 which imposes premiums and co-payments in violation of § 1396o.
The federal defendants reply that § 1396o does not apply to plaintiffs. HHS believes that the provisions in §§ 1396a-v apply only to Medicaid recipients who are individuals eligible under a state plan. HHS argues that the plaintiffs, as an expansion population rather than a mandatory or optional population, are served only by virtue of the OHP Standard demonstration project authorized by what HHS considers the "expenditure authority" of § 1315(a)(2). That expenditure authority, coupled with Title XXI funds (SCHIP funds), allows the expansion of coverage. Simply put, HHS does not believe that plaintiffs are covered under a state plan, and therefore the restrictions on state plans in § 1396o do not apply to plaintiffs.
The state defendant disagrees with the federal defendants, arguing that while §§ 1396a-v may apply to plaintiffs, the § 1315 waiver for OHP2 was used to "wipe the slate clean" such that §§ 1396a-v, including § 1396o, do not apply to OHP2 beneficiaries.
This court rejects the federal defendants argument that none of the provisions in § 1396o apply to plaintiffs. The populations served by a § 1315 demonstration project are covered by a state plan under the Medicaid Act. On the other hand, while HHS can waive most of the provisions from §§ 1396a-v, this court rejects the state defendant's argument § 1315 alone can be used to waive all of § 1396o. Instead, as discussed below, this court finds that the premium and co-payment restrictions in §§ 1396o(a) and (b) do not apply to plaintiffs as expansion populations, but that the co-payment restrictions in § 1396o(f) do apply to them. According to § 1396o(f), HHS must comply with five criteria, even in the case of a § 1315 demonstration project, if it applies co-payments to expansion populations. In the case of OHP2, the § 1315 waiver does not comply with at least one of these five criteria in § 1396o(f). Additionally, OHP2 violates § 1396o(e) by permitting health care providers to deny care to OHP Standard recipients who can not afford their co-payments.
A. §§ 1396a and 1396o Restrictions
Section 1396a is a voluminous statute containing over 300 subsections setting forth the restrictions on traditional state Medicaid plans. It covers an extensive array of eligibility requirements, including which groups of people must be covered, which groups may be covered at the states' option, and the benefits and services that these groups must receive.
One subsection of § 1396a regulates the amount of premiums or co-payments that state plans can charge. That subsection, § 1396a(a)(14), indicates that a state plan must "provide that enrollment fees, premiums, or similar charges, and deductions, cost sharing, or similar charges, may be imposed only as provided in section 1396o of this title."
1. § 1396o(a)
Section 1396o contains several subsections, the first two of which govern the imposition of certain charges under a state plan. Section 1396o(a) limits a state plan's use of premiums (§ 1396o(a)(1)) or co-payments (§ 1396o(a)(3)) "in the case of individuals described in subparagraph (A) or (E)(i) of section 1396a(a)(10) of this title who are eligible under the [state] plan." These individuals described in § 1396a(a)(10)(A) and (E)(i) are the mandatory recipients of Medicaid. Since plaintiffs are not mandatory beneficiaries, this section does not apply to them.
2. § 1396o(b)
Section 1396o(b) restricts a state plan's use of premiums and co-payments "in the case of individuals other than those described in subparagraph (A) or (E) of section 1396a(a)(10) of this title who are eligible under the [state] plan" (emphasis added). This language certainly means that the restrictions in § 1396o(b) apply to the optional beneficiaries defined by § 1396a(a)(10)(C) ("any group of individuals . . . who are not described in subparagraph (A) or (E)"). As discussed below, the parties disagree over whether § 1396o(b) applies to expansion populations, such as the plaintiffs, because these populations are never specifically defined in § 1396a(a)(10) or elsewhere in Title XIX. The relevant portions of § 1396o(b) set forth the following restrictions:
The State plan shall provide that in the case of individuals other than those described in subparagraph (A) or (E) of section 1396a(a)(10) of this title who are eligible under the [state] plan —
(1) there may be imposed an enrollment fee, premium, or similar charge, which (as determined in accordance with standards prescribed by the Secretary) is related to the individual's income,. . .
(3) any deduction, cost sharing, or similar charge imposed under the [state] plan with respect to other such individuals or other care and services will be nominal in amount. . . .
(Emphasis added).
HHS has drafted regulations to define whether a premium is "related to an individual's income" pursuant to § 1396o(b)(1). 42 C.F.R. § 447.52. For a one or two person family with income at the poverty line, the maximum premium allowed is $13.00 per month. Id.
Similarly, HHS has drafted regulations defining whether a co-payment is "nominal" pursuant to § 1396o(b)(3). 40 C.F.R. § 447.54. These regulations tie the co-payment to the state's typical charge for the service, not to exceed $3.00. Id. Section 1396o(b)(3) permits HHS to waive the "nominal" restriction on co-payments in one very narrow situation, namely when services are
received at a hospital emergency room if the services are not emergency services . . . and the State has established to the satisfaction of the Secretary that individuals eligible for services under the plan have actually available and accessible to them alternative sources of nonemergency, outpatient services.3. § 1396o(f)
As discussed below, the state defendants contend that § 1315 serves as an alternative source of authority for HHS to waive the co-payment restrictions found in § 1396o.
In addition to the §§ 1396o(a) and (b) restrictions on the application of premiums and co-payments to certain populations, § 1396o(f) restricts the manner in which the Secretary can impose a "deduction, cost sharing, or similar charge" under any waiver authority, including demonstration projects:
(f) Charges imposed under waiver authority of Secretary[:]
No deduction, cost sharing, or similar charge may be imposed under any waiver authority of the Secretary, except as provided in subsections (a)(3) and (b)(3) of this section, unless such waiver is for a demonstration project which the Secretary finds after public notice and opportunity for comment —
(1) will test a unique and previously untested use of copayments,
(2) is limited to a period of not more than two years,
(3) will provide benefits to recipients of medical assistance which can reasonably be expected to be equivalent to the risks to the recipients,
(4) is based on a reasonable hypothesis which the demonstration is designed to test in a methodologically sound manner, including the use of control groups of similar recipients of medical assistance in the area, and
(5) is voluntary, or makes provision for assumption of liability for preventable damage to the health of recipients of medical assistance resulting from involuntary participation.
(Emphasis added).
As discussed later, the parties greatly dispute the effect of § 1396o(f) on expansion populations receiving care under a § 1315 demonstration project, but both parties incorrectly accept the proposition that § 1396o(f) restricts the Secretary's use of waiver authority to charge co-payments and premiums. Both the text and the legislative history of § 1396o(f) demonstrate that this section only restricts the Secretary's ability to use waivers to charge co-payments, not premiums.
The restriction in § 1396o(f) speaks in terms of "no deduction, cost sharing, or similar charge." This is the same language used in §§ 1396o(a)(3) and (b)(3) when referring to the "nominal" restrictions on a "deduction, cost sharing, or similar charge," or co-payments, for mandatory populations and optional populations, respectively. In contrast, the restrictions on premium charges are phrased as applying to an "enrollment fee, premium, or similar charge" in § 1396o(a)(1) (in the case of mandatory populations) and in § 1396o(b)(1) (in the case of optional populations). If Congress had meant for the restrictions in § 1396o(f) to apply to premiums as well as co-payments, it would have also referred to "enrollment fee, premium, or similar charge," not simply "deduction, cost sharing, or similar charge."
Section 1396o(f) further supports this interpretation by providing that the Secretary may not impose such a charge under any waiver authority "except as provided in subsections [1396o](a)(3) and [1396o](b)(3) . . ." As noted above, §§ 1396o(a)(3) and (b)(3) refer to the "nominal" restrictions on a "deduction, cost sharing, or similar charge," or co-payments. If Congress had meant for § 1396o(f) to restrict premiums as well as co-payments, it would have included a reference to the other sections restricting premiums (§§ 1396o(a)(1) and (b)(1)).
Finally, the legislative history supports the view that § 1396o(f) applies to restrict the use of co-payments, not premiums. The House conference report for PL 97-248, the 1982 law which added § 1396o(f) to Title XIX of the Social Security Act, only discusses restrictions on co-payments. H. Conf. Rep. No. 97-760, at 434-35 (1982).
4. § 1396o(e)
A final restriction on the use of co-payments is found in § 1396o(e), which states:
The State plan shall require that no provider participating under the State plan may deny care or services to an individual eligible for such care or services under the plan on account of such individual's inability to pay a deduction, cost sharing, or similar charge.
(Emphasis added).
By applying only to a "deduction, cost-sharing, or similar charge," § 1396o(e) only restricts co-payments, as does § 1396o(f). If Congress had meant for the restrictions in § 1396o(e) to apply to premiums as well as co-payments, it would have also used the premium language referring to an "enrollment fee, premium, or similar charge," not just the co-payment language referring to a "deduction, cost sharing, or similar charge."
B. § 1315 Waivers
To obtain a waiver from at least some of the traditional Medicaid rules, a state must comply with the following requirements of § 1315(a):
In the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of subchapter I, X, XIV, XVI, or XIX of this chapter, or part A or D of subchapter IV of this chapter, in a State or States —
(1) the Secretary may waive compliance with any of the requirements of section 302, 602, 654, 1202, 1352, 1382, or 1396a of this title, as the case may be, to the extent and for the period he finds necessary to enable such State or States to carry out such project, and
(2)(A) costs of such project which would not otherwise be included as expenditures under section 303, 655, 1203, 1353, 1383, or 1396b of this title, as the case may be, and which are not included as part of the costs of projects under section 1310 of this title, shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State plan or plans approved under such subchapter, or for administration of such State plan or plans, as may be appropriate[.]
(Emphasis added). C. Is a Demonstration Project Under § 1315 Part of a State Plan Under the Medicaid Act?
The parties disagree as to whether OHP2, as a demonstration project authorized by § 1315, is a state plan that must comply with all provisions of the Medicaid Act, including § 1396o. For understandable reasons, Congress and the states have turned increasingly to § 1315 waivers to meet the evolving challenges of providing care under Medicaid and other entitlement programs created by the Social Security Act and its amendments. However, these so-called demonstration projects authorized by § 1315 have often morphed into large, semi-permanent state-wide programs for comprehensively providing Medicaid coverage to a variety of populations. As more waivers of the terms of §§ 1396a-v are granted, as in the case of OHP and OHP2, these demonstration projects have become the normal means of providing Medicaid coverage across the country, rather than the exception as Congress likely originally envisioned. See S. Rep. No. 87-1589 (1962), reprinted in 1962 USCCAN 1943, 1962 (this report, part of the legislative history of the bill that originally created § 1315, states that "A demonstration project usually cannot be statewide in operation"). The legislative history of the enactment of PL 89-97, the 1965 law creating Medicaid and amending § 1315 to permit waiver of parts of Title XIX, does not indicate that Congress anticipated the current growth of the use of § 1315 projects. See e.g. S. Rep. No. 404 (1965); Conf. Rep. No. 687 (1965) (nowhere describing the impact of § 1315 on the extensive Medicaid regulations created by the Act). Therefore, courts must be careful not to presume that § 1315 authorizes states and the federal government to provide Medicaid coverage in a way that ignores §§ 1396a-v in a wholesale fashion. As the Ninth Circuit stated when describing the effects of § 1315 on APA review of a waiver of the underlying requirements of the AFDC statute, which are comparable in their extensiveness to §§ 1396a-v, "it would be somewhat surprising were Congress to grant unreviewable discretion to the Secretary to exempt States from such an all encompassing series of statutory requirements . . . [T]he AFDC program contains complex and detailed regulations and does not reveal a congressional commitment to the unfettered discretion of the Secretary." Beno, 30 F.3d at 1067.
Section 1315 was originally added to the Social Security Act in 1962 by PL 87-543.
HHS agrees that in Crafting a § 1315 demonstration project, the provisions of §§ 1396a-v, including § 1396o(f), can theoretically apply to Medicaid beneficiaries under a state plan, but only to mandatory and optional populations. These provisions can be waived under § 1315(a)(1), as was done for several items in OHP2 that are not challenged in this suit, such as adjustments in the actual medical services offered. However, HHS contends that because members of an expansion population are not Medicaid beneficiaries under a state plan, §§ 1396a-v do not apply to them and thus need not be waived. HHS believes that the states only reach expansion populations using the expenditure authority found in § 1315(a)(2)(A), which states that "the costs which would not otherwise be included as expenditures under . . . [§] 1396b . . . shall, to the extent and for the period prescribed by the Secretary, be regarded as expenditures under the State plan." The Secretary only has to decide if the requirements of § 1315 are met in the case of expansion populations ( e.g. it promotes the objectives of the Medicaid Act to serve them under OHP2). The Secretary argues that because he did not have to consider provisions inapplicable to expansion populations, such as § 1396o, he never waived any of them in the case of OHP Standard.
HHS is correct that §§ 1396a-v, particularly § 1396o, only apply to state plans. Section § 1396a sets forth the basic requirements for state plans, and most of the other provisions in the Medicaid Act indicate that they also apply to state plans. In particular, § 1396o applies to state plans because § 1396a(a)(14) provides that any state plan imposing premiums or co-payments must comply with § 1396o. Moreover, § 1396o(b), which the plaintiffs contend applies to expansion populations, clearly indicates that the restrictions apply to "individuals . . . who are eligible under the [state] plan."
It should be noted that § 1396o(f), which limits co-payments in demonstration projects, does not contain language restricting that subsection to individuals eligible under a state plan. However, considering the relationship between § 1396o and its root source in § 1396a(a)(14), which is a part of a section clearly related to state plans, the restrictions in § 1396a(f) only apply to individuals eligible under a state plan.
HHS is incorrect, however, that expansion populations are covered under the Medicaid Act only by virtue of the expenditure authority in § 1315(a)(2)(A). The problem with HHS' theory is that it ignores the word "and" between § 1315(a)(1) and § 1315(a)(2)(A). The word "and" clearly indicates that the waiver power in § 1315(a)(1) is attached to the authority in § 1315(a)(2)(A) to make the costs of such a demonstration project count as expenditures under a state plan. In addition, the terminology used in § 1315(a)(2)(A) to describe the "costs of such project" (emphasis added) reference back to the discussion of the Secretary's power in § 1315(a)(1) to waive certain statutes to the extent necessary to "carry out such project" (emphasis added).
In order to implement a demonstration project, § 1315(a)(1) provides the Secretary with the authority to waive the requirements of § 1396a, which sets forth the basic requirements for state plans. Therefore, considering the attachment of § 1315(a)(1) to § 1315(a)(2)(A), the basic authorization for an "experimental, pilot, or demonstration project" in the introduction to § 1315(a) fits seamlessly with the Secretary's power in § 1315(a)(1) to waive the requirements of § 1396a for the purposes of such a project, and in turn, that the costs of such a project are counted as expenditures under the state plan as a result of § 1315(a)(2)(A). In short, the text of § 1315 indicates that a demonstration project granted under that section is still considered a state plan. Under these circumstances, states must comply with the provisions of §§ 1396a-v that could sensibly apply to a particular demonstration project unless waived under § 1315(a)(1).
Outside of the text of § 1315, one could argue that a § 1315 demonstration project, and the expansion populations served by it, are not considered a state plan for several other reasons. However, these arguments are not persuasive.
First, § 1396b(w)(7)(D) defines the word "State" as only the 50 states and the District of Columbia, but "does not include any State whose entire program under this subchapter [XIX] is operated under a waiver granted under section 1315 of this title." Considering that § 1396b(a) requires the Secretary to "pay to each State which has a plan" the amounts outlined in § 1396b, this definition implies a difference between a state plan and a program created by § 1315. However, according to § 1396b(w)(7), this definition applies only to subsection § 1396b(w), not to § 1396b or Title XIX as a whole. Subsection 1396b(w) deals with reductions in the amount to be paid a state for Medicaid services based on voluntary contributions and certain health-care related taxes. Therefore, this definition of "State" cannot be viewed as indicating that § 1315 demonstration projects are different than state plans, especially in light of the comparable clarity provided by § 1315(a)(2)(A).
Several provisions in Title XIX also discuss a § 1315 waiver in the same paragraph as a state plan, implying that the two might be different. For example, § 1396a(1)(4)(A) states:
In the case of any State which is providing medical assistance to its residents under a waiver granted under section 1315 of this title, the Secretary shall require the State to provide medical assistance for pregnant women and infants under age 1 described in subsection (a)(10)(A)(i)(IV) of this section and for children described in subsection (a)(10)(A)(i)(VI) or subsection (a)(10)(A)(i)(VII) of this section in the same manner as the State would be required to provide such assistance for such individuals if the State had in effect a plan approved under this subchapter.
Several other provisions in Title XIX use nearly this exact same language. Section 1396d(p)(4) states that:
In the case of any State which is providing medical assistance to its residents under a waiver granted under section 1315 of this title, the Secretary shall require the State to meet the requirement of section 1396a(a)(10)(E) of this title [which requires a state plan to make medical assistance available for medicare cost-sharing for qualified medicare beneficiaries] in the same manner as the State would be required to meet such requirement if the State had in effect a plan approved under this subchapter.
Section 1396r-5(a)(4)(A) deals with treatment of income of institutionalized spouses and is titled "Application in States operating under demonstration projects." It states:
In the case of any State which is providing medical assistance to its residents under a waiver granted under section 1315 of this title, the Secretary shall require the State to meet the requirements of this section in the same manner as the State would be required to meet such requirement if the State had in effect a plan approved under this subchapter.
Section 1396r-6(c)(1) states:
In the case of any State which is providing medical assistance to its residents under a waiver granted under section 1315(a) of this title, the Secretary shall require the State to meet the requirements of this section in the same manner as the State would be required to meet such requirement if the State had in effect a plan approved under this subchapter.
According to § 1396r-6(a), § 1396r-6(c)(1) deals with a requirement that each state plan must provide each family that was receiving TANF in three of the last six months, but becomes ineligible, shall remain eligible for assistance under the state plan for the succeeding six month period.
Although this language mentions both state plans and a waiver under § 1315, the actual statute, as other similar provisions, treats waivers and state plans alike. Thus, the statute simply clarifies that a waiver is to be treated the same as a state plan.
Section 1396v is an index entitled "References to laws directly affecting Medicaid program." Section 1396v(a) describes "provisions of law which make additional individuals eligible for medical assistance under this subchapter [Title XIX]." That subsection lists programs like AFDC, SSI, and foster care and adoption assistance, but does not mention § 1315. Similarly, § 1396v(b) describes "other provisions of law that establish additional requirements for State plans to be approved under this subchapter [Title XIX]." That subsection also makes no mention of § 1315. However, the absence of these references does not indicate a § 1315 demonstration project is not a state plan. There is no question that § 1315 permits Medicaid funds to be spent on medical assistance for expansion populations not specifically named in Title XIX. The absence of a listing for § 1315 amongst programs like AFDC and SSI probably has more to do with Congress's focus on these larger programs. Indeed, the absence of a listing for § 1315 shows that Congress did not consider a demonstration project to be different from a state plan. Because a § 1315 demonstration project makes Medicaid funds spent on expansion populations count as part of a state plan, there is no need to list that section as a separate source for making individuals eligible for medical assistance.
The final statutory provision outside of § 1315 that might exclude demonstration projects from state plans is found in recently passed PL 108-27. That law deals with temporary increases in the Federal Medical Assistance Percentage ("FMAP") for Medicaid. Subsections (a)(6)(A), (B), and (C) of PL-108-27 all discuss waivers and state plans in the same sentence in a similar manner. A good example is subsection (a), which indicates that a state is eligible for a FMAP increase "only if the eligibility under its State plan under title XIX of the Social Security Act . . . (including any waiver under such title or under section 1115 of such Act ( 42 U.S.C. § 1315)). . . is no more restrictive than the eligibility under such plan (or waiver) as in effect on September 2, 2003." While this language does discuss waivers and state plans, it does not indicate that the two are separate entities. Instead, as with other provisions referencing state plans and waivers, it indicates the two are to be treated similarly.
This court finds that § 1315(a)(2)(A), read together with the rest of § 1315 and § 1396a-v, indicates that demonstration projects are to be treated the same as state plans. This conclusion is not surprising considering the manner in which states have shifted to using § 1315 demonstration projects, like OHP2, as state-wide systems for administering Medicaid, rather than more traditional state plans that comply completely with §§ 1396a-v. In 1965 Congress may not have anticipated that § 1315 Medicaid demonstration projects would be used as frequently or as broadly as they are today, but § 1315 and §§ 1396a-v were clearly designed to work in a fashion that prevents states and HHS from using § 1315 as a means to avoid carefully designed restrictions on state plans without a proper waiver. As a result, unless properly waived, the relevant terms of § 1396o can apply to expansion populations served under OHP Standard, even if these populations only receive coverage as a result of the § 1315 waiver that created OHP2.
Indeed, it is difficult to determine what part of a state plan could be left in the case of OHP2 if this court were to follow the federal defendants' arguments. The letter approving OHP2 does sporadically indicate there may be some sort of residual state plan over which all the § 1315 waivers involved have been overlaid. See, e.g. Admin. R. 44 (stating that one of the waivers is "To enable the State to discontinue the Medically Needy program under its State plan except with respect to the aged, blind, and disabled populations"). However, considering the broad array of requirements in §§ 1396a-v that were ultimately waived in the case of all beneficiaries, OHP2 exists almost exclusively — if not entirely — in the form of a § 1315 demonstration project.
D. Can § 1315 Waive § 1396o?
Arguing that the provisions of § 1396o do not apply to the expansion populations served under OHP Standard, the state defendant takes a different approach than the federal defendants. The state defendant accepts that §§ 1396a-v can apply to expansion populations, but argues instead that § 1315 effectively waived all of §§ 1396a-v, including § 1396o, in the case of OHP Standard.
1. Broad Waiver Authority of § 1315
Although § 1315(a)(1) on its face only permits the Secretary to waive the requirements of § 1396a, this provision very likely means that HHS can waive all of §§ 1396a-v. The text of § 1315(e), which governs the extension of state-wide demonstration projects for which waivers have been granted, supports this interpretation. Section § 1315(e)(1) states that the extension provisions in the rest of § 1315(e) "apply to the extension of any State-wide comprehensive demonstration project (in this subsection referred to as "waiver project") for which a waiver of compliance with requirements of subchapter XIX of this chapter is granted under subsection [1315](a) of this section" (emphasis added). Subchapter XIX includes all of §§ 1396a-v. Therefore, the power to waive under § 1315(a) clearly includes the power to waive all of Subchapter XIX, including § 1396o. But, even if the authority to waive does not extend to all of §§ 1396a-v, § 1396a(a)(14) specifically incorporates § 1396o. Thus, § 1315(a)(1)'s reference to § 1396a certainly permits the Secretary to waive § 1396o. Accordingly, the federal defendants are entitled to summary judgment on the Fifth Claim. 2. Waiver of § 1396o(b)(1) and (3)
While § 1315 may authorize the Secretary to waive §§ 1396a-v, that does not mean HHS has properly exercised this power, particularly in the case of the premium and co-payment restrictions in § 1396o.
The Approval Letter and Terms and Conditions for OHP2's waiver do not explicitly state that HHS waived § 1396o(b)(1) and (3) in the case of OHP Standard. Admin. R. 41-80. Instead, the Approval Letter states: "All requirements of the Medicaid and SCHIP programs expressed in law, regulation, and policy statement, not expressly waived or identified as not applicable in this letter, shall apply to the Oregon Health Plan 2 Demonstration." Id at 45. Absent an express waiver in the Approval Letter or Terms and Conditions, it is questionable whether HHS properly waived § 1396o(b)(1) and (3).
The HHS award letter was dated October 15, 2002. On October 28, 2002, the state defendant sent a letter to HHS seeking clarifications of several matters related to the waiver. Admin. R. 38-39. Among other issues, the state defendant sought to clarify "that Medicaid cost-sharing limitations and retrospective eligibility requirements do not apply to individuals made eligible through a [§ 1315 waiver] (as opposed to clients made eligible through a State Plan)." Id at 39. The Administrative Record does not indicate that HHS ever replied to this letter, or otherwise indicated that § 1396o(b)(1) and (3) were waived.
This potential oversight does not affect OHP Standard because § 1396o(b)(1) and (3) do not apply to expansion populations. Section 1396o(b) restricts a state plan's use of premiums and co-payments "in the case of individuals other than those described in subparagraph (A) or (E) of section 1396a(a)(10) of this title who are eligible under the [state] plan." This language closely parallels the following definition for optional beneficiaries of Medicaid in § 1396a(a)(10)(C): "individuals described in section 1396d(a) [describing the people categorically eligible for medical assistance under the Medicaid Act] of this title who are not described in subparagraph [§ 1396(A)(10)] (A) or (E)" (emphasis added). Considering that expansion populations are never specifically defined in § 1396a(a)(10) or elsewhere in Title XIX, this very similar language in § 1396o(b) and § 1396a(a)(10)(C) makes it apparent that § 1396o(b) refers only to optional beneficiaries described in § 1396a(a)(10)(C). Therefore, § 1396o(b) only applies to optional beneficiaries and not to the expansion populations. As a result, the state defendant is entitled to summary judgment on the Seventh and Eighth Claims.
None of the parties dispute that § 1396a(a)(10)(C) applies only to optional populations. Moreover, the Supreme Court has specifically cited this section as the location for the definition of Medicaid optional populations. Pharmaceutical. Research, 123 So. Ct at 1861 nn 4, 5. The text of § 1396a(a)(10)(C)(i) also supports this interpretation when it provides that the methodology for determining the recipients under the subsection shall be "no more restrictive than the methodology which would be employed under the appropriate state plan (described in subparagraph [§ 1396a(a)(10)](A)(i)) to which such group is most categorically related." This reference to the mandatory populations definition indicates that § 1396a(a)(10)(C) applies to people who would fall into the mandatory population categories but for their income.
3. Waiver of § 1396o(f)
Regardless of the applicability of § 1396o(b)(1) and (3) to expansion populations under OHP Standard, § 1396o(f) has unique terminology. Even if the OHP2 Terms and Conditions' discussion of the co-payments permitted under OHP Standard (Admin. R. 63) would normally be an adequate waiver, HHS may not have properly waived § 1396o(f).
a. Does § 1396o(f) Apply to Expansion Populations?
The first issue raised by § 1396o(f) is whether it applies to expansion populations in OHP Standard. As discussed previously, all of § 1396o applies to recipients under a state plans. Because a § 1315 demonstration project is still a state plan, this first hurdle to applying § 1396o(f) to plaintiffs is overcome. The larger issue is whether the terms of § 1396o(f) apply only to mandatory and optional populations and exclude expansion populations.
Section 1396o(f) first states that "no" co-payment may be "imposed under any waiver authority of the Secretary, except as provided under subsections [§§ 1396o](a)(3) and (b)(3) of this section . . ." This language makes it clear that absolutely no co-payments may be imposed unless they are "nominal in amount," as indicated in § 1396o(a)(3) in the case of mandatory populations and § 1396o(b)(3) in the case of optional populations. What makes § 1396o(f) unique compared with its neighboring subsections is the remainder of the statute stating that a co-payment cannot be charged outside of the §§ 1396o(a)(3) and (b)(3) circumstances, "unless such waiver is for a demonstration project which the Secretary finds, after public notice and opportunity for comment" meets five specific criteria (emphasis added). The issue raised by this language is whether the terminology in § 1396o(f) permitting co-payments in "demonstration projects" when the five criteria are met also applies to a § 1315 "demonstration project" that serves expansion populations. If it does, then while co-payments applied to § 1315 expansion populations need not be "nominal" — indeed they could be in unlimited amounts as long as the basic requirements for a waiver in § 1315 are met — the five criteria in § 1396o(f) must be satisfied to apply a co-payment to expansion populations.
An examination of the text of the Medicaid Act and other relevant statutory provisions indicates that the phrase "demonstration project" in § 1396o(f) is a term of art that can only be meant as a reference to the demonstration projects authorized under § 1315.
(i) Use of "Demonstration Project" Outside of Title XIX
Outside of Title XIX, the only potentially applicable statute using the phrase "demonstration project" is found in § 1310, which is in subchapter XI, the same subchapter containing § 1315. Section 1310 creates a small grant program authorized for amounts up to $5 million a year to the states for "cooperative research and demonstration projects" relating to the "prevention and reduction of dependency" and other purposes. This program does give the Secretary waiver power over the requirements of Title XVI (SSI) in § 1310(b)(1), but does not appear to permit waiver of Title XIX (Medicaid) requirements. Therefore, it is unlikely that § 1396o(f), when referring to a "demonstration project," is referencing § 1310. (ii) Use of "Demonstration Project" In Title XIX
Moreover, no party has ever asserted that OHP2 is a § 1310 project.
The strongest argument that "demonstration project" in § 1396o(f) is meant to apply to some provision in Title XIX, rather than to § 1315, is found in § 1396u-4(h). This section permits "demonstration projects" to test the effectiveness of a for-profit program of all-inclusive care for the elderly ("PACE"). The section allows the Secretary to waive the normal requirement that a PACE program be non-profit. At first glance, it might be thought that the restrictions on cost-sharing in § 1396o(f) could be referring to these PACE demonstration projects. The problem with this interpretation is that § 1396u-4(b)(1)(A)(i) indicates that no cost-sharing is allowed in PACE programs. Therefore, the extra protections for waiver programs in § 1396o(f) with regard to cost-sharing cannot be meant to apply to PACE programs because the restrictions would be redundant. Moreover, § 1396u-4 was added to Title XIX in 1997 by PL 105-33, well after § 1396o(f) was enacted by PL 97-248 in 1982.
The terms "demonstration project" or "demonstration program" are also used in other places in the PACE statute, such as in § 1396u-4(a)(7), the definition of a PACE demonstration waiver program, and in § 1396u-4(a)(9)(B), the subsection explaining the treatment of entities previously operating PACE demonstration waiver programs.
The phrase "demonstration project" is also used in § 1396r-5(a)(4)(A) and the phrase "demonstration waiver program" is used in § 1396r-5(a)(5). These sections deal with the treatment of income and resources for certain institutionalized spouses in determining the eligibility for medical assistance. Section 1396r-5(a)(4)(A), which is titled "Application in States operating under demonstration projects," states that "In the case of any State which is providing medical assistance to its residents under a waiver granted under section 1315 of this title, the Secretary shall require the State to meet the requirements of this section in the same manner as the State would be required to meet such requirement if the State had in effect a plan approved under this subchapter." Section 1396r-5(a)(5) indicates that all of § 1396r-5 applies to individuals receiving institutional or noninstitutional care under a PACE demonstration waiver program. These sections do not create any type of demonstration project, so much as regulate those that do exist. Thus, it is unlikely the restrictions on co-payments in § 1396o(f) could apply to them. Moreover, the legislative history shows that §§ 1396r-5(a)(4) and (a)(5) were enacted in 1988 as part of PL 100-360, well after the enactment of § 1396o in 1982. Therefore, the phrase "demonstration project" in § 1396o(f) cannot be meant to apply to these sections.
The final place in Title XIX using the phrase "demonstration project" is in the title of § 1396r-6(c)(1) (but not the text). This section supplements a requirement in § 1396r-6(a) that a state plan must provide each family that was receiving TANF in three of the last six months, but becomes ineligible, shall remain eligible for assistance under the state plan for the succeeding six month period. Again, this provision does not create a type of demonstration project so much as regulate them. Thus, it seems unlikely the phrase "demonstration project" in § 1396o(f) is referencing § 1396r-6(c)(1). Moreover, § 1396r-6 was added to Title XIX in 1988 by PL 100-485, well after § 1396o(f) was enacted in 1982.
The term "demonstration project" is used in no other place in Title XIX or other relevant statutes in a manner that could possibly demonstrate a connection with the use of this same phrase in § 1396o(f).
(iii) Other "Line-Item Waivers" and "Cost Sharing" Provisions
The state defendant argues that the phrase "demonstration project" in § 1396o(f) is meant to refer to the "line-item waivers" in §§ 1396a-v that authorize the Secretary to waive certain requirements in Title XIX. Alternatively, the state defendant argues the phrase refers to the "cost-sharing provisions" in §§ 1396a-v. However, none of the statutes cited by the state defendant use the phrase "demonstration project." Moreover, the so-called "line-item waivers" have little to do with co-payments or any programs in which co-payments would arise. The vast majority of them are not waivers at all, but simply refer to the Secretary's waiver authority under other Medicaid Act provisions. In the case of the so-called "cost-sharing provisions," with the exception of § 1396o incorporated in § 1396a(a)(14) and the PACE program provisions in §§ 1396r-6(b)(4)(E) and 1396r-6(b)(5), these provisions do not relate to the sort of cost-sharing with which § 1396o(f) is concerned, namely the imposition of co-payments. Moreover, none of these "cost-sharing provisions" create or regulate a program in a way in which restrictions on co-payments could interact such that § 1396o(f) could have any meaning.
As examples of these "line-item waivers," the state defendant cites §§ 1396a(a)(10)(A)(ii)(VI), 1396a(j), 1396(a)(1)(4)(A), 1396a(p)(2), 1396a(r)(1)(A), 1396(g)(3)(B) [there is no such statute], 1396b(i)(4), 1396b(m)(6)(D), 1396b(u)(1)(B), 1396b(w)(7)(D), 1396d(1)(2)(B), 1396d(p)(4), 1396n(b), 1396n(c), 1396n(d), 1396n(e), 1396n(h), 1396p(c)(1)(C)(i)(III), 1396r(b)(4)(C)(iii), 1396r(d)(2)(B), 1396r-4(a)(4), 1396r-5(a)(5), 1396t(d)(2)(F), 1396u(g), 1396u-l(d), 1396u-4(g), 1396u-4(h), and 1396u-4(i).
As examples of these "cost-sharing provisions," the state defendant cites §§ 1396a(a)(10)(A)(ii)(XIII), 1396a(a)(10)(G)(IV), 1396a(a)(14), 1396a(a)(17), 1396b(f)(2)(A), 1396b(m)(5)(A)(ii), 1396e(a)(3), 1396e(c), 1396r-6(a)(4)(B), 13965r-6(b)(2)(A)(i), 1396r-6(b)(4)(E), and 1396r-6(b)(5).
(iv) Conflict Between Statutes
The state defendant makes another argument, based on the text of Title XIX, that § 1396o(f) does not apply to § 1315 because the former limits demonstration projects to two years and the latter states that such projects can last "for the period [the Secretary] finds necessary." However, the two-year limit in § 1396o(f) is one of the five criteria meant to apply to demonstration projects that impose co-payments. It does not apply to all § 1315 projects. Therefore, the two statutes do not conflict. Indeed, this difference supports the proposition that § 1396o(f) is meant to apply to § 1315. While Congress may want the Secretary to have the utmost authority with respect to most § 1315 demonstration projects, it viewed co-payments as a sufficient risk to the low-income populations served by Medicaid to justify imposing more restrictions on § 1315 projects which include such cost-sharing.
(v) Text of § 1315
The final textual argument by the state defendant is based on the structure of § 1315 itself. The state defendant argues that if Congress had intended to restrict co-payment provisions not only in the traditional §§ 1396a-v state plans, but also in § 1315 demonstration projects, then it would have done so by including a provision in the stand-alone § 1315, not by burying those restrictions far away in § 1396o(f). The state defendant notes that when Congress wanted to restrict § 1315 experiments with respect to child support enforcement programs (and their interaction with TANF programs), it put extensive restrictions directly into § 1315(b), not into the distant TANF provisions of subchapter IV.
The problem with the state defendant's argument is that the child support enforcement provisions in § 1315(b) are not about cost-sharing, but rather lay out broad goals for such programs ( e.g. they must be designed to "improve the financial well-being of children"). At the same time Congress created § 1396o(f) in 1982, it also added the other portions of § 1396o, such as the "nominal" restrictions in § 1396o(a)(3) and (b)(3). Since these highly technical provisions regarding co-payments would be located in Title XIX, it may have made more sense for Congress to put the co-payment restrictions in § 1396o(f) rather than in § 1315. Regardless, the text of § 1396o(f) makes it clear that it applies to a "demonstration project," and that language in turn clearly applies to a § 1315 "demonstration project." This court will not find Congress's intent was contrary to the language of § 1396o(f) based only on the failure to place the cited language in § 1315 rather than § 1396o(f).
(vi) Legislative History of § 1396o(f)
The legislative history of § 1396o(f) also supports a finding that its use of the phrase "demonstration project" refers to the demonstration projects authorized by § 1315. Section 1315 was created by PL 87-543, passed on July 25, 1962. The references in § 1315 to various Title XIX provisions, including §§ 1396a and 1396b, were included in PL 89-97, the original law creating Medicaid in 1965. Section 1396o, including § 1396o(f), was added to the Medicaid Act by PL 97-248, the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), a very large bill whose primary focus was on balancing the budget using extensive changes in the tax code, but also included some savings through changes in Medicaid and other entitlement programs. Because TEFRA was passed later, its legislative history is of the most use in resolving the issue of the applicability of § 1396o(f) to § 1315.
Although § 1396o has been amended since 1982, the text of § 1396o(f) remains in largely the same form as passed originally in PL 97-248. See TEFRA, § 131(b).
Prior to the creation of § 1396o by TEFRA in 1982, states were not permitted to impose cost-sharing charges on mandatory services provided to mandatory populations. S. Rep. No. 97-494, at 35 (1982) (describing the present law being amended by TEFRA). States were permitted, but not required, to impose such charges (that were nominal in amount) on all services for the optional populations and on optional services for mandatory populations. Id at 35-36.
HR 4961 was the bill ultimately signed by the President to create TEFRA. When HR 4961 originally passed the House on December 15, 1981, after being reported by the House Ways and Means Committee (H. Rep. No. 97-404), the text of the bill had no co-payment or cost-sharing provisions. Similarly, there was no discussion on the House floor of the matter. 127 Cong. Rec. 31514-31525 (1981).
The later conference report on the final version of HR 4961 indicates that the House Committee provision permitted nominal co-payments under certain circumstances. H. Conf. Rep. 97-760, at 434. However, the original text of HR 4961 that passed the House does not seem to contain such co-payment provisions. 127 Cong. Rec. 31514-31518(1981). It is possible the conference report is referring to the House Energy and Commerce Committee's version of HR 6877, a bill that Committee completed in order to fulfill the House Budget Committee's reconciliation instructions. Major parts of HR 6877 were included in the final conference report. Compare H.Rep. 97-757, at 3-6 (1982), with H. Conf. Rep. 97-760, at 434-36.
The Senate Finance Committee then amended the bill on July 12, 1982, by permitting the states "greater flexibility" to administer Medicaid using nominal co-payments on all beneficiaries for all services, with certain exceptions. S. Rep. No. 97-494, at 36. There was no discussion in the Senate report of demonstration projects. See id at 35-37.
On August 17, 1982, shortly after the Senate Finance Committee's report, in response to the House Budget Committee's reconciliation instructions made as part of the larger process to produce a federal budget, the House Energy and Commerce Committee reported HR 6877, which made changes in Medicaid and Medicare in order to comply with the spending reductions sought by the House Budget Committee. H.Rep. 97-757, at 2-6. The bill permitted nominal co-payments for most Medicaid services. Id. Explaining the bill's changes, the report mentioned demonstration projects for the first time in any congressional statement even remotely related to the legislative history of § 1396o(f). Although HR 6877 was not enacted, several of its key provisions were included in the final conference report for HR 4961, including some that were ultimately codified in § 1396o. The report for HR 6877 stated the following:
The Committee notes that a large number of States have sought waivers of current law relating to the imposition of the cost-sharing under the demonstration authority at [§ 1315]. The Committee believes that this bill gives the States sufficient flexibility in this regard to make further exercise of the Secretary's demonstration authority unnecessary.Id at 6.
The portion of TEFRA that actually became § 1396o(f) was added by the House-Senate conferees. The House conference report for HR 4961 contains a detailed analysis of the current law, the House proposals, the Senate proposals, and the final version. H. Conf. Rep. 97-760, at 434-36. The conference report states that the conference agreement is similar to the Senate's original version. Id at 435. The report explains that the bill precludes states from imposing any co-payments on several populations or services, such as children under age 18 and pregnancy-related services provided to women. Id. For all the situations in which co-payments are permitted, the conference agreement requires all co-payments to be nominal in amount, "with one exception." Id. The report then states:
The Senate also produced a conference report, but it was simply a copy of the House report. S. Conf. Rep. 97-530 (1982).
The `nominal' requirement cannot be waived except for demonstration under tightly limited circumstances, with one exception. The Secretary could waive the requirement limiting copayments to nominal amounts in the case of non emergency services in emergency rooms where the State has established to the satisfaction of the Secretary that alternative sources of nonemergency outpatient services are actually available and accessible.Id (emphasis added).
The House and Senate floor debates on the conference agreement on HR 4961 are mostly focused on the tax provisions of the bill, and have little discussion of the Medicaid changes. See128 Cong. Rec. 22155-22240, 22396-22446 (1982). None of the discussion relates to Medicaid demonstration projects. See id.
Although the conference report nowhere explicitly cites the use of demonstration projects under § 1315, the report states that the nominal requirement cannot be waived except with (1) the emergency room "exception" and (2) "demonstration under tightly limited circumstances." Plaintiffs have a strong argument that this second category refers to the language in the bill — ultimately codified in § 1396o(f) — that a "demonstration project" can charge cost-sharing beyond what is permitted in § 1396o(a)(3) (b)(3) if the five criteria are met. In short, these five criteria are the "tightly limited circumstances" under which a state can charge more than nominal co-payments. The House Commerce Committee's report on HR 6877 also supports this interpretation by demonstrating that Congress was considering demonstration projects during the course of its efforts in 1981-82 to reform Medicaid, and was concerned about giving them flexibility while limiting their use of co-payments.
The state defendant makes several arguments that the legislative history of § 1396o(f) supports its position. First, she argues that Congress's failure to explicitly mention § 1315 in the conference report or elsewhere somehow demonstrates that it was making no changes to this statute. This argument lacks merit when the conference report's reference to "tightly limited circumstances" is carefully considered.
Second, the state defendant argues that the discussion in the Senate Finance Committee's report (S. Rep. No. 97-494, at 35-36) of current law and the changes the bill would make indicates that § was designed to remove the pre-TEFRA restrictions on the imposition of cost-sharing in state plans on mandatory and optional populations. The state defendant argues that these restrictions applied only to state plans, not to § 1315 projects, so TEFRA was only removing restrictions in the Medicaid Act, not in § 1315. Leaving aside the fact that a § 1315 project is still part of a state plan, as discussed previously, this argument is contrary to the language of the conference report, which seems to indicate Congress recognized it was doing more. The report discusses the application of the new nominal requirement for co-payments (later codified in §§ 1396o(a)(3) and (b)(3)), and specifically discusses the emergency room exception. There could be no other reason for the report to then mention a third exception for "demonstration under tightly limited circumstances" if Congress was not intending to have an effect on § 1315 demonstration projects. See H. Conf. Rep. No. 97-760, at 435.
Finally, the state defendant raises the Senate Finance Committee's discussion (S. Rep. No. 97-494, at 36) of TEFRA seeking to "provide States with greater flexibility in administering their Medicaid programs" (emphasis added). Therefore, she argues § 1396o(f) could not be meant to restrict the flexibility that previously existed in § 1315 programs to charge co-payments. The entire sentence in the report actually states: "The amendment provides States with greater flexibility in administering their Medicaid programs by permitting them to impose nominal copayments on all beneficiaries for all services with certain exceptions." Read in its entirety, the report is just commenting on the flexibility granted by one part of the amendment. This statement does not mean that there are no restrictions elsewhere. Indeed, the discussion of "tightly limited circumstances" in the TEFRA conference report indicates Congress anticipated there would be such restrictions elsewhere.
(vii) Conclusion
In summary, the text of Title XIX and the legislative history of § 1396o(f) make it clear that Congress was speaking about demonstration projects under § 1315 when adding the provision which permits a "demonstration project" to charge co-payments when the five listed criteria are met. This conclusion makes sense after even the most casual glance at § 1396o(f). The first half of § 1396o(f) makes it clear that no co-payments can be imposed "under any waiver authority of the Secretary" unless they are nominal as provided in § 1396o(a)(3) (for mandatory populations) and § 1396o(b)(3) (for optional populations). If Congress did not intend for the remainder of § 1396o(f) to apply to § 1315 demonstration projects, then it would have no real purpose. The first half of the statute adequately protects mandatory and optional populations from the dangers of co-payments. Because the phrase "demonstration project" is used nowhere else in Title XIX in a way that § 1396o(f) could have any purpose, the second half of § 1396o(f) could only have meaning if Congress intended it to apply to § 1315 demonstration projects, especially when extending care to expansion populations. In effect, Congress intended that while unlimited co-payments might be charged to § 1315 expansion populations, co-payments are such a risk to these low-income populations that they should only be imposed when the five extra criteria in the second half of § 1396o(f) are met.
b. Were the Five Criteria in § 1396o(f) Violated?
The remaining issue regarding § 1396(o)(f) is whether the five criteria are met, after public notice and opportunity for comment. These criteria are necessary for a § 1315 demonstration project to charge co-payments outside of those governed by § 1396o(a)(3) and (b)(3). The federal defendant admitted during oral arguments that these criteria were not met. Moreover, OHP2 violates these criteria on its face. For example, OHP2's five year waiver (Admin. R. 41) violates § 1396o(f)(2), which limits demonstration projects charging co-payments (outside of the cases regulated by § 1396o(a)(3) and (b)(3)) to two years. Therefore, with respect to the imposition of co-payments under OHP Standard, the plaintiffs are entitled to summary judgment against the federal defendants on the Sixth Claim and against the state defendant on the Eleventh Claim.
c. Was § 1396o(e) Violated?
OHP Standard permits the state to remove beneficiaries from coverage for six months if they fail to pay their monthly premiums under the plan. Nothing in § 1396o(e) speaks to monthly premiums. However, OHP2 also permits providers to deny service (other than in an emergency) to OHP Standard participants who do not satisfy their co-payment obligation. Admin. R. 13, 26, 63-64, 109, 196. This provision does violate § 1396o(e), which prohibits a provider who is participating under a state plan from denying care or services to an individual because he cannot pay a co-payment. Section § 1396o(e) is clear that providers under a state plan cannot deny services because of a failure to pay a co-payment, regardless of the reason for the nonpayment.
Although the plaintiffs did not plead a separate claim for the violation of § 1396o(e), they do allege the substance of this violation in ¶ 40 of the Second Amended Complaint and also argue in their briefs that defendants violated this statute. Given defendants' lack of an objection, this court construes the Sixth and Eleventh claims as alleging this particular allegation. Therefore, plaintiffs are entitled to summary judgment against the federal defendants on the Sixth Claim and the state defendants on the Eleventh Claim for violating § 1396o(e).
III. Does the OHP2 Waiver Comply with § 1315?
Plaintiffs challenge whether the federal defendants acted arbitrarily and capriciously under the APA ( 5 U.S.C. § 706(2)(A)) when they approved the OHP2 waiver. See Beno, 30 F.3d at 1067 (finding that § 1315 waivers are subject to APA review). Specifically, plaintiffs question whether OHP2 meets the basic restrictions in § 1315 that must be met before a waiver can be granted at all. According to § 1315, a waiver can only be granted for a program which is: (1) a legitimate "experiment, pilot, or demonstration project;" (2) in the judgment of the Secretary, "likely to assist in promoting the objectives" of the Medicaid Act; and (3) permitted only "to the extent and for the period [the Secretary] finds necessary to enable [the state] to carry out" the project. Id at 1069.
The Ninth Circuit was careful in Beno to point out that while ordinarily the Secretary might reasonably argue that he ought to give state officials considerable discretion as to how to run a program, these federalism arguments have less weight in this context because § 1315 is used to waive extensive congressional requirements that would otherwise apply to state plans, such as §§ 1396a-v. Id. Indeed, Congress intended that the Secretary would only "`selectively approve' state projects." Id. citing S. Rep. No. 1589 (1962), reprinted in 1962 USCCAN 1943, 1962. Therefore, while the Secretary does receive the usual deference under the APA with regard to his determination that OHP2 meets the requirements of § 1315, he does not receive any special deference.
A. Consideration of Materials Beyond the Administrative Record
As an initial matter, the federal defendants argue this court should not consider several declarations and affidavits of doctors, policy analysts and others attached to plaintiffs' motion and supporting documents. Citing Florida Power Light Co. v. Lorion, 470 U.S. 729, 743-44 (1985), the federal defendants argue that these declarations and affidavits are not properly before this court because they are not part of the certified Administrative Record, which they view as the only evidence this court should consider.
Florida Power involved a claim under the Hobbs Act, 42 U.S.C. § 2342(4), which grants exclusive jurisdiction to the courts of appeal over petitions for review of certain orders from a proceeding of the Nuclear Regulatory Commission. Id at 731. The plaintiff filed a citizen petition to suspend the license of a nuclear plant. The Court of Appeals denied the petition, finding the Commission's order was not from a "proceeding" covered by the Hobbs Act. Id at 732-34. The Court reversed, finding that the statute includes citizen petitions as the type of "proceeding" covered by the statute, and that a Commission hearing was not necessary in order to properly develop a record for the basis of the agency's action. Id at 743-44. In the process, the Court made several strong comments, cited by the federal defendants, about the limits of judicial discretion to review materials de novo. For example, the Court stated that: "The focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court." Id at 743, quoting Camp v. Pitts, 411 U.S. 138, 142 (1973). Continuing, the Court wrote that: "The task of the reviewing court is to apply the appropriate APA standard of review . . . to the agency decision based on the record the agency presents." Id at 743-44, citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402 (1971). The Court reconciled this view with its holding that full Commission hearings are not necessary by finding that even though courts are limited to reviewing the administrative record, the APA permits judicial review of a record gathered by "informal agency action." Id at 744. In cases where even that informal record is not enough to evaluate the agency action, the reviewing court should usually remand the case to the agency for additional investigation or explanation. Id.
Although Florida Power may seem very restrictive when taken out of context, the Ninth Circuit has clarified that under certain circumstances, a court can review materials outside the administrative record:
Predominant is the rule that agency action must be examined by scrutinizing the administrative record at the time the agency made its decision. The Supreme Court recognized in Overton Park, however, that even where the agency has employed adequate fact-finding procedures, the courts may find it necessary to go outside the agency record to evaluate agency action properly . . . When a reviewing court considers evidence that was not before the agency, it inevitably leads the reviewing court to substitute its judgment for that of the agency . . . Nevertheless,. . . it is both unrealistic and unwise to "straightjacket" the reviewing court with the administrative record. It will often be impossible, especially when highly technical matters are involved, for the court to determine whether the agency took into consideration all relevant factors unless it looks outside the record to determine what matters the agency should have considered but did not. The court cannot adequately discharge its duty to engage in a "substantial inquiry" if it is required to take the agency's word that it considered all relevant matters.
We think these conflicting considerations can be satisfactorily reconciled. If the reviewing court finds it necessary to go outside the administrative record, it should consider evidence relevant to the substantive merits of the agency action only for background information . . . or for the limited purposes of ascertaining whether the agency considered all the relevant factors or fully explicated its course of conduct or grounds of decision. Consideration of the evidence to determine the correctness or wisdom of the agency's decision is not permitted, even if the court has also examined the administrative record. If the court determines that the agency's course of inquiry was insufficient or inadequate, it should remand the matter to the agency for further consideration and not compensate for the agency's dereliction by undertaking its own inquiry into the merits.Asarco, Inc. v. United States Envtl Protection Agency, 616 F.2d 1153, 1159-60 (9th Cir 1980) (internal citations omitted).
Applying Asarco and related cases, this court could perhaps consider at least some of the materials from outside of the administrative record submitted by plaintiffs. These materials could not be considered to judge the wisdom of the OHP2 project, especially whether it was a useful idea to apply co-payments and premiums to low-income expansion populations. Rather, the materials could be considered only for background information or for the "limited purposes of ascertaining whether the [Secretary] considered all the relevant factors" in deciding that OHP2 was an experimental, pilot or demonstration project, which would be likely to assist in promoting the objectives of the Medicaid Act, or whether the Secretary "fully explicated [his] course of conduct or grounds of decision" in determining these issues were satisfied. Asarco, 616 F.2d at 1159-60. Regardless, this court does not have to decide whether these materials can be properly reviewed because even if they are considered, as discussed below, plaintiffs still fail to prove that the requirements of § 1315 were not met.
B. Is OHP2 a Legitimate "Experiment. Pilot, or Demonstration Project"?
In Beno, the Ninth Circuit held that the language in § 1315 limiting HHS' waiver authority to "experimental, pilot or demonstration project[s]" "strongly implies that the Secretary must make at least some inquiry into the merits of the experiment — [the Secretary] must determine that the project is likely to yield useful information or demonstrate a novel approach to program administration." 30 F.3d at 1069.
In Beno, HHS waived the traditional AFDC program requirements under § 1315 to permit California to create a new welfare program with a work-incentive benefit for all California AFDC families. Id at 1061. The court held the waiver was not for a proper "experimental, pilot or demonstration project" within § 1315 because the agency failed to consider objections that the work-incentive benefit applied to people for whom it would have no effect, such as the disabled. Id at 1072-75. Rather, the waiver appeared to be designed to simply allow California to reduce its AFDC costs. Id. "A simple benefits cut, which might save money but has no research or experimental goal, would not satisfy this requirement [of a legitimate experiment]." Id. Furthermore, "the immediate fiscal impact of reducing benefits is obvious, and such a benefits cut does not constitute an experiment unless data is collected, some other reform is implemented, or the program has some legitimate research component." Id at 1069 n 30.
Plaintiffs argue that OHP2 is merely a benefits cut, similar to the California program in Beno, because the hypotheses supporting the demonstration program, especially the new premiums and co-payments for OHP Standard recipients, are merely precatory. Because OHP Standard recipients are already low-income persons, premium and co-payment requirements will always lessen the number of people able to use the program. Hence, OHP2 has an obvious outcome for which no such demonstration project is necessary to discover. Similar to the situation in Beno, where the court said it was "absurd" to have an AFDC work incentive benefits cut that applied to individuals whose disabilities preclude work, plaintiffs argue it is absurd to have a cost-sharing requirement for low-income expansion populations, like the homeless, as part of an effort to expand care to the needy. Id at 1073. As further support for this argument, plaintiffs point to the Legislative Emergency Board's suspension of the expansion of OHP Standard to people with incomes below 110% of the FPL, the costs of which were a primary reason for imposing the new co-payments and premiums. If the expansion is suspended, plaintiffs claim there can be no reason for the co-payments and premiums other than to save money.
The state and federal defendants respond that OHP2 is much more than a benefits cut and does have experimental value. They argue it is precisely because of the cost-saving features of the premiums and co-payments in OHP Standard that Oregon is able to continue to offer any Medicaid benefits to expansion populations, including the plaintiffs. The federal defendants argue plaintiffs are wrong to assume that in the absence of OHP2 the state was required to continue funding OHP, which covered plaintiffs without cost-sharing. Instead, the increased premiums and co-payments permit the expansion populations to receive healthcare coverage under OHP2. Admin. R. 92, 107-108 (discussing the financial constraints and the desire to expand coverage that lead to OHP2).
This court agrees with defendants that the expansion, and its associated premiums and co-payments, continues an legitimate experiment of using a state Medicaid program to serve populations who would not otherwise be eligible. It may very well be that the hypotheticals OHP2 is designed to answer, such as whether the program can improve access, coverage, and quality of care (Admin. R. 129-30), will ultimately be answered in the negative, but that does not render OHP2 invalid. Experiments like the one in Beno are not legitimate because they can not possibly produce an answer that was not already known. For example, it is simply not useful to place work requirements on disabled people for whom it is impossible to work. Beno, 30 F.3d at 1073. On the other hand, OHP2 is ultimately a type of social science experiment. Such experiments often raise questions about their wisdom from the moment of their inception, but that does not make them useless. The numerous social policy studies submitted by plaintiffs in support of their argument, most of which proclaim that charging premiums and co-payments to low-income beneficiaries has a predetermined negative answer, cannot necessarily provide a definitive answer to these issues. There may or may not be some homeless and/or low-income people in the class plaintiffs hope to represent who are able to obtain the funds to satisfy OHP Standard's premium and co-payment requirements. But without the premiums and co-payments, the Oregon Legislature might very well refuse to give these expansion populations a chance for coverage at all. Therefore, determining whether cost-sharing is a feasible means of providing care to at least some expansion populations amid a state shortage of other sources of funding is a valid experiment.
The Legislative Emergency Board's suspension of the further expansion of OHP Standard does not affect this conclusion. Even without the further expansion, OHP Standard serves expansion populations that would not otherwise be eligible for Medicaid under §§ 1396a-v. Indeed, even with the suspension, OHP Standard serves some populations who were not served under OHP, such as pregnant women and children whose families earn between 170% and 185% of the FPL. Admin. R. 35. While the premiums and co-payments were not necessary to serve the plaintiffs under OHP, they are necessary in order to continue this experiment in serving them and other expansion populations today.
Finally, this court is satisfied that OHP2 has adequate monitoring provisions in place in order to demonstrate that it is a demonstration project designed to collect data. HHS will require Oregon to make quarterly progress reports "on operational and policy issues appropriate to the state's program design." Id at 57. The report will have a separate section on "progress toward agreed-upon goals for reducing the rate of uninsurance." Id at 58. Oregon also must make quarterly enrollment reports, monthly monitoring calls with HHS, annual reports, and a final report. Id at 58-59. These requirements are sufficient to find that OHP2 is intended to gather real data on whether its policies and methods are a useful means of providing Medicaid and reducing the number of uninsured in Oregon. Thus, the federal defendants should be granted summary judgment on the Second Claim.
C. Does OHP2 Advance the Objectives of the Medicaid Act?
A closely connected issue is whether OHP2 meets the § 1315 requirement that, "in the judgment of the Secretary," the program is "likely to assist in promoting the objectives" of the Medicaid Act. Beno held that because the AFDC program's main objective is to support needy children, this § 1315 requirement means "the Secretary must consider the impact of the state's project on the children and families the AFDC program was enacted to protect." 30 F.3d 1070. Similarly, the purpose of the Medicaid Act is to provide health care to needy persons. Pharmaceutical. Research, 123 S. Ct. at 1861. Therefore, the Secretary must consider the impact of OHP2 on the needy people it sought to serve. This process includes "an examination of the proposed project's potential danger to participant's physical, mental, and emotional well-being." Beno, 30 F.3d at 1070. Finally, because a public benefits experiment project, like OHP2, does not have to undergo a review by an independent Institutional Review Board ("IRB") pursuant to § 3515b (as discussed in Section IV below), the § 1315 review must "make some determination that the project does not pose unnecessary risks to human subjects." Id at 1071.
Because they are low-income, needy people, plaintiffs argue that forcing them to pay premiums and co-payments will deny them access to care. As discussed above, it is difficult to definitively conclude no people in plaintiffs' proposed class could pay the premiums and co-payments. Leaving that issue aside, OHP2 does expand care to some populations that would not otherwise receive care under §§ 1396a-v, including plaintiffs, and even to some populations who were not previously served under OHP. Plaintiffs are wrong to presume that without OHP2 a system would be put in place that would cover them without premiums and co-payments, as OHP did originally, or to cover them at all. It is precisely because of the existence of OHP2 that plaintiffs have a chance at coverage at all, even if it is a slim one considering the high premiums and co-payments. Considering this simple fact, this court cannot find that the Secretary failed to consider the impact of OHP2 on these populations. Giving plaintiffs an opportunity to receive Medicaid coverage is no danger to the plaintiffs' physical, mental and emotional well-being and poses no unnecessary risk to them. Id at 1070-71. Thus, the federal defendants should be granted summary judgment on the Third Claim. D. Was the OHP2 Waiver Granted To an Extent and for a Period Necessary to Carry Out the Project?
Plaintiffs argue that even if OHP2 meets the other requirements of § 1315, the Secretary still abused his discretion in approving the project because it is beyond the "extent and period" he could find necessary to enable Oregon to carry out the project. Plaintiffs argue the Secretary gave the state defendant blanket approval to adjust the premium and co-payment rates in OHP Standard as she sees fit, which is well beyond any reasonable extent of the project. Admin. R. 62-63, 138. In addition, the plaintiffs claim OHP2 subjects an unreasonably large population to the experiment and continues it for an unreasonably long period of time.
Beno was resolved without determining the precise meaning of the "extent" and "period" language in § 1315(a), but the court did note its "difficulty discerning a congressional purpose to require [the Secretary] to waive any and all federal regulations [in the normal AFDC statute] whenever a state proposes an `experiment' which has some ability to further the goals of the program." 30 F.3d at 1072. Similarly, Congress laid out detailed regulations in §§ 1396a-v that should not be easily waived simply because a state proposes a Medicaid experiment.
Despite these restrictions on the authority to grant waivers, plaintiffs' argument should be rejected. First, the state defendant has not used her so-called blanket authority to adjust the premium and co-payment rates. Therefore, plaintiffs' argument that this authority is too broad under § 1315 is not yet ripe. Jacobus v. Alaska, 338 F.3d 1095, 1104 (9th Cir 2003) ("The requirement of ripeness is intended to ensure that issues presented are definite and concrete, not hypothetical or abstract" (internal quotations omitted)).
Second, this court cannot find that the Secretary was unreasonable in approving the project for a period of five years or in permitting it to apply to such a large population. Five years is not such a long time in a project designed to test innovative ways to reduce the number of uninsured, especially considering the extensive monitoring and oversight involved in OHP2. See C.K. v. New Jersey Dep't of Health and Human Serv., 92 F.3d 171, 180, 188-89 (3rd Cir 1996) (finding a five year AFDC § 1315 project was for the extent and period necessary).
This conclusion the Secretary did not act arbitrarily and capriciously in approving OHP2 for a period of five years, according to the "extent" and "period" restrictions of § 1315, does not affect the separate finding the Secretary did violate § 1396o(f)(2) by approving the waiver's co-payments for a period longer than two years.
Moreover, the application of OHP2 statewide is not unreasonable given that the project is designed as a comprehensive program that makes trade-offs in benefits and cost-sharing among different populations in order to expand coverage overall. OHP2 also includes extensive monitoring of its success. Admin. R. 57-59. This situation is wholly unlike the AFDC work incentive demonstration project in Beno, which cut benefits state-wide even though the program only measured the impact on about 15,000 of the 800,000 total families in the California AFDC program. 30 F.3d 1057 at 1061, 1072-73. Thus, the federal defendants should be granted summary judgment on the Fourth Claim. IV. Does OHP2 Violate Federal Limits on Human Experimentation in § 3515b?
Plaintiffs argue that the cost-sharing requirements in OHP Standard violate the federal ban on research programs that endanger human participants contained in § 3515b. Section 3515b provides that:
None of the funds appropriated [to HHS] shall be used to pay for any research program or project or any program, project, or course which is of an experimental nature, or any activity involving human participants, which is determined by the Secretary or a court of competent jurisdiction to present a danger to the physical, mental, or emotional well being of a participant or subject of such program, project, or course, without the written, informed consent of each participant or subject, or a participant's parents or legal guardian, if such participant is under 18 years of age. The Secretary shall adopt appropriate regulations respecting this section.
The regulations drafted by HHS to comply with § 3515b require HHS research on human subjects to include: (1) prior review of the project by an IRB; and (2) informed consent. 45 C.F.R. § 46.107-.115 and 46.116-.125. However, HHS regulations specifically exclude from these safeguards any research and demonstration project designed for "public benefit or service programs," "procedures for obtaining benefits or services under those programs," and "possible changes in methods or levels of payment for benefits or services under those programs." 45 C.F.R. § 46.101(b)(5)(i). The reason for this regulatory exemption from IRB oversight is that HHS will do the same analysis of a proposed project's potential danger pursuant to § 1315, making an IRB unnecessarily duplicative. Beno, 30 F.3d at 1070; see also C.K. 92 F.3d at 189-90.
OHP2 is a public benefit program designed to test "possible changes in methods or levels of payment for benefits or services," and is therefore exempt from IRB review. 45 C.F.R. § 46.101(b)(5)(i). Moreover, the Secretary made an analysis of the dangers OHP2 poses to its participants in granting the § 1315 waiver (as discussed in Section III above). Therefore, plaintiffs' First Claim that OHP2 violates § 3515b should be dismissed.
V. Equal Protection Claim
Plaintiffs' Tenth Claim alleges that the state defendant is violating the Fourteenth Amendment by treating equally situated classes of Medicaid recipients differently with no rational basis for doing so. For the reasons set forth below, this claim should be rejected.
A. Legal Standards
A denial of equal protection is premised on a classification which denies similar treatment to all persons similarly situated. Absent a suspect classification or fundamental interest, the equal protection analysis turns on the rational basis test. Gregory v. Ashcroft, 501 U.S. 452, 470-71 (1991). The law regarding the rational basis test is well-settled:
We many times have said, and but weeks ago repeated, that rational-basis review in equal protection analysis "is not a license for courts to judge the wisdom, fairness, or logic of legislative choices." Nor does it authorize "the judiciary [to] sit as a superlegislature to judge the wisdom or desirability of legislative policy determinations made in areas that neither affect fundamental rights nor proceed along suspect lines." For these reasons, a classification neither involving fundamental rights nor proceeding along suspect lines is accorded a strong presumption of validity. Such a classification cannot run afoul of the Equal Protection Clause if there is a rational relationship between the disparity of treatment and some legitimate governmental purpose. Further, a legislature that creates these categories need not "actually articulate at any time the purpose or rationale supporting its classification." Instead, a classification "must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification."
A State, moreover, has no obligation to produce evidence to sustain the rationality of a statutory classification. "[A] legislative choice is not subject to courtroom factfinding and may be based on rational speculation unsupported by evidence or empirical data." A statute is presumed constitutional, and "[t]he burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it," whether or not the basis has a foundation in the record. Finally, courts are compelled under rational-basis review to accept a legislature's generalizations even when there is an imperfect fit between means and ends. A classification does not fail rational-basis review because it "`is not made with mathematical nicety or because in practice it results in some inequality.'" "The problems of government are practical ones and may justify, if they do not require, rough accommodations-illogical, it may be, and unscientific."Heller v. Doe by Doe, 509 U.S. 312, 320-21 (1993) (citations omitted).
B. Analysis
Plaintiffs are neither members of a suspect class nor individuals asserting a recognized fundamental right. See Harris v. McRae, 448 U.S. 297, 323 (1980) ("this Court has repeatedly held that poverty, standing alone, is not a suspect classification"). Therefore, to avoid dismissal, plaintiffs must satisfy their burden of being able to "negative every possible conceivable basis" which might support the differing treatment in OHP2 of equally situated classes of Medicaid recipients. Heller, 509 US at 321.
The "equally situated classes of Medicaid recipients" treated differently by OHP2 are the recipients of OHP Plus, who pay no premiums even though they receive some cash assistance in the form of TANF or SSI, and the recipients of OHP Standard, who pay premiums even though they receive no cash assistance. Because the recipients of both OHP Plus and OHP Standard are low-income and medically needy, the plaintiffs argue there is no rational basis for charging the premiums without consideration of the ability to pay.
Additionally, the plaintiffs contend that charging premiums regardless of an individual's ability to pay is contrary to the express legislative purpose for both the Medicaid Act and OHP2. The purpose of the Medicaid Act is "to enable each state, as far as practicable, to furnish medical assistance to individuals whose income and resources are insufficient to meet the costs of necessary medical services." § 1396. The purpose of OHP2 is "to increase access by Oregon's low income, uninsured children and families to affordable health care coverage." Admin. R. 144. Premiums and co-payments were to be considered only as a means of encouraging the use of preventative services and avoiding the "costs incurred by the health care delivery system by providing health care services through emergency departments. Id. Cost-sharing also was to be based upon an ability to pay. Id at 147. However, plaintiffs argue that imposing premiums and co-payments, regardless of an individual's ability to pay, contravenes these legislative policies and fails the rational basis test.
Plaintiffs are unable to meet their burden of negating every conceivable basis for this difference in treatment, even if these justifications are not those for which the differences in classification in OHP2 were originally authorized. Heller, 509 US at 321. On its face, the difference could have a rational basis. Oregon could conclude that low-income children, pregnant women and the disabled — all of whom are covered by OHP Plus — are so vulnerable, even after receiving cash assistance, that they require greater protection than low-income, single, unmarried and childless adults who receive no cash assistance, such as those covered by OHP Standard. This conclusion is not surprising if one weighs the problems faced by a hypothetical disabled person receiving the limited cash assistance currently authorized by SSI versus those problems encountered by a hypothetical low-income, childless, non-disabled adult. Moreover, it is clear that the "intractable economic, social, [or] philosophical problems presented by public welfare programs are not the business of this court." Dandridge v. Williams, 397 U.S. 471, 487 (1970) (using rational basis scrutiny to uphold a Maryland AFDC program that put an absolute limit of $250 a month on cash assistance per a family, regardless of size and actual need). Regardless of whether this court might think it more intelligent or humane to refuse to charge premiums to people who lack the funds to pay them, and will almost certainly receive no health care as a result, "the Constitution does not empower this court to second-guess state officials charged with the difficult responsibility of allocating limited public welfare funds among the myriad of potential recipients." Id. Therefore, plaintiffs' equal protection challenge in the Tenth Claim should be rejected.
VI. Conclusion Remedies
This case presents a difficult issue of statutory construction because Congress failed to directly state whether a § 1315 "demonstration project" is or is not a "state plan" under the Medicaid Act, particularly where a demonstration project in effect supersedes a state plan and its requirements. Based on the text of the statute and the legislative history, this court concludes that unless explicitly waived by HHS, all relevant provisions of the Medicaid Act apply to demonstration projects, such as OHP2.
Plaintiffs have met their burden on summary judgment with regard to two matters. First, they have demonstrated there is no material issue of fact that OHP Standard violates § 1396o(f) by imposing co-payments pursuant to a § 1315 waiver without the Secretary finding, after public notice and opportunity for comment, that the five criteria in § 1396o(f)(1)-(5) have been met (part of the Sixth and Eleventh Claims). For example, OHP Standard is authorized for five years, when § 1396o(f)(2) makes it clear that a demonstration project not subject to § 1396o(a)(3) or (b)(3) — which OHP Standard is not — cannot charge co-payments if it is authorized for more than two years. Second, plaintiffs have proven there is no issue of material fact with regard to whether OHP Standard violates § 1396o(e) by permitting health care providers to deny care to an individual who can not meet the scheduled co-payment (part of the Sixth and Eleventh Claims). Summary judgment should be granted to plaintiffs on these two issues.
In addition, this matter should be remanded to the Secretary for the following purposes: (1) to determine that the five criteria in § 1396o(f) are met if the state desires to continue charging co-payments to the current recipients of OHP Standard; and (2) to ensure that the OHP2 waiver is adjusted in order to properly comply with § 1396o(e). The imposition of co-payments in OHP Standard and the authorization for providers to deny care when co-payments are not paid should be enjoined until the Secretary finds these two matters are met on remand.
Section 1396o(f) requires the Secretary to determine whether the five criteria have been met "after public notice and opportunity to comment." This court expresses no opinion on whether the public participation in the development of OHP2 to date (Admin. R. 98-99) fulfills this requirement.
This court rejects the federal defendants' argument that the Court's opinion in Florida Power limits this courts ability to enjoin the imposition of the co-payments in OHP2. That opinion discusses the level of review a court may grant agency action under certain circumstances. See Florida Power, 470 US at 743-44. It does not limit a court's power to enjoin HHS actions that violate the Medicaid Act.
The state and federal defendants have met their burden on summary judgment with regard to five matters. First, they have proven there is no issue of material fact that the premiums charged recipients of OHP Standard do not violate the provisions of the Medicaid Act, specifically § 1396o (part of the Sixth and Eleventh Claims). Second, there is no issue of material fact that OHP Standard does not violate § 1396o(b)(1) and (3) (Seventh, Eighth, and Eleventh Claims). Third, there is no issue of material fact that OHP2 meets the basic requirements in § 1315 for a waiver to be granted (Second, Third, Fourth, Fifth and Eleventh Claims). OHP2 is a legitimate demonstration project which the Secretary has found may fulfill the objectives of the Medicaid Act and is authorized for the extent and period he finds necessary. Fourth, there is no issue of material fact that OHP2 does not violate federal limits on human experimentation in § 3515b (First Claim). Finally, the state defendant has proven there is no issue of material fact with regard to whether OHP2 violates the Equal Protection Clause of the Fourteenth Amendment (Tenth Claim). The defendants should be granted summary judgment on these five issues.
RECOMMENDATION
For the reasons stated above, plaintiffs' Motion for Summary Judgment (docket #34), state defendant's Cross-Motion for Summary Judgment (docket #57), and federal defendants' Cross-Motion for Summary Judgment (docket #61) should be GRANTED IN PART and DENIED IN PART as follows:
(1) Grant summary judgment to plaintiffs on those portions of the Sixth and Eleventh Claims relating to co-payments; and
(2) Grant summary judgment to defendants on the First through Fifth claims, Seventh through Tenth Claims, and those portions of the Sixth and Eleventh Claims relating to premiums.
SCHEDULING ORDER
Objections to the Findings and Recommendation, if any, are due December 29, 2003. If no objections are filed, then the Findings and Recommendation will be referred to a district court judge and go under advisement on that date.If objections are filed, the response is due no later than January 16, 2003. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will be referred to a district court judge and go under advisement.