Sierra Medical Services Alliance v. Kent

          Argued and Submitted November 7, 2017 Pasadena, California

         Appeal from the United States District Court for the Central District of California D.C. No. 2:10-cv-04182-CAS-MAN Christina A. Snyder, District Judge, Presiding

          Michael K. Hagemann (argued), and Kevin R. Warren, M.K. Hagemann P.C., Century City, California, for Plaintiffs-Appellants.

          Hadara R. Stanton (argued), Deputy Attorney General; Susan M. Carson, Supervising Deputy Attorney General; Julie Weng-Gutierrez, Senior Assistant Attorney General; Office of the Attorney General, San Francisco, California; for Defendant-Appellee.

          Before: Stephen Reinhardt, Ronald Lee Gilman, ^[*] and Kim McLane Wardlaw, Circuit Judges.

         SUMMARY ^[**]

         Medicaid

         The panel affirmed the district court's summary judgment in favor of the Director of the California Department of Health Care Services in an action brought by private ambulance companies, challenging the reimbursement rate for their transportation of patients covered by Medi-Cal, the California Medicaid program.

         The reimbursement rate is set by DHCS pursuant to state statutes and regulations that have been approved by the Centers for Medicare and Medicaid Services, the federal agency that administers the Medicaid program on behalf of the Department of Health and Human Services. The ambulance companies alleged that their constitutional rights were violated because they received only 20 cents in reimbursement for every dollar that they spent to transport Medi-Cal patients.

         The panel affirmed the district court's summary judgment on the ambulance companies' claim under the Takings Clause. The panel held that the ambulance companies lacked a constitutionally protected property interest in a particular reimbursement rate, but the mandatory-care provision of Cal. Health & Safety Code § 1317(d) implicated a constitutionally protected property right. The panel held that § 1317(d) did not effect a regulatory taking because, under the Penn Central test, the ambulance companies did not establish that the statute had more than a negligible economic impact on them, nor that it interfered with their investment-backed expectations, and they did not provide evidence as to the character of the government action at issue.

         The panel held that the ambulance companies did not establish a due process claim regarding DHCS's failure to ensure that Medi-Cal reimbursement rates kept pace with their costs because they lacked a constitutionally protected interest in any particular reimbursement rate. Under the rational-basis standard, the ambulance companies did not establish an equal protection violation regarding a supplemental-reimbursement program that favors public over private providers. The ambulance companies also did not establish a claim under the Contract Clause or the Dormant Commerce Clause.

         The panel held that there was no procedural error in the district court's grant of summary judgment, and it declined to address claims omitted from the operative complaint.

          OPINION

          GILMAN, CIRCUIT JUDGE

         California law requires ambulance companies to provide emergency medical transportation irrespective of a patient's ability to pay. To at least partially offset the cost of providing such transportation, California has an established reimbursement rate for those companies voluntarily enrolled as providers with the state's Medicaid program (Medi-Cal) when they transport Medi-Cal patients. The relevant reimbursement rate is set by California's Department of Health Care Services (DHCS) pursuant to state statutes and regulations that have been approved by the Centers for Medicare and Medicaid Services (CMS), the federal agency that administers the Medicaid Program on behalf of the Department of Health and Human Services.

         At the heart of this case is the Plaintiffs' complaint that private ambulance companies receive only 20 cents in reimbursement for every dollar that they spend to transport Medi-Cal patients, a shortfall that they contend violates their constitutional rights. After discovery, DHCS moved for summary judgment, which the district court granted on all counts. The court held that the Plaintiffs had failed to produce sufficient evidence to sustain any of their claims. For the reasons set forth below, we AFFIRM the judgment of the district court.

         I. BACKGROUND

         A. Factual background

         1. Federal Medicaid program

         Medicaid is a state-administered program financed jointly by the federal and state governments that provides healthcare coverage to low-income Americans. See 42 U.S.C. §§ 1396 et seq. The percentage of the program's costs that the federal government covers varies by state, with poorer states receiving a greater share of federal dollars. See 42 U.S.C. § 1396d(b). For the fiscal years in question, California bore half the cost of covering its Medicaid population. See 80 Fed. Reg. 73,781, tbl. 1 (Nov. 25, 2015). A state can satisfy its share of Medicaid spending both through direct appropriations to state and local Medicaid agencies and by certified Medicaid expenditures incurred by other state and local agencies. 42 C.F.R. § 433.51(a), (b).

         In exchange for receiving their allotment of federal funds, states design and administer Medicaid State Plans that must comply with federal Medicaid law. See 42 U.S.C. § 1396a. CMS can remedy a state's noncompliance with federal Medicaid law by withholding future funding. 42 U.S.C. § 1396c; Armstrong v. Exceptional Child Ctr., Inc., 135 S.Ct. 1378, 1385 (2015) ("[T]he sole remedy Congress provided for a State's failure to comply with Medicaid's requirements . . . is the withholding of Medicaid funds by the Secretary of Health and Human Services.").

         2. Medi-Cal

         Entities that enroll as Medi-Cal providers are entitled to reimbursement for the services that they provide to the program's beneficiaries. Cal. Welf. & Inst. Code § 14019.3(c), (g). The Medi-Cal statute stipulates that "payment received from the state in accordance with Medi-Cal fee structures shall constitute payment in full" for services provided. Id. § 14019.3(d). And when providers enroll in the program, they must sign a Medi-Cal Provider Agreement that contains a condition to the same effect. Cal. Welf. & Inst. Code § 14043.2(a); Cal. Code Regs. tit. 22, §§ 51000.45, 51200(a), 51501(b); DHCS, Medi-Cal Provider Agreement (DHCS 6208) 5-6 (2017), http://files.medi-cal.ca.gov/pubsdoco/Publications/ ...