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UNITED STATES DISTRICT COURT DISTRICT OF NEW HAMPSHIRE **************************************** Dartmouth-Hitchcock Clinic and Mary * Hitchcock Memorial Hospital * d/b/a Dartmouth-Hitchcock, et al., * Plaintiff * * v. * Nicholas A. Toumpas, in his official capacity * as Commissioner of the New Hampshire * Department of Health and Human Services, * Defendant * * * ****************************************

11-cv-358-SM

MEMORANDUM OF LAW IN SUPPORT OF OBJECTION TO MOTION FOR PRELIMINARY INJUCTION

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TABLE OF CONTENTS Page I. FACTS ........................................................................................................... A. The Medicaid Program ............................................................................ B. The Hospitals ........................................................................................... C. Facts Specific To Complaint And Preliminary Injunction Allegations ... 1. Fiscal And Legislative Finance Committees Public Process............. 2. 2005 Outpatient Rate Reduction........................................................ 3. 2008 Inpatient and Outpatient Rate Reductions ................................ 4. Hospitals Facilities Fees And Code 510 ............................................ 5. Outpatient Settlement Payments ........................................................ 6. Suspension Of Catastrophic Payments .............................................. 7. Outpatient Radiology Rate Reduction ............................................... 8. Failure To Continue A One-Time UPL Payment .............................. 9. FY 2012-2013 Changes to DSH ........................................................ D. Facts Related To Access .......................................................................... II. ARGUMENT................................................................................................. A. Plaintiffs Are Not Likely To Succeed On The Merits ............................. 1. Plaintiffs Do Not Have A Private Cause Of Action Under Either The Supremacy Clause Or Section 1983 ........................................... a. Plaintiffs Do Not Have A Cause Of Action Under The Supremacy Clause........................................................................ i. The Supremacy Clause Does Not Supply A Cause Of Action To Enforce Section 30(A) .......................................... ii. The Supremacy Clause Does Not Supply A Cause Of Action To Enforce 42 U.S.C. 1396a(b) and 42 C.F.R. 430.12..................................................................................... 1 1 5 7 7 8 9 14 16 19 19 20 21 22 25 25 25 25 26

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b. Plaintiffs Do Not Have A Cause of Action Under Section 1983. 2. Even If Plaintiffs Have A Cause Of Action, They Are Unlikely To Succeed On The Merits Of Their Claims .......................................... a. Plaintiffs Are Unlikely To Succeed On The Merits Of Their Supremacy Clause Claims ........................................................... i. Plaintiffs Have Not Demonstrated That There Has Been Or Will Be Any Actual Lack Of Access To Hospital Services Different From The General Population (Substantive Claim under Section 30(A)).............................................................. ii. Medicaid Law Does Not Require That A State Do Analysis Of The Potential Impact Prior To Rate Reductions, And To The Extent Medicaid Law Requires That A State Consider The Potential Impact Prior To Rate Reductions, The Analysis Performed Was Sufficient (Procedural Claim under Section 30(A)............................................................... iii. Plaintiffs Facial Challenge Fails........................................... iv. 42 U.S.C. 1396a(b) and 42 C.F.R. 430.12 do not preempt the state laws at issue in this case ............................ b. Plaintiffs Are Unlikely To Succeed On The Merits Of Their Section 1983 Claims As To The Extent Required Notice Was Given And State Plan Amendments Filed ................................... i. October 30, 2008 Outpatient Rate Reduction (and carried forward into SFY 2010-2011 and SFY 2012-2013) .............. ii. November 21, 2008 Inpatient Rate Reduction (and carried forward into SFY 2010-2011 and SFY 2012-2013) .............. iii. Deferral of Outpatient Settlement Payments for 2009, 2010 and 2011 (and carried forward into SFY 2012-2013)............ iv. Hospitals Charge of Technical Component Fees for Hospital-Owned Physician Practices in 2010 and 2011 (and carried forward into SFY 2012-2013).................................... v. Suspension of Payments to Hospitals for Certain Catastrophic Cases in 2010 and 2011 (and carried forward into SFY 2010-2011 an 2012-2013) ...................................... vi. Reduction of Outpatient Radiology Reimbursements in 2010 and 2011 (and carried forward into SFY 2012-2013)...

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vii. Enactment of NH Laws 2011, ch. 223 and 224 (the budget and HB 2)............................................................................... B. Plaintiffs Have Not Demonstrated Irreparable Harm .............................. 1. The Hospitals Harm, If Any, Is Only Financial and Therefore Not Sufficient For Preliminary Injunction................................................ 2. John Doe Has Not Alleged Any Facts Sufficient To Support That He Will Not Get Care At LRGH, The Hospital In His Vicinity Or At Any Other Hospital ....................................................................... C. Plaintiffs Have Not Demonstrated That Any Harm To Them Outweighs The Impact On The State....................................................... D. There Is A Significant Public Interest In Not Invalidating The State Budget ...................................................................................................... III. CONCLUSION..............................................................................................

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The Defendant, Nicholas A. Toumpas, in his official capacity as Commissioner of the New Hampshire Department of Health and Human Services (DHHS), by and through counsel, the New Hampshire Office of the Attorney General, submits the following Memorandum of Law in support of his objection to the Motion for Preliminary Injunction. In their Motion for Preliminary Injunction, Plaintiffs request this Court to enjoin implementation of Medicaid rates, disproportionate share hospital payments, and State budget decisions extending as far back as 2008. Plaintiffs have failed to establish legal or factual support for the extraordinary relief they seek. They are unlikely to succeed on the merits of their claims as they do not have a private right of action under either 42 U.S.C. 1983 or the Supremacy Clause, and the facts of this case overwhelming show that DHHS complied with any applicable substantive and procedural requirements of federal law. Plaintiffs have also failed to meet their burden of showing irreparable injury, and that their alleged injury will not be substantially outweighed by greater harm to the State and the public interest that would be caused by the granting of an injunction in this case. I. FACTS A. The Medicaid Program

Medicaid is a cooperative federal-state program through which the federal government provides financial assistance to participating states that choose to pay certain costs of medical treatment for qualifying individuals. Title XIX of the Social Security Act, 42 U.S.C. 1396 et seq. Medicaid was first passed into law in 1965. The principle mandatory areas of coverage are low-income women, children, disabled and long-term care for medically needy elderly without resources. Affidavit of Kathleen Dunn, 2.

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The requirement for a state plan is contained in 42 USC 1396a(a). The state plan is the comprehensive written statement submitted by the State to the Centers for Medicaid and Medicare Services (CMS) describing the nature and scope of the Medicaid program and giving assurances that it will be administered in conformity with the Medicaid Act. 42 C.F.R. 430.10. It contains the information necessary for CMS to approve the program and provide federal financial participation. Id. The plan describes the policy and methods to be used in setting payment rates for each type of covered service. 42 C.F.R. 201(b). For example, if a state is going to use a diagnostic related groups (DRGs) system for inpatient hospital payments, as opposed to a cost-based system or a managed care system, it must say so in its state plan. New Hampshires state plan section on reimbursement for in-patient hospitals, out-patient and physicians provides that each are paid differently. Affidavit of Kathleen Dunn, 3 and Affidavit of Diane Peterson, 5 and 6, attaching New Hampshire state plan Section 4.19 A (Exh. DP-1) 1 and 4.19 B (Exh. DP-2) 2 , including all pending and draft amendments and accepted changes since 1990. However, there has never been a requirement that the specific rates or percentages be included in the state plan and CMS has repeatedly approved revisions to the New Hampshire state plan that do not contain specific rates or percentages. Affidavit of Kathleen Dunn, 4. CMS has recognized that the repeal of the Boren Amendment and current language in 42 USC 1396a(a)(13)(A) was intended to give states the maximum flexibility possible in regard to ratesetting while minimizing CMS (formerly Health

As there are a number of affidavits with multiple attachments filed in support of this memorandum, defendant has identified the attachments to each affidavit by including the initials of the persons name and then a number to avoid confusion. 2 In regard to TN 06-008, the original State plan amendment submitted did not actually make any changes in Section 4.19 B. In the CMS review process, CMS suggested that the changes should also be submitted to update 4.19 B page 1. Therefore OMBP submitted proposed additional changes as part of TN 06-008 that are also considered part of TN 06-008, that are included and that are referred to as pending in subsequent state plan amendments. Affidavit of Diane Peterson, 10, Exh. DP-8, TN 06-008.

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Care Financing Administration or HCFA) involvement. Affidavit of Kathleen Dunn, 5, Exh. KD-1, HCFA to Medicaid Directors letter, dated 12/10/97. Indeed, a recent attempt to require rates be included in state plans in the United States House of Representatives version of the Affordable Health Care for America Act, H.R. 3962, was rejected in the Senate version, H.R. 3590, which ultimately became the Patient Protection and Affordable Care Act. See Affidavit of Nancy Smith, 3(a), Exh. NS-1, H.R. 3962 1728 as passed by House, and Exh. NS-2, H.R. 3590, p. 1, 143 144, encompassing 1560 to 3021. The New Hampshire payment methodologies specified for hospital services in the state plan are as follows. For in-patient Hospital services DRGs are used. See DP-1, page 1. The NH Medicaid program uses the Medicare table of DRG coding, Medicare grouper software, Medicare relative weights, Mean lengths of stay and day outlier trim points. The rate (Price per Point) for each DRG is determined by NH Medicaid based on the peer group that a hospital is assigned to. The Medicare tables are updated annually and notice is provided in the Federal Register. Notice that NH Medicaid is applying the update to its payments is published at <http://www.nhmedicaid.com/>. DRG reimbursement is calculated by multiplying relative weight assigned to the DRG times the price per point assigned to the peer group. Affidavit of Marilee Nihan, 1. The state plan methodolgy has always provided flexibility regarding the price per point that allows the Department to apply a percentage reduction, as the language specifies that the allowed reimbursement amount determined through this method shall be based on rates and amounts established by the Department (OMBP) and that inpatient acute services are paid a pre-determined price in relation to a DRG taking into account state Medicaid defined budget neutrality factors. Affidavit of Marilee Nihan, 2, Exh. DP-1, TN 89-007, 4.19A, p. 1, Para 3 and TN 99-012, 4.19-A, p. 3, Para. c, (2).

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The state plan provides that most outpatient hospital services are paid on a cost basis. As actual allowable costs are not known until an audit by the Medicare fiscal intermediary is completed, interim payments are made on the basis of a percent of charges. The state plan has provided since 2006 that the actual cost will be reimbursed using the percent determined by the Department. Affidavit of Marilee Nihan, 3, Exh. DP-2, TN 06-008, 4.19-B, page 1, para 1. The major exception to this rule is lab work and radiology which are paid on a set fee for service. Affidavit of Marilee Nihan, 3. Likewise physicians office visits and professional services are paid on a fee for service basis. Affidavit of Marilee Nihan, 3, Exh. DP-2, TN 92-9, 4.19-B, page 1-a, Para. 5. Another component of the Medicaid system is the disproportionate share hospital (DSH) program. DSH payments under 42 U.S.C. 1396r-4 are generally allowed but not required. 3 DSH payments are distinct from Medicaid rates as the DSH program allows, but does not require, hospitals to be compensated for true charity care for people that do not qualify for Medicaid, that have no insurance and who cannot afford to pay for care.4 Even if a hospital qualifies as a DSH hospital, there is no requirement in federal law that any set percentage of the hospitals uncompensated care must be subsidized. Affidavit of Kathleen Dunn, 3. New Hampshire Medicaid spending has grown consistently over time from a total in FY1995 of $855,249,869 to a FY 2010 total of $1,418,273,017. Affidavit of Marilee Nihan, 4, Exh. MH-1. Contrary to the suggestions made in this lawsuit, New Hampshire does not fund the entire state portion of Medicaid from the Medicaid Enhancement Tax (MET) on hospital patient services revenue. See RSA ch. 84-A. In FY2012 the State general funds for Medicaid,

There is a possible exception not relevant here for hospitals that qualify (re-determined annually) based on unusually high percentages of uncompensated care provided in the prior year. 4 The intent of allowing DSH payments was to allow subsidies to inner-city hospitals that served low-income populations, many of whom do not qualify for Medicaid. Affidavit of Kathleen Dunn, 3.

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excluding administration, are $388,374,048, of which less than half is anticipated to be raised from the MET. Affidavit of Marilee Nihan, 5, Exh. MH-2. B. The Hospitals

The plaintiff institutions all have non-profit charitable status. See Complaint, 4, 6, 12, 16, 19, 23, 31, 38, 43, 48 and NS-3 through 12. In order to qualify for this status they must demonstrate a charitable purpose, in other words that they provide a public benefit. They rely at least in part on the fact that they provide uncompensated care to demonstrate their charitable purpose. See Affidavit of Nancy J. Smith, 3(c) attaching relevant sections of the ten hospitals 2009 IRS form 990, Exh. NS-3 through NS-12. Despite their non-profit status their chief executives in 2009 were highly compensated with salaries and benefits: $1,077, 958 (Giles, Catholic MC); $511, 257 (Nichols, Cheshire); $784,594 (Mary Hitchcock); $679,078 (Dean, Elliot); $740,927 (Callahan, Exeter); $496,356 (Felgar, Frisbie); $487,084 (Clairmont, Lakes Region General LRG); $772,229 (Wilhelmsen, Southern New Hampshire Hospital, SNH); $547,408 (Davis, St. Josephs); $698,128 (Walker, Wentworth Douglas Hospital. WDH). Id. NS-3 through NS-12, Sched. J. Hospitals full charges bear little relationship to their actual costs. A 2008 study commissioned jointly by the Department and the Endowment for Health concluded that New Hampshires non-critical access acute care hospitals, of which the plaintiffs comprise ten out of thirteen, are in better financial shape than hospitals nationally, and that their reserves have consistently grown over the last five years, despite a decline in investment income in 2007. Affidavit of Kathleen Dunn, 6, attaching Kane report, October 15, 2008 as Exh. KD-2. During this period the hospital sector generated over a half-billion in operating profits and when noncash expenses (depreciation and amortization) are added back in, the sector generated cash from

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operations of over $1.2 billion dollars over the five year period. KD-2 at 3. However, the report also showed that critical access hospitals consistently had lower operating margins than did all New Hampshire Hospitals in every year from 2003 to 2007. KD-2 at 5. Additionally, a March 2009 report to the United States Congress in relation to controlling Medicare spending concluded that hospitals faced with financial pressure, such as lower rates, have the capacity to control and reduce their costs. Affidavit of Nancy Smith, 3(u), attaching Medpac Hospital inpatient and outpatient services, Report to the Congress, 3/2009 as NS-30. Furthermore, for-profit hospitals did a better job controlling costs than non-profits, in which higher revenues are more readily reflected as higher costs. NS-30 at 61. Nonprofit hospitals under financial pressure choose to control their costs. . . . In sum, costs are at least partially under hospitals control. Id. NS-30 at 63. The ten plaintiff hospitals have also been going through an unprecedented period of capital expansion. In the last five years these ten hospitals have applied for and have spent, or are in the process of spending, over half a billion dollars in capital improvements. Affidavit of Cynthia Carrier, 3, CC-1. The acute care hospitals in New Hampshire in 2009 had a total of 3020 licensed beds, 5 and the 2009 fourth quarter trending report from the NHHA website, which includes year-end figures, shows that for the period of January to December 2009 there were a total of 562,974 total patient days. See Affidavit of Nancy Smith, 3(d), Exh. NS-13, NHHA 2009 4th Quarter Trending Report. 3020 beds times 365 days in a year means that there were 1,102,300 patient days available if all the beds were used. This means only 51% of the Hospitals available beds were used during the year. As the hospitals have already committed the capital

From report on NHHA website, http://nhha.org/files/pdfdownloads/EconomicImpactStateRpt.pdf , page ii.

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and staffing costs to support those beds, receiving a Medicaid payment still reduces their overhead and contributes to the bottom line. Affidavit of Kathleen Dunn, 7. The NHHA trending report also indicates a trend of lower patient days overall by 3.12 % from 2008 to 2009. Affidavit of Nancy Smith, 3(d), Exh. NS-13, NHHA 2009 4th Quarter Trending Report. The plaintiff hospitals are active politically, both individually and through the New Hampshire Hospital Association (NHHA) in which they are all members. For example, in 2009 just these ten hospitals claimed to have spent at least $852,821 on lobbying, excluding another $500,000 in grass roots lobbying identified by two of them. Affidavit of Nancy Smith, 3(c), Exh. NS-3 through NS-12, 2009 IRS form 990s Schedule C, Part II-B and Part IV. At least four, Mary Hitchcock, Elliot, Exeter and Wentworth Douglas, indicate that they had direct contact with legislators and Mary Hitchcock explains that it has two full time employers whose duties are lobbying. Id. at Exh. NS-5, Exh. NS- 6, Exh. NS-7 and Exh. NS-12. C. Facts Specific To Complaint And Preliminary Injunction Allegations 1. Fiscal and Legislative Finance Committees Public Process

In 2005, New Hampshire state law was amended to require that DHHS designate in its operating budget request a separate line item for outpatient hospital services. If expenditures are expected to exceed the annual appropriation, DHHS may recommend a rate reduction to providers subject to legislative fiscal committee approval. RSA 126-A:3, VII(a). This process ensures that proposed reductions are considered in a public process that provides notice and opportunity to comment. The agenda for the Joint Legislative Fiscal Committee is published on the States website under the Legislative Budget Assistant (LBA), http://gencourt.state.nh.us/lba/fiscal.html, usually a 5 to 7 days in advance of the fiscal committee meeting and has always been posted before the

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meeting. Affidavit of Jeff Pattison, 5. Even if for technical reasons posting on the website is delayed a few days, a week before the meeting a package with paper copies is hand delivered to the press room in the Capitol Building. Id. at 6. The location and time of the fiscal committee meetings are published in the House and Senate Calendar sand the meetings are open to the public. Id. at 3. Additionally, the membership of the Fiscal Committee is published and the opportunity to contact or submit written comment always exists. Affidavit of Jeff Pattison, 7. To the extent that a matter affecting hospital rates or reimbursement has been scheduled, the meetings have been attended by at least the NHHA lobbyist and often other individuals representing individual hospitals. Affidavit of Kathleen Dunn, 9. The minutes of the actions taken by the fiscal committee are likewise published on the states website and are publicly available. Id. at 3. The website publication has been the LBAs routine process since 2005 when the website publication was started. At that time the agendas from 2003 to the present and minutes from 2002 to the present were added to the website. All of the agendas and minutes remain available on the state website after they are initially published. Id. at 3. 2. 2005 Outpatient Rate Reduction

In July 2005 the Department requested a reduction in outpatient rates from 91.27% of Medicare allowable costs to 81.24%. Affidavit of Marilee Nihan, 6, MN-3, FIS 05-125. The agenda of the fiscal committee for July 2005, and subsequently the minutes, were posted on the website. Affidavit of Jeff Pattison, 8 and 9, Exh. JP-1 and Exh. JP-2. DHHS submitted state plan amendment TN 06-008, which in changes reqeusted by CMS, specifies that outpatient hospital service will be reimbursed using the percent determined by the Department, in 2006 and the same language was continued in subsequent amendments. Affidavit Diane Peterson, 8,

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Exh. DP-2, 4.19B, p. 1 TN-06-008 and Exh. DP-3, TN-08-017 package to CMS, Exh. DP-8, TN06-008 with CMS with draft changes to 4.19 B, page 1. 3. 2008 Inpatient and Outpatient Rate Reductions

In 2007 the current economic downturn began. By early 2008 DHHS was projecting that its Medicaid spending would exceed its appropriations before the end of the biennium. In accordance with RSA 126-A:3, VII(a), DHHS submitted a request to the fiscal committee on April 11, 2008, proposing to reduce outpatient reimbursement rates from 81.24% to 62.82%. Affidavit of Marilee Nihan, 7, Exh. MN-6, FIS 08-130. This item was put on the fiscal committee agenda for the April 2008 meeting with publication on the website prior to the fiscal committee meeting. Affidavit of Jeff Pattison, 12, JP-5, April 29, 2008 agenda. As previously described, fiscal committee meetings are open to the public, and lobbyists or interested parties are free to submit written comments at the meeting or to contact the fiscal committee members to make their views known beforehand, Affidavit of Jeff Pattison, 7. The transcript reveals that these proposed cuts had actually been discussed prior to being submitted to the fiscal committee, as well as subsequent to the submission of the fiscal item and before the fiscal committee meeting, with the New Hampshire Hospital Association (NHHA), the Governor and Commissioner Toumpas. In fact, Commissioner Toumpas explained that as early as February 2008 the NHHA had proposed an alternative plan. Affidavit of Jeff Pattison, 13, Exh. JP-6, 4/29/08 Transcript fiscal committee, p. 7-8, 18. These communications are reflected in correspondence between the Commissioners office and the NHHA, as well as directly from NHHA to Governor Lynch. Affidavit of Kathleen Dunn, 10, Exh. KD- 9, Letter dated 4/9/2008 and Exh. KD-10, Letter dated 5/21/2008; and Exh. KD-11, Letter dated 4/22/2008 from NHHA to Gov. Lynch. Comm. Toumpas warned fiscal committee in April 2008 that if the cut

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was put off longer to explore options the magnitude of the reduction that would have to be made retroactively would have to be even bigger that what we are talking about right now because its happening in a shorter period of time. Exh. JP-6 at p. 16. Fiscal Chairman Smith expressed that the committee wanted to table the request to pursue alternative routes with the NHHA and the request was in fact tabled. Id. at p.18 19, Affidavit of Jeff Pattison, 14, Exh. JP-7, 4/29/2008 minutes. It was tabled with the understanding that it was likely to have to be brought forward in the next fiscal year. Affidavit of Kathleen Dunn, 10. After the April 29, 2008 fiscal meeting, communications regarding rate reductions continued, and NHHA was advised that the fiscal committee item requesting rate reduction remained pending and would be brought forward. See Exh. KD-10. On July 1, 2008 state fiscal year 2009 began, which was the second year of the two-year biennium. The economy had not improved. The Departments calculations showed that the reduction previously requested would not be sufficient since it would be implemented later in the cycle. Affidavit of Kathleen Dunn, 11. There had also been no resolution reached with the hospitals through the NHHA. Affidavit of Kathleen Dunn, 11. By October 2008 DHHS had received the Kane report that showed that the NH non-critical access hospitals had healthy, above average profit margins and reserves. Affidavit of Kathleen Dunn, 6, KD-2. A request was submitted by DHHS to the fiscal committee, revising the prior April 2008 fiscal request, asking to reduce outpatient rates from 81.24% to 54.04 % on October 30, 2008. Affidavit of Kathleen Dunn, 11, Exh. KD-4, fiscal request FIS 08-325. As indicated above, there had already been extensive discussion with the hospitals through their representative, the NHHA, about the proposed reduction and NHHA had been given an opportunity to propose alternatives. Affidavit of Kathleen Dunn, 10, KD-9 and KD-10. This item was put on the November 21,

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2008 fiscal committee agenda by the LBA and published a week before the meeting on the LBA website. Affidavit of Jeff Pattison. 15, JP-8, 11/21/2008 fiscal committee agenda. The transcript of the Nov. 21, 2008 fiscal committee meeting was attached to plaintiffs motion as Exhibit E to the Freyer affidavit (Pltfs Exh. E, Doc. 3-7). As the transcript discussion makes clear, this reduction replaced the reduction requested in FIS 08-130 (MN-6). As predicted at the April fiscal committee hearing, the request was now greater as it had been pushed further into biennium. Pltfs Exh. E, Doc. 3-7, p. 56. The minutes of the actions of the fiscal committee approving the reduction were published per the usual procedure on the state website. Affidavit of Jeff Pattison, 16, Exh. JP-9, November 21, 2008 minutes. RSA 9:16-b provides that notwithstanding any other provision of law, the governor may, with the prior approval of the fiscal committee, order reductions in any or all expenditure classes if he determines at any time during the fiscal year that revenues are insufficient to maintain a balanced budget and the likelihood of a serious deficit exists. On Nov. 21, 2008 Governor Lynch presented two emergency executive orders to the fiscal committee for approval that were necessary to address an estimated remaining $150 million revenue shortfall for FY 2009. See Affidavit of Jeff Pattison, 17-18, Exh. JP-10, letter by Gov. Lynch dated 11/21/2009. The proposed executive orders, 2008-10 and 2008-11 were provided to the fiscal committee. Affidavit of Jeff Pattison, 18, Exh. JP-11 and 12. The actions of the fiscal committee approving the Governors request for emergency budget reductions are published in the fiscal committee minutes. Affidavit of Jeff Pattison, 16, Exh. JP-9. Additionally, the executive orders are published on the Governors website at http://www.governor.nh.gov/media/orders/index.htm and are also publicly posted on the secretary of State website at http://www.sos.nh.gov/EXECUTIVE ORDERS/index.htm. Almost

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every state agency was required to provide some reductions. Of the $25,361,111 required from DHHS, the detailed spreadsheets submitted to the fiscal committee demonstrate that only $1,745,156 was from the 10% reduction to hospital inpatient rates. See JP-10. Executive Order 2008-10 did not, as suggested by Plaintiffs, require that settlement payments for outpatient reimbursement be suspended in FY 2009. See JP-10 and Complaint, 131. Instead, the spreadsheet attached to the Governors Executive order presented to the fiscal committee itemizing the DHHS source of the proposed cuts showed as additional funds on line 39 that $2.2 million that was owed to DHHS by the hospitals from over payment of outpatient costs. See JP-10 and testimony of Kathleen Dunn, Pltfs Exh. E, Doc. 3-7, p. 53-54. The November 21, 2008 meeting transcript shows that access was considered in the continuation of excluding the critical access hospitals from the rate reductions. Pltfs Exh. E, Doc. 3-7, p. 40-41, Affidavit of Kathleen Dunn, 12. NHHA on behalf of all of the hospitals, wrote a letter to CMS five days after the fiscal committee meeting inquiring about whether the November 21, 2008 fiscal committee actions needed to be followed by state plan amendments and what if any notice was required. Affidavit of Kathleen Dunn, 13, Exh. KD-5, NHHA 11/26/08 letter to CMS. NHHA wrote, On November 21, 2008 the Fiscal Committee of the General Court, a legislative committee of the New Hampshire Legislature, voted to approve dramatic cuts in both inpatient and outpatient reimbursement for New Hampshire hospitals, a portion of which is retroactive to July 1, 2008. Id. In its response, CMS did not agree with the hospitals claim that all changes that affect rates require state plan amendments or that, if a state plan amendment is not required, the federal regulations about notice for state plan amendments apply. Affidavit of Kathleen Dunn, 14, Exh. KD-6, CMS 12/19/08 ltr to NHHA. In

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commenting on the purpose for which rate reductions can be made, CMS specifically noted; States do have quite a bit of flexibility in establishing their Medicaid payment rates. Id. Given the continued economic crisis, the November 2008 inpatient and outpatient rates have been continued in the FY2010-2011 budgets and again in the FY 2012-2013 budget. The FY2010-2011 budget process started in February 2009, only three months after the November 2008 fiscal committee hearing. The state budget processes are very open, with published budgets and extensive hearings at which the NHHA and the hospital stakeholders had full opportunity to comment and testify. Affidavit of Marilee Nihan, 8, Affidavit of Kathleen Dunn, 15. In fact they did comment extensively. For example, in the FY 2010-2011 budget process, House Finance Committee Division III, that addresses the Medicaid portion of the budget, held three traveling regional hearings. Doctors from Dartmouth Hitchcock appeared at each of the regional meetings, testifying against the budget and submitting written testimony objecting that the FY2010-2011 budget continued the November 2008 rate reductions. See Affidavit of Nancy Smith, 3(e), (f), (g), Exh. NS-14, 3/9/2009 House Finance Div. III, Public Hearing Testimony list and Written Testimony of Dr. Paul Merguerian; Exh. NS-15, 3/12/2009 House Finance Div. III, Public Hearing Testimony list and Written Testimony of Dr. Leslie Fall; Exh. NS-16, 3/16/2009 House Finance Div. III, Public Hearing Testimony list and Written Testimony of Dr. Jack Van Hoff. Additionally, at the fourth Division III budget hearing held in Concord, Leslie Melby, NHHA Vice-President, on behalf of the states 26 acute care hospitals testified and submitted written comments complaining that HB 1 freezes current provider reimbursement rates, which means that the 2009 cuts will be carried forward into the next biennium. She further specifically asked that the legislature restore hospital rates to their pre-November levels. See Affidavit of Nancy Smith, 3(h), Exh. NS-17, 3/17/2009 House Finance Div. III,

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Public Hearing Testimony list and Written Testimony of Leslie Melby. Following the FY 20102011 budget session the NHHA, in its 2009 Legislative Budget Wrap-up posted on the NHHA website, acknowledged that [T]hough legislators did not put money back into the Medicaid program in the way we wanted, the final budget retains current outpatient and inpatient hospital Medicaid payment rates. See Affidavit of Nancy Smith, 3(i), Exh. NS-18, NHHA Budget Wrap-up. In the FY 2012-2013 budget session, which just ended on June 30, 2011, the NHHA website has posted testimony by Melby to the House and Senate Finance Committees dated February 24, 2011, March 10, 2011 and April 21, 2011 again objecting to continued low Medicaid funding generally and specifically requesting that the legislature not enact the DSH reduction initially proposed in the Governors budget or the increased DSH reduction in the House Budget and the corresponding change in utilization of the MET tax. See Affidavit of Nancy Smith, 3(j), (k), (l), Exh. NS-19, 2/24/2011 Melby Senate Testimony; Exh. NS-20, 3/10/2011 House Finance Melby Testimony; Exh. NS-21, 4/21/24/2011 Senate Finance Melby Testimony. 4. Hospitals Facilities Fees And Code 510

In April 2007 the Department first brought forward to the fiscal committee an item, FIS 07-111, to eliminate the 510 billing code for hospital owned physician practices, following instructions from CMS. Affidavit Marilee Nihan, 9, Exh. MN-4, FIS 07-111 and Exh. MN-5, CMS letter to Comm. Stephen, April 3, 2007. The April 19, 2007 fiscal agenda contained notice of this item and was published by the LBA on their website. Affidavit of Jeff Pattison, 10, Exh. JP-3, April 19, 2007 fiscal agenda. At the fiscal committee meeting on April 19, 2007 item

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FIS 07-111 was tabled pending receipt of further information, as reflected in the minutes. Affidavit of Jeff Pattison, 11, Exh. JP-4, April 19, 2007 fiscal minutes. On November 7, 2008 CMS published in the Federal register a final rule, 42 CFR 440 6 containing a revised definition of outpatient hospital services. Affidavit of Nancy Smith, Exh. NS-22, Federal Register, Vol. 73, No. 217. Subsequently on December 5, 2008, DHHS published notice of its intent to conform to the federal rule and then on December 8, 2008 submitted state plan amendment TN 08-017, which provided that New Hampshire would comply with the new federal rule. See Affidavit of Diane Peterson, 5 DP-3, TN 08-017. In the 2009 session the legislature also passed HB 30-FN-A requiring operating budget reductions for FY 2009. HB 30 also contained a section adding to RSA 126-A:3,VII additional definitions for outpatient hospital services similar to the proposed federal rule, 7 which became effective on February 20, 2009. See Affidavit of Marilee Nihan, 10, Exh. MN-9, HB30-FN-A. This change was intended to clarify that providers, such as hospital-owned physician practices, could not bill different amounts than the same services priced under the fee for service or cost based provisions applicable to those services, and also submit a technical fee component under what was known as code 510. The NHHA was well aware of the pendancy of HB 30 and reported on it in their January 29, 2009 legislative update to their Hospital membership. See Affidavit of Nancy Smith, 3(n), Exh. NS-23, January 29, 2009, NHHA Legislative Update re HB 30. Examples of the actual effect of the billing practices under Code 510, demonstrating five different ways hospitals were using the code 510 to bill more for the same services than nonhospital clinics or physicians practices were prepared by DHHS in February 2007 for the

6 7

This federal rule was subsequently suspended This federal rule was subsequently suspended.

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legislature. See Affidavit of Marilee Nihan, 11, Exh. MN-10, Examples of Revenue Code 510 Claims. 5. Outpatient Settlement Payments

The New Hampshire State Plan 4.19-B page 1 provides that outpatient costs are paid on an interim basis as a percent of charges and then, after final audit results are obtained from the fiscal intermediary for Medicare, a final settlement will be made at the percentage determined by the Department, using the fiscal intermediaries audited Medicare cost data. See Exh. DP-2, 4.19B page 1, 1 and Affidavit of Marilee Nihan, 12. However, the Medicare program has ordered a delay in calculating the Medicare final settlements on hospitals cost reports beginning with provider fiscal years ending 9/30/2007. This delay was ordered pending resolution of issues relating to the calculation of Medicare DSH payments to hospitals. Affidavit of Marilee Nihan, 13. Therefore, since 2007 there have been no final audited cost reports from the Medicare fiscal intermediary for DHHS to rely on in making final Medicaid cost settlements. Affidavit of Marilee Nihan, 13. New Hampshire uses National Government Services (NGS) the Medicare fiscal intermediary for New Hampshire to calculate the Medicaid settlements for New Hampshire. Affidavit of Marilee Nihan, 14. Although there is no legal obligation under the state plan to do so, DHHS has had NGS continue to complete the Medicaid Settlement Worksheets with the best available data and, if settlements are due, which is not always the case as frequently the reverse is true and the hospital has been over paid, settlements have continued to be paid as set forth below. Affidavit of Marilee Nihan, 14. The Plaintiffs Preliminary Injunction Memorandum of Law (P.I. MOL) statement regarding suspension of settlement payments appears to be in 126 of the Complaint and the

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conclusory statements in the OLeary 8 declaration 18 and 21. P.I. MOL p.16. However the facts regarding settlement payments are actually as follows. Deferral, not suspension, of making interim settlement payments in FY 2010 and 2011 was presented, along with a number of other proposed budget savings measure at the February 5, 2010 fiscal committee meeting. To the extent any of these changes required public notice, that notice was given by newspaper publication on February 26, 2006, Paragraph (5), which stated, among other things; (5) Outpatient hospital payments are currently made on a cost basis with final cost settlements occurring after the Medicare fiscal intermediary completes their audit of the Medicare cost report and calculates the Medicaid cost reconciliation, which is about two years from the end of the providers fiscal year end. In accordance with the presentation to the joint legislative fiscal committee on February 5, 2010, cost reports will continue to be reconciled, but in instances where the state owes money to the hospitals, the payment will be deferred to the 2012 and 2013 biennium with the timing of payment to occur as approved in SB 450, SB 460, other omnibus reduction bills, or amendments to any such bills. See Affidavit of Jeff Pattison 19, 20, Exh. JP-13, 2/5/2010 fiscal committee agenda; Exh. JP-14 2/5/2010 fiscal committee minutes; Exh. JP-15, 2/5/2010 Fiscal Committee Transcript; Affidavit of Diane Peterson , 6, Exh. DP-4, 2/26/2010 Public Notices. The hospitals specifically had notice of these proposed changes as is evidenced by the NHHA correspondence to CMS ten days later, again inquiring about whether notice and plan amendments were required for the items discussed and presented at the February 5, 2010 fiscal meeting, itemizing the proposed actions to include reduction in Hospitals interim settlement rates, revenue 510 billing code changes, changing outpatient radiology to a fee schedule, suspending outlier payments and catastrophic payments and delay of outpatient costs settlement payment. See Affidavit of Kathleen Dunn, 22, Exh. KD-12, Feb 16, 2010 letter by NHHA to CMS. DHHS responded to this letter pointing out that to the extent needed, notice would be given and state plan amendments submitted, and

And presumably similar conclusions in the other hospital affidavits.

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that even though notice and/or state plan amendments were not required for some of these items they were still being done. See Affidavit of Kathleen Dunn, 23, Exh. KD-13, March 1, 2010 letter by DHHS to NHHA re CMS letter. Further, DHHS responded to an inquiry from NHHA about what DHHS had done or was doing to consider the impact of these changes on access on March 30, 2010 to the NHHA by pointing to favorable comparison of New Hampshire to other New England states in the 2008 benchmarking report and that OMBP would continue to monitor trends and work with NHHA and the hospitals. See Affidavit of Kathleen Dunn, 24, Exh. KD14, March 30, 2010 letter by DHHS to NHHA re access. As this deferral did not change the methodology in the state plan, particularly in light of the fact that there are no final audited cost reports from the Medicare fiscal intermediary, no state plan amendment was required. Affidavit of Marilee Nihan, 15. In any event, in FY 2010 OMBP did have a small amount of money left at the end of FY 2010 and sought and received permission from the Commissioner to proceed with making interim settlement payments regarding which they had received notices from NGS. Affidavit of Marilee Nihan, 16. Therefore in FY 2009 and 2010 settlement payments were made as shown on the attached excel spreadsheet. Affidavit of Marilee Nihan, 16, Exh. MN-7, excel spreadsheet of FY 2008 to FY 2011 Cost Settlements. Some hospitals owed money and paid the state; DHHS issued checks on the dates indicated for projected payments where it had received a letter from NGS indicating the hospital was owed money. Id. For example, in FY 2009 Exeter Hospital was issued an outpatient settlement check for $447,043 on March 13, 2009. Id. In FY 2010 Exeter was issued a settlement check for $642,828 on June 25, 2010. Id. DHHS does not have interim settlement data for FY 2011 from NGS for the hospitals yet. Interim settlements are outstanding based on information received from NGS for only 3 for the

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ten plaintiff Hospitals. Affidavit of Marilee Nihan, 17, Exh. MN-8, excel spreadsheet of FY 2008 to FY 2011 Cost Settlements on hold. In FY 2012 2013 DHHS included in its budget request, money to make interim settlement payments as they are reconciled by NGS. However this money was removed from the budget during the legislative process. Affidavit of Marilee Nihan, 18. As noted previously, NHHA testified at least 3 times during the FY2012-2013 budget process on behalf of the hospitals. See NS-19, NS-20 and NS-21. In addition, notice was given of the continued deferral of settlement payments by newspaper publication, paragraph 5 on June 25 and June 27, 2011 which indicate that comments were due by July 15, 2011. See Affidavit of Diane Peterson, 7, Exh. DP-5, June 25 and 27, 2011 notice. 6. Suspension Of Catastrophic Payments

The suspension of catastrophic payments was on the agenda, presented and approved at the February 5, 2010 meeting and as part of HB-1A on June 9, 2010. See discussion in Section 5 above. In addition to the publication of these legislative processes and opportunity to lobby and comment as has previously been discussed, published notice of this change providing opportunity to comment was given on February 26, 2010 in the Manchester Union Leader and Nashua Telegraph. Exh. DP-4. A state plan amendment was filed on June 28, 2010, TN 10-006. See Affidavit of Diane Peterson, 8, Exh. DP-6, TN 10-006 CMS packet. 7. Outpatient Radiology Rate Reduction

It is unclear from the Complaint or the Plaintiffs memorandum when, or as part of what, plaintiffs contend that outpatient radiology rates were changed. To the extent that radiology was affected by the elimination of the Revenue Code 510 billing practices, it has been covered above. The same state plan amendment, TN 08-017, did also address X-ray services, specify that they

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would be based on radiological CPT codes and modifiers, that they would be subject to the fee schedule published at http://www.nhmedicaid.com/ and that they would apply to all providers of x-ray services. See Exh. DP-3. The notice in relation to this state plan amendment, TN 08-017, was combined with and is the same as the notice previously described under Code 510. Additionally, see the discussion and documents identified in Section 5 above. 8. Failure To Continue A One-Time UPL Payment

On a one-time basis in 2011, solely because increased matching federal funds under the American Recovery and Reinvestment Act (ARRA) were available which would allow DHHS to pay approximately $10 million dollars in additional funds to the hospitals, DHHS included an Upper Payment Limit (UPL) payment in its budget. Affidavit of Kathleen Dunn, 17. In fact, it was the hospitals consultant that suggested this strategy as a way to maximize payments to the hospitals. They also explicitly recognized that it was a one-time opportunity that would vanish if the stimulus provisions were not extended. See Affidavit of Kathleen Dunn, 17, Exh. KD-7, Health Management Associates 1/14/2010 report, p. 2. There is no requirement to make UPL payments as demonstrated by the fact that New Hampshire had never done it before FY 2011. Affidavit of Kathleen Dunn, 17. Language that would allow New Hampshire to make the one-time UPL payment in FY 2011 (for services provided in calendar year 2010) was added to the state plan in the same plan amendment that contained a substantial re-design of the DSH methodology, TN 10-011. See Affidavit of Diane Peterson, 9, Exh. DP-7, TN 10-011 CMS packet. At the time this was done, there was some hope that enhanced matching funds in the stimulus funding would be extended that would make doing a future UPL payment attractive. That hope has not materialized. There is no funding in the current budget for FY2012 for UPL payments. Affidavit of Kathleen Dunn,

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18. As any UPL payment would not be due before the end of the fiscal year, and as a state plan amendment is valid if filed before the last day of the federal fiscal quarter in which a payment is due, if necessary there is still ample time for DHHS to amend the state plan to clarify that no UPL payments will be made. DHHS is in the process of preparing notice and determining if such an amendment is needed. Affidavit of Kathleen Dunn, 18. 9. FY 2012-2013 Changes to DSH

In the FY2012 2013 budget process the Governor did propose a change to the DSH distribution methodology that would result in 20 % less DSH payments to the non-critical access hospitals. See Pltfs Exhibit N to the Freyer affidavit, Governor Lynch Budget address, 2/15/2011 (Doc. 3-16). Governor Lynch specifically cited as consideration for choosing this cut, rather than a reduction in provider rates, his conclusion finding that hospitals could afford the changes, citing that although hospitals receive millions of dollars in tax breaks as non-profits, the top 200 executives in the 24 non-profit hospitals collectively made salaries of $60 million dollars. Further, that the hospitals generated cash over and above their expenses of more than $200 million, while in the last five years launching over half a billion dollars in capital projects. (Doc. 3-16, p. 5). Thereafter, in the FY2012 2013 budget process the legislature revised the priority of distribution of funds from the States uncompensated care fund so that practically speaking, the most likely result will be little or no DSH payments to the non-critical access hospitals. Affidavit of Kathleen Dunn, 19. DSH is not a part of Medicaid rate, as it allows but does not require hospitals to be compensated for true charity care for people that do not qualify for Medicaid and who do not have insurance. Even if a hospital qualifies as a DSH hospital, there is no requirement in federal law that any set percentage of the hospitals uncompensated care must be subsidized. Affidavit

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of Kathleen Dunn, 8. In short, states have never agreed as part of Medicaid to foot the entire bill, or even any set percentage, of the cost for all charity care for those that have no insurance and who do not qualify for Medicaid. Although arguably the methodology of the most recent state plan amendment concerning DSH, TN 10-011 (See Affidavit of Diane Peterson, 9, Exh.DP-7, CMS packet) would cover the payments called for by the FY2012-2013 Budget, if any state plan is needed, there is still ample time to submit it. As any DSH payment is not yet due, and a state plan amendment is valid if filed before the last day of the federal fiscal quarter in which a payment is due, there is still ample time for DHHS to give notice and amend the state plan to clarify how and the extent to which DSH will be paid in FY 2012 and 2013. DHHS is in the process of preparing notice regarding DSH and determining the extent to which an amendment is needed. Affidavit of Kathleen Dunn, 19. There has been no change to the rate or methodology of the Medicaid Enhancement Tax (MET). To the extent that plaintiffs rely on a February 25, 1993 letter by the former Commissioner of DHHS and the Department of Revenue, (See Pltfs Exhibit G to the Freyer affidavit, 2/25/1993 letter (Doc. 3-9), it is significant that the New Hampshire Legislature changed the statute to specifically delete the section in RSA 84-A:12 that called for automatic rescission of the MET taxes if federal matching funds became unavailable, just a few months after the February 25, 1993 letter. Affidavit of Nancy Smith, 3(t), Exh. NS-29, 1991 version of RSA 84-A:12. D. Facts Related to Access

Since 2008 there has been no concrete evidence that access to medical services for Medicaid beneficiaries, or for plaintiff John Doe in particular, has been eroded in any way. Even

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if there are rumors that hospitals may be cutting some services, to the extent that is true DHHS has received no specific evidence from which it would conclude that the cuts are not applicable to all members of the general population, not just Medicaid recipients. As discussed previously, studies have indicated that when faced with financial pressure, hospitals can and do find ways to operate more efficiently. See Exh. NS-30. Consistent with this principle, individual Hospitals have publicly confirmed that they are often able to implement cuts in ways that do not directly affect patient care at all. See Dartmouth press release emphasizing that the 725 staff offered early retirement packages are not positions that may directly impact patient care; WDH cutting 45 staff but a massive construction project of an expansion wing would not be affected and that the community would lose the hospitals ability to support multiple community projects beyond its core mission; Elliots 182 job layoffs do not affect bedside employees like nurses and doctors, but instead trimmed senior management and off-site support services; St. Josephs closing Rockingham Ambulance and Granite State Mediquip; and statements by Scott Westover, vice president of SNH, These reductions will impact everyone . . Thats because services are equally available to Medicaid and non-Medicaid patients. Affidavit of Nancy Smith, 3(o), (p), (q), (r) and (s), Exh. NS-24, Dartmouth press release 8/10/11; Exh. NS-25, Fosters Daily Democrat; Exh. NS-26, Concord Monitor 7/27/2011; Exh. NS-27, Union Leader, 8/1/2011; Exh. NS-28, Union Leader, August 21, 2011, p. A13. Further, DHHS instructions from the Legislature, when asked to report on the possible consequences of proposed cuts or legislation have been to be over-inclusive rather than underinclusive. Affidavit of Kathleen Dunn, 20. To the extent that the possibility of hospital closure was suggested in Ms. Dunns legislative testimony regarding the proposed FY2012-2013 budget, she specifically had in mind one or more of the critical access hospitals, not any of the plaintiffs.

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Affidavit of Kathleen Dunn, 20. Further, the count of active providers with at least one claim in the prior year shows that there has not been a decrease in the number of providers that will see Medicaid patients. Affidavit of Kathleen Dunn, 21, Exh. KD-8, Active provider count, 8/15/2008 to 8/16/2011. Since 2005, pursuant to statute DHHS, in conjunction with the NH Insurance Department, have partnered on creation and maintenance of the CHIS, the New Hampshire Comprehensive Health Care Information System created to make health care data available as a resource for insurers, employers, providers, purchasers of health care, and state agencies to continuously review health care utilization, expenditures, and performance in New Hampshire. Affidavit of Kathleen Dunn, 24. Utilizing this information and other available data on other states, the DHHS has been able to prepare biannual benchmark reports in 2008 and 2010. These are published at http://www.dhhs.nh.gov/ombp/documents/medicaidrates2010.pdf for the 2010 report and http://www.dhhs.nh.gov/ombp/documents/medicaidrates.pdf for the 2008 report. Although these show that New England Medicaid rates are lower than Medicare, New Hampshire is not generally, even in the 2010 report, the lowest paying New England state. Kathleen Dunn, 24. Further, DHHS responded to an inquiry from NHHA about what DHHS had done or was doing to consider the impact of these changes on access on March 30, 2010 to the NHHA by pointing to favorable comparison of New Hampshire to other New England states in the 2008 benchmarking report and that OMBP would continue to monitor trends and work with NHHA and the hospitals. See Exh. KD-14, March 30, 2010 letter by DHHS to NHHA re access. The utilization data from these reports, as well as the other reports previously mentioned herein, do not demonstrate that there has been any decrease in access, from 2008 to the present, after any of the actions complained of in the lawsuit. Affidavit of Kathleen Dunn, 24.

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II.

ARGUMENT It is well accepted that a plaintiff must satisfy the following four essential criteria in order

to prevail on a request for preliminary injunctive relief: (1) that the plaintiff will suffer irreparable injury if the injunction is not granted; (2) that such injury outweighs any harm which granting injunctive relief would inflict on the defendant; (3) that the plaintiff has exhibited a likelihood of success on the merits; and (4) that the public interest will not be adversely affected by the granting of the injunction. See Planned Parenthood League v. Bellotti, 641 F.2d 1006, 1009 (1st Cir. 1981). A plaintiff seeking injunctive relief must independently satisfy each of these preliminary injunction factors. See Auburn News Co. v. Providence Journal Co., 659 F.2d 273, 277 (1st Cir. 1981). The proponent of the injunction also has the burden of persuading the court by a preponderance of the evidence that the preliminary injunctive relief should be issued. See Lovell v. Brennan, 728 F.2d 560, 563 (1st Cir. 1984) (holding that burden of persuasion lies with the moving party). As set forth below, Plaintiffs are not entitled to preliminary injunctive relief because they cannot meet these threshold requirements. A. Plaintiffs Are Not Likely To Succeed On The Merits 1. Plaintiffs Do Not Have A Private Cause Of Action Under Either The Supremacy Clause Or Section 1983 a. Plaintiffs Do Not Have A Cause Of Action Under The Supremacy Clause In Counts I, II, III and IV of their Complaint, Plaintiffs seek to challenge their Medicaid rates under the Supremacy Clause of the United States Constitution. Specifically, Plaintiffs claim in Counts I, II and III that RSA 126-A:3, VII(a), RSA 167:64, and New Hampshire Laws of 2011, Chapters 223 and 224 are preempted by the Medicaid Act, 42 U.S.C. 1396a(a)(30)(A) (hereinafter Section 30(A)), because they allegedly permit the State to reduce Medicaid rates

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solely for budgetary reasons. In Count IV, Plaintiffs claim that the challenged state laws are preempted by 42 U.S.C. 1396a(b) and 42 C.F.R. 430.12. These claims should be dismissed. Because neither Section 30(A) nor 42 U.S.C. 1396a(b) create privately enforceable rights either under 42 U.S.C. 1983 or directly under the Medicaid Act, the Supremacy Clause cannot supply an implied cause of action to enforce those statutes. Plaintiffs therefore fail to state a claim in Counts I, II, III, and IV. i. The Supremacy Clause Does Not Supply A Cause Of Action To Enforce Section 30(A)

Section 30(A) provides that a State plan for medical assistance must, provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan (including but not limited to utilization review plans as provided for in section 1396b(i)(4) of this title) as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area. 42 U.S.C. 1396a(a)(30)(A). Plaintiffs argue that the State violated the procedural requirements of Section 30(A) by not considering efficiency, economy, and quality of care, and equal access to care and services before reducing rates, and that the current Medicaid rates fail to comply with the substantive requirements of Section 30(A) because Plaintiffs are considering eliminating certain services in the future due to the reduced rates. See Plaintiffs Memorandum of Law at 31-44. Section 30(A) does not create an individual entitlement to a certain level of payments that would be enforceable by providers or Medicaid recipients. Instead, it provides broad criteria to guide CMSs determinations regarding the adequacy of the methods and procedures set out in a States Medicaid plan. While Section 30(A) includes substance goals for the methods and

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procedures set forth in the State plan, the First Circuit has observed that nothing in subsection (30)(A) expressly provides that those who furnish Medicaid services have any enforcement rights or, indeed, have any specific rights to procedural (e.g., notice and comment) or substantive (e.g., just and reasonable rates) protections. Long Term Care Pharmacy Alliance v. Ferguson, 362 F.3d 50, 56-57 (1st Cir. 2004) (emphasis added). As such, the First Circuit has unequivocally held that Section 30(A) does not provide a private right of action for Medicaid providers. Id. at 58-59 (applying holding of Gonzaga University v. Doe, 536 U.S. 273, 283 (2002) (no private right of action exists unless statute displays an intent to create not just a private right but also a private remedy)). Nearly every court of appeals to consider the issue after Gonzaga has reached the same conclusion. 9 Likewise, to the extent that there is a John Doe Medicaid recipient listed as a plaintiff in this suit, many of the courts of appeals have concluded that Section 30(A) does not provide a right of action for Medicaid recipients either. See footnote 9, supra. 10 Plaintiffs nevertheless contend that they can challenge the Medicaid rates set by the State directly under the Supremacy Clause. While the Ninth Circuit Court of Appeals has permitted such a cause of action to go forward, see Independent Living Center of Southern Cal. v. Shewry, 543 F.3d 1050 (9th Cir. 2008), that case is currently on appeal to the United States Supreme

See N.Y. Assn of Homes & Servs. for the Aging, Inc. v. DeBuono, 444 F.3d 147 (2d Cir. 2006) (per curiam) (not enforceable by providers); Equal Access for El Paso, Inc. v. Hawkins, 509 F.3d 697, 703-04 (5th Cir. 2007) (not enforceable by beneficiaries of services or providers), cert. denied, 129 S. Ct. 34 (2008); Westside Mothers v. Olszewski, 454 F.3d 532, 542 (6th Cir. 2006) (not enforceable by providers or recipients of services); Mandy R. v. Owens, 464 F.3d 1139, 1146-48 (10th Cir. 2006) (not enforceable by providers or recipients of services), cert. denied, 549 U.S. 1305 (2007); Sanchez v. Johnson, 416 F.3d 1051, 1058-1062 (9th Cir. 2005) (not enforceable by providers or recipients of services); see also Pa. Pharmacists Assn v. Houstoun, 283 F.3d 531, 541-42 (3d Cir. 2002) (Alito, J.) (not enforceable by providers). The Eighth Circuit alone has reached a contrary result. Pediatric Specialty Care, Inc. v. Ark. Dept of Human Servs., 443 F.3d 1005, 1013-16 (8th Cir. 2006) (enforceable by providers and recipients of services), cert. granted, judgment vacated in part, 551 U.S. 1142 (2007) (mem.). 10 Moreover, even if John Doe has a private right of action under Section 30(A), he has alleged no actual denial of services or even any specific probable inability to obtain services. In short, he has demonstrated no lack of access at all.

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Court, and no other court of appeals has decided whether a state law reducing Medicaid rates can be challenged as preempted by Section 30(A) in a cause of action implied directly under the Supremacy Clause. Thus, the issue presently before this Court has never been addressed by the First Circuit Court of Appeals, and has not yet been decided by the Supreme Court. 11 While the First Circuit has held that a party can invoke the protections of the Supremacy Clause even where the statute at issue provides no private right of action under 1983, see PhRMA v. Concannon, 249 F.3d 66, 73 (1st Cir. 2001), affd, 538 U.S. 644 (2003), that case is distinguishable. The question in Concannon was not whether the State had complied with obligations imposed on it as a condition of receiving federal Medicaid funds, but whether the States use of its Medicaid authority as a tool to impose on drug manufacturers an independent state rebate requirement was consistent with the Medicaid statute. Id. at 71-72. The plaintiffs in that case were essentially asserting an immunity defense to state regulation. Id. In contrast, the Plaintiffs here do not raise preemption as a defense, but rather seek to use the Supremacy Clause as a sword to force the State to spend more money. Plaintiffs face no affirmative enforcement action by the State in which federal preemption would be a defense at law. Nor do they seek immunity from allegedly preempted state regulation that the State seeks to impose on them. Thus, Concannon is not controlling here. 12

In addition to Independent Living, Plaintiffs cite three other cases in support of the proposition that Courts have concluded that the Medicaid Act, and Section 30(A), specifically, have preemptive force. Plaintiffs Memorandum of Law at 31-32. Catholic Med. Ctr. of Brooklyn & Queens, Inc. v. Rockefeller, 430 F.2d 1297, 1298 (2d Cir. 1970) (per curiam), is irrelevant because that case pre-dates both the repeal of the Boren Amendment and Gonzaga; therefore, it was decided at a time when providers and Medicaid recipients did have a private right of action under the statute. Community Pharms. of Indiana, Inc. v. Indiana Family & Social Servs. Administration, 2011 WL 2680757 (S.D. Ind. 2011), shows the opinion of the Southern District of Indiana, which has no binding effect on this court. Finally, PhRMA v. Concannon, 249 F.3d 66, 73 (1st Cir. 2001), affd, 538 U.S. 644 (2003), is distinguishable from the instant case for the reasons set forth more fully below. 12 Similarly, in Puerto Rico Tel. Co. v. Municipality of Guayanilla, 450 F.3d 9, 15 (1st Cir. 2006), the First Circuit found no need to resolve whether the federal statute at issue in that case provided a private cause of action because the case was brought under the Supremacy Clause. In that case, a telephone company brought suit challenging a municipal ordinance which imposed a 5% gross revenue fee on telecommunications providers for their use of public

11

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A suit challenging Medicaid rates based on alleged violations of Section 30(A), although framed as a preemption claim, is in essence a suit to enforce the statute itself. Cf. Astra USA, Inc. v. Santa Clara County, 131 S. Ct. 1342, 1348 (2011) (finding a third-party-beneficiary suit to enforce the terms of a contract between HHS and a drug company, where the contractual terms were dictated by a federal-state cooperative program enacted under Congresss Spending Clause authority, was in essence a suit to enforce the statute itself). It would make scant sense to allow that claim to go forward [n]o matter the clothing in which [Plaintiffs] dress their claims. Id. at 1345 (quoting Tenet v. Doe, 544 U.S. 1, 8 (2005)). Framing this lawsuit as a preemption challenge should not change the conclusion that Section 30(A) is not privately enforceable. For the reasons discussed below, this Court should rule that the Supremacy Clause does not supply a cause of action for providers or Medicaid recipients to enforce the provisions of Section 30(A). Plaintiffs, who conclusively have no enforceable rights either under 42 U.S.C. 1983 or directly under the Medicaid Act, seek to bring an essentially identical action based on alleged violations of the Supremacy Clause. In other words, they would have this Court do directly under the Supremacy Clause exactly what it cannot do under the federal statute itself. The Supremacy Clause, however, cannot supply a cause of action to enforce a federal statute because the Clause is not a source of any federal rights. Golden State Transit Corp. v. City of Los Angeles, 493 U.S. 103, 107 (1989); see also Dennis v. Higgins, 498 U.S. 439, 450 (1991). Rather, private rights of action to enforce federal law may only be created by Congress. Alexander v. Sandoval, 532 U.S. 275, 286 (2001) (Like substantive federal law itself, private

rights of way. Id. at 11. The plaintiff argued that the ordinance was preempted by the Federal Telecommunications Act. Id. Thus, like the plaintiffs in Concannon, the telephone company in that case was essentially asserting an immunity defense, unlike the Plaintiffs here.

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rights of action to enforce federal law must be created by Congress.); see also Gonzaga , 536 U.S. at 280; Cort v. Ash, 422 U.S. 66, 78 (1975). The principle that only Congress can create a private cause of action to enforce a federal statute is grounded in separation of powers. See Wilder v. Virginia Hospital Assn, 496 U.S. 498, 508 n.9 (1990) (The [Cort] test reflects a concern, grounded in separation of powers, that Congress rather than the courts controls the availability of remedies for violations of statutes.). Allowing a private party to bring an enforcement action against a state under the guise of a Supremacy Clause claim where no private right of action exists under the statute would render meaningless the absence of a private right of action under the statute itself. See Astra, 131 S. Ct. at 1348. Such an action would be in tension with Congresss decision not to confer a private right of action to enforce state compliance. This is particularly true in the Medicaid rate-setting context, where Congressional intent is abundantly clear: Medicaid providers have no cause of action under Title XIX regarding the adequacy of rates. 13 Provider suits challenging the adequacy of Medicaid rates is precisely what Congress intended to abolish when it repealed the Boren Amendment to the Medicaid Act, 42 U.S.C. 1396a(a)(13) (1994) (repealed 1997). Prior to the repeal of the Boren Amendment, a provider could bring an action under 42 U.S.C. 1983 to challenge the method by which a State reimbursed health care providers. Wilder, 496 U.S. at 524 (holding that the Boren Amendment creates a right, enforceable in a private cause of action pursuant to 1983, to have the State

A federal appellate court first concluded over a decade ago that Section 30(A) is not privately enforceable by providers. Evergreen Presbyterian Ministries, Inc. v. Hood, 235 F.3d 908 (5th Cir. 2000). Virtually all other Circuits to address the issue have ruled the same. See footnote 1, supra. In the meantime, Congress has not amended the provision to disavow court ruling or otherwise expressed its intention that Section 30(A) be privately enforceable by providers or recipients of services.

13

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adopt rates that it finds are reasonable and adequate rates to meet the costs of an efficient and economical health care provider). When the Boren Amendment was repealed, the legislative history indicates a congressional intent to end provider suits. Clayworth v. Bonta, 295 F. Supp.2d 1110, 1123 (E.D. Cal. 2003), (quoting H.R.Rep. No. 105-149, at 590 (1997) (It is the Committees intention that, following enactment of this Act, neither this nor any other provision of [42 U.S.C. 1396a] will be interpreted as establishing a cause of action for hospitals and nursing facilities relative to the adequacy of the rates they receive) (emphasis added)) rev. on other grounds, 2005 WL 1805930; see also Evergreen Presbyterian Ministries, Inc. v. Hood, 235 F.3d 908, 919, n.12 (5th Cir. 2000) (noting that Congresss intent in repealing the Boren Amendment was to free the states from federal regulation and increased rates and to eliminate a basis for causes of action by providers to challenge reimbursement rates). To imply a private cause of action under the Supremacy Clause would frustrate specific congressional intent to increase the flexibility of the States to run their Medicaid programs costeffectively, and to centralize enforcement authority in HHS. See Long Term Care Pharmacy Alliance, 362 F.3d at 58 (Congress repealed Boren Amendment for the very purpose of increasing the flexibility of the states, and intended agency review to be the central means of enforcement of Section 30(A).). Congressional intent is paramount in the preemption context. See Wyeth v. Levine, 129 S. Ct. 1187, 1194 (2009) ([T]he purpose of Congress is the ultimate touchstone in every pre-emption case.); In re Pharmaceutical Industry Average Wholesale Price Litigation, 582 F.3d 156, 173 (1st Cir. 2009) (In determining whether federal law preempts a state law, [i]t has long been the case that [the courts] sole task . . . is to determine the intent of Congress.). Here, Congress intended HHS to be the primary arbiter of states compliance with the Medicaid Act, not private actors and courts. Authorizing a preemption

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claim brought by a provider, or even a recipient of Medicaid who has demonstrated no loss of access to services, to enforce Section 30(A) would not vindicate the federal interest in assuring the supremacy of th[e] law, Green v. Mansour, 474 U.S. 64, 68 (1985), but undermine it. Any federal interest is advanced only by limiting enforcement to the central means intended by Congress: agency review and the potential withholding of funding if the State does not comply with federal requirements. See 42 U.S.C. 1396c. Moreover, allowing private suits by providers and recipients to enforce the requirements of Section 30(A) would undermine the key benefits of centralizing enforcement authority in HHS: national uniformity, consistency, and predictability in interpretation and administration of federal law. Section 30(A) is a provision of a cooperative federal-state program enacted pursuant to Congresss Spending Clause authority. A law enacted pursuant to the Spending Clause operates in the nature of a contract between the federal government and the State. Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981). Implying a private cause of action under the Supremacy Clause could lead to varying judicially created requirements, making it difficult for states to plan and budget their Medicaid obligations, and interfering with the federalstate relationship and CMSs own enforcement procedures. Cf. Astra, 131 S. Ct. at 1349 (allowing private suits to enforce terms of a federal-state cooperative program would undermine the agencys efforts to administer both Medicaid and 340B harmoniously and on a uniform, nationwide basis, and could spawn a multitude of dispersed and uncoordinated lawsuits by 340B entities. With HHS unable to hold the control rein, the risk of conflicting adjudications would be substantial.). Finally, allowing Plaintiffs to bring this action under the Supremacy Clause could open the door to similar challenges related to any other provision in federal spending clause statutes.

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See Wilderness Society v. Kane County, Utah, 581 F.3d 1198, 1233-34 (10th Cir. 2009) (McConnell, J., dissenting) (If preemption were a sufficient basis for a cause of action, then every federal statute would implicitly authorize a private cause of action against a state or local governmental defendant. That is not the law.). Private enforcement of federal provisions should be limited to those statutes where Congress has unambiguously created a private right of action. Here, Congress has not. See Long Term Care Pharmacy, 362 F.3d at 59 (Providers do not have a private right of action under subsection (30)(A); if they think that state reimbursement is inadequate and cannot persuade the Secretary to act they must vote with their feet.). Because Congress intended agency review to be the central means of enforcement of Section 30(A), id. at 58, this Court should not permit Plaintiffs preemption claims to proceed in defiance of such intent. Only Congress may create a right of action to enforce Section 30(A). See Sandoval, 532 U.S. at 286; Gonzaga, 536 U.S. at 280; Cort, 422 U.S. at 78. Because Congress did not intend for private enforcement of Section 30(A), see Long Term Care Pharmacy, 362 F.3d at 56-59, Plaintiffs lack a cause of action under the Supremacy Clause and Counts I, II, and III should be dismissed. Therefore they are not likely to succeed on the merits and are not entitled to preliminary injunctive relief. ii. The Supremacy Clause Does Not Supply A Cause Of Action To Enforce 42 U.S.C. 1396a(b) and 42 C.F.R. 430.12

In Count IV of their Complaint, Plaintiffs claim that RSA 126-A:3, VII(a), Laws 2011, Chapters 223 and 224, and RSA 167:64, as amended, are preempted by 42 U.S.C. 1396a(b) and 42 C.F.R. 430.12. Specifically, Plaintiffs argue that these state laws are preempted by federal law because they allow the State to make material changes to the Medicaid program

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without first amending the state plan. See Plaintiffs Memorandum of Law at 45-46; Plaintiffs Complaint, Count IV. As discussed above, the Supremacy Clause cannot supply a cause of action to enforce a federal statute because the Clause is not a source of any federal rights. Golden State Transit Corp., 493 U.S. at 107; see also Dennis, 498 U.S. at 450. Rather, private rights of action to enforce federal law may only be created by Congress. Sandoval, 532 U.S. at 286; Gonzaga, 536 U.S. at 280; Cort, 422 U.S. at 78. Because 42 U.S.C. 1396a(b) and 42 C.F.R. 430.12 do not provide a private right of action to providers or Medicaid recipients, Count IV fails to state a claim upon which relief may be granted and should be dismissed. 42 U.S.C. 1396a(b) provides, in pertinent part, that [t]he Secretary shall approve any plan which fulfills the conditions specified in subsection (a) of this section . . . . With regard to the submittal of State plans and plan amendments, federal regulations require that a state plan provide that it will be amended whenever necessary to reflect -- . . . (ii) Material changes in State law, organization, or policy, or in the States operation of the Medicaid program. 42 C.F.R. 430.12. No private right of action exists under a statute unless the statute displays an intent to create not just a private right but also a private remedy. Gonzaga, 536 U.S. at 283. Neither 42 U.S.C. 1396a(b) nor 42 C.F.R. 430.12 provide Medicaid providers with any enforceable rights. Cf. Long Term Care Pharmacy Alliance, 362 F.3d at 56-57 (applying Gonzaga in holding that Section 30(A) does not provide a private right of action for Medicaid providers). The language of the statute demonstrates that CMS is the intended enforcement mechanism to the extent appropriate. Because only Congress may create a right of action to enforce a federal statute, and the language of the statute indicates that Congress did not intend

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for private enforcement of U.S.C. 1396a(b) and 42 C.F.R. 430.12, Plaintiffs lack a cause of action under the Supremacy Clause and Count IV should be dismissed. b. Plaintiffs Do Not Have A Cause of Action Under Section 1983 In Counts V and VI, Plaintiffs assert that DHHS has violated their rights under 42 U.S.C. (a)(13)(A)(ii). Plaintiffs are not likely to succeed on these claims because Section 13(A) does not create rights enforceable under 42 U.S.C. 1983. Not all violations of federal law give rise to 1983 actions: [the] plaintiff must assert the violation of a federal right, not merely a violation of federal law. Rio Grande Community Health Ctr., Inc. v. Rullan, 397 F.3d 56, 72 (1st Cir. 2005) (quoting Blessing v. Freestone, 520 U.S. 329, 340 (1997)) (emphases in original). Such a right must be unambiguously conferred by the statutory provision at issue. Id. at 72-73 (quoting Gonzaga Univ. v. Doe, 536 U.S. 273, 283 (2002)). In Blessing, the Supreme Court set forth three factors to consider in determining whether a statute confers an enforceable right: (1) Congress must have intended that the provision in question benefit the plaintiff, (2) the plaintiff must demonstrate that the right assertedly protected by the statute is not so vague and amorphous that its enforcement would strain judicial competence, and (3) the provision giving rise to the asserted right must be couched in mandatory, rather than precatory, terms. Blessing v. Freestone, 520 U.S. at 340-41. In Gonzaga, the Court clarified and tightened the Blessing test. The Court in Gonzaga explained that it is rights, not the broader or vaguer benefits or interests, that may be enforced under [ 1983]. Gonzaga Univ. v. Doe, 536 U.S. at 283 (emphasis in original). The Court indicated that nothing short of an unambiguously conferred right could support a claim under 1983 based on a federal funding statute. Id. at 282-83. The Court rejected the view that it is enough for a

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plaintiff to show membership in a group generally benefited by a statute; rather, [f]or a statute to create such private rights, its text must be phrased in terms of the persons benefited, not the person regulated or any aggregate group. Id. at 284 (quotation and citation omitted). See also Rio Grande Community Health Ctr., Inc. v. Rullan, 397 F.3d at 72-73 (Court in Gonzaga identified the following factors in determining whether a provision creates a 'right' that is enforceable under 1983: whether the provision contains rights-creating language; whether the provision has an aggregate as opposed to an individualized focus; and the other sorts of enforcement provisions that Congress has provided for). Plaintiffs acknowledge that the First Circuit has not yet affirmatively held that Section 13(A) is enforceable by Medicaid providers under Section 1983. Pl. Memo. of Law, Doc. 3-1 at 54; see also Long Term Care Pharmacy Alliance v. Ferguson, 362 F.3d at 54 (state assumes that members of plaintiff organization are entitled to sue as providers to enjoin violations of Section 13(A)). Other courts addressing the issue have reached differing conclusions. Compare New York Assn of Homes and Servs. For the Aging, Inc. v. DeBuono, 444 F.3d 147 (2d Cir. 2006) (adopting decision of trial court holding no private right of action to enforce substantive rights under 13(A)) and Springfield Hosp. v. Hoffman, 2010 WL 3322716 (D. Vt. 2010) (plain language of 13(A) does not create a private right of action or enforceable federal rights) with American Society of Consultant Pharmacists v. Concannon, 214 F.Supp.2d 23, 28 (D. Me. 2002) ( 13(A) satisfies basic criteria of Gonzaga), overruled on other grounds by Long Term Care Pharmacy, 362 F.3d at 58-59. See also Childrens Seashore House v. Waldman, 197 F.3d 654, 657 n.2 (3d Cir. 1999) (noting that trial court held that Medicaids public notice provisions do not confer standing because they are less than specific, mandatory requirements and the plaintiff does not challenge this conclusion on appeal), cert. denied 530 U.S. 1275 (2000).

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While it is arguably a closer case under Section 13(A) than under Section (30(A), application of the Gonzaga factors to Section 13(A) does not support a private right of action. Section 13(A) provides as follows: A state plan for medical assistance must *** (13) provide (A) for a public process for determination of rates of payment under the plan for hospital services, nursing facility services, and services of intermediate care facilities for the mentally retarded under which (i) proposed rates, the methodologies underlying the establishment of such rates, and justifications for the proposed rates are published, (ii) providers, beneficiaries and their representatives, and other concerned State residents are given a reasonable opportunity for review and comment on the proposed rates, methodologies, and justifications, (iii) final rates, the methodologies underlying the establishment of such rates, and justifications for such final rates are published, and (iv) in the case of hospitals, such rates take into account (in a manner consistent with section 1923) the situation of hospitals which serve a disproportionate number of low-income patients with special needs. 42 U.S.C. 1396a(a)(13)(A). The language in 13(A) is phrased both in terms of the person regulated (a state plan for medical assistance must provide ) and an aggregate group (providers, beneficiaries and their representatives, and other concerned State residents) rather than individual beneficiaries. While plaintiffs, as providers, and John Doe as a beneficiary, are all part of a subset of persons included in the group described in the statute, the group is so broad and amorphous as to more closely reflect the aggregate group terminology referenced in Gonzaga as opposed to the sort of individual entitlement that is enforceable under Section 1983. See Gonzaga, 536 U.S. at 287. But cf. American Society of Consultant Pharmacists v. Concannon, 214 F.Supp.2d at 28-29 (interpreting statute to only include persons with interests akin to those of the providers and beneficiaries).

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Plaintiffs cite to the affirmative nature of the language in the statute as evidence of Congressional intent to create individually enforceable rights. However, the mandatory language refers to the required content of the state plan, an issue not in dispute in this case. The First Circuit in discussing the statute has stated that subsection 13(A) does provide notice and comment rights as to rates set for the types of services identified in the statute. See Long Term Care Pharmacy, 362 F.3d at 55. However, the Court was not focused on the issue of whether the statute confers privately enforceable rights. Rather, the Court was defining the term nursing facilities. The Courts supposition that Congress wanted special protection for care facilities as opposed to closed pharmacies is not therefore controlling in an analysis of whether Section 13(A) was intended to create privately enforceable rights, particularly where the group as proposed by the plaintiffs potentially includes all concerned residents. In addition, there is an enforcement mechanism available to CMS in the event of a states noncompliance with the Medicaid Act or the state plan, which, Plaintiffs allege CMS has exercised against New Hampshire in another context. Complaint, 143, Doc 1 at 34. Further, the correspondence directed to CMS by the NHHA on behalf of the hospitals complaining of most of the reductions demonstrates that they are aware of and have attempted to utilize CMS enforcement mechanisms. While Plaintiffs now suggest that CMS enforcement procedures are ineffective or counterproductive with respect to asserted violations of Section 13(A), Plaintiffs have in the past sought relief through CMS to address DHHS alleged noncompliance with that very statute. See Exh. KD-5 and KD-12. Cases decided under the Boren Amendment do not provide support for finding a private right of action in the current version of Section 13(A). Prior to 1997, Section 13(A) required states to providefor paymentof the hospital servicesprovided under the plan through the

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use of rateswhich the State findsare reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and federal laws. See Children's Hosp. & Health Ctr. v. Belshe, 188 F.3d 1090, 1093 (9th Cir. 1999) (quoting 42 U.S.C.A. 1396a(a)(13)(A) (West 1992)), cert. denied 530 U.S. 1204 (2000). Plaintiffs assert in their Memorandum, One of the primary purposes for passing the Boren Amendment was to provide states with flexibility in setting reimbursement rates and thereby reduce Medicaid costs. Evergreen Presbyterian Ministries v. Hood, 235 F.3d 908, 919 n.l2 (5th Cir. 2000), overruled on other grounds by Equal Access for EI Paso, Inc. v. Hawkins, 509 F.3d 697, 704 (5th Cir. 2007). However, because of the litigation that was generated after the Boren Amendment's enactment, Congress recognized that the Amendment had the opposite effect on Medicaid costs than it had intended. Id. Accordingly, Congress replaced the Boren Amendment with the more limited requirement that states provide for a public notice-and-comment process in their reimbursement ratemaking decisions. Id. Pl. Memo of Law, Doc. 3-1 at 55. Nothing in the replacement of the Boren amendment with the current simplified language would suggest, however, that Congress intended to start anew the flury of litigation by not only providers, but all concerned State residents regarding Medicaid ratesetting. See DeBuono,144 F.3d 147. Indeed H.R.Rep. No. 105-149, at 590 (1997) demonstrates the reverse. (It is the Committees intention that, following enactment of this Act, neither this nor any other provision of [42 U.S.C. 1396a] will be interpreted as establishing a cause of action for hospitals and nursing facilities relative to the adequacy of the rates they receive.). 14 Therefore they are not likely to succeed on the merits and are not entitled to preliminary injunctive relief.

In the absence of a private right of action under the statute, a regulation alone would not confer enforceable rights. See New York Assn of Homes and Servs. For the Aging v. DeBuono, 444 F.3d at 40-41 (recognizing view of majority of circuits).

14

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2.

Even If Plaintiffs Have A Cause Of Action, They Are Unlikely To Succeed On The Merits Of Their Claims a. Plaintiffs Are Unlikely To Succeed On The Merits Of Their Supremacy Clause Claims

In the event this Court finds that the Supremacy Clause supplies Plaintiffs with a cause of action, Plaintiffs are still unlikely to succeed on the merits of Counts I, II, III, and IV. Plaintiffs claim that the state laws at issue in this case are preempted by Section 30(A)s procedural and substantive requirements. Specifically, Plaintiffs claim that the State violated the procedural requirements of Section 30(A) by not considering efficiency, economy, and quality of care, and equal access to care and services before enacting state laws that reduced rates. With regard to the substantive requirements of Section 30(A), Plaintiffs claim that the rate reductions at issue in this case are so severe that New Hampshire Medicaid patients equal access to critical health care and services will be detrimentally affected. Plaintiffs Memorandum of Law at 40. Finally, Plaintiffs claim that the state laws at issue are preempted by 42 U.S.C. 1396a(b) and 42 C.F.R. 430.12. Under the Supremacy Clause, a federal law may expressly or impliedly preempt state law. Concannon, 249 F.3d at 74 (citing U.S. Const. art. VI, cl. 2). Here, Plaintiffs allege implied preemption only. See Plaintiffs Memorandum of Law at 31. [I]mplied federal preemption may be found where federal regulation of a field is pervasive, or where state regulation of the field would interfere with Congress objectives. In re Pharmaceutical Industry Average Wholesale Price Litigation, 582 F.3d 156, 173 (1st Cir. 2009). In determining whether federal law preempts a state law, [i]t has long been the case that [the courts] sole task . . . is to determine the intent of Congress. Id. at 173. The analysis turns on two

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cornerstones: Congresss purpose, and where it legislates in a field which the States have traditionally occupied, Congresss clear and manifest intent to preempt state law. Id. at 174. As discussed in the prior section, Congress has stated its intent that providers not have claims concerning rates and that states have flexibility in rate setting and state plans. By leaving large areas of discretion to states, Congress also has not occupied the field. Therefore, Plaintiffs preemption claim fails. While Defendant contends that Plaintiffs have not demonstrated likelihood of succession on the preemption argument as a matter of law, the court need not reach that issue, because, for the reasons discussed below, Plaintiffs have not demonstrated a violation of federal law. i. Plaintiffs Have Not Demonstrated That There Has Been Or Will Be Any Actual Lack Of Access To Hospital Services Different From The General Population (Substantive Claim under Section 30(A))

Section 30(A) in substance requires inter alia that rates for services in general be sufficient to enlist enough providers to provide services similar to those generally available in the area. Long Term Pharmacy, 362 F.3d at 53. Where Plaintiffs have not established that there has been or will be any actual lack of access to hospital services for Medicaid patients different from the general population, the Court should decline to grant injunctive relief. Nothing in Plaintiffs Complaint indicates that Medicaid recipients in New Hampshire lack access to hospital services. The facts alleged indicate that all Plaintiff hospitals continued to participate in Medicaid following the reductions at issue in this case, and that they will continue to do so. The most Plaintiffs allege is that some of them may undertake changes in the future that could potentially affect access of future Medicaid beneficiaries to Doctors practices. See Plaintiffs Memorandum of Law at 40-42; Plaintiffs Complaint, Count II. To the extent any allege they are considering discontinuing or closing particular services, there is no allegation that

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those closures will not affect the general public to the same extent as Medicaid beneficiaries. These hypothetical allegations are insufficient to demonstrate a likelihood of success on the merits of their claim that the current Medicaid rates violate the substantive requirements of Section 30(A). Cf. King v. Sullivan, 776 F. Supp. 645, 655 (D. R.I. 1991) (denying plaintiffs motion for summary judgment because Plaintiffs have not shown that privately funded ICF-MR applicants enjoy an advantage over Medicaid applicants in gaining access to facilities). The facts alleged by Plaintiffs do not provide support for a finding that the current rates are insufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area. 42 U.S.C. 1396a(a)(30)(A). Unlike the cases cited by Plaintiffs, in which Medicaid patients lacked access, nothing in Plaintiffs Complaint indicates any actual shortage of providers to serve New Hampshire Medicaid patients. See Clark v. Kizer, 758 F. Supp. 572, 576-78 (E.D. Cal. 1990) (facts showed the level of dentist participation in the Medicaid program fell dismally below the standard, and Plaintiffs filed several declarations indicating that Medicaid recipients could not find dental treatment); DeGregorio v. OBannon, 500 F. Supp. 541, 544 (E.D. Penn. 1980) (uncontested facts showed that plaintiff was unable to procure a bed in a skilled nursing facility participating in the states Medicaid program, there was a severe shortage of nursing home beds in the Commonwealth, and Medicaid recipients suffered disproportionately the impact of that shortage). Further as shown by the active provider count for the last three years, there has not been a decrease in providers willing to see Medicaid patients. See Exh. KD-8. As noted by the Ms. Dunn to NHHA in March 2010, the State was not aware of any evidence of lack of access. See Exh. KD-14.

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The reimbursement rate in itself is not a measure of compliance with the equal access regulation. Simpson v. Heckler, 730 F. Supp. 736, 738 (E.D. Penn. 1986). Substantial access, not the reimbursement rate, satisfies the equal access regulation. Id. Moreover, the substantive criteria of Section 30(A) are highly general and are not directly applicable to individual state decisions. Long Term Pharmacy, 362 F.3d at 58. Here, Plaintiffs have failed to demonstrate that New Hampshire Medicaid patients lack access to hospital services to the same extent as the general population; therefore, the Court should decline to grant injunctive relief. ii. Medicaid Law Does Not Require That A State Do Analysis Of The Potential Impact Prior To Rate Reductions, And To The Extent Medicaid Law Requires That A State Consider The Potential Impact Prior To Rate Reductions, The Analysis Performed Was Sufficient (Procedural Claim under Section 30(A)

In support of their argument that the State has violated the procedural requirements of Section 30(A), Plaintiffs rely exclusively on the Ninth Circuit decisions in Independent Living Center of Southern California, Inc. v. Maxwell-Jolly, 572 F.3d 644 (9th Cir. 2009), and California Pharmacists Association v. Maxwell-Jolly, 596 F.3d 1098 (9th Cir. 2010). See Plaintiffs Memorandum of Law at 35-38. This is not surprising, because all other circuit courts to consider the issue have rejected the notion that Section 30(A) requires states to follow any particular method or process prior to rate reductions. See Methodist Hosps., Inc. v. Sullivan, 91 F.3d 1026, 1030 (7th Cir. 1996) (rejecting contention that Section 30(A) requires comprehensive studies prior to any change in a states plan of reimbursement); Rite Aid of Pa., Inc. v. Houstoun, 171 F.3d 842, 851 (3d Cir. 1999) (agreeing with the Seventh Circuit that section (30)(A) requires the state to achieve a certain result but does not impose any particular method or process for getting to that result); cf. Minnesota Homecare Assn, Inc. v. Gomez, 108 F.3d 917, 918 (8th Cir. 1997) (The Medicaid Act mandates consideration of the equal access factors of efficiency,

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economy, quality of care and access to services in the process of setting or changing rates, however, it does not require the State to utilize any prescribed method of analyzing and considering said factors.). While the First Circuit has not directly addressed the issue, it has implicitly concluded that no pre-enforcement study is required. See Long Term Care Pharmacy Alliance, 362 F.3d at 56, 59 (stating that the statute does not provide any procedures for the determination of such methods and procedures, and observing nor, in the abstract, is there anything patently wrong with the [states] arguing that it has power to act on an emergency basis, or its desire to see whether supply can be maintained after a 1% reduction). The Fifth Circuit has also implicitly reached the same conclusion. Evergreen Presbyterian Ministries Inc. v. Hood, 235 F.3d 908, 933 n.33 (5th Cir. 2000) (While we do not reach the merits of this conclusion, we note that studies, while helpful, are not required by the language of section 30(A). Accord Methodist Hosps., Inc., 91 F.3d at 1030..), overruled in part on other grounds, Equal Access for El Paso, 509 F.3d at 704. The plain language of Section 30(A) does not require states to follow any specific procedures prior to reducing rates. See Methodist Hosps., Inc., 91 F.3d at 1030 (Nothing in the language of 1396a(a)(30)(A), or any implementing regulation, requires a state to conduct studies in advance of every modification.). While Section 30(A) arguably sets some general substantive objectives that rates not be set so high as to be inefficient or uneconomical, or so low as to create an access or quality of care problem for beneficiaries it does not specify any procedure that the States must follow to achieve those objectives, leaving that issue to be addressed through the methods and procedures identified by each state in its state plan. See Long Term Care Pharmacy, 362 F.3d at 58 ([R]ead literally the statute does not make [the

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substantive criteria] directly applicable to individual state decisions; rather state plans are to provide methods and procedures to achieve these general ends.). If Congress had intended to require the consideration of cost studies or any other procedural requirements prior to rate reductions, it would have written that requirement into the Medicaid Act. As such, Section 30(A) does not preclude a state from reducing rates to address a budgetary crisis without first analyzing the potential impact, so long as the substantive requirements of the statute are met. See Methodist Hosp., 91 F.3d at 1030 (Under Section 30(A), states may behave like other buyers of goods and services in the marketplace: they may say what they are willing to pay and see whether this brings forth an adequate supply. If not, the state may (and under 1396a(a)(30)(A), must) raise the price until the market clears.). Moreover, the legislative history of the Medicaid Act evinces Congress intent that Section 30(A) requires only substantive results. Connecticut Association of Health Care Facilities, Inc. v. Rell, 2010 WL 2232693, *8 (D. Conn. 2010). Under the Boren Amendment, providers not only had a substantive right to reasonable and adequate rates, but also a procedural right to have such rates accompanied by findings and assurances, made by the state, as to their reasonableness and adequacy. Id. (quoting In re NYAHSA, 318 F. Supp. 2d 30, 32 (N.D.N.Y 2004), affd, 444 F.3d 147 (2nd Cir. 2006)). Congress repealed the Boren Amendment, and in its stead, enacted the current 1396a(a)13(A), with its notice and comment procedures. Id. Providers formerly had the procedural rights Plaintiff[s] now claim[], but they were specifically repealed by Congress. Id.; see also Methodist Hosp., 91 F.3d at 1030 (contrasting Boren Amendment, which required states to conduct studies in order to make findings and assurances, with Section 30(A), which does not require states to conduct studies prior to modifying rates).

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Section 30(A) simply does not set forth any procedures that a State must follow before reducing rates. When a statute mandates a substantive result but does not specify a process for reaching that result, it is not the province of the courts to decide what process is necessary to attain compliance. As Plaintiffs point out on page 33 of their Memorandum of Law, CMS has proposed regulations addressing what states should consider before reducing rates. However, those regulations are not final or yet in effect. If in fact Section 30(A) does contain procedural requirements, then CMS, the agency charged with interpreting and implementing the Medicaid Act, is better suited to specify that process than the courts. Cf. Long Term Care Pharmacy, 362 F.3d at 58 (quoting Gonzaga, 536 U.S. at 292) (Breyer, J., jointed by Souter, J., concurring in the judgment) (noting that where statutes key substantive language is broad and nonspecific, exclusive agency enforcement might fit the scheme better than a plethora of private actions threatening disparate outcomes). Given Congresss silence on the issue, it is highly unlikely it intended courts to assume a key role in this area. For all of the reasons stated above, this Court should reject the reasoning of the Ninth Circuit and rule that Section 30(A) does not contain a procedural requirement mandating states to follow any specific procedures prior to reducing rates. Even if consideration of access is required, what was done should be considered sufficient. Since 2005 pursuant to statute DHHS, in conjunction with the NH Insurance Department, have partnered on creation and maintenance of the CHIS, the New Hampshire Comprehensive Health Care Information System created to make health care data available as a resource for insurers, employers, providers, purchasers of health care, and state agencies to continuously review health care utilization, expenditures, and performance in New Hampshire. Affidavit of Kathleen Dunn, 24. Utilizing this information and other available data on other

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states, the DHHS has been able to prepare biannual benchmark reports in 2008 and 2010. These are published at http://www.dhhs.nh.gov/ombp/documents/medicaidrates2010.pdf for the 2010 report and http://www.dhhs.nh.gov/ombp/documents/medicaidrates.pdf for the 2008 report. Although these show that New England Medicaid rates are lower than Medicare, New Hampshire is not generally, even in the 2010 report, the lowest paying New England state. Affidavit of Kathleen Dunn, 24. Further, DHHS responded to an inquiry from NHHA about what DHHS had done or was doing to consider the impact of these changes on access on March 30, 2010 to the NHHA by pointing to favorable comparison of New Hampshire to other New England states in the 2008 benchmarking report and that OMBP would continue to monitor trends and work with NHHA and the hospitals. See Exh. KD-14, March 30, 2010 letter by DHHS to NHHA re access. The utilization data from these reports, as well as the other reports previously mentioned herein, do not demonstrate that there has been any decrease in access, from 2008 to the present, after any of the actions complained of in the lawsuit. Affidavit of Kathleen Dunn, 24. iii. Plaintiffs Facial Challenge Fails

Plaintiffs claim that RSA 126-A:3, VII(a) and RSA 167:64, as amended, violate Section 30(A) on their face, and therefore are facially preempted by the Supremacy Clause. See Plaintiffs Memorandum of Law at 43-44; Plaintiffs Complaint, Count III. Because the challenged state statutes can be applied in a manner consistent with Section 30(A), Plaintiffs facial challenge fails. The First Circuit has recognized that federal preemption of a state law is strong medicine, and is not casually to be dispensed. Concannon, 249 F.3d at 75 (citation omitted). This is especially true when the federal statute creates a program, such as Medicaid, that utilizes

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cooperative federalism: Where coordinated state and federal efforts exist within a complementary administrative framework, and in the pursuit of common purposes, the case for federal preemption becomes a less persuasive one. Id. (quoting Wash. Dept of Soc. & Health Servs. v. Bowen, 815 F.2d 549, 557 (9th Cir. 1987) (quoting N.Y. Dept of Soc. Servs. v. Dublino, 413 U.S. 405, 421 (1973)). Moreover, where Plaintiffs here have mounted a facial challenge to a statute, they have a high burden. A facial challenge to a legislative Act is, of course, the most difficult challenge to mount successfully, since the challenger must establish that no set of circumstances exist under which the Act would be valid. Id. at 77 (quoting United States v. Salerno, 481 U.S. 739, 745 (1987)). The existence of a hypothetical or potential conflict is insufficient to warrant the preemption of the state statute. Id. (quoting Rice v. Norman Williams Co., 458 U.S. 654, 659 (1982)). RSA 126-A:3, VII(a) provides, in pertinent part: If expenditures are projected to exceed the annual appropriation, the department may recommend rate reduction for providers to offset the amount of any such deficit. The department of health and human services shall submit to the legislative fiscal committee and to the finance committees of the house and the senate, the rates that it proposes to pay for hospital outpatient services. The rates shall be subject to the prior approval of the legislative fiscal committee. (Emphasis added) In interpreting statutes, the New Hampshire Supreme Court read[s] statutory provisions not in isolation, but in the context of the overall statutory scheme. State v. Ferguson, 141 N.H. 438, 439 (1996). All statutes upon the same subject-matter are to be considered in interpreting any one of them. Where reasonably possible, statutes should be construed as consistent with each other. When interpreting two statutes which deal with a similar subject matter, we will construe them so that they do not contradict each other, and so that they will lead to reasonable results and effectuate the legislative purpose of the statute. Id. (citation omitted).

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Where Medicaid is a cooperative federal-state program, RSA 126-A:3, VII(a) should be construed as consistent with provisions of the Medicaid Act. Plaintiffs argue that RSA 126-A:3, VII(a) is preempted by Section 30(A) because it allows the State to set reimbursement rates that are insufficient to satisfy the substantive requirements of Section 30(A). See Plaintiffs Memorandum of Law at 43-44. While RSA 126-A:3, VII(a) states that the department may recommend rate reductions for budgetary reasons, it does not state that the department can disregard federal law in doing so or that rates can be reduced regardless of the impact on access. The statute must be read so that it does not contradict Section 30(A), and so that it will lead to reasonable results and effectuate the legislative purpose of the statute. See Ferguson, 141 N.H. at 439. Similarly, RSA 167:64, as amended, must be construed as consistent with the provisions of the Medicaid Act. Nothing in the language of RSA 167:64 permits the department to disregard federal law in administrating the uncompensated care fund. Moreover, while the Medicaid Act allows states to make DSH payments, nothing in Section 30(A) requires states to make any such payments. DSH is not a part of the Medicaid rate. Even if a hospital qualifies as a DSH hospital, there is no requirement in federal law that any set percentage of the hospitals uncompensated care must be subsidized. Affidavit of Kathleen Dunn, 8. Plaintiffs have alleged at most a potential conflict between the state statutes at issue and Section 30(A), which is insufficient to warrant the preemption of the state statute. See Concannon, 249 F.3d at 77. Because Plaintiffs have failed to establish that no set of circumstances exist under which the Act would be valid, their facial challenge fails. Id.

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iv.

42 U.S.C. 1396a(b) and 42 C.F.R. 430.12 do not preempt the state laws at issue in this case

In the event this Court finds that the Supremacy Clause supplies Plaintiffs with a cause of action, Plaintiffs are still unlikely to succeed on the merits of Count IV. The state laws at issue can be construed to be consistent with U.S.C. 1396a(b) and 42 C.F.R. 430.12; therefore, they are not preempted by the Medicaid Act. As discussed above, Medicaid is a cooperative federal-state program, and state laws relating to the Medicaid program must be construed consistent with provisions of the Medicaid Act if possible. See Ferguson, 141 N.H. at 439. Because the state laws Plaintiffs challenge do not expressly permit or require the department to disregard federal law, they should be construed as requiring a state plan amendment when their implementation will effect a significant change in the methods and standards for setting payment rates for services. The Court should therefore find that the challenged state laws are not preempted by the Medicaid Act. See Concannon, 249 F.3d at 75 (noting that federal preemption of a state law is strong medicine, and is not casually to be dispensed, especially in the context of cooperative federal-state programs such as Medicaid). Moreover, as discussed in subsection b below, to the extent state plan amendments were required for any of the rate reductions at issue in this case, they either have already been filed, or will be timely filed. b. Plaintiffs Are Unlikely To Succeed On The Merits Of Their Section 1983 Claims As To The Extent Required Notice Was Given And State Plan Amendments Filed In their Complaint, Plaintiffs identify several events they characterize as rate reductions in Counts V and VI, all of which they assert were implemented without sufficient notice in contravention of Section 13(A) or 42 C.F.R. 447.205. To the extent required, notice was given

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and state plan amendments have been filed; therefore, Plaintiffs are not likely to succeed on the merits of these claims. 15 A public process under Section 13(A) does not equate to the formal notice in 42 C.F.R. 447.205. Section 13(A) requires that a Medicaid state plan provide for a public process for determination of rates of payment for hospital services, nursing facility services, and services of intermediate care facilities for the mentally retarded. See 42 U.S.C. 1396a(a)(13)(A); supra at pp. 37. It is undisputed that the New Hampshire state plan contains a provision for public process, which has been approved by CMS. Pl. Ex. B, Doc. 3-4. While the provision does not describe the public process used by DHHS, CMS does not require that the specific elements of the process be set forth in the State Plan. Exh. KD-1 at p. 3. As interpreted by CMS the public process for ratesetting in Section 13(A) is distinct from the specific procedures set forth in 42 C.F.R. 447.205. The regulation pertains only to notice requirements when the State is making a significant proposed change in its methods and standards for setting payment rates for services. (Emphasis added.) By its express terms the regulation applies to methodology changes, not all rate changes. Section 447.205 provides as follows: (a) When notice is required. Except as specified in paragraph (b) of this section, the agency must provide public notice of any significant proposed change in its methods and standards for setting payment rates for services. (b) When notice is not required. Notice is not required if (1) The change is being made to conform to Medicare methods or levels of reimbursement; (2) The change is required by court order; or (3) The change is based on changes in wholesalers or manufacturers prices of drugs or materials, if the agencys reimbursement system is based on material cost plus a professional fee.
This memorandum focuses on the overwhelming evidence showing compliance with any notice and comment obligations. Plaintiffs claims also fail for other reasons, including their general lack of timeliness and the doctrine of laches.
15

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(c) Content of notice. The notice must (1) Describe the proposed change in methods and standards; (2) Give an estimate of any expected increase or decrease in annual aggregate expenditures; (3) Explain why the agency is changing its methods and standards; (4) Identify a local agency in each county (such as the social services agency or health department) where copies of the proposed changes are available for public review; (5) Give an address where written comments may be sent and reviewed by the public; and (6) If there are public hearings, give the location, date and time for hearings or tell how this information may be obtained. (d) Publication of notice. The notice must (1) Be published before the proposed effective date of the change; and (2) Appear as a public announcement in one of the following publications; (i) A State register similar to the Federal Register. (ii) The newspaper of widest circulation in each city with a population of 50,000 or more. (iii) The newspaper of widest circulation in the State, if there is no city with a population of 50,000 or more. 42 C.F.R. 447.205 (emphasis added). 16 CMS explained this distinction in a letter dated December 19, 2008 to NHHA. See Exh. KD-6. CMS distinguishes between a public process for determination of rates of payment in accord with 13(A) consistent with existing methodologies set forth in the States Medicaid state plan and a public notice of significant proposed changes in a states methods and standards for setting payment rates, which occurs through the state plan amendment process. Id.

Proposed changes to the regulation provide for publication through a website, similar to the ones utilized by the State, including its Medicaid website. 76 F.R. 26342-01 (May 6, 2011).

16

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In dicta, the First Circuit has stated that, broadly speaking, Section 13(A) requires something on the order of notice and comment rulemaking for states in their setting of rates for reimbursement. Long Term Care Pharmacy Alliance v. Ferguson, 362 F.3d at 54. The Court was not specifically interpreting the notice requirements of Section 13(A) or its relationship to 42 C.F.R. 447.205. In any event, other courts examining the statute (since the repeal of Boren) have not necessarily grafted the provisions of Section 447.205 onto all rate setting under Section 13(A). See California Hospital Association v. Maxwell-Jolly, 776 F.Supp.2d 1129 (E.D. Cal. 2011). In California Hospital Association v. Maxwell-Jolly, the plaintiff sought a preliminary injunction barring a Medicaid rate freeze that plaintiff asserted had not conformed to the notice provisions of Section 13(A). In denying injunctive relief, the court applied a flexible approach to the public process contemplated by Section 13(A). See 776 F. Supp. 2d 1129 (E.D. Cal. 2011); see also Mission Hosp. Regional Medical Center v. Shewry, 168 Cal.App.4th 460, 85 Cal.Rpt.3d 639, 645 (Cal.App.3d Dist. 2008) (noting that the Secretary interprets Section 13(A)s use of the term publish to mean made public rather than to issue an actual written publication). Prior to the legislatures enacting the freeze in question, the court noted that plaintiffs representative had participated at a Senate Budget Committee hearing where the freeze was discussed. Id. at 1138. After the legislature passed the freeze, the defendant provided four additional notices of the rate freeze, including postings on its website and mailings to affected hospitals. Id. The court found that these measures constituted sufficient notice under Section 13(A). The plaintiffs ability to comment on the rate freeze was unquestioned, since its representative testified at the hearing. Id. at 1147. Furthermore, the defendant complied with Section 13(A) by providing notice after the legislative change: a cursory review of Section 13(A) demonstrates that there is

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no specific time by which a public notice concerning a change in reimbursement methodology must issue. Id. Plaintiffs cite to several cases decided before the repeal of the Boren Amendment, which significantly changed the legal landscape. Prior to its repeal in 1997, the Boren Amendment contained a substantive requirement placed on states that courts safeguarded through regulations such as 42 C.F.R. 447.205. See Visiting Nurses Assn of North Shore, Inc. v. Bullen, 93 F.3d 997, 1000 (1st Cir. 1996) (Under the Medicaid Act and regulations, a State must meet two conditions before instituting material or significant changes in its Medicaid program: i.e., (1) submit a Plan amendment to HCFA for approval, describ[ing] the methods used to set rates under 42 U.S.C. 1396a(a)(30), see 42 C.F.R. 447.201(b) (emphasis added), and (2) provide public notice describing the proposed change[s] and explain[ing] why [it] is changing its methods and standards, see id. 447.205(c)(1), (3) (emphasis added)), overruled on other grounds, Long Term Care Pharmacy, 362 F.3d at 58-59. Nevertheless, even under Boren, the First Circuit recognized that the state plan amendment requirement arose in the limited circumstances where the State was changing its methods and standards for setting rates, i.e., its methodology. Many of the alleged rate changes at issue in the present lawsuit, even if they resulted in reduced rates, do not give rise to a methodology change and therefore do not implicate this regulation. Cf. Mission Hosp. Regional Medical Center v. Shewry, 85 Cal.Rptr.3d at 646 (discussing difference between content and application of Section 13(A) and 42 U.S.C. 447.205). In discussing the public process in the post-Boren Amendment era, the First Circuit has also suggested that prior notice under Section 13(A) may not be necessary in emergency cases. Long Term Care Pharmacy Alliance made a comparison between the Administrative Procedure

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Act, which allows agencies to suspend notice and comment where such notice is impracticable, unnecessary, or contrary to the public interest, 5 U.S.C. 553(b)(3)(B) (2010), and Section 13(A) notice: It is quite possible that under emergency conditions Section 13(A) may not automatically require notice and comment before a new rate goes into effect. Long Term Care Pharmacy Alliance, 362 F.3d at 54. 42 C.F.R. 447.205 contains no such exception for emergency situations, providing further support for a distinction between Section 13(A) notice and notice under 42 C.F.R. 447.205, and further supporting a recognition of the flexibility associated with the notice process in Section 13(A). In any event, courts have not required absolute adherence to the language in 42 C.F.R. 447.205, even in instances where it applies. See Independent Acceptance Co. v. California, 204 F.3d 1247, 1252 (9th Cir. 2000) (Secretary not required to hold state to absolutely literal compliance with notice requirements in 42 C.F.R. 447.205 where notice substantially complied). [N]otice provisions are neither invariably nor primarily designed to afford exhaustive disclosure, but to alert interested parties that their substantive rights may be affected in a forthcoming public proceeding. Id. at 1253 (quoting Visiting Nurse Assn of N. Shore v. Bullen, 93 F.3d 997, 1010 (1st Cir. 1996)). Indeed, a wooden requirement of absolutely strict compliance with the literal meaning of the regulation would appear to conflict irreconcilably with the clear legislative and rulemaking intent that administrative requirements be kept to [a] minimum. Id. at 1253-54 (quoting Oklahoma v. Shalala, 42 F.3d 595, 603 (10th Cir. 1994)). See also American Soc. Of Consultant Pharmacists v. Concannon, 214 F.Supp.2d 23, 32 (D. Me. 2002) (court declined to grant preliminary injunction as it would not be in the public interest to enjoin enforcement of the emergency rule for a minor violation of 447.205(c)s notice

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requirements). For these reasons as well as the actual notice provided as explained below, Plaintiffs arguments that Defendant has not given adequate notice fail. i. October 30, 2008 Outpatient Rate Reduction (and carried forward into SFY 2010-2011 and SFY 2012-2013) On October 30, 2008, Kathleen Dunn and Commissioner Toumpas sent a letter to the Chair of the Fiscal Committee of the General Court, requesting the Fiscal Committees action on rate adjustments to its outpatient payment rates. See Pl. Exhibit C, Doc. 3-5 at 2-6. DHHS implementation of the rate adjustment identified in this letter was consistent with Section 13(A). First, the proposed rate reduction did not trigger the need for a state plan amendment or the notice provisions of 42 C.F.R. 447.205, as the proposed reduction did not effect a change in the methodology set forth in the state plan. Exh. DP-2, DP-8. Actual rates are not contained in the state plan. DRG price point changes, for example, are published on the States website for New Hampshire Medicaid providers, www.nhmedicaid.com, which is updated regularly with information regarding hospital rates and billing procedures. See Exh. NH-31, NH-32 (index of Bulletins and Whats New publications). Moreover, the process utilized by the State in making public the proposed and final rate change more than satisfied both the letter and purpose of Section 13(A). At a minimum, the proposed reduction set forth in the October 30 letter was made public through the publication of the Fiscal Committee agenda, which stated that DHHS was seeking authorization to revise the reimbursement rate paid to non-critical access hospitals for outpatient services from 81.24% of Medicare allowable costs to 54.04% of Medicare allowable costs retroactively to July 1, 2008. See Exh. JP-8. Thus the agenda item identified the specific percentage reduction and the methodology for the rate calculation, i.e., the methodology already contained in the state plan. The agenda item also identified the Fiscal Committee item number (FIS 08-325), by which any

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interested member of the public could identify the item in order to obtain a copy of the more detailed written request. Id. A public hearing was held on November 21, 2008, at which there was testimony and discussion regarding the proposed rate change and the justification for the proposed change. See Pl. Exhibit E, Doc. at 37- 41. Prior to the public hearing, the hospitals were free to provide comment to DHHS at the address identified in the October 30 letter or to Fiscal Committee members who ultimately would vote on the proposal. The State Medicaid Director recalls that prior to the November 2008 rate reductions, the proposed cuts had actually been discussed with NHHA. Dunn Affidavit at 10. The Fiscal Committees adoption of the proposed rate was subsequently published in the same manner through the publication of the minutes, see Pl. Ex. D, Doc. 3-6 at 5, although most, if not all hospitals were already aware of the adoption of the new rate, through their representative. Their knowledge is also demonstrated by their representatives subsequent correspondence to CMS. See KD-5. The published rate change also took into account the situation of hospitals, which serve a disproportionate number of low-income patients, as it did not alter DSH payments and was directed at non-critical access hospitals, as opposed to many of the smaller north-country hospitals serving a lower income population. Exh. JP-13; Pl. Ex. C, Doc. 3-5; see also Pl. Ex. E, Doc. 3-7 at 42. Moreover, this notice was not the first public notice that DHHS was seeking a percentage rate reduction with respect to outpatient hospital rates. A similar request was published multiple times on agendas for Fiscal Committee meetings between April 29, 2008 and November 21, 2008. See Exh. JP-5, JP-6, JP-7 (agenda item stating FIS 08-130 [DHHS] authorization to revise the reimbursement rate paid to non-critical access hospitals for outpatient services from

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81.24% of Medicare allowable costs to 62.82% of Medicare allowable costs retroactively to January 1, 2008). In addition to these publications, DHHS was in direct communications with the hospitals representatives regarding the proposed reduction and alternative solutions both before and after Fiscal Committee meetings in 2008. See Exh. KD-9, KD-10 and KD-11. In fact, NHHA provided comments and proposed alternatives, which were accepted by DHHS. See Exh. KD-9. NHHA also submitted a proposed alternative plan involving the use of donations to support deficit reduction. See Exh. KD-10. This correspondence demonstrates the active involvement of the hospitals in the consideration of the proposed rate reduction and possible alternatives as well as DHHS consideration of the impact on critical access hospitals. In sum, Plaintiffs were well aware and had ample opportunity to comment on the fact that DHHS was seeking a percentage rate reduction and that the effective date may be retroactive, event as far back as January 1, 2008. Although the final rate differed from the one initially proposed in April 2008 and was not effective until July 2008, Plaintiffs had ample notice and opportunity to comment on the subject. Plaintiffs suggestion that this rate reduction was carried forward to subsequent years without notice or opportunity to comment is also not supported by the facts. NHHAs knowledge of the changes is demonstrated by its correspondence with CMS regarding both the outpatient rate reduction and the inpatient rate reduction less than one week after the November 21, 2008 Fiscal Committee meeting. See Exh. KD-5. NHHA and individual hospital representatives continued to participate in the budget setting process in the legislature throughout the legislative session ending June 30, 2009 (which set the budget for SYF 2010-2011) and the session ending June 2011 (which set the budget for SFY 2012-2013) and provided testimony opposing the continuation of the rate reductions. See Exh.s NS-14, NS-15, NS-16, NS-17, NS-

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18, NS-19, NS-20, NS-21. Finally, DHHS published notice in the newspaper in June, 2011, providing further notice and opportunity to comment, to the extent DHHS was proposing to make any methodology changes arising out of the 2012 and 2013 budget. See Exh. DP-5. ii. November 21, 2008 Inpatient Rate Reduction (and carried forward into SFY 2010-2011 and SFY 2012-2013) On November 21, 2008, Governor John Lynch appeared before the Fiscal Committee to present cuts to all executive agencies as outlined in Executive Order 2008-10. Included in this package of cuts was a proposed rate reduction, which would take effect the following month, on December 1, 2008. Pl. Ex. E, Doc. 3-7 at 2-6. After his testimony, the Fiscal Committee voted to approve the executive order. See Exh. JP-9. Representatives from NHHA have been present at all significant hearings and are known to have provided input to the Fiscal Committee members. See Dunn Affidavit, 9. While this rate reduction was not identified on the published agenda prior to the Fiscal Committee meeting, it, too, satisfied any public process requirement in Section 13(A). First, like the outpatient reduction, this proposed rate change did not alter the methodology set forth in the state plan. Exh. DP-8 (attachment 4.19-B, page 1). Thus, it did not warrant a state plan amendment and 42 U.S.C. 477.205 did not apply. Moreover, the proposed rate change as presented in the Executive Order identified the specific percentage reduction and the methodology for the rate calculation, i.e., the methodology already contained in the state plan. See Pl. Exhibit F, Doc. 3-8 at 5, 14. The Executive Order as well as Governor Lynchs public testimony also explained the justification for the various changes, including the inpatient rate reduction, as well as the aggregate reduction in State funding associated with the inpatient reduction. See id. at 2-4, 14. Again, the published rate change also took into account the situation of hospitals that serve a disproportionate number of low-income patients, as it did not

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alter DSH payments and exempted critical access hospitals. Id. at 14. Subsequently, the change was published on the States website, through both the publication of the minutes of the Fiscal Committee meeting and the Executive Order, although the hospitals were already well aware of the adoption of the proposed rate through their participation in the process. See Exh. KD-5. To the extent this rate reduction was carried forward into subsequent years, for the same reasons identified above, in addition to the formal notice, the Plaintiffs had ample notice and opportunity to comment through the 2012 and 2013 budget process, and in fact did so. See NS19, 20, 21; see also Exh. DP-5 (June 25 and 26, 2011 public notices). Although the court need not address the issue, because the rate reduction satisfied the parameters of Section 13(A), the Governors Executive Order and his testimony also shows the type of emergency circumstance suggested by the First Circuit as obviating the need for formal notice and comment. Pl. Ex. E, Doc. 3-7 at 3-4; Pl. Ex. F., Doc. 3-8 at 2-4; see also Long Term Care Pharmacy Alliance, 362 F.3d at 54. This provides further support for denying Plaintiffs request for injunctive relief. iii. Deferral of Outpatient Settlement Payments for 2009, 2010, and 2011 (and carried forward into SFY 2012-2013) Similarly, any actions taken by DHHS with respect to the alleged deferral of outpatient settlement payments comports with Section 13(A) and the regulation, to the extent it applies at all. Interim payments for outpatient services are made subject to a final settlement process. Exh. DP-2, DP-8. The state plan does not identify a specific time frame for the completion of the settlement process. Id. As such, an asserted change in the timing of such payments does not give rise to the need for a state plan amendment; nor does it constitute a rate reduction as asserted by the Plaintiffs. In any event, Plaintiffs have demonstrated no violation.

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Plaintiffs assert that on February 5, 2010, Commissioner Toumpas reported to the Fiscal Committee that DHHS intended to defer settlement payments for some period of time. Complaint 128, Doc. 1 at 30-31. In his testimony he described ongoing communications and meetings with stakeholders to obtain input on his various proposals. Exh. JP-15 at pp. 37-38. Also, consistent with this public representation, on February 26, 2010, DHHS forwarded to the Union Leader, for publication the next day, a detailed notice that DHHS was proposing to make changes to inpatient and outpatient hospital reimbursement methodology in accord with the February 5, 2010 presentation to Fiscal Committee as well as any additional reductions that are contained in the language of, or approved in conjunction with, SB 450, SB 460, or other omnibus reduction bills or amendments to the bills. Exh. DP-4. Among a variety of other items described in the notice, the document explained that outpatient hospital payments are currently made on an cost basis with final cost settlements occurring after the Medicare fiscal intermediary completes audits and reconciliation, which is approximately two years from the end of the providers fiscal year. The notice further explained that these efforts would continue, but payment to hospitals would be deferred to the 2012-2013 biennium with timing of payment to occur as approved in SB 450, SB 460, other omnibus reduction bills or amendments to the bills. Exh. DP-4. The notice described fiscal impact and identified where additional fiscal data could be viewed. Id. The notice also identified where draft state plan pages could be obtained, the period for comment, and the address for submission of comments. Id. To the extent suspension of payments was carried forward through the budget process in SFY 2012 and 2013, Plaintiffs had the opportunity to and did fully participate in the Legislatures consideration of the continuation of these suspensions. See, e.g., NS-20, NS-21.

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Moreover, in June, 2011, DHHS published in the newspaper a notice that it is proposing to make changes to the inpatient and outpatient hospital reimbursement methodology in accordance with HB 1 and HB 2 as well as any additional amendments or reductions that result from Committee of Conference or that are contained in the language of, or approved in conjunction with, HB 1 or HB 2 or amendments thereto. Exh. DP-5. The notice further stated, In accordance with HB 1, outpatient hospital cost reports will continue to be reconciled, but in instances where the state owes money to hospitals, payments will continue to be deferred. Exh. DP-5. The notice identified cost savings, justification for the action, continued access for Medicaid recipients, how to obtain draft state plan pages and when and where to submit comments. Id. As such, DHHS complied in all material respects with Section 13(A) and the regulation cited by the Plaintiffs. In any event, DHHS actually made the settlement payments in SFY 2010. Nihan Affidavit at 16. Moreover, a claim with respect to 2011 settlement payments is premature, as the work of the fiscal intermediary is not yet complete and the payments are not yet due. Id. at 17. In sum, this claim presents no basis for injunctive relief. iv. Hospitals' Charge of Technical Component Fees for HospitalOwned Physician Practices in 2010 and 2011 (and carried forward into SFY 2012-2013) Similarly, DHHS complied with notice requirements, to the extent any applied, with respect to charging of technical component fees. In the Complaint, Plaintiffs assert that on February 5, 2010 DHHS reported to the Fiscal Committee that it had denied hospitals the ability to charge technical component fees for hospital owned physician practices. Complaint 128, Doc. 1 at 30. To the extent hospitals were charging fees not authorized by the state plan, and DHHS was merely bringing the hospitals into compliance, no amendment to the state plan was

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necessary. With respect to the general public process provisions of Section 13(A) or the specific provision of the regulation, the facts show compliance. First, the February 2010 report to Fiscal Committee was not the first public discussion or notice of this issue. For example, there are entries on prior Fiscal Committee agendas, including agendas for meetings on April 19, 2007, May 15, 2007, and November 21, 2008, that appear to constitute the same item. For example, the April 19, 2007 Fiscal Committee agenda contains an item that provides: FIS 07-111 [DHHS] -- requests authorization to clarify physician services reimbursements to comply with recent instructions from [CMS]. Exh. JP-3. Similar entries appeared after the item was tabled on public agendas for meetings on May 15, 2007 and November 21, 2008. Thus the agenda item identified the nature of the clarification requested and the reason. The agenda item also identified the Fiscal Committee item number (FIS 07-111), by which any interested member of the public could identify the item in order to obtain a copy of the more detailed written description. Id.; see also Exh. MN-4 (4/5/07 ltr to Fiscal Comm.) As outlined above, the Plaintiffs representative routinely attended Fiscal Committee meetings and followed determinations relating to hospitals. See Dunn Affidavit at 9. In addition to the public nature of the Fiscal Committee process, however, DHHS gave notice through other formal processes. On or about December 5, 2008, DHHS published in the newspaper a notice that it was planning to adhere to the federal requirements for outpatient hospital billing as released in the Federal Register on November 7, 2008. The notice indicated that if a state plan amendment became necessary, this would serve as the public notice. Exh. DP3 (12/5/08 public notice). The notice further explained that any amendment would incorporate the requirements of the final CMS rule published on that date and any guidance issued by CMS. The notice identified where draft state plan pages may be obtained and when and where

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comments may be submitted. Exh. DP-3. In a letter to NHHA dated April 16, 2010, Kathleen Dunn further discussed the issue in some detail. See Pl. Ex. S, Doc. 3-20 at 16-18. The letter references DHHS prior communications with NHHA and at least one meeting with NHHA in 2009, prior to the April 10, 2010 implementation date. Id. at 16; see also Exh. NH-31 and NS-32 (publication of December 2008 memo re: Outpatient Hospital Billing and April 2010 memo re: Changes to Processing of Revenue Code 0510). Correspondence between and among DHHS, CMS and NHHA in March 2010 identifies a number of proposed actions, including the items challenged by Plaintiffs in this lawsuit. See Exh. KD-12, KD-13. Plaintiffs were not only aware of this and other proposed actions by DHHS, they participated directly in them. Their claim of lack of notice is without merit. v. Suspension of Payments to Hospitals for Certain Catastrophic Cases in 2010 and 2011 (and carried forward into SFY 2010-2011 and 2012-2013) Plaintiffs allege that on February 5, 2010 DHHS reported to Fiscal Committee that it intended to suspend payments to hospitals for certain catastrophic cases. Complaint 128, Doc. 1 at 30. Again, to the extent they apply, DHHS complied with any notice requirements. On June 29, 2009, DHHS published notice in the Union Leader that DHHS is proposing to make changes to the inpatient hospital reimbursement methodology in accordance with specifications that are contained in the language of HB 2 at the time it is signed into law as part of the 2009 legislative session. Exh. NS-33. Among other things, the notice indicated that changes to reimbursement methodology will be specified in one or more amendments to the state plan, explained proposed changes to catastrophic payment policy, explained the reason for these changes, discussed potential fiscal impact, and provided a place for obtaining draft state plan amendments and a place and time for submitting comments. Id. The notice explained that the

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proposed changes could potentially include changes in (a) how the size of the fund is calculated; (b) the criteria for qualifying for catastrophic payment; (c) the timing and priority of disbursement of payment, as well as (d) any other criteria as specified in HB 2. Id. Again on February 26, 2010, in the newspaper notice outlined in more detail above, DHHS also identified this issue. This notice provided: The Department is currently making catastrophic payments in accordance with provisions of Chapter 144, Laws of 2009, which provides for a catastrophic fund with one half expended by December 31 and the second half expended by June 30 of each year. Unless legislatively directed to do otherwise, the Department shall not expend the second half of the catastrophic fund for any claims for the time period ending June 30, 2010. Catastrophic payments will also be suspended for state fiscal year 2011. Exh. DP-4. Other relevant information in the notice is as set forth above. In both instances, DHHS submitted state plan amendments to CMS. See Exh. DP-1, DP6. Both amendments remain pending. To the extent suspension of payments was carried forward through the budget process in SFY 2012 and 2013, again, as described above, Plaintiffs had the opportunity to and did fully participate in the Legislatures consideration of the continuation of these suspensions. See NS-19, 20, 21. Moreover, as set forth above, in 2011 DHHS published in the newspaper a notice that included the following, At the time of this notice, the Department has in effect a suspension on catastrophic aid payments to hospitals through June 30, 2011. In accordance with HB 2, the Department will continue to suspend catastrophic aid payments to hospitals through the 2012-2013 biennium. Exh. DP-5. The notice identified cost savings, justification for the action, how to obtain draft state plan pages and when and where to submit comments. Id. As such, DHHS complied in all material respects with Section 13(A) and the regulation cited by the Plaintiffs.

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vi. Reduction of Outpatient Radiology Reimbursements in 2010 and 2011 (and carried forward into SFY 2012-2013) Plaintiffs assert that on February 5, 2010 DHHS reported to Fiscal Committee that it intended to reduce outpatient radiology payments to hospitals. Complaint 128, Doc. 1 at 30. The references to outpatient radiology payments appears to be a reference to DHHS efforts to make hospital outpatient reimbursement for radiology more consistent with Medicaid rate levels for non-hospital radiology services through fee schedule rate levels, although reimbursement would still be made to the hospitals as a covered outpatient service. Plaintiffs have shown no violation of Section 13(A) in this regard. To the extent notice was required, the extensive communications with NHHA as set forth above regarding fee schedule payments for outpatient services included radiology reimbursements. This is further evidenced by the correspondence with NHHA immediately after the February 5, 2010 meeting. See Exh. KD-12, KD-13 and KD14. vii. Enactment of NH Laws 2011, ch. 223 and 224 (the budget and HB 2) Finally, Plaintiffs allege that DHHS failed to provide notice and opportunity to comment with respect to recent legislative enactments affecting UPL and DSH payments in the 2012 and 2013 biennium. This issue is not yet ripe for judicial resolution. Neither the UPL nor the DSH payment provisions of the state plan require payment to have been made as of the date of the filing of this objection. Exh. DP-1. The state plan provisions with respect to UPL payments submitted in 2010 make clear that this payment may well change or be eliminated in the next budget biennium. See Exh. DP-1 (TN 10-011 at p.4) (This annual calendar year adjustment payment will be made in the final calendar quarter of each year, until such time as it may be amended under this state plan.); see also Exh. DP-1 (TN 10-011 at p. 5e) (Effective

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November 15, 2010, and on an annual basis thereafter in the time period beginning October 1, 2011, until such time as these provisions of this state plan may be amended.). DHHS fully anticipates complying with applicable notice or state plan amendment requirements, if any, prior to the effective date of payments or changes to the state plan. Granting an injunction on this issue would be premature. In any event, as set forth above, Plaintiffs participation in the recent budget setting process was extensive. See, e.g., NS-19, NS-20, NS-21. Again, their claim of lack of notice of the changes identified in HB 2 and the states budget are simply without basis. B. Plaintiffs Have Not Demonstrated Irreparable Harm 1. The Hospitals Harm, If Any, Is Only Financial And Therefore Not Sufficient For Preliminary Injunction

To the extent that the hospitals claim harm, it is purely financial. The list of cost savings measures that they indicate they are contemplating and the press coverage of actual changes they have made indicate that they have many ways of achieving significant savings without affecting patient care. See Exhibits NS-24 to NS-28. None of them indicate that they are on the verge of or even contemplating bankruptcy. Indeed, the IRS form 990s for each show substantial assets and cash or investments (excluding endowments). See Exh. NS-3 to NS-12. Recent studies show that they are healthy. See Exh KD-2. From an accounting and auditing perspective, the declarations attached to the Motion for Preliminary Injunction about the potential impact on the Plaintiffs are uniformly unreliable and cannot be verified for accuracy because they fail to state the methodology on which they are based. For example, they fail to identify whether they are based on a cash or accrual accounting system, do not identify the source of the cost allegations, how total revenue is calculated and what is included or excluded. Compounding the difficulty of verifying the accuracy of the

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financial data is the fact that none of the declarations identifies the relevant time period that comprises what they refer to as any given year. This is critical to any comparison. Affidavit of Paul Casey, 3. Notwithstanding these deficiencies, when reviewed to determine whether they are each at least facially internally consistent, it is evident that they are not as their numbers simply do not add up in several significant respects. Uniformly, the sum of the individual practice or service components for a given year do not add up to the total Medicaid revenue claim for that year. The total Medicaid revenue figures in Table 1 of each declaration are overstated. Id. at 4. At least one effect of this overstatement is to incorrectly increase the percentage of the hospitals revenue that is dependent on Medicaid. Id. at 5. In any event, financial loss of income 17 , which is the hospitals claim, is insufficient to demonstrate the irreparable harm needed to obtain preliminary injunctive relief. Gately v. Commonwealth of Mass., 2 F.3d 1221, 1232 (1st Cir. 1993). Moreover, Plaintiffs claim of immediate and irreparable harm is belied by the length of time they have waited to assert their claims. Plaintiffs seek to enjoin implementation of rate changes extending back as far as 2008. The evidence shows that the hospitals were fully aware of their alleged claims at every juncture of the events they now challenge. Not only are their claims likely barred by the doctrine of laches, further demonstrating why Plaintiffs cannot show a likelihood of success on the merits, they do not demonstrate irreparable harm at this late date.

Sovereign immunity would bar the court from ordering the State to pay at rates that are in excess of appropriations. While theoretically the court could order the state to comply with federal law, the choices of how to do that, which might included withdrawing from Medicaid entirely, must be left to the state.

17

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2.

John Doe Has Not Alleged Any Facts Sufficient To Support That He Will Not Get Care At LRGH, The Hospital In His Vicinity Or At Any Other Hospital

As previously stated, nothing in John Does declaration or the hospitals declarations support that he will not continue to receive access to appropriate medical care. Therefore he has not demonstrated any irreparable harm. C. Plaintiffs Have Not Demonstrated That Any Harm To Them Outweighs The Impact On The State

It is unquestionable that the last three years have been difficult years for the state. The economic crisis has required unprecedented cuts across state government. As set forth in the accompanying materials, the testimony presented in the legislative process by DHHS and other public officials demonstrates the significant financial challenges facing the state and the extraordinarily difficult funding choices that have been made during the past several budget cycles. The Governors proposed budget eliminated 1,100 state positions, including 255 currently filled positions, reducing state employee positions by almost 10%. See Pltf PI MOL Exh. N to Freyer Decl., Doc. 3-11. Additional examples include cuts to CHINS; attorneys for indigent parents in abuse and neglect matters, closure of district offices; and significant restrictions on expenses. The final cuts for the FY 2012-2013 budget were deeper and more wide spread than proposed by the Governor. While Plaintiffs claims of layoffs (though not necessarily causally connected to the events in this case) are unfortunate, such layoffs have been the norm throughout state government and many private industries for more than three years. Plaintiffs assert that there is no harm to be caused by granting the injunction, as the Court need only order Commissioner Toumpas to comply with the law. However, enjoining Medicaid rate reductions extending back several years, as well as in the current State budget, would cause fiscal and administrative chaos. Invalidating existing rates and methodologies that are consistent

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with current budget priorities and appropriations would throw the entire budget askew. The significant uncertainty and potential chaos that would result from placing the state in a position of being without a balanced budget, significantly outweighs the potential harm to the hospitals of decreased profit margins. In addition, with respect to Plaintiffs request to enjoin implementation of rate changes based on alleged process deficiencies, the comparison of the potential harm to be caused by granting the injunction versus not granting the injunction is stark. Any alleged procedural defects in the notice and comment process challenged by Plaintiffs were de minimus at best, and the evidence is overwhelming that hospitals not only knew of, but participated in, all of the rate change events. Thus, the benefit to be gained from enjoining the implementation of multiple rate changes that have been in effect for years to now grant an opportunity for notice and comment is virtually non-existent when compared to the alternative. D. There Is A Significant Public Interest In Not Invalidating The State Budget

All of the reasons previously cited regarding the balancing of the harms apply to demonstrate that there is a significant public interest in not taking an action that would most likely require significant cuts across all state government. Maintaining core state services such as public safety, child protection, courts and many others affect citizens lives every day. This is not about protecting state employees jobs; many have already been eliminated. It is about maintaining the core services upon which the states residents and business depend. The legislature is uniquely situated to weigh the policy implications of allocating scarce resources among the needs of one or more core constituencies. This Court is neither authorized nor suited to substitute its judgment regarding such choices. Enjoining implementation of the challenged

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Medicaid rate changes and provisions of the 2012-2013 budget in order to protect the monetary interests of the Plaintiffs would effectuate exactly that. III. CONCLUSION WHEREFORE, the Defendant respectfully requests that this Honorable Court deny the Motion for Preliminary Injunction. Respectfully submitted, NICHOLAS A. TOUMPAS, IN HIS OFFICIAL CAPACITY AS COMMISSIONER OF THE NEW HAMPSHIRE DEPARTMENT OF HEALTH AND HUMAN SERVICES By his attorney, MICHAEL A. DELANEY ATTORNEY GENERAL Date:September 23, 2011 /s/_Nancy J. Smith______________ Nancy J. Smith, Bar No. 9085 Suzanne M. Gorman, Bar No. 6572 Senior Assistant Attorneys General Laura E. B. Lombardi, Bar No. 12821 Assistant Attorney General New Hampshire Attorney Generals Office 33 Capitol Street Concord, New Hampshire 03301-6397 Telephone: (603) 271-3650 Email: nancy.smith@doj.nh.gov suzanne.gorman@doj.nh.gov laura.lombardi@doj.nh.gov CERTIFICATE OF SERVICE I hereby certify that a copy of the foregoing was served on the following persons on this date and in the manner specified herein: Electronically Served Through ECF upon: Gordon J. MacDonald, Esquire, Scott OConnell, Esquire and William Chapman, Esquire. Date: September 23, 2011 __Nancy J. Smith_______________ Nancy J. Smith Bar # 9085

665867.njs

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Table of Contents Exhibits to Objection to Preliminary Injunction Jeffrey Pattison Affidavit Exh. JP-1 Agenda fiscal committee July 2005 Exh. JP-2 Minutes fiscal committee for July 2005 Exh. JP-3 April 19, 2007 fiscal committee agenda. Exh. JP-4 April 19, 2007 fiscal committee minutes. Exh. JP-5 April 29, 2008 fiscal committee agenda Exh. JP-6, 4/29/08 Transcript fiscal committee Exh. JP-7 4/29/2008 fiscal committee minutes Exh. JP-8 11/21/2008 fiscal committee agenda. Exh. JP-9 November 21, 2008 fiscal committee minutes Exh. JP-10 Letter by Gov. Lynch dated 11/21/2009 Exh. JP-11 Executive order 2008-10 Exh. JP-12 Executive order 2008-11 Exh. JP-13 2/5/2010 fiscal committee agenda Exh. JP-14 2/5/2010 fiscal committee minutes Exh. JP-15 2/5/2010 Fiscal Committee Transcript Katie Dunn Affidavit Exh. KD-1 Exh. KD-2 Exh. KD-3 Exh. KD-4 Exh. KD-5 Exh. KD-6 Exh. KD-7 Exh. KD-8 Exh. KD-9 Exh. KD-10 Exh. KD-11 Exh. KD-12 Exh. KD-13 Exh. KD-14

HCFA to Medicaid Directors letter, dated 12/10/97 Kane report, dated October 15, 2008 OMITTED Oct. 30, 2008 fiscal request FIS 08-325 NHHA 11/26/08 letter to CMS CMS 12/19/08 ltr to NHHA Health Management Associates, 1/14/2010 report Active provider count, 8/15/2008 to 8/16/2011. Letter dated 4/9/2008 from Comm. Toumpas to the NHHA Letter dated 5/21/2008 from Comm. Toumpas to the NHHA Letter dated 4/22/2008 from NHHA to Gov. Lynch Feb 16, 2010 letter by NHHA to CMS March 1, 2010 letter by DHHS to NHHA re CMS letter March 30, 2010 letter by DHHS to NHHA re access

Marilee Nihan Affidavit Exh. MH-1 DHHS report MA 80 Exh. MH-2 OMBP spreadsheet Accounting units with Medicaid funds SFY 2012 Exh. MN-3 FIS 05-125 Exh. MN-4 FIS 07-111 Exh. MN-5 CMS letter to Comm. Stephen, April 3, 2007 Exh. MN-6 FIS 08-130 Exh. MN-7 OMBP excel spreadsheet FY 2008-FY 2011 Cost Settlements Exh. MN-8 OMBP excel spreadsheet FY 2008 to FY 2011 Cost Settlements on hold Exh. MN-9 HB30-FN-A Exh. MN-10 Examples of Revenue Code 510 Claims

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Diane Peterson Affidavit Exh. DP-1 Section 4.19 A Exh. DP-2 Section 4.19 B Exh. DP-3 TN-08-017 CMS packet Exh. DP-4 2/26/2010 Public Notices Exh. DP-5 June 25 and 27, 2011 notice Exh. DP-6 TN 10-006 CMS packet Exh. DP-7 TN 10-011 CMS packet Exh. DP-8 TN 06-008 Cynthia Carrier Affidavit Exh. CC-1 Health Services Planning and Review CON Projects FY2007-2011 Paul Casey Affidavit Nancy J. Smith Affidavit Exh. NS-1, H.R. 3962, Affordable Health Care for America Act, 1728 as passed by United States House of Representatives Exh. NS-2, H.R. 3590, Patient Protection and Affordable Care Act, p. 1, 143 144, encompassing 1560 to 3021 Exh. NS-3, 2009 IRS form 990, Catholic Medical Center Exh. NS-4, 2009 IRS form 990, Cheshire Medical Center Exh. NS-5, 2009 IRS form 990, Mary Hitchcock Memorial Hospital Exh. NS-6, 2009 IRS form 990, Elliot Hospital Exh. NS-7, 2009 IRS form 990, Exeter Hospital Exh. NS-8, 2009 IRS form 990, Frisbie Memorial Hospital Exh. NS-9, 2009 IRS form 990, LRGHealthcare Exh. NS-10, 2009 IRS form 990, Southern New Hampshire Medical Center Exh. NS-11, 2009 IRS form 990, St. Joseph Hospital Exh. NS-12, 2009 IRS form 990, Wentworth Douglass Hospital Exh. NS-13, NHHA 2009 4th Quarter Trending Report Exh. NS-14, 3/9/2009 Div. III, Public Hearing Testimony list and Written Testimony of Dr. Paul Merguerian Exh. NS-15, 3/12/2009 House Finance Div. III, Public Hearing Testimony list and Written Testimony of Dr. Leslie Fall Exh. NS-16, 3/16/2009 House Finance Div. III, Public Hearing Testimony list and Written Testimony of Dr. Jack Van Hoff Exh. NS-17, 3/17/2009 House Finance Div. III, Public Hearing Testimony list and Written Testimony of Leslie Melby Exh. NS-18, NHHA Budget Wrap-up Exh. NS-19, 2/24/2011 Melby Senate Testimony Exh. NS-20, 3/10/2011 House Finance Melby Testimony Exh. NS-21, 4/21/24/2011 Senate Finance Melby Testimony Exh. NS-22, Federal Register, Vol. 73, No. 217 Exh. NS-23, January 29, NHHA Legislative Update re HB 30 Exh. NS-24, Dartmouth press release 8/10/11

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Exh. NS-25, Fosters Daily Democrat, Exh. NS-26, Concord Monitor 7/27/2011 Exh. NS-27, Union Leader, 8/1/2011 Exh. NS-28, Union Leader, August 21, 2011 Exh. NS-29, 1991 version of RSA 84-A:12 Exh. NS-30, Medpac Hospital inpatient and outpatient services, Report to the Congress, 3/2009 Exh. NS-31, www.nhmedicaid.com Provider Services Bulletins List Exh. NS-32, www.nhmedicaid.com Whats New List Exh. NS-33, June 29,2009 Notices, NHPublic Notices.com and Newspapers.