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KAMALA D. HARRIS Attorney General of California JENNIFER M. KIM (State Bar No. 178364) LESLIE P. MCELROY RICHARD T. WALDOW Supervising Deputy Attorneys General JONATHAN E. RICH CHARA L. CRANE Deputy Attorneys General 300 South Spring Street, Suite 1702 Los Angeles, CA 90013 Telephone: (213) 897-2443 Fax: (213) 897-2805 E-mail: Jennifer.Kim@doj.ca.gov Attorneys for Defendant Toby Douglas, Director of Calif. Dept. of Health Care Services IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION

CALIFORNIA HOSPITAL ASSOCIATION; G.G., an individual; A.G., an individual; I.F., an individual; R.E., an individual; A.W., an individual; DOES 1-5, Plaintiffs, v. TOBY DOUGLAS, Director of the California Department of Health Care Services; KATHLEEN SEBELIUS, Secretary of the United States Department of Health and Human Services,

CV-11-09078 CAS (MANx) DIRECTOR DOUGLASS OPPOSITION TO PLAINTIFFS MOTION FOR PRELIMINARY INJUNCTION Date: Time: Courtrm: Judge December 19, 2011 10:00 a.m. 5 The Honorable Christina A. Snyder

[Filed concurrently with: Declaration of Tim Matsumoto; Request for Defendant. Judicial Notice; and [Proposed] Order

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 V. III. IV.

TABLE OF CONTENTS Page INTRODUCTION ..................................................................................................... 1 I. PLAINTIFFS LACK STANDING TO ASSERT THE ALLEGED CAUSES OF ACTION ...................................................... 2 A. THE PLAINTIFFS LACK ARTICLE III STANDING ............................... 2 1. Plaintiffs Have Not Alleged an Actual and Imminent Injury. ............................................................. 2 2. Plaintiffs Claims Are Not Ripe for Adjudication. .......... 3 B. PLAINTIFFS LACK PRUDENTIAL STANDING. .................................. 3 C. CHA CANNOT ESTABLISH ASSOCIATIONAL STANDING. ................. 4 1. CHA Does Not Have Associational Standing on Behalf of Hospitals. .......................................................... 4 2. CHA Does Not Have Associational Standing on Behalf of Beneficiaries. .................................................... 5 II. PLAINTIFFS HAVE NO LIKELIHOOD OF SUCCESS ON THEIR UNLAWFUL TAKING CAUSES OF ACTION .................... 6 A. FEDERAL AND STATE CONSTITUTIONS REQUIRE A B. CHA FAILED TO ESTABLISH A PROTECTED PROPERTY INTEREST BECAUSE HOSPITALS VOLUNTARILY PARTICIPATE IN THE MEDI-CAL PROGRAM. ........................................................ 7
PROTECTED PROPERTY INTEREST IN ORDER TO STATE A VALID TAKINGS CLAIM ................................................................. 7

PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE MERITS OF THEIR (A)(8) CLAIM ............. 10 PLAINTIFFS HAVE NO LIKELIHOOD OF SUCCESS ON THE MERITS OF THEIR (A)(19) CLAIM .................................... 13 A. SECTION (A)(19) IS NOT PRIVATELY ENFORCEABLE UNDER 1983. ......................................................................................... 14 B. SECTION (A)(19) HAS NOTHING TO DO WITH REIMBURSEMENT RATES. ............................................................ 14 C. SECTION (A)(19) DOES NOT PREEMPT AB 97. .............................. 15 PLAINTIFFS ARE NOT LIKELY TO SUCCEED ON THE MERITS BECAUSE AB 97 IS NOT PREEMPTED BY SECTION (30)(A)............................................................................... 18 A. PLAINTIFFS CANNOT JUDICIALLY ENFORCE 30(A) B. C.
BECAUSE CONGRESS HAS NOT PROVIDED FOR A PRIVATE RIGHT OF ACTION. ...................................................................... 18

PLAINTIFFS CANNOT DEMONSTRATE THAT AB 97 VIOLATES 30(A)S ACCESS AND QUALITY OF CARE PROVISIONS. .............. 21
i

CMS APPROVED AB 97 AND FOUND THAT 30(A) DOES NOT REQUIRE A COST STUDY.............................................................. 18

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Page PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE STATE LAW MANDATE REQUEST BECAUSE IT IS BARRED BY THE ELEVENTH AMENDMENT ................................................................................... 22 VII. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE CLAIM FOR DECLARATORY RELIEF ....... 23 VIII. PLAINTIFFS FAILED TO ESTABLISH IRREPARABLE HARM ................................................................................................. 23 A. INJURY TO PROVIDERS IS NOT A PROPER BASIS FOR INJUNCTIVE RELIEF..................................................................... 23 B. PLAINTIFFS HAVE NOT SHOWN IMMEDIATE IRREPARABLE HARM TO MEDI-CAL BENEFICIARIES ........................................... 24 C. EVEN IF THE COURT CONSIDERS PLAINTIFFS CLAIMS OF HARM, CMSS APPROVAL OF THE STATES PLAN IS CONTROLLING IN THE STATES FAVOR ........................................ 24 IX. THE BALANCE OF HARDSHIPS AND PUBLIC INTEREST FAVOR CONTINUED IMPLEMENTATION OF AB 97 ................ 25 CONCLUSION........................................................................................................ 26

TABLE OF CONTENTS (continued)

ii

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C ASES

TABLE OF AUTHORITIES Page

Abbott Laboratories v. Gardner 387 U.S. 136 (1967) ............................................................................................. 3 Alexander v. Choate 469 U.S. 287 (1985) ........................................................................................... 26 Alexander v. Sandoval 532 U.S. 275 (2001) ........................................................................................... 18 Am. Passage Media Corp. v. Cass Commns, Inc. 750 F.2d 1470 (9th Cir. 1985) ............................................................................ 24 Arcamuzi v. Continental Air Lines, Inc. 819 F.2d 935 (9th Cir. 1987) ........................................................................ 23, 24 Belshe v. Orthopaedic Hosp. et al. 103 F.3d 1491 (9th Cir. 1997) cert. denied, 522 U.S. 1044 (1998) ................... 20 Blessing v. Freestone 520 U.S. 329 (1997) ............................................................................................. 3 Bowen, Secretary of Health and Human Services v. Gilliard 483 U.S. 587 (1987) ............................................................................................. 9 Brown v. Tenn. Dept of Fin. & Admin. 561 F.3d 542 (6th Cir. 2009) .............................................................................. 13 Bruggeman v. Blagojevich 324 F.3d 906 (7th Cir. 2003) .................................................................. 12, 14, 16 Burditt v. U.S. Dept. Health and Human Services 934 F.2d 1362 (5th Cir. 1991) ...................................................................... 7, 8, 9 California Pharmacists Assn v. Maxwell-Jolly 596 F.3d 1098 (9th Cir. 2010) (Cal. Pharm.) .................................................... 19

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TABLE OF AUTHORITIES (continued)

California v. Sierra Club 451 U.S. 287 (1981) ........................................................................................... 16 Chase Bank USA v. McCoy 131 S. Ct. 871 (2011) ......................................................................................... 19

Page

Chevron v. Natl Res. Def. Council 467 U.S. 837 (1984) .................................................................................... passim Coalition for Economic Equity v. Wilson 122 F.3d 718 (9th Cir. 1997) .............................................................................. 25 DeFeo v. Procter & Gamble Co. 831 F. Supp. 776 (N.D. Cal. 1993)..................................................................... 23 Eastern Enterprises v. Apfel 524 U.S. 498 (1998) ............................................................................................. 6 Equal Access for El Paso, Inc. v. Hawkins 562 F.3d 724 (5th Cir. 2009) .............................................................................. 12 Erickson v. U.S. ex rel. Dept. of Health and Human Services 67 F.3d 858 (9th Cir. 1995) .................................................................................. 7 Folden v. Wash. State Dep't of Soc. & Health Servs. 744 F. Supp. 1507 (W.D. Wash. 1990) .............................................................. 23 Franklin Memorial Hosp. v. Harvey 575 F.3d 121 (1st Cir. 2009) ................................................................................ 8 G. v. Hawaii 676 F. Supp. 2d 1046 (D. Hawaii 2009) .............................................................. 9 Garelick v. Sullivan 987 F.2d 913 (2d Cir. 1993) ....................................................................... 8, 9, 24 Georgia Nursing Home Ass'n v. State of Georgia 1997 WL 820966 (N.D. Ga. October 29, 1997) ................................................. 10 Golden State Transit Corp. v. City of Los Angeles 493 U.S. 103 (1989) ........................................................................................... 15
iv

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TABLE OF AUTHORITIES (continued)

Goldies Bookstore Inc., v. Super Ct. 739 F.2d 466 (9th Cir. 1984) .............................................................................. 24

Page

Gonzaga University v. Doe 536 U.S. 273 (2002) ........................................................................................... 18 Guerra v. Sutton 783 F.2d 1371 (9th Cir. 1986) ............................................................................ 23 Hang On, Inc. v. City of Arlington 65 F.3d 1248 (5th Cir. 1995) ................................................................................ 4 Harris v. James 127 F.3d 993 ..................................................................................... 14, 15, 16, 17 Hunt v. Wash. State Apple Advertising Commn 432 U.S. 333 (1977) ..................................................................................... 4, 5, 6 Independent Living Center, et al. v. Maxwell-Jolly 572 F.3d 644 (9th Cir. 2009) ........................................................................ 19, 20 Jones v. Reagan 748 F.2d 1331 (9th Cir. 1984) .............................................................................. 9 L.A. Haven Hospice, Inc. v. Leavitt 2009 U.S. Dist. LEXIS 125308 (C.D. Cal. July 13, 2009), affd in part and vacated in part on other grounds, 638 F.3d 644 (9th Cir. 2011) ............ 8, 24 Lee v. State of Oregon 107 F.3d 1382 (9th Cir. 1997) .............................................................................. 2 Mandy R. v. Owens 464 F.3d 1139 (10th Cir. 2006) .......................................................................... 12 Maynard v. Bonta 2003 U.S. Dist. LEXIS 16201 (C.D. Cal. 2003) .................................... 14, 16, 17 Minnesota Assn. of Health Care Facilities, Inc. v. Minnesota Dept. Of Public Welfare 742 F.2d 442 (8th Cir. 1984) .......................................................................... 8, 24
v

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TABLE OF AUTHORITIES (continued)

National Cable & Telecomm. Assn v. Brand X Internet Svcs. 545 U.S. 967 (2005) ............................................................................... 17, 20, 25

Page

Nelson v. King County 895 F.2d 1248 (9th Cir. 1990) .............................................................................. 2 New Motor Vehicle Bd. v. Orrin W. Fox Co. 434 U.S. 1345 (1977) (Rehnquist, J., in chambers) ........................................... 25 Oklahoma Chap. of the Amer. Acad. of Pediatrics v. Fogarty 472 F.3d 1208 (10th Cir. 2007) .......................................................................... 12 Pennhurst State Sch. v. Halderman 465 U.S. 89 (1984) ............................................................................................. 22 Sanchez v. Johnson 416 F.3d 1051 (9th Cir. 2005) ................................................................ 18, 21, 23 Shaw v. Delta Air Lines 463 U.S. 85 (1983) ............................................................................................. 16 Small Prop. Owners of San Francisco v. San Francisco County 141 Cal. App. 4th 1388 (2006) ............................................................................. 7 Sobky v. Smoley 855 F. Supp. 1123 (E.D. Cal. 1994) ................................................................... 13 Stewart v. Bernstein 769 F.2d 1088 (5th Cir. 1985) ................................................................ 14, 15, 16 Susan J. v. Riley 616 F. Supp. 2d 1219 (M.D. Ala. 2009)............................................................. 13 Turnacliff v. Westly 546 F.3d 1113 (9th Cir. 2008) .............................................................................. 7 Valley Forge Christian Coll. v. Amer. United for Sep. of Church and State, et al. 454 U.S. 464 (1982) ............................................................................................. 4

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TABLE OF AUTHORITIES (continued)

Video Gaming Technologies, Inc. v. Bureau of Gambling Control 356 Fed. Appx. 89 (9th Cir. 2009) ...................................................................... 25 Warth v. Seldin 422 U.S. 490 (1975) ............................................................................................. 3 Westside Mothers v. Olszewski 454 F.3d 532 (6th Cir. 2006) .............................................................................. 12 Wheeler v. Travelers Ins. Co. 22 F.3d 534 (3d Cir. 1994) ................................................................................... 4 Whitney v. Heckler 780 F.2d 963 (11th Cir. 1986) .............................................................................. 8 Wilder v. Va. Hosp. Assn 496 U.S. 498 (1990) ..................................................................................... 18, 19 STATUTES 42 U.S.C.

Page

1395dd ............................................................................................................... 8 1395u(b)............................................................................................................. 8 1396a ............................................................................................................... 19 1396a(a)(8) ........................................................................................................ 1 1396a(a)(19) ........................................................................................ 1, 15, 16 1396d(a) ........................................................................................................... 11 602(a)(38) .......................................................................................................... 9 California Welfare and Institutions Code 14105.192(j) ........................................................................................ 15, 16, 17 Deficit Reduction Act of 1984................................................................................... 9 U.S. Deficit Reduction Act of 1984 .......................................................................... 8 C ONSTITUTIONAL P ROVISIONS ELEVENTH AMENDMENT ................................................................................. 22
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 O THER AUTHORITIES 42 C.F.R.

TABLE OF AUTHORITIES (continued)

Page

430.12 et seq. ................................................................................................. 19 435.911 ...................................................................................................... 11, 12 Assembly Bill 97 ....................................................................................................... 1 SECTION (A)(19) IS NOT PRIVATELY ENFORCEABLE UNDER 1983 ......................... 14

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INTRODUCTION Plaintiffs challenge to Californias Assembly Bill 97 (AB 97), by law, has no likelihood of success on the merits, and their Motion for Preliminary Injunction (Motion) should be denied. The federal agency charged with implementing and administering the Medicaid Act (CMS) approved the reimbursement rate at issue after careful deliberation of Californias State Plan Amendment (SPA). As Plaintiff CHAs counsel concedes, if CMS approves the SPA, then Medicaid providers and recipients have zero hope of prevailing.1 Despite this admission, Plaintiffs attempt to state a cause of action against the State by presuming a private right of action where none exists and adopting interpretations of statutes that have been rejected by the courts. The First Amended Complaint (FAC) alleges one bankrupt cause of action after another. Plaintiffs attempt to allege a takings claim fails because they do not have a protected property interest necessary to state such a claim. Plaintiff CHA does not have a private right of action to assert a claim under 42 U.S.C. 1396a(a)(8) ((a)(8)); and beneficiary Plaintiffs (a)(8) claim is based on twisted interpretations of the statute that have been rejected by the courts. No Plaintiff has a private right of action under 42 U.S.C. 1396a(a)(19) or (a)(30)(A) ((a)(19) & 30(A), respectively); and CMSs finding that AB 97 complies with the above statutes moots any claim that Plaintiffs may have had. The State is immune from Plaintiffs state law mandamus claim in federal court. And Plaintiffs lack standing to raise their claims. Little wonder, then, that their moving papers relegate some of their main arguments to footnotes, while other main points are unsupported by any argument or citation to authorities.

1. CHA is a named party in Case No. 09-1158 in the U.S. Supreme Court, and was represented by Carter Phillips, who conceded this point during oral argument. (RJN, Ex. D at 52-56) 1

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Because, by law, Plaintiffs claims cannot succeed, the Court need not even consider the balance of relative harms. But even if the Court were to consider harm, CMS approval renders Plaintiffs speculative allegations of harm moot. I.
PLAINTIFFS LACK STANDING TO ASSERT THE ALLEGED CAUSES OF ACTION

A.

T HE P LAINTIFFS L ACK ARTICLE III STANDING 1. Plaintiffs Have Not Alleged an Actual and Imminent Injury.

For Article III standing, Plaintiffs must allege facts showing injury that is actual and imminent, not merely conjectural and hypothetical. See Lee v. State of Oregon, 107 F.3d 1382, 1388 (9th Cir. 1997). Plaintiffs allegations of harm are a tenuous thread of assumptions contingent upon possibilities. They fall into two categories: allegations that because of AB 97, some providers might end or restrict their services to Medi-Cal beneficiaries, and allegations that some beneficiaries will then have no alternative service providers and will thereby suffer serious injury.2 These allegations, on their face, are speculative. Not one provider alleges that AB 97 has caused it to cease serving Medi-Cal beneficiaries, let alone shut down. Not one beneficiary alleges that because of AB 97, he or she has been evicted or moved to a remote facility that cannot provide proper care. Plaintiffs thin hash of what ifs is blatantly conjectural and hypothetical. The Ninth Circuit has repeatedly found a lack of standing where a claim relies on a speculative chain of contingencies. Nelson v. King County, 895 F.2d 1248, 1250 (9th Cir. 1990).
. For example, Plaintiffs Takings Clause claim rests on the weak chain of pure speculation that some of CHAs members (not all of which even provide the services in a DP/NF, or to Medi-Cal beneficiaries; see FAC at 4, lines 13-17) might decide that the reimbursement they will receive for services to some of their patients will be so low that they might decide to stop participating in Medi-Cal (even though nothing prevents them from making money by treating non-Medi-Cal patients), and that those members who decide to leave the program may be required, in some instances, to continue treating some of their Medi-Cal patients, who might refuse to accede to CHAs members demands that they move out. (FAC at 31, 76.) 2
2

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2. Plaintiffs Claims Are Not Ripe for Adjudication. Article III standing also requires the complaint to show the dispute to be ripe for adjudication. The ripeness inquiry contains a constitutional component, which focuses on whether there is sufficient injury, and a prudential component, which asks whether there is an adequate record upon which to base effective review. Abbott Laboratories v. Gardner, 387 U.S. 136, 148-149 (1967). The FAC and Plaintiffs evidence fail this test as well. CHAs claim that AB 97 violates its members rights is based on speculation. Because none of Plaintiffs arguments are grounded in concrete facts, there is no adequate factual record on which this Court could determine the FACs purported legal claims. Because the case is not ripe for effective review, Plaintiffs have no likelihood of success on the merits. B. P LAINTIFFS L ACK P RUDENTIAL STANDING . Plaintiffs' efforts to enforce (a)(19) and 30(A) are barred by prudential standing principles because they seek to enforce rights belonging not to themselves, but to a third party (i.e., CMS). As discussed infra, these statutes do not confer any individual entitlements on any private parties, but instead serve as "yardsticks" by which the federal government may assess a State's system-wide performance under the Medicaid Act, and thus its eligibility for federal funds. Blessing v. Freestone, 520 U.S. 329, 343 (1997). Accordingly, any "right" to enforce these statutes lies with the federal government rather than with private parties. Plaintiffs' claims are thus barred: "Even when the plaintiff has alleged injury sufficient to meet the case or controversy requirement, . . . the plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties. Warth v. Seldin, 422 U.S. 490, 499 (1975). This principle applies with special force in the present case, where the actual holder of the rights at issue the federal government has taken a position at odds with Plaintiffs, and concluded that its rights have not
3

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been violated because the State's distinct part nursing facility (DP/NF) rates comply with federal law. See Hang On, Inc. v. City of Arlington, 65 F.3d 1248, 1252 (5th Cir. 1995) (fact that "interest in th[e] litigation diverges" may weigh against allowing party to assert rights belonging to another); Wheeler v. Travelers Ins. Co., 22 F.3d 534, 539 & n.11 (3d Cir. 1994) ("Wheeler fails to satisfy the prudential requirements for standing because she improperly is seeking to vindicate the rights of a third-party, the United States."). To the extent that Plaintiffs claims rest on the Supremacy Clause, they also run afoul of the bar against generalized grievances. Plaintiffs invoke the Supremacy Clause not to vindicate any right personal to them, but instead as an all-purpose cause of action to compel a State's compliance with federal law. (See FAC, 82, 86, 89.) A cognizable lawsuit, however, must assert something more than the generalized interest of all citizens in constitutional governance. Valley Forge Christian Coll. v. Amer. United for Sep. of Church and State, et al., 454 U.S. 464, 483 (1982). Thus, the Supreme Court "repeatedly has rejected claims of standing predicated on 'the right, possessed by every citizen, to require that the Government be administered according to law.'" Id. at 482-83. C. CHA C ANNOT E STABLISH ASSOCIATIONAL STANDING . An association has standing to sue on behalf of its members if (1) they would have standing to sue in their own right; (2) the interests it seeks to protect are germane to the organizations purpose; and (3) participation by the individual members is not necessary to resolve the claim. Hunt v. Wash. State Apple Advertising Commn, 432 U.S. 333, 343 (1977). sufficient to meet this three-part test. 1. CHA Does Not Have Associational Standing on Behalf of Hospitals. CHA fails to allege facts

CHA does not have associational standing to assert any rights to relief that its members may have. CHA cannot meet the third prong as to hospital members
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because any injury suffered by any member will be particular to that member. For example, to determine whether there has been a violation of the Takings Clause assuming such a claim can be stated the Court must determine on an individualized basis whether a particular hospital had been injured, and to what extent. First, payments for DP/NFs must be figured using one of two methods. (FAC 30.) Second, depending on when and if a DP/NF decided to close, the taking or loss, if any, must be calculated for that particular DP/NF. Thus, participation by the individual hospitals is absolutely necessary to resolve the takings claim. This is true not only with the takings claim, but also with CHAs others claims alleging violations of the Medicaid Act. CHA alleges that AB 97 will cause its member hospitals to lose varying amounts of revenue. (See, Dkt No. 22, Ex. 1-27.) Some member hospital will allegedly lose over $30 million (Dkt No. 22-1 at 56, 7), while others will allegedly lose approximately $200,000 (Dkt No. 22-1 at 3, 7). These vastly differing sums will require each hospitals participation to resolve. Thus, CHA cannot meet the third-prong of the Hunt test. 2. CHA Does Not Have Associational Standing on Behalf of Beneficiaries.

CHA alleges that it has standing to challenge AB 97 on behalf of Medi-Cal beneficiaries because it represents the interests of its members patients. (FAC, 81, 85.) Associational standing does not extend that far. Supreme Court precedent plainly states that an associations member not a third-party transacting business with that member must have standing to sue in that members own right. CHA concedes that it is a trade association representing the interest of hospitals in the State of California (FAC, 10), and that MediCal providers . . . comprise substantial portions of [CHA]s membership (FAC, p. 30, lines 7-8). As its name betrays, CHA is comprised of member hospitals, not patients. Nowhere in the FAC does CHA allege that Medi-Cal recipients are
5

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members of CHA.

Thus, CHA cannot establish the first prong of the

associational standing test. CHAs inability to demonstrate associational standing goes even further. It fails to allege how representing the Medi-Cal recipients interest in receiving prompt services is germane to its organizations purpose the second prong. The FAC is absolutely silent on CHAs purpose as an organization to further the interests of Medi-Cal recipients. In fact, such an allegation would be contradictory because CHA alleges that its member hospitals will refuse to treat these very patients if the members profit margins are not satisfactory. (FAC at 32, lines 26-28; Dkt No. 21 at 6; Dkt No. 22, Ex. 3, 9-10; Dkt No. 22, Ex. 7, 9; Dkt No. 22, Ex. 13, 9.) Thus, CHA cannot meet the second prong of the Hunt test. Also, determining whether an individual beneficiary has a claim under (a)(8) and (a)(19) assuming such claims can be stated will require individualized determinations the third prong. Thus, CHA fails to meet any of the three prongs of associational standing with regard to individual Medi-Cal beneficiaries.3 II.
PLAINTIFFS HAVE NO LIKELIHOOD OF SUCCESS ON THEIR UNLAWFUL TAKING CAUSES OF ACTION

In alleging an unconstitutional taking, Plaintiffs barred a substantial burden. Eastern Enterprises v. Apfel, 524 U.S. 498, 523 (1998). The Supreme Court has repeatedly recognized that [g]overnment regulation often curtails some potential for the use or economic exploitation of private property, . . . and not every destruction or injury to property by governmental action has been held to be a taking in the constitutional sense. Id. (internal citations omitted).

A number of individual beneficiaries have brought suit and are plaintiffs in this action. Thus, they do not need CHA to represent their interests. 6

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A.

F EDERAL AND STATE C ONSTITUTIONS R EQUIRE A P ROTECTED P ROPERTY I NTEREST IN O RDER TO STATE A VALID T AKINGS C LAIM

CHA argues that its members are the subjects of an unlawful taking because state regulations prevent them from indiscriminately discharging their patients when treating them stops being profitable. CHA fails to state a viable takings claim as a matter of law because it fails to allege a protected property interest. The Fifth Amendment to the United States Constitution states, Nor shall private property be taken for public use, without just compensation. California courts generally construe the federal and California takings clauses congruently. Small Prop. Owners of San Francisco v. San Francisco County, 141 Cal. App. 4th 1388, 1395-96 (2006). In order to state a claim under the Takings Clause, a plaintiff must first demonstrate that he possesses a property interest that is constitutionally protected. Turnacliff v. Westly, 546 F.3d 1113, 1118-1119 (9th Cir. 2008) (citing Schneider v. Cal. Dept of Corr. 151 F.3d 1194, 1198 (9th Cir. 1998)). It is settled in the Ninth Circuit that health care providers "do not possess a property interest in continued participation in Medicare, Medicaid, or the federally-funded state health care programs." Erickson v. U.S. ex rel. Dept. of Health and Human Services, 67 F.3d 858, 862 (9th Cir. 1995). Absent this fundamental requirement, a takings claim must fail as a matter of law. Id. B. CHA F AILED TO E STABLISH A P ROTECTED P ROPERTY I NTEREST BECAUSE H OSPITALS VOLUNTARILY P ARTICIPATE IN T HE M EDI C AL P ROGRAM .

For a regulatory taking, as alleged by CHA, a [g]overnmental regulation that affects a groups property interests does not constitute a taking of property where the regulated group is not required to participate in the regulated industry. Burditt v. U.S. Dept. Health and Human Services, 934 F.2d 1362, 1376 (5th Cir. 1991) (Burditt) (quoting Whitney v. Heckler, 780 F.2d 963, 972
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(11th Cir. 1986)). See also Garelick v. Sullivan, 987 F.2d 913, 917 (2d Cir. 1993) ([a]ll court decisions of which we are aware that have considered takings challenges by physicians to Medicare price regulations have rejected them in the recognition that participation in Medicare is voluntary); accord L.A. Haven Hospice, Inc. v. Leavitt, 2009 U.S. Dist. LEXIS 125308, *4 n.2 (C.D. Cal. July 13, 2009), affd in part and vacated in part on other grounds, 638 F.3d 644 (9th Cir. 2011). Whitney v. Heckler held that provisions of the U.S. Deficit Reduction Act of 1984 that temporarily froze fees that physicians could charge their Medicare patients, 42 U.S.C. 1395u(b), did not effect an unconstitutional taking because plaintiffs were not required to treat Medicare patients. Id. at 972. Similarly, in Minnesota Assn. of Health Care Facilities, Inc. v. Minnesota Dept. Of Public Welfare, 742 F.2d 442, 446 (8th Cir. 1984), a state statute limiting what Medicaid-participating nursing homes could charge their residents was not an unlawful taking because [i]f appellants find that the reimbursement rates are insufficient, then they may either make their homes more efficient and economical or terminate their relationship with Medicaid and no longer accept Medicaid recipients as residents. Id. And, in Franklin Memorial Hosp. v. Harvey, 575 F.3d 121, 129 (1st Cir. 2009), Maines statute requiring hospitals to provide free medical services to low-income patients was not an unconstitutional taking of property because the hospitals participation in the state Medicaid program was voluntary. Id. Burditt rejected a similar attack against provisions of the Emergency Medical Treatment and Active Labor Act (EMTALA), 42 U.S.C. 1395dd, which require Medicare participating hospitals to treat all patients who enter their emergency departments. The court held that EMTALA did not effect an unlawful taking, since [o]nly hospitals that voluntarily participate in the . . . Medicare program must comply with EMTALA, and [h]ospitals must consider
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the cost of complying with EMTALA's requirements in deciding whether to continue to participate in the Medicare program. Burditt, 934 F.2d at 1376; see also Garelick v. Sullivan, 987 F.2d at 917 (a New York law requiring hospitals to afford each patient the right to treatment, regardless of ability to pay, did not constitute an unlawful taking from plaintiffs-physicians who were not Medicare providers, because plaintiffs could avoid treating Medicare patients by practicing on an out-patient basis). These principles are not limited to medical providers, but to benefits recipients, as well. In Bowen, Secretary of Health and Human Services v. Gilliard, 483 U.S. 587 (1987), the Supreme Court held that those provisions of the Deficit Reduction Act of 1984 which reduced benefits to families with dependent children, 42 U.S.C.S. 602(a)(38), were not an unlawful taking because the beneficiaries [sic] child receiving support payments holds no vested protectable expectation that his or her parent will continue to receive identical support payments on the child's behalf, and that the child will enjoy the same rights with respect to them. Id. at 608. Accepting the unquestioned premise that the Government has a right to reduce AFDC benefits generally, id. at 605, the Court held [i]t is obviously necessary for the Government to make hard choices and to balance various incentives in deciding how to allocate benefits in this type of program. Id. at 608. Courts in the Ninth Circuit are in accord. See Jones v. Reagan, 748 F.2d 1331, 1339 (9th Cir. 1984) (legislation terminating merchant seamens free medical care did not effect an unlawful taking because seamen had no property interest in the continuation of medical benefits); G. v. Hawaii, 676 F. Supp. 2d 1046 (D. Hawaii 2009) (Hawaiis reduction of Medicaid reimbursement rates not a taking, where participation in the program by Medicaid beneficiaries was

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voluntary).4 The hospitals that CHA represents voluntarily elected to participate in Medi-Cal and thereby accepted the various restrictions to their services, including the statutory requirements to continue treating Medi-Cal beneficiaries until they are placed in suitable alternative facilities. Because CHAs hospitals are under no legal compulsion to participate in Medi-Cals skilled nursing program, and there are other medical fields in which hospitals can, and do, practice, there is no valid property interest subject to a claim under the Takings Clause. Thus, CHA has no chance of succeeding on the merits of its taking claims. III. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE MERITS OF THEIR (A)(8) CLAIM Plaintiffs allege that AB 97 violates (a)(8) because the rate reduction will cause significant delays in the time that Medi-Cal beneficiaries will be able to access skilled nursing care and will result in Medi-Cal beneficiaries having to wait for particular services that are otherwise available. (Mot. at 18.) Plaintiffs claim fails, however, because (a)(8) has nothing to do with reimbursement rates or the provision of medical services. Instead, (a)(8) states, in full: (a) Contents. A State plan for medical assistance must - * * * (8) provide that all individuals wishing to make application for medical assistance under the plan shall have opportunity to do . The only authority cited by plaintiffs in support of their takings claim, Georgia Nursing Home Ass'n v. State of Georgia, 1997 WL 820966 (N.D. Ga. October 29, 1997), is unavailing to them. Without supporting authority or elaboration, the court merely ventured in dicta that plaintiffs "may have a valid claim" if, indeed, a Georgia statute required them to continue treating Medicaid patients once they opt out of the Medicaid program. Id., 1997 WL 820966 at *3 (emphasis added). However, the court qualified this dicta with the following: "Of course, as businesses operating in a highly regulated industry, plaintiffs do not enjoy a full panoply of property rights and therefore may not have the historically rooted expectation of compensation or the reasonable investment-backed expectations that are necessary to prevail on a takings claim." Id., 1997 WL 820966 at *3, n.4. The court therefore declined to rule on the issue. Not surprisingly, the decision in Georgia Nursing Home has not been followed by any other court.
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so, and that such assistance shall be furnished with reasonable promptness to all eligible individuals. (Emphasis added.) Contrary to Plaintiffs assertion, medical assistance does not mean the actual receipt of services by a Medicaid beneficiary. Rather, 42 U.S.C. 1396d(a) defines medical assistance as the states payment of part or all of the cost of covered care and services to an eligible person as defined in 1396d(a), and not as actual services provided to an eligible person. Likewise, the phrase application for medical assistance in (a)(8) refers to an application for eligibility under a states Medicaid program and is consistent with the fact that individuals seeking Medicaid services do not submit an application for specific services. Rather, they submit an application to become eligible for Medicaid, then receive services, for which the provider bills the Medicaid program for payment. If a persons application for eligibility is granted, it means the person is eligible for medical assistance, (i.e., having the state pay for part or all of the cost of covered services provided to the eligible person).5 Moreover, 42 C.F.R. 435.911, the regulation implementing (a)(8), makes clear that (a)(8)s focus is prompt financial payment, not the actual provision of services. Section 435.911 implements the reasonable promptness requirement by imposing specific deadlines for processing eligibility applications. The federal agencys only interpretation of (a)(8) by promulgating section 435.911 is to require reasonable promptness in processing
. Further illustrative of this fact is 1396a(a)(34), which clearly distinguishes between eligibility for medical assistance and the receipt of specific services. It states that medical assistance [i.e., paying the provider] . . . will be made available for care and services . . . furnished in or after the third month before the month in which he made application . . . for such assistance if such individual was . . . eligible for such assistance at the time such care and services were furnished. In other words, if the eligible person received care and services two months prior to submitting an application, the state will go back and provide medical assistance (i.e., pay for those services) if the person is eligible. 11
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applications for eligibility, not in providing specific covered services.

This

interpretation of (a)(8) is entitled to deference and should be the controlling weight on this issue. Chevron v. Natl Res. Def. Council, 467 U.S. 837, 843 (1984). Although the Ninth Circuit has not ruled on this issue, several circuits have held that (a)(8)s reasonable promptness provision requires the expeditious processing of applications and payment, not prompt provision of medical services. The Fifth, Sixth, Seventh, and Tenth Circuits have all rejected the notion that (a)(8) guarantees prompt medical care and services to Medicaid recipients. Oklahoma Chap. of the Amer. Acad. of Pediatrics v. Fogarty, 472 F.3d 1208, 1214 (10th Cir. 2007) (Fogarty) (Explained that medical assistance in (a)(8) refers to financial assistance rather than to actual medical services; and expressly rejected the idea that (a)(8) required a state Medicaid program to ensure that medical services are actually provided to Medicaid beneficiaries in a reasonably prompt manner.); Mandy R. v. Owens, 464 F.3d 1139, 1143 (10th Cir. 2006) (held that (a)(8) refers to financial assistance, not to actual medical services); Bruggeman v. Blagojevich, 324 F.3d 906, 910 (7th Cir. 2003) (Bruggeman) (Explained that assistance mentioned in (a)(8) refers to financial assistance and not to actual medical services and that implementing regulations, such as 42 C.F.R. 435.911, indicate that (a)(8) requires prompt determination of eligibility and prompt provision of funds to eligible individuals and not prompt treatment.); Equal Access for El Paso, Inc. v. Hawkins, 562 F.3d 724, 727 (5th Cir. 2009) (El Paso) (rejecting argument that (a)(8) guarantees prompt medical care and services to Medicaid recipients); Westside Mothers v. Olszewski, 454 F.3d 532, 540 (6th Cir. 2006) (held that (a)(8) requires financial assistance be provided with reasonable promptness, but does not require the actual provision of medical services).

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Plaintiffs reliance on Sobky v. Smoley, 855 F. Supp. 1123 (E.D. Cal. 1994) is unavailing. (Mot. at 19.) In Sobky, the district court based its ruling on a flawed interpretation of the term medical assistance and found that it meant medical services. The district court then found that (a)(8) requires reasonable promptness in the provision of these medical services. Id. at 1147. However, this interpretation has been repeatedly rejected by no less than four different circuits, and other courts have outright refused to follow Sokbys ill-reasoned holding. Brown v. Tenn. Dept of Fin. & Admin., 561 F.3d 542, 544 (6th Cir. 2009) (rejecting finding in Sobky that term "medical assistance" meant medical services); Susan J. v. Riley, 616 F. Supp. 2d 1219, 1241 n.24 (M.D. Ala. 2009) (declining to follow Sobky and finding it "not persuasive"). Thus, the weight of the law is clear that (a)(8) absolutely does not apply to medical services. Plaintiffs clearly cannot succeed on the merits of their claim because their assertion that AB 97 may cause significant delays in the provision of skilled nursing care or will require that Medi-Cal beneficiaries have to wait for services does not establish a violation of (a)(8). Thus, Plaintiffs have no likelihood of succeeding on the merits of this claim.6 IV. PLAINTIFFS HAVE NO LIKELIHOOD OF SUCCESS ON THE MERITS OF THEIR (A)(19) CLAIM Plaintiffs allege that AB 97 conflicts with, and is preempted by, (a)(19) because transferring patients from CHAs member hospitals to other long-term care facilities is not in these patients best interest. (Mot. at 19, n.3.) This argument fails as a matter of law because (a)(19) is not privately enforceable under 1983; because (a)(19) has nothing to do with reimbursement rates, the placement of patients, or the provision of care; and because (a)(19) does not preempt AB 97.
. Plaintiffs Motion contains no argument or authority to advance their allegation that (a)(8) preempts AB 97 pursuant to the Supremacy Clause. Thus, this argument is waived. 13
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A.

SECTION (A)(19) I S NOT P RIVATELY E NFORCEABLE UNDER 1983.

Section (a)(19) is not privately enforceable under 1983 by either Medi-Cal providers or individual beneficiaries. The best interests provision of (a)(19) is insufficiently definite to be justiciable and, therefore, cannot be interpreted to create a private right of action. Bruggeman, 324 F.3d at 911 (citing Gonzaga University v. Doe, 536 U.S. 273, 273-275 (2002); see also, Stewart v. Bernstein, 769 F.2d 1088, 1093 and n.7 (5th Cir. 1985) (finding that (a)(19) does not create substantive rights that would allow private enforcement); Maynard v. Bonta, 2003 U.S. Dist. LEXIS 16201, at *97 (C.D. Cal. 2003) (Maynard) (finding (a)(19) is not privately enforceable under 1983 by Medicaid providers because it is not sufficiently specific to confer rights); Harris v. James, 127 F.3d 993, 1010 & 1011 n.24 (11th Cir. 1997) (Harris) (Held (a)(19) was not enforceable under 1983 because it imposed only generalized duty on the states; was insufficiently specific to confer any particular right upon [Medicaid recipients]; and was too vague and amorphous for judicial enforcement.). Since Plaintiffs cite no authority to the contrary, because none exists, they have no likelihood of success on the merits of their (a)(19) claim under 1983. B. SECTION (A)(19) H AS NOTHING TO DO W ITH R EIMBURSEMENT R ATES.

Assuming Plaintiffs could establish a private right of action, it nevertheless must fail. Section (a)(19) instructs a state to create safeguards in its state plan to assure that care and services will be provided consistent with the broad and general goals of simplicity of administration and the best interests of the recipients. It does not create federally enforceable rights and does not provide an objective benchmark for measuring whether a state has met its obligations. Maynard, 2003 U.S. Dist. LEXIS 16201, at *97-100. Section (a)(19) imposes a generalized duty on the states and simply expresses in general terms the overall goals of the program. Id.; Harris, 127 F.3d at 1010.
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Section 1396a(a)(19) speaks to two sometimes conflicting goals: simplicity of administration and the best interests of the recipients. Whether a state plan strikes a proper balance between the two is a decision better left to the [federal] and the state agencies responsible for implementing [the Medicaid Act]. Stewart v. Bernstein, 769 F.2d at 1093, quoting Bumpus v. Clark, 681 F.2d 679, 683 (9th Cir. 1982), withdrawn as moot, 702 F.2d 826 (9th Cir. 1983). Plaintiffs contend AB 97 is not in the best interest of Medi-Cal beneficiaries and violates (a)(19) because it will cause the closure of some DP/NFs and the transferring patients to other facilities will result in transfer trauma. (Mot. at 19, n.3.) Plaintiffs cannot succeed on the merits of their claim because the courts have soundly rejected Plaintiffs twisted interpretation of the phrase best interests. Harris, 127 F.3d at 1010. Plaintiffs provide absolutely no authority to support their claim. In fact, not one of the cases Plaintiffs cite even mentions (a)(19), let alone holds that it is actionable under 1983 or even enforceable. Plaintiffs have clearly failed to meet their burden of proving likelihood of success on the merits. C. SECTION (A)(19) DOES NOT P REEMPT AB 97. Plaintiffs allege that AB 97, as codified in California Welfare and Institutions Code section 14105.192(j), violates the Supremacy Clause and is preempted by (a)(19). (Mot. at 19 n.3.) Not so. The Supremacy Clause grants no substantive federal rights; rather, it secure[s] federal rights by according them priority whenever they come in conflict with state law. Golden State Transit Corp. v. City of Los Angeles, 493 U.S. 103, 107-108 (1989) (quoting Chapman v. Houston Welf. Rights Org., 441 U.S. 600, 613 (1979).) Thus, a litigant who claims its protection must be able to point to another source of federal law for the substantive right to the relief he seeks. Id. at 613. Here, Plaintiffs ask this Court to allow a private suit alleging a violation of (a)(19), even though Congress did not intend to create a private right of action
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for an alleged violation of this statute. The Supreme Court has stated that the federal judiciary will not engraft a remedy on a statute, no matter how salutary, that Congress did not intend to provide. California v. Sierra Club, 451 U.S. 287 (1981). In ascertaining this intent, the first consideration is the plain language of the statute. There is nothing in the plain language indicating congressional intent to provide either Medi-Cal providers or beneficiaries with a private right of action to enforce (a)(19). Rather, the opposite is true. The plain language establishes that Congress did not intend to create a private right of action as to either MediCal providers or Medi-Cal recipients. See Bruggeman, 324 F.3d at 911; Harris, 127 F.3d at 1010-1, n.24; Stewart v. Bernstein, 769 F.2d at 1093 & n.7 (5th Cir. 1985); Maynard, 2003 U.S. Dist. LEXIS 16201, at *97. Thus, Plaintiffs cannot show likelihood of success on the merits of their claim. Assuming that Plaintiffs have a private right of action to allege a Supremacy Clause claim, which they do not, the claim still fails. Plaintiffs allege section 14105.192(j) is preempted because Defendants cannot simultaneously comply with the provisions of California law requiring the implementation of the rate reduction and the requirements of 42 U.S.C. 1396a(a)(19). (FAC, 86.) Plaintiffs are mistaken. The Supremacy Clause commands that federal law prevail over (or preempt) any state law that conflicts with federal law. Thus, the existence of a preempting federal law is a prerequisite to any preemption action. Shaw v. Delta Air Lines, 463 U.S. 85, 109 (1983). Here, the basic and irremediable flaw in Plaintiffs argument is their erroneous assumption that section 14105.192(j) interferes with, or is inconsistent with, (a)(19). Section 14105.192(j) provides, in relevant part: Notwithstanding any other provision of law, for dates of
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service on and after June 1, 2011, Medi-Cal reimbursement rates applicable to the following classes of providers shall not exceed the reimbursement rates that were applicable to those classes of providers in the 2008-09 rate year, as described in subdivision (f) of Section 14105.191, reduced by 10 percent: ... (2) Skilled nursing facilities that are distinct parts of general acute care hospitals. Absolutely nothing contained in section 14105.192(j) interferes, or conflicts, with (a)(19). As explained above, the best interests provision of (a)(19) has nothing to do with Medi-Cal providers reimbursement rates. Rather, (a)(19) expresses the overall objectives of the Medicaid program and focuses on general goals and procedural administration of the program. Harris, 127 F.3d at 1010; Maynard, 2003 U.S. Dist. LEXIS 16201 at *97-100. Moreover, CMSs approval of section 14105.192 completely undercuts Plaintiffs arguments to the contrary. As Plaintiffs concede, the federal government recently approved SPA 11-010, which includes the rates set by AB 97, as codified in section 14105.192. (FAC, 62.) This approval constitutes prima facie evidence that section 14105.192(j) complies with federal law and, specifically, with (a)(19). The Supreme Court has long recognized that considerable weight and deference should be given to a federal agencys interpretation of a statutory scheme that it is entrusted to administer. Chevron, 467 U.S. at 843-844. The agencys interpretation of federal law that it administers may even be dispositive when its interpretations are challenged in court. Id.; National Cable & Telecomm. Assn v. Brand X Internet Svcs., 545 U.S. 967, 980 (2005) ([I]f the implementing agencys construction [of a statute] is reasonable, Chevron requires a federal court to accept the agencys construction of the statute, even if the agencys reading differs from what the court believes is the best statutory interpretation.) (emphasis added)). Accordingly, this Court should give great
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deference to CMSs approval of SPA 11-010 as controlling evidence that section 14105.192 complies with federal law and (a)(19). Plaintiffs fail to show they are likely to prevail on this claim. V. PLAINTIFFS ARE NOT LIKELY TO SUCCEED ON THE MERITS BECAUSE AB 97 IS NOT PREEMPTED BY SECTION (30)(A) A. P LAINTIFFS C ANNOT J UDICIALLY E NFORCE 30(A) BECAUSE C ONGRESS H AS NOT P ROVIDED FOR A P RIVATE R IGHT OF ACTION.

Plaintiffs lack a private cause of action to enforce 30(A) because Congress did not create one. Unlike other provisions of the Medicaid Act, 30(A) does not create any individualized rights, whether to a specific level of access, a specific level of provider payments, or anything else. See Sanchez v. Johnson, 416 F.3d 1051 (9th Cir. 2005). To the contrary, the text and structure of 30(A), and its legislative history, confirm congressional intent that the statute be enforced administratively by the U. S. Department of Health and Human Services (HHS) rather than through private suits. Id. at 1059-62. Because Congress controls the availability of remedies for violations of statutes, and because it has not provided a private remedy here, Plaintiffs lack a cause of action to enforce 30(A). See Wilder v. Va. Hosp. Assn, 496 U.S. 498, 508 n.9 (1990); see also Gonzaga, 536 U.S. at 280; Alexander v. Sandoval, 532 U.S. 275, 286 (2001). Thus, Plaintiffs are not likely to succeed on the merits of their 30(A) claim.7 B. CMS APPROVED AB 97 AND F OUND T HAT 30(A) DOES NOT R EQUIRE A C OST STUDY.

Assuming that Plaintiffs do have a private right of action, which they do not, they cannot demonstrate that AB 97 violates, and is thus preempted by, 30(A). First and foremost, CMS approved the SPA for AB 97s reimbursement . It is settled that Plaintiffs do not have a private right of action under 1983. Sanchez, 416 F.3d at 1059. Whether they may bring suit under the Supremacy Clause is before the U.S. Supreme Court in Douglas v. Independent Living Center, et al. (U.S.S.C. Nos. 09-958, 09-1158, 10-283). If this Court is not inclined to deny Plaintiffs Motion, the Director requests that it be stayed pending a decision on this very issue by the Supreme Court.
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rates. (RJN, Ex. C.) In so doing, CMS found that AB 97 complies with all the requirements of 42 U.S.C. 1396a, which necessarily includes 30(A). This finding alone is sufficient to defeat Plaintiffs claim, not only because CMSs approval entitled to great deference, Chevron, 467 U.S. at 843-844, but because Plaintiff CHAs counsel conceded this point. (RJN, Ex. D at 52-56) (CHAs counsel, Carter Phillips, concedes that if CMS approves the SPA, then Medicaid providers and recipients have zero hope of prevailing.) A closer look further exposes the infirmity of Plaintiffs argument. The crux of their argument is that AB 97 violates and is preempted by 30(A), because neither the Department nor the Legislature conducted a provider cost study prior to AB 97s enactment. (Mot. at 21-23; FAC, 88-89.) Plaintiffs rely heavily on Independent Living Center, et al. v. Maxwell-Jolly, 572 F.3d 644 (9th Cir. 2009) (Independent Living) and California Pharmacists Assn v. Maxwell-Jolly, 596 F.3d 1098 (9th Cir. 2010) (Cal. Pharm.) for this proposition. (Mot. at 20-23; FAC, 35, 41.) However, since these opinions were issued, the federal agency has confirmed that no cost study is required in order to comply with 30(A). And, the Supreme Court has held that an amicus brief filed by the federal agency charged with overseeing the program is entitled to deference, if not outright determinative of the issue. Chase Bank USA v. McCoy, 131 S. Ct. 871, 880 (2011). Indeed, the federal government specifically rejected the Ninth Circuits interpretation of 30(A) as requiring a cost study. The HHS Secretary is charged with overseeing and promulgating regulations for the Medicaid program. See Wilder, 496 U.S. at 502. To receive funds, a state must administer its Medicaid program through an HHS approved plan, which may be modified by submitting a SPA to CMS for approval. 42 U.S.C. 1396a, 42 C.F.R. 430.12 et seq. On multiple occasions, the Secretary has averred that 30(A) absolutely
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does not require provider cost studies. The first such expression was in an amicus brief filed by the United States in Belshe v. Orthopaedic Hosp. et al., 103 F.3d 1491 (9th Cir. 1997) cert. denied, 522 U.S. 1044 (1998), wherein the Secretary stated that [] 30(A) does not set forth any requirement that a State consider costs in making payments for outpatient or other services . . . . (U.S. Amicus Br. at 8, Orthopaedic Hosp. (No. 96-1742).) [T]he Secretary has not construed [] 30(A) to require the States to base reimbursement rates for outpatient or other services on the costs incurred by hospitals or other categories of providers. Rather, implementing regulations leave the States broad discretion to set rates . . . . (Id. at 8-9.) Fourteen years later, the Secretarys interpretation of 30(A) remains unchanged. In an amicus brief filed by the United States in Independent Living the very case that Plaintiffs rely on to advance this argument the Secretary reiterates that The court of appeals erred in affirming its prior reading of [] 30(A) as imposing on States an obligation to consider cost studies to ensure that payment rates bear a reasonable relationship to providers costs. (U.S. Amicus Br. at 7, Independent Living. (No. 09-958).) The federal agency overseeing Medicaid has thus unequivocally affirmed that 30(A) does not require a cost study. That interpretation is entitled to Chevron deference; conflicting judicial precedent, such as the cases Plaintiffs cite, must yield to it. Only a judicial precedent holding that the statute unambiguously forecloses the agencys interpretation, and therefore contains no gap for the agency to fill, displaces a conflicting agency construction. Brand X, 545 U.S. at 982-983. Here, no such precedent exists. Under Brand X, a federal agencys interpretation of a statute is controlling, notwithstanding a prior inconsistent judicial interpretation, if the agency construction is reasonable and the prior court decision did not foreclose agency interpretation by finding the statute capable of only one interpretation. Here, the
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agencys construction of 30(A) rejecting a provider cost study requirement is entirely reasonable and supported by statute. Section 30(A) does not mention a study requirement, nor does it mention provider cost data, let alone mandate that states conduct a specific kind of study. The Ninth Circuit cases upon which Plaintiffs rely cannot be said to be the sole possible interpretation of 30(A). Indeed, the Ninth Circuit recognized that 30(A) contains nebulous terms and is ill-suited to judicial remedy because the interpretation and balancing of the statutes indeterminate and competing goals would involve making policy decisions for which this court has little expertise and even less authority. Sanchez, 416 F.3d at 1060. Thus, even the Ninth Circuit concedes that 30(A) should be open to the federal agencys interpretation, not foreclosed from it. In light of the above, Plaintiffs reliance on the Ninth Circuits prior, inconsistent cost study requirement must be rejected. C. P LAINTIFFS C ANNOT DEMONSTRATE T HAT AB 97 VIOLATES 30(A)S ACCESS AND Q UALITY OF C ARE P ROVISIONS.

As a throwaway argument, Plaintiffs allege in a single sentence that AB 97 is preempted by 30(A) because of its purported adverse impact on access and quality of care. (Mot. at 23.) The administrative record, however, tells a different story. It contains the voluminous documents that California submitted to CMS, including a sixteen-page access analysis and eighty-two-page monitoring plan. (See, CMSs Admin. R.; RJN, Exs. E & F.) These documents detail the specific metrics by which the Department reviewed and studied AB 97s potential impact on access. The fact that Plaintiffs disagree with these indepth analyses does not make them invalid or insufficient. The fact remains that, based on these submissions, CMS approved the reimbursement rates at issue in AB 97. This approval is entitled to Chevron deference, and Plaintiffs challenge must be rejected. Plaintiffs cite no authority requiring the Department to analyze quality of
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care in setting Medicaid reimbursement rates. Nor can they. No authority statutory, regulatory, or judicial requires the Department to specifically analyze, study, or evaluate quality of care when the State sets rates. Thus, to the extent that Plaintiffs allege that AB 97 violates 30(A) because the Department did not perform a quality of care analysis, this contention fails as a matter of law. And, at any rate, CMS approved the AB 97 rates, implicitly finding that they are in compliance with the requirements of 30(A) a determination that is controlling here. VI. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE STATE LAW MANDATE REQUEST BECAUSE IT IS BARRED BY THE ELEVENTH AMENDMENT Plaintiffs request for state law mandamus relief is barred by the Eleventh Amendment. Pennhurst State Sch. v. Halderman, 465 U.S. 89, 98 (1984) (Pennhurst) holds that (1) a federal suit against state officials on the basis of state law contravenes the Eleventh Amendment when the relief sought and ordered directly impacts the state, id. at 117, and (2) this applies to state-law claims brought in federal court under pendent jurisdiction. Id. at 121. Here, by way of pendent jurisdiction, Plaintiffs seek the issuance of a state law writ of mandate against a state official in federal court. (FAC, 90-95.) Clearly, under Pennhurst, this claim is not viable. Moreover, Plaintiffs cannot demonstrate that the State or Congress intended to unequivocally waive the Directors sovereign immunity and permit a state law writ of mandate cause of action to proceed against him or the Department in federal court. And, it is irrelevant that California law permits mandate actions against the State in state court, because a state's waiver of sovereign immunity in its own courts is not a waiver of Eleventh Amendment immunity in federal courts. Pennhurst, 465 U.S. at 100, n.9. In sum, Pennhurst dictates that the request for state law mandamus relief be dismissed.

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VII. PLAINTIFFS CANNOT DEMONSTRATE LIKELIHOOD OF SUCCESS ON THE CLAIM FOR DECLARATORY RELIEF Plaintiffs claim for declaratory relief (FAC, 99-104) fails as a matter of law because (1) all of Plaintiffs other causes of action fail, and (2) it would be improper for this Court to clarify and settle the legal dispute at hand through a declaratory judgment when the United States Supreme Court will do so in the coming months. The Declaratory Judgment Act grants federal courts discretion to award declaratory relief in certain cases. DeFeo v. Procter & Gamble Co., 831 F. Supp. 776, 777-778 (N.D. Cal. 1993). Declaratory relief is appropriate when it will (1) clarify and settle the legal dispute at hand, and (2) terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding. Id. at p. 778; Guerra v. Sutton, 783 F.2d 1371, 1376 (9th Cir. 1986). Plaintiffs claim for declaratory relief is repetitive of all other causes of action pled in the FAC. (See FAC, 100.) Because these other causes of action lack merit, and because Plaintiffs lack standing to bring them, the declaratory relief claim necessarily fails. VIII. PLAINTIFFS FAILED TO ESTABLISH IRREPARABLE HARM Because Plaintiffs have failed to show a likelihood of success on the merits, the injunction should not issue, irrespective of any purported irreparable harm they assert. Arcamuzi v. Continental Air Lines, Inc., 819 F.2d 935, 937 (9th Cir. 1987). A. I NJ URY TO P ROVIDERS I S NOT A P ROPER BASIS FOR I NJ UNCTIVE R ELIEF

Medi-Cal is not obligated to ensure that providers make a profit or that they do not operate at a loss. Folden v. Wash. State Dep't of Soc. & Health Servs., 744 F. Supp. 1507, 1535 (W.D. Wash. 1990). Injury to providers should not be a basis for an injunction because they are merely indirect beneficiaries of the program. Sanchez, 416 F.3d at 1059. Medi-Cal exists to provide services to indigent patients.

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Providers have no property interest in continued participation in the program. See, e.g., Garelick, 987 F.2d at 917; accord L.A. Haven Hospice, 2009 U.S. Dist. LEXIS 125308, at 4 n.2; see also Minnesota Assn. of Health Care Facilities, 742 F.2d at 446 ([i]f appellants find that the reimbursement rates are insufficient, then they may either make their homes more efficient and economical or terminate their relationship with Medicaid and no longer accept Medicaid recipients as residents). B. P LAINTIFFS H AVE NOT SHOWN I MMEDIATE I RREPARABLE TO M EDI -C AL BENEFICIARIES H ARM

Nor have Plaintiffs shown irreparable harm to beneficiaries. An injunction should not issue without admissible evidence of a significant threat of irreparable injury. Arcamuzi, 819 F.2d at 937. Speculative or potential injury does not warrant a preliminary injunction. Goldies Bookstore Inc., v. Super Ct., 739 F.2d 466, 472 (9th Cir. 1984). Conclusory allegations are, likewise, insufficient to support a finding of irreparable injury for a preliminary injunction. Am. Passage Media Corp. v. Cass Commns, Inc., 750 F.2d 1470, 1473 (9th Cir. 1985). The claims of prospective irreparable harm made by the individual Plaintiffs are based on vague and conclusory assumptions, founded entirely on hearsay and conjecture by plaintiffs and other purported beneficiaries and family members, that their current providers will stop treating them and that, in such event, they will not receive equal or better care at any other facility. (See, e.g., Dkt No. 24 at 46-48.) These statements do not prove that AB 97 may deny [plaintiff-beneficiaries] needed medical care, that equals irreparable injury. C. E VEN I F THE C OURT C ONSIDERS P LAINTIFFS C LAIMS OF H ARM , CMSS APPROVAL OF THE STATE S P LAN IS C ONTROLLING IN THE STATE S F AVOR

If the Court nevertheless considers Plaintiffs claims of harm, Plaintiffs argument amounts to an attempt to show a violation of the access provision of 30(A). But the Department submitted its plan to CMS, responded to CMSs request for additional information, and CMS approved it, determining that AB 97 complies
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with the access provision of 30(A). The Court must defer to that determination. Chevron, 467 U.S. at 843-844; Brand X, 545 U.S. at 980. As detailed in the Secretarys opposition to Plaintiffs Motion, ample evidence shows that beneficiaries access will not be affected by the AB 97 rates. (See, e.g., Dkt No. 18-2, at 2-27.) Under the plan approved by the Secretary, the Department will continually monitor a set of early warning measures, including changes in Medi-Cal enrollment, provider participation rates, and calls to the Medi-Cal help line. (Dkt No. 18-3 at 3, 63-64.) Given CMSs approval of these safeguards, and the deference this Court must give to CMSs determination of the issue, Plaintiffs contention that beneficiaries will be irreparably harmed by the rate reductions is fatally defective. Cf. Midgett, 254 F.3d at 850 (reasoning that defendants procedures for monitoring compliance in the ADA context show that Plaintiff does not face a threat of immediate irreparable harm without an injunction). IX. THE BALANCE OF HARDSHIPS AND PUBLIC INTEREST FAVOR CONTINUED IMPLEMENTATION OF AB 97 The third element of a preliminary injunction is whether the balance of hardships, and public interest, favor an injunction. The public will surely suffer irreparable harm if an injunction issues. Any injunction that prevents the implementation of a state statute per se inflicts irreparable injury to the public interest. As the Ninth Circuit held in Coalition for Economic Equity v. Wilson, 122 F.3d 718, 719 (9th Cir. 1997), a state suffers irreparable injury whenever an enactment of its people or their representatives is enjoined. See New Motor Vehicle Bd. v. Orrin W. Fox Co., 434 U.S. 1345, 1351 (1977) (It also seems to me that any time a state is enjoined by a court from effectuating statutes enacted by representatives of its people, it suffers a form of irreparable injury.) (Rehnquist, J., in chambers). Any injunction of AB 97 thus irreparably harms [the State] under this courts precedent. Video Gaming Technologies, Inc. v. Bureau of Gambling Control, 356 Fed. Appx. 89, 92 (9th Cir. 2009).
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Federal courts should not interfere with non-federal government operations absent facts showing an immediate harm of substantial injury. Hodgers-Durgin, 199 F.3d at 1042-43; Midgett, 254 F.3d at 850. The State remains in the grip of an unprecedented fiscal crisis. The Legislature must exercise its judgment to balance the competing federal objectives in the best interests of Medi-Cal patients and all Californians, for the greater good of the State. Congress afforded the states substantial discretion to do so. Alexander v. Choate, 469 U.S. 287, 303 (1985). In contrast, Plaintiffs seek to enjoin the operation of statewide legislation, with a profound impact on the continuing financial health of the State and all of its citizens, based on the alleged effect of such legislation on a select group of providers and beneficiaries. The allegations of harm are negated, by law, by the deference this Court must show to CMSs approval of the AB 97 rates. And because an injunction against state legislation constitutes irreparable harm to the public, per se, this Court should find the harm to the State outweighs whatever showing Plaintiffs have made based on speculation. The public interest in controlling skyrocketing Medi-Cal costs and restoring California to fiscal integrity far outweighs any conjectural harm that may occur to the handful of providers and beneficiaries whose speculations CHA has proffered. CONCLUSION For all of the foregoing reasons, the Court should deny Plaintiffs Motion.

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Dated: December 5, 2011

Respectfully submitted, KAMALA D. HARRIS Attorney General of California RICHARD T. WALDOW Supervising Deputy Attorney General /s/ JENNIFER M. KIM Acting Senior Assistant Attorney General Attorneys for Defendant Medi-Cal Reimbursement Rates

LA2011505023 51043548.doc

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CERTIFICATE OF SERVICE
Case Name: California Hospital Association, et al., v. Douglas, T., et al. No. CV-11-09078 JAN (MRWx)

I hereby certify that on December 5, 2011, I electronically filed the following documents with the Clerk of the Court by using the CM/ECF system: DIRECTOR DOUGLASS OPPOSITION TO PLAINTIFFS MOTION FOR PRELIMINARY INJUNCTION I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the CM/ECF system. I declare under penalty of perjury under the laws of the State of California the foregoing is true and correct and that this declaration was executed on December 5, 2011, at Los Angeles, California.

Norma L. Herrera-Orr Declarant

51039620.doc

/s/ Norma L. Herrera-Orr Signature