Approval of reimbursement provision arbitrary, capricious

Where the Centers of Medicare & Medicaid Services, or CMS, approved a provision enacted by the Virginia General Assembly that limited hospital emergency room costs in certain circumstances, but the provision was inconsistent with CMS’ own implementing regulations, and CMS did not provide any explanation or justification, nor any direct response to the comments received, its approval was arbitrary and capricious.

Background

This case involves the Virginia General Assembly’s approval of a downcoding provision that was designed to limit costs associated with Medicaid and Medicare patients’ overuse of hospital emergency rooms for situations that Virginia’s Department of Medical Assistance Services, or DMAS, concluded were avoidable ER visits.

Plaintiffs are Virginia Hospital & Healthcare Association, the Medical Society of Virginia and Virginia College of Emergency Physicians. They argue that the downcoding provision’s denial of payment for services already rendered is impliedly preempted by federal law, a violation of the Administrative Procedures Act, or APA, and constitutes a per se taking without just compensation in violation of the Fifth Amendment. This matter is presently before the court on DMAS’ motion to dismiss (which will be converted to a motion for summary judgment) and the cross motions for summary judgment filed by the plaintiffs and CMS.

Standing

DMAS argues plaintiffs cannot meet the requirements for associational standing. Second, DMAS maintains plaintiffs have not identified a constitutionally protected property interest sufficient for standing to bring their Taking’s Clause claim. The court concludes that plaintiffs have met the requirements for associational standing as to both Counts One and Three.

Right of action

Plaintiffs allege that the downcoding provision conflicts with and is therefore impliedly preempted by federal law. The court agrees that neither §§ 1396u-2(b)(2) and 1396a(a)(10) nor any Medicaid regulations cited by plaintiffs create a right of action for healthcare providers to assert a preemption claim because the protections within those provisions are phrased in terms of beneficiaries, not providers.

Because the Medicaid Act provisions do not create a private cause of action for healthcare providers, the court need not assess whether the downcoding provision violates those provisions on its face under a preemption theory. Therefore, DMAS’ motion as to Count One will be granted and plaintiffs’ motion for summary judgment as to Count One will be denied.

APA

Plaintiffs argue CMS’ approval of the downcoding provision violated the APA. First, they assert the provision is inconsistent with CMS’ own implementing regulations, and the approval therefore was not done so in accordance with law. Second, they maintain the approval reflects an unreasoned, unexplained departure from settled agency policy, rendering it arbitrary and capricious.

Regarding the first argument, the court finds that the downcoding provision violates and is not in accordance with the standards set forth under 42 U.S.C. § 1396a(a)(10); 42 C.F.R. §§ 438.114(c)(l)(ii), (d)(l) and CMS’ own guidance provided to state authorities.

Regarding the second argument, plaintiffs and others sent multiple letters to the relevant CMS decisionmakers detailing the ways in which the downcoding provision violates the applicable statutes, regulations and CMS’ own guidance. CMS’ approval of the amendment did not provide any explanation or justification, nor any direct response to the comments received. CMS’ failure to “satisfactorily explain its disagreement with the proliferation of negative comments” or provide rationale as to why Virginia’s responses to CMS’ inquiries were adequate renders its approval of the downcoding provision arbitrary and capricious.

The failure to explain its decision is of particular concern because CMS’ own preexisting regulations and guidance cast direct doubt on the lawfulness of the downcoding provision. Accordingly, plaintiffs’ motion for summary judgment as to Count Two will be granted, and CMS’ approval of the downcoding provision will be vacated and set aside. CMS’ motion for summary judgment as to Count Two will be denied.

Takings claim

In Count Three, plaintiffs argue the downcoding provision unconstitutionally denies hospitals and physicians just compensation for the per se taking of their property, in violation of the Fifth Amendment’s Takings Clause.

It is well established that plaintiffs cannot demonstrate a taking based on an obligation arising under a federal program in which they voluntarily participate. Thus, as it relates to CMS, plaintiffs have not pled a per se Takings Clause claim. As to plaintiffs’ Takings Clause claim against DMAS, that is barred by the Eleventh Amendment. Accordingly, DMAS’ and CMS’ motions for summary judgment as to Count Three will be granted. Plaintiffs’ motion for summary judgment as to Count Three will be denied.

Plaintiff’s motion for summary judgment granted in part, denied in part. DMAS’ motion for summary judgment granted. CMS’ motion for summary judgment granted in part, denied in part.

Virginia Hospital & Healthcare Association, Case No. 3:20-cv-587, April 27, 2023. EDVA at Richmond (Hudson). VLW 023-3-228. 62 pp.