The opinion
1
2
3
4
5
6
7 UNITED STATES DISTRICT COURT
8 EASTERN DISTRICT OF CALIFORNIA
9
10 NORTHEAST MEDICAL SERVICES, No. 2:19-cv-01489
INC.,
11
Plaintiff,
12 ORDER GRANTING IN PART
v. DEFENDANTS’ MOTION TO DISMISS
13 AND STAYING PLAINTIFF’S CLAIMS
CALIFORNIA DEPARTMENT OF FOR DECLARATORY RELIEF
14 HEALTH CARE SERVICES, HEALTH
AND HUMAN SERVICES AGENCY;
15 JENNIFER KENT, DIRECTOR OF
THE DEPARTMENT OF HEALTH CARE
16 SERVICES, and STATE OF
CALIFORNIA,
17
Defendants.
18
19 In August 2019, North East Medical Services, Inc. filed its
20 complaint against the California Department of Health Care
21 Services, the Department director in her official capacity, and
22 the State of California (collectively “Defendants”). Compl., ECF
23 No. 1. Defendants filed a motion to dismiss each of Plaintiff’s
24 four causes of action. Mot. to Dismiss, ECF No. 15; see also
25 Memorandum in support of Mot. to Dismiss (“Mot.”), ECF No. 16.
26 Defendants argue the failure to exhaust administrative remedies
27 makes dismissing the case prudent and that Eleventh Amendment
28 sovereign immunity makes it necessary. Mot. at 9-14. Plaintiff
1 opposes Defendants’ motion, contending neither exhaustion nor
2 sovereign immunity applies here. Opp’n at 3-15, ECF No. 23.
3 The Court finds the Eleventh Amendment bars Plaintiff’s
4 claims for injunctive relief. Moreover, the Court finds that
5 imposing an exhaustion requirement is warranted and would promote
6 the most efficient use of judicial resources. The Court
7 therefore DISMISSES Plaintiff’s claims for injunctive relief and
8 STAYS its claims for declaratory relief pending resolution of the
9 state administrative proceedings.1
10
11 I. BACKGROUND
12 Plaintiff is a federally-qualified health center (“FQHC”).
13 Compl. ¶ 1. As an FQHC, Plaintiff provides primary care services
14 to poor and medically-underserved populations in the San
15 Francisco area. Compl. ¶ 13. FQHCs are entitled to recover the
16 reasonable cost of ambulatory services that they provide to
17 Medicaid beneficiaries. Compl. ¶ 22. State Medicaid programs
18 approximate this cost and compensate FQHCs through fixed, per-
19 visit fees. Id.
20 Federal and state law also allow FQHCs to be compensated for
21 the reasonable cost of their services through subcontracts with
22 Medicaid managed care organizations (“MCO’s”). Compl. ¶3.
23 Pursuant to this allowance, Plaintiff entered a subcontract with
24 an MCO called the San Francisco Health Plan (“SFHP”). Id. Under
25 this subcontract, Plaintiff agreed to provide services covered by
26
27 1 This motion was determined to be suitable for decision without
oral argument. E.D. Cal. L.R. 230(g). The hearing was
28 scheduled for November 19, 2019.
1 California’s Medicaid program to SFHP’s Medicaid beneficiaries.
2 See Compl. ¶ 2. In turn, SFHP agreed to pay Plaintiff “not less
3 than” what it would pay non-FQHC providers for the same services.
4 Compl. ¶¶ 2, 33. Plaintiff also alleges this subcontract
5 included a “physician incentive plan,” in which SFHP agreed to
6 make “special payments” to Plaintiff for the “physician/provider
7 risks” it incurred under the subcontract. Compl. ¶¶ 35-37.
8 When an FQHC’s reasonable cost of care exceeds the amount
9 paid by an MCO, federal law requires the state’s Medicaid program
10 to make up the difference. Id. This supplemental payment is
11 known as a “wraparound payment.” Id. Plaintiff received
12 wraparound payments from the Department of Health Care Services
13 for the FQHC services it rendered from 2008-2016. See Compl.
14 ¶ 4. In 2013, however, the Audits and Investigative Branch of
15 the Department began to investigate the propriety of those
16 payments. Compl. ¶ 45. The Department ultimately concluded that
17 Plaintiff failed to adequately show it “properly allocated the
18 income received from SFHP between FQHC and non FQHC services.”
19 Compl. ¶ 51. Viewing all of Plaintiff’s SFHP-derived income as
20 compensation for the reasonable cost of its FQHC services, the
21 Department found SFHP had, in fact, fully compensated Plaintiff.
22 Compl. ¶¶ 51, 53. It notified Plaintiff that the Department
23 would have to “recoup” the “FYE 2015 Supplemental wrap payments”
24 Plaintiff previously received. Id. When the Department overpays
25 a FQHC, it recoups past payments by offsetting or withholding
26 funds from current and future reimbursements. Compl. ¶ 8.
27 ///
28 ///
1 II. OPINION
2 A. Judicial Notice
3 Under Federal Rule of Evidence 201, a district court may
4 take judicial notice of a fact that is “not subject to
5 reasonable dispute because it can be accurately and readily
6 determined from sources whose accuracy cannot reasonably be
7 questioned.” Fed. R. Evid. 201(b)(2). It is well-established
8 that “a court may take judicial notice of matters of public
9 record.” Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th
10 Cir. 2001). “Matters of public record” include records from
11 administrative proceedings. United States v. 14.02 Acres of
12 Land More or Less in Fresno County, 547 F.3d 943, 955 (9th Cir.
13 2008).
14 Defendants request the Court judicially notice five
15 documents:
16 1. North East Medical Services’ Complaint in this case;
17 2. North East Medical Services’ Request for
18 Administrative Hearing;
19 3. Notice of Formal Hearing issued by the Office of
20 Administrative hearings and Appeals;
21 4. North East Medical Services’ discovery request to the
22 Department of Health Care Services in its
23 administrative appeal; and
24 5. North East Medical Services’ response to the
25 Department of Health Care Services’ discovery request
26 in its administrative appeal.
27 Request for Judicial Notice, ECF No. 17; Additional Request for
28 Judicial Notice, ECF No. 25. Plaintiff does not oppose these
1 requests.
2 The Court need not and will not take judicial notice of
3 Plaintiff’s complaint. Defendants’ request for judicial notice
4 of this document is DENIED. The Court does, however, find that
5 documents 2-5 are proper subjects of judicial notice. With
6 respect to these four documents, Defendants’ request is GRANTED.
7 B. Sovereign Immunity
8 1. Legal Standard
9 The Eleventh Amendment bars plaintiffs from filing suit
10 against unconsenting states to recover past damages. U.S. CONST.
11 XI amend.; see also Edelman v. Jordan, 415 U.S. 651, 667-78
12 (1980). This immunity likewise protects state officials acting
13 in their official capacity. Edelman, 415 U.S. at 661. Even so,
14 a judicially-crafted exception to the Eleventh Amendment permits
15 federal actions against states and state officials when a
16 plaintiff seeks to compel a prospective compliance with her
17 federal rights. Ex parte Young, 209 U.S. 123, 157 (1908).
18 To claim the Ex parte Young exception, a plaintiff must do
19 more than simply allege her requested relief is forward-looking.
20 See Indep. Living Ctr. of S. Cal., Inc. v. Maxwell-Jolly, 572
21 F.3d 644, 659-60 (9th Cir. 2009), vacated and remanded on other
22 grounds sub nom. Douglas v. Indep. Living Ctr. Of S. Cal., Inc.,
23 132 S. Ct. 1204 (2012). Indeed, a suit that requests
24 prospective injunctive relief in theory, but retrospective
25 damages in fact, will not elude a state’s immunity. See id. at
26 660. For example, the Ninth Circuit found that when a plaintiff
27 requests an order requiring the state “to perform [its] legal
28 duty to dispurse[] funds,” she “essentially seeks an injunction
1 directing the state to pay damages.” Id. (internal quotations
2 omitted). This, the Ninth Circuit explained, is “precisely the
3 type of retroactive [sic] relief that the Supreme Court
4 refuse[s] to allow.” Id. (citing Native Village of Noatak v.
5 Blatchford, 38 F.3d 1505, 1512 (9th Cir. 1994) overruled on
6 other grounds Board of Trustees of Glazing Health and Welfare
7 Trust v. Chambers, 941 F.3d 1195 (9th Cir. 2019).
8 2. Analysis
9 Plaintiff contends the Ex parte Young exception applies
10 here because Plaintiff’s prayer for relief does not seek
11 backward-looking compensation. Opp’n at 13-15. Plaintiff
12 argues it already owns the money Defendants are withholding
13 because the funds consist of payments Plaintiff is “indisputably
14 owed.” Id. To that end, Plaintiff maintains injunctive relief
15 would not pull money out of the state treasury; it would simply
16 keep Defendants’ hands out of Plaintiff’s pockets. Id. This
17 position rests upon the theory that preventing a state from
18 withholding reimbursement payments amounts to prospective relief
19 so long as the payments have not yet been withheld. See Opp’n
20 at 13-15.
21 But, as Defendants argue, this theory of prospective relief
22 is barred by law. Mot. at 13-14 (citing Indep. Living Ctr. Of
23 S. Cal., 572 F.3d at 661 n.19). In Indep. Living Ctr., the
24 Ninth Circuit found that the question of “whether relief is
25 prospective or retrospective in the Medicaid payment context
26 turns on the date of service, not the date of payment.” 572
27 F.3d at 661 n.19. Plaintiff alleges the decision to withhold
28 FHQC payments results in inadequate reimbursement for services
1 it rendered from 2008 to 2016. Compl. ¶¶ 4, 61. Under the date
2 of service test, Plaintiff’s attempt to compel additional
3 reimbursement for these services is plainly retrospective.
4 Citing to North East Med. Servs, Inc. v. State of Cal.
5 Dep’t of Health, 670 Fed.Appx. 615, 616 (9th Cir. 2016),
6 Plaintiff argues the date of service test does not apply here.
7 There, the Ninth Circuit found the Northern District of
8 California “erred by applying the date of service test to hold
9 that North East was seeking retrospective monetary relief.” Id.
10 at 615. But this finding did not categorically do away with the
11 date of service test in the Medicaid context; indeed, it did not
12 purport to modify the test’s application at all. See id. at
13 615-16. In North East Med. Servs., North East sought to “enjoin
14 the director of California’s health services from requiring it
15 to disclose its Part D money when settling up for the 2008
16 fiscal year.” Id. at 616. The Ninth Circuit expressly stated
17 that it did not use the date of service test to determine
18 whether the injunction sought was retrospective “because North
19 East [was] not asking for additional reimbursement from
20 California for medical services that it provided in 2008.” Id.
21 Rather, North East sought to prevent the state from requiring it
22 to disclose certain information. Id. Here, however, additional
23 reimbursement is precisely what Plaintiff requests. The date of
24 service test therefore applies.
25 Under the date of service test, Plaintiff’s proposed
26 injunction seeks retrospective relief from nonconsenting state
27 defendants. Accordingly, the Eleventh Amendment bars
28 Plaintiff’s request for injunctive relief. The Court GRANTS
1 Defendants’ motion to dismiss with respect to this remedy.
2 C. Exhaustion
3 1. Legal Standard
4 The exhaustion doctrine precludes judicial review of
5 issues, both legal and factual, until a plaintiff completes all
6 available avenues of administrative review. See Patsy v. Bd. of
7 Regents of State of Fla., 457 U.S. 496, 498-502 (1982). An
8 exhaustion requirement may arise from either an act of Congress
9 or judicial decree. United States v. Cal. Care Corp., 709 F.2d
10 1241, 1248 (9th Cir. 1983). When a statute requires exhaustion,
11 federal district courts lack jurisdiction over the dispute until
12 the administrative proceedings conclude. Id. When exhaustion
13 is not required by codified law, courts retain discretion to
14 conduct parallel proceedings with a federal or state agency.
15 Id. Before doing so, however, a court must consider three
16 questions: (1) whether agency expertise makes agency
17 consideration necessary to generate a proper record and reach a
18 proper decision; (2) whether relaxation of the requirement would
19 encourage the deliberate bypass of the administrative scheme;
20 and (3) whether administrative review is likely to allow the
21 agency to correct its own mistakes and to preclude the need for
22 judicial review. Id. A court will impose a judicially-crafted
23 exhaustion requirement if these factors weigh in favor of doing
24 so. Id.
25 2. Analysis
26 Neither party contends exhaustion is statutorily mandated.
27 Rather, the only question is whether the three factors discussed
28 above favor requiring exhaustion in this case. The Court finds
1 that each of the three factors weigh in favor of imposing an
2 exhaustion requirement here. First, agency expertise makes
3 agency consideration necessary to generate a proper record and
4 reach a proper decision here. While Plaintiff’s complaint
5 raises claims under federal law, adjudication of those claims
6 necessarily implicates questions about how the state of
7 California administers its Medicaid program. As Defendants
8 argue, this Court will benefit from a full development of the
9 factual record by a state agency with expertise in that area.
10 Reply at 2-3.
11 The second and third factors likewise weigh in favor of an
12 exhaustion requirement. The Court adopts the reasoning set forth
13 in Defendants’ motion—and reiterated in their reply brief—for
14 each of these two factors. See Mot. at 11-12; Reply at 3-4.
15 Plaintiff contends that requiring exhaustion is not only
16 futile, but also likely to cause it to suffer greater harm.
17 Opp’n at 10-11. The Court disagrees. As Defendants argue, it is
18 conceivable that the administrative review process may moot the
19 instant matter. Reply at 3-4. Moreover, the Court does not find
20 that imposition of an exhaustion requirement portends irreparable
21 harm for Plaintiff. This is particularly true given this Court’s
22 finding that Plaintiff cannot use this Court to enjoin Defendants
23 from continuing to offset its reimbursement payments. And if this
24 Court or an administrative law judge were to eventually find that
25 Plaintiff was not over-reimbursed, then Defendants would be
26 required to repay the amount collected, together with the payment
27 of interest. Reply at 4, n.4..
28 Accordingly, the Court finds the three California Care Corp
1 factors weigh in favor of imposing an exhaustion requirement.
2 The Court does not however agree with Defendants that requiring
3 | exhaustion also requires dismissing a case when the plaintiff has
4 not yet exhausted its administrative remedies. Rather, the Court
5 | STAYS Plaintiff’s remaining claims for declaratory relief pending
6 | completion of the state proceedings.
7
8 Til. ORDER
9 For the reasons set forth above, the Court GRANTS IN PART
10 Defendants’ motion to dismiss. The Court DISMISSES Plaintiff's
11 claims for injunctive relief and STAYS Plaintiff’s claims for
12 declaratory relief pending resolution of the state administrative
13 | proceedings
14 IT IS SO ORDERED.
15 Dated: December 19, 2019
16 kA
eaten
18
19
20
21
22
23
24
25
26
27
28
10