The opinion
United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 9, 2024 Decided April 4, 2025
No. 23-5055
ASANTE, ET AL.,
APPELLANTS
v.
ROBERT F. KENNEDY, JR., IN HIS OFFICIAL CAPACITY,
SECRETARY, DEPARTMENT OF HEALTH AND HUMAN SERVICES,
ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:20-cv-00601)
Dean L. Johnson argued the cause for appellants. With
him on the briefs was Thomas J. Weiss.
McKaye L. Neumeister, Attorney, U.S. Department of
Justice, argued the cause for appellees. With her on the brief
were Brian M. Boynton, Principal Deputy Assistant Attorney
General, and Alisa B. Klein, Attorney.
Before: SRINIVASAN, Chief Judge, KATSAS and CHILDS,
Circuit Judges.
2
Opinion of the Court filed by Chief Judge SRINIVASAN.
Dissenting opinion filed by Circuit Judge KATSAS.
SRINIVASAN, Chief Judge: California collects a fee from
in-state hospitals and then uses a portion of the revenues, along
with matching federal Medicaid funds, to provide subsidies to
California hospitals that serve the State’s Medicaid
beneficiaries. A group of out-of-state hospitals located near the
California border filed this suit seeking access to the subsidy
payments. While those out-of-state hospitals sometimes serve
California Medicaid beneficiaries who come across the border,
they do not pay the fee assessed against in-state hospitals to
generate revenues for the subsidy program.
The out-of-state hospitals argue that their exclusion from
the subsidy payments discriminates against out-of-state entities
in violation of the dormant Commerce Clause and the Equal
Protection Clause. They also contend that federal Medicaid
regulations require paying them the subsidy. The district court
rejected those arguments. We affirm.
I.
A.
Medicaid is a cooperative federal-state program that funds
medical care for low-income persons. See 42 U.S.C. § 1396 et
seq. State participation in Medicaid is voluntary, but a State
that opts to participate must comply with conditions imposed
by federal law if it wishes to maintain access to federal
Medicaid funding. NB ex rel. Peacock v. District of Columbia,
794 F.3d 31, 35 (D.C. Cir. 2015); Gallardo ex rel. Vassallo v.
Marstiller, 596 U.S. 420, 424 (2022).
3
To participate in Medicaid, a State must establish a State
Medicaid plan that adheres to the Medicaid Act and
Department of Health and Human Services (HHS) regulations.
Dep’t of Med. Assistance Servs. v. U.S. Dep’t of Health & Hum.
Servs., 967 F.3d 853, 854–55 (D.C. Cir. 2020). The Centers
for Medicare and Medicaid Services (CMS), an agency within
HHS, administers the Medicaid program and approves a State’s
Medicaid plan. Id.; 42 C.F.R. § 430.12(c); see 42 U.S.C.
§ 1396a(a)–(b). When a State amends its Medicaid plan, it
must obtain CMS’s approval that the plan still complies with
federal law. 42 C.F.R. § 430.12(c).
Federal Medicaid funding is available to States for
expenditures related to the provision of a covered Medicaid
service to a Medicaid beneficiary. 42 U.S.C. § 1396b; see 42
C.F.R. §§ 435.1002, 435.1007, 435.1009. There are two types
of State Medicaid expenditures that bear on this case: (i) base
payments, which CMS has defined as payments made to
providers “on a per-claim basis for services rendered to a
Medicaid beneficiary,” and (ii) supplemental payments, which
are payments to providers separate from (and in addition to) the
“per-claim” base payments for services rendered to a
beneficiary. See Medicare and Medicaid Programs; Minimum
Staffing Standards for Long-Term Care Facilities and
Medicaid Institutional Payment Transparency Reporting, 89
Fed. Reg. 40,876, 40,925 (June 21, 2024) (citing 42 U.S.C.
§ 1396b(bb)); 42 C.F.R. § 438.6(a).
States are not required to fund their share of Medicaid
expenditures entirely on their own. Instead, a State may tax
providers to generate funds that the federal government will
then match. For a tax on providers to be permissible under
Medicaid, it must meet certain federal conditions. See Dana-
Farber Cancer Inst. v. Hargan, 878 F.3d 336, 339 (D.C. Cir.
2017).
4
B.
California participates in Medicaid through its Medi-Cal
program. Cal. Welf. & Inst. Code § 14000 et seq. In 2009,
California established the Quality Assurance Fee (QAF) as part
of its administration of Medi-Cal. The QAF program operates
by: (i) assessing a provider tax, which California calls a quality
assurance fee, on nonexempt in-state hospitals; (ii) using those
funds to generate matching federal Medicaid funding; and
(iii) distributing the collected funds as supplemental payments
to qualifying private in-state hospitals. Id. §§ 14169.50,
14169.52, 14169.54, 14169.55.
Private acute care hospitals in California generally are
required to pay the provider tax and are eligible to receive the
QAF supplemental payments. Id. §§ 14169.52(a), 14169.54,
14169.55. Certain private hospitals, such as small and rural
hospitals, are exempted from having to pay the provider tax but
can still receive the QAF supplemental payments. Id.
§§ 14169.51(l), 14169.52(a), 14169.54, 14169.55.
California does not require any out-of-state hospitals to
pay the QAF provider tax. But out-of-state hospitals also do
not receive QAF supplemental payments. California law
permits the State, “[t]o the extent permitted by federal law and
other federal requirements,” to allow out-of-state hospitals to
opt into the QAF program. Id. § 14169.83. The current Medi-
Cal plan, as approved by CMS, however, does not include that
option, and so out-of-state hospitals presently cannot opt into
the QAF program.
California assesses the QAF provider tax and disburses
QAF supplemental payments under a formula that directs more
money to hospitals that serve a higher number of Medi-Cal
5
beneficiaries. California calculates each hospital’s provider tax
based on the facility’s total days of patient care. The QAF
supplemental payments to a hospital, meanwhile, are based on
total Medi-Cal days, i.e., days serving Medi-Cal beneficiaries.
That means a nonexempt hospital serving a sizable number of
patients, but a relatively small number of Medi-Cal
beneficiaries, can lose money in the QAF program by paying a
large tax but receiving little in the way of QAF supplemental
payments. The reverse is also true: a hospital serving a high
proportion of Medi-Cal beneficiaries relative to its total patient
population is likely to realize a net gain.
The QAF supplemental payments, as their name indicates,
are supplemental payments. Unlike base payments, the QAF
supplemental payments do not reimburse providers for the
costs of providing specific services to specific beneficiaries.
Instead, the QAF supplemental payments are in the nature of a
periodic bonus for generally providing care to Medicaid
beneficiaries, and they are designed to be distinct from base
payments. Id. §§ 14169.54(a), 14169.55(a). Every two years,
California submits for CMS approval its plan specifying how
it will distribute QAF supplemental payments.
C.
Following the creation of the QAF program, a group of
out-of-state hospitals located near the California border
challenged the program in federal court in California. The
hospitals claimed an entitlement to receive the QAF
supplemental payments, which, as explained, go solely to in-
state hospitals. California entered into settlement agreements
under which it gave QAF supplemental payments to those out-
of-state hospitals. The settlement agreements expired in 2019.
6
In 2020, CMS approved the QAF program for the next
two-year cycle. A group of out-of-state hospitals located near
the California border sought judicial review of CMS’s approval
in the district court for the District of Columbia. The out-of-
state hospitals argued that their exclusion from the QAF
supplemental payments violates the Commerce Clause, the
Equal Protection Clause, and federal Medicaid regulations.
The district court granted summary judgment in favor of CMS.
Asante v. Azar, 656 F. Supp. 3d 185, 190 (D.D.C. 2023). The
hospitals now appeal.
II.
The plaintiff out-of-state hospitals renew their arguments
that their exclusion from the QAF supplemental payments
violates the Commerce Clause, the Equal Protection Clause,
and federal Medicaid regulations. We review the district
court’s decision de novo, Dana-Farber, 878 F.3d at 340, and
we agree with the district court’s rejection of the hospitals’
claims.
A.
We first consider the out-of-state hospitals’ challenge
under the Commerce Clause. The Commerce Clause provides
that “Congress shall have Power . . . [t]o regulate
Commerce . . . among the several States.” U.S. Const. art. I,
§ 8, cl. 3. Although the Clause grants Congress affirmative
power to regulate interstate commerce, the Clause also contains
a “negative” aspect known as the dormant Commerce Clause.
Or. Waste Sys., Inc. v. Dep’t of Env’t Quality of State of Or.,
511 U.S. 93, 98 (1994). The dormant Commerce Clause
“denies the States the power unjustifiably to discriminate
7
against or burden the interstate flow of articles of commerce.”
Id.
The Supreme Court has laid out two “primary principles”
limiting a State’s authority under the dormant Commerce
Clause: (1) “state regulations may not discriminate against
interstate commerce,” and (2) “States may not impose undue
burdens on interstate commerce.” South Dakota v. Wayfair,
Inc., 585 U.S. 162, 173 (2018). The challenge in this case
involves only the former limit—the bar on discriminating
against interstate commerce. As used in the dormant
Commerce Clause context, “‘discrimination’ simply means
differential treatment of in-state and out-of-state economic
interests that benefits the former and burdens the latter.”
United Haulers Ass’n v. Oneida-Herkimer Solid Waste Mgmt.
Auth., 550 U.S. 330, 338 (2007) (quoting Or. Waste, 511 U.S.
at 99). State laws that facially discriminate against interstate
commerce are virtually per se invalid. Wayfair, 585 U.S. at
173 (citing Granholm v. Heald, 544 U.S. 460, 476 (2005)).
The plaintiff out-of-state hospitals argue that the QAF
program discriminates against interstate commerce because
California pays QAF supplemental payments only to in-state
hospitals. That argument fails. Both the QAF provider tax
assessed against in-state hospitals and the QAF supplemental
payments given to in-state hospitals are calculated based solely
on the in-state provision of medical care to in-state patients. A
tax and supplemental payment based on the in-state provision
of medical care do not unconstitutionally discriminate against
interstate commerce. The QAF program does not assess a tax
against out-of-state hospitals. There is thus no “obvious effort
to saddle those outside the State” with the costs of the QAF
program, see Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334,
346 (1992) (quoting City of Philadelphia v. New Jersey, 437
U.S. 617, 629 (1978)); the hospitals incur no costs associated
8
with the QAF program because they are not subject to the QAF
provider tax.
It is true that the out-of-state hospitals incur costs to treat
Medi-Cal beneficiaries who come across the border to receive
medical care. But those costs come from the treatment itself,
not from the QAF program. And Medi-Cal reimburses
providers’ costs of treating Medi-Cal beneficiaries (including
costs incurred by out-of-state hospitals) through the base
payments to providers. As for the QAF program, out-of-state
hospitals neither incur the costs (the provider tax) nor receive
the benefits (the supplemental payments). That program does
not discriminate against interstate commerce—there is simply
no “differential burden on any part of the stream of commerce”
here. See W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 202
(1994).
B.
The plaintiff out-of-state hospitals’ argument under the
Equal Protection Clause likewise lacks merit. The Equal
Protection Clause mandates that no State shall “deny to any
person within its jurisdiction the equal protection of the laws.”
U.S. Const. amend. XIV, § 1. Because the challenged program
here “neither proceeds along suspect lines nor infringes
fundamental constitutional rights,” we apply rational basis
review, as the plaintiffs concede. See FCC v. Beach
Commc’ns, Inc., 508 U.S. 307, 313 (1993). And under rational
basis review, “legislation is presumed to be valid and will be
sustained if the classification drawn by the statute is rationally
related to a legitimate state interest.” City of Cleburne v.
Cleburne Living Ctr., 473 U.S. 432, 440 (1985). A challenged
state law must be upheld under that standard “if there is any
reasonably conceivable state of facts that could provide a
rational basis” for it. Beach Commc’ns, 508 U.S. at 313.
9
The plaintiff hospitals argue that the QAF program
discriminates against out-of-state hospitals without a rational
basis. We are unpersuaded. The plaintiff hospitals do not
satisfy their burden to show that limiting QAF supplemental
payments to in-state hospitals is irrational.
California could rationally decide to extend QAF
supplemental payments only to in-state hospitals as a means of
targeting the subsidy to those providers who serve a
disproportionate share of Medi-Cal beneficiaries. Equal
protection “does not require that a State must choose between
attacking every aspect of a problem or not attacking the
problem at all.” Dandridge v. Williams, 397 U.S. 471, 486–87
(1970). California addressed the problem of ensuring access to
Medicaid by focusing chiefly on one aspect: directing the
supplemental payments to those private hospitals that provide
the lion’s share of services furnished to Medi-Cal beneficiaries.
It was not irrational for the State to structure the QAF program
on the assumption that the bulk of services to Medi-Cal
beneficiaries would be supplied by California hospitals, and
correspondingly to give the extra payments to—and collect
funding for those payments from—in-state providers alone.
Medi-Cal beneficiaries are California residents, and it stands to
reason that California facilities would largely provide their
medical care.
The plaintiff out-of-state hospitals contend that the State’s
rationale is underinclusive because they, too, are private
hospitals who provide care to Medi-Cal patients. And they
assert that the State’s rationale is also overinclusive because the
QAF program gives payments to California private hospitals
that serve relatively few Medi-Cal beneficiaries. A law,
however, generally “does not fail rational-basis review for
being over- or under-inclusive.” Fraternal Ord. of Police,
10
Metro. Police Dep’t Lab. Comm., D.C. Police Union v. District
of Columbia, 45 F.4th 954, 958 (D.C. Cir. 2022) (citation
omitted), cert. denied, 143 S. Ct. 577 (2023). Rather, “where
rationality is the test, a State ‘does not violate the Equal
Protection Clause merely because the classifications made by
its laws are imperfect.’” Mass. Bd. of Ret. v. Murgia, 427 U.S.
307, 316 (1976) (quoting Dandridge, 397 U.S. at 485). So the
question is not whether California could have made the fit more
perfect, but whether it was rational for California to draw the
distinction it did. See W. & S. Life Ins. Co. v. State Bd. of
Equalization of Ca., 451 U.S. 648, 670–72 (1981). We believe
it was.
The hospitals also submit that the proffered state interest
in targeting private hospitals serving a disproportionate share
of Medi-Cal patients should be given minimal weight because
it was not set forth in the statute’s purpose section. It instead
was advanced only in post-enactment communications
between CMS and California agencies. When we assess a law
under rational basis review, however, “the legislature’s actual
motive is ‘entirely irrelevant’; all that matters is whether there
are ‘plausible reasons’ to conclude that the statutory
classification furthers a legitimate government interest.”
Fraternal Ord., 45 F.4th at 958–59 (quoting Beach Commc’ns,
508 U.S. at 313–15). California could rationally conclude that
private in-state hospitals serving a disproportionate share of
Medi-Cal beneficiaries should be given supplemental
monetary support, and the State could rationally decide to
advance that goal via the QAF program as it is structured.
C.
The plaintiff hospitals’ last argument is that California’s
QAF program violates an HHS regulation, 42 C.F.R. § 431.52.
Section 431.52 reads as follows:
11
(a) Statutory basis. Section 1902(a)(16) of the Act
authorizes the Secretary to prescribe State plan
requirements for furnishing Medicaid to State residents
who are absent from the State.
(b) Payment for services. A State plan must provide that
the State will pay for services furnished in another State
to the same extent that it would pay for services
furnished within its boundaries if the services are
furnished to a beneficiary who is a resident of the State,
and any of the following conditions is met:
(1) Medical services are needed because of a medical
emergency;
(2) Medical services are needed and the beneficiary’s
health would be endangered if he were required to
travel to his State of residence;
(3) The State determines, on the basis of medical
advice, that the needed medical services, or
necessary supplementary resources, are more
readily available in the other State;
(4) It is general practice for beneficiaries in a particular
locality to use medical resources in another State.
(c) Cooperation among States. The plan must provide that
the State will establish procedures to facilitate the
furnishing of medical services to individuals who are
present in the State and are eligible for Medicaid under
another State’s plan.
12
The plaintiff hospitals focus on subsection (b). They read that
subsection to impose a payment-parity requirement, under
which, they submit, a State must give the same amount of
Medicaid payments to a provider for services to the State’s
residents in any of the specified categories regardless of
whether the provider is located within or outside the State. And
that payment-parity requirement, in the plaintiff hospitals’
view, applies to California’s QAF supplemental payments.
We disagree. We conclude that the regulation does not
pertain to payments to providers like California’s QAF
supplemental payments. We instead read the regulation as
addressed to a different type of payment under Medicaid: base
payments given in the State’s capacity as a Medicaid
beneficiary’s health-care insurer—i.e., insurance payments for
a specific service rendered to a specific beneficiary.
That reading best comports with the terms of the
regulation. The plaintiff hospitals rely on subsection (b)’s
requirement that a State must “pay for services furnished in
another State to the same extent” as if the services were
rendered “within its boundaries.” 42 C.F.R. § 431.52(b). That
language in subsection (b) must be read against the backdrop
of subsection (a), which provides the statutory basis for the
regulation and sets out its scope.
To that end, subsection (a) explains that the regulation
pertains to “State plan requirements for furnishing Medicaid to
State residents who are absent from the State.” 42 C.F.R.
§ 431.52(a). There are various types of State expenditures
under the Medicaid program. Of central relevance for purposes
of that regulation, Medicaid in part involves the State acting as
insurer for beneficiaries. See id. § 435.900–.965 (describing
State requirements for administering Medicaid to applicants
13
and beneficiaries); Medicaid Program; Ensuring Access to
Medicaid Services, 89 Fed. Reg. 40,542, 40,542–43 (May 10,
2024). But Medicaid also encompasses other actions a State
takes with respect to covered services provided to Medicaid
beneficiaries—actions for which the State can also receive
federal Medicaid funding even if not acting as a beneficiary’s
insurer. For example, States must provide supplemental
payments to hospitals that serve a disproportionate share of
low-income patients with special needs, see 42 U.S.C. § 1396r-
4(c), or a State might set up a pool for supplemental payments
for in-state trauma care centers, see Medicaid Program;
Ensuring Access to Medicaid Services, 89 Fed. Reg. at 40,774–
75. When a State does so, it is not furnishing insurance to a
beneficiary, but instead is providing extra funding to providers
to effectuate broader policy ends related to the provision of
medical services to needy persons.
Subsection (a) speaks in terms of “furnishing Medicaid to
State residents who are absent from the State.” 42 C.F.R.
§ 431.52(a). So the regulation does not encompass all
expenditures by the State in the Medicaid context, but
specifically applies when the State is “furnishing Medicaid to
State residents.” Id. (emphasis added). That language conveys
that the regulation applies when the State provides Medicaid
insurance to a beneficiary. When the State acts as an insurer
under Medicaid, the beneficiary receives care from a provider,
and rather than the beneficiary paying for the service, the State
pays for it through Medicaid base payments to the provider.
Medicaid Program; Medicaid Managed Care: New Provisions,
67 Fed. Reg. 40,989, 40,989 (June 14, 2002). The State thereby
effectively reimburses the beneficiary for the costs of her
medical care, although rather than give the beneficiary an
insurance payment that would enable the beneficiary in turn to
pay the provider for the service, the State just pays the provider
directly via base payments. See Wis. Dep’t of Health & Fam.
14
Servs. v. Blumer, 534 U.S. 473, 479 (2002) (“The federal
Medicaid program provides funding to States that reimburse
needy persons for the cost of medical care.”). Accordingly,
when the State effectively reimburses a beneficiary for the
costs of services she receives outside the State, the State is
“furnishing Medicaid to State residents who are absent from
the State”: the State-as-insurer is paying the costs of that
beneficiary’s out-of-state medical care. 42 C.F.R. § 431.52(a).
The QAF supplemental payments, by contrast, do not fit
comfortably within that language. Unlike with base payments,
when the State gives QAF supplemental payments to a
provider, it is not “furnishing Medicaid to State residents.” Id.
(emphasis added). Unlike with base payments, that is, the QAF
supplemental payments do not amount to insurance payments
to Medi-Cal beneficiaries for the costs of medical services they
receive. As the plaintiff hospitals themselves have
characterized QAF payments, “QAF monies are NOT
payments for services rendered.” J.A. 508. Instead, through
QAF supplemental payments, the State gives a set of providers
extra (i.e., supplemental) money to generally increase funds
flowing to them in recognition of their serving Medi-Cal
beneficiaries. Unlike when the State acts as insurer for a
Medicaid beneficiary who receives medical care outside the
State’s borders, then, QAF payments do not constitute
“furnishing Medicaid to State residents who are absent from
the State.” 42 C.F.R. § 431.52(a).
That understanding of the overall scope of the regulation,
per the introductory subsection (a), informs the proper
understanding of subsection (b), the provision centrally relied
on by the plaintiff hospitals. The latter subsection, entitled
“Payment for services,” requires a “State plan [to] provide that
the State will pay for services furnished in another State to the
same extent that it would pay for services furnished within its
15
boundaries if the services are furnished to a beneficiary who is
a resident of the State,” and one of a series of conditions is met.
42 C.F.R. § 431.52(b). The “pay[ments] for services furnished
. . . to a beneficiary” addressed by subsection (b), id., when
considered against the backdrop of subsection (a), are base
payments for specific services given to a specific beneficiary,
not supplemental subsidies extended to providers. As just
noted, the plaintiff hospitals themselves have stressed that
“QAF monies are NOT payments for services rendered.” J.A.
508. And if QAF funds are “not payments for services
rendered,” it stands to reason that they also may not be covered
by a provision entitled “Payment for services,” whose
operative text is addressed to “pay[ments] for services
furnished.” See also Plaintiffs’ Compl. ¶ 63, J.A. 31 (“QAF
supplemental payment” is “separate from and in addition to
Medicaid payments for services rendered”).
The history of the regulation supports that understanding
of its scope. Originally, the regulation stated that “[m]edical
assistance will be furnished to eligible individuals who are
residents of the State but are absent therefrom to the same
extent . . . .” 45 C.F.R. § 248.40(a)(1) (1970). In 1978, HHS
updated the language to say that the “State will furnish
medicaid . . . while that recipient is in another State, to the
same extent that medicaid is furnished to residents in the
State.” 42 C.F.R. § 431.52(b) (1978). Finally, in 1991, the
current language took effect. Neither of the amendments
purported to make any substantive changes to the regulation.
See Medicare and Medicaid Programs; OBRA ’87 Conforming
Amendments, 56 Fed. Reg. 8,832, 8,832 (1991); Medicaid
Regulations; Reorganization and Rewriting, 43 Fed. Reg.
45,176, 45,176 (1978). Rather, in all its iterations, the
regulation has been concerned with furnishing Medicaid to a
beneficiary when outside their home State. Put differently, the
regulation has consistently addressed base payments made in
16
the State’s capacity as an insurer of individual beneficiaries
rather than supplemental payments made in the State’s capacity
as a policymaker giving bulk disbursements to hospitals.
In sum, because the regulation speaks to contexts in which
the State acts as an insurer for Medicaid beneficiaries covered
by the State plan, and because QAF supplemental payments do
not amount to insurance payments made to Medicaid
beneficiaries, we reject the plaintiff hospitals’ argument that
California’s QAF program implicates—much less violates—
the regulation.
Our dissenting colleague reads the regulation differently.
In his view, the regulation applies not only to base payments to
beneficiaries but also to supplemental subsidies to providers
like the QAF payments. But even if the payment of QAF
subsidies to hospitals relates in some way to the provision of
services, see Dissenting Op. 5, that does not mean that those
supplemental subsidies amount to insurance payments to
Medicaid beneficiaries, which we understand to be the focus of
the regulation. Under our colleague’s interpretation, the
regulation would compel the State to extend QAF supplemental
payments to out-of-state providers on par with in-state
providers even though the out-of-state providers (unlike in-
state providers) do not pay the QAF provider tax that funds the
supplemental payments. There is no reason to construe the
regulation to require that kind of windfall for out-of-state
providers: the plaintiff out-of-state hospitals do not deny that
they already receive supplemental Medicaid subsidies from
their own States, but they now seek to be awarded additional
funding from another State’s (California’s) subsidy pool, into
which they do not pay. The better reading of the regulation—
as a provision addressed to base payments, not supplemental
subsidies—avoids that counterintuitive result.
17
Our colleague’s contrary understanding is grounded in part
in the statutory term “medical assistance,” which he reads as
covering QAF payments and other subsidies bearing a
relationship to the provision of medical “care and services,” per
the statutory definition of “medical assistance.” Dissenting Op.
6–7 (citing 42 U.S.C. §§ 1396a(a)(16), 1396d(a)). The term
“medical assistance,” however, does not appear in the
regulation at issue. Our colleague seeks to connect the
regulation to that statutory term in a two-step argument
disagreeing with our understanding of the regulation’s scope.
First, our colleague notes that subsection (a) of the
regulation—which, as explained, provides that the regulation
concerns the “furnishing [of] Medicaid to State residents who
are absent from the State”—indicates that the statutory
authorization for the regulation is 42 U.S.C. § 1396a(a)(16).
And that authorizing statute allows for regulations that require
state Medicaid plans to include provisions “with respect to the
furnishing of medical assistance to . . . residents of the State
[who] are absent therefrom.” Our colleague assumes that, if
the regulation’s reference to “furnishing [of] Medicaid to State
residents” is confined to base payments, then the same must be
true of the authorizing statute’s reference to “furnishing of
medical assistance” to State residents. See Dissenting Op. 6.
But that cannot be so, our colleague submits, due to the
second step of his analysis. Here, he brings into play a second
statute, which provides for federal reimbursements to States for
Medicaid expenses, 42 U.S.C. § 1396b(a)(1). That
reimbursement statute, like the just-described authorizing
statute, uses the term “medical assistance”—here, in providing
for federal reimbursements to States of a share of the “amount
expended . . . as medical assistance under the State plan.” That
reimbursement statute’s reference to “medical assistance” must
encompass QAF subsidies, our colleague observes, because it
18
is undisputed that federal Medicaid funding to States includes
QAF subsidies. And if that is so, our colleague reasons, the
authorizing statute’s reference to “furnishing of medical
assistance” to State residents must also include QAF subsidies,
and then, so too must the regulation. See Dissenting Op. 6–7.
In short, our colleague assumes as a first step that the
regulation’s scope matches the authorizing statute’s scope, and
he next assumes as a second step that the authorizing statute’s
scope matches the reimbursement statute’s scope. And
because the reimbursement statute undisputedly pertains to
QAF subsidies, he reasons, then so too must the authorizing
statute, and thus the regulation as well. We are unpersuaded
by either of the two steps.
Consider, initially, the assumption at the latter step that
because the reimbursement statute encompasses QAF
subsidies, then the authorizing statute must as well. The federal
agency charged with administering the Medicaid program
disagrees with that assumption. The government argues before
us that the authorizing statute has “no bearing on subsidies that
States pay to providers” like the QAF subsidies. Gov’t Br. 28.
Yet the government also acknowledges that federal
reimbursements to States encompass the QAF program. Id. at
4–5. The government might view the scope of the authorizing
and reimbursement statutes to differ because, while both
statutes reference “medical assistance,” the surrounding
language is different. The authorizing statute speaks to “the
furnishing of medical assistance . . . to individuals.” 42 U.S.C.
§ 1396a(a)(16). The reimbursement statute refers to “the total
amount expended . . . as medical assistance under the State
plan.” 42 U.S.C. § 1396b(a)(1). While we are not asked to
definitively resolve the matter here, it could be that the
“furnishing of medical assistance to individuals” concerns base
payments for specific services furnished to specific
19
beneficiaries, but the “total amount expended as medical
assistance” includes QAF subsidies. Cf. 42 U.S.C.
§ 1396b(bb)(1)(B)(iv) (referring to “the total Medicaid
payments made to an inpatient hospital provider, including the
supplemental payment”).
Regardless, even assuming the authorizing statute’s
reference to “furnishing of medical assistance to individuals”
encompasses QAF subsidies, that would not necessarily
mean—at the first step of our colleague’s reasoning—that the
regulation at issue also has that reach. The authorizing statute
gives the Department the authority to establish regulations
providing for the “inclusion” in State Medicaid plans “of
provisions . . . with respect to furnishing of medical assistance
under the plan to individuals who are residents of the State but
are absent therefrom.” 42 U.S.C. § 1396a(a)(16). Nothing in
that statute requires that any regulations adopted by the
Department must encompass the entire sweep of the statutory
authorization. Instead, the Department could opt to establish
regulations with a narrower reach, pertaining solely to base
payments to beneficiaries for services they receive. We
conclude, for all the reasons explained, that the Department did
just that in adopting a regulation addressed to “furnishing
Medicaid to State residents.” 42 C.F.R. § 431.52(a).
Finally, our dissenting colleague suggests that our
interpretation of that regulation is in tension with a separate
regulation pertaining to upper federal payment limits under
Medicaid. See Dissenting Op. 7 (citing 42 C.F.R. § 447.1).
The latter regulation references “payments made by State
Medicaid agencies for Medicaid services.” That provision,
according to our colleague, encompasses QAF subsidies, and
if “payments . . . for Medicaid services” for purposes of that
regulation include QAF subsidies, he reasons, then the same
should be true of the regulation at issue here. No party in this
20
case, however, cites or relies on the upper-payment-limit
regulation, so its proper interpretation is not before us. And
whatever the scope of that provision may be, there is no reason
to assume that it would dictate whether a differently worded
regulation addressed to “furnishing Medicaid to State
residents,” 42 C.F.R. § 431.52(a), pertains to base payments
and not supplemental subsidies, as we have concluded it does.
* * * * *
For the foregoing reasons, we affirm the judgment of the
district court.
So ordered.
KATSAS, Circuit Judge, dissenting: A federal regulation
requires a State, when reimbursing hospitals for services
furnished to its Medicaid beneficiaries, to “pay for services
furnished in another State to the same extent that it would pay
for services furnished within its boundaries.” 42 C.F.R.
§ 431.52(b). California pays in-state and out-of-state hospitals
base amounts keyed to specific services furnished to
beneficiaries. On top of that, California provides in-state
hospitals, but not out-of-state hospitals, with supplemental
payments keyed to all Medicaid services furnished by the
hospital. My colleagues conclude that these targeted
supplemental payments do not violate the regulation. For the
reasons that follow, I respectfully disagree.
I
Medicaid is a cooperative federal-state program that funds
healthcare for low-income individuals. 42 U.S.C. § 1396 et
seq. It is administered by the States and jointly funded by
federal and state governments. To participate in Medicaid, a
State must develop and obtain federal approval for a plan to
provide “medical assistance” to the needy. Id. § 1396a(a). If a
plan receives approval, the federal government must reimburse
the State for a percentage of amounts spent in providing
“medical assistance” under the plan. Id. § 1396b(a)(1). The
term “medical assistance” means “part or all of the cost” of
providing covered “care and services” to beneficiaries, as well
as “the care and services themselves.” Id. § 1369d(a). States
may fund their share of these expenses through certain taxes on
healthcare providers. Id. § 1396b(w).
A state plan must set forth “rates of payment” for covered
services. 42 U.S.C. § 1396a(a)(13)(A). Such rates may
include “base” payments keyed to specific services provided,
as well as certain “supplemental” payments determined more
generally. Id. § 1396b(bb); see also Medicaid & CHIP
Payment & Access Comm’n, Medicaid Base and Supplemental
2
Payments to Hospitals (April 2024), https://perma.cc/WR86-
GLMM. But there are “upper payment limits” for hospitals,
with base and supplemental payments jointly counting against
the same limits. 42 U.S.C. § 1396b(bb)(1)(B)(iv).
This case involves payment for services provided to
beneficiaries out-of-state. The Medicaid statute requires a state
plan to include, “to the extent required by regulations,”
provisions for “the furnishing of medical assistance under the
plan to individuals who are residents of the State but are absent
therefrom.” 42 U.S.C. § 1396a(a)(16). When certain
exigencies are present, the implementing regulation requires
the State to “pay for services furnished in another State to the
same extent that it would pay for services furnished within its
boundaries if the services are furnished to a beneficiary who is
a resident of the State.” 42 C.F.R. § 431.52(b).
California participates in Medicaid through its Medi-Cal
program. Cal. Welf. & Inst. Code § 14000 et seq. California
funds its share of Medicaid expenses in part through a tax on
hospitals called a “quality assurance fee” (QAF). Id.
§ 14169.52(a). It pays the tax proceeds to in-state hospitals as
“supplemental amounts”—which are keyed to Medi-Cal
patient volume—for treating Medi-Cal beneficiaries. Id.
§§ 14169.54(a), 14169.55(a). California makes these
payments to “improv[e] hospital reimbursement through
supplemental Medi-Cal payments.” Id. § 14169.50(b). The
payments are in addition to base payments and are set to “result
in payments to hospitals that equal” the Medicaid upper
payment limits. Id. §§ 14169.54(a), 14169.55(a); see id.
§ 14169.59; J.A. 543–47. By increasing its own Medi-Cal
spending, California also seeks “to increase federal financial
participation” in providing the covered care. Cal. Welf. & Inst.
Code § 14169.50(d).
3
The Centers for Medicare & Medicaid Services approved
a plan amendment allowing California to pay these QAF
subsidies. A group of out-of-state hospitals near the California
border sought judicial review. They urged that the subsidies,
targeted exclusively to in-state hospitals, violate the Commerce
Clause, the Equal Protection Clause, and the regulation on
payment for out-of-state care. The district court rejected these
arguments and granted summary judgment to CMS. Asante v.
Azar, 656 F. Supp. 3d 185 (D.D.C. 2023).
II
In my view, the QAF payments violate the out-of-state
payment regulation because they flow only to in-state
hospitals. In pertinent part, the regulation requires California
to “pay for services furnished in another State to the same
extent that it would pay for services furnished within its
boundaries if the services are furnished to a beneficiary who is
a resident of the state.” 42 C.F.R. § 431.52(b). In other words,
if California would pay for “services furnished” to a Medi-Cal
beneficiary by an in-state hospital, it likewise must pay, “to the
same extent,” if an out-of-state hospital provides the services.
California respects that requirement insofar as it makes the
same base payments regardless of whether Medi-Cal
beneficiaries receive treatment in-state or out-of-state. But the
QAF payments then give in-state hospitals additional
compensation for treating Medi-Cal beneficiaries. These
payments are aimed at “improving hospital reimbursement
through supplemental Medi-Cal payments to hospitals.” Cal.
Welf. & Inst. Code § 14169.50(b); see also id. § 14169.50(a)
(QAF payments aim “to improve funding for hospitals and
obtain all available federal funds to make supplemental Medi-
Cal payments to hospitals”). They are “in addition to” the base
payments that all hospitals receive for treating Medi-Cal
beneficiaries. Id. §§ 14169.54(a), 14169.55(a). And the state
4
plan confirms that California makes the payments “for the
provision of hospital inpatient services” to Medi-Cal
beneficiaries. J.A. 543. In other words, QAF payments are
extra payments to in-state hospitals for services furnished
through Medicaid.
The government objects that the regulation addresses
coverage but not payment amounts. In other words, it reads the
requirement to “pay for” in-state and out-of-state services “to
the same extent” as meaning that a State must cover the same
services regardless of where they are provided—not that it
must pay the same amount (or pay under the same formula)
regardless of where the services are provided. For good reason,
my colleagues do not adopt this contention. Section 431.52 is
titled “Payments for services furnished out of State,” and
subsection (b) is likewise titled “Payment for services.” Those
would be odd titles if the regulation were addressed only to
what services must be covered. Moreover, the operative text
does not simply require a State to “pay” some amount for—i.e.,
to cover—services regardless of where they are provided.
Instead, it requires a State to pay “to the same extent”
regardless of where the services are provided. That phrase
governs the required amount of payment.
My colleagues adopt a different theory to exclude QAF
payments from the out-of-state payment regulation. They
conclude that 42 C.F.R. § 431.52 covers only base payments
keyed to specific individual services provided to Medicaid
beneficiaries—not supplemental payments for treating
Medicaid beneficiaries more generally. They derive this limit
not from subsection (b), which sets forth the legally operative
text, but from subsection (a), which is titled “Statutory basis.”
In its entirety, subsection (a) states that “Section 1902(a)(16)
of the [Medicaid] Act,” which is codified at 42 U.S.C.
§ 1396a(a)(16), “authorizes the Secretary [of Health and
5
Human Services] to prescribe State plan requirements for
furnishing Medicaid to State residents who are absent from the
State.” 42 C.F.R. § 431.52(a). My colleagues reason that QAF
payments, as general subsidies untethered to specific individual
medical procedures, do not involve “furnishing Medicaid to
State residents.” See ante at 12–15.
With respect, I do not think subsection (a) is so limiting.
To begin with, the phrase “to State residents” simply reflects a
truism that one State need not provide Medicaid benefits to
another State’s residents. In my view, the key phrase in
subsection (a) is the immediately preceding one—“furnishing
Medicaid.” The dispositive question it frames is whether QAF
payments are for “furnishing Medicaid” to beneficiaries. The
answer is clearly yes: The California legislature repeatedly
declared QAF payments to be “supplemental Medi-Cal
payments to hospitals.” Cal. Welf. & Inst. Code § 14169.50(a),
(b), (d) & (e). They are made “for the provision of … hospital
services” to Medi-Cal beneficiaries. Id. §§ 14169.54(a)
(outpatient), 14169.55(a) (inpatient). And while they are not
disaggregated into individual services provided, they do reflect
how much “Medicaid” each hospital has “furnish[ed]” because
they are keyed to the number of Medi-Cal patient days of each
hospital. See id. §§ 14169.54(b), 14169.55(b), 14169.59; J.A.
542–53. Whether California pays hospitals a base amount for
each appendectomy performed for Medi-Cal beneficiaries, or a
supplemental amount keyed to the total number of patient-days
attributable to appendectomies performed for Medi-Cal
beneficiaries, the State is still paying hospitals for “furnishing
Medicaid to State residents.” Moreover, the regulation
implements a statutory directive to provide for “the furnishing
of medical assistance” to beneficiaries who receive treatment
out-of-state. 42 U.S.C. § 1396a(a)(16). And “medical
assistance”—a key phrase at the heart of the Medicaid
statute—is defined as “payment of part or all of the cost” of
6
covered “care and services” provided to beneficiaries, “or the
care and services themselves.” Id. § 1396d(a). So the
dispositive statutory question is whether QAF payments are for
furnishing medical “care and services,” and again the answer is
clearly yes.1
In addition, my colleagues’ position would foreclose
federal funding for any portion of the QAF payments, and so
proves too much. As explained above, the regulatory
requirement “for furnishing Medicaid to State residents” out-
of-state parallels the statutory authorization for regulations
regarding “the furnishing of medical assistance” to such
residents. See 42 U.S.C. § 1396a(a)(16); 42 C.F.R.
§ 431.52(b). And Medicaid authorizes federal funding only for
a percentage of amounts that a State expends to provide
“medical assistance” under its plan, 42 U.S.C. § 1396b(a)(1),
as well as for various administrative expenses, id.
§ 1396b(a)(2) to (7). So if QAF payments did not qualify as
“medical assistance” under section 1396a(a)(16), then the
federal government could not pay for a share of those subsidies
1
My colleagues do not quarrel with the point that QAF
payments involve “the furnishing of medical assistance” under the
statute. Instead, they seek to distinguish that phrase from “furnishing
Medicaid to State residents” under the implementing regulation.
Ante at 19. As explained above, the parallel between the two phrases
seems to me obvious. My colleagues’ primary response is to observe
that an implementing regulation may sweep less broadly than its
authorizing statute. See id. As a general proposition, that is certainly
true. But the regulatory provision they invoke here, subsection (a)
of 42 C.F.R. § 431.52, is not so limiting. And in any event, the
legally operative regulatory provision is subsection (b), which covers
QAF payments by its terms.
7
through Medicaid. And nobody—including my colleagues—
defends that conclusion.2
Consider also the upper payment limits. Base and
supplemental payments count against them. See 42 U.S.C.
§ 1396b(bb)(1)(B)(vi). But only payments “for Medicaid
services” count. 42 C.F.R. § 447.1. So under the regulations,
payments “for Medicaid services” must include base and
supplemental payments. Moreover, California law treats QAF
payments as subject to the “applicable federal upper payment
limit,” and it fixes their amount to ensure that the total
payments made to hospitals—with QAF payments included—
equal but do not exceed that limit. Cal. Welf. & Inst. Code
§ 14169.55(a). California thus sought federal approval to
include QAF payments in its plan on the assumption that they
count against the upper limits. J.A. 561, 592–603. In
approving the plan amendment, CMS likewise treated the QAF
payments as subject to the “upper payment limit,” but
concluded that these payments, “when added to the base rate
payments and other supplemental payments received by private
hospitals in California, are within the upper payment limits.”
J.A. 535. In sum, both CMS and California took as a given that
QAF supplemental payments, like the base payments received
by in-state and out-of-state hospitals, are payments for
Medicaid services.3
2
My colleagues posit that QAF payments might involve
“amount[s] expended … as medical assistance” under § 1396b(a)(1),
but not “furnishing of medical assistance to individuals” under
§ 1396a(a)(16). Ante at 18–19. Again, the parallel seems obvious.
3
My colleagues note that the parties do not address the upper
payment limits in this court. Ante at 19. But the agency order under
review rests squarely on the premise that QAF payments are “for
8
Two final points in response to my colleagues. First, they
suggest that out-of-state hospitals would obtain a “windfall” in
receiving QAF payments while not paying the QAF tax. Ante
at 16. But California does not offer hospitals the payments in
return for the tax. Nor could it, for federal regulations prohibit
a State from linking its Medicaid taxes and its Medicaid
payments in that way. See 42 C.F.R. § 433.68(b)(3) & (f)(3);
J.A. 309–10. Instead, California imposes the tax as one means
for raising revenue to pay its share of Medicaid expenses. And
it separately pays hospitals in return for treating California
residents who are Medi-Cal—and thus Medicaid—
beneficiaries. In sum, my approach would simply require
California to pay out-of-state hospitals the same amount that it
would pay in-state hospitals for services provided to Medi-Cal
patients. I do not see that as a windfall.4
Second, my colleagues invoke the plaintiff hospitals’
statement in the district court that QAF subsidies, in contrast to
base payments, “are not payments for services rendered.” J.A.
Medicaid services” and thus subject to the limits. J.A. 535.
Moreover, we should consider all pertinent regulations in seeking to
best construe the one directly at issue, as my colleagues elsewhere
recognize. Ante at 14–15. And I can discern no plausible ground for
concluding that QAF payments are “for Medicaid services” under the
regulation on upper payment limits, but are not for “furnishing
Medicaid to State residents” under 42 C.F.R. § 431.52.
4
Even if out-of-state hospitals could opt into the QAF tax in
return for QAF payments, their failure to do so would not suggest
any windfall. The QAF tax is keyed to a hospital’s entire patient
base, while the QAF payments are keyed to the amount of treatment
provided to Medi-Cal patients only. See ante at 4–5. Because out-
of-state hospitals treat vastly fewer Medi-Cal patients than do in-
state hospitals, the hypothetical bargain suggested by my colleagues
would be wildly unfavorable to the out-of-state hospitals.
9
508 (cleaned up); see ante at 15. The hospitals did not make
that statement in addressing any of the statutory or regulatory
provisions that bear on the scope of 42 C.F.R. § 431.52(b).
Instead, they made it to support a different argument that
California, in making the QAF payments, acts as a regulator for
dormant Commerce Clause purposes. And the government,
opposing the plaintiffs’ position, urged that “base rates,” which
all agree involve California acting as a market participant, and
“QAF payments” are indistinguishable for Commerce Clause
purposes. J.A. 487. Thus, to the extent there is any tension
between the parties’ respective positions on the regulatory and
constitutional issues presented in this case, it is one that appears
on both sides of the dispute.
III
California pays in-state hospitals more for furnishing care
to Medi-Cal beneficiaries than it would pay similarly situated
out-of-state hospitals for furnishing the same care. This
payment scheme violates the clear command of 42 C.F.R.
§ 431.32(b), so I must respectfully dissent from part II.C of the
Court’s opinion. And because the payment scheme violates the
regulation, I would not reach the question whether it also
violates the Constitution.