NB Ex Rel. Peacock v. District of Columbia

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 24, 2015 Decided July 17, 2015

No. 14-7054

NB, BY HER PARENT AND NEXT FRIEND, MICHELLE PEACOCK,

ET AL.,

APPELLANTS

v.

DISTRICT OF COLUMBIA, A MUNICIPAL CORPORATION, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:10-cv-01511)

Jane M. Liu argued the cause for appellants. With her on

the briefs were Bruce J. Terris and Kathleen L. Millan.

John C. Keeney, Jr. was on the brief for amici curiae The

Legal Society of the District of Columbia, et al., in support of

appellant.

Richard S. Love, Senior Assistant Attorney General,

Office of the Attorney General for the District of Columbia,

argued the cause for appellees. With him on the brief were

Irvin B. Nathan, Attorney General at the time the brief was

filed, Todd S. Kim, Solicitor General, and Loren L. AliKhan,

Deputy Solicitor General.

2

Before: GRIFFITH and SRINIVASAN, Circuit Judges, and

SENTELLE, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge SRINIVASAN.

SRINIVASAN, Circuit Judge: The plaintiffs in this case

are Medicaid recipients who unsuccessfully sought coverage

for prescription drugs. They filed a lawsuit contending that

the defendants—the District of Columbia and certain of its

officials—unlawfully failed to afford them notice of their

entitlement to a hearing before denying their prescription drug

claims. They alleged that the lack of notice infringed Title

XIX of the Social Security Act and its implementing

regulations, the Due Process Clause of the Fifth Amendment

of the U.S. Constitution, and D.C. law. The district court

dismissed the federal claims, concluding that neither Title

XIX nor the Due Process Clause required the written notice

the plaintiffs sought. The court also dismissed the claims

under D.C. law because jurisdiction over those claims

depended on jurisdiction over the dismissed federal claims.

We affirm the district court’s dismissal of the Title XIX

claims, but we reverse the dismissal of the due process claims

and remand for further proceedings. On remand, the district

court can reconsider its jurisdiction over the D.C.-law claims

in light of our partial reversal.

I.

A.

Medicaid, established under Title XIX of the Social

Security Act, 42 U.S.C. §§ 1396 et seq., is a “cooperative

federal-state program that provides federal funding for state

medical services to the poor.” Frew ex rel. Frew v. Hawkins,

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540 U.S. 431, 433 (2004). States participate in Medicaid on a

voluntary basis, but states electing to avail themselves of the

federal funding available under Title XIX must comply with

conditions imposed by federal law. Id.; see Nat’l Fed’n of

Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2607-08 (2012). The

District of Columbia qualifies as a state for purposes of this

litigation. See 42 U.S.C. § 1301(a)(1).

Under federal law, states choosing to participate in

Medicaid must provide a core set of mandatory services to

qualified beneficiaries. See id. §§ 1396a(a)(10)(A), 1396d(a).

For example, state Medicaid plans must provide coverage to

qualified beneficiaries for “inpatient hospital services” and

“laboratory and X-ray services.” Id. §§ 1396a(a)(10)(A),

1396d(a)(1), (3). In addition to those mandatory services, a

state may also elect to cover other categories of services.

Those optional services then become part of the state’s

Medicaid plan, in which event the optional services become

subject to the requirements of federal law. Doe 1-13 ex rel.

Doe, Sr. 1-13 v. Chiles, 136 F.3d 709, 714 (11th Cir. 1988).

Prescription drug coverage is one of those optional services,

see 42 U.S.C. §§ 1396a(a)(10)(A), 1396d(a)(12), and the

District has elected to offer coverage of certain prescription

drugs under Medicaid. The District’s Department of Health

Care Finance (DHCF) implements the prescription drug

portion of the District’s Medicaid program. See D.C. Code

§ 7-771.07.

When a state elects to cover prescription drugs, as the

District has done, it can limit or condition coverage in certain

ways. First, Title XIX affords participating states some

latitude to determine which classes of prescription drugs to

cover. The statute specifies categories of drugs that a state

may entirely “exclude[] from coverage.” 42 U.S.C. § 1396r-

8(d)(2). Consistent with that authority, the District has opted

4

categorically to exclude from coverage certain classes of

prescription drugs, including, for instance, those prescribed

for conditions such as weight loss or erectile dysfunction. See

D.C. Mun. Regs. tit. 29, § 2706.3(d), (i). The District will

cover those drugs only if they have been “specifically placed”

on the District’s “Medicaid Preferred Drug List.” Id.; see

DHFC, Pharmacy Preferred Drug List (PDL) (June 17, 2015),

available at https://dc.fhsc.com/downloads/providers/

DCRx_PDL_listing.pdf.

Second, for non-excluded drugs, Title XIX enables a

state to limit the circumstances under which it will provide

coverage. A state may, for example, subject a drug to “prior

authorization” requirements. Id. § 1396r-8(d)(1)(A). The

District has established a prior authorization requirement for

certain drugs. Under the District’s prior authorization

requirement, a prescribing physician must obtain pre-approval

from DHCF and submit certain documentation before the

District’s Medicaid plan will cover the prescription. See NB

ex rel. Peacock v. District of Columbia (NB II), 682 F.3d 77,

80 (D.C. Cir. 2012).

According to the allegations in the complaint, DHCF uses

a third-party contractor, Xerox, to process prescription drug

claims under Medicaid. When a potential Medicaid claimant

presents a prescription to a pharmacist at a Medicaid-

participating pharmacy in the District, the pharmacist submits

an electronic claim to Xerox. Xerox then provides an

immediate computerized reply indicating whether Medicaid

will cover the prescription. Xerox determines, among other

things, whether the drug is covered by Medicaid or instead is

excluded from Medicaid coverage, and whether the patient

satisfies all other applicable threshold coverage restrictions

(e.g., whether the patient has met any applicable prior

authorization requirements). If Xerox determines that all

5

requirements for coverage are met, Xerox’s reply so informs

the pharmacist, and the pharmacist fills the prescription. If

Xerox determines that coverage should be denied, the patient

has the option to pay out-of-pocket for the drugs.

B.

Title XIX and its implementing regulations afford certain

procedural protections to Medicaid beneficiaries. The statute

provides that a state Medicaid plan “must” provide “for

granting an opportunity for a fair hearing before the State

agency to any individual whose claim for medical assistance

under the plan is denied or is not acted upon with reasonable

promptness.” 42 U.S.C. § 1396a(a)(3). “Medical assistance”

includes “payment of part or all of the cost” of “prescribed

drugs.” Id. § 1396d(a)(12). Under the statute, consequently,

denial of a claim for payment of “prescribed drugs” occasions

the grant of an “opportunity for a fair hearing before the State

agency.”

Regulations implementing § 1396a(a)(3) elaborate on the

requirement to give an opportunity for a hearing. Under the

regulations, the District must “grant an opportunity for a

hearing” to “[a]ny applicant who requests it because his claim

for services is denied or is not acted upon with reasonable

promptness,” and also to “[a]ny beneficiary who requests it

because he or she believes the agency has taken an action

erroneously.” 42 C.F.R. § 431.220(a)(1)-(2).

The regulations also specify circumstances in which

notice of the right to a hearing must be provided, as well as

the content of that notice. In particular, the District

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must, at the time specified in paragraph (c) of

this section, inform every applicant or

beneficiary in writing—

(1) Of his right to a hearing;

(2) Of the method by which he may obtain a

hearing; and

(3) That he may represent himself or use

legal counsel, a relative, a friend, or other

spokesman.

Id. § 431.206(b)(1)-(3). Section 431.206(c)—i.e., “paragraph

(c) of th[at] section”—sets forth the times when that notice

must be afforded to a beneficiary, and requires notice “[a]t the

time of any action affecting his or her claim.” Id.

§ 431.206(c)(2) (emphasis added). And the regulations in

turn define “[a]ction” as a “termination, suspension, or

reduction of Medicaid eligibility or covered services.” Id.

§ 431.201. The regulatory notice requirements thus are

triggered by, inter alia, a “termination, suspension, or

reduction of Medicaid eligibility or covered services.”

When § 431.206(b)’s notice requirements come into play

because of a termination, suspension, or reduction of

Medicaid eligibility or covered services, a separate regulation

spells out additional content that must be included in the

notice. The District must include: (a) a statement of what

action it intends to take; (b) the reasons for the intended

action; (c) the specific regulations that support the action; (d)

an explanation of the individual’s right to a hearing; and (e)

an explanation of the circumstances that Medicaid coverage

will continue in the interim if a hearing is requested. Id.

§ 431.210(a)-(e).

7

D.C. law imposes similar requirements. See NB II, 682

F.3d at 80 (citing D.C. Code § 4-205.55).

C.

1. The named plaintiffs in this case are nine D.C.

Medicaid recipients. They contend that the District, the

Director of DHCF, and the Mayor of D.C. have systematically

failed to provide Medicaid recipients with “adequate and

timely notice, the opportunity for a fair hearing, and the

opportunity for reinstated coverage pending a hearing

decision” when denying prescription drug coverage. Pls.’

Amend. Compl. ¶ 1. Those actions, the plaintiffs allege,

violate Title XIX and its implementing regulations, the Due

Process Clause of the Fifth Amendment of the Constitution,

and D.C. law. The plaintiffs seek no compensation (although

they do ask for costs and attorneys’ fees). Id. at 49. Instead,

they request declaratory and injunctive relief, and also seek

certification of a class.

The named plaintiffs allege multiple instances in which

their claims for prescription drug coverage have been denied

at District pharmacies. The denials, as described in the

complaint, appear to have occurred for a variety of reasons.

Some plaintiffs were informed that they failed to comply with

applicable prior authorization requirements, see, e.g., id. ¶¶

59, 77; others were advised that they were not covered by

Medicaid at all, see, e.g., id. ¶ 50; and still others were given

no reason for the coverage denial, see, e.g., id. ¶ 57. The

plaintiffs allege that, in all of those circumstances, they did

not “receive[] written notice of the fact that coverage of

[their] prescriptions was being denied, the reason for the

denial[s], the right to appeal, or the circumstances under

which Medicaid would continue providing coverage of [their]

prescriptions pending the appeal[s].” E.g., id. ¶ 98.

8

2. The plaintiffs filed suit in the U.S. District Court for

the District of Columbia, and the district court dismissed the

action for lack of Article III standing. NB v. District of

Columbia (NB I), 800 F. Supp. 2d 51, 53 (D.D.C. 2011). On

appeal, we found that the plaintiffs had established standing,

NB II, 682 F.3d at 86-87, and remanded to the district court to

proceed to the merits.

On remand, the district court dismissed all claims. NB v.

District of Columbia (NB III), 34 F. Supp. 3d 146, 152

(D.D.C. 2014). In dismissing the claims under Title XIX, the

court initially examined circumstances involving denial of

prescription drug coverage for failure to demonstrate

Medicaid enrollment or to comply with applicable prior

authorization requirements. The court concluded that

Medicaid’s procedural protections—including the notice and

hearing sought by the plaintiffs—extended only to those who

were in fact enrolled in Medicaid and, as applicable, to those

who had met required prior authorization and other applicable

threshold criteria. Id. at 153-55. As for denials of coverage

for other reasons, the court concluded that the plaintiffs had

failed to allege that the denials stemmed from government

action. In the court’s understanding, the plaintiffs’ inability to

procure coverage for their medications was attributable, not to

the District, but instead “to a range of acts or omissions by

private actors—including errors or oversights by doctors and

pharmacists (and perhaps the patients themselves).” Id. The

court therefore concluded that the District had no obligation

under Title XIX or its regulations to give any written notice of

the denials. Id. at 155-56.

In dismissing the due process claims, the court again

focused initially on denials occasioned by the plaintiffs’

alleged failures to demonstrate Medicaid enrollment status or

to comply with prior authorization or other coverage criteria.

9

Those circumstances triggered no protections under the Due

Process Clause, the court determined, because the plaintiffs

lacked a “legitimate claim of entitlement to the drugs.” Id. at

157-58. As for the denials of prescription drug claims for

reasons other than failure to demonstrate Medicaid enrollment

status or to comply with threshold coverage criteria, the court

again determined that the plaintiffs failed to allege that any

“state action” caused the denials. Id. at 158-59. With no

federal causes of action remaining in the case, the court then

dismissed the D.C.-law claims for lack of pendant

jurisdiction. Id.

II.

The plaintiffs contend that Title XIX’s implementing

regulations entitle Medicaid recipients to written notice of an

opportunity for a hearing at which they can challenge the

point-of-sale denial of prescription drug benefits. The

plaintiffs also claim an entitlement to notice of the reasons for

the decision and of the status of their coverage pending a

hearing; but those arguments are essentially derivative of their

claim to notice of an opportunity for a hearing. See 42 C.F.R.

§ 431.210. We conclude that the regulations afford the

plaintiffs no basis for relief. We therefore affirm the district

court’s dismissal of their Title XIX claims.

A.

The plaintiffs’ argument for relief under Title XIX is that

the District “must provide Medicaid recipients with notice of

the reason for the denial and the opportunity for a

hearing . . . whenever a Medicaid recipient’s claim for a

prescription drug is denied for any reason.” Appellants’ Br.

7. That is, the plaintiffs argue that any denial of a claim for

prescription drug coverage at a pharmacy triggers a right to

10

notice under Title XIX. We disagree. Title XIX and its

implementing regulations do not afford the plaintiffs the

notice they seek whenever a claim for prescription drug

coverage is denied.

Under Title XIX, a “[s]tate plan for medical assistance

must . . . provide for granting an opportunity for a fair hearing

before the State agency to any individual whose claim for

medical assistance under the plan is denied.” 42 U.S.C.

§ 1396a(a)(3). The District does not dispute that the

plaintiffs’ claims for prescription drug benefits qualify as

“claim[s] for medical assistance” within the meaning of that

provision. The District therefore assumes it has an obligation

under the statute to afford the plaintiffs “an opportunity for a

fair hearing”—i.e., a hearing upon request—to challenge the

denial of prescription drug coverage.

Here, however, none of the plaintiffs requested a hearing.

And while the statute requires the District to provide for

“granting an opportunity for a fair hearing,” the statute itself,

as the District points out, contains no obligation to afford

notice of an opportunity to request a hearing. Perhaps for that

reason, the plaintiffs do not argue that the statute, of its own

force, confers an entitlement to written notice of an

opportunity for a hearing. The plaintiffs instead rely on the

regulations implementing Title XIX as the source of their

alleged entitlement to notice under the Medicaid laws.

Those regulations contain a provision setting forth

“[w]hen a hearing is required.” 42 C.F.R. § 431.220. Under

that regulation, the District “must grant an opportunity for a

hearing” to, among others, “(1) [a]ny applicant who requests

it because his claim for services is denied or is not acted upon

with reasonable promptness,” as well as “(2) [a]ny beneficiary

who requests it because he or she believes the agency has

11

taken an action erroneously.” Id. § 431.220(a)(1)-(2). With

regard to the second category, the regulations elsewhere

define an “[a]ction” as a “termination, suspension, or

reduction of Medicaid eligibility or covered services.” Id.

§ 431.201. The result is that the District must grant a hearing

to (1) an applicant whose “claim for services is denied” and

also to (2) a beneficiary who believes that he has been

subjected to an erroneous “termination, suspension, or

reduction” of “Medicaid eligibility or covered services.”

A separate set of regulations speaks to the provision of

notice of the opportunity for a hearing. Significantly, those

regulations call for notice only with regard to the second of

the above categories of individuals for whom a hearing is

available (i.e., persons against whom the District takes an

“action” as defined by the regulations), not the first category

(i.e., persons as to whom a claim for services is “denied”). To

be sure, the regulations governing hearings generally provide

that “[t]he hearing system must meet the due process

standards set forth in Goldberg v. Kelly, 397 U.S. 254 (1970),

and any additional standards specified in this subpart.” 42

C.F.R. § 431.205(d). That provision, however, does not

specifically refer to notice. It instead more generally calls for

the District to establish a system for hearings that conforms to

the requirements of due process. The provision thus

ultimately adds little to the plaintiffs’ arguments under the

Due Process Clause (which we separately consider below).

Under the regulations specifically addressing the

provision of notice of an opportunity for a hearing, the

requirement to afford notice arises, in relevant part, only “at

the time specified in paragraph (c)” of § 431.206. Id.

§ 431.206(b). The referenced “paragraph (c)” in turn calls for

the District to provide the mandated notice “(1) [a]t the time

that [an] individual applies for Medicaid” and “(2) [a]t the

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time of any action affecting his or her claim.” Id.

§ 431.206(c)(1)-(2) (emphasis added). The plaintiffs make no

claim of an entitlement to notice under subparagraph (1). We

therefore focus our attention on subparagraph (2), under

which notice is required at the time of an “action” affecting a

Medicaid beneficiary’s claim. Because, as explained, the

term “action” means a “termination, suspension, or reduction

of Medicaid eligibility or covered services,” id. § 431.201, the

pertinent question is whether any denial of prescription drug

coverage at a pharmacy amounts to a “termination,

suspension, or reduction of Medicaid eligibility or covered

services,” id.

We think the answer is no. The regulations, as explained,

draw a distinction between a person whose “claim for services

is denied” and a person who “believes the agency has taken

an action erroneously.” Id. § 431.220(1)-(2) (emphasis

added); see id. § 431.200(a)-(b). While both the “denial” of a

claim and an “action” affecting a claim (i.e., a termination,

suspension, or reduction of Medicaid eligibility or covered

services) trigger an “opportunity for a hearing” under the

regulations, id. § 431.220, the regulations pointedly call for

the provision of notice of the opportunity to request a hearing

only with regard to an “action affecting [a beneficiary’s]

claim,” id. § 431.206(c). The regulations contain no such

requirement of notice whenever a claim for coverage is

“denied.”

The distinction drawn by the notice regulations is

reinforced by the difference in common understanding

between a “denial,” on one hand, and a “termination,

suspension, or reduction,” on the other. In many cases, a

denial maintains the status quo; but in all cases, a

“termination, suspension, or reduction” alters the status quo.

That much is evident from the ordinary meanings of the

13

terms. All that is required for a denial is that a request be

turned down or rejected—a decision that, in many cases, will

maintain the status quo. But a “termination” is “an act of

ending something,” Termination, Merriam-Webster

Dictionary Online, http://www.merriam

webster.com/dictionary/termination (last visited June 30,

2015); a “suspension” is the “act of stopping or delaying

something,” Suspension, Merriam-Webster Dictionary

Online, http://www.merriam-

webster.com/dictionary/suspension (last visited June 30,

2015); and a “reduction” is “the act of making something

smaller,” Reduction, Merriam-Webster Dictionary Online,

http://www.merriam-webster.com/dictionary/reduction (last

visited June 30, 2015). All of those latter definitions involve

a change in, not mere maintenance of, existing conditions.

The procedures governing notice set forth in the

regulations cement our understanding that a denial of

prescription drug coverage would not generally qualify as a

“termination, suspension, or reduction” of covered services.

Apart from certain narrow exceptions not in issue here, the

regulations provide that, when the District is required to

afford notice, it must give notice “at least 10 days before the

date of [an] action,” 42 C.F.R. § 431.211; see also id.

§§ 431.213, 431.214—that is, ten days before the date of a

“termination suspension, or reduction of Medicaid eligibility

or covered services,” id. § 431.201. That requirement makes

sense in the case of a “termination, suspension, or reduction

of Medicaid eligibility or covered services” as ordinarily

understood: an action that alters the status quo. The advance-

notice requirement, however, makes little sense in the context

of a garden-variety denial of prescription drug coverage at the

point-of-sale in a pharmacy, which need not manifest any

alteration of the status quo.

14

For instance, if the District were set to implement a

reduction in the menu of covered services for Medicaid

beneficiaries, it could give beneficiaries notice ten days in

advance of the “action” it “intends to take” and of the

“individual’s right to request” a “hearing” in connection with

that action. Id. § 431.210(a), (d)(1)-(2). By contrast, there

would be no way for the District to know ten days in advance

that a patient will come to a pharmacy with a prescription but

will fail to comply with applicable prior authorization

requirements, thereby triggering a denial of coverage. In such

a case, it would be impossible for the District to comply with

the requirement under § 431.211 to give ten-day advance

notice of the opportunity for a hearing. It therefore would

make little sense to read the regulations to impose the notice

requirement (including the obligation to give notice ten days

in advance) for every denial of prescription drug coverage at

the point-of-sale.

For those reasons, we reject the plaintiffs’ argument that

Title XIX’s notice regulations are triggered whenever there

has been a denial of a claim for prescription drug coverage at

the point-of-sale. We therefore affirm the district court’s

dismissal of the plaintiffs’ Title XIX claims, albeit on

different grounds. See United States v. Coughlin, 610 F.3d

89, 108 (D.C. Cir. 2010).

III.

The district court also dismissed the plaintiffs’ due

process claims. To bring a claim under the Due Process

Clause, a plaintiff must show (i) deprivation of a protected

liberty or property interest, see Gen. Elec. Co. v. Jackson, 610

F.3d 110, 117 (D.C. Cir. 2010); (ii) by the government, see

Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 50 (1999);

(iii) without the process that is “due” under the Fifth

15

Amendment, see Mathews v. Eldridge, 424 U.S. 319, 334-35

(1976). The district court determined that, for most of the

alleged denials, the plaintiffs lacked a protected property

interest. The court further concluded that, for all of the

alleged denials, the plaintiffs failed to allege a deprivation at

the hands of the government. We disagree as to both

conclusions, and we therefore remand for further proceedings

to determine what process is “due” to the plaintiffs.

A.

“The first inquiry in every due process challenge is

whether the plaintiff has been deprived of a protected interest

in ‘liberty’ or ‘property.’” Gen. Elec. Co., 610 F.3d at 117.

“Only after finding the deprivation of a protected interest do

we look to see if the government’s [actions] comport with due

process.” Id. (brackets omitted). We conclude that the

plaintiffs have adequately alleged a protected property interest

in their prescription drug benefits.

It is well established that certain government benefits

give rise to property interests protected by the Due Process

Clause. See, e.g., Goldberg v. Kelly, 397 U.S. 254 (1970).

Not all government benefits do, however. To have a

protected property interest in a given benefit, “a person

clearly must have more than an abstract need or desire for it.

He must have more than a unilateral expectation of it. He

must, instead, have a legitimate claim of entitlement to it.”

Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 577

(1972). We have thus indicated in similar circumstances that

a “legitimate claim of entitlement” is an essential condition of

a protected property interest. See Roberts v. United States,

741 F.3d 152, 161 (D.C. Cir. 2014).

16

The District, echoing the district court’s reasoning,

contends that, to the extent the plaintiffs failed to meet

preconditions to prescription drug benefits under Medicaid

(e.g., valid Medicaid enrollment and satisfaction of any prior

authorization requirements), the plaintiffs had no “legitimate

claim of entitlement” to those benefits for due process

purposes. The District’s argument misapprehends what is

meant by a “legitimate claim of entitlement.” A “legitimate

claim of entitlement” means that a person would be entitled to

receive the government benefit assuming she satisfied the

preconditions to obtaining it. A claim of entitlement therefore

is “legitimate” if award of the benefit would follow from

satisfaction of applicable eligibility criteria. See Wash. Legal

Clinic for the Homeless v. Barry, 107 F.3d 32, 36 (D.C. Cir.

1997). Insofar as the government retains “unfettered

discretion” to withhold the benefit even upon satisfaction of

all eligibility criteria, “no constitutionally protected property

interest exists.” Id. But if “the statute or implementing

regulations place ‘substantive limitations on official

discretion’” to withhold award of the benefit upon satisfaction

of the eligibility criteria, there is a legitimate claim of

entitlement, as to which the Due Process Clause affords

protection. Id. (quoting Olim v. Wakinekona, 461 U.S. 238,

249 (1983)). Compare Daniels v. Woodbury Cnty., Iowa, 742

F.2d 1128, 1132-33 (8th Cir. 1984) (award of benefit

sufficiently mandatory), with Eidson v. Pierce, 745 F.2d 453,

461 (7th Cir. 1984) (award of benefit insufficiently

mandatory).

The District therefore errs in arguing that a plaintiff must

show that she satisfies the preconditions to prescription drug

coverage in order to have a “legitimate claim of entitlement”

to coverage. For instance, the District contends that a plaintiff

has no legitimate claim of entitlement in connection with a

drug requiring prior authorization unless the plaintiff has in

17

fact secured prior authorization. And the District similarly

argues that a plaintiff has no legitimate claim of entitlement if

she is not enrolled in Medicaid or if she fails to present valid

proof of enrollment. Those arguments incorrectly skip ahead

to the plaintiff’s ultimate eligibility for a government benefit

instead of asking whether she would be entitled to the benefit

if she were to satisfy the preconditions to obtaining it.

Here, we find that the plaintiffs have a legitimate claim of

entitlement to coverage of any drug not completely excluded

from coverage under Medicaid. The District’s Medicaid

regulations providing for prescription drug coverage use

mandatory, non-discretionary terms. See, e.g., D.C. Mun.

Regs. tit. 29, § 2703.1 (“The District of Columbia Medicaid

Program shall reimburse claims . . . .” (emphasis added)).

And the District makes no argument that, upon the

satisfaction of all eligibility criteria, it retains discretion to

deny a claim for a covered prescription drug. The plaintiffs

therefore have protected property interests in the coverage of

prescription drugs not completely excluded from Medicaid

coverage.

Of course, a plaintiff would still need to demonstrate

valid Medicaid enrollment and compliance with any prior

authorization or other threshold requirements in order for her

prescription, in fact, to be covered. But the procedural

protections of the Due Process Clause exist to give her a fair

opportunity to show that she meets the criteria for coverage.

We therefore conclude that the prescription drug coverage

sought by the plaintiffs qualifies as a property interest

protected by the Fifth Amendment.

18

B.

Because due process offers no shield against purely

private conduct, “however discriminatory or wrongful,”

Jackson v. Metro. Edison Co., 419 U.S. 345, 349 (1974), we

next examine whether the alleged deprivation of the plaintiffs’

property interests occurred at the hands of the government.

See Am. Mfrs. Mut. Ins. Co., 526 U.S. at 50. We find the Due

Process Clause’s state action requirement to be satisfied here:

The plaintiffs adequately alleged that Xerox, a private

company, determined their eligibility for benefits while acting

as an agent of the District.

At the motion-to-dismiss stage, we must accept all factual

allegations in the complaint as true. Browning v. Clinton, 292

F.3d 235, 242 (D.C. Cir. 2002). The plaintiffs’ complaint

includes a series of detailed allegations concerning the denials

of their claims after they presented their prescriptions in a

pharmacy and sought to invoke Medicaid coverage. As

described by the plaintiffs:

[T]he recipient presents the prescription to a

pharmacy provider. The pharmacy provider

immediately submits an electronic claim

through its computer to [Xerox]. The claims

are decided immediately. The pharmacy

provider receives an electronic return message

from [Xerox] indicating whether the

prescription will be covered by Medicaid. If

the claim is denied, the pharmacy provider

provides an electronic return message with a

rejection code that corresponds to the reason

for the denial of the claim.

19

Pls.’ Amend. Compl. ¶ 34. Accepting the truth of those

allegations, that is more than enough for us to make a

reasonable inference that Xerox, upon submission of a

prescription to a pharmacy, engages in a real-time

determination of the plaintiffs’ eligibility for prescription drug

benefits under Medicaid.

The District points out that Xerox’s claims system is not

necessarily involved every time a pharmacist informs a

patient that coverage has been denied. That may be true. For

instance, a pharmacist might simply decline to relay a

prescription through Xerox’s system and then unilaterally

inform a plaintiff that coverage has been denied. But in

addition to their general description of the process, the

plaintiffs also included in their complaint specific instances—

with rejection codes—in which Xerox determined their

coverage. See, e.g., Pls.’ Amend. Compl. ¶ 81. With

upwards of 6,000 claims passing through Xerox’s system on a

single day (of which approximately half may be denied), see

id. ¶ 44, we readily infer at this stage that many of the

plaintiffs’ claims follow that process. For purposes of

resolving the District’s motion to dismiss, we make the

reasonable inference that, unless a plaintiff has otherwise

alleged specific facts to the contrary, a pharmacist who

informs a claimant of a coverage denial is generally

communicating the results of Xerox’s determination.

Xerox, therefore, took the “action.” But is Xerox’s

action “state action?” We find that it is. While the actions of

private actors generally do not count as state action for due

process purposes, see, e.g., S.F. Arts & Athletics, Inc. v. U.S.

Olympic Comm., 483 U.S. 522, 543-47 (1987), the state

action requirement is met if “there is such a close nexus

between the State and the challenged action that seemingly

private behavior may be fairly treated as that of the State

20

itself,” Brentwood Acad. v. Tenn. Secondary Schs. Athletic

Ass’n, 531 U.S. 288, 295 (2001) (internal quotation marks

omitted). The requisite nexus generally exists when a private

party acts as an agent of the government in relevant respects.

See Skinner v. Ry. Labor Execs.’ Ass’n, 489 U.S. 602, 614

(1989). Here, the allegations in the complaint support the

inference that Xerox acted as the District’s agent for purposes

of determining a person’s eligibility for prescription drug

coverage under Medicaid. The District does not contend

otherwise.

The District instead argues that the state action

requirement remains unsatisfied because Xerox is not

necessarily at fault in circumstances in which the Xerox

system denies coverage to which a beneficiary in fact has an

entitlement. After all, the District observes, there may be

myriad reasons for the erroneous denial of prescription drug

coverage, including “pharmacy, physician, or patient error.”

Appellees’ Br. 45. That is undoubtedly the case. But it still

remains Xerox’s determination that occasions denial of the

recipients’ claimed coverage. Xerox’s actions—on behalf of

the District—effected the denial of prescription drug

coverage. We therefore find the state action requirement to

be satisfied.

C.

The final step in the due process inquiry calls for

assessing whether the plaintiffs received constitutionally

adequate process in connection with the denial of benefits.

“[D]ue process is flexible and calls for such procedural

protections as the particular situation demands.” Mathews,

424 U.S. at 334. The analysis

21

generally requires consideration of three

distinct factors: First, the private interest that

will be affected by the official action; second,

the risk of an erroneous deprivation of such

interest through the procedures used, and the

probable value, if any, of additional or

substitute procedural safeguards; and finally,

the Government’s interest, including the

function involved and the fiscal and

administrative burdens that the additional or

substitute procedural requirement would entail.

Id. at 335.

Here, the plaintiffs do get some process: Upon a denial

of coverage, they may contact DHCF and the District will

provide them with a reason. See, e.g., Pls.’ Amend. Compl.

¶ 102. And a hearing is always available to “[a]ny beneficiary

who requests it because he or she believes the agency has

taken an action erroneously.” 42 C.F.R. § 431.220(a)(2). But

the plaintiffs contend that the Due Process Clause entitles

them to more process, including written notice of the

opportunity to request a hearing anytime prescription drug

coverage is denied at the point-of-sale.

We do not resolve that issue. The district court has yet to

pass upon it, so neither will we. See Liberty Prop. Trust v.

Republic Props. Corp., 577 F.3d 335, 341 (D.C. Cir. 2009).

Rather, we remand the case to permit the district court to

conduct an inquiry in the first instance into what process is

due.

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* * * * *

For the foregoing reasons, we affirm in part and reverse

in part the district court’s decision. We affirm the court’s

dismissal of the plaintiffs’ Title XIX claims. We reverse the

court’s dismissal of the due process claims and remand for

consideration of what process the plaintiffs are due under the

Fifth Amendment. Finally, we note that the district court can

reconsider its jurisdiction over the D.C.-law claims in light of

our partial reversal.

So ordered.