Urban Health Care Coalition v. Sebelius

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

______________________________
)
URBAN HEALTH CARE )
COALITION, et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 06-2220 (RWR)
)
KATHLEEN SEBELIUS, )
)
Defendant. )
______________________________)

MEMORANDUM OPINION

Plaintiffs Urban Health Care Coalition and fifteen

hospitals, medical centers, and health systems (referred to

collectively as “the Hospitals”) have sued the Secretary of the

Department of Health and Human Services1 seeking to enjoin the

Secretary from enforcing § 6085 of the Deficit Reduction Omnibus

Act of 2005 (“DRA”), codified at 42 U.S.C. § 1396u-2(b)(2)(D),

arguing that § 6085 does not apply to Pennsylvania’s Medicaid

system and is unconstitutional. The Secretary moves to dismiss

under Federal Rule of Civil Procedure 12(b)(1) for lack of

subject-matter jurisdiction and under Rule 12(b)(6) for failure

to state a claim upon which relief may be granted. Because the

Hospitals do not have standing, the complaint will be dismissed

for lack of subject matter jurisdiction.

1
Kathleen Sebelius is substituted as the defendant under
Fed. R. Civ. P. 25(d).
 -2-

BACKGROUND

The Hospitals sue the Secretary, challenging the

constitutionality of § 6085 and its applicability to

Pennsylvania. In Pennsylvania, Medicaid enrollees can obtain

medical services through the state’s fee for service (“FFS”)

program. In the FFS program, service providers, such as the

Hospitals, enter into participation agreements with the

Pennsylvania agency that oversees Medicaid. The Hospitals all

participate in Medicaid and the payments from the FFS program are

“below the hospitals’ actual costs of providing hospital

services.” (Am. Compl. ¶¶ 3, 31.)

In addition to the FFS program, Pennsylvania has a managed

care program through which it contracts with managed care

organizations (“MCOs”). The MCOs provide services to Medicaid

enrollees through contracts with “a ‘network’ of physicians,

hospitals[,] and other in-plan medical service providers.” (Id.

¶¶ 34, 40.) For the same services, the Hospitals generally

receive higher payments from their contracts with MCOs than from

the FFS program. (Id. ¶ 75.) However, even if the Hospitals are

not providers under contract with a particular MCO, the Hospitals

are required by federal law to provide emergency medical services

(“EMS”) to all Medicaid patients who are in that MCO. (Id.

¶ 62.) Before January 1, 2007, the Hospitals provided EMS to

such Medicaid patients and billed those patients’ MCOs for “all
 -3-

reasonably necessary costs,” as required by 40 Pa. Cons. Stat.

§ 991.2116.2 (Id. ¶ 78 (internal quotation marks omitted).)

These rates under § 991.2116 were higher than the FFS rates.

(Id. ¶ 79.) Section 6085 changed the Hospitals’ payments from

MCOs with whom the Hospitals had not contracted by preempting

§ 991.2116. (Id. ¶ 81.) Section 6085 states, in relevant part,

that

[a]ny provider of emergency services that does not have
in effect a contract with a Medicaid managed care
entity that establishes payment amounts for services
furnished to a beneficiary enrolled in the entity’s
Medicaid managed care plan must accept as payment in
full no more than the amounts (less any payments for
indirect costs of medical education and direct costs of
graduate medical education) that it could collect if
the beneficiary received medical assistance under this
subchapter other than through enrollment in such an
entity.

42 U.S.C. § 1396u-2(b)(2)(D). Section 6085 requires the

Hospitals not under contract with an EMS patient’s MCO to forego

the higher payments under Pennsylvania’s “all reasonably

necessary costs” standard and instead accept payments based on

2
Under Pennsylvania law,

[i]f an enrollee seeks emergency services and the
emergency health care provider determines that
emergency services are necessary, the emergency health
care provider shall initiate necessary intervention to
evaluate and, if necessary, stabilize the condition of
the enrollee without seeking or receiving
authorization from the managed care plan. The managed
care plan shall pay all reasonably necessary costs
associated with the emergency services provided during
the period of the emergency.

40 Pa. Cons. Stat. § 991.2116.
 -4-

Pennsylvania’s FFS rates. (Am. Compl. ¶¶ 90-92.) The Hospitals

complain that this shifts the financial burden from the MCOs to

the Hospitals as the FFS rates for EMS are below cost, and

affects the Hospitals’ “ability to negotiate fair rates of

payment from MCOs” in the future. (Id. ¶¶ 102, 105-106.) After

Congress enacted the DRA, the Director of the Centers for

Medicare and Medicaid Services (“CMS”), an agency within the

Department of Health and Human Services, sent a letter to state

Medicaid agencies advising them that they must amend their

contracts with MCOs to comply with the new limitation of § 6085

and that the Hospitals must accept the FFS rates as payment in

full. (Pls.’ Corrected Opp’n to Def.’s Mot. to Dismiss (“Pls.’

Opp’n”), Ex. B at 1.)

The Hospitals seek to enjoin the Secretary from enforcing

§ 6085 against them, arguing that the statute does not apply to

Pennsylvania and is unconstitutional as applied because it

violates the takings clause, due process rights, and equal

protection under the law.3 (Am. Compl. ¶¶ 8, 127, 137, 144,

154.) The Secretary has moved to dismiss, arguing that there is

3
The Hospitals also argue that § 6085 is unconstitutional
because the DRA was not validly enacted due to a violation of the
bicameralism clause. However, the D.C. Circuit has concluded
that Congress validly passed the DRA. See Pub. Citizen v. U.S.
Dist. Court for the Dist. of Columbia, 486 F.3d 1342, 1350 (D.C.
Cir. 2007) (applying the enrolled bill rule and finding that
“[w]here such an attested enrolled bill exists, . . . ‘the
judicial department [shall] act upon that assurance, and . . .
accept [the bill] as having passed Congress”).
 -5-

no subject matter jurisdiction over the Hospitals’ claim and that

the complaint fails to state a claim upon which relief can be

granted. (Def.’s Mem. in Supp. of Mot. to Dismiss (“Def.’s

Mem.”) at 11, 26.)

DISCUSSION

A federal court should first determine that it has

jurisdiction over a case before ruling on the merits. Al-Zahrani

v. Rodriguez, 669 F.3d 315, 317-18 (D.C. Cir. 2012); Moms Against

Mercury v. Food & Drug Admin., 483 F.3d 824, 826 (D.C. Cir. 2007)

(“In every case, the jurisdictional requirements of Article III

must be present before a court may proceed to the merits.”); but

see Sinochem Int’l Co. Ltd. v. Malaysia Int’l Shipping Corp., 549

U.S. 422, 430-32 (2007) (distinguishing between proceeding to the

merits and proceeding to threshold issues such as abstention,

forum non conveniens, and prudential standing). “On a motion to

dismiss for lack of subject-matter jurisdiction pursuant to Rule

12(b)(1), the plaintiff bears the burden of establishing that the

court has subject-matter jurisdiction.” Larsen v. U.S. Navy, 486

F. Supp. 2d 11, 18 (D.D.C. 2007). “Because subject-matter

jurisdiction focuses on the court’s power to hear the claim,

. . . the court must give the plaintiff’s factual allegations

closer scrutiny when resolving a Rule 12(b)(1) motion than would

be required for a Rule 12(b)(6) motion for failure to state a

claim.” Jin v. Ministry of State Sec., 475 F. Supp. 2d 54, 60
 -6-

(D.D.C. 2007). The court may look beyond the complaint, but

“must accept as true the allegations in the complaint and

consider the factual allegations of the complaint in the light

most favorable to the non-moving party.” Short v. Chertoff, 526

F. Supp. 2d 37, 41 (D.D.C. 2007). See also Nat’l Ass’n of Home

Builders v. U.S. Army Corps of Eng’rs, 539 F. Supp. 2d 331, 337

(D.D.C. 2008) (stating that “the court is not limited to the

allegations contained in the complaint” and can consider other

undisputed facts on the record).

“[A] showing of standing is an essential and unchanging

predicate to any exercise of [a court’s] jurisdiction.” Fla.

Audubon Soc’y v. Bentsen, 94 F.3d 658, 663 (D.C. Cir. 1996)

(internal quotation marks omitted). In order for a plaintiff to

establish standing to bring a constitutional claim, Article III

requires that the plaintiff demonstrate (1) that he has suffered

“an injury in fact” that is “(a) concrete and particularized and

(b) actual and imminent, not conjectural or hypothetical,” (2)

that there exists “a causal connection between the injury and the

conduct complained of,” that is, that the injury is “fairly

traceable to the challenged action of the defendant,” and (3)

that it is “likely, as opposed to merely speculative, that the

injury will be redressed by a favorable decision.” Lujan v.

Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal

quotation marks and citations omitted).
 -7-

I. INJURY-IN-FACT

An injury in fact is “an invasion of a legally protected

interest[.]” Lujan, 504 U.S. at 560 (internal quotation marks

and citations omitted). At the pleading stage, the “general

factual allegations of injury resulting from the defendant’s

conduct may suffice,” since on a motion to dismiss, a court

presumes “that general allegations embrace those specific facts

that are necessary to support the claim.” Bennett v. Spear, 520

U.S. 154, 168 (1997) (internal quotation marks omitted). Here,

the Hospitals allege that § 6085 reduces their reimbursements for

non-contracted EMS from the level at which they would otherwise

be entitled to be paid under Pennsylvania law. (Pl.’s Opp’n at

8.) This constitutes a concrete, actual harm to the Hospitals’

financial interests and is sufficient to satisfy the requirement

of injury in fact. See Andrews v. U.S. Dep’t of Health and Human

Srvcs., Civil Action No. 04-307 (JR), 2005 WL 4826342, at *2

(Apr. 13, 2005) (“Economic injury may amount to injury-in-fact

for standing purposes.”).

II. CAUSATION

“In applying the causation test, . . . ‘fair traceability

turns on the causal nexus between the agency action and the

asserted injury.’” Humane Soc’y of U.S. v. Babbitt, 46 F.3d 93,

100 (D.C. Cir. 1995) (quoting Freedom Republicans, Inc. v. FEC,

13 F.3d 412, 418 (D.C. Cir. 1994)). The plaintiff “need not
 -8-

prove a cause-and-effect relationship with absolute certainty;

substantial likelihood of the alleged causality meets the test.”

Competitive Enter. Insts. v. Nat’l Highway Traffic Safety Admin.,

901 F.2d 107, 113 (D.C. Cir. 1990). Standing to challenge the

government’s regulation of a third party is possible, Nat’l

Wrestling Coaches Ass’n v. Dep’t of Educ., 366 F.3d 930, 940

(D.C. Cir. 2004), but when a plaintiff is not the object of a

government action, standing is “substantially more difficult to

establish[.]” Long Term Care Pharmacy Alliance v. Leavitt, 530

F. Supp. 2d 173, 181 (D.D.C. 2008) (internal quotation marks

omitted). A plaintiff may satisfy the causation element of

standing by alleging that the challenged government action

“permits or authorizes third-party conduct that would otherwise

be illegal in the absence of the Government’s action.” Nat’l

Wrestling Coaches Ass’n, 366 F.3d at 940.

The Hospitals contend that they are directly injured by the

Secretary’s enforcement of § 6085, which requires them to accept

payments at Pennsylvania’s FFS rates for EMS and impairs their

ability to negotiate future contracts with MCOs. (Am. Compl.

¶¶ 102, 105; Pls.’ Opp’n at 12, 17.) The Secretary argues that

the injury is not traceable to a past or imminent action that she

has taken or is about to take, but is instead traceable to a

statute passed by Congress. (Def.’s Reply Mem. in Support of

Mot. to Dismiss (“Def.’s Reply”) at 2.) The amended complaint
 -9-

does not explicitly make reference to a specific action by the

Secretary in connection with § 6085 that caused the Hospitals’

injury. However, in their opposition, the Hospitals attached a

2006 letter to state Medicaid agencies sent by the Director of

CMS, which provided “initial guidance” that “[s]tates must amend

any existing MCO . . . contracts that have provisions governing

payment for emergency services at non-contracting providers that

are inconsistent with the requirements of new section

1932(b)(2)(D) . . . before January 1, 2007.” (Pls.’ Opp’n, Ex. B

at 1.) The letter also stated that providers had to “accept [the

FFS rates] as payment in full,” and advised that MCOs had to

limit the amount to be paid to non-contracting providers.4 (Id.)

The Secretary contends that the letter to state Medicaid agencies

is insufficient to support causation because “[this action is]

4
The Secretary argues that the letter attached to the
Hospitals’ opposition should not be considered and that the
Hospitals have changed the nature of their claims. The complaint
did not explicitly mention the Secretary’s letter to state
Medicaid agencies. However, when a Rule 12(b)(1) motion to
dismiss is filed, a plaintiff’s factual allegations must be given
closer scrutiny, and a court is not limited to allegations
contained in the complaint and may consider materials outside the
pleadings. Powers-Bunce v. District of Columbia, 541 F. Supp. 2d
57, 62 (D.D.C. 2008); see also Nat’l Ass’n of Home Builders, 539
F. Supp. 2d at 337 (stating that a court “may consider the
complaint supplemented by undisputed facts evidenced in the
record”). The Secretary concedes that documents outside the
pleadings can be considered in a ruling on a Rule 12(b)(1)
motion. (Def.’s Mem. in Opp’n to Pls.’ Mot. for Leave to File
Surreply at 4 n.3.) Moreover, Rule 8 does not require that the
Hospitals plead all facts that are needed to prove a claim and
the complaint does allege that the Secretary is responsible for
the administration and enforcement of Medicaid, including the
changes made by the DRA. (Am. Compl. ¶ 18.)
 -10-

irrelevant to the injury plaintiffs claim to suffer, which flows

directly from § 6085, with or without approval by the Secretary

of any particular MCO contract.” (Def.’s Reply at 8.) The

Hospitals allege that the letter caused the MCOs and Pennsylvania

to modify their contracts to comply with § 6085 and that because

of these changes, the Hospitals must accept the lower rates as

payment in full for EMS not rendered under a contract with an

MCO. (Pls.’ Opp’n at 17.)5 Ultimately, it is unnecessary to

resolve whether the causation prong is satisfied because,

regardless of whether the letter contributed to the Hospitals’

financial loss, a favorable decision in this action will not

redress the injury. See Renal Physicians Ass’n v. U.S. Dep’t of

Health & Human Srvcs., 489 F.3d 1267, 1278 (D.C. Cir. 2007)

(explaining that “causation does not inevitably imply

redressability,” because there may be instances where

5
The Secretary argues that no applicable waiver of
sovereign immunity permits the suit against the government.
(Def.’s Mem. at 23-25.) “Absent a waiver, sovereign immunity
shields the Federal Government and its agencies from suit.” FDIC
v. Meyer, 510 U.S. 471, 475 (1994). Congress has waived its
sovereign immunity for suits against government officers seeking
relief other than monetary damages. 5 U.S.C. § 702 (“An action
in a court of the United States seeking relief other than money
damages and stating a claim that an agency or an officer or
employee thereof acted or failed to act . . . shall not be
dismissed on the ground that it is against the United States or
that the United States is an indispensable party.”). Although
Congress enacted this waiver provision in the Administrative
Procedure Act, it is not limited to claims brought under that
Act. Trudeau v. FTC, 456 F.3d 178, 186 (D.C. Cir. 2006). The
Hospitals seek a declaratory judgment, not money damages, and the
2006 letter constitutes officer action for the purposes of 5
U.S.C. § 702.
 -11-

“governmental action is a substantial contributing factor in

bringing about a specific harm, but the undoing of the

governmental action will not undo the harm”).

III. REDRESSABILITY

Redressability focuses on the question of whether

plaintiffs’ injury would likely be cured if they secured the

relief sought. Fla. Audubon Soc’y, 94 F.3d at 663-64

(“Redressability examines whether the relief sought, assuming

that the court chooses to grant it, will likely alleviate the

particularized injury alleged by the plaintiff.”) (footnote

omitted). A plaintiff does not need to show that the relief

sought would redress the injury completely. See Shays v. FEC,

414 F.3d 76, 83 (D.C. Cir. 2005). However, redressability cannot

depend upon the action or discretion of a non-party not before

the court. See Univ. Med. Ctr. of S. Nev. v. Shalala, 173 F.3d

438, 442 (D.C. Cir. 1999) (stating that even if the plaintiff

prevailed, “it has never explained how, or under what legal

theory, it would be entitled to recover” against non-parties).

“When redress depends on the cooperation of a third party, it

becomes the burden of the [plaintiff] to adduce facts showing

that those choices have been or will be made in such manner as to

produce causation and permit redressability of injury.” US

Ecology, Inc. v. U.S. Dep’t of Interior, 231 F.3d 20, 24-25 (D.C.

Cir. 2000) (internal quotation marks omitted).
 -12-

The Hospitals present several different theories of

redressability.6 First, the Hospitals argue that declaring

§ 6085 unconstitutional as applied and enjoining the Secretary’s

enforcement of the section would eliminate the preemptive effect

of § 6085 on Pennsylvania law, restoring the status quo ante in

which the MCOs were contractually obligated to pay the Hospitals

at the higher rates prescribed by Pennsylvania law. (Pls.’

Surreply at 3-4.) Second, the Hospitals argue that because

§ 6085 prohibits the Hospitals themselves from charging the MCOs

at the higher Pennsylvania rates, a favorable judgment would

redress an injury by removing a procedural impediment to the

Hospitals’ ability to pursue claims against the MCOs. (Pls.’

Supp. Mem. 6-9.) Third, the Hospitals argue that the declaratory

and injunctive relief sought will improve the Hospitals’

“bargaining leverage” by decreasing the likelihood that the MCOs

will rely on § 6085 to avoid negotiating case-specific agreements

with the Hospitals. (Pls.’ Supp. Mem. at 12-15.) Each of these

theories is flawed.

A. Effect on the MCOs’ contractual obligations

The Hospitals maintain that “MCOs have been expressly

contractually bound as a condition of serving in the

[Pennsylvania Medicaid program] to pay for non-contracted EMS at

6
Supplemental briefing was ordered on the specific question
of redressability. Citations generally refer to the parties’
most recent arguments, which elaborate rather than replace the
discussions of redressability in earlier briefing.
 -13-

the rates prescribed by Act 68 (40 P.S. § 991.2116), ‘but for’

§ 6085.” (Pls.’ Surreply at 3.) Following a declaratory

judgment in the Hospitals’ favor, the Hospitals contend that the

Pennsylvania statute that governs reimbursement for EMS, which

requires MCOs to pay “all reasonably necessary costs[,]” 40 Pa.

Cons. Stat. § 991.2116, will provide the controlling law for

MCOs’ payments. Consequently, the Hospitals argue that the MCOs

will pay them in accordance with Pennsylvania law after § 6085

is declared unlawful because to do otherwise would violate the

terms of the MCOs’ state contracts. (Pls.’ Surreply at 4.) See

also Pls.’ Opp’n at 17 (arguing that the Hospitals “automatically

would be entitled upon the entry of a favorable judgment in this

case to reimbursement for EMS from non-contracted Medicaid MCOs

at the much higher rates prescribed by Pennsylvania Act 68”).

Neither declaratory nor injunctive relief in this case, however,

would ensure or make likely that the MCOs would behave in the

manner the Hospitals assume.

Because § 6085 is a statutory provision enacted by Congress,

not a regulation adopted by the Secretary or her department, a

judgment in this case declaring it unconstitutional and enjoining

the Secretary from “enforcing” it (Am. Compl. at 31) will not

effect any change in federal Medicaid law that could bind non-

parties.7 That this action challenges a federal statutory

7
The preemptive effect of § 6085 does not depend on any
enforcement action by the Secretary. Although the Hospitals
 -14-

provision distinguishes the instant case from others in which

courts found injuries stemming from non-party conduct to be

redressable by a judgment against the head of a government

agency. In Nat’l Wrestling Coaches Ass’n, the D.C. Circuit

identified a category of cases in which courts find plaintiffs’

injuries from third parties redressable in actions against an

agency because the “government action . . . permits or authorizes

third-party conduct that would otherwise be illegal in the

absence of the Government’s action.” 366 F.3d at 940. The

meaning of this principle is elucidated only by reference to the

cases the court actually identified as falling within the

category, each of which involved a challenge to agency rule-

making or agency adjudication that affected, and effectively

bound, the third-parties. Id. at 940 (citing cases). In one

case, Animal Legal Def. Fund, Inc v. Glickman, 154 F.3d 426 (D.C.

Cir. 1998) (en banc), for example, the D.C. Circuit considered a

suit brought by animal welfare activists challenging Department

of Agriculture regulations that applied to third party dealers,

referred to the notice from the Director of CMS advising State
Medicaid Directors of the enactment of the section and the need
to update MCO contracts (Pls.’ Opp’n at 10-11, Ex. B), the
notification merely provided preliminary “guidance” on the
statutory requirements and did not itself purport to give those
requirements legal force. In addition, while the Secretary must
approve prepaid contracts between the states and MCOs in certain
circumstances, ensuring their compliance with the default rate
provision, see 42 U.S.C. 1396b(m)(2)(A)(iii) and (xii), § 6085’s
requirement that the Hospitals accept the FFS rates operates
irrespective of the Secretary’s approval of any given contracts.
 -15-

exhibitors, and research facilities. The court held that the

plaintiffs’ aesthetic injury, which arose from observing animals

held in inhumane conditions at the third parties’ facilities,

could be redressed by a favorable judgment directing the agency

to adopt more stringent rules to regulate the non-parties at

issue. Id. at 443-44; see also Banner Health v. Sebelius, 797 F.

Supp. 2d 97 (D.D.C. 2011) (finding that Medicare providers’

standing to challenge Health and Human Services Secretary’s

promulgation of outlier payment regulations, fixed loss threshold

regulations, and her determinations as to the amount of outlier

payments was self-evident because the plaintiffs were the object

of agency’s own rule-making and adjudication). By contrast, this

case challenges a statutory provision that imposes requirements

on third parties irrespective of actions of the Secretary or her

agency. The MCOs’ contractual obligations, which depend on the

statute, will not be altered by a judgment against the Secretary

where the MCOs are not themselves parties to this action.

The recent case of LaRoque v. Holder, 650 F.3d 777 (D.C.

Cir. 2011), addressed by the parties in supplemental briefing,

does not support the Hospitals’ contention that a declaratory

judgment in the instant case would void § 6085 for the MCOs or

for the State of Pennsylvania. In LaRoque, voters and a

citizen’s group challenged the United States Attorney General’s

refusal to pre-clear under Section 5 of the Voting Rights Act a
 -16-

jurisdiction’s proposed amendment to its election system and

argued that Section 5 is unconstitutional. Absent the Attorney

General’s objection, the proposed amendment would have taken

effect. The D.C. Circuit found that the plaintiffs’ injury could

be redressed by a favorable decision, because if Section 5 were

found unconstitutional, the Attorney General’s actions under that

statute would be rendered void. Id. at 790-91. The Hospitals

contend that LaRoque compels the result that the constitutional

claims in the instant case are redressable because a favorable

decision will void § 6085. (Pls.’ Reply to Def.’s Supp. Mem. at

2-5.) The D.C. Circuit’s decision, however, depended on the

unique structure of Section 5, a statutory provision that

“provides that ‘no person shall be denied the right to vote for

failure to comply’ with a new electoral law ‘unless and until’

the law is precleared by either the Attorney General or the

District Court for the District of Columbia.” LaRoque, 650 F.3d

at 790 (quoting 42 U.S.C. § 1973c(a)). The operation of Section

5 therefore expressly requires action by the Attorney General, or

by the district court. Placed in this factual context, the

LaRoque plaintiffs’ injuries were “fairly traceable to the

Attorney General’s insistence on enforcing section 5’s

preclearance requirement[,]” id. at 789, and a declaratory

judgment that Section 5 is unconstitutional, voiding the action

of Attorney General, would redress those injuries.
 -17-

Unlike Section 5, the operation of § 6085 does not hinge on

any action of the Secretary. See 42 U.S.C. § 1396u-2(b)(2)(D);

supra at 3 (quoting the statutory language). Here, a declaratory

judgment and injunction against the Secretary will not preclude

the MCOs from relying on § 6085 to pay the Hospitals in

accordance with the federal default rate or from re-litigating

the issue in a suit against the Hospitals. In Taylor v.

Sturgell, the Supreme Court reaffirmed the general rule against

nonparty preclusion, reasoning that because “[a] person who was

not a party to a suit generally has not had a ‘full and fair

opportunity to litigate’ the claims and issues settled in that

suit[,]” a non-party is not prevented, by claim or issue

preclusion, from having “his own day in court.” Taylor v.

Sturgell, 553 U.S. 880, 892-93 (2008) (quoting Richards v.

Jefferson County, 517 U.S. 793, 798 (1996)). The Court also

recognized several exceptions to the general rule, and the

Hospitals argued in supplemental briefing that the MCOs would be

precluded from relitigating the constitutionality of § 6085 under

the exceptions permitting a non-party to be bound by a judgment

where the non-party’s interests were “adequately represented” by

a party to the suit, Taylor, 553 U.S. at 894 (quoting Richards,

517 U.S. at 798) and where the non-party “‘assume[d] control’

over the litigation in which th[e] judgment was rendered,” id. at

895 (quoting Montana v. United States, 440 U.S. 147, 154 (1979)).
 -18-

The Taylor Court, however, construed both of these

exceptions narrowly, and neither applies here. The Secretary

does not adequately represent the MCOs’ interests because there

is no evidence that she defends this suit in a “representative

capacity” on behalf of the MCOs and because there are in place no

“special procedures to protect the nonparties’ interests[.]” Id.

at 897; see also Holland v. Nat’l Mining Ass’n, 309 F.3d 808, 814

(D.C. Cir. 2002) (finding no adequate representation of private

parties’ interests in a prior suit against an agency to determine

statutorily required payment to those parties because they “ha[d]

a monetary incentive to adopt a statutory interpretation that

will maximize [their] revenues” while agency “must act

impartially and does not have a monetary incentive to adopt a

particular statutory interpretation”). Further, preclusion based

on assumption of control over the litigation requires that a

party litigate an action for the non-party’s benefit and at the

non-party’s direction. Montana, 440 U.S. at 154. In Montana,

the Supreme Court held the United States was precluded from

relitigating the constitutionality of a state tax where it had

assumed control of a prior constitutional challenge brought by a

government contractor. The Court based its holding on findings

that the United States had required the contractor to file suit,

reviewed and approved the complaint, and paid the attorneys’ fees

and costs, among other efforts. Id. at 155. The Hospitals have
 -19-

neither alleged nor provided evidence of the MCOs’ involvement in

the instant litigation, and the Hospitals’ contention that

Ҥ 6085 was enacted at the instigation and for exclusive

financial benefit of Medicaid MCOs” (Pls.’ Reply to Defs.’ Supp.

Mem. at 7) is insufficient to support a reasonable inference that

the MCOs have assumed or may assume control of the litigation.

In the absence of enjoinable agency action or preclusive

effect, this is not a case where non-parties could only continue

to rely on § 6085 after it was declared unconstitutional if they

“took the extraordinary measure of continuing their injurious

conduct in violation of the law.” Nat’l Wrestling Coaches Ass’n,

366 F.3d at 941. Because the MCOs are not parties to this

action, a judgment for the Hospitals will not bind them. The

Hospitals’ failure to sue or join the MCOs thus is fatal to the

redressability of this action. Cf. Duke Power Co. v. Carolina

Envtl. Study Group, 438 U.S. 59, 75-78 (1978) (finding

redressability requirement satisfied in suit challenging

constitutionality of Price-Anderson Act, which limited liability

of federally licensed power plants for nuclear accidents, where

plaintiff citizens groups and interested individuals sued both

the Nuclear Regulatory Commission and the utility company whose

liability the Act limited). Moreover, for the reasons that are

discussed below, the redressability requirement is not met if the

present suit serves only to produce a judgment that could be
 -20-

marshaled against the MCOs in subsequent litigation or that could

have a favorable impact upon the Hospitals’ future negotiations

with those parties.8

B. The Hospitals’ ability to pursue claims against MCOs

Alternatively, the Hospitals contend that their claims are

redressable because § 6085 regulates the Hospitals’ own conduct,

limiting what they can collect from MCOs. (Pls.’ Supp. Mem. at

3.) According to the Hospitals, regardless of whether the MCOs

are bound by a favorable decision in this case, such a decision

would free the Hospitals to seek higher payments from the MCOs.9

8
In their surreply, the Hospitals argue that absolute
certainty of recovery from the MCOs is not necessary to satisfy
the redressability requirement of standing. See Pls.’ Surreply
at 1-2 (“The standard is not whether all MCOs will be absolutely
bound by a judgment to pay plaintiffs in accordance with
controlling state law if § 6085 is enjoined, but whether it is
more likely than not that they will do so.”). It is true that
absolute certainty is not required. However, the probability
that the MCOs would voluntarily cease reliance on § 6085 is
distinctly low. The MCOs have a substantial competing interest
concerning the application of § 6085, which allows them to pay
lower rates for EMS. Cf. Abigail Alliance for Better Access to
Developmental Drugs v. Eschenbach, 469 F.3d 129, 135 (D.C. Cir.
2006) (reasoning that redressability was not speculative because,
unlike a situation where third-parties had no inclination to act,
the drug companies at issue had “pecuniary interests” to provide
the relief the plaintiffs desired “if the [defendant] FDA
allow[ed] them” to). The Hospitals have provided no evidence of
the MCOs’ inclination to act contrary to these clear financial
interests. Cf. Emergency Coal. to Defend Educ. Travel v. U.S.
Dep’t of the Treasury, 545 F.3d 4, 11 (D.C. Cir. 2008) (finding
redressability where plaintiffs provided a letter from third
party stating that it planned to remedy the injury once the
regulatory obstacles were moved).
9
The Hospitals cite Idaho Power Co. v. FERC, 312 F.3d 454
(D.C. Cir. 2002) for the broad proposition that a party has
“presumptive standing to challenge a law that directly regulates
 -21-

The complaint thus contemplates future suits against the

MCOs, stating that “unless the application of the DRA Default

Rate Provision is enjoined as to Plaintiffs, Plaintiffs will have

no way to assert and preserve claims against MCOs for amounts in

excess of the confiscatory rates imposed by § 6085.” (Am. Compl.

¶ 104.) The requested relief would allegedly allow the Hospitals

to pursue their claims against the MCOs and to avoid “potential

criminal liability and exclusion from Medicare and Medicaid.”

(Id.) However, the two-step process of obtaining a declaratory

judgment and then suing a non-party for payment does not satisfy

redressability. In University Medical Center, for example, where

a hospital sought a declaratory judgment against the Secretary to

be deemed eligible to receive discounts on drug prices, the D.C.

Circuit held that the hospital failed to demonstrate that the

injury from its loss of past discounts was redressable because

there was no guarantee that drug manufacturers would apply the

discounts retroactively and the hospital likely would have to

its own conduct.” (Pls.’ Supp. Mem. at 5.) The Idaho Power case
addressed an electric utility’s petition for review of an
agency’s orders based on the agency’s interpretations of its
rules. The court’s observation that it was “inconceivable that
Idaho Power could be subjected to a [Federal Energy Regulatory
Commission] order requiring it to enter into a specific contract
concerning the use of its property but lack standing to challenge
that order,” Idaho Power, 312 F.3d at 461, must be read in the
factual context of that case. Because the Hospitals challenge
the constitutionality of a statute -– rather than allege
arbitrary and capricious action by the Secretary that may be
remedied by the Secretary -- the Idaho Power decision’s reasoning
is inapposite here.
 -22-

initiate a second suit against the drug manufacturers to receive

the desired relief. Univ. Med. Ctr. of S. Nev., 173 F.3d at 441-

42. The court viewed this as a “concession” that the claim was

not redressable because “[r]edressability must be satisfied now

to establish jurisdiction.” Id. at 442 (emphasis in original).10

See also Comite de Apoyo a los Trabajadores Agricolas v. U.S.

Dep’t of Labor, 995 F.2d 510, 514 (4th Cir. 1993) (finding no

standing because the plaintiff’s requested relief against the

defendant would not bind a non-party and any decision by the

court would be advisory in future litigation); Bates v. Rumsfeld,

271 F. Supp. 2d 54, 64 (D.D.C. 2002) (finding that the

plaintiff’s claim was not redressable because he sought a

favorable declaration from the court in order to later challenge

10
In University Medical Center, the D.C. Circuit noted that
“[i]f it could be said that [plaintiff] was legally entitled to
get the discounts [from the third-party drug manufacturers], then
we might have a different situation,” in which the Court would be
“force[d] . . . to ask how likely it was that appellant would
succeed in the second suit.” 173 F.3d at 442. The Hospitals
rely on this reasoning for the proposition that, because
Pennsylvania law supplies a contingent legal right entitling them
to payment from the MCOs at higher rates, the ultimate redress of
their injuries is not in question. (Pls.’ Supp. Mem. at 18-19.)
The Hospitals’ argument, however, relies on the mistaken
contention, rejected above, that a declaratory judgment would
void § 6085 for all purposes. Moreover, the D.C. Circuit’s
expression that it might look at the likelihood of success in
subsequent litigation as a measure of redressability was dictum
not necessary to the holding of the case. Notably, the court
also stated that it was “not aware of a case that presents that
situation,” but was “inclined to think that a plaintiff should
bring in parties like the drug manufacturers as third-party
defendants.” Univ. Med. Ctr. of S. Nev., 173 F.3d at 442.
 -23-

a military sanction which could be imposed in the independent

judgment of the military). A court opinion must resolve the

issue before it, not “merely determine a collateral issue

governing certain aspects of . . . pending or future suits” to be

justiciable. Calderon v. Ashmus, 523 U.S. 740, 747 (1998).

The Hospitals contend that the two-step process is necessary

because they are faced with the dilemma of either accepting lower

payments from the MCOs or facing criminal penalties –– for

billing the MCOs at the higher billing rates than would have been

permissible but for § 6085 –– under § 1128B of the Act. (Pl.’s

Opp’n at 14-16.) That section provides that whoever knowingly

and willfully charges for services provided to an individual

enrolled with an MCO at a rate in excess of that permitted by the

contract shall be guilty of a felony. 42 U.S.C. § 1320a-7b(d).

In support of their contention, the Hospitals cite Abbott Labs v.

Gardner, 387 U.S. 136 (1967), where drug companies brought a pre-

enforcement action to challenge FDA labeling regulations,

defiance of which carried criminal penalties. Unlike this case,

Abbott Labs was a challenge to an agency’s regulations, raising

claims which clearly were redressable in a suit against the

agency head. See id. at 154 (noting there was “no question in

the present case that petitioners have sufficient standing”).

Moreover, the Hospitals do not need to subject themselves to

potential criminal liability by charging the MCOs excessive
 -24-

payments in order to pursue claims against them. The Hospitals

may initiate a suit directly against the MCOs for a declaratory

judgment that the statute is unconstitutional and an injunction

requiring payment in accordance with Pennsylvania rather than

federal law. Proceeding in that fashion would enable resolution

of the Hospitals’ claims against the MCOs, and redressability of

their injuries, in one suit.11

11
Moreover, “[w]here a plaintiff has yet to face
prosecution under a statute he seeks to challenge, the Supreme
Court . . . requires that he establish Article III standing by
(1) ‘alleg[ing] an intention to engage in a course of conduct
arguably affected with a constitutional interest, but proscribed
by a statute,” and (2) demonstrating that ‘there exists a
credible threat of prosecution thereunder.’” Ord v. District of
Columbia, 587 F.3d 1136, 1140 (D.C. Cir. 2009) (quoting Babbitt
v. United Farm Workers, 442 U.S. 289, 298 (1979)). The D.C.
Circuit further requires that the plaintiff prove not only that
the threat is credible, but also that it is imminent, that is,
that the potential prosecution “results from a special law
enforcement priority,” id. at 1141, or that the plaintiff has
been “singled out or uniquely targeted” for prosecution, Parker
v. District of Columbia, 478 F.3d 370, 375 (D.C. Cir. 2007). The
Hospitals do not argue that they meet this standard but rather
contend that the standard is inapplicable because they are
challenging the constitutionality of § 6085, not the
constitutionality of the criminal provisions under § 1128B.
(Pl.’s Mem. at 16-17 n.17.) The Hospitals, however, specifically
seek to enjoin the Secretary from enforcing the statute against
them and cite no other mechanism for her doing so besides the
criminal provision. They therefore must demonstrate that
prosecution is distinctly credible and imminent in order to
establish standing on that ground.
 -25-

C. Effect on the Hospitals’ bargaining power

Finally, the Hospitals argue that this suit will redress

their injuries because a judgment that § 6085 is unconstitutional

will reduce the MCOs’ reliance on the provision to avoid

negotiating case-specific agreements with the Hospitals, thereby

improving the Hospitals’ “bargaining leverage.” (Pls.’ Supp.

Mem. at 12-15; Am. Compl. ¶¶ 109-111.) Even assuming that the

Hospitals’ alleged injury of a weakened contract bargaining

position with the MCOs is sufficient to constitute a concrete and

particularized injury for standing purposes, this injury is not

redressable. It is speculation to assert that the requested

relief would have any effect on future contract negotiations that

are within the complete discretion of the MCOs and can be

influenced by other factors not within the court’s control.

Redressability cannot rest on “the unfettered choices made by

independent actors not before the courts and whose exercise of

broad and legitimate discretion the courts cannot presume either

to control or to predict.” US Ecology, Inc., 231 F.3d at 24

(internal quotation marks omitted). Article III limits federal

courts to adjudicating cases and controversies and prohibits them

from issuing advisory opinions. The redressability requirement

is not met where a decision favorable to the Hospitals would not

resolve their right to payment from the MCOs but merely put

pressure on the MCOs to negotiate contracts beneficial to
 -26-

Hospitals because the MCOs might believe that separate litigation

might result in another decision favorable to the Hospitals.

CONCLUSION

In sum, the Hospitals have not demonstrated that a favorable

decision would redress their injury, through either the

decision’s affect on the MCO’s contractual obligations, on the

Hospitals’ ability to pursue claims against the MCOs, or on the

Hospitals’ bargaining leverage vis-à-vis the MCOs. Because the

Hospitals therefore do not have standing, the court lacks subject

matter jurisdiction, and the Secretary’s motion to dismiss will

be granted. A separate Order accompanies this Memorandum

Opinion.

SIGNED this 29th day of March, 2012.

/s/
RICHARD W. ROBERTS
United States District Judge