FILED
NOT FOR PUBLICATION
NOV 10 2016
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
NORTH EAST MEDICAL SERVICES, No. 14-16776
INC.,
D.C. No. 4:10-cv-02433-CW
Plaintiff-Appellant,
v. MEMORANDUM*
STATE OF CALIFORNIA
DEPARTMENT OF HEALTH AND
HUMAN SERVICES; DAVID
MAXWELL-JOLLY, Director of
California Department of Health Care
Services, Health and Human Services
Agency, State of California; THE STATE
OF CALIFORNIA,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Claudia Wilken, District Judge, Presiding
Argued and Submitted October 19, 2016
San Francisco, California
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
Before: KLEINFELD and M. SMITH, Circuit Judges, and KRONSTADT,**
District Judge.
North East Medical Services appeals the district court’s decision denying it
injunctive and declaratory relief. We have jurisdiction pursuant to 28 U.S.C. §
1291. The district court incorrectly determined that the Eleventh Amendment
barred North East’s requested relief. We nevertheless affirm on a different ground,
as explained below. See Wallis v. J.R. Simplot Co., 26 F.3d 885, 888 (9th Cir.
1994) (“If the result reached by the district court is correct, we will affirm even if
the district court relied on an erroneous ground.”).
The district court erred by applying the “date of service” test to hold that
North East was seeking retrospective monetary relief. Under the date of service
test, “whether relief is prospective or retrospective in the Medicaid payment
context turns on the date of service, not on the date of payment.” Indep. Living
Ctr. of S. Cal. v. Maxwell-Jolly, 572 F.3d 644, 661 n.19 (9th Cir. 2009) vacated
sub. nom. Douglas v. Indep. Living Ctr. of S. Cal., Inc., 132 S. Ct. 1204 (2012).
We used this test in Independent Living Center, 572 F.3d at 660–61, because
granting an injunction would have had the practical effect of forcing the state to
**
The Honorable John A. Kronstadt, United States District Judge for the
Central District of California, sitting by designation.
2
pay the health center additional money for services that the center had provided in
the past. Other circuits have applied this test when an injunction would require a
court to order a state to pay additional money for medical services already
rendered. See N.Y.C. Health & Hosps. Corp. v. Perales, 50 F.3d 129, 137 (2d Cir.
1995); Wisc. Hosp. Ass’n v. Reivitz, 820 F.2d 863, 867 (7th Cir. 1987); Kimble v.
Solomon, 599 F.2d 599, 604–05 (4th Cir. 1979).
The date of service test does not apply here because North East is not asking
for additional reimbursement from California for medical services that it provided
in 2008. Rather, it alleges an ongoing violation of federal law, and seeks to enjoin
the director of California’s health care services from requiring it to disclose its Part
D money when settling up for the 2008 fiscal year. Disclosure would enable the
state to take money from North East, not (as in Independent Living) North East to
take money from the state. If North East thought that it could get more money
from California during the annual reconciliation process, it would have no reason
not to disclose its Part D funding rather than start this multi-year litigation.
We, however, affirm the district court’s order denying equitable relief under
the unclean hands doctrine. “The unclean hands doctrine derives from the
3
equitable maxim that ‘he who comes into equity must come with clean hands’” and
requires that plaintiffs seeking equitable relief “act[] fairly and without fraud or
deceit as to the controversy in issue.” Ellenburg v. Brockway, Inc., 763 F.2d 1091,
1097 (9th Cir. 1985). Here, North East has acted unfairly to try to reap a windfall.
From 2006 through 2008, North East used Option 2, before permanently switching
over to Option 1. If North East had started billing under Option 1 as soon as it
thought that California was improperly seizing its Part D money rather than
waiting three years, it would not have needed to initiate this action. North East
now wants to avoid disclosing how much Part D money it got in 2008 in order to
retain its Part D money along with the state Medicaid money that it has already
received. The unfairness of the nondisclosure, and the apparent absence of any
reason for it that would not involve keeping double payments for providing
pharmacy services to dual eligibles, bars equitable and declaratory relief.
AFFIRMED.
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FILED
North East Medical Services, Inc. v. CA-HHS, 14-16776
NOV 10 2016
KRONSTADT, District Judge, concurring: MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
I agree with my colleagues that because North East had unclean hands, it is
not eligible to receive the equitable relief it requests. That is a sufficient,
independent basis to affirm the decision of the district court. I write separately
because I also agree with the conclusion of the district court that the claims
presented by North East are barred by the Eleventh Amendment. That conclusion
is based on my view that the date of service test should be applied in determining
the potential liability of a state to make reimbursements under Medicaid.
Under the date of service test, “whether relief is prospective or retrospective
in the Medicaid payment context turns on the date of service, not the date of
payment.” Indep. Living Ctr. of S. California, Inc. v. Maxwell-Jolly, 572 F.3d 644,
661 n.19 (9th Cir. 2009), vacated on other grounds sub nom. Douglas v. Indep.
Living Ctr. of S. California, Inc., 132 S. Ct. 1204 (2012). “Therefore, an order
enjoining payment reductions for services that had been delivered . . . is
retroactive.” Id. The basis for the test is the principle that healthcare providers’
“liability accrues -- and therefore any injury due to inadequate reimbursement in
the future occurs -- on the date of service.” N.Y. City Health & Hosps. Corp. v.
Perales, 50 F.3d 129, 136 (2d Cir. 1995). Under the test, any alleged injury to
1
North East would have occurred in 2008, and would not be ongoing.
The date of service test focuses on the question “whether a particular service
underlying a claim was reimbursable at a particular rate.” Id. at 137. “[T]he rate
established for the service provided is the rate applicable on the date of service,
regardless of an increase or decrease in that rate at the time the claim is processed.”
Id. Here, the relief North East requests -- an injunction that would prevent the state
from deducting Medicare Part D payments from Medicaid reimbursement to North
East -- could result in a retroactive increase in the rate of reimbursement to which
the parties had agreed for services that North East provided in 2008.1
I agree that North East is not seeking any further accounting or
reconciliation processes. However, this is not “a situation in which state officials
are being told in effect to leave the plaintiff alone,” which is consistent with Ex
Parte Young. Wisc. Hosp. Ass’n v. Reivitz, 820 F.2d 863, 867 (7th Cir. 1987).
Instead, under the date of service standard, by refusing to participate in the
accounting and reconciliation process and seeking to enjoin it, North East is
seeking monetary relief from the state. That relief is in the form of any amount that
the state paid that exceeded the agreed upon rates for services rendered in 2008,
1
If North East believed that a later reconciliation would not result in a credit to the state
for some portion of the payments North East had received for past services, its pursuit of
injunctive relief would not make sense.
2
and to which it would be entitled to a credit. Thus, North East is requesting that
the court “order funds paid from the state treasury to provide higher payment for
services,” which is “beyond [the court’s] authority because of the limitation of its
power under the Eleventh Amendment.” Perales, 50 F.3d at 137; see also Wisc.
Hosp. Ass’n, 820 F.2d at 867 (concluding that the Eleventh Amendment barred
recovery for hospitals that “rendered services to Medicaid patients for which they
want to be paid at a higher rate than the state wants to pay them”).
It is of no consequence to the Eleventh Amendment analysis that the
payments by the state would be effected through an accounting and reconciliation
process in which a retroactive calculation is made of the net amount owed to North
East for the many services that it provided during 2008. To hold otherwise would
elevate the form of the payment process over its substance. Perales, 50 F. 3d at 133
(“the submission, verification and payment of claims are administrative formalities
necessary to receive payment on a liability that has already accrued”).
3