FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SHARON NEWTON-NATIONS;
MANUELA GONZALEZ; CHERYL
BILBREY; HECTOR MARTINEZ; DAWN
HOUSE; DANA FRANKLIN; EDWARD
BONNER; D. H.; JACK BAUMHARDT;
MANUEL ESPARZA,
Plaintiffs,
and
No. 10-16193
DONALD MCCANTS; PATRICIA JONES;
ANNE GARRISON; TODD EATON, D.C. No.
2:03-cv-02506-EHC
Plaintiffs-Appellants,
OPINION
v.
THOMAS BETLACH, Director of the
Arizona Health Care Containment
System; KATHLEEN SEBELIUS,
Secretary of the United States
Department of Human Services, in
their official capacities,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Arizona
Earl H. Carroll, Senior District Judge, Presiding
Argued and Submitted
May 10, 2011—San Francisco, California
Filed August 24, 2011
16193
16194 MCCANTS v. BETLACH
Before: Alfred T. Goodwin and Richard A. Paez,
Circuit Judges, and Liam O’Grady,* District Judge.
Opinion by Judge Paez
*The Honorable Liam O’Grady, District Judge for the U.S. District
Court for the Eastern District of Virginia, sitting by designation.
MCCANTS v. BETLACH 16197
COUNSEL
Ellen Sue Katz, William E. Morris Institute for Justice, Jane
Perkins, National Health Law Program, for plaintiff-
appellants Donald McCants et al.
Tony West, Assistant Attorney General, Dennis K. Burke,
United States Attorney, Mark B. Stern and Stephanie R. Mar-
cus, U.S. Department of Justice, for defendant-appellee Kath-
leen Sebelius.
Timothy D. Ducar, Lorona Steiner Ducar, Ltd., for defendant-
appellee Thomas J. Betlach.
OPINION
PAEZ, Circuit Judge:
Plaintiff-Appellants (“Plaintiffs”) are a class of economi-
cally vulnerable Arizonans who receive public health care
benefits through the state’s Medicaid agency. In 2003, Arizo-
na’s Medicaid agency notified Plaintiffs that their copayments
would be increased, and that these increased copayments
would be mandatory, allowing providers to decline to serve
them if they could not afford their copayments. The United
States Secretary of Health and Human Services (“Secretary”),
16198 MCCANTS v. BETLACH
pursuant to her waiver/demonstration project authority under
Title XI of the Social Security Act, approved the program
under which Plaintiffs’ benefits were cut. Plaintiffs sued the
Secretary and the Director of Arizona’s Medicaid agency
(“Director”) (collectively “Defendants”), alleging that the
heightened mandatory copayments violate Medicaid Act cost-
sharing restrictions, that the waiver exceeded the Secretary’s
authority, and that the notices they received about the change
in their health coverage was statutorily and constitutionally
inadequate. The district court granted summary judgment to
the Defendants on all claims. We have jurisdiction under 28
U.S.C. § 1291, and we affirm in part, reverse in part, and
remand.
Factual and Procedural Background
1. Factual and Statutory Background
The Supreme Court has summarized that:
Congress created the Medicaid program in 1965 by
adding Title XIX to the Social Security Act. The
program authorizes federal financial assistance to
States that choose to reimburse certain costs of medi-
cal treatment for needy persons. In order to partici-
pate in the Medicaid program, a State must have a
plan for medical assistance approved by the Secre-
tary of Health and Human Services (Secretary). 42
U.S.C. § 1396a(b). A state plan defines the catego-
ries of individuals eligible for benefits and the spe-
cific kinds of medical services that are covered.
§§ 1396a(a)(10), (17). The plan must provide cover-
age for the “categorically needy” and, at the State’s
option, may also cover the “medically needy.”
Pharm. Research and Mfrs. of Am. v. Walsh, 538 U.S. 644,
650-51 (2003) (internal footnotes omitted). The Court
explained that “ ‘categorically needy’ groups include individ-
MCCANTS v. BETLACH 16199
uals eligible for cash benefits under the Aid to Families with
Dependent Children (AFDC) program, the aged, blind, or dis-
abled individuals who qualify for supplemental security
income (SSI) benefits, and other low-income groups such as
pregnant women and children entitled to poverty-related cov-
erage. [42 U.S.C.] § 1396a(a)(10)(A)(i).” Id. at 651 n.4. The
term “medically needy” refers to “individuals who meet the
nonfinancial eligibility requirements for inclusion in one of
the groups covered under Medicaid, but whose income or
resources exceed the financial eligibility requirements for cat-
egorically needy eligibility. [42 U.S.C.] § 1396a(a)(10)(C).”
Id. at n.5.
When a population is covered under a state’s Medicaid
Plan, federal law sets limits on the amount and type of cost
sharing that a state can require participants to contribute to
their health care. 42 U.S.C. § 1396o; 42 U.S.C. § 1396o-1. As
we explained in Spry v. Thompson, § 1396o provides that
“subsection (a) permits a state plan to impose nominal premi-
ums and cost sharing on mandatory populations. Subsection
(b) permits a state plan to impose income-related premiums
and nominal cost sharing on non-mandatory populations who
are Medicaid eligible, i.e., optional, medically needy popula-
tions.” 487 F.3d 1272, 1276 (9th Cir. 2007).
In addition to state Medicaid plans, the Secretary can
authorize states to operate “Demonstration Projects” pursuant
to 42 U.S.C. § 1315. “In the case of any experimental, pilot,
or demonstration project which, in the judgment of the Secre-
tary, is likely to assist in promoting the objectives of [the Act]
. . . the Secretary may waive compliance with” certain Medic-
aid rules, including cost-sharing restrictions. 42 U.S.C.
§ 1315(a)(1). Section 1315 also authorizes the Secretary to
approve “regard[ing]” demonstration project costs “as expen-
ditures under the State plan.” § 1315(a)(2)(A). When demon-
stration project costs are “regarded as expenditures under the
State plan,” the federal government can reimburse the state
for some of those costs. See Spry, 487 F.3d at 1274-75. “Pa-
16200 MCCANTS v. BETLACH
tients who are eligible for services by way of the Secretary’s
waiver . . . are know as ‘expansion populations.’ ” Phx. Mem’l
Hosp. v. Sebelius, 622 F.3d 1219, 1222 (9th Cir. 2010); see
also Spry, 487 F.3d at 1275 (“A demonstration project may
cover people who would not be eligible for Medicaid without
a waiver from the Secretary. The agencies call these people
‘expansion populations.’ ”).
States can also exceed the normal limitations on Medicaid
cost sharing through 42 U.S.C. § 1396o(f) and § 1396o-1.
Subsection (f) of § 1396o provides:
No deduction, cost sharing, or similar charge may be
imposed under any waiver authority of the Secretary,
except as provided in [sections (a) and (b)] of this
section and section 1396o-1 of this title, unless such
waiver is for a demonstration project which the Sec-
retary finds . . . (1) will test a unique and previously
untested use of copayments, (2) is limited to a period
of not more than two years, (3) will provide benefits
to recipients of medical assistance which can reason-
ably be expected to be equivalent to the risks to the
recipients, (4) is based on a reasonable hypothesis
which the demonstration is designed to test in a
methodologically sound manner, including the use of
control groups of similar recipients of medical assis-
tance in the area, and (5) is voluntary, or makes pro-
vision for assumption of liability for preventable
damage to the health of recipients of medical assis-
tance resulting from involuntary participation.
42 U.S.C. § 1396o(f). Congress later added § 1396o-1, which
further relaxes the normal cost-sharing restrictions.
Arizona has a state plan that only covers mandatory Medic-
aid populations, the categorically needy. Arizona’s state plan
has never included the optional medically needy population.
Until 2001, however, Arizona’s Medicaid agency, the Arizona
MCCANTS v. BETLACH 16201
Health Care Cost Containment System (“AHCCCS”), also
operated an entirely state-funded program under which people
who could be medically needy obtained coverage. See Phx.
Mem’l Hosp., 622 F.3d at 1226 (“During the relevant time
period, the [medically needy] populations were part of the
state-funded program”). This entirely state-funded program
was called Medical Expense Deduction (“MED”).
In October 2000, AHCCCS and the United States Depart-
ment of Health and Human Services (“HHS”) corresponded
about Arizona’s application for a § 1315 waiver. AHCCCS
stated that “[c]urrently Arizona provides health care coverage
with 100% state funds” to five specific groups, including the
“Medically needy.” AHCCCS explained to HHS: “The above
groups will be ‘subsumed’ by this eligibility expansion. Ari-
zona will not be operating a parallel state-funded program for
these same populations and will convert all existing state-
funded populations into the proposed eligibility expansion.”
In November 2000, the citizens of Arizona passed Proposi-
tion 204, which expanded AHCCCS coverage to childless,
non-disabled adults with incomes up to 100% of the federal
poverty level. A.R.S. § 36-2901.01. The Secretary approved
Arizona’s § 1315 waiver application in January 2001. Under
this system, AHCCCS imposed nominal and non-mandatory
copayments on non-categorically needy participants, which
included former MED participants and Proposition 204 popu-
lations.
In May 2003, AHCCCS requested another § 1315 waiver
from the Secretary. Among other reforms, the request sought
permission to increase and expand copayments for certain cat-
egories, including childless non-disabled adults with incomes
up to 100% of the federal poverty level and former MED par-
ticipants. AHCCCS’s May 2003 request did not specify the
reason Arizona sought to make these changes. AHCCCS later
stated that the catalyst for the waiver request was the “Ari-
zona legislature direct[ing] [it] to submit a Cost Sharing
16202 MCCANTS v. BETLACH
Report to the Joint Legislative Budget Committee . . . in
response to a deficit approaching $1 billion.”
In June 2003, HHS informed AHCCCS that, with respect
to Arizona’s proposal to increase cost sharing for “groups that
are not eligible for Medicaid except through Section [1315]
demonstration authority, there are no legal restrictions on cost
sharing.” Therefore, HHS advised that “[s]uch cost sharing
does not involve waivers, since the affected groups are not
eligible under the State plan.”
On October 1, 2003, AHCCCS implemented a new rule
that increased copayments on non-categorically needy partici-
pants and made those copayments mandatory. The Plaintiff
class challenging the new rule in this case consists of two
groups: non-disabled childless adults with incomes up to
100% of the federal poverty level, and former MED partici-
pants. The MED participants are not “categorically needy”
under the Medicaid Act, but they “incur medical expenses
such that their income is reduced to 40% of the federal pov-
erty level.” In addition, some people in the MED population
“meet the nonfinancial eligibility requirements for inclusion
in one of the groups covered under Medicaid.” Walsh, 538
U.S. at 651 n.5.
In September 2003, AHCCS began sending notices to
members of the Plaintiff class notifying them that their copay-
ments were going to be increased. The district court record
contains three such notices that were proffered by the Plain-
tiffs.
HHS approved Arizona’s new rule on February 20, 2004,
applying retroactively to October 1, 2003. HHS stated “[w]e
believe that the approved demonstration project will continue
to serve the purposes of Title XIX [Medicaid] because the
demonstration project will continue to ensure wider health
benefit coverage for low-income populations.”
MCCANTS v. BETLACH 16203
2. Procedural Background
Plaintiffs filed this law suit in December 2003. The com-
plaint alleges four claims for relief: (1) Defendant Secretary’s
action authorizing Arizona to implement copayments
exceeded his limited authority, as set forth in 42 U.S.C.
§ 1315 and 1396o, and was arbitrary and capricious; (2)
Defendant Secretary’s action failed to comport with the
human participants protections required by 42 U.S.C.
§ 3515b, and was arbitrary and capricious; (3) Defendant
Director’s imposition of copayments violates the Medicaid
Act, 42 U.S.C. § 1396o; and (4) Defendant Director’s written
notice of the health care changes violates the Due Process
Clause and the Medicaid Act, 42 U.S.C. § 1396a(a)(3). Plain-
tiffs sought declaratory and injunctive relief.
The district court granted Plaintiffs’ motion for class certi-
fication on March 17, 2004. The class members are defined
as “all Arizona Health Care Cost Containment System eligible
persons in Arizona who have been or will be charged copay-
ments pursuant to Arizona Administrative Code Amended
Rule R9-22-711(E).”
On April 21, 2004, the district court granted Plaintiffs’
motion for a preliminary injunction, which enjoined the
Director from imposing the mandatory copayments and from
allowing providers to deny certain medical services because
of a participant’s inability to pay the heightened copayments.
Thereafter, the parties filed cross motions for summary judg-
ment.
On March 10, 2005, the district court granted Defendant
Secretary’s motion to stay the court’s summary judgment rul-
ing pending this court’s decision in Spry v. Thompson, 487
F.3d 1272 (9th Cir. 2007). Our court filed the Spry opinion on
May 21, 2007, and the district court lifted the stay on Decem-
ber 17, 2007. The parties re-filed cross motions for summary
judgment.
16204 MCCANTS v. BETLACH
On March 29, 2010, the district court denied Plaintiffs’
motion for summary judgment and granted Defendants’
motion for summary judgment. The district court determined
that the Secretary “invoked ‘expenditure authority’ under 42
U.S.C. § 1315(a)(2) in allowing Arizona to offer the expanded
coverage. Plaintiffs are not eligible for Medicaid under a state
plan so there was no need for a waiver.” Thus, “[s]ections
1396o and 1396o-1 do not apply to Plaintiffs. Defendants did
not act in violation of” these sections. The court also con-
cluded that Plaintiffs could not be considered “medically
needy” within the meaning of Medicaid unless Arizona covers
this optional category in its state plan. Because Arizona’s
state plan does not cover the “medically needy,” persons who
might otherwise be in this category are instead an “expansion
population,” just as persons who could neither be “categori-
cally needy” nor “medically needy” under a state plan are an
“expansion population.”
The district court then turned to whether the administrative
record demonstrated that the Secretary sufficiently considered
statutorily-prescribed factors before permitting Arizona to
implement its demonstration project. The district court con-
cluded that “[w]hether cost-sharing is a reasonable means of
providing care to certain expansion populations during a state
fiscal shortage appears consistent with the meaning of
§ 1315.” The district court also concluded that the Secretary’s
decision was consistent with the objectives of the Medicaid
Act because “as a result of the demonstration project, Plain-
tiffs and others within the expansion populations are provided
an opportunity for health care coverage . . . where coverage
might not otherwise be provided.” Thus, the Secretary’s
waiver was not contrary to law or arbitrary and capricious.
With respect to the human participants claim, the district
court concluded that there was no violation of 42 U.S.C.
§ 3515b because “[p]eople in the expansion population are
not made worse off by inclusion in a demonstration project
less favorable to them than to the categorically and medically
MCCANTS v. BETLACH 16205
needy because, without the demonstration project, they would
not be eligible for Medicaid at all.” (quoting Spry, 487 F.3d
at 1276).
Finally, the district court addressed Plaintiffs’ inadequate
notice claim. It concluded that “[a]s Plaintiffs are not eligible
for Medicaid under Arizona’s state plan, any notice require-
ment under the Medicaid regulations would appear not to
apply.” And, “in the alternative,” the district court concluded
that “the notices overall were sufficient for purposes of due
process.”
Standard of Review
We review “de novo both the district court’s grant of sum-
mary judgment and its holdings on questions of statutory
interpretation.” Phx. Mem’l Hosp., 622 F.3d at 1224. We
assess the Secretary’s interpretation of Medicaid provisions
following the standards set forth in Chevron U.S.A., Inc. v.
Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984).
Id. at 1224-25. “We first determine whether Congress has
directly spoken to the precise question at issue . . . [i]f the
answer is yes, then we must give effect to the unambiguously
expressed intent of Congress and the agency’s interpretation
receives no deference.” Id. (quoting Chevron, 467 U.S. at
842-43) (internal citations and quotation marks omitted).
“[W]hen Congress has not directly spoken to the precise ques-
tion at issue, we will defer to the Secretary’s regulation so
long as it is based on a permissible construction of the stat-
ute.” Christopher v. SmithKline Beecham Corp., 635 F.3d
383, 392 (9th Cir. 2011) (citing Auer v. Robbins, 519 U.S.
452, 457 (1997); Chevron, 467 U.S. at 842-43) (internal cita-
tions and quotation marks omitted).
The Administrative Procedure Act (“APA”), 5 U.S.C.
§§ 701-706, provides for judicial review of federal agencies’
actions. We may reverse an agency action only if it is contrary
to law or “arbitrary and capricious” in that:
16206 MCCANTS v. BETLACH
The agency has relied on factors which Congress has
not intended it to consider, entirely failed to consider
an important aspect of the problem, offered an expla-
nation for its decision that runs counter to the evi-
dence before the agency, or is so implausible that it
could not be ascribed to a difference in view or the
product of agency expertise.
Motor Vehicle Mfr. Ass’n v. State Farm Ins., 463 U.S. 29, 44
(1983).
Discussion
I. Medicaid’s Cost-Sharing Restrictions Do Not Apply to
Persons Who Could Be Covered by a State Plan as “Med-
ically Needy,” but Are Instead Covered by a State’s Dem-
onstration Project.
Plaintiffs argue that Defendants “cannot label persons
described in the Medicaid Act as ‘expansion’ populations and
thereby avoid the Medicaid Act’s cost sharing protections.”
That is, for purposes of cost-sharing restrictions, the persons
whom Arizona has the option of covering under its state plan
as medically needy do not become expansion populations
because Arizona has chosen not to cover them under the state
plan. Plaintiffs argue that “the District Court’s order should be
reversed for those class members who are medically needy.”
Defendants argue that cost-sharing restrictions “apply only
to persons who are both statutorily eligible for Medicaid cov-
erage and identified in the State Medicaid plan.” In the
absence of a state plan identifying and covering medically
needy persons, these Medicaid-optional persons can be treated
like an expansion population in a demonstration project.
[1] Neither Plaintiffs nor Defendants cite a provision in the
Medicaid Act in which “Congress has directly spoken to the
precise question at issue.” Phx. Mem’l Hosp., 622 F.3d at
MCCANTS v. BETLACH 16207
1225. That is, Congress has not unambiguously answered the
following question: are medically needy people entitled to the
cost-sharing protections in § 1396o if a state covers them pur-
suant to a § 1315 demonstration project, and not under the
state plan? “[W]hen Congress has not directly spoken to the
precise question at issue, we will defer to the Secretary’s reg-
ulation so long as it is based on a permissible construction of
the statute.” Christopher, 635 F.3d at 392 (citing Auer, 519
U.S. at 457; Chevron, 467 U.S. at 842-43) (internal citations
and quotation marks omitted).
[2] Here, the Secretary argues that cost-sharing restrictions
“apply only to persons who are both statutorily eligible for
Medicaid coverage and identified in the State Medicaid plan.”
She argues that “[u]nder the existing State plan, [Plaintiffs]
are not eligible for Medicaid and are, instead, an ‘expansion
population’ to which the cost restrictions do not apply.” The
Secretary’s regulations are consistent with this interpretation
of the statute.
In 42 C.F.R. § 435.300 et seq., the Secretary “specifies the
option for coverage of medically needy individuals.” Section
435.814 states that “[t]he State plan must specify the income
standard for the covered medically needy groups.” 42 C.F.R.
§ 435.814. In 42 C.F.R. § 435.4, the Secretary defines terms
that are used throughout the governing regulations. “Medi-
cally needy refers to families, children, aged, blind, or dis-
abled individuals, and pregnant women listed under subpart D
of this part who are not listed in subparts B and C of this part
as categorically needy but who may be eligible for Medicaid
under this part because their income and resources are within
limits set by the State under its Medicaid plan.” 42 C.F.R.
§ 435.4 (emphasis added).
[3] These regulations are consistent with the Secretary’s
argument that Plaintiffs cannot be medically needy within the
meaning of the Medicaid program unless the State elects to
cover that class and defines it accordingly. See also Spry, 487
16208 MCCANTS v. BETLACH
F.3d at 1277 (“Expenditures being ‘regarded as eligible’ for
Medicaid for purposes of calculating hospital reimbursement
is not the same thing as an individual being ‘eligible’ for
Medicaid benefits.”). In contrast to the regulatory definition
of medically needy, “[c]ategorically needy refers to families
and children, aged, blind, or disabled individuals, and preg-
nant women, described under subparts B and C of this part
who are eligible for Medicaid.” 42 C.F.R. § 435.4. The regu-
lation itself defines this group, which exists without reference
to state law.
[4] The regulations therefore support the Secretary’s inter-
pretation that where, as here, a state has not defined its “medi-
cally needy” population pursuant to the Medicaid Act,
persons who are not mandatorily covered by the state plan are
expansion populations not protected by the § 1396o cost-
sharing limits. Because § 1396o is ambiguous and “the Secre-
tary’s regulation . . . is based on a permissible construction of
the statute,” we are obligated to defer to the Secretary’s posi-
tion under the strictures of Chevron deference.1 Christopher,
635 F.3d at 392 (internal citations and quotation marks omit-
ted). See also Phx. Mem’l Hosp., 622 F.3d at 1227 (holding
that the Secretary’s decision was not arbitrary or capricious
when he found that, for federal reimbursement purposes, hos-
pitals could not count patients who were covered by an
entirely state-funded arm of AHCCCS, despite the fact that
some of those patients could have been treated as medically
needy). Thus, the district court properly granted summary
judgment to Defendants on this claim.
1
The Secretary’s regulatory interpretation also appears to be consistent
with prior practice. In a 2003 letter from HHS to AHCCCS about Arizo-
na’s waiver application, HHS stated: “In August 2001, Rhode Island
received approval to ‘flip’ optional populations out of their Medicaid State
plan and into their [1315] in order to impose cost sharing in excess of
levels allowed in Medicaid.”
MCCANTS v. BETLACH 16209
II. The Secretary’s Approval of Arizona’s Heightened Cost
Sharing in its Demonstration Project Did Not Comply
with 42 U.S.C. § 1315.
Plaintiffs argue that the Secretary’s § 1315 wavier was
arbitrary and capricious insofar as the administrative record
does not satisfy the standard this court established in Beno v.
Shalala, 30 F.3d 1057 (9th Cir. 1994). In Beno, we held that
the Secretary’s § 1315 waiver that enabled a state-wide bene-
fits cut to recipients of AFDC was arbitrary and capricious.2
We explained that Ҥ 1315(a) plainly obligates the Secretary
to evaluate the merits of a proposed state project, including its
scope and potential impact on AFDC recipients.” Id. at 1068.
We reasoned:
While § 1315 obviously represents a congressional
judgment that, in certain circumstances, such an
override is appropriate, we doubt that Congress
would enact such comprehensive regulations, frame
them in mandatory language, require the Secretary to
enforce them, and then enact a statute allowing states
to evade these requirements with little or no federal
agency review.
Id. at 1068-69.
[5] In assessing whether the Secretary’s waiver in Beno
was arbitrary or capricious, we explained that for the Secre-
tary to act within her § 1315 authority, the administrative
record must demonstrate that she “examine[d] each of th[ree]
issues.” Id. at 1069. First, whether the project is an “Experi-
mental, Pilot or Demonstration Project.” Id. Second, whether
the project is “Likely To Assist in Promoting The Objectives
Of The Act.” Id. Third, “the extent and period” for which she
finds the project is necessary. Id. at 1071.
2
The Secretary is empowered to make both AFDC and Medicaid dem-
onstration waivers under 42 U.S.C. § 1315(a).
16210 MCCANTS v. BETLACH
With respect to the first issue—experimental value—we
explained that the “Secretary must make some judgment that
the project has a research or a demonstration value. A simple
benefits cut, which might save money, but has no research or
experimental goal, would not satisfy this requirement.” Id. at
1069. With respect to the second issue, “the AFDC program’s
main objective is to support needy children . . . Thus, in deter-
mining that a state project is ‘likely to further the goals of the
Act,’ the Secretary must obviously consider the impact of the
state’s project on the children and families the AFDC pro-
gram was enacted to protect.” Id. at 1070. We did not resolve
the parties’ conflicting interpretations of what the third issue
—examination of the project’s necessary extent and period—
obligates the Secretary to do. Id. at 1072 (“[W]e need not
resolve this issue of statutory interpretation or determine the
precise meaning of § 1315(a)’s ‘extent and period’ lan-
guage.”).
Having set forth these rules, Beno considered whether the
administrative record was sufficient under its limited APA
review. We explained that “while formal findings are not
required, the record must be sufficient to support the agency
action, show that the agency has considered the relevant fac-
tors, and enable the court to review the agency’s decision.” Id.
at 1074. We found that the administrative record “contain[ed]
a rather stunning lack of evidence that the Secretary” consid-
ered the relevant factors. Id. Thus, we concluded that the Sec-
retary’s waiver was arbitrary and capricious. Id. at 1076.
[6] The administrative record in the present case does not
demonstrate that the Secretary made the requisite findings
required by Beno. Plaintiffs accurately point out that “the
extent of the Secretary’s discussion in the record of why the
copayments were approved” is one statement in the 2004
retroactive approval letter. In that letter, HHS stated that Ari-
zona’s demonstration project “will continue to ensure wider
health benefit coverage to low-income populations.” There is
no evidence that the Secretary made “some judgment that the
MCCANTS v. BETLACH 16211
project has a research or a demonstration value.” Beno, 30
F.3d at 1069. Indeed, it is questionable whether the Secretary
could have made such a finding. Plaintiffs’ public health
expert stated that “[o]ver the last 35 years, a number of
studies have looked at the effects of cost sharing on the poor.
Of all forms of cost sharing, copayments are the most heavily
studied.” The administrative record contains no finding from
the Secretary that Arizona’s demonstration project will actu-
ally demonstrate something different than the last 35-years
worth of health policy research.
[7] Moreover, the administrative record reveals that the
purpose of Arizona’s waiver application was to save money.
AHCCCS stated that “[i]n January 2002, in response to a defi-
cit approaching $1 billion, the Arizona legislature identified
several areas where the state could save money in all state
programs. The legislature discussed a number of cost saving
measures specific to AHCCCS . . . . In the 2002-2003 Appro-
priations legislation, the Arizona legislature directed AHC-
CCS to submit a Cost Sharing Report.” The Secretary’s
obligation under § 1315 to “make some judgment that the
project has a research or a demonstration value” cannot be
satisfied by “[a] simple benefits cut, which might save money,
but has no research or experimental goal.” Beno, 30 F.3d at
1069.
[8] The Secretary’s second obligation under Beno is to
“consider the impact of the state’s project on the” persons the
Medicaid Act “was enacted to protect.” Id. at 1070. The Sec-
retary’s sparse statement that “the approved demonstration
project will continue to ensure wider health benefit coverage
to low-income populations” does not satisfy this obligation.
See Beno, 30 F.3d at 1075 (“Stating that a factor was consid-
ered is not a substitute for considering it.”) (internal quotation
marks and citation omitted). We explained in Beno that the
administrative record “must be sufficient to support the
agency action . . . and enable the court to review the agency’s
decision.” Id. at 1074. The Secretary’s single statement in the
16212 MCCANTS v. BETLACH
record is not sufficient for this court to review the agency’s
consideration of the impact Arizona’s demonstration project
would have on the economically vulnerable.
[9] In sum, the administrative records here and in Beno are
comparably sparse. There is little, if any, evidence that the
Secretary considered the factors § 1315 requires her to con-
sider before granting Arizona’s waiver. Thus, the Secretary’s
decision was arbitrary and capricious within the meaning of
the APA insofar as it “entirely failed to consider an important
aspect of the problem.”3 Motor Vehicle Mfrs., 463 U.S. at 43.
We therefore reverse the district court’s ruling on this claim,
and we remand with directions to vacate the Secretary’s deci-
sion and remand to the Secretary for further consideration
consistent with this opinion.
III. The Secretary’s Approval of Arizona’s Heightened Cost
Sharing in its Demonstration Project Did Not Violate 42
U.S.C. § 3515.
Plaintiffs argue that in approving Arizona’s cost-sharing
demonstration project, the “Secretary failed to comply with
the requirements of federal funding activities involving
human participants.” Plaintiffs argue that “the uncontroverted
evidence is that copayments are a barrier to health care for the
[Plaintiff] class; cause low-income persons to forego or limit
essential and effective medical services and prescription
drugs; and result in emergency room and other hospitaliza-
tions.”
[10] The Human Participants provision states:
3
Here, as in Beno, because we find that the Secretary’s review of the
first two § 1315 requirements was insufficient, we need not address
whether her review satisfied the third requirement. 30 F.3d at 1072 (“[W]e
need not resolve this issue of statutory interpretation or determine the pre-
cise meaning of § 1315(a)’s ‘extent and period’ language.”).
MCCANTS v. BETLACH 16213
None of the funds appropriated by this Act . . . shall
be used to pay for any research program . . . which
is of an experimental nature, or any other activity
involving human participants, which is determined
by the Secretary or a court of competent jurisdiction
to present a danger to the physical, mental, or emo-
tional well-being of a participant . . . without the
written, informed consent of each participant.
42 U.S.C. § 3515b.
[11] The statute does not speak unambiguously as to
whether heightened copayments should be considered to pose
a “danger to the physical, mental, or emotional well-being of
a participant.” Through her authority to promulgate regula-
tions respecting § 3515b, however, the Secretary has inter-
preted the statute to not apply to the kind of danger about
which Plaintiffs complain. In 45 C.F.R. § 46.101, the Secre-
tary answers the question “[t]o what does this policy apply?”
In subsection (b)(5), the Secretary “exempt[s] from this poli-
cy” “[r]esearch and demonstration projects which are con-
ducted by or subject to the approval of department or agency
heads, and which are designed to study, evaluate, or otherwise
examine: (i) Public benefit or service programs; . . . or (iv)
possible changes in methods or levels of payment for benefits
or services under those programs.” 45 C.F.R. § 46.101(b)(5).
[12] The Secretary’s regulation is “based on a permissible
construction of the statute.” Christopher, 635 F.3d at 392.
While there is no doubt that the heightened copayments
impose a significant hardship on Plaintiffs, public benefits
programs would be hamstrung to the point of paralysis if
every reduction in benefits for economically vulnerable popu-
lations violated § 3515b.4 Thus, we defer to the Secretary’s
4
Plaintiffs’ citation to Beno in support of their argument that § 3515b
applies to the heightened copayments is misplaced. In Beno, this court
observed that 42 C.F.R. “[s]ection 46.101(b)(5) . . . exempts research proj-
16214 MCCANTS v. BETLACH
reasonable construction of the statute under Chevron. Accord-
ingly, we affirm the district court’s summary judgment ruling
on this claim.
IV. The Heightened Cost-Sharing Notices.
[13] Plaintiffs argue that the notices AHCCCS sent in 2003
informing them of their increased mandatory copayments vio-
late the requirements of due process and the Medicaid Act.
The district court correctly concluded that Medicaid’s notice
requirements would not apply here because Plaintiffs are not
covered under Arizona’s state plan. Nonetheless, it is ques-
tionable whether the challenged notices satisfied minimal due
process requirements, as they are similar to notices we found
constitutionally deficient in Barnes v. Healy, 980 F.2d 572,
579 (9th Cir. 1992), and those the district court found defi-
cient in Rodriguez v. Chen, 985 F.Supp. 1189, 1195 (D. Ariz.
1996).
[14] The Director argues, however, that this issue is now
moot because the challenged notices were later superseded by
unchallenged notices. Numerous relevant events have taken
place in the years since the Director sent the 2003 notices that
Plaintiffs challenged in their complaint. These intervening
events include new notices sent in 2010 after the district court
granted Defendants’ summary judgment motion, and the
notices sent in 2011 concerning Arizona’s elimination of the
MED and Childless Adult programs. If the alleged failure to
provide adequate notice of coverage changes has not been
repeated, these intervening events likely have rendered this
claim moot. See Lewis v. Continental Bank Corp., 494 U.S.
ects, including most public benefits research, ‘which are conducted by or
subject to the approval of department or agency heads’ from” § 3515b. 30
F.3d at 1070 (quoting 42 C.F.R. § 46.101(b)(5)). Moreover, because Beno
vacated the Secretary’s § 1315 waiver for being arbitrary and capricious,
it did “not address plaintiffs’ human subjects claim.” Id. at 1076 n. 48.
Accordingly, Beno does not help Plaintiffs’ human participants claim here.
MCCANTS v. BETLACH 16215
472, 477-78 (1990). We therefore remand this issue to the dis-
trict court for a determination of whether there is an ongoing
basis for this claim, and if so, whether relevant notices have
satisfied constitutional due process requirements.
Conclusion
For the foregoing reasons, we affirm the district court’s
conclusion that Medicaid cost-sharing restrictions do not
apply to Plaintiffs and that Arizona’s cost sharing does not
violate the human participants statute. We reverse the district
court insofar as it determined that the Secretary’s approval of
Arizona’s cost sharing satisfied the requirements of § 1315.
We remand this claim with directions to vacate the Secre-
tary’s decision and remand to the Secretary for further consid-
eration consistent with this opinion. Finally, we remand the
Plaintiffs’ notice claims for further consideration in light of
intervening events.
AFFIRMED in part; REVERSED in part;
REMANDED.
The parties shall bear their own costs on appeal.