Managed Pharmacy Care v. Kathleen Sebelius

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

MANAGED PHARMACY CARE , a No. 12-55067
California corporation;
INDEPENDENT LIVING CENTER OF D.C. No.
SOUTHERN CALIFORNIA , INC., a 2:11-cv-09211-
California corporation; CALIFORNIA CAS-MAN
FOUNDATION FOR INDEPENDENT
LIVING CENTERS, a California
corporation; GERALD SHAPIRO ,
PHARM D, DBA Upton Pharmacy
and Gift Shoppe; SHARON STEEN ,
DBA Central Pharmacy; TRAN
PHARMACY , INC., a California
corporation, DBA Tran Pharmacy;
ODETTE LEONELLI, DBA Kovacs-
Frey Pharmacy; MARKET
PHARMACY , INC., DBA Market
Pharmacy; MARK BECKWITH ,
Plaintiffs-Appellees,
v.
KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant,
and
TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California,
Defendant-Appellant.
2 MANAGED PHARMACY CARE V . SEBELIUS

CALIFORNIA HOSPITAL No. 12-55068
ASSOCIATION ,
Plaintiff-Appellee, D.C. No.
2:11-cv-09078-
v. CAS-MAN

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California,
Defendant-Appellant,

and

KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant.
 MANAGED PHARMACY CARE V . SEBELIUS 3

CALIFORNIA MEDICAL No. 12-55103
TRANSPORTATION ASSOCIATION ,
INC., a California corporation; GMD D.C. No.
TRANSPORTATION , INC., a California 2:11-cv-09830-
corporation; LONNY SLOCUM , an CAS-MAN
individual,
Plaintiffs-Appellees,

v.

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California,
Defendant-Appellant,

and

KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant.
4 MANAGED PHARMACY CARE V . SEBELIUS

CALIFORNIA MEDICAL No. 12-55315
ASSOCIATION ; CALIFORNIA DENTAL
ASSOCIATION ; CALIFORNIA D.C. No.
PHARMACISTS ASSOCIATION ; 2:11-cv-09688-
NATIONAL ASSOCIATION OF CHAIN CAS-MAN
DRUG STORES; CALIFORNIA
ASSOCIATION OF MEDICAL PRODUCT
SUPPLIERS; AIDS HEALTHCARE
FOUNDATION ; AMERICAN MEDICAL
RESPONSE WEST ; JENNIFER ARNOLD ,
Plaintiffs-Appellees,

v.

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California,
Defendant-Appellant,

and

KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant.
 MANAGED PHARMACY CARE V . SEBELIUS 5

CALIFORNIA HOSPITAL No. 12-55331
ASSOCIATION ,
Plaintiff-Appellee, D.C. No.
2:11-cv-09078-
v. CAS-MAN

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California,
Defendant,

and

KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant-Appellant.
6 MANAGED PHARMACY CARE V . SEBELIUS

MANAGED PHARMACY CARE , a No. 12-55332
California corporation;
INDEPENDENT LIVING CENTER OF D.C. No.
SOUTHERN CALIFORNIA , INC., a 2:11-cv-09211-
California corporation; CALIFORNIA CAS-MAN
FOUNDATION FOR INDEPENDENT
LIVING CENTERS, a California
corporation; GERALD SHAPIRO ,
PHARM D, DBA Upton Pharmacy
and Gift Shoppe; SHARON STEEN ,
DBA Central Pharmacy; TRAN
PHARMACY , INC., a California
corporation, DBA Tran Pharmacy;
ODETTE LEONELLI, DBA Kovacs-
Frey Pharmacy; MARKET
PHARMACY , INC., DBA Market
Pharmacy; MARK BECKWITH ,
Plaintiffs-Appellees,

v.

KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant-Appellant,

and

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California,
Defendant.
 MANAGED PHARMACY CARE V . SEBELIUS 7

CALIFORNIA MEDICAL No. 12-55334
TRANSPORTATION ASSOCIATION ,
INC., a California corporation; GMD D.C. No.
TRANSPORTATION , INC., a California 2:11-cv-09830-
corporation; LONNY SLOCUM , an CAS-MAN
individual,
Plaintiffs-Appellees,

v.

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California,
Defendant,

and

KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant-Appellant.
8 MANAGED PHARMACY CARE V . SEBELIUS

CALIFORNIA MEDICAL No. 12-55335
ASSOCIATION ; CALIFORNIA DENTAL
ASSOCIATION ; CALIFORNIA D.C. No.
PHARMACISTS ASSOCIATION ; 2:11-cv-09688-
NATIONAL ASSOCIATION OF CHAIN CAS-MAN
DRUG STORES; CALIFORNIA
ASSOCIATION OF MEDICAL PRODUCT
SUPPLIERS; AIDS HEALTHCARE
FOUNDATION ; AMERICAN MEDICAL
RESPONSE WEST ; JENNIFER ARNOLD ,
Plaintiffs-Appellees,

v.

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California,
Defendant,

and

KATHLEEN SEBELIUS, Secretary of
the United States Department of
Health and Human Services,
Defendant-Appellant.
 MANAGED PHARMACY CARE V . SEBELIUS 9

CALIFORNIA HOSPITAL No. 12-55535
ASSOCIATION ; G. G., an individual;
I. F., an individual; R. E., an D.C. No.
individual; A. W., an individual; 2:11-cv-09078-
A. G., an individual, CAS-MAN
Plaintiffs-Appellants,

v.

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California; KATHLEEN
SEBELIUS, Secretary of the United
States Department of Health and
Human Services,
Defendants-Appellees.
10 MANAGED PHARMACY CARE V . SEBELIUS

CALIFORNIA MEDICAL No. 12-55550
ASSOCIATION ; CALIFORNIA DENTAL
ASSOCIATION ; CALIFORNIA D.C. No.
PHARMACISTS ASSOCIATION ; 2:11-cv-09688-
NATIONAL ASSOCIATION OF CHAIN CAS-MAN
DRUG STORES; CALIFORNIA
ASSOCIATION OF MEDICAL PRODUCT
SUPPLIERS; AIDS HEALTHCARE
FOUNDATION ; AMERICAN MEDICAL
RESPONSE WEST ; JENNIFER ARNOLD ,
Plaintiffs-Appellants,

v.

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California; KATHLEEN
SEBELIUS, Secretary of the United
States Department of Health and
Human Services,
Defendants-Appellees.
 MANAGED PHARMACY CARE V . SEBELIUS 11

CALIFORNIA MEDICAL No. 12-55554
TRANSPORTATION ASSOCIATION ,
INC., a California corporation; D.C. No.
LONNY SLOCUM , an individual; 2:11-cv-09830-
GMD TRANSPORTATION , INC., a CAS-MAN
California corporation,
Plaintiffs-Appellants,
OPINION
v.

TOBY DOUGLAS, Director of the
Department of Health Care Services
of the State of California; KATHLEEN
SEBELIUS, Secretary of the United
States Department of Health and
Human Services,
Defendants-Appellees.

Appeal from the United States District Court
for the Central District of California
Christina A. Snyder, District Judge, Presiding

Argued and Submitted
October 10, 2012—Pasadena, California

Filed December 13, 2012

Before: Stephen S. Trott, Andrew J. Kleinfeld,
and M. Margaret McKeown, Circuit Judges.

Opinion by Judge Trott
12 MANAGED PHARMACY CARE V . SEBELIUS

SUMMARY*

Medicaid / Preliminary Injunctions

The panel reversed the district court’s decisions in four
cases and vacated preliminary injunctions prohibiting the
California Department of Health Care Services and its
director from implementing Medi-Cal reimbursement rate
reductions authorized by the California legislature and
approved by the Secretary of the Department of Health and
Human Services.

Asserting claims against the Secretary under the
Administrative Procedures Act and against the Director under
the Supremacy Clause, various Medi-Cal providers and
beneficiaries claimed that the reimbursement rate reductions
did not comply with 42 U.S.C. § 1396a(a)(30)(A). They
relied on Orthopaedic Hosp. v. Belshe, 103 F.3d 1491 (9th
Cir. 1997), which interpreted § 30(A) as requiring a state
seeking to reduce Medicaid reimbursement rates first to
consider the costs of providing medical services subject to the
rate reductions.

The panel held that Orthopaedic Hosp. did not control
because it did not consider the Secretary’s interpretation of
§ 30(A). Agreeing with the D.C. Circuit, the panel held that
the Secretary’s approval of California’s requested
reimbursement rates, including her permissible view that
prior to reducing rates states need not follow any specific
procedural steps, was entitled to Chevron deference, and that

*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
 MANAGED PHARMACY CARE V . SEBELIUS 13

the Secretary’s approval complied with the Administrative
Procedures Act. The panel further held that the plaintiffs
were unlikely to succeed on the merits of their Supremacy
Clause claims against the Director because, even assuming
that the Supremacy Clause provides a private right of action,
the Secretary had reasonably determined that the State’s
reimbursement rates complied with § 30(A). Finally, the
panel held that none of the plaintiffs had a viable takings
claim because Medicaid, as a voluntary program, does not
create property rights.

The panel dismissed cross-appeals as moot.

COUNSEL

Lindsey Powell, United States Attorneys’ Office,
Washington, D.C.; Karin S. Schwartz, Office of the
California Attorney General, San Francisco, California; for
Defendants-Appellants.

Lynn S. Carman, Medicaid Defense Fund, San Anselmo,
California; Lloyd A. Bookman and Jordan B. Keville,
Hooper, Lundy & Bookman, P.C., Los Angeles, California;
Stanley L. Friedman, Law Offices of Stanley L. Friedman,
Los Angeles, California; Craig J. Cannizzo, Hooper, Lundy
& Bookman, P.C., San Francisco, California; for Plaintiffs-
Appellees-Cross-Appellants.

Jessica Lynn Ellsworth, Hogan Lovells US LLP, Washington,
D.C., for amicus curiae.
14 MANAGED PHARMACY CARE V . SEBELIUS

OPINION

TROTT, Circuit Judge:

In the four cases giving rise to these eleven consolidated
appeals, Kathleen Sebelius, Secretary of the Department of
Health and Human Services (“HHS”), and Toby Douglas,
Director of the California Department of Health Care
Services (“DHCS”), appeal the district court’s grant of
preliminary injunctions in favor of various providers and
beneficiaries of Medi-Cal, California’s Medicaid program
(“Plaintiffs”). The injunctions prohibit the Director and
DHCS from implementing reimbursement rate reductions
authorized by the California legislature and approved by the
Secretary. The injunctions also stay the Secretary’s approval.
Plaintiffs cross-appeal the court’s modification of its orders
to allow the rate reductions as to Medi-Cal services provided
before the injunctions took effect.

Plaintiffs assert claims against the Secretary under the
Administrative Procedures Act (“APA”) and against the
Director under the Supremacy Clause of the United States
Constitution, claiming that the reimbursement rate reductions
do not comply with 42 U.S.C. § 1396a(a)(30)(A) (hereafter
“§ 30(A)”). In support of their claims, Plaintiffs rely
primarily on our decision in Orthopaedic Hospital v. Belshe,
103 F.3d 1491 (9th Cir. 1997). In Orthopaedic Hospital, the
federal government was not a party. As such, we did not
address whether deference was owed to the Secretary’s
interpretation of the statute. Instead, we interpreted § 30(A)
as requiring a state seeking to reduce Medicaid
reimbursement rates first to consider the costs of providing
medical services subject to the rate reductions. DHCS did not
consider such studies in all of the Medicaid services subject
 MANAGED PHARMACY CARE V . SEBELIUS 15

to the rate reductions. The Secretary points out that Congress
expressly delegated to her the authority and responsibility to
approve state Medicaid plans. She argues that her approval
of the rate reductions, including her view that § 30(A) does
not necessarily require cost studies (or any other particular
methodology), is entitled to deference, overrides Orthopaedic
Hospital, and complies with the APA.

In addition to joining the Secretary’s arguments, the
Director contends that Plaintiffs cannot maintain a direct
cause of action under the Supremacy Clause for violation of
§ 30(A). Although we have previously discussed this issue in
a case where the Secretary had not acted, Independent Living
Center of Southern California v. Shewry, 543 F.3d 1050 (9th
Cir. 2008), we have not considered it in a situation where, as
here, the Secretary has already exercised her discretion to
approve the rate reductions as consistent with federal law.

The district court held that Plaintiffs in all four cases were
likely to succeed on the merits of their APA and Supremacy
Clause claims, and that the Plaintiffs in one case were likely
to succeed on their claim under the Takings Clause of the
United States Constitution. The court also concluded that
Plaintiffs would suffer irreparable harm absent the injunctions
and that the injunctions favored the public interest. We have
jurisdiction under 28 U.S.C. § 1292(a)(1), and we conclude
that the district court misapplied the applicable legal rules and
thus did not appropriately exercise its discretion.

We hold that (1) Orthopaedic Hospital does not control
the outcome in these cases because it did not consider the key
issue here – the Secretary’s interpretation of § 30(A), (2) the
Secretary’s approval of California’s requested reimbursement
rates – including her permissible view that prior to reducing
16 MANAGED PHARMACY CARE V . SEBELIUS

rates states need not follow any specific procedural steps,
such as considering providers’ costs – is entitled to deference
under Chevron, U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984), and (3) the Secretary’s
approval complies with the APA. We further hold that
Plaintiffs are unlikely to succeed on the merits of their
Supremacy Clause claims against the Director because – even
assuming that the Supremacy Clause provides a private right
of action – the Secretary has reasonably determined that the
State’s reimbursement rates comply with § 30(A). Finally,
we hold that none of the Plaintiffs has a viable takings claim
because Medicaid, as a voluntary program, does not create
property rights. The district court’s orders concluding that
Plaintiffs are likely to succeed on their claims must be
reversed, the preliminary injunctions vacated, and the cases
remanded for further proceedings consistent with this
opinion. We dismiss Plaintiffs’ cross-appeals as moot.

I

BACKGROUND

“Medicaid is a cooperative federal-state program through
which the federal government reimburses states for certain
medical expenses incurred on behalf of needy persons.”
Alaska Dep’t of Health and Soc. Servs. v. Ctrs. for Medicare
& Medicaid Servs. (“Alaska DHSS”), 424 F.3d 931, 934 (9th
Cir. 2005). States do not have to participate in Medicaid, but
those that choose to do so “must comply both with statutory
requirements imposed by the Medicaid Act and with
regulations promulgated by the Secretary of [HHS].” Id. at
935. Every State’s Medicaid plan must
 MANAGED PHARMACY CARE V . SEBELIUS 17

provide such methods and procedures relating
to the utilization of, and the payment for, care
and services available under the plan . . . as
may be necessary to safeguard against
unnecessary utilization of such care and
services and to assure that payments are
consistent with efficiency, economy, and
quality of care and are sufficient to enlist
enough providers so that care and services are
available under the plan at least to the extent
that such care and services are available to the
general population in the geographic area.

42 U.S.C. § 1396a(a)(30)(A) (emphasis added).

Recognizing that availability and access to health care,
particularly for children, is of vital national importance,
Congress established in 2009 the Medicaid and CHIP
Payment and Access Commission (“MACPAC”). Children’s
Health Insurance Program Reauthorization Act of 2009, Pub.
L. No. 111-3, § 506, 123 Stat. 8, 91 (codified at 42 U.S.C.
§ 1396(a)). MACPAC is charged with studying beneficiary
access to health care under the Medicaid and CHIP programs
and “mak[ing] recommendations to Congress, the Secretary,
and States concerning . . . access policies.” 42 U.S.C.
§ 1396(b)(1)(B). MACPAC reviewed 30 years of research
and issued its first report to Congress in March 2011. See
MACPAC, March 2011 Report to the Congress on
Medicaid and CHIP, p. 126, available at
http://www.macpac.gov/reports. MACPAC came up with a
three-part framework for analyzing access in light of the
factors set forth in § 30(A) – MACPAC’s analysis considers
(1) the needs of enrollees, (2) provider availability, and (3)
utilization of services. Id. at 127; see also 76 Fed. Reg.
18 MANAGED PHARMACY CARE V . SEBELIUS

26342, 26343 (May 6, 2011) (notice of proposed rule
interpreting and implementing § 30(A)).

Congress expressly delegated to the Secretary the
responsibility and the authority to administer the Medicaid
program and to review state Medicaid plans and plan
amendments for compliance with federal law. 42 U.S.C.
§ 1396a(b) (“The Secretary shall approve any plan which
fulfills” the statutory requirements). The Secretary, in turn,
delegated that responsibility and authority to the regional
administrator for the Center for Medicare and Medicaid
Services (“CMS”). 42 C.F.R. § 430.15(b); see also Alaska
DHSS, 424 F.3d at 935. CMS must review and approve or
reject any proposed amendment to a state Medicaid plan.
Such an amendment is referred to as a State Plan Amendment
(“SPA”).

The State of California has tried on several occasions to
reduce reimbursement rates to providers of certain Medi-Cal
services through the SPA process. The rates involved in
these appeals were initiated by Assembly Bill 97, where the
legislature stated,

In order to minimize the need for drastically
cutting enrollment standards or benefits
during times of economic crisis, it is crucial to
find areas within the program where
reimbursement levels are higher than
required under the standard provided in
[§ 30(A)] and can be reduced in accordance
with federal law.

Cal. Welf. & Inst. Code § 14105.192(a)(2) (emphasis added).
The statute granted the Director the authority to identify
 MANAGED PHARMACY CARE V . SEBELIUS 19

where reimbursement rates could be reduced and instructed
the Director not to implement any reductions unless and until
the Director (1) determined that the reductions “will comply
with applicable federal Medicaid requirements” and (2)
obtained federal approval. Id. § 14105.192(m), (o)(1).

Pursuant to that authority, DHCS studied the potential
impact of rate reductions on many Medi-Cal services,
reviewing data collected and analyzed over several years in
the process. The Director concluded that reimbursement rates
could be reduced consistently with federal law for pharmacy
services; durable medical equipment; emergency and non-
emergency medical transportation; certain physician, clinic,
and dental services; and services provided by “distinct part
nursing facilities” (“DP/NFs”). DP/NFs are skilled nursing
facilities operated by hospitals as distinct parts within those
hospitals. Rates for most of these services were to be reduced
ten percent from current rate levels, though some were to be
reduced ten percent from rate levels as they existed in 2008
to 2009.

DHCS prepared two SPAs for submission to CMS.
Federal officials were in frequent contact with the Director
during this process. SPA 11-010 requested approval of the
rate reductions for DP/NF services; SPA 11-009 requested
approval of the rate reductions for all of the other services at
issue.

In support of SPAs 11-009 and 11-010, DHCS submitted
access studies for each of the affected services. These studies
reviewed data focused primarily on enrollee needs, provider
availability, and utilization of services – the same factors
MACPAC uses in its access analyses. Although DHCS
included studies of providers’ costs with respect to some of
20 MANAGED PHARMACY CARE V . SEBELIUS

the services, such as certain pharmacy costs and costs
incurred by DP/NFs, it did not review cost data with respect
to most of the services subject to the rate reduction. The
studies concluded that SPAs 11-009 and 11-010 are unlikely
to diminish access.

DHCS also submitted an 82-page monitoring plan, which
identified 23 different measures DHCS will study on a
recurring basis to ensure the SPAs do not negatively affect
beneficiary access. These measures address the three
categories of factors MACPAC identified as affecting access:
beneficiary data, provider availability data, and service
utilization data. Included among the data DHCS will monitor
are changes in Medi-Cal and dental enrollment, primary care
supply ratios, provider participation rates, bed vacancy rates,
visits to emergency rooms, and preventable hospitalization
rates.

Various providers and provider groups, including some of
the Plaintiffs, offered extensive input to CMS as well. For
example, the California Hospital Association (“CHA”) wrote
to the agency multiple times to express its disapproval of the
SPAs. CMS considered a special report commissioned by
CHA; the report concluded most DP/NFs operate at a loss.
CHA and the California Medical Association (“CMA”)
submitted a survey purporting to show that the reductions
would inhibit access. As CMS later noted, there were several
shortcomings with this survey, including that it was
conducted over nine days and involved only 763 California
residents.

CMS approved both SPAs. The approval letters were
succinct, but they explained that, “[i]n light of the data CMS
reviewed, the monitoring plan, and [CMS’s] consideration of
 MANAGED PHARMACY CARE V . SEBELIUS 21

stakeholder input,” DHCS had submitted sufficient
information to show that its SPAs complied with § 30(A).
“As part of the analysis of this amendment, the State was able
to provide metrics which adequately demonstrated
beneficiary access,” including (1) the “[t]otal number of
providers by type and geographic location and participating
Medi-Cal providers by type and geographic area,” (2) the
“[t]otal number of Medi-Cal beneficiaries by eligibility type,”
(3) “[u]tilization of services by eligibility type over time,”
and (4) an “[a]nalysis of benchmark service utilization where
available.” CMS approved the reduced rates retroactively to
June 1, 2011.

Four groups of Plaintiffs filed suit against the Secretary
and the Director in the United States District Court for the
Central District of California. Managed Pharmacy Care v.
Sebelius, D. Ct. No. 2:11-cv-09211-CAS-MAN (Appeal Nos.
12-55067 & 12-55332) (“the MPC case”), was filed by five
pharmacies, a pharmacy organization, an independent living
center, a state association of independent living centers, and
a Medi-Cal beneficiary. California Medical Association v.
Douglas, D. Ct. No. 2:11-cv-09688-CAS-MAN (Appeal Nos.
12-55335, 12-55315, & 12-55550) (“the CMA case”), was
filed by professional associations representing the interests of
physicians, dentists, pharmacists, suppliers of durable
medical equipment, providers of care for AIDS patients,
providers of emergency medical transportation, and a Medi-
Cal beneficiary. California Medical Transportation
Association v. Douglas, D. Ct. No. 2:11-cv-09830-CAS-
MAN (Appeal Nos. 12-55334, 12-55103, & 12-55554) (“the
CMTA case”), was filed by a provider of non-emergency
medical transportation services, a trade association
representing other such providers, and a Medi-Cal
beneficiary. California Hospital Association v. Douglas,
22 MANAGED PHARMACY CARE V . SEBELIUS

D. Ct. No. 2:11-cv-09078-CAS-MAN (Appeal Nos. 12-
55331, 12-55068, & 12-55535) (“the CHA case”), was filed
by five Medi-Cal beneficiaries and a trade association
representing the interests of DP/NFs.

The district court declined to defer to the Secretary’s
approval of the SPAs and granted Plaintiffs’ motions for
preliminary injunctions. The court determined that our
decision in Orthopaedic Hospital required the State to
consider cost data prior to submitting the SPAs to CMS and
disagreed with DHCS’s research methodology with respect to
the potential impact of the reductions on beneficiary access.
For example, the district court determined that the State’s
participating pharmacy list incorrectly included some
pharmacies, that the analysis of DP/NFs improperly
considered freestanding nursing facilities, and that DHCS’s
geographic analysis was flawed because it focused on an
urban-rural county model rather than one based on physical
location. The court determined also that CMS’s acceptance
of the monitoring plan was inappropriate because “at best the
monitoring plan creates a potential response after a quality
deficiency has been identified.” Thus, the district court held,
Plaintiffs were likely to succeed on their APA claims that the
SPAs violate § 30(A). The court also held that the
Supremacy Clause provides a private right of action to
challenge the reimbursement rates as violating § 30(A) and
that Plaintiffs were likely to prevail on those claims as well.
In the CHA case, the district court entered the preliminary
injunction on the additional ground that because state law
places certain restrictions on how and when DP/NFs may stop
treating Medicaid patients, CHA would likely succeed on its
takings claim.
 MANAGED PHARMACY CARE V . SEBELIUS 23

In the MPC, CMTA, and CHA cases, the injunctions
initially prohibited the Director from applying the rate
reductions to any services rendered after June 1, 2011. In the
CMA case, however, the court determined that enjoining the
reductions as to services rendered before the injunctions took
effect would violate the State’s Eleventh Amendment
sovereign immunity and limited its injunction accordingly.
On motions of the Director, the district court modified the
other injunctions along the same lines.

The Secretary and the Director appeal. Plaintiffs cross-
appeal the district court’s decision to allow the new rates with
respect to Medicaid services rendered before the effective
date of the injunctions.

II

STANDARD OF REVIEW

A preliminary injunction is an “extraordinary remedy”
and is appropriate only when the party seeking the injunction
“establish[es] that he is likely to succeed on the merits, that
he is likely to suffer irreparable harm in the absence of
preliminary relief, that the balance of equities tips in his
favor, and that an injunction is in the public interest.” Winter
v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24, 20 (2008).

We review the district court’s grant of a preliminary
injunction for abuse of discretion. Beno v. Shalala, 30 F.3d
1057, 1063 (9th Cir. 1994). We must first determine whether
the district court “identified and applied the correct legal rule
to the relief requested.” United States v. Hinkson, 585 F.3d
1247, 1263 (9th Cir. 2009) (en banc). If not, that error of law
necessarily constitutes an abuse of discretion. Id. at 1261. If,
24 MANAGED PHARMACY CARE V . SEBELIUS

however, the district court identified and applied the correct
legal rule, we will reverse only if the court’s decision
“resulted from a factual finding that was illogical,
implausible, or without support in inferences that may be
drawn from the facts in the record.” Id. at 1263.

In considering Plaintiffs’ APA claims, we must follow
“additional requirements for review.” Earth Island Inst. v.
Carlton, 626 F.3d 462, 468 (9th Cir. 2010). Under the APA,
we may not set aside agency action unless that action is
“arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.” 5 U.S.C. § 706(2)(A). This
standard is met only where the party challenging the agency’s
decision meets a heavy burden of showing that “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 explanation for its decision that runs
counter to the evidence 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
Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29,
43 (1983).

III

APA CLAIMS AGAINST THE SECRETARY

A

We first consider whether our decision in Orthopaedic
Hospital is dispositive of the issues in these appeals.

In Orthopaedic Hospital, a hospital and hospital
association challenged California’s reduction of
 MANAGED PHARMACY CARE V . SEBELIUS 25

reimbursement rates for providers of hospital outpatient
services, arguing that DHCS reduced the rates “without
proper consideration of the effect of hospital costs” on the
§ 30(A) factors of efficiency, economy, quality of care, and
beneficiary access. 103 F.3d at 1492. The State did not
dispute that it had not considered providers’ costs of offering
Medicaid services, but argued that its reductions nonetheless
complied with § 30(A) because the statute did not require it
to study such costs.

HHS was not a party in Orthopaedic Hospital, and we did
not have the benefit of the agency’s position regarding the
requirements of § 30(A). We owed no deference to the
State’s position that § 30(A) does not require cost studies
because “[a] state agency’s interpretation of federal statutes
is not entitled to the deference afforded a federal agency’s
interpretation of its own statutes.” Id. at 1495. We thus had
to determine “the proper interpretation” of the statute on our
own. Id. at 1496.

We interpreted § 30(A) as requiring the State to consider
providers’ cost of services prior to setting reimbursement
rates for those services:

The statute provides that payments for
services must be consistent with efficiency,
economy, and quality of care, and that those
payments must be sufficient to enlist enough
providers to provide access to Medicaid
recipients. [DHCS] cannot know that it is
setting rates that are consistent with
efficiency, economy, quality of care and
access without considering the costs of
providing such services. It stands to reason
26 MANAGED PHARMACY CARE V . SEBELIUS

that the payments for hospital outpatient
services must bear a reasonable relationship to
the costs of providing quality care incurred by
efficiently and economically operated
hospitals.

Id.

Plaintiffs contend that a simple application of
Orthopaedic Hospital decides these cases. We disagree, for
two reasons.

First, we recognized in Orthopaedic Hospital that our
standard of review might have been different had the agency
spoken on the issue. Id. at 1495 (noting “the deference
afforded a federal agency’s interpretation of its own statutes”
under Chevron). This is because “Chevron’s policy
underpinnings emphasize the expertise and familiarity of the
federal agency with the subject matter of its mandate and the
need for coherent and uniform construction of federal law
nationwide.” Id. (internal quotation marks omitted). Because
the agency was not a party to the litigation and had not yet set
forth its position on the requirements of § 30(A), there was no
issue of whether we should defer to the agency. These
appeals, however, present just that question.

Second, the Secretary has now set forth her interpretation,
through her approvals of the SPAs, that § 30(A) does not
prescribe any particular methodology a State must follow
before its proposed rates may be approved. CMS explicitly
approved California’s SPAs as consistent with the
requirements of § 30(A) even though cost data was not
available with respect to all of the services, thereby
determining that the lack of cost studies did not preclude
 MANAGED PHARMACY CARE V . SEBELIUS 27

California from reducing Medi-Cal reimbursement rates. “A
court’s prior judicial construction of a statute trumps an
agency construction otherwise entitled to Chevron deference
only if the prior court decision holds that its construction
follows from the unambiguous terms of the statute and thus
leaves no room for agency discretion.” Nat’l Cable &
Telecomm. Ass’n v. Brand X Internet Servs. (“Brand X”),
545 U.S. 967, 982 (2005); Garfias-Rodriguez v. Holder, No.
09-72603, ___ F.3d ___, slip op. 12583, 12599, 2012 WL
5077137, *7 (9th Cir. Oct. 19, 2012) (en banc) (concluding
that, pursuant to Brand X, our prior construction of two
provisions of the Immigration and Nationality Act did not
survive a contrary reading by the Board of Immigration
Appeals). Although Orthopaedic Hospital was grounded in
the language of the statute – as are all of our statutory
interpretation cases – we did not hold that our view of
§ 30(A) represented the only reasonable interpretation of that
statute. We read the statute in the absence of an authoritative
agency construction and decided the case accordingly. And
although we cited Orthopaedic Hospital with approval in
Alaska DHSS, there was no Brand X issue to consider in that
case. See Alaska DHSS, 424 F.3d at 940.

For these reasons, Orthopaedic Hospital does not
automatically render the SPA approvals arbitrary and
capricious.

B

We now consider whether the Secretary’s approval –
including her view that § 30(A) does not impose a particular
process on the States – is entitled to Chevron deference. This
familiar standard requires a court to abide by an agency’s
interpretation or implementation of a statute it administers if
28 MANAGED PHARMACY CARE V . SEBELIUS

Congress has not directly spoken “to the precise question at
issue” and if the agency’s answer is “permissible” under the
statute. Chevron, 467 U.S. at 842–43.

But not every administrative act is entitled to Chevron
deference. United States v. Mead Corp., 533 U.S. 218
(2001). In reviewing an “administrative implementation of
a particular statutory provision,” we defer to the agency’s
decision (1) “when it appears that Congress delegated
authority to the agency generally to make rules carrying the
force of law,” and (2) “the agency interpretation claiming
deference was promulgated in the exercise of that authority.”
Id. at 226–27.

Arguably, the Supreme Court has already concluded that
SPA approvals meet the Chevron/Mead standard by stating
that “[t]he Medicaid Act commits to the federal agency the
power to administer a federal program. And here the agency
has acted under this grant of authority [by approving a SPA].
That decision carries weight.” Douglas v. Indep. Living Ctr.
of S. Cal., ___ U.S. ___, 132 S. Ct. 1204, 1210 (2012).
Because the Douglas Court also recognized that the deference
question had not been fully argued, id. at 1211, we proceed
with our own analysis. We keep in mind, however, that we
afford “considered dicta from the Supreme Court . . . a weight
that is greater than ordinary judicial dicta as prophecy of what
that Court might hold.” United States v. Montero-Camargo,
208 F.3d 1122, 1132 n.17 (9th Cir. 2000) (en banc) (internal
quotation marks omitted).

The first prong of the Mead standard is easily satisfied in
these cases: “The Secretary shall approve any plan which
fulfills the conditions specified” in the statute. 42 U.S.C.
§ 1396a(b). Congress expressly delegated to the Secretary
 MANAGED PHARMACY CARE V . SEBELIUS 29

the authority to interpret § 30(A) and to determine whether a
State’s Medicaid program conforms to federal requirements.

The second Mead prong – whether the Secretary
interpreted § 30(A) and approved California’s SPAs within
the exercise of her delegated authority – depends on the
“form and context” of the approvals. Price v. Stevedoring
Servs. of Am., Inc., 697 F.3d 820, 826 (9th Cir. 2012) (en
banc). “Delegation of such authority may be shown in a
variety of ways, as by an agency’s power to engage in
adjudication or notice-and-comment rulemaking, or by some
other indication of a comparable congressional intent.” Mead
Corp., 533 U.S. at 227.

We have already considered the application of Chevron
to the SPA process. In Alaska DHSS, the Secretary
disapproved a SPA, concluding that Alaska’s proposal to
raise reimbursement rates was inconsistent with § 30(A)’s
standards of efficiency and economy. 424 F.3d at 940. In
doing so, CMS exercised its authority, delegated by
Congress, to review Medicaid plans. Thus, we deferred to the
agency’s disapproval, holding that the statutory terms
“efficiency” and “economy” left a “gap that [CMS]
permissibly filled via case-by-case adjudication.” Id.

There does not appear to be any logical reason why
Congress would delegate to the Secretary the discretion to
decide that a proposed SPA violates § 30(A), but choose to
withhold from her that same discretion if she decides the SPA
complies with § 30(A). The nature of her authority is the
same in both instances. Nonetheless, the district court
distinguished Alaska DHSS because that case relied in part on
“the formal administrative process afforded the State” in the
case of a SPA disapproval. Alaska DHSS, 424 F.3d at 939.
30 MANAGED PHARMACY CARE V . SEBELIUS

When the Secretary disapproves a proposed plan
amendment, a State has the “opportunities to petition for
reconsideration, brief its arguments, be heard at a formal
hearing, receive reasoned decisions at multiple levels of
review, and submit exceptions to those decisions.” Id. In the
case of an approval, however, the Medicaid program does not
provide interested parties with similar opportunities (although
they may certainly avail themselves of the formal process
provided in a suit under the APA). This difference, argue the
Plaintiffs, shows that Chevron deference is not appropriate to
CMS’s SPA approvals.

It is true that Alaska DHSS relied on the formal petition
process afforded the State in the case of a disapproval. But
that was not the only reason we deferred to the agency’s
decision. Section 30(A)’s “undefined terms ‘efficiency’ and
‘economy’ leave a gap that [CMS] permissibly filled,” and
the agency appropriately “elucidate[d] the meaning of the
statute . . . via case-by-case adjudication.” Id. at 940. CMS
did the same thing here.

Importantly, we recognized in Alaska DHSS that the
formal process afforded the State was “clear evidence that
Congress intended [the agency’s] final determination to carry
the force of law.” Id. at 939 (emphasis added) (internal
quotation marks and alteration omitted). But formal process
is not the only evidence of such congressional intent. In the
absence of formal procedures, courts must determine whether
there are “any other circumstances reasonably suggesting”
that Congress intended deference to an agency decision.
Mead Corp., 533 U.S. at 231 (emphasis added). There are
many such circumstances to consider. For example, “the
interstitial nature of the legal question, the related expertise
of the [a]gency, the importance of the question to
 MANAGED PHARMACY CARE V . SEBELIUS 31

administration of the statute, the complexity of that
administration, and the careful consideration the [a]gency has
given the question over a long period of time” are all factors
favoring Chevron deference. Barnhart v. Walton, 535 U.S.
212, 222 (2002).

Considering all the evidence of Chevron-esque delegation
in these cases, we hold that the balance tips to the side of
deference – both to the Secretary’s implicit interpretation that
States are not required to follow any specific methodology in
submitting SPAs and to its explicit determination that the
SPAs at issue comply with federal law. The language of
§ 30(A) is “broad and diffuse.” Sanchez v. Johnson, 416 F.3d
1051, 1060 (9th Cir. 2005). The statute uses words like
“consistent,” “sufficient,” “efficiency,” and “economy,”
without describing any specific steps a State must take in
order to meet those standards. The statute’s amorphous
language “suggest[s] that the agency’s expertise is relevant in
determining its application.” Douglas, 132 S. Ct. at 1210.

Medicaid administration is nothing if not complex.
Determining a plan’s compliance with § 30(A), as well as its
compliance with a host of other federal laws, is central to the
program because a State cannot participate in Medicaid
without a plan approved by the Secretary as consistent with
those laws. The executive branch has been giving careful
consideration to the ins and outs of the program since its
inception, and the agency is the expert in all things Medicaid.
And let us not forget that “a very good indicator of delegation
meriting Chevron treatment [is an] express congressional
authorization[] to engage in the process of rulemaking or
adjudication that produces regulations or rulings for which
deference is claimed.” Mead Corp., 533 U.S. at 229. That
express delegation is precisely what we have here. Therefore,
32 MANAGED PHARMACY CARE V . SEBELIUS

despite the lack of formal procedures available for interested
parties, the Secretary’s exercise of discretion in the “form and
context” of a SPA approval deserves Chevron deference.
Price, 697 F.3d at 826.1

In holding that Chevron applies to SPA approvals, we
reach a conclusion similar to that reached by the D.C. Circuit.
In Pharmaceutical Research and Manufacturers of America
v. Thompson, 362 F.3d 817, 819 (D.C. Cir. 2004), then-
Secretary Thompson of HHS approved a Michigan SPA
designed to implement “a low-cost state prescription drug
coverage program [] for beneficiaries of Medicaid.” The
plaintiffs there, as here, argued that SPA approvals “are not
the result of a formal administrative process” and are
therefore “akin to ‘interpretations contained in policy
statements, agency manuals, and enforcement guidelines,’
which are ‘beyond the Chevron pale.’” Id. at 821 (quoting
Mead Corp., 533 U.S. at 234).

The D.C. Circuit rejected this argument because it

overlooks the nature of the Secretary’s
authority. This is not a case of implicit
delegation of authority through the grant of
general implementation authority. In the case

1
In a letter submitted pursuant to Rule 28(j) of the Federal Rules of
Appellate Procedure, the CMA and CHA Plaintiffs rely on Price in
support of their argument that Chevron does not apply to SPA approvals.
But Price considered whether a statutory interpretation advanced by an
agency in litigation was entitled to deference. Undertaking a
Chevron/Mead analysis, we concluded that Congress did not intend the
litigating positions of the Director of the Office of W orkers’
Compensation Programs to have the force of law. Price, 697 F.3d at
830–31. The Secretary’s decision here is a very different animal.
 MANAGED PHARMACY CARE V . SEBELIUS 33

of the Medicaid payment statute, the Congress
expressly conferred on the Secretary authority
to review and approve state Medicaid plans
as a condition to disbursing federal Medicaid
payments. . . . In carrying out this duty, the
Secretary is charged with ensuring that each
state plan complies with a vast network of
specific statutory requirements . . . . Through
this “express delegation of specific
interpretive authority,” Mead, 533 U.S. at
229, 121 S. Ct. at 2172, the Congress
manifested its intent that the Secretary’s
determinations, based on interpretation of the
relevant statutory provisions, should have the
force of law.

Id. at 821–22 (emphasis added). Therefore, the court deferred
to the agency’s approval of the Michigan SPA and also
determined that the agency did not violate the APA. Id. at
825–27.

We agree with the D.C. Circuit’s reasoning. See Alaska
DHSS, 424 F.3d at 939 (citing Pharm. Research Mfrs. of Am.
with approval). The Medicaid program is a colossal
undertaking, jointly funded by the federal government and the
States. Congress explicitly granted the Secretary authority to
determine whether a State’s Medicaid plan complies with
federal law. The Secretary understands the Act and is
especially cognizant of the all-important yet sometimes
competing interests of efficiency, economy, quality of care,
and beneficiary access.

Because Congress intended SPA approvals to have the
force of law, we now ask whether the Secretary’s
34 MANAGED PHARMACY CARE V . SEBELIUS

interpretation that § 30(A) requires a result, not a particular
methodology such as cost studies, is based on a “permissible”
reading of § 30(A). Chevron, 467 U.S. at 843. We have no
doubt that it is.

The statute says nothing about cost studies. It says
nothing about any particular methodology. See Holder v.
Martinez Gutierrez, ___ U.S. ___, 132 S. Ct. 2011, 2017
(2012) (deferring to the Board of Immigration Appeals’
reading of 8 U.S.C. § 1229b(a) because the statute “does not
mention imputation [of a parent’s years of residence to a
child], much less require it”). Rather, by its terms § 30(A)
requires a substantive result – reimbursement rates must be
consistent with efficiency, economy, and quality care, and
sufficient to enlist enough providers to ensure adequate
beneficiary access. Congress did not purport to instruct the
Secretary how to accomplish these substantive goals. That
decision is left to the agency.

The idea that a State should consider providers’ costs
prior to reducing reimbursement rates seems at first blush to
be logical. As we stated in Orthopaedic Hospital, “costs are
an integral part of the consideration.” 103 F.3d at 1496. But
even then, we acknowledged that beneficiary access to
Medicaid services “appears to be driven to a degree by factors
independent of costs of the services.” Id. at 1498. An
agency’s interpretation “prevails if it is a reasonable
construction of the statute, whether or not it is the only
possible interpretation or even the one a court might think
best.” Martinez Gutierrez, 132 S. Ct. at 2017. The position
that costs might or might not be one appropriate measure by
which to study beneficiary access, depending on the
circumstances of each State’s plan, is entirely reasonable.
Each State participating in Medicaid has unique, local
 MANAGED PHARMACY CARE V . SEBELIUS 35

interests that come to bear. The Secretary must be free to
consider, for each State, the most appropriate way for that
State to demonstrate compliance with § 30(A).

Moreover, the term “cost” is not as free from ambiguity
as the Plaintiffs would have us believe. When one shops at
a retail outlet and sees a price on an item, the cost to the
consumer is that price, period. But when one attempts to
determine how the price or cost to the consumer has been
calculated, a whole host of intangibles come into play, such
as cost of goods, depreciation, profit, overhead, deferred
compensation, advertising, etc. The term “cost” may also
include items such as contract prices to suppliers and service
providers, which may themselves be negotiated and reduced
if reimbursement rates are reduced. Nowhere in this record
have we been able to find a description by the Plaintiffs of a
useful definition of costs; and that term is anything but a
talisman solving all problems or providing answers to
complicated questions.

We note that our sister circuits have agreed that § 30(A)
“does not require any ‘particular methodology’ for satisfying
its substantive requirements as to modifications of state
plans.” Rite-Aid of Pa., Inc. v. Houstoun, 171 F.3d 842, 851
(3d Cir. 1999); Minn. Homecare Ass’n, Inc. v. Gomez,
108 F.3d 917, 918 (8th Cir. 1997) (per curiam) (“The
Medicaid Act . . . does not require the State to utilize any
prescribed method of analyzing and considering said
factors.”); Methodist Hospitals, Inc. v. Sullivan, 91 F.3d
1026, 1030 (7th Cir. 1996) (“Nothing in the language of
§ 1396a(a)(30), or any implementing regulation, requires a
state to conduct studies in advance of every modification. It
requires each state to produce a result, not to employ any
36 MANAGED PHARMACY CARE V . SEBELIUS

particular methodology for getting there.”). Today, we join
them.

We defer to the Secretary’s decision that SPAs 11-009
and 11-010 comply with § 30(A). The district court’s failure
to give Chevron deference is an error of law that necessarily
constitutes an abuse of discretion. Hinkson, 585 F.3d at 1263.

C

Our final inquiry with respect to Plaintiffs’ APA claims
is whether the agency’s approvals were arbitrary and
capricious. Agency action is arbitrary and capricious when
the agency relies on factors Congress has not intended it to
consider, fails to consider an important aspect of the problem,
or offers an explanation that runs counter to the evidence
before the agency. Motor Vehicle Mfrs. Ass’n, 463 U.S. at
43.

Plaintiffs urge us to conclude that the SPA approvals are
arbitrary and capricious because the agency “failed to
independently assess the statutory factors” of efficiency,
economy, quality of care, and beneficiary access and, in fact,
made “no reference” to these requirements when approving
the SPAs. But that is not an accurate representation of the
record.

CMS’s approvals themselves refute Plaintiffs’ argument,
stating, “We conducted our review of your submittal with
particular attention to the statutory requirements at
[§ (30)(A)].” (emphasis added). CMS concluded that the
SPA “complies with all applicable requirements.” Under
Motor Vehicle Manufacturers Association, we must uphold
an agency action – even if it is made with “less than ideal
 MANAGED PHARMACY CARE V . SEBELIUS 37

clarity” – as long as “the agency’s path may reasonably be
discerned” from the record. 463 U.S. at 43 (internal
quotation marks omitted).

With respect to the access requirement of § 30(A), the
approvals state that the lower rates are permissible because
the State “provide[d] metrics which adequately demonstrated
beneficiary access.” DHCS’s analysis considered (1) the
“[t]otal number of providers by type and geographic location
and participating Medi-Cal providers by type and geographic
area,” (2) the “[t]otal number of Medi-Cal beneficiaries by
eligibility type,” (3) “[u]tilization of services by eligibility
type over time,” and (4) an “[a]nalysis of benchmark service
utilization where available.” We, like CMS, see nothing
fundamentally flawed in this approach – especially
considering that these metrics track MACPAC’s three-prong
framework for analyzing access: (1) the needs of Medicaid
beneficiaries, (2) the availability of providers, and (3) the
utilization of services. See MACPAC March 2011 Report, p.
127.

The agency also appropriately considered the State’s
monitoring plan. The district court rejected the monitoring
plan because it “merely creates a potential response after an
access or quality deficiency has been identified.” We do not
agree that the State’s 82-page comprehensive plan is
irrelevant or superfluous. The statute cannot logically require
that every single potential problem – no matter how unlikely
– be predicted, identified, and resolved before SPA approval.
DHCS’s monitoring plan supports the reasonable conclusion
that the rate reductions are not expected negatively to impact
beneficiary access, but that if such problems occur, the State
can quickly respond and address them. It was not arbitrary or
38 MANAGED PHARMACY CARE V . SEBELIUS

capricious for the agency to consider California’s monitoring
plan.

The district court delved into the minutiae of the
Secretary’s approval, picking apart DHCS’s research and
finding potential flaws – an inappropriate exercise when
reviewing agency action under the APA. Hundreds of pages
of analysis submitted by DHCS support the Secretary’s
conclusion that the SPAs comply with § 30(A) and are
unlikely to affect beneficiary access in a detrimental way.
Plaintiffs cite to other evidence that contradicts DHCS’s
evidence of sufficient beneficiary access. But CMS
considered this “stakeholder input” when making its
determinations, and the agency’s decision to credit DCHS’s
evidence over that submitted by other parties was reasonable.
“[W]here there is conflicting evidence in the record, the
[agency’s] determination is due deference – especially in
areas of [its] expertise.” Nat’l Parks & Conserv. Ass’n v.
U.S. Dep’t of Transp., 222 F.3d 677, 682 (9th Cir. 2000).

The “Secretary shall approve” plans and plan
amendments that comply with the requirements set forth in
§ 30(A). 42 U.S.C. § 1396a(b). How should the Secretary
determine that compliance? Under the APA the answer must
be, in whatever reasonable way she sees fit. CMS made a
reasonable decision that SPAs 11-009 and 11-010 meet the
requirements of § 30(A), and Plaintiffs therefore cannot
succeed on their APA claims.
 MANAGED PHARMACY CARE V . SEBELIUS 39

IV

SUPREMACY CLAUSE CLAIMS AGAINST THE
DIRECTOR

Although § 30(A) does not create any substantive rights
enforceable under 42 U.S.C. § 1983, Sanchez, 416 F.3d at
1060 (9th Cir. 2005), we stated in Independent Living Center
of Southern California v. Shewry (“ILC I”) that “a plaintiff
seeking injunctive relief under the Supremacy Clause on the
basis of federal preemption need not assert a federally created
‘right’ . . . but need only satisfy traditional standing
requirements.” 543 F.3d 1050, 1058 (9th Cir. 2008). We
reaffirmed that principle in a later appeal in the same case.
See Indep. Living Ctr. of S. Cal. v. Maxwell-Jolly (“ILC II”),
572 F.3d 644, 650 n.7 (9th Cir. 2009) (vacated sub nom.,
Douglas, 132 S. Ct. 1204).

The Supreme Court granted certiorari in ILC II, along
with a number of other Ninth Circuit cases, to consider
whether the Supremacy Clause grants a private cause of
action for violation of § 30(A). The Secretary was not a party
in any of the cases. At the time of the oral argument, the
Secretary had not yet approved the reimbursement rates at
issue, which had been authorized by California Assembly
Bills 5 and 1183. Later, however, the Secretary did approve
the new rates, concluding that they complied with § 30(A).
After receiving supplemental briefing on the effect of the
Secretary’s action, the Supreme Court vacated those cases in
Douglas v. Independent Living Center of Southern California,
132 S. Ct. at 1208.

All of the Justices agreed that the Secretary’s approval of
California’s rate reductions “does not change the underlying
40 MANAGED PHARMACY CARE V . SEBELIUS

substantive question, namely whether California’s statutes are
consistent with [§30(A)].” Id. at 1210; see also id. at
1213–14 (Roberts, C.J., dissenting) (“[T]he CMS approvals
have no impact on the question before this Court.”). Justice
Breyer’s majority opinion concluded, however, that the
approvals “may change the answer” and that in the new
posture of the cases it was appropriate to remand for us to
consider the Supremacy Clause issue in the first instance.

The cases vacated and remanded by Douglas are currently
in mediation. The question we face in those cases is whether
the Supremacy Clause allows a private party to enforce a
federal statute that creates no substantive rights, even where
the administrative agency charged with the implementation
and enforcement of the statute has already acted. Douglas
did not resolve that question, and we need not do so here.

Even assuming there were a cause of action under the
Supremacy Clause – a position we do not necessarily believe
the Court would endorse – at this stage it is sufficient to say
that Plaintiffs are unlikely to succeed on the merits on any
Supremacy Clause claim against the Director for the very
same reason they are unlikely to prevail on their APA claims
against the Secretary. The Secretary has reasonably decided
that SPAs 11-009 and 11-010 comply with federal law. That
is the end of the matter for the purposes of this appeal of the
injunction.

V

CHA’S TAKINGS CLAIM

The Takings Clause of the Constitution prohibits the
government from taking private property for public use
 MANAGED PHARMACY CARE V . SEBELIUS 41

without just compensation. U.S. Const., amend. V. Because
participation in Medicaid is voluntary, however, providers do
not have a property interest in a particular reimbursement
rate. See Erickson v. U.S. ex rel. HHS, 67 F.3d 858, 862 (9th
Cir. 1995) (“[P]laintiffs do not possess a property interest in
continued participation in Medicare, Medicaid, or the
federally-funded state health care programs.”). Despite this
well-established principle, the district court held that CHA
was likely to succeed on its takings claim because, as a result
of state laws restricting the expulsion of patients from skilled
nursing facilities, “the hospitals’ continued participation in
Medi-Cal is compulsory at least until such time as alternate
arrangements are made for patients receiving skilled nursing
services.” The district court was not persuaded by the fact
that “the hospitals in this case accepted the restrictions to
their services when they voluntarily elected to participate in
Medi-Cal” because “they did so before the State enacted
[Assembly Bill] 97.”

But regardless of when providers decide to participate in
Medi-Cal, they can hardly expect that reimbursement rates
will never change. The fact that States may submit SPAs and
request approval for lower rates is enough to end the inquiry.
Neither the State nor the federal government “promised,
explicitly or implicitly,” that provider reimbursement rates
would never change. Cervoni v. Sec’y of Health, Educ. &
Welfare, 581 F.2d 1010, 1018 (1st Cir. 1978) (holding that a
provider of Medicare does not have a property interest in
continued payments under Part B); see also Franklin Mem’l
Hosp. v. Harvey, 575 F.3d 121, 129–30 (1st Cir. 2009)
(holding that there can be no unconstitutional taking where a
provider “voluntarily participates in a regulated program”).
CHA cannot succeed on its takings claim.
42 MANAGED PHARMACY CARE V . SEBELIUS

VI

CONCLUSION

For the foregoing reasons, we reverse the district court’s
decisions and vacate the preliminary injunctions in all four
cases. We remand for further proceedings consistent with
this opinion.

Appeal Nos. 12-55067, 12-55332, 12-55331, 12-55068,
12-55334, 12-55103, 12-55335, and 12-55315 are
REVERSED, the INJUNCTIONS VACATED, and the
cases REMANDED.

Appeal Nos. 12-55535, 12-55554, and 12-55550 are
DISMISSED as MOOT.