First Medical Health Plan, Inc. v. Vega-Ramos

United States Court of Appeals
For the First Circuit

No. 06-1514

FIRST MEDICAL HEALTH PLAN, INC.,

Plaintiff, Appellee,

v.

NANCY VEGA-RAMOS, as Executive Director of the
"Administración de Servicios de Salud de Puerto Rico",

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Jay A. García-Gregory, U.S. District Judge]

Before

Torruella, Circuit Judge,

Stahl, Senior Circuit Judge,

and Howard Circuit Judge.

Lizzie M. Portela for appellant.
Richard W. Siehl with whom Baker & Hostetler LLP, Alberto G.
Estrella, Kenneth C. Suria and William Estrella Law Offices, PSC,
were on brief, for appellee.

February 22, 2007
 HOWARD, Circuit Judge. This is an appeal from the entry

of a preliminary injunction against Nancy Vega-Ramos, the executive

director of the Administración de Servicios de Salud de Puerto

Rico (ASES), the entity responsible for administering the

Commonwealth of Puerto Rico's Medicaid program. The injunction

requires ASES to permit health insurance provider First Medical

Health Plan, Inc. (First Medical) to participate in Medicare

Platino, an ASES-run program designed to extend full prescription

drug coverage to Puerto Rico residents eligible for Medicare and

Medicaid. Vega also appeals the denial of her motion to dismiss

First Medical's complaint for failure to state a claim under Fed.

R. Civ. P. 12(b)(6). We vacate the injunction and remand for

dismissal of the complaint.

I.

Enacted in 1965, Medicare is a federally run health

insurance program benefitting primarily those who are 65 years of

age and older. Before the recent extension of Medicare to cover a

portion of prescription drug costs, Medicare covered only inpatient

care through Part A and outpatient care through Part B. Parts A

and B are fee-for-service insurance programs operated by the

federal government. 42 U.S.C. § 1395c et seq. (Part A); 42 U.S.C.

§ 1395j et seq. (Part B). In 1997, Congress enacted Medicare Part

C to allow Medicare beneficiaries to opt out of traditional fee-

for-service coverage under Parts A and B. 42 U.S.C. § 1395w-21 et

-2-
seq. (Part C). Under Part C, beneficiaries can, inter alia, enroll

in "Medicare Advantage" plans, privately-run managed care plans

that provide coverage for both inpatient and outpatient services.1

Id. § 1395w-22(a)(1).

Medicare beneficiaries who are indigent are referred to

as "dual eligible" beneficiaries, meaning that they also qualify

for Medicaid assistance. Id. § 1396u-5(c)(6)(A). Each state

administers a Medicaid program (with substantial federal funding)

to provide medical coverage to its economically disadvantaged

population. See id. § 1396a et seq. Dual eligible beneficiaries

receive Medicaid coverage for health services not covered by

Medicare and receive Medicaid funds to pay premiums and copayments

that they incur for Medicare-covered services. See Omnibus Budget

Reconciliation Act of 1986, Pub L. No. 99-509, § 9403 (1986)

(codified in scattered sections of 42 U.S.C.).

In 2003, Congress enacted the Medicare Modernization Act

(MMA) to extend partial coverage for prescription drugs to Medicare

beneficiaries under Medicare Part D. See Pub. L. No. 173, Tit. I

(2003) (Part D); see also 42 U.S.C. § 1395u-102(b) (establishing

beneficiary responsibility for a portion of prescription drug costs

under Part D). Under the MMA, participation in Medicare Part D is

voluntary for non-dual-eligible beneficiaries. 42 U.S.C. § 1395-

1
These plans were first called "Medicare+Choice" plans but
have been renamed "Medicare Advantage Plans." See Pub. L. No. 108-
173, § 201 (2003).

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101(a). Medicare Advantage plans may offer Part D coverage to

their enrollees. Id. § 1395-101(a)(1)(b)(i). Thus, Medicare

Advantage plan enrollees may receive all of their Medicare coverage

through a single managed care plan. If, however, a Medicare

beneficiary is enrolled in a Medicare Advantage plan that does not

offer Part D coverage, id. § 1395-101(a)(B)(iii), or the

beneficiary is not enrolled in Part C at all, id. § 1395w-101(A),

the beneficiary may join a "Prescription Drug Plan" to obtain Part

D benefits.2

Unlike other Medicare beneficiaries, a dual eligible

beneficiary must join a Part D plan (either a Medicare Advantage

plan that offers Part D coverage or a Prescription Drug Plan). 42

U.S.C. § 1395w-101(b)(1)(C). If a dual eligible beneficiary fails

to do so, the Secretary of Health and Human Services (Secretary)

automatically enrolls the beneficiary in such a plan. Id. But, as

mentioned above, because Part D provides only partial prescription

drug coverage, dual eligible beneficiaries typically need

additional assistance to pay their portion of prescription drug

costs. The MMA addresses this problem differently depending on

2
Prescription Drug Plans are plans offered by private
insurance companies, approved by Medicare, which provide Part D
coverage for those Medicare beneficiaries who do not receive Part
D coverage through a Medicare Advantage plan. See id. § 1395-
151(a)(14).

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whether the dual eligible beneficiary lives in one of the fifty

states or in one of the United States' territories.3

Prior to the MMA, Medicaid typically paid prescription

drug coverage for dual eligible beneficiaries. The MMA ended this

practice for dual eligible beneficiaries living in the states. Id.

§ 1396u-5(d)(1). The MMA prohibits state Medicaid programs -- but

not territory Medicaid programs -- from paying for any portion of

prescription drug costs normally shouldered by the beneficiary

under Part D. Id.; 42 U.S.C. § 1396u-5(e) (excluding territories

from the prohibition on Medicaid providing prescription drug

assistance). Rather than allowing Medicaid to pay these costs, the

MMA creates a subsidy program through which Medicare provides funds

directly to indigent Part D beneficiaries to help them pay their

share of drug costs. Id. § 1395w-114.

The MMA excludes the dual eligible population residing in

the territories from receiving these Medicare subsidies. 42 U.S.C.

§ 1395w-114(a)(3)(F). Instead, the MMA authorizes each territory

to seek approval from the Secretary to implement a plan to provide

full prescription drug coverage for its dual eligible population.

Id. § 1396u-5(e). If the Secretary approves the territory's plan,

the federal government increases the territory's Medicaid allotment

to help pay for this assistance. Id. § 1396u-5(e)(3).

3
For purposes of the MMA, the Commonwealth of Puerto Rico is
included as a territory.

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 In accord with this provision, ASES submitted to the

Secretary a plan entitled "Medicare Platino" to provide assistance

for Puerto Rico's dual eligible population to pay its share of Part

D covered drug costs. As part of the plan, ASES stated that it

would extend coverage to the dual eligible population by, inter

alia, contracting with various Medicare Advantage plans that

offered Part D coverage.

After receiving approval from the Secretary for Medicare

Platino, ASES sought applications from qualified Medicare Advantage

plans to participate. In its request for applications, ASES stated

that under Puerto Rico Law 72, it could not allow any Medicare

Advantage plan to join Medicare Platino if the plan owned or

operated health facilities that could provide covered services to

a Medicare Platino covered beneficiary. See 24 P.R. Laws Ann. §

7033(c). That is, under Puerto Rico law, ASES could not permit a

Medicare Advantage plan to join Medicare Platino if the plan could

engage in self-dealing.

First Medical, a federally qualified Medicare Advantage

plan operating in Puerto Rico, applied to participate in Medicare

Platino. ASES rejected First Medical's application under Law 72

because First Medical owned health care facilities that could

provide covered services to Medicare Platino beneficiaries. First

Medical responded by filing suit in federal district court, arguing

that Law 72 was preempted by federal law. First Medical relied on

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an MMA provision providing that "standards established by

[Medicare] supersede any State law or regulation (other than State

licensing laws or State laws relating to plan solvency) with

respect to [Medicare Advantage] plans which are offered by a

Medicare Advantage Organization under . . . Part" C of Medicare.

42 U.S.C. § 1395w-26(b)(3). The complaint alleged that Law 72 was

preempted in these circumstances because it constitutes an

impermissible standard governing First Medical's operation as a

Medicare Advantage plan under Medicare Part C.

Vega moved to dismiss the complaint for failure to state

a claim, and First Medical moved for a preliminary injunction to

permit it to join Medicare Platino. The district court denied the

motion to dismiss and entered the preliminary injunction. The

court ruled that First Medical is a Medicare Advantage plan, and

that the preemption provision contained in 42 U.S.C. § 1395w-

26(b)(3) prevents ASES from enforcing Law 72 to bar First Medical

from joining Medicare Platino. Vega appealed the entry of the

preliminary injunction and the denial of the motion to dismiss.

II.

A. Appellate Jurisdiction

Before addressing the merits of the district court's

rulings, we confront First Medical's challenge to our jurisdiction

to consider the denial of Vega's motion to dismiss. First Medical

argues that the denial of a motion to dismiss is an interlocutory

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ruling over which we have no jurisdiction unless the district court

has certified the order for appeal under 28 U.S.C. § 1292(b), which

it did not do.

First Medical is correct that, under the final judgment

rule, we typically may not review the denial of a motion to dismiss

under Fed. R. Civ. P. 12(b)(6). See, e.g., Marie v. Allied Home

Mort. Corp., 402 F.3d 1, 6 n.1 (1st Cir. 2005). But where, as

here, we have before us an interlocutory appeal from the entry of

a preliminary injunction, see 28 U.S.C. § 1292(a)(1), there is an

exception to this general principle.

In Deckert v. Indep. Shares Corp., 311 U.S. 282, 287

(1940), the Supreme Court ruled that a court of appeals correctly

considered the denial of a motion to dismiss for failure to state

a claim in conjunction with an interlocutory appeal from an order

granting a preliminary injunction. The Court explained that the

"power [to hear interlocutory appeals from the entry of a

preliminary injunction] is not limited to mere consideration of,

and action upon, the order appealed from. If insuperable objection

to maintaining the bill clearly appears, it may be dismissed and

the litigation terminated." Id. This rule serves the salutary

purpose of saving "both parties the needless expense of further

prosecution of the suit" where the pleadings demonstrate that the

suit is hopeless. N.C. R.R. Co. v. Story, 268 U.S. 288, 292

(1925). Appellate review of the denial of a motion to dismiss as

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part of an interlocutory appeal from the grant of a preliminary

injunction is permissible where the underlying facts are

undisputed, the parties have had a fair opportunity to brief the

legal issues, and the court of appeals can resolve the case as a

matter of law. See, e.g., SmithKline Beecham Consumer Healthcare,

L.P. v. Watson Pharms., Inc., 211 F.3d 21, 24-25 (2d Cir. 2000);

Planned Parenthood v. Camblos, 155 F.3d 352, 359-61 (4th Cir.

1998); Doe v. Sundquist, 106 F.3d 702, 707-08 (6th Cir. 1997);

Magnolia Marine Transp. Co. v. Laplace Towing Corp., 964 F.2d 1571,

1580 (5th Cir. 1992).

Here, the parties agree that the material facts are not

in dispute and that only legal questions are presented. Moreover,

the parties had ample opportunity to brief these issues before the

district court and, as will be seen, the issues can be resolved as

a matter of law. Thus, we have jurisdiction over the denial of

Vega's motion to dismiss.

B. The Merits

We review the grant of a preliminary injunction for an

abuse of discretion. See Ross-Simon of Warwick, Inc. v. Baccarat,

Inc., 102 F.3d 12, 15 (1st Cir. 1996) (stating the elements

necessary for obtaining a preliminary injunction). But we review

questions of law embedded within the preliminary injunction

framework de novo, New Comm Wireless Servs., Inc. v. SprintCom,

Inc., 287 F.3d 1, 9 (1st Cir. 2002), and will vacate the injunction

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where there has been a legal error, see McClure v. Galvin, 386 F.3d

36, 41 (1st Cir. 2004). We review a ruling on a motion to dismiss

for failure to state a claim de novo. See Martin v. Applied

Cellular Tech., Inc., 284 F.3d 1, 5 (1st Cir. 2002). Here, because

the grant of the injunction turned exclusively on legal rulings, we

apply the same de novo standard for reviewing the denial of the

motion to dismiss and the grant of the injunction. See McClure,

386 F.3d at 41.

The primary issue before us is whether 42 U.S.C. § 1395w-

26(b)(3) expressly preempts application of Puerto Rico Law 72 in

these circumstances. "Express preemption occurs when Congress has

unmistakably . . . ordained that its enactments alone are to

regulate a subject matter and state laws regulating that subject

must fall." Mass. Ass'n of Health Maintenance Orgs. v. Ruthardt,

194 F.3d 176, 179 (1st Cir. 1999). Congress's intent "is the

ultimate touchstone" of an express preemption analysis. Medtronic,

Inc. v. Lohr, 518 U.S. 470, 485 (1996). In determining the

preemptive scope of a congressional enactment, courts rely on the

plain language of the statute and its legislative history to

develop "a reasoned understanding of the way in which Congress

intended the statute" to operate. N.H. Motor Transp. Ass'n v.

Rowe, 448 F.3d 66, 74 (1st Cir. 2006).

The federal preemption provision relied on by First

Medical states that "the standards established" under federal law

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for Medicare Advantage plans operating under Medicare Part C shall

"supersede any State law or regulation (other than State licensing

laws or State laws related to plan solvency)." 42 U.S.C. § 1395w-

26(b)(3). The legislative history of this provision clarified that

"the [Medicare Advantage Program] is a federal program operated

under Federal rules and that State laws, do not, and should not

apply, with the exception of state licensing laws or state laws

related to plan solvency." H. Conf. Rep. 108-391 at 557,

reprinted in 2003 U.S.C.C.A.N. at 1926; see also Uhm v. Humana,

Inc., No. 06-0815, 2006 WL 1587443, at *2-3 (W.D. Wash. June 2,

2006) (holding that a state-law tort action based on alleged false

advertising by Medicare Advantage plan operating under Medicare

Part C was preempted by § 1395w-26(b)(3)).

As set forth above, First Medical persuaded the district

court to find preemption on the ground that it is a Medicare

Advantage plan seeking to participate in a Medicare program,

namely, Medicare Platino. Vega challenges this ruling, arguing

that Medicare Platino is not a Medicare program but rather is a

Medicaid program and is outside the preemptive scope of § 1395w-

26(b)(3). She contends that, while ASES invited Medicare Advantage

plans to join Medicare Platino, Medicare Platino is the vehicle

through which the Commonwealth's Medicaid system extends full

prescription drug coverage to its dual eligible population. Under

this view, Law 72 is not a prohibited Commonwealth "standard" for

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the operation of a Medicare Advantage plan operating under Medicare

Part C, but rather a permissible eligibility requirement for an

entity wishing to participate in a Puerto Rico Medicaid program.

We agree.

Congress has not precluded Medicaid programs operated by

the territories from offering prescription drug coverage to its

dual eligible population. 42 U.S.C. § 1396u-5(e). As we have

explained, the prohibition adopted by Congress applies only to

Medicaid programs operated by the states. Id. § 1396u-5(d)(1).

With respect to the territories, Congress adopted an entirely

different scheme which permits each territory to adopt a plan to

provide assistance to its dual eligible beneficiaries to pay their

share of Part D covered drug costs. Id. § 1396u-5(e)(2). As an

incentive for each territory to enact such a plan, Congress

promised that it would increase the territory's Medicaid funding if

the plan was approved by the Secretary. Id. § 1396u-5(e)(3)

(citing 42 U.S.C. § 1308(f) & (g)). Thus, Congress did not mandate

that the federal Medicare program pay for full prescription drug

coverage for the dual eligible population living in the

territories. Nor did it bar the territories from using Medicaid

funds to provide full prescription drug coverage to their dual

eligible populations. Id. § 1396u-5(e)(1)(A) (excluding

territories from the prohibition on using Medicaid funds to provide

prescription drug coverage for dual eligible beneficiaries).

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 Additionally, the Secretary's rules for approving a

territory's proposed plan for providing prescription drug coverage

do not limit the methods through which a territory may provide drug

coverage for its residents. The regulations provide only that a

territory must submit a plan that describes the type of medical

assistance to be provided, the number of eligible residents, and an

assurance that no more than ten percent of the increased Medicaid

funding will be used for administrative expenses. See 42 C.F.R. §

423.907. There is no requirement that a territory use an entity

established by the Medicare laws to provide drug coverage for its

dual eligible population.

As mentioned above, Congress's purpose in enacting §

1395w-26(b)(3) was to protect the purely federal nature of Medicare

Advantage plans operating under Medicare. But here, ASES was not

regulating the operation of a Medicare Advantage plan operating

under Medicare Part C;4 it was preventing an existing Medicare

Advantage plan from participating in Puerto Rico's Medicaid

program. By excluding First Medical from participating in Medicare

Platino, ASES was not setting a standard for the operation of a

Medicare Advantage plan operating under Medicare. Rather, it was

acting to protect the integrity of the Puerto Rico Medicaid system

in its role as the Commonwealth's Medicaid administrator. See Rio

4
Indeed, it is undisputed that First Medical operates as a
Medicare Advantage plan in Puerto Rico without having to satisfy
Commonwealth standards unrelated to licensing or plan solvency.

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Grande Cmty. Health Ctr., Inc. v. Rullan, 397 F.3d 56, 61 (1st Cir.

2005) ("Medicaid . . . is . . . directly administered by state

governments"). Nothing in federal Medicare law prohibits this.

Accordingly, we conclude that, in the circumstances presented,

Puerto Rico Law 72 has not been preempted by 42 U.S.C. § 1395w-

26(b)(3).

First Medical offers an alternative argument for

affirmance. It argues that, even if Law 72 has not been preempted

by § 1395w-26(b)(3), ASES did not have authority under federal

Medicaid law to exclude it from participating in Medicare Platino.

We disagree.

While Medicaid is a state-run program,5 Puerto Rico

accepts federal Medicaid funds and thus must comply with federal

Medicaid laws. See Rio Grande Cmty. Heath Ctr., 397 F.3d at 61.

Federal Medicaid law establishes that "in addition to any other

authority, a State may exclude any individual or entity [from

participating in its Medicaid program] for any for reason which the

Secretary could exclude the individual or entity from participation

in [Medicare]." 42 U.S.C. § 1396a(p).

First Medical interprets this statute to limit ASES's

authority to exclude entities from participating in its Medicaid

program to those reasons for which the Secretary could prohibit an

5
Puerto Rico is treated is a state for purposes of Medicaid
law. See 42 U.S.C. § 1301(a).

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entity from participating in Medicare. According to First Medical,

Law 72 establishes a basis for exclusion that does not exist under

Medicare.

First Medical incorrectly interprets the Medicaid

exclusion statute. The statute expressly grants states the

authority to exclude entities from their Medicaid programs for

reasons that the Secretary could use to exclude entities from

participating in Medicare. But it also preserves the state's

ability to exclude entities from participating in Medicaid under

"any other authority." The legislative history clarifies that this

"any other authority" language was intended to permit a state to

exclude an entity from its Medicaid program for any reason

established by state law. The Senate Report states:

The Committee bill clarifies current Medicaid
Law by expressly granting States the authority
to exclude individuals or entities from
participation in their Medicaid programs for
any reason that constitutes a basis for an
exclusion from Medicare . . . . This
provision is not intended to preclude a State
from establishing, under State law, any other
bases for excluding individuals or entities
from its Medicaid program.

S. Rep. 100-109 at 20, reprinted in 1987 U.S.C.C.A.N. at 700

(emphasis supplied). ASES was thus free, under federal Medicaid

law, to enforce Law 72 to exclude First Medical from participating

in Medicare Platino.

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 III.

For the reasons stated, Puerto Rico Law 72 has not been

preempted by 42 U.S.C. §1395w-26(b)(3) and ASES was not precluded

by federal Medicaid law from enforcing Law 72 to exclude First

Medical from participating in Medicare Platino. We therefore

vacate the preliminary injunction and remand with instructions that

First Medical's complaint be dismissed. Costs are awarded to

appellant.

So ordered.

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