The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court
MEMORANDUM DECISION AND ORDER
Before the Court are Motions for Preliminary Injunction (Dkt. 61) in Affiliates, et al. v. Armstrong, et al. (Case No. 1:09-cv-00149-BLW), and (Dkt. 2) in Knapp, et al. v. Armstrong, et al. (Case No. 1:11-cv-00307-BLW). The Court heard oral argument on July 26, 2011, following an expedited briefing schedule. Having considered the parties' written and oral arguments, and being familiar with the record, the Court will grant the Motions for Preliminary Injunction, as more fully expressed below.
"Medicaid . . . is a cooperative federal-state program that directs federal funding to states to assist them in providing medical assistance to low-income individuals." Cal. Pharmacists Ass'n v. Maxwell-Jolly, 596 F.3d 1098, 1102 (9th Cir. 2010) (citation omitted). States that choose to participate in Medicaid must comply with the requirements under the Medicaid Act, including development of, and adherence to, a state plan for medical assistance, which must receive approval from the federal Secretary of Health and Human Services, through CMS. Id.; 42 U.S.C. § 1396 et seq.; 42 C.F.R. § 430.15(b); see § 1396a(a)(1)-(73).
Under the Medicaid Act, requirements of § 1396a(a), in paragraphs (1), (10), and (23), may be waived such that a state is not deemed out of compliance with the Act. 42 U.S.C. § 1396n. Paragraph (23), known as the "free choice" provision, provides that state plans must permit Medicaid participants to receive services "from any institution, agency, community pharmacy, or person, qualified to perform the service or services required who undertakes to perform such services." 42 U.S.C. § 1396a(a)(23). The IDHW has requested and received two waivers: the Aged and Disabled Home and Community Based Services Waiver (A&D Waiver), and the Developmental Disabilities Home and Community Based Services Waiver (DD Waiver). Complaint, Dkt. 1, ¶ 8. These waivers allow certain types of care to be provided in home and community based, rather than institutional, settings. Id.
Under Idaho's DD waiver, residential habilitation services assist eligible participants to reside in their own homes or in the community with additional support services, such as in a Certified Family Home. Sanchez v. Johnson, 416 F.3d 1051, 1054 (9th Cir. 2005). The IDHW requires residential habilitation to be provided under the supervision of a properly licensed Residential Habilitation Agency. IDAPA
16.03.10.705. Where a Medicaid participant chooses a Certified Family Home, then that Certified Family Home provider must affiliate with a Residential Habilitation Agency. IDAPA 16.03.10.705.01.
2. Affiliates, et al. v. Armstrong, et al., Case No. 1:09-cv-00149 Plaintiffs in Affiliates v. Armstrong are providers of Residential Habilitation Affiliation services who contract with the State of Idaho and its Medicaid program.
Complaint, (Case No. 1:09-cv-00149)*fn1 Dkt. 1-4, ¶ 1. Plaintiffs work with Certified Family Home providers in the state of Idaho to provide developmentally disabled individuals the Medicaid-covered service referred to in Idaho regulations as "affiliation." Id. "Affiliation" includes provision of "oversight, training, and quality assurance to the certified home provider." IDAPA 16.03.10.705.01; Grooms Dec., ¶ 7, Dkt. 65-1. Affiliation also includes development and execution of Provider Implementation Plans, which describe the services provided by the Certified Family Home provider to meet the Medicaid participant's needs. Scott Dec., (Case No. 1:11-cv-00307) Dkt. 2-2, ¶ 11. Affiliation has "historically been provided by Residential Habilitation Agencies." IDHW Resp., Dkt. 65 at 2. If a Medicaid participant chooses a Certified Family Home provider, then that provider must affiliate with a Residential Habilitation Agency. IDAPA 16.03.10.705.01.
In 2009, the Idaho Department of Health and Welfare (IDHW) proposed modifications to the rate structure and rates paid to the Affiliates Plaintiffs through Medicaid. Id. Plaintiffs filed suit against Richard Armstrong as Director of IDHW, and Leslie Clement, as Administrator of the Medicaid Division of IDHW. Id. ¶ 3. Plaintiffs sought a temporary restraining order, asserting that the proposed changes were preempted by federal law and prohibited by Idaho law. Id. ¶ 1.
The Honorable Justin L. Quackenbush, sitting by designation for the District of Idaho, issued an order on April 30, 2009, granting the Temporary Restraining Order (Dkt. 17). In his decision, Judge Quackenbush noted that nothing in the record before the court indicated that the reduction in rates was "premised on any concern other than budgetary ones, in direct contravention of Orthopaedic Hospital v. Belsh, 103 F.3d 1491, 1496 (9th Cir. 1997)." TRO, Dkt. 17 at 3. Also, "[t]here is no evidence that the Department, through reasonable cost study and analysis, concluded that the new rates can provide the quality of medical care and access required by Independent Living Center v. Shewry, 543 F.3d 1050, 1065-66 (9th Cir. 2008)." Id. at 3-4. Finally, the Court found "[t]here is no evidence that Idaho has fulfilled its statutory obligations under 42 C.F.R. § 430.12 to submit the substantive amendments of its state plan to the federal [Center for Medicare and Medicaid Services (CMS)] for approval," citing Washington State Health Facilities Ass'n v. Washington Dep't of Soc. and Health Serv., 698 F.2d 964 (9th Cir. 1982). Id. at
4. The Court concluded that Plaintiffs were likely to succeed on the merits of their claim. Id.
The parties entered stipulated preliminary injunctions on May 27, 2009 and June 25, 2009 (Dkts. 27, 28). Defendants then filed a Motion for Permanent Injunction and Judgment (Dkt. 30). Plaintiffs stipulated to entry of a permanent injunction, but asserted that final judgment was premature.
On January 22, 2010, the Honorable William F. Downes, sitting by designation for the District of Idaho, issued an order granting in part, and denying in part, Defendants' motion (Dkt. 45). The Court agreed with Defendants that the Eleventh Amendment bars claims potentially resulting in retrospective relief, such as declaratory relief sought by Plaintiff that the State of Idaho had been in violation of federal law regarding the setting of [Residential Habilitation Agency] rates since 1995. Id. at 8 (citing Edelman v. Jordan, 415 U.S. 651 (1974) and Green v. Mansour, 474 U.S. 64 (1985)). Agreeing with Plaintiffs, the Court found Defendants' exhaustion argument inapplicable to this case. Id. at 10-11. The Court therefore permitted Plaintiffs to amend their Complaint, and found that entry of final judgment was inappropriate. Id. at 11.
In 2010 and 2011, the Idaho Legislature directed the IDHW's Division of Medicaid to implement selective contracts in order to "provide the appropriate incentives" and improve the system of payment for health care delivery, "with the objective of moving toward an accountable health care system that results in improved health outcomes." 2011 Idaho Sess. Laws ch. 160 § 12 (codified at Idaho Code § 56-261(1)). In response, on February 25, 2011, IDHW sought proposals for a single contractor to provide all program coordination services in Certified Family Homes. Dunagan Dec., Dkt. 61-2, ¶ 7. The IDHW accepted questions from, and provided responses to, potential bidders. Ex. 1 to Dunagan Dec., Dkt. 61-3.
Describing its proposal as "selectively contracting," the IDHW indicated that it need not seek CMS approval before awarding the single contract, but that it would "comply with CMS requirements for amending its waiver." Id. at 1. Where a state, for cost-effectiveness, seeks "to restrict the provider from (or through) whom an [eligible] individual . . . can obtain services," the state must first obtain a waiver (through CMS) from the federal Secretary of Health and Human Services. 42 U.S.C. § 1396n(b)(4).
Also, according to the CMS Manual, a state may arrange for a contracted entity to perform "waiver operational and administrative functions," such as quality improvement, that are "necessary for the proper and efficient administration of the waiver." CMS Manual at 60-61, Ex. B to Grooms Dec., Dkt. 65-1. Thus, under the Medicaid Act's waiver provision, and technical guidance from CMS, the IDHW now seeks approval of an amendment to its DD waiver to permit its proposed selective contract.
The IDHW confirmed that its proposed contract would only require one "face-to-face contact per year" between the program coordinator and the Medicaid participant. Id. at 2-3. When asked if rule changes would reflect the "reduced expectations of the [IDHW] as outlined in [the] proposal," the IDHW responded that it would "proceed with the rulemaking process to amend its rules as necessary." Id. at 1.
On June 3, 2011, the IDHW contracted with Community Partnerships of Idaho for that company to be the sole provider of program coordination in Certified Family Homes. Ex. 2 to Dunagan Dec., Dkt. 61-4. Under the contract, Community Partnerships of Idaho agreed to provide residential habilitation services, at annual fixed rates of $1,070 for new entrants to that program, and $628 per year for existing users of the program. Id. As noted in Judge Quackenbush's Order granting Temporary Restraining Order, the existing annualized ...