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Medicaid Litigation Review: Q1 2024

This article is the first in a series of quarterly updates on significant Medicaid litigation developments in federal and state courts.  Q1 of 2024 saw the first major post-Talevski federal Medicaid decision brought under section 1983, new developments in state challenges to CMS’s enforcement of private hold-harmless arrangements, and the conclusion of an ongoing saga in Kentucky’s Medicaid managed care program. 


Planned Parenthood South Atlantic v. Kerr, 27 F.4th 945 (4th Cir. 2024)


Key Takeaway: In the first significant post-Talevski Medicaid decision with a cause of action under 42 U.S.C. section 1983, the Fourth Circuit held that the central inquiry to determine whether a statutory provision creates an enforceable right is whether Congress has conferred a clear and unambiguous right upon a discrete class of beneficiaries. 


Last year, the Supreme Court  issued a monumental ruling in Health and Hospital Corporation of Marion County v. Talevski reaffirming the court’s longstanding precedent that legislation enacted under the Constitution’s Spending Clause authority can create privately enforceable rights under 42 U.S.C. section 1983.  The Talevski decision effectively preserved access to federal courts for beneficiaries challenging violations of the Medicaid Act. 


Following Talevski, confusion persisted regarding the appropriate test for determining whether a statute confers a privately enforceable right under section 1983: the three-prong balancing test established in the Supreme Court’s Blessing v. Freestone (1997) decision, or the subsequent “unmistakable focus” test used in the Court’s Gonzaga University v. Doe (2002) decision.  Blessing’s three-part test was intended to put to rest questions emanating from the controversial rationale employed in Wilder v. Virginia (1990) and asks the following questions: 


1. Did Congress intend the statutory provision to benefit the plaintiff?

2. Is the right sufficiently specific, or is it vague and amorphous such that interpretation would strain judicial competence?

3. Is the right mandatory, i.e., doe sit create a legal obligation?


The Supreme Court revisited this issue in Gonzaga due to dispel a line of thinking that had arisen post-Wilder and Blessing that perhaps something less than an unambiguously conferred right could grant a section 1983 cause of action.  The court rejected this notion, holding that a statutory provision only confers an enforceable right if it contains “rights-creating,” individual-centric language with an “unmistakable focus on the benefited class.” 


Federal courts have thereafter been split regarding whether satisfaction of Blessing’s three-prong test is still required.  In Talevski, the Supreme Court applied Gonzaga’s test, but was silent regarding the three Blessing factors.   In her concurring opinion, Justice Barrett was unambiguous that “Gonzaga establishes the standard for analyzing whether Spending Clause statutes give rise to individual rights.” 


That brings us to the case at issue, Kerr. V. Planned Parenthood S. Atl.   This litigation arose from a 2019 executive order issued in South Carolina requiring the termination of abortion clinics from South Carolina’s Medicaid program.  A beneficiary and Planned Parenthood affiliate filed a section 1983 action seeking to enjoin the termination of the affiliate’s Medicaid provider agreement as violating the free-choice-of-provider provision under 42 U.S.C. section 1396a(a)(23).  Notably, circuits have been split on whether the free-choice-of-provider provision creates individually enforceable rights under section 1983.  The Fourth Circuit affirmed preliminary and permanent injunctions, twice applying Blessing’s three-part test to conclude that the provision does bestow privately enforceable rights to beneficiaries.  Following Talevski, the Supreme Court vacated the Fourth Circuit’s judgment and remanded for further consideration in light of the Talevski ruling.   


The Fourth Circuit again re-affirmed that the free-choice-of-provider provision creates individually enforceable rights under section 1983.  The court ruled that despite minor inconsistencies amongst the various Supreme Court cases, “there is one central inquiry that eclipses the rest:” whether Congress has conferred a clear and unambiguous right upon a discrete class of beneficiaries.  Thus, Talevski did not represent a clear doctrinal transformation. 


The court refused to declare Blessing overturned, an action which it stated is reserved for the Supreme Court, but held that by declining to apply all three Blessing factors, the Supreme Court indicated that those factors are not strictly mandatory for finding a private right had been created.  Courts, therefore, must look primarily to Gonzaga to ascertain “whether Congress has unambiguously conferred individual rights upon a class of beneficiaries to which the plaintiff belongs.”


We are also tracking a second case that the Supreme Court has vacated and remanded for consideration in light of Talevski, St. Anthony Hospital v. Eagleson, which is currently pending before the Seventh Circuit and asks the question of whether Spending Clause legislation can impliedly confer a privately enforceable right of action.  That case involves the ability of providers to sue states for failing to enforce the Medicaid Act’s prompt payment provisions. 


State of Florida v. Brooks-LaSure, No. 23-cv-61595-WPD (S.D. Fl.)


Key Takeaway: A Florida district court dismissed the state of Florida’s lawsuit against CMS challenging an informational bulletin targeting private hold harmless arrangements in state provider tax programs. 


Last year, CMS issued an informational bulletin addressing the Medicaid Act’s prohibition on “hold harmless” provider tax arrangements.  In its guidance, CMS explained that it intends to crack down on provider tax programs in which providers enter private arrangements to pool and redistribute increased Medicaid payments to ensure that each of the taxpayers receives all or a portion of their taxes back.  These arrangements are widespread across the country and critical for garnering political support from providers with a lower share of Medicaid beneficiaries that would otherwise lose money on provider tax programs. 


CMS advised in the bulletin that such arrangements violate the prohibition against hold-harmless arrangements.  CMS warned that it would take enforcement actions where such arrangements are found to exist, including the disallowal of Medicaid payments. 


CMS has since commenced targeted reviews of tax programs in the states of Texas, Florida and Missouri.  Texas and Florida both filed lawsuits seeking injunctions against CMS enforcement of the bulletin on the grounds that the bulletin was promulgated without notice-and-comment rulemaking in violation of the Administrative Procedure Act.  In June 2023, the Eastern District of Texas issued a preliminary injunction against enforcement of the bulletin in Texas, holding that the bulletin constitutes a final agency action and that the state of Texas was likely to prevail on the merits.   


On March 6, 2024, the Southern District of Florida dismissed without prejudice the state of Florida’s lawsuit.  Florida challenged bulletin and a letter CMS sent to Florida notifying the state that CMS was initiating a targeted review that could ultimately lead to an enforcement action against the state.  In contrast to the Texas court, the Florida court held that the bulletin was not final agency action because it did “not itself affect Florida’s rights without CMS taking future administrative action.”  The Florida court also concluded that the letter informing the state of the targeted review was not a final agency action under longstanding Supreme Court precedent because the letter merely informed Florida that CMS was beginning an investigation into the state’s provider tax program.   


The Texas case remains pending under State of Texas v. Brooks-LaSure, No. 6:2023cv00161 (E.D. Tex.). 


Anthem Kentucky Managed Care Plan, Inc. v. Molina Healthcare of Kentucky, Inc., 2022-SC-0515-DG (S. Ct. KY.)


Key Takeaway: Anthem lost its challenge to Kentucky’s bidding process for the Medicaid managed care program.


In March 2024, the Kentucky Supreme Court put to rest a long-going dispute involving Kentucky’s Medicaid managed care program.  The dispute began in 2020, when Kentucky issued a request for proposals to award contracts to for the Medicaid managed care program.  Out of the seven proposals, five contracts were awarded.  The sixth-ranked proposer, Anthem, filed a lawsuit alleging  that the state agency improperly scored the proposals, and that the fifth-ranked proposer, Molina, should be disqualified because it hired a consultant on the governor’s transition team resulting in a conflict of interest. 


Anthem was successful before the circuit court, which ordered that Anthem be allowed to participate as a sixth managed care organization until the program could be rebid.  In a September 2022 decision, the court of appeals reversed, holding that Anthem’s arguments were insufficient to rebut the presumption of correctness afforded to the state agency. 


The Kentucky Supreme Court heard oral arguments in March, and a week later issued a one-page order upholding the court of appeals decision.  The order explained that the Supreme Court justices who heard the case were tied 3-3 and, in a quirk of the court, the court of appeals decision would therefore stand without an opinion on the merits of the case.  While Anthem had remained as a Medicaid managed care organization during the pendency of the appeal, the loss means that Anthem can now no longer participate in Kentucky’s Medicaid managed care program.    


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For more information on recent Medicaid litigation and its impact on providers, please contact Kyle Brierly.

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