UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE DARTMOUTH-HITCHCOCK CLINIC AND : MARY HITCHCOCK MEMORIAL

HOSPITAL, : D/B/A DARTMOUTH-HITCHCOCK, et al., : : Plaintiffs, : : v. : : NICHOLAS A. TOUMPAS, in his official : capacity as Commissioner of the New Hampshire : Department of Health and Human Services, : : Defendant. :

CIVIL ACTION No. 11-cv-358-SM

PLAINTIFFS REPLY IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION The Plaintiffs respectfully reply to the Defendants objection to the Motion for Preliminary Injunction as follows: I. Plaintiffs Will Likely Succeed on the Merits of Their Preemption Claims. A. Plaintiffs Have a Cause of Action Under the Supremacy Clause.

As set forth in Plaintiffs Memorandum of Law in Opposition to Defendants Motion to Dismiss, under the Supremacy Clause, the statutes and reimbursement rate reductions at issue here are preempted. B. The Medicaid Act Preempts RSA 126-A:3, VII(a), the Rate Reduction Enactments, Laws of 2011, Chapters 223 and 224, and RSA 167:64. 1. The State Violated Section 30(A)s Procedural Requirements When It Set Reimbursement Rates Solely for Budgetary Reasons. The Defendant incorrectly argues that Section 30(A) does not contain procedural requirements. See Def.s Memo. Of Law in Supp. of Obj. to Mot. For Preliminary Injunction (Def.s Br.), pp. 43-45. The Defendant admits that the First Circuit has not directly addressed this issue, but argues that Long Term Care Pharm. Alliance v. Ferguson, 362 F.3d 50, 58 (1st

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Cir. 2004) (hereinafter Long Term Care), supports his position. See Def.s Br., p. 44. However, in Long Term Care, the First Circuit did not implicitly conclude[] that no pre-enforcement study is required, as the Defendant suggests, Def.s Br. p. 44, but decided whether medical providers could bring a Section 1983 claim for a Section 30(A) violation. See Long Term Care, 362 F.3d at 56-59. The Court did not decide whether a pre-enforcement study is required. 1 Courts have generally held that Section 30(A) forbids states from reducing reimbursement rates solely for budgetary reasons. See, e.g., Ark. Med. Socy v. Reynolds, 6 F.3d 519, 531 (8th Cir. 1993) (listing cases); Tallahassee Meml Regl Med. Ctr., 109 F.3d 693, 704 (11th Cir. 1997) (finding for plaintiff on the basis that Defendant . . . seems to concede that budgetary constraints and the failure of the Legislature to adopt a provision for inappropriate level of care services, have left it incapable of compensating Plaintiffs for medically necessary outpatient psychiatric services provided in an in-patient setting). Here, the record overwhelmingly establishes that the rate reductions at issue were solely budget-driven, including: In 2005, the State enacted RSA 126-A:3, VII(a), which states: [i]f expenditures are projected to exceed the annual appropriation, the department may recommend rate reduction for providers to offset the amount of any such deficit. In October 2008, the State reduced outpatient reimbursement rate reduction to bring expected expenditures in line with appropriations for [state fiscal year] 2009. See Declaration of Emily Feyrer in Supp. of Mot. for Preliminary Injunction (Feyrer Decl. I), Ex. C. In November 2008, the State reduced inpatient hospital rates to protect other important services and to ensure [the State] end[s] the year with a balanced budget. See id., at Ex. E (emphases added). The Defendant suggests, however, that what was done should be considered sufficient
1

The Defendant also argues that CMSs proposed amendments to 42 C.F.R. 447.203-204 requires CMS, not the Court, to determine whether the State complied with Section 30(A). See Def.s Br., p. 46. The Defendant contends that CMS is better suited to specify Section 30(A)s procedural requirements, id., but insists there is no need to submit State Plan Amendments (SPA) to CMS for review, id., at pp. 56, 59. Plainly, CMS cannot be better suited to make any determinations when the Defendant claims the States actions are not subject to CMS scrutiny.

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to meet any procedural requirements. Def.s Br., p. 46. What was done, according to the Defendant, were two so-called benchmark reports required to be produced under RSA 126A:18. See id. at p. 47. By the States own admission, those benchmark reports argue against rate reductions: in April 2011 before the 2011 reductions DHHS2 told the State Senate that the reports reflect a growing potential that patient access to services will become more difficult. See Feyrer Decl. I, Ex. Q at p. 15.3 Even setting aside this admission, the benchmark reports cannot serve as a basis for complying with Section 30(A). DHHS made clear that it lacked the resources to undertake the benchmarking analysis. See Declaration of Emily Feyrer in Further Supp. of Mot. for Preliminary Injunction (Feyrer Decl. II), Ex. B (Mar. 10, 2008 letter from DHHS to Fiscal Committee Chairman Marjorie K. Smith, indicating that DHHS could not satisfy RSA 126-A:18bs requirements because it lacked the resources required to fully accomplish this benchmarking task, and therefore would reduce the categories of services examined from 48 to 8, and [p]ostpone, to future years, any examination of costs as a benchmark). Nevertheless, on October 1, 2008, DHHS published its first benchmarking report.4 As it had warned, DHHS did not undertake any benchmarking analysis with respect to inpatient and outpatient hospital rates, claiming that, [d]ue to differing payment methodologies, rate information was not collected for these service groups. DHHSs 2010 benchmarking report5

2 3

This reply incorporates defined terms in Plaintiffs Mem. of Law in Supp. of Mot. for Prel. Inj. (Pls. Br.). In that presentation, DHHS summarized the benchmark data as follows: (1) [i]n almost every case[, the] Medicaid [rates were] significantly lower than Medicare, NH commercial insurance and other Medicaid programs; (2) [c]ompared with [the 2008] report . . . , the difference between NH Medicaid rates and other payers has grown; and (3) [g]rowing potential that if trends continue, patient access to services will become increasingly more difficult. See Feyrer Decl. I, Ex. Q at p. 15. 4 New Hampshire Medicaid Provider Reimbursement Rate Benchmarks for Key Services (the 2008 Report), appears as Exhibit C to Feyrer Decl. II. 5 New Hampshire Medicaid Provider Reimbursement Rate Benchmarks for Key Services, 2010 (the 2010 Report), appears as Exhibit D to Feyrer Decl. II.

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did little to remedy the 2008 Reports inadequacies. The 2010 Report6 was again limited to selected service categories; it did not benchmark New Hampshire reimbursement rates against provider costs; and did not benchmark inpatient and outpatient reimbursement rates against other New England states. See Feyrer Decl. II, Ex. D. Thus, what was done by the State failed to meet the mandate under State law, much less the level of analysis required for compliance with Section 30(A). See Pls. Br., at pp. 7-8, 32-33 (summarizing the requirements of Section 30(A) and the proposed CMS rule). 2. Plaintiffs Have Demonstrated Lack of Access For Medicaid Recipients.

The absence of required analysis before implementing the reductions at issue is but one part of this case. The Court already has a factual record demonstrating actual impairment of Medicaid beneficiaries equal access to healthcare. See, e.g., Lipman Decl. 39. To take a further example, LRGHealthcare has recently been forced to close its physician panels to Medicaid patients, affecting an estimated 3,500 enrollees. Lipman Decl. in Further Support of Complaint for Declaratory and Injunctive Relief (Lipman Decl. II), 5. Nonetheless, the Defendants various arguments regarding access essentially ask the Court to ignore these actual impacts. The Court should reject those arguments. First, the Defendant relies on an incorrect standard by claiming that the actions taken by Provider Plaintiffs will affect the general public to the same extent as Medicaid patients. See Def.s Br., pp. 41-42. The correct inquiry is whether Provider Plaintiffs actions will affect Medicaid patients to the same extent as they affect patients with insurance. See Pls. Mem. In Support of Mot. for Prelim. Inj., at p. 39 and cases cited therein. Second, the Defendants observations based on past utilization data from the

DHHS did increase the number of service categories considered. See Feyrer Decl. II, Exhibit D, at p. 1.

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benchmarking reports misses the point. Def.s Br., p. 24. Plaintiffs are claiming that, prior to June 29, 2011 enactment of the present budget, Medicaid reimbursement rates were so low that their ability to provide efficient, economical, and quality care, and equal access to care and services was greatly strained. See Complaint 209. Enactment of the current budget proved to be the proverbial straw that broke the camels back. The present system imposes unprecedented and unsustainable reductions that no longer assure reimbursement rates consistent with Section 30(A)s substantive requirements.7 Id. at 210 - 211. Third, and equally unavailing, is the Defendants argument that two months after the budgets enactment there was no decrease in the number of providers serving Medicaid patients. See Def.s Br., p. 42; Dunn Aff. 21 and Ex. KD-8 (reflecting provider counts through August 15, 2011).8 Since making this observation, however, some Provider Plaintiffs have closed their physician panels to Medicaid patients. See, e.g., Lipman Decl. II, 5. 9 3. RSA 126-A:3, VII(a) and RSA 167:64 Are Facially Preempted.

Section 30(A) requires a states Medicaid program to assure that reimbursement rates are consistent with efficiency, economy, and quality of care, and to provide equal access to care and services. The plain meaning of the word assure means to make sure of something or to guarantee. WEBSTERS DELUXE UNABRIDGED DICTIONARY 114 (2d Ed. 1979). Thus, a statute, rule, or methodology that effectively allows a State to reduce its Medicaid reimbursement rate to zero percent cannot meet Section 30(A)s requirements.
7

The Defendants assertions about DSH funding, see Def.s Br., pp. 4, 21, also misses the point. Plaintiffs claim is that, absent DSH funding, the States Medicaid reimbursement rates to hospitals are insufficient to assure that hospitals can continue to provide Medicaid-covered care and services. See Complaint 183. 8 Even if this evidence were relevant, it does not refute Plaintiffs claim. The Defendant fails to specify what data in this report supports his position. To the extent he is relying upon the Total providers column, see Dunn Aff., Exhibit KD-8, the data are largely irrelevant because, for example, the number of dentists participating in the Medicaid program has nothing to do with hospital participation. 9 The full impact of the States Medicaid payment system upon New Hampshire Medicaid patients equal access to health care and services will be presented at the January 10, 2012 evidentiary hearing.

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RSA 126-A:3, VII(a) provides in relevant part: If expenditures are projected to exceed the annual appropriation, the department may recommend rate reduction for providers to offset the amount of any such deficit. In other words, RSA 126-A:3, VII(a) allows DHHS to recommend a rate reduction solely for budgetary reasons. DHHS is the state agency charged with analyzing the impact that such reductions would have on Medicaid providers and recipients. RSA 126-A:3, VII(a) eliminates this analysis from the equation. Therefore, RSA 126-A:3, VII(a) directly conflicts with Section 30(A)s procedural and substantive requirements. The Defendant argues, however, that RSA 126-A:3, VII(a) does not allow DHHS to disregard federal law when recommending rate reductions to the Joint Fiscal Committee. See Def.s Br., p. 49. This argument makes little sense especially where the plain language of the statute does not limit DHHSs authority in this way. Rather, the Defendant appears to concede that the State cannot use RSA 126-A:3, VII(a) to reduce reimbursement rates unless it can demonstrate that Section 30(A)s requirements can be met first. Id. The Defendants argument that RSA 167:64, as amended, can somehow be construed as consistent with Section 30(A), Def.s Br., p. 49, also fails. The Defendant mischaracterizes RSA 167:64 as a statute that allocates only DSH funding. Id. The statute allocates proceeds from the Medicaid Enhancement Tax (MET) and directs that those funds be used: (1) [t]o support medical provider payments as budgeted in each year of the biennium; (2) to support the States General Fund as budgeted in each year of the biennium; (3) if sufficient funds exist, to fund the Medicaid DSH Program for critical access; and (4) if sufficient funds exist, to fund the Medicaid DSH Program for non-critical access hospitals. RSA 167:64 (emphases added). By its terms, RSA 167:64 does not mention Section 30(A)s procedural or substantive requirements. Rather, it authorizes the State to budget any portion of the MET to the General Fund, without

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consideration of Section 30(A)s requirements. Because the statute does not constitute a method or procedure that assures reimbursement rates consistent with efficiency, economy, and quality of care, and equal access to care and services, it directly conflicts with Section 30(A).10 4. 1396(a)(b) and 42 C.F.R. 430.12 Mandate Submission of a SPA.

The Defendants contention that the rate reductions at issue do not require the State to submit SPAs to CMS is incorrect. The Medicaid Act requires the Defendant to submit a SPA for CMSs review and approval for every material change[] in state law, organization, policy or operation of the state Medicaid program, 42 C.F.R. 430.12(c). Significant reimbursement rate reductions, such as the 33.48% outpatient rate reduction, the 10% inpatient rate reduction, and the other rate reductions in this case, constitute material changes to the operation of the States Medicaid program. See, e.g., Wis. Hosp. Assn v. Reivitz, 820 F.2d 863 (7th Cir. 1987) (finding a 1.8% reduction in reimbursements for Medicaid services to be significant and material under the circumstances, and requiring a state plan amendment). The Defendant also argues that CMSs review and approval of the reimbursement rate reductions is unnecessary because those rate changes did not modify the reimbursement rate methodology. See Def.s Br., pp. 12, 54, 56, 59. This argument is inconsistent with the States own definition of term State Plan Amendment in its Medicaid Annual Report: State Plan Amendment (SPA) A state that wishes to change its Medicaid eligibility criteria, covered benefits, or provider reimbursement rates must amend its state Medicaid plan. Similarly, states must conform their Medicaid plans to changes in federal Medicaid law. In either case, the state must submit a state plan amendment to CMS for approval.
10

To the extent the Defendant contends that RSA 167:64 does not conflict with Section 30(A) because the State must consider Section 30(A)s procedural and substantive requirements prior to using the statute to allocate funds, Def.s Br., p. 49, he should be bound by that concession in this case.

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See Feyrer Decl. II, Ex. A at p. 46 (emphases added). Thus, by its own definition, DHHSs modification of its reimbursement rates required a SPA. Moreover, the 2008 reimbursement rate reductions did effect material changes by altering the methods and standards for setting rates. As detailed in the next section, the States inpatient methodology does not permit a flat percentage reduction in the DRG price point.11 In any event, the Defendants position that the States methodologies permit this result is untenable because it would effectively permit the State to reduce reimbursement rates to zero without CMS oversight. a. The Inpatient Rates Are Inconsistent With the State Plan.

The history of the States Medicaid inpatient rate methodology makes clear that the States ten percent reduction is inconsistent with the State Plan as approved by CMS. Prior to 1995, DHHSs calculation of DRG price per point was rooted in the actual amount paid by the State for inpatient hospital services for the previous fiscal year, adjusted for inflation and minus costs such as reimbursement to border/out-of-state hospitals and an outlier pool. See Peterson Aff. at Ex. DP-1 at TN 94-3, p. 3, (c); TN 89-7, p. 5, (5). In 1995, DHHS filed a SPA seeking to reduce the DRG price per point by a fixed percentage for SFY 1996. See id. at TN 95-20, p. 3, (c). That SPA indicated that the DRG price per point would be calculated as follows: (1) Reduce the DRG price per point by 5.003 percent effective October 1, 1995 through June 30, 1996, and effective July 1, 1996 revise the DRG price per point reduction to 5.067 percent through September 30, 1997. Beginning October 1, 1997, and each year thereafter, take the current DRG price per points(s) and inflate each by the same percent as the Medicare market basket estimated increase for prospective payment hospitals minus any Medicare budget neutrality factors and other

(2)

11

As to outpatient rates, DHHS relies upon a SPA that CMS has never acted on. See Affidavit of Diane Peterson in Sup. of the Def.s Obj. to Mot. for Prel. Inj. (Peterson Aff.), at 4.

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generally applied Medicare adjustments appropriate to Medicaid. Id. CMS approved this methodology in June 1997. Id. In 1999, DHHS again filed a SPA for CMSs review and approval. This SPA slightly modified the above methodology, and indicated that DRG price per point would be calculated as follows: Beginning October 1, 1999, and each year thereafter, take the current DRG price per point(s) and inflate each by the same percent as the Medicare market basket estimated increase for prospective payment hospitals minus any Medicare or state Medicaid defined budget neutrality factors and other generally applied Medicare adjustments appropriate to Medicaid. Id. This methodology, approved by CMS in June 2001, id., remains in effect. It provides a starting DRG price per point based on the previous state fiscal year. Nothing in it allows or even contemplates reduction of the DRG price point below the DRG price point for the previous state fiscal year. To do so, as DHHSs past actions prove, requires CMS approval through a SPA. b. Defendants Argument is Inconsistent With Governing Regulations.

Budget-driven, across-the-board rate reductions are inconsistent with the methodologies set forth in the State Plan. But more to the point with respect to compliance with the Medicaid Act, the Defendants position undermines CMSs critical role. As the agency charged with determining whether a State Plan can be approved to serve as a basis for Federal financial participation (FFP) in the State program, 42 C.F.R. 430.10, CMS ensures that each states Medicaid payment rates are economic, efficient and sufficient to attract providers, see, e.g., 42 C.F.R. 447.253 (requiring states to submit findings and assurances that rates are reasonable and adequate). The Defendant would allow the State to reduce payment rates by whatever amount it wants without seeking CMS review. This position cannot be squared with the governing regulatory scheme.

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The Defendant points to a December 2008 letter from CMS to the New Hampshire Hospital Association as support for his position. See Def.s Br., p. 12 (citing to Dunn Aff., Ex. KD-6. In that letter, however, CMS did not indicate that a SPA was not required for the November 2008 rate reductions; rather, CMS summarized the relevant regulatory requirements. Id.12 II. Plaintiffs Will Succeed on the Merits of Their Section 1983 Claims. A. Plaintiffs Have Rights Under 42 U.S.C. 1396a(a)(13)(A) That Can Be Enforced Under Section 1983.

The Defendant concedes, as he must, that the First Circuit has stated that subsection 13(A) does provide notice and comment rights as to rates. Def.s Br., p. 38 (quoting Long Term Care, 362 F.3d at 58-59). 13 Nonetheless, the Defendant argues that Section 13(A) does not provide Plaintiffs with notice and comment rights based on the Supreme Courts holdings in Blessing v. Freestone, 520 U.S. 329, 340 (1997) and Gonzaga University v. Doe, 536 U.S. 273, 283 (2002) (the Blessing/Gonzaga factors). Def.s Br., p.37. The Court should reject this argument. Applying the Blessing/Gonzaga factors establishes that Section 13(A) creates private rights enforceable through Section 1983: Congressional Intent. The plain language of the statute indicates that Congress intended Section 13(A) to provide Plaintiffs with a reasonable opportunity for review and comment on proposed rates of payment for hospital services. See Long Term Care Pharm. Alliance v. Ferguson, 260 F. Supp. 2d 282, 290 (D. Mass. 2003) (Long Term Care Pharm. Alliance),
12

While CMS acknowledged that states have quite a bit of flexibility in establishing their Medicaid payments rates, CMS then went on to state, [h]owever, any proposed SPA would have to meet the requirements of [Section 30(A),] which specifies that payments must be 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. Id. at pp. 2-3. 13 In Long Term Care, the First Circuits analysis strongly supports Plaintiffs position. Rather than hold as it did with respect to the Section 30(A) claim, that no action could be maintained under Section 1983, the court went through an extended discussion of the scope of Section 13(A) to ultimately hold that the Long Term Care Pharmacy Alliance was on the unprotected side of the line and outside the scope of subsection (13)(A). 362 F.3d at 56.

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vacated on other grounds by, Long Term Care, 362 F.3d 50. (holding that Section 13(A) could not be clearer: Defendant must provide a public process with a reasonable opportunity for review before implementing any rate changes for nursing facility services). Rights Vague and Amorphous. The rights protected are specific and therefore readily enforceable by courts. Courts routinely decide whether parties have been denied notice and comment rights in the administrative context. See Long Term Care, 362 F.3d at 54 (Broadly speaking, subsection (13)(A) requires something on the order of notice and comment rulemaking for states in their setting of rates for reimbursement of hospital services provided under the Medicaid Act); see also Natl Assn of Home Health Agencies v. Schweiker, 690 F.2d 932, 949 (D.C. Cir. 1982) (holding that the Secretary of HHS violated the notice and comment rulemaking procedures of the Administrative Procedure Act when he enacted a rule that substantially affect[ed] private parties and resolve[d] important issues without the beneficial input that those parties could provide). Imposition of Binding Obligation Upon States. Section 13(A) is stated in mandatory rights creating terms: A State plan for medical services must provide .[hospitals] with a reasonable opportunity for review and comment . (emphasis added). See Long Term Care Pharm. Alliance, 260 F. Supp. 2d at 290 (D. Mass. 2003), vacated on other grounds by, Long Term Care, 362 F.3d 50. Individualized Focus. Section 13(A) has an individualized focus that singles out, inter alia, hospitals and hospital services. See Long Term Care, 362 F.3d at 53 (In a nutshell, the first of these Medicaid Act procedures which we will call subsection (13)(A) requires inter alia that a public process be used to set rates of payment for hospital services which providers, among others, can comment on proposed rates); Rio Grande Cmty. Health Ctr. v.

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Rullan, 397 F.3d 56, 74 (1st Cir. 2005) ([t]he mere fact that... laws are embedded within the requirements for a state plan does not, by itself, make all of the... provisions into ones stating a mere institutional policy or practice rather than creating an individual right). Congressionally Provided Enforcement Provisions. CMSs enforcement mechanism, withholding federal matching funds, is inadequate. CMS has no way of ensuring whether the State has provided a public process, in which the proposed rates are published, hospitals are given a reasonable opportunity for review and comment on the proposed rates, methodologies, and justifications, and the final rates are published. B. The Defendant is Required to Provide Plaintiffs With an Opportunity to Review and Comment on Proposed Rate Changes.

On the merits of Plaintiffs Section 1983 claims, the Defendant makes two principal arguments. First, that 42 C.F.R. 447.205 the regulation implementing Section 13(A) does not apply because the State did not effect a change to its rate-setting methods. See Def.s Br., pp. 51, 54. Second, assuming the regulations did apply, absolute adherence is not required, and the notice and opportunity provided by the State was adequate. Id. at 55-56. The Defendant is incorrect in both respects. 1. The State Altered its Methods and Standards, and Was Therefore Required to Comply with 42 C.F.R. 447.205.

As a preliminary matter, Defendants focus on methodology ignores 42 C.F.R. 447.205s language relating to changes made to standards for setting payment rates. 42 C.F.R. 447.205 applies not only when the State makes changes to its payment rate methodology, but also when the State makes significant changes to payment rates. See Pls. Br., p. 56. The States inpatient rate reductions effected a significant change to the States inpatient rate-setting methodology. The Defendant argues that the current inpatient payment methodology

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is flexible, and allows DHHS to apply a percentage reduction. Def.s Br., p. 7. However, as argued in detail above, see I.B.4.a., supra, the methodology does not contemplate a reduction of the DRG price per point below the price per point for the previous fiscal year. Missouri Dep't of Social Services v. Sullivan, 957 F.2d 542, 545 (8th Cir. 1992), is instructive. There, Missouri modified the amount paid for inpatient care by applying a new trend factor adjustment, essentially an inflation index, resulting in an approximate 1.7 percent increase in Medicaid payments. Id. at 543. It argued that this was not a significant change because it did not create a new equation for calculating payment rates; instead it simply inserts a new number into an already existing equation. Id. CMSs predecessor, the Health Care Financing Administration (HCFA), disagreed, arguing that because neither the new SPA nor the current state plan described how Missouri set this trend factor, Missouri had altered its methods and standards for setting rates. Id. The court agreed with HCFA: Missouri does not reveal its methodology for determining the size of the trend factor adjustment. The trend factor adjustment operates as a sort of black box: Missouri offered a new number in the [SPA] but did not explain the methodology it used to arrive at that number. Hence the HCFA may reasonably view the new trend factor adjustment as an alteration of Missouris methodology, not as new data plugged into an unchanged equation. So viewed, the [SPA] may reasonably be construed as a change in the Missouris methods and standards. Id. at 544. The court concluded that the 1.7 percent increase in payment rates was significant, in part, because Missouri had previously published timely notice of any new trend factor adjustment. Id. at 545. Similarly, in this case, the States rate reductions significantly modified its methods and standards. See also N.C. Dep't of Human Servs., Div. of Med. Assistance, 999 F.2d 767, 771 (4th Cir. 1993) (affirming HCFAs determination that exclusion of state-operated nursing facilities from a limitation previously applicable to all nursing homes constituted a significant change in the States methods and standards requiring notice under 42 C.F.R. 447.205 even though the effect on reimbursement rates was minimal).

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2.

Even if 42 C.F.R. 447.205 Does not Apply, the State Must Still Provide Plaintiffs Notice Reasonably Calculated to Apprise Them of Their Rights.

Even if the Defendant were correct that 42 C.F.R. 447.205 is inapplicable, Section 13(A)s notice and comment requirements still apply. See Long Term Care, 362 F.3d at 54 (noting that [b]roadly speaking, subsection (13)(A) requires something on the order of notice and comment rulemaking for states in their setting of rates for reimbursement of hospital services provided under the Medicaid Act). While no case has interpreted the exact contours of these requirements, well-established law defines the adequacy of notice. Minimally, the Defendant should have provided Plaintiffs with notice reasonably calculated to apprise them of the existence of the hearing, the location and time of the hearing, and the subject matter of the hearing, including the proposed rate reductions and their justifications. See, e.g., Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950).14 The States conduct in effecting the rate reductions without providing such notice deprived the Plaintiffs of their Section 13(A) rights. The most obvious example is the November 21, 2008 inpatient rate reductions. Those reductions were proposed and effected by Executive Order entered that date. No notice existed on the Committees agenda and the entire explanation for this cut to which the Defendant points is as follows: Reduce in-patient provider rates by 10% - $1,745,166. Excludes critical access hospitals. Compare Def.s Br. , at p. 59 with Pls. Ex. F, at p. 2-4, 14 (November 21, 2008 Executive Order). That is not a statement of either the methodology or justification for the new rates and, plainly, neither providers nor beneficiaries
14

In determining whether notice is reasonably calculated to apprise an individual of their rights, courts look to a number of factors, including: (1) whether the form of notice relies on chance alone to reach the attention of the interested party, Mullane, 339 U.S. at 315; (2) whether the form of notice is designed to attract the attention of the interested party, Mennonite Bd. of Missions v. Adams, 462 U.S. 791, 799 (1983); (3) whether the actual means of providing notice is reliable, Greene v. Lindsey, 456 U.S. 444, 453 (1982); and (4) the reasonableness of the notice provided must be tested with reference to the existence of feasible and customary alternatives and supplements to the form of notice chosen. Id. at 454 (quoting Mullane, 339 U.S. at 315).

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had a reasonable opportunity for review and comment on this reduction. Moreover, no public testimony was invited or taken at the hearing. The Defendants other arguments regarding compliance with Section 13(A) are equally tenuous. Even if Ms. Dunn could produce evidence to support her bald assertions, see Dunn Aff. at 9 (To the extent that a matter affecting adequate hospital rates or reimbursement has been scheduled, the meetings have been attended by at least the [New Hampshire Hospital Association] lobbyist and often individuals on behalf of respective hospitals), they do not establish that all Provider Plaintiffs and John Doe received either adequate notice or opportunity to review and comment on proposed rate reductions prior to them taking effect. The Defendants reliance on California Hospital Association v. Maxwell-Jolly, 776 F. Supp. 2d 1129 (E.D. Cal. 2011), is also inapposite. There, the plaintiffs representative provided testimony. Here, it does not appear that the Fiscal Committee even invited public testimony. See Feyrer Decl. I, Ex. D (Nov. 21, 2008 Fiscal Committee Meeting Minutes). Finally, the Defendant argues that some of the rate reductions at issue were published on the Fiscal Committee website or in the newspaper after they were enacted and that this is sufficient to satisfy the States obligation under Section 13(A) and 42 C.F.R. 447.205. See, e.g., Def.s Br., pp.64-66 (catastrophic cases and reduced outpatient radiology reimbursements on approved on February 5, 2010 but were not published until February 26, 2010). Such after-thefact publication of finalized rate reductions and methodology changes is not sufficient to comply with Section 13(A)s notice and comment requirements. The Medicaid statutes notice and comment provisions (especially those related to the most vulnerable populations in hospitals, . . .) are included in the statute in order to ensure that any material actions taken by state regulators affecting these populations will be fully informed in terms of the impact on patients prior to the

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action being taken. Long Term Care Pharm. Alliance, 260 F. Supp. 2d at 293-94 (D. Mass. 2003), vacated on other grounds by, Long Term Care, 362 F.3d 50. III. Plaintiffs Are Suffering Immediate, Irreparable Harm. Numerous cases support [the] assertion that when a statute contains, either explicitly or implicitly, a finding that violations will harm the public, the courts may grant preliminary equitable relief on a showing of a statutory violation without requiring any additional showing of irreparable harm. Govt of Virgin Islands v. Virgin Islands Paving, Inc., 714 F.2d 283, 286 (3rd Cir. 1983). This principle ensures that federal programs like Medicaid, which directly serve an important public interest, will fulfill Congress intent. The principle has been recognized by this Court in Nationwide Mutual Insurance v. N.H. Dept. of Labor, No. 07-CV-241-PB, 2007 WL 2695387, at *7, n. 3 (D.N.H. Sept. 12, 2007) (unpublished opinion) (These cases stand for the proposition that when certain statutes are violated, the public is harmed, which necessarily constitutes irreparable harm). It governs here. A. Because Defendant Has Violated the Medicaid Act, Irreparable Harm Is Presumed.

The vital public interest served by the Medicaid Act cannot be disputed: Congress chose to direct those limited [federal and state] funds to persons who were most impoverished and who because of their physical characteristics were often least able to overcome the effects of poverty. The legislative history of the 1965 Amendments makes clear that this group was not chosen for administrative convenience. These people are the most needy in the country and it is appropriate for medical care costs to be met, first, for these people. Schweiker v. Hogan, 457 U.S. 569, 590 (1982) (quoting H.R.Rep. No. 213, 89th Cong., 1st Sess., 66 (1965)). In this case, Defendant has irreparably harmed the most needy in New Hampshire by setting, solely for budgetary reasons, reimbursement rates for hospital services in violation of Section 13(A).

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In Long Term Care, 362 F.3d at 53, the First Circuit stated that Section (13)(A) requires inter alia that a public process be used to set rates of payment for hospital services in which providers, among others, can comment on proposed rates. The court added that Section 13(A) requires something on the order of notice and comment rule-making for states in their setting of rates for reimbursement of hospital services. Id. at 54 (citing Am. Soc. of Consultant Pharms. v. Concannon, 214 F. Supp. 2d 24, 28-29 (D. Me. 2002) (a cause of action lies under Section 1983 for a violation of Section 13(A), which requires a public process for determination of rates of payment under the plan for hospital services under which ... providers, beneficiaries and their representatives, and other concerned State residents are given a reasonable opportunity for review and comment on the proposed rates (citation omitted)). In Long Term Care, Massachusetts sought to implement an emergency rule to reduce Medicaid payments for pharmacy services by $26 million. The state did so without having done the studies and analyses required by Section 13(A) to ensure sufficient continued access to pharmacy services, and solely to address the Commonwealths fiscal crisis. Long Term Care Pharm. Alliance, 260 F. Supp. 2d at 288. The district court ruled that the state had violated Section 13(A) and granted preliminary injunctive relief to prevent the emergency rule from taking effect, without requiring proof of irreparable harm: In this case, the violations of the federal Medicaid Act and federal Medicaid regulations necessarily inflict irreparable harm upon the persons they were designed to serve and protect. Id. at 289 (emphasis added). In so ruling the court recognized the principle set forth in Government of Virgin Islands: Allegations of statutory violations implicate a different calculus because such violations inherently offend the public interest. The need to demonstrate irreparable harm, a condition precedent to a grant of injunctive relief in civil litigation, is not a prerequisite when a plaintiff attempts to enforce a statute.

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Id. (In addition to Govt of Virgin Islands, the court cited United States v. DAnnolfo, 474 F. Supp. 220, 222 (D. Mass. 1979) and United States v. Richlyn Labs, Inc., 827 F. Supp. 1145, 1150 (E.D. Pa 1992)).15 As in Long Term Care so, too, here; the Defendants violation of Section 13(A) necessarily has inflicted irreparable harm on Plaintiffs. B. Irreparable Harm Exists Where the Eleventh Amendment Bars An Award of Damages Against the State.

The Defendants argument that Plaintiffs harm is not irreparable because it is financial, Def.s Br., p. 68, ignores long-standing, federal court precedent that an injury is irreparable where the Eleventh Amendment would prevent an end-of-case award of damages. See, e.g., Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 19 (1st Cir. 1996) (If the plaintiff suffers a substantial injury that is not accurately measurable or adequately compensable by money damages, irreparable harm is a natural sequel); Long Term Care Pharm. Alliance, 260 F. Supp. 2d at 294, vacated on other grounds by Long Term Care, 362 F.3d 50 ([P]ursuant to the Eleventh Amendment, the State can assert sovereign immunity for any back-damage claims, barring any claims for recovery).16 IV. The Balance of the Equities Tips In Favor of Plaintiffs, and a Preliminary Injunction Would Be In The Public Interest. The Defendant baldly asserts that should the Court order him to comply with the law, fiscal and administrative chaos will result. Def.s Br., p. 69. Other courts confronted with similar arguments have rejected them. In Independent Living Center of So. Cal. v. MaxwellJolly, 572 F.3d 644, 659 (9th Cir. 2009), the defendant argued that in light of the State budget
15

The Court in Nationwide Mutual Insurance also cited the district courts decision in Long Term Care Pharm. Alliance. 2007 WL at *7, n.3. 16 Defendants reliance on Gately v. Commonwealth of Mass., 2 F.3d 1221, 1232 (1st Cir. 1993), is misplaced. There, it was undisputed that plaintiff could recover any temporary loss of income at the end of a trial. Id.

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crisis, the balance of hardships tips in [its] favor. The Ninth Circuit rejected this argument: State budgetary concerns cannot, however, be the conclusive factor in decisions regarding Medicaid. A budget crisis does not excuse ongoing violations of federal law, particularly when there are no adequate remedies available other than an injunction. State budgetary considerations do not therefore, in social welfare cases, constitute a critical public interest that would be injured by the grant of preliminary relief. In contrast, there is a robust public interest in safeguarding access to health care for those eligible for Medicaid, whom Congress has recognized as the most needy in the country. Id. at 659. Another Ninth Circuit panel stated: it is clear that it would not be equitable or in the publics interest to allow the state to continue to violate the requirements of federal law, especially when there are no adequate remedies available to compensate the Hospital Plaintiffs for the irreparable harm that would be caused by the continuing violation. In such circumstances, the interest of preserving the Supremacy Clause is paramount. Cal. Pharms. Assn v. Maxwell-Jolly, 563 F.3d 847, 852-53 (9th Cir. 2009). The Medicaid Act evidences a public policy in favor of safeguarding access to health care for the most needy in the country. Schweiker, 457 U.S. at 590 (quoting H.R. Rep. No. 213, 89th Cong., 1st Sess., pt. 1, p. 66 (1965)). The States actions undermine this policy and, therefore, the public interest. The State has further undermined the policy underlying the Medicaid Act by denying Plaintiffs notice and an opportunity to review and comment on proposed rate reductions and methodology changes. Thus, because an injunction would be in the public interest and the equities weigh in favor of Plaintiffs, the Court should grant the Plaintiffs motion.

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Respectfully submitted, PROVIDER PLAINTIFFS, By their Attorneys, NIXON PEABODY LLP Dated: November 8, 2011 /s/ W. Scott OConnell W. Scott OConnell, Esquire N.H. Bar No. 9070 Gordon J. MacDonald, Esquire N.H. Bar No. 11011 Emily P. Feyrer, Esquire N.H. Bar No. 20434 900 Elm Street, 14th Floor Manchester, NH 03101-2031 (603) 628-4000 soconnell@nixonpeabody.com gmacdonald@nixonpeabody.com efeyrer@nixonpeabody.com JOHN DOE, By his attorney, ORR & RENO, P.A. /s/ William L. Chapman William L. Chapman, Esquire N.H. Bar No. 397 One Eagle Square Concord, NH 03302 (603) 224-2381 wchapman@orr-reno.com

CERTIFICATE OF SERVICE I, W. Scott OConnell, hereby certify that on this 8th day of November 2011, a copy of the foregoing Plaintiffs Memorandum of Law in Further Support of Plaintiffs Motion For Preliminary Injunction was served via the Courts electronic mail system to all parties of record.

/s/ W. Scott OConnell

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