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Asante v. California Department of Health Care Services

United States Court of Appeals, Ninth Circuit

April 2, 2018

Asante, an Oregon nonprofit corporation; Clark County, Nevada; Renown Regional Medical Center, Nevada non profit corporation; Sky Lakes Medical Center, Inc., An Oregon Non Profit Corporation; Southern Hills Medical Center, LLC, A Nevada Limited Liability Company; Sunrise Hospital and Medical Center, LLC, A Delaware Limited Liability Company registered in Nevada; PHC-Fort Mohave, Inc., An Arizona Corporation; Havasu Regional Medical Center, LLC, A Delaware Limited Liability Company registered in Arizona, on behalf of Havasu Regional Medical Center in Lake Havasu City, Arizona; Valley Health Systems, LLC, A Delaware Limited Liability Company registered in Nevada; Sparks Family Hospital, Inc., A Nevada Corporation; Summerlin Hospital Medical Center, Llc; Yuma Regional Medical Center, An Arizona non Profit Corporation; Sunrise Mountainview Hospital, Inc., A Nevada Corporation; Renown South Meadows Medical Center, Nevada Non Profit Corporation, Plaintiffs-Appellants,
v.
California Department of Health Care Services; Jennifer Kent, Director of the California Department of Healthcare Services, Defendants-Appellees. Asante, an Oregon nonprofit corporation; Clark County, Nevada; Renown Regional Medical Center, Nevada non profit corporation; Sky Lakes Medical Center, Inc., An Oregon Non Profit Corporation; Southern Hills Medical Center, LLC, A Nevada Limited Liability Company; Sunrise Hospital and Medical Center, LLC, A Delaware Limited Liability Company registered in Nevada; PHC-Fort Mohave, Inc., An Arizona Corporation; Havasu Regional Medical Center, LLC, A Delaware Limited Liability Company registered in Arizona, on behalf of Havasu Regional Medical Center in Lake Havasu City, Arizona; Valley Health Systems, LLC, A Delaware Limited Liability Company registered in Nevada; Sparks Family Hospital, Inc., A Nevada Corporation; Summerlin Hospital Medical Center, LLC; Yuma Regional Medical Center, An Arizona non Profit Corporation; Sunrise Mountainview Hospital, Inc., A Nevada Corporation; Renown South Meadows Medical Center, Nevada Non Profit Corporation, Plaintiffs-Appellees,
v.
California Department of Health Care Services; Jennifer Kent, Director of the California Department of Healthcare Services, Defendants-Appellants. Asante, an Oregon nonprofit corporation; Clark County, Nevada; Renown Regional Medical Center, Nevada non profit corporation; Sky Lakes Medical Center, Inc., An Oregon Non Profit Corporation; Southern Hills Medical Center, LLC, A Nevada Limited Liability Company; Sunrise Hospital and Medical Center, LLC, A Delaware Limited Liability Company registered in Nevada; PHC-Fort Mohave, Inc., An Arizona Corporation; Havasu Regional Medical Center, LLC, A Delaware Limited Liability Company registered in Arizona, on behalf of Havasu Regional Medical Center in Lake Havasu City, Arizona; Valley Health Systems, LLC, A Delaware Limited Liability Company registered in Nevada; Sparks Family Hospital, Inc., A Nevada Corporation; Summerlin Hospital Medical Center, LLC; Yuma Regional Medical Center, An Arizona non Profit Corporation; Sunrise Mountainview Hospital, Inc., A Nevada Corporation; Renown South Meadows Medical Center, Nevada Non Profit Corporation, Plaintiffs-Appellees,
v.
California Department of Health Care Services; Jennifer Kent, Director of the California Department of Healthcare Services, Defendants-Appellants.

          Argued and Submitted March 14, 2018 San Francisco, California

          Appeal from the United States District Court for the Northern District of California No. 3:14-cv-03226-EMC, Edward M. Chen, District Judge, Presiding

          Before: Ferdinand F. Fernandez, M. Margaret McKeown, and Julio M. Fuentes, [*] Circuit Judges.

         SUMMARY[**]

         Medicaid

         Reversing the district court's summary judgment in an action brought by hospitals located outside the State of California but near the California border with their respective states, the panel held that the California Department of Health Care Services did not violate the dormant Commerce Clause in adopting Medi-Cal policies related to reimbursement to out-of-state hospitals.

         The panel held that the Department was acting as a market participant, rather than a regulator, when it set rates of reimbursement to hospitals for those who were essentially insured as beneficiaries under Medi-Cal in a manner much like that of a private insurer participating in the market. The Department therefore was exempt from dormant Commerce Clause requirements.

          Thomas J. Weiss (argued), Los Angeles, California; Michael S. Sorgen, Berkeley, California; Dean L. Johnson, Camano Island, Washington; for Plaintiffs-Appellants/Cross-Appellees.

          Joshua Sondheimer (argued), Deputy Attorney General; Susan M. Carson, Supervising Deputy Attorney General; Julie Weng-Gutierrez, Senior Assistant Attorney General; Xavier Becerra, Attorney General; Office of the Attorney General, San Francisco, California; for Defendants-Appellees/Cross-Appellants.

          OPINION

          FERNANDEZ, Circuit Judge

         Nineteen hospitals [1] located outside of the State of California but near the California border with their respective states brought this action against the California Department of Health Services and against its director, Jennifer Kent, in her official capacity (collectively "the Department"). The Department supervises[2] administration of the Medi-Cal[3]program. California participates in federal Medicaid[4] through the Medi-Cal program.[5] The Hospitals asserted that when the Department adopted certain Medi-Cal policies related to Medi-Cal reimbursement to out-of-state hospitals it violated the Commerce Clause of the United States Constitution.[6] The district court held that the Department had violated the dormant (or negative) Commerce Clause, but denied the Hospitals' claim for retroactive monetary relief. In No. 16-16866, the Hospitals appealed the denial of retroactive relief, and in No. 16-17080 the Department cross-appealed the determination that its policies violated the dormant Commerce Clause. Also, in No. 17-15550, the Department appealed the grant of attorney's fees to the Hospitals. See 42 U.S.C. § 1988(b). If the Department was acting as a market participant in this regard, it was exempt from dormant Commerce Clause restrictions. It was so acting. Thus, we reverse.

         BACKGROUND

         The Hospitals filed a complaint in the Superior Court of the State of California on June 12, 2014, alleging that portions of the Department's reimbursement methodologies violated the dormant Commerce Clause.[7] The Department removed the action to the United States District Court for the Northern District of California. Thereafter, the parties filed cross-motions for summary judgment, and the district court granted a partial summary judgment to the Hospitals. Specifically, the district court held that certain of the Department's reimbursement policies regarding out-of-state hospitals violated the dormant Commerce Clause.

         After the district court issued its summary judgment ruling, the parties met and conferred and the court issued another order entitled "Order Re Outstanding Provisions" which clarified and resolved several of the issues the court had raised in its summary judgment order and enumerated steps that the Department was required to take in order to ensure that its reimbursement methodologies complied with the dormant Commerce Clause. The district court later denied the Hospitals' request for retroactive monetary relief under California Civil Procedure Code section 1085 for certain reimbursements incurred between July 1, 2013, (the date on which the Department implemented its current methodology) and December 21, 2015 (the date on which the district court issued its summary judgment order).

         The Hospitals then filed a premature appeal to this court that was dismissed. Following that, the Department filed a motion for reconsideration of the summary judgment order on the grounds that the Hospitals had waived the federal claims and were relying solely on California Civil Procedure Code section 1085, which did not provide a basis for relief. In response, the Hospitals sought leave to file an amended complaint to add a civil rights claim as a basis for their constitutional and statutory claims. See 42 U.S.C. ยง 1983. The district court granted the Hospitals' motion to file an amended complaint. The court also granted the Department's motion for reconsideration and clarified that the Hospitals were not entitled to any relief under ...


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