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Sharon Newton-Nations v. Thomas Betlach

August 24, 2011


Appeal from the United States District Court for the District of Arizona Earl H. Carroll, Senior District Judge, Presiding D.C. No. 2:03-cv-02506-EHC

The opinion of the court was delivered by: Paez, Circuit Judge:



Argued and Submitted May 10, 2011-San Francisco, California

Before: Alfred T. Goodwin and Richard A. Paez, Circuit Judges, and Liam O'Grady,*fn1 District Judge.

Opinion by Judge Paez


Plaintiff-Appellants ("Plaintiffs") are a class of economically vulnerable Arizonans who receive public health care benefits through the state's Medicaid agency. In 2003, Arizona's Medicaid agency notified Plaintiffs that their copayments would be increased, and that these increased copayments would be mandatory, allowing providers to decline to serve them if they could not afford their copayments. The United States Secretary of Health and Human Services ("Secretary"), pursuant to her waiver/demonstration project authority under Title XI of the Social Security Act, approved the program under which Plaintiffs' benefits were cut. Plaintiffs sued the Secretary and the Director of Arizona's Medicaid agency ("Director") (collectively "Defendants"), alleging that the heightened mandatory copayments violate Medicaid Act cost-sharing restrictions, that the waiver exceeded the Secretary's authority, and that the notices they received about the change in their health coverage was statutorily and constitutionally inadequate. The district court granted summary judgment to the Defendants on all claims. We have jurisdiction under 28 U.S.C. § 1291, and we affirm in part, reverse in part, and remand.

Factual and Procedural Background

1. Factual and Statutory Background

The Supreme Court has summarized that:

Congress created the Medicaid program in 1965 by adding Title XIX to the Social Security Act. The program authorizes federal financial assistance to States that choose to reimburse certain costs of medical treatment for needy persons. In order to participate in the Medicaid program, a State must have a plan for medical assistance approved by the Secretary of Health and Human Services (Secretary). 42 U.S.C. § 1396a(b). A state plan defines the categories of individuals eligible for benefits and the specific kinds of medical services that are covered. §§ 1396a(a)(10), (17). The plan must provide coverage for the "categorically needy" and, at the State's option, may also cover the "medically needy."

Pharm. Research and Mfrs. of Am. v. Walsh, 538 U.S. 644, 650-51 (2003) (internal footnotes omitted). The Court explained that " 'categorically needy' groups include individ- uals eligible for cash benefits under the Aid to Families with Dependent Children (AFDC) program, the aged, blind, or disabled individuals who qualify for supplemental security income (SSI) benefits, and other low-income groups such as pregnant women and children entitled to poverty-related coverage. [42 U.S.C.] § 1396a(a)(10)(A)(i)." Id. at 651 n.4. The term "medically needy" refers to "individuals who meet the non-financial eligibility requirements for inclusion in one of the groups covered under Medicaid, but whose income or resources exceed the financial eligibility requirements for categorically needy eligibility. [42 U.S.C.] § 1396a(a)(10)(C)." Id. at n.5.

When a population is covered under a state's Medicaid Plan, federal law sets limits on the amount and type of cost sharing that a state can require participants to contribute to their health care. 42 U.S.C. § 1396o; 42 U.S.C. § 1396o-1. As we explained in Spry v. Thompson, § 1396o provides that "subsection (a) permits a state plan to impose nominal premiums and cost sharing on mandatory populations. Subsection (b) permits a state plan to impose income-related premiums and nominal cost sharing on non-mandatory populations who are Medicaid eligible, i.e., optional, medically needy populations." 487 F.3d 1272, 1276 (9th Cir. 2007).

In addition to state Medicaid plans, the Secretary can authorize states to operate "Demonstration Projects" pursuant to 42 U.S.C. § 1315. "In the case of any experimental, pilot, or demonstration project which, in the judgment of the Secretary, is likely to assist in promoting the objectives of [the Act] . . . the Secretary may waive compliance with" certain Medicaid rules, including cost-sharing restrictions. 42 U.S.C. § 1315(a)(1). Section 1315 also authorizes the Secretary to approve "regard[ing]" demonstration project costs "as expenditures under the State plan." § 1315(a)(2)(A). When demonstration project costs are "regarded as expenditures under the State plan," the federal government can reimburse the state for some of those costs. See Spry, 487 F.3d at 1274-75. "Patients who are eligible for services by way of the Secretary's waiver . . . are know as 'expansion populations.' " Phx. Mem'l Hosp. v. Sebelius, 622 F.3d 1219, 1222 (9th Cir. 2010); see also Spry, 487 F.3d at 1275 ("A demonstration project may cover people who would not be eligible for Medicaid without a waiver from the Secretary. The agencies call these people 'expansion populations.' ").

States can also exceed the normal limitations on Medicaid cost sharing through 42 U.S.C. § 1396o(f) and § 1396o-1. Subsection (f) of § 1396o provides:

No deduction, cost sharing, or similar charge may be imposed under any waiver authority of the Secretary, except as provided in [sections (a) and (b)] of this section and section 1396o-1 of this title, unless such waiver is for a demonstration project which the Secretary finds . . . (1) will test a unique and previously untested use of copayments, (2) is limited to a period of not more than two years, (3) will provide benefits to recipients of medical assistance which can reasonably be expected to be equivalent to the risks to the recipients, (4) is based on a reasonable hypothesis which the demonstration is designed to test in a methodologically sound manner, including the use of control groups of similar recipients of medical assistance in the area, and (5) is voluntary, or makes provision for assumption of liability for preventable damage to the health of recipients of medical assistance resulting from involuntary participation.

42 U.S.C. § 1396o(f). Congress later added § 1396o-1, which further relaxes the normal cost-sharing restrictions.

Arizona has a state plan that only covers mandatory Medicaid populations, the categorically needy. Arizona's state plan has never included the optional medically needy population. Until 2001, however, Arizona's Medicaid agency, the Arizona Health Care Cost Containment System ("AHCCCS"), also operated an entirely state-funded program under which people who could be medically needy obtained coverage. See Phx. Mem'l Hosp., 622 F.3d at 1226 ("During the relevant time period, the [medically needy] populations were part of the state-funded program"). This entirely state-funded program was called Medical Expense Deduction ("MED").

In October 2000, AHCCCS and the United States Department of Health and Human Services ("HHS") corresponded about Arizona's application for a § 1315 waiver. AHCCCS stated that "[c]urrently Arizona provides health care coverage with 100% state funds" to five specific groups, including the "Medically needy." AHCCCS explained to HHS: "The above groups will be 'subsumed' by this eligibility expansion. Arizona will not be operating a parallel state-funded program for these same populations and will convert all existing state-funded populations into the proposed eligibility expansion."

In November 2000, the citizens of Arizona passed Proposition 204, which expanded AHCCCS coverage to childless, non-disabled adults with incomes up to 100% of the federal poverty level. A.R.S. § 36-2901.01. The Secretary approved Arizona's § 1315 waiver application in January 2001. Under this system, AHCCCS imposed nominal and non-mandatory copayments on non-categorically needy participants, which included former MED participants and Proposition 204 populations.

In May 2003, AHCCCS requested another ยง 1315 waiver from the Secretary. Among other reforms, the request sought permission to increase and expand copayments for certain categories, including childless non-disabled adults with incomes up to 100% of the federal poverty level and former MED participants. AHCCCS's May 2003 request did not specify the reason Arizona sought to make these changes. AHCCCS later stated that the catalyst for the waiver request was the "Arizona legislature direct[ing] [it] ...

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