Virginia Hospital & Healthcare v. Karen Kimsey ( 2022 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 20-2176
VIRGINIA HOSPITAL & HEALTHCARE ASSOCIATION; THE MEDICAL
SOCIETY OF VIRGINIA; VIRGINIA COLLEGE OF EMERGENCY
PHYSICIANS,
Plaintiffs – Appellants,
v.
KAREN KIMSEY, in her official capacity as Director of the Virginia Department
of Medical Assistance Services,
Defendant – Appellee.
Appeal from the United States District Court for the Eastern District of Virginia, at
Richmond. Henry E. Hudson, Senior District Judge. (3:20-cv-00587-HEH)
Argued: March 11, 2021 Decided: March 1, 2022
Before KING, WYNN, and HARRIS, Circuit Judges.
Vacated and remanded by unpublished opinion. Judge King wrote the opinion, in which
Judge Wynn and Judge Harris joined.
ARGUED: Michael B. Kimberly, MCDERMOTT WILL & EMERY, LLP, Washington,
D.C., for Appellants. Michelle Shane Kallen, OFFICE OF THE ATTORNEY GENERAL
OF VIRGINIA, Richmond, Virginia, for Appellee. ON BRIEF: Matthew A. Waring,
MCDERMOTT WILL & EMERY LLP, Washington, D.C., for Appellants. Mark R.
Herring, Attorney General, Samuel T. Towell, Deputy Attorney General, Keonna C.
Austin, Deputy Attorney General, Kim F. Piner, Senior Assistant Attorney General, Calvin
C. Brown, Assistant Attorney General, Usha Koduro, Assistant Attorney General, Toby J.
Heytens, Solicitor General, Jessica Merry Samuels, Deputy Solicitor General, Kendall T.
Burchard, John Marshall Fellow, OFFICE OF THE ATTORNEY GENERAL OF
VIRGINIA, Richmond, Virginia, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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KING, Circuit Judge:
The Virginia Hospital & Healthcare Association, the Medical Society of Virginia,
and the Virginia College of Emergency Physicians (collectively, the “Plaintiffs”) initiated
this civil action in the Eastern District of Virginia against Karen Kimsey, in her official
capacity as Director of the Virginia Department of Medical Assistance Services (the
“Director”). See Va. Hosp. & Healthcare Ass’n v. Kimsey, No. 3:20-cv-00587 (E.D. Va.
July 30, 2020), ECF No. 1 (the “Complaint”). By their Complaint, the Plaintiffs seek
declaratory and injunctive relief concerning two amendments — referred to herein as the
“Downcoding Provision” and the “Readmission Provision” — made in 2020 to Virginia’s
Medicaid plan. Those Provisions were enacted to curtail reimbursements to physicians and
hospitals for healthcare provided to Medicaid beneficiaries in hospitals and their
emergency rooms. In relevant part, the Complaint alleges two claims under 42 U.S.C.
§ 1983: first, that the Downcoding and Readmission Provisions deprive physicians and
hospitals of the just compensation required by the Fifth Amendment’s Takings Clause (the
“Takings Claim”); and, second, that the Downcoding Provision is preempted by federal
law (the “Preemption Claim”).
For reasons set forth in its Memorandum Opinion of October 7, 2020, the district
court dismissed the Complaint under Rule 12(b)(1) of the Federal Rules of Civil Procedure
for lack of Article III standing to sue and denied as moot the Plaintiffs’ motion for
preliminary injunctive relief. See Va. Hosp. & Healthcare Ass’n v. Kimsey, No.
3
3:20-cv-00587 (E.D. Va. Oct. 7, 2020), ECF No. 24 (the “Opinion”). 1 As explained herein,
we vacate the dismissals of the Takings Claim and the Preemption Claim and remand for
further proceedings.
I.
A.
The Medicaid program — which “functions as a partnership between the federal
government and the states” — is “[d]esigned to provide medical assistance to persons
whose income and resources are insufficient to meet the costs of necessary medical care.”
See Md. Dep’t of Health & Mental Hygiene v. Ctrs. for Medicare & Medicaid Servs., 542
F.3d 424, 429 (4th Cir. 2008). In exchange for the federal government’s funding of a share
of the costs of providing healthcare to Medicaid beneficiaries, the States are obliged to
comply with the federal Medicaid Act, as well as regulations promulgated by the federal
Centers for Medicare and Medicaid Services (“CMS”). Id. The States also “must submit
to [CMS] a state Medicaid plan that details the nature and scope of the State’s Medicaid
program.” See Douglas v. Indep. Living Ctr. of S. Cal., Inc., 565 U.S. 606, 610 (2012). If
a State wishes to amend its Medicaid plan, it is required to submit the proposed changes to
CMS for approval. Id.In Virginia, the Medicaid program is administered by the Commonwealth’s
Department of Medical Assistance Services (“DMAS”), which is headed by its Director,
1
The district court’s Opinion is published at 493 F. Supp. 3d 488 (E.D. Va. 2020).
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the defendant in this litigation. To provide healthcare coverage under Virginia’s Medicaid
program, DMAS contracts with managed care organizations (the “MCOs”). The MCOs
arrange healthcare for their enrollees and assume the obligation to cover the reimbursable
costs of the enrollees’ healthcare.
Under the federal Medicaid Act and a pertinent regulation, the MCOs are required
“to provide coverage for emergency services.” See 42 U.S.C. § 1396u-2(b)(2)(A)(i); see
also 42 C.F.R. § 438.114(c)(1) (specifying, inter alia, that the MCOs “[m]ust cover and
pay for emergency services”). Emergency services include those “needed to evaluate or
stabilize an emergency medical condition.” See 42 U.S.C. § 1396u-2(b)(2)(B)(ii). And,
an emergency medical condition is “a medical condition manifesting itself by acute
symptoms of sufficient severity . . . such that a prudent layperson, who possesses an
average knowledge of health and medicine, could reasonably expect the absence of
immediate medical attention to [have certain serious adverse results].” Id. § 1396u-
2(b)(2)(C).
Meanwhile, a separate federal statute broadly requires hospitals to provide a medical
screening examination and stabilizing treatment to any person who seeks care in a hospital
emergency room, regardless of the patient’s ability to pay. See 42 U.S.C. § 1395dd. The
physicians and hospitals who provide emergency services to Virginia’s Medicaid
beneficiaries are reimbursed by the MCOs on the basis of fee schedules that utilize the
American Medical Association’s Current Procedural Terminology coding system (the
“CPT”).
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The five CPT codes used for emergency room encounters are codes 99281, 99282,
99283, 99284, and 99285. As explained in the Complaint, code 99281 is the lowest
emergency room code (Level 1). It covers services such as those required by a patient
presenting in an emergency room “with several uncomplicated insect bites.” See
Complaint ¶ 67(a) (internal quotation marks omitted). Code 99285 is the highest
emergency room code (Level 5). It corresponds with highly complex medical needs, such
as those of “a patient who is injured in an automobile accident and is brought to the
emergency department immobilized and has symptoms compatible with intra-abdominal
injuries or multiple extremity injuries.” Id. ¶ 67(e) (internal quotation marks omitted).
Codes 99282 (Level 2), 99283 (Level 3), and 99284 (Level 4) are used for emergency room
encounters with complexities between the two extremes. Because the higher CPT codes
correspond with greater complexity, they are reimbursed at higher rates.
B.
On April 22, 2020, the Virginia General Assembly convened for a one-day
legislative session to reconsider bills that had been vetoed by the Governor. In that session,
the General Assembly approved a reduced state budget. Among the budget items adopted
were the two Medicaid program cost-cutting measures — the Downcoding Provision and
the Readmission Provision — that underlie this litigation. Those Provisions were proposed
by DMAS as amendments to the Virginia Medicaid plan, and they became effective on
July 1, 2020.
The Downcoding Provision instructs DMAS to “amend the State [Medicaid] Plan
. . . to allow the . . . reviewing and the reducing of fees for avoidable emergency room
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claims for [CPT] codes 99282, 99283 and 99284” by utilizing an “avoidable emergency
room diagnosis code list.” See 2020 Va. Acts ch. 1289, at 369. That list contains nearly
800 diagnoses and covers multiple serious conditions, such as heart failure. Pursuant to
the Downcoding Provision, if any “emergency room claim is identified as [an avoidable]
emergency room diagnosis, [DMAS] shall direct the [MCO] to default to the payment
amount for code 99281.” Id. The Downcoding Provision thereby requires the MCOs to
determine — after the fact — whether an emergency room visit by a Virginia Medicaid
beneficiary was avoidable, based on the patient’s final diagnosis, rather than on the
patient’s presenting symptoms. If the emergency room visit is found to be avoidable, by
reference to DMAS’s list of avoidable diagnoses, the MCO is required to downcode the
emergency room visit to code 99281 (Level 1). And that downcoding is mandated even
when, consistent with the Medicaid Act’s “prudent-layperson standard” of 42 U.S.C.
§ 1396u-2(b)(2)(C), the physicians and hospitals have furnished more extensive services
covered by higher CPT codes.
Meanwhile, the Readmission Provision instructs DMAS to “amend the State
[Medicaid] Plan . . . to modify the definition of readmissions to include cases when patients
are readmitted to a hospital for the same or a similar diagnosis within 30 days of discharge,”
subject to a few exceptions. See 2020 Va. Acts ch. 1289, at 369. According to the
Readmission Provision, “[i]f the patient is readmitted to the same hospital for a potentially
preventable readmission then the payment for such cases shall be paid at 50 percent of the
normal rate,” excepting “a readmission within five days of discharge.” Id.
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C.
1.
On July 30, 2020, 30 days after the Downcoding and Readmission Provisions
became effective, the Plaintiffs initiated this civil action against the Director. The
Complaint alleges the two claims at issue in this appeal — the Takings Claim (challenging
both the Downcoding Provision and the Readmission Provision) and the Preemption Claim
(contesting the Downcoding Provision only). 2 According to the Plaintiffs, the challenged
Provisions “will confiscate more than $55 million per year from Virginia hospitals and
physician practices.” See Complaint ¶ 111.
In their Takings Claim, the Plaintiffs assert that the Downcoding and Readmission
Provisions violate the Fifth Amendment’s Takings Clause because they deprive Virginia’s
physicians and hospitals of just compensation for healthcare services that have been taken
by the Commonwealth. The Plaintiffs maintain that the Downcoding Provision denies just
compensation for federally-mandated emergency services by predicating reimbursements
on the final diagnosis only — and not on the services actually provided. Additionally, the
Plaintiffs contend that the Readmission Provision denies just compensation by reimbursing
only one-half the normal rate for healthcare provided to many Medicaid patients readmitted
to a hospital.
2
The Complaint also alleges a second preemption claim, challenging the
Downcoding and Readmission Provisions. The district court’s dismissal of that claim is
not contested on appeal.
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By their Preemption Claim, pursued under the Supremacy Clause of the
Constitution, the Plaintiffs assert that the Downcoding Provision is preempted by federal
law, specifically 42 U.S.C. § 1396u-2(b)(2) and 42 C.F.R. § 438.114(c)(1). Under the
Plaintiffs’ theory of preemption, the “MCOs and DMAS cannot comply with both federal
law and the Downcoding Provision,” in that the Downcoding Provision “directs MCOs to
deny [physicians and hospitals] full payment for emergency medical services provided in
circumstances where federal law and the prudent-layperson standard require full coverage
for those services.” See Complaint ¶ 139.
2.
Shortly after filing their Complaint, the Plaintiffs submitted a motion for a
preliminary injunction, which the Director opposed. The Director also moved to dismiss
the Complaint pursuant to Rule 12 of the Federal Rules of Civil Procedure. In the
memorandum in support of her motion to dismiss, the Director raised a variety of grounds
under both Rule 12(b)(1) for lack of subject matter jurisdiction and Rule 12(b)(6) for failure
to state a claim upon which relief can be granted.
As relevant here, the Director maintained that she is entitled to Eleventh
Amendment immunity with respect to the Plaintiffs’ Takings Claim, on the premise that
“the only type of relief authorized under a takings claim is just compensation and
retrospective monetary relief is prohibited under the Eleventh Amendment.” See Va. Hosp.
& Healthcare Ass’n v. Kimsey, No. 3:20-cv-00587, at 25 (E.D. Va. Aug. 26, 2020), ECF
No. 15. In other words, the Director argued that the Plaintiffs cannot obtain the relief —
prospective injunctive relief — that they seek in connection with their Takings Claim. For
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their part, the Plaintiffs responded that “where (as here) a state statute effects an ongoing,
regulatory denial of just compensation, a plaintiff may seek an injunction against officials’
enforcement of the statute pursuant to the Takings Clause.” See Va. Hosp. & Healthcare
Ass’n v. Kimsey, No. 3:20-cv-00587, at 11 (E.D. Va. Sept. 9, 2020), ECF No. 20. In reply,
the Director proffered that the Supreme Court’s recent decision in Knick v. Township of
Scott, 139 S. Ct. 2162 (2019), “conclusively forecloses” the Plaintiffs’ request for
injunctive relief. See Va. Hosp. & Healthcare Ass’n v. Kimsey, No. 3:20-cv-00587, at 12
(E.D. Va. Sept. 15, 2020), ECF No. 22.
Pertinent to the Preemption Claim, the Director asserted that the Plaintiffs lack
Article III standing to sue. That is so, according to the Director, because neither 42 U.S.C.
§ 1396u-2(b)(2) nor 42 C.F.R. § 438.114(c)(1) creates a private right of action enforceable
by the Plaintiffs under 42 U.S.C. § 1983.
3.
In addressing the Plaintiffs’ Takings Claim in its Opinion of October 7, 2020, the
district court observed that “[a]s long as an adequate provision for obtaining just
compensation exists, there is no basis to enjoin the government’s action effecting a taking.”
See Opinion 6 (quoting Knick, 139 S. Ct. at 2176). The court then ruled that the “Plaintiffs
are foreclosed from seeking injunctive relief under [their Takings Claim] because they may
bring an action seeking just compensation.” Id. at 7. Notably, the court neither identified
the cause of action that it believed the Plaintiffs could instead pursue, nor confronted their
theory that an injunction may be appropriate where there is “an ongoing, regulatory denial
of just compensation.” Moreover, rather than characterizing its ruling as an issue of
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Eleventh Amendment immunity (as urged by the Director), the court specified that the
Plaintiffs lack Article III standing to sue because their alleged injury cannot “be ‘redressed
by a favorable decision.’” Id. (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 561
(1992)).
Turning to the Preemption Claim, the district court agreed with the Director that the
Plaintiffs lack Article III standing to sue in the absence of a private right of action under
42 U.S.C. § 1396u-2(b)(2) or 42 C.F.R. § 438.114(c)(1). See Opinion 7 (again attributing
the Plaintiffs’ lack of standing to an “alleged injury . . . not redressable by this Court”).
Ultimately, the court dismissed the Complaint in its entirety under Rule 12(b)(1) for want
of Article III standing — and thus lack of subject matter jurisdiction — and denied as moot
the Plaintiffs’ motion for a preliminary injunction. 3
D.
The Plaintiffs timely noted this appeal, invoking our jurisdiction under 28 U.S.C.
§ 1291 and seeking reinstatement of the Takings and Preemption Claims. When the appeal
was briefed and argued before us, a federally mandated review of the Downcoding and
Readmission Provisions by CMS was pending. Significantly, however, the Director has
3
Whether the district court’s grounds for dismissing the Takings and Preemption
Claims were, as the court thought, Rule 12(b)(1) issues of Article III standing — or were
instead Rule 12(b)(6) issues of the viability of those Claims — is a question that we
acknowledge but need not resolve today. See, e.g., Norfolk S. Ry. Co. v. Brotherhood of
Locomotive Eng’rs, 217 F.3d 181 (4th Cir. 2000) (affirming Rule 12(b)(6) dismissal of
claim for lack of requested damages remedy); Carey v. Throwe, 957 F.3d 468 (4th Cir.
2020) (affirming Rule 12(b)(6) dismissal of 42 U.S.C. § 1983 claim for lack of private right
of action).
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since advised us that, on December 22, 2021, CMS completed its review and “approved
the state plan amendments at issue in this case.” See Va. Hosp. & Healthcare Ass’n v.
Kimsey, No. 20-2176 (4th Cir. Dec. 24, 2021), ECF No. 40. In light of that development,
the Director maintains that, pursuant to Douglas v. Independent Living Center of Southern
California, Inc., 565 U.S. 606 (2012), the Plaintiffs’ Preemption Claim should now proceed
under the Administrative Procedure Act (the “APA”). The Plaintiffs do not dispute that
CMS has approved the Downcoding and Readmission Provisions or that their Preemption
Claim should now proceed under the APA.
II.
A.
We first address the Plaintiffs’ challenge to the district court’s dismissal of their
Takings Claim. The Takings Clause of the Fifth Amendment provides that “private
property [shall not] be taken for public use, without just compensation.” See U.S. Const.
amend. V. In dismissing the Plaintiffs’ Takings Claim, the district court relied on Knick v.
Township of Scott, 139 S. Ct. 2162 (2019). There, the Supreme Court overruled its earlier
decision imposing a “state-litigation requirement” before a litigant could bring a takings
claim under 42 U.S.C. § 1983 in federal court. See Knick, 139 S. Ct. at 2167 (overruling
Williamson Cnty. Reg’l Plan. Comm’n v. Hamilton Bank of Johnson City, 473 U.S. 172(1985)). In so doing, the Court recognized that “[a] property owner has an actionable Fifth
Amendment takings claim when the government takes his property without paying for it.”
Id.12
Of particular relevance in these proceedings, the Knick Court also underscored that
“[s]o long as the property owner has some way to obtain compensation after the fact,
governments need not fear that courts will enjoin their activities.” See 139 S. Ct. at 2168.
Further addressing the availability of injunctive relief aimed at stopping a taking from ever
occurring, the Court explained:
[B]ecause the federal and nearly all state governments provide just
compensation remedies to property owners who have suffered a taking,
equitable relief is generally unavailable. As long as an adequate provision
for obtaining just compensation exists, there is no basis to enjoin the
government’s action effecting a taking.
Id. at 2176.
Here, the district court ruled that the “Plaintiffs are foreclosed from seeking
injunctive relief under [their Takings Claim] because they may bring an action seeking just
compensation.” See Opinion 7. But it did so without identifying any alternative cause of
action, much less examining the adequacy thereof. Furthermore, the court failed to address
the Plaintiffs’ theory that their request for injunctive relief is proper because they seek to
enjoin the ongoing denial of just compensation and not the taking itself. As the Plaintiffs
have articulated in this appeal, the requested injunction is “against the state-law measures
that are systematically denying [physicians and hospitals] the compensation they are justly
due for the taking.” See Br. of Appellants 23.
In these circumstances, we find it appropriate to vacate the district court’s dismissal
of the Takings Claim and remand for further proceedings so that the court may consider
the Plaintiffs’ theory of injunctive relief in the first instance, along with any other issues it
deems appropriate, including other grounds for dismissal raised by the Director. We
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emphasize that we express no opinion on the merits of the Takings Claim, the Plaintiffs’
theory of injunctive relief, or the Director’s grounds for dismissal.
B.
We turn to the Plaintiffs’ challenge to the district court’s dismissal of their
Preemption Claim, which occurred while the CMS review of the Downcoding and
Readmission Provisions was pending. During this appeal, however, CMS completed its
review and approved those Provisions. The Supreme Court faced a similar situation in
Douglas v. Independent Living Center of Southern California, Inc., 565 U.S. 606 (2012),
where certiorari was granted to decide whether — as the Ninth Circuit had ruled —
Medicaid providers and beneficiaries had a right to bring preemption claims under the
Supremacy Clause contesting amendments to California’s Medicaid plan. Following oral
argument and before the consolidated cases were decided by the Supreme Court, CMS
approved the challenged amendments. See Douglas, 565 U.S. at 613. As a result, the
Court observed that the cases were “now in a different posture.” Id. at 614. More
specifically, the Court recognized that the Douglas plaintiffs may have been required “now
to proceed by seeking review of the [CMS] determination under the [APA], rather than in
an action against California under the Supremacy Clause.” Id. Without addressing the
merits of the lower court’s decision on the preemption claims, the Supreme Court vacated
the Ninth Circuit’s judgment and remanded for consideration of whether the parties instead
had to proceed under the APA. Id. at 616.
Similarly here, because CMS has approved the Downcoding Provision challenged
in the Plaintiffs’ Preemption Claim, the Plaintiffs may now be obliged to proceed under
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the APA. Like the Douglas Court, we thus decline to reach or resolve the question of
whether the district court correctly dismissed the Preemption Claim. Rather, we simply
vacate the dismissal and remand for consideration of the impact of the CMS action.
III.
Pursuant to the foregoing, we vacate the district court’s judgment with respect to
both the Takings Claim and the Preemption Claim and remand for such other and further
proceedings as may be appropriate.
VACATED AND REMANDED
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