[00:00:13] Speaker 04:
Next, we have Evenal Community Health Centers versus Michelle Bass.

[00:01:00] Speaker 04:
And Ms.

[00:01:01] Speaker 04:
Doy, when you can catch your breath, you can come up to the podium.

[00:01:08] Speaker 04:
Good morning.

[00:01:09] Speaker 02:
Good morning.

[00:01:09] Speaker 02:
Thank you, Your Honors.

[00:01:11] Speaker 02:
May it please the Court, my name is Catherine Doy, and I represent plaintiffs, appellants, Avenal Community Health Center, and the other individually named federally qualified health centers in this matter.

[00:01:22] Speaker 02:
I would like to reserve five minutes for rebuttal.

[00:01:25] Speaker 04:
Very well.

[00:01:26] Speaker 02:
Thank you.

[00:01:27] Speaker 02:
As the first matter of the district court's error, the district court focused on, with respect to the FQHC payment right in section 1396 ABB, whether or not the FQHCs must elect fee-for-service payment for pharmacy, or not whether the fee-for-service rate must comply with section 1396 ABB.

[00:01:55] Speaker 02:
In finding that, it was apparent that the district court did not understand the legally cognizable theory that we had alleged in the complaint relating to the requirement that the fee-for-service pharmacy rate comply with Section 1396 ABB.

[00:02:12] Speaker 02:
Namely, if you look at the FQHC reimbursement statute under California law, Welfare and Institutions Code 14132.100K,

[00:02:23] Speaker 02:
It expressly allows FQHCs to elect between the fee for service rate or a prospective payment system rate for the reimbursement of pharmaceutical services.

[00:02:36] Speaker 02:
And it's our position in the complaint that once the California legislature establishes this right to elect fee for service rate, and that right is also incorporated in the state plan,

[00:02:50] Speaker 02:
relating to FQHCs, which is attachment 4.19B, that any of those rates must comply with section 1396 ABB and be reimbursed on a cost-based reimbursement rate.

[00:03:06] Speaker 05:
Based on a what kind of a, did you say?

[00:03:09] Speaker 02:
Cost-based.

[00:03:11] Speaker 05:
And what's happening here is that you're allowed to carve out your pharmaceuticals

[00:03:17] Speaker 05:
That is true.

[00:03:19] Speaker 05:
Right.

[00:03:19] Speaker 05:
And the government, in this case the state of California, says when you carve those out, instead of negotiating the price at a PPS rate with your HMO, we'll pay you directly for what you paid for those pharmaceuticals, and you get a bargain rate at a 340B.

[00:03:42] Speaker 05:
So you don't lose any money, but you don't make the money you used to make when you bought low and sold high through the PPS, right?

[00:03:52] Speaker 05:
So what they've done is to cut out a middleman and they've cut down their cost.

[00:03:59] Speaker 05:
And you're complaining about that, saying you have a statutory right to continue to negotiate with the middleman and make more money.

[00:04:09] Speaker 05:
And I can understand that, because most people like to be in business and make more money.

[00:04:17] Speaker 05:
But where's your statutory right to make more money?

[00:04:20] Speaker 02:
All right, well, we are not asserting that we have the right to be reimbursed through managed care.

[00:04:28] Speaker 02:
What we are arguing is, or what we've alleged, is that we have a right to be reimbursed at a fee-for-service rate that complies with Section 1396 ABB, which is not the negotiated managed care rate, and it's not the prospective payment system rate that applies

[00:04:48] Speaker 02:
generally, where all of the cost of all FQHC services are bundled together and then divided by the Medi-Cal visits and you get paid a per visit rate.

[00:04:59] Speaker 02:
This would be a special rate just for pharmacy services under Section 1396 ABB, and it must be based

[00:05:09] Speaker 02:
in a manner that reimburses FQHCs for cost, so we're alleging that the system... I'm missing some words when you speak.

[00:05:17] Speaker 02:
Oh, sorry.

[00:05:18] Speaker 05:
Based on a rate?

[00:05:20] Speaker 02:
That is essentially based on cost, the cost of providing the services.

[00:05:24] Speaker 02:
That's right.

[00:05:25] Speaker 05:
The cost to you under 340A.

[00:05:27] Speaker 05:
340B.

[00:05:29] Speaker 05:
340B.

[00:05:30] Speaker 02:
Okay, but the actual acquisition cost that is established in the SPA does not mean the actual amount you pay.

[00:05:38] Speaker 02:
It is the 340B ceiling price that the manufacturers are required to invoice all covered entities.

[00:05:48] Speaker 02:
And that ceiling price may be different than what they actually invoice you at.

[00:05:56] Speaker 05:
I know it's... They might invoice you at lower than the ceiling price?

[00:05:59] Speaker 02:
They might invoice you at higher than the ceiling price.

[00:06:01] Speaker 02:
That's the concern.

[00:06:02] Speaker 05:
Then you wouldn't be getting the 340B price.

[00:06:05] Speaker 02:
Well, you can build the Medi-Cal program at a rate lower than the 340B.

[00:06:09] Speaker 02:
You have to build the Medi-Cal program at a rate at either the 340B ceiling price or less if you actually paid less.

[00:06:18] Speaker 02:
What's not covered is when the manufacturer charges you more than the 340B ceiling price.

[00:06:23] Speaker 05:
But how can the manufacturer, if he's following the law, charge you more than the 340B price

[00:06:29] Speaker 05:
when you're part of the protected group that has a right to buy at the 340B price.

[00:06:36] Speaker 05:
Explain that to me.

[00:06:37] Speaker 02:
I agree with you completely, Your Honor, and there is, but there is... You agree with me that they can't, right?

[00:06:42] Speaker 05:
And so they don't.

[00:06:42] Speaker 05:
So let's go on to something else.

[00:06:44] Speaker 02:
Well, they can't, but they do.

[00:06:45] Speaker 05:
And in fact... Well, then don't pay them.

[00:06:48] Speaker 02:
Well, we don't have that choice.

[00:06:52] Speaker 02:
That's a different issue.

[00:06:53] Speaker 02:
If they overcharge us, we have to go through the alternative dispute resolution process.

[00:07:01] Speaker 02:
But we still can only bill the Medi-Cal program, the 340B ceiling price.

[00:07:05] Speaker 02:
That's right.

[00:07:06] Speaker 05:
You can only bill what the law says that you're entitled to buy at.

[00:07:10] Speaker 05:
Right.

[00:07:10] Speaker 05:
But if the manufacturer

[00:07:13] Speaker 05:
overbills you, you have to go to the alternative dispute resolution and say, correct your bills, right?

[00:07:19] Speaker 05:
That's part of business.

[00:07:21] Speaker 02:
Right, but under Section 1396 ABB, as a federally qualified health center, you are entitled to be reimbursed

[00:07:31] Speaker 05:
for your costs, and that is more than the actual... But you don't have to pay an exorbitant invoice.

[00:07:38] Speaker 05:
You can go to alternative dispute resolution.

[00:07:41] Speaker 05:
Maybe I'm wrong, but isn't that the fact?

[00:07:43] Speaker 02:
Well, it's not quite as simple as that.

[00:07:45] Speaker 02:
You have to hire a lawyer, you have to... Oh, and what are you?

[00:07:50] Speaker 02:
Well, that's a different... The point is, Your Honor, that the actual acquisition costs and the professional dispensing fee contained in the spa

[00:07:59] Speaker 02:
were established for, not under section 1936 ABB, but under the general Medi-Cal provider reimbursement statute 1396A, A30A, which only requires reimbursement to ensure quality of care and access of care generally.

[00:08:17] Speaker 02:
And our position is that for FQHCs, there's a higher standard, which is to reimburse FQHCs in a manner that

[00:08:28] Speaker 02:
reimburses up for cost and that the spa does not do that.

[00:08:33] Speaker 02:
Because it only, it doesn't include shipping costs.

[00:08:37] Speaker 02:
It caps it at the 340B ceiling price, even though there's a well documented problem with manufacturer overcharges.

[00:08:44] Speaker 02:
In fact, 42 USC 256B, which is the adoption of the Public Health Services Act 340B, so it's basically the 340B statute,

[00:08:56] Speaker 02:
has a whole section on improvements in program integrity.

[00:09:03] Speaker 05:
Why should the state of California pay you more because a manufacturer overcharges you and you don't dispute it under alternative dispute resolution?

[00:09:14] Speaker 02:
We would dispute it under alternative dispute resolution.

[00:09:18] Speaker 02:
Years later, if we prevail, we would have to repay the state of California.

[00:09:22] Speaker 02:
But in the meantime, we're footing the bill.

[00:09:25] Speaker 02:
Your honor, I'd like to just mention that one of the problems that, or one of the costs that is not covered under the SPA for any covered entity is that because you have to build a Medi-Cal program at the 340B ceiling price or what you actually paid, for each and every claim, the covered entities need to

[00:09:53] Speaker 02:
check to see what the 340B ceiling price is, and then bill that.

[00:09:57] Speaker 02:
And that is a tremendous administrative burden.

[00:10:00] Speaker 02:
They have to hire additional staff.

[00:10:02] Speaker 02:
They have to oftentimes purchase special software.

[00:10:06] Speaker 05:
I can understand that.

[00:10:06] Speaker 05:
Why don't you go to Sacramento and tell the people that?

[00:10:10] Speaker 02:
Well, because I shouldn't need to, because under the FQHC Section 1396 ABB, those kinds of administrative overhead costs

[00:10:22] Speaker 02:
are to be, is there any reasonable and allowable costs are to be included in the reimbursement rate for FQHCs?

[00:10:31] Speaker 03:
Council, I want to make sure.

[00:10:32] Speaker 03:
So 1396 ABB guarantees you the PPS, and that's what you want.

[00:10:39] Speaker 03:
Is that correct?

[00:10:41] Speaker 02:
But 1396 ABB actually guarantees you the PPS.

[00:10:45] Speaker 02:
The only thing it guarantees is that when you have a new rate established, it needs to be equal to 100 percent of the cost of furnishing the services based on a center that has a comparable provision of services.

[00:11:01] Speaker 02:
And generally, as I was saying, actually, the comparable methodology is not really used.

[00:11:08] Speaker 02:
There's an alternative payment methodology that's used where the FQHC submits

[00:11:14] Speaker 02:
its cost report for the entire fiscal year for all the services, and then that's divided by the visits, and then there's a per visit reimbursement rate that is set.

[00:11:27] Speaker 02:
And so that's the traditional PPS rate is a per visit rate based on either the cost of a comparable clinic divided by visits or a cost report.

[00:11:39] Speaker 02:
that is used, but here we're carving the pharmacy services out of that PPS rate, and so we're establishing a different fee-for-service rate, and that needs to comply with 1396 ABB 6.

[00:11:56] Speaker 03:
I appreciate the distinction that you've drawn, is that the district court found that there was no basis for claiming, I'm quoting from the district court, you're not required to have your pharmacy services reimbursed under the FFS methodology established by SPA 17.

[00:12:11] Speaker 03:
Simply no basis for plaintiff's contention that fails to satisfy 1396, that it is separate and apart from PPS, plaintiffs can still elect to reimburse pharmacy servicers through their PPS rate.

[00:12:23] Speaker 02:
Right, and that's exactly what we're challenging here on appeal.

[00:12:26] Speaker 03:
And you're challenging that the district court is wrong on that?

[00:12:30] Speaker 03:
Or that it's irrelevant?

[00:12:32] Speaker 02:
Yeah, the district court is correct that there is an election, but the election is between what?

[00:12:40] Speaker 02:
Just because the FQHCs can carve pharmacy back into their PPS rate and

[00:12:45] Speaker 02:
and then that would meet the requirements of section 1396 ABB.

[00:12:49] Speaker 02:
Does not mean that this fee for service rate that they are also allowed to elect

[00:12:53] Speaker 02:
does not have to mean.

[00:12:54] Speaker 02:
Right.

[00:12:55] Speaker 03:
But if you're allowed to elect one of two different things, and I appreciate there's slightly different measures.

[00:13:00] Speaker 03:
One is this is a charge for our pharmacy services alone, and this is a charge for per patient visits with the pharmacy all wrapped in here together.

[00:13:10] Speaker 03:
Exactly.

[00:13:10] Speaker 03:
But as long as you have a choice between those two and you can elect whichever one you think is to your financial advantage, what runs afoul of 1396 ABB?

[00:13:19] Speaker 02:
Because the fee-for-service rates that you're electing between was not established based on cost.

[00:13:27] Speaker 02:
It's established, they're applying the general pharmacy fee-for-service reimbursement rate that the report that was used to establish that only looked at whether it met the requirements of 1396A, A30A, which is a general

[00:13:49] Speaker 02:
Medi-Cal reimbursement standard, not the FQHC specific one.

[00:13:54] Speaker 02:
And the election option is in the FQHC reimbursement statute, California Welfare and Institutions Code 14132.100K.

[00:14:06] Speaker 02:
And that ties into Section 1396 ABB.

[00:14:10] Speaker 02:
And because, and the reason is because

[00:14:14] Speaker 02:
FQHCs receive a special Section 330 grant from HRSA to provide services to the medically uninsured people who have no insurance.

[00:14:29] Speaker 02:
And so the Medi-Cal program is required to reimburse for the cost of providing services to Medi-Cal beneficiaries so that FQHCs aren't dipping into the grant that's reserved for

[00:14:44] Speaker 02:
to cover the services for the uninsured.

[00:14:48] Speaker 02:
And so that's why all FQHC reimbursement rates, fee for service, prospective payment system that's based on comparables, prospective payment system that's based on cost reports, they all need to be reimbursed based on costs.

[00:15:03] Speaker 02:
And CMS and the district courts say Section 1396 ABB is just not relevant, but it

[00:15:12] Speaker 02:
It is required to be relevant by Congress in Section 1396 AB whenever you establish a reimbursement rate for Medi-Cal that applies to FQHCs.

[00:15:25] Speaker 05:
May I ask some elemental questions?

[00:15:29] Speaker 05:
You're apparently saying you have a right, your people have a right to carve out the pharmacy and have it reimbursed for costs based on the fee for service rate.

[00:15:42] Speaker 05:
Correct.

[00:15:45] Speaker 05:
And then you say the fee-for-service rate that has been applied, which is the cost that you paid under 340B, has been incorrectly computed.

[00:15:57] Speaker 05:
Why was it incorrectly computed?

[00:16:01] Speaker 02:
I guess that's not exactly what I'm saying.

[00:16:04] Speaker 02:
Then say your words.

[00:16:06] Speaker 02:
What I'm saying is that we can elect to be reimbursed fee-for-service, but the fee-for-service rate needs to be established consistent with Section 1396 ABB.

[00:16:17] Speaker 02:
The fee-for-service rate that's being applied was established under 1396 A, A30A, and it doesn't include

[00:16:29] Speaker 02:
For example, shipping fees, it doesn't include the cost of administering the program to make sure that you're not billing the Medi-Cal program more than the statutory 340B ceiling price, which is not required under federal law.

[00:16:43] Speaker 02:
That's purely California statute.

[00:16:45] Speaker 02:
And Section 1396 ABB says that FQHC's rates need to incorporate all of the costs of complying with the Medi-Cal program so you don't

[00:16:56] Speaker 02:
subsidized a Medi-Cal program using the HRSA grant.

[00:16:59] Speaker 05:
Do you have all those costs listed in any of your papers?

[00:17:04] Speaker 02:
We do.

[00:17:05] Speaker 05:
Can you point to me where those costs are and then point to me whether or not the district court considers those costs?

[00:17:15] Speaker 02:
Well, where we are right now is just the pleading stage.

[00:17:18] Speaker 02:
And in our complaint, we do plead.

[00:17:22] Speaker 02:
Let me find it.

[00:17:25] Speaker 02:
that the shipping fees are not included, that the administrative fees of doing the claim-by-claim, checking to make sure you're not exceeding the 340B ceiling price, they're simply not included in the SPA because that applies also to retail pharmacies who don't have to do those things.

[00:17:49] Speaker 02:
the lowest bar.

[00:17:52] Speaker 05:
I mean, are there any numbers that you gave the district court to show the difference between the 340B reimbursement price and your administrative costs and shipping costs?

[00:18:06] Speaker 02:
No, we did not give specific numbers in our complaint.

[00:18:11] Speaker 02:
I mean, what we're alleging is a violation of the statute.

[00:18:16] Speaker 02:
first and foremost, and then it's... Do you want to be able to prove that at trial?

[00:18:21] Speaker 02:
We want to be able to prove the amounts at trial, but the actual, the fact that their shipping fees is not disputed, the fact that these administrative burdens and the cost of those are not being reimbursed is not disputed.

[00:18:35] Speaker 03:
Council, you've eaten into your five minutes, so do you want to save the... I'd like to ask a couple of questions if I could.

[00:18:40] Speaker 03:
So, Council, I'd like you to take me through 1396 ABB.

[00:18:44] Speaker 03:
We've just been referring to it generally, but I just have a couple of questions about that, and I appreciate the opportunity to ask a couple more questions.

[00:18:51] Speaker 03:
So would you point out to the section to me that provides the reimbursement right that you're claiming here?

[00:18:58] Speaker 02:
Yes, it is actually section 1396 ABB 6, because the only specific... Well, where's the one that gives you the right to your costs?

[00:19:10] Speaker 02:
It's 1398... What's the whole of 1396 ABB?

[00:19:14] Speaker 03:
Well, there's a whole bunch of sections there.

[00:19:16] Speaker 03:
You don't have any particular subsection.

[00:19:18] Speaker 03:
We've got a whole bunch of numbered sections here.

[00:19:20] Speaker 02:
Okay, well, you have to... You start with... Because this is not covered by paragraphs 1 through 4,

[00:19:27] Speaker 02:
It falls within paragraph 6 as an alternative payment methodology, and under subsection 6, the reimbursement rate must result in payment to the center or clinic of an amount which is at least equal to the amount otherwise required to be paid to the center or clinic under this section.

[00:19:46] Speaker 02:
And if you go back up to subparagraph 4, that, for example, says

[00:19:52] Speaker 02:
that the clinic must be reimbursed equal to 100 percent of the cost of furnishing the services during the fiscal year based on the rates established under this subsection for the fiscal year or other centers or clinics located in the same adjacent or adjacent area with a similar caseload.

[00:20:12] Speaker 02:
So that's how it ties back into all of these.

[00:20:15] Speaker 02:
And if you look at subsection two, which doesn't sort of is a little bit obsolete,

[00:20:21] Speaker 02:
you set the reimbursement rate at a rate that is equal to 100 percent of the average of the cost of the center or clinic of furnishing such services, in that case during fiscal years 1999 to 2000.

[00:20:34] Speaker 02:
And here in number four, in a case in which an entity first qualifies after fiscal year 2000, the state plan shall provide for payment of the services and that

[00:20:48] Speaker 02:
ties into what I was just saying, sorry.

[00:20:51] Speaker 03:
That was helpful, thank you.

[00:20:53] Speaker 02:
I'll reserve my last 35 seconds.

[00:20:55] Speaker 02:
I didn't even get to talk about other issues.

[00:20:57] Speaker 04:
That's okay, Council, I'll give you a couple of minutes.

[00:21:01] Speaker 04:
All right.

[00:21:03] Speaker 04:
Next, I believe it's, Mr., is it Frua?

[00:21:07] Speaker 04:
Free.

[00:21:20] Speaker 01:
Good morning, and may it please the Court, Joseph Free on behalf of the Administrator of CMS.

[00:21:25] Speaker 01:
I plan to argue for no more than 13 minutes and give the balance of our side's time to counsel from the Department of Health Care Services.

[00:21:31] Speaker 01:
And I'll begin with where counsel for the appellants left off, which is their alternative payment methodology theory, which comprises the bulk of this appeal.

[00:21:42] Speaker 01:
And it's our position that this theory is not even properly before the Court.

[00:21:47] Speaker 01:
The best way of illustrating this point is to look at the appellant's opening brief and their reply brief and noting that alternative payment methodology, APM, and that statutory section that Ms.

[00:21:58] Speaker 01:
Dory referred to, 1396 AABB 6, those terms appear in the briefs 60 times.

[00:22:05] Speaker 01:
How many times do those terms appear in the First Amendment complaint, which stretches 133 paragraphs?

[00:22:11] Speaker 01:
Zero times.

[00:22:13] Speaker 01:
And that's because this new theory was never alleged in the operative First Amendment complaint.

[00:22:18] Speaker 01:
It emerged for the first time in opposition to our motions to dismiss.

[00:22:23] Speaker 01:
Both the defendants pointed out that this new theory was not in the operative complaint, but the plaintiffs did not move to amend their complaint.

[00:22:31] Speaker 01:
At the hearing on our motions to dismiss, the district court pointed out that this new alternative payment methodology theory was not contained within the operative complaint.

[00:22:39] Speaker 01:
and inquired with counsel whether, if the motions were granted, whether leave to amend should be provided.

[00:22:45] Speaker 01:
And counsel declined, saying that leave to amend wasn't necessary.

[00:22:50] Speaker 01:
I would submit that under these circumstances, this theory that, again, comprises the bulk of the appeal is no longer properly before the court.

[00:22:58] Speaker 01:
Second, even if this theory were properly before the court... Did the District Court address the theory on the merits?

[00:23:04] Speaker 01:
It did, Your Honor, briefly.

[00:23:06] Speaker 01:
Yes, but I would point out that the degree to which we were able to address the theory on the merits was within a reply brief that was limited to five pages.

[00:23:15] Speaker 03:
Okay, but you were able to brief it here.

[00:23:18] Speaker 01:
We were able to address it, and so far it's been alleged in briefs, but I would say that the full contours of this theory are

[00:23:26] Speaker 01:
It's sort of a game of whack-a-mole.

[00:23:28] Speaker 01:
It changes.

[00:23:29] Speaker 01:
And I think it's unfair to the defendants to have to argue a theory that isn't self-contained in some type of pleading.

[00:23:36] Speaker 01:
But even if the theory were properly before the court, I think plaintiffs run into some other problems.

[00:23:42] Speaker 01:
Foremost, they can't establish Article III standing to pursue this theory.

[00:23:47] Speaker 01:
And as the Supreme Court reminded us several times this last term, standing is not dispensed in gross.

[00:23:52] Speaker 01:
It needs to be established

[00:23:53] Speaker 01:
for each theory in the complaint as well as each type of relief that is sought.

[00:23:59] Speaker 01:
And here, the plaintiffs have not established a concrete and particularized injury for any one of the remaining plaintiffs in this case.

[00:24:07] Speaker 01:
So starting with injury in fact, their basic injury that they're alleging here is that they are being paid for

[00:24:14] Speaker 01:
for the drugs that they prescribe their patients under the formula in State Plan Amendment 17-2, under this fee for service formula, instead of the prospective payment system.

[00:24:25] Speaker 01:
That is their alleged injury.

[00:24:26] Speaker 01:
But as they conceded in the district court, they have no idea

[00:24:30] Speaker 01:
whether the fee for service payment is more than or less than the prospective payment amount.

[00:24:36] Speaker 01:
In fact, they might be getting more than they would otherwise receive under the prospective payment amount.

[00:24:41] Speaker 01:
It's notable that the plaintiffs sought a temporary restraining order in the district court.

[00:24:45] Speaker 01:
That temporary restraining order was denied at Clerk's Record 54, and the district court found that the plaintiffs couldn't even demonstrate economic harm, let alone the irreparable harm that would be required for a temporary restraining order.

[00:24:58] Speaker 01:
And the plaintiffs never appealed from that order.

[00:25:01] Speaker 01:
Now, the plaintiffs not only fail to establish an injury in fact, they also can't establish causation.

[00:25:07] Speaker 01:
And that's because this hypothetical injury, getting paid under the fee for service schedule instead of the prospective payment system, that situation is not fairly traceable to State Plan Amendment 17.2 or Medi-Cal Rx.

[00:25:26] Speaker 01:
That state of affairs is fairly traceable to the plaintiff's voluntary election to carve out pharmacy benefits from the scope of services under which they get prospective payment systems.

[00:25:37] Speaker 01:
And as we pointed out in our Rule 28J letter, a plaintiff who voluntarily incurs the injury about which they complain

[00:25:51] Speaker 01:
The injury is not fairly traceable to the defendants.

[00:25:53] Speaker 01:
It's fairly traceable to the plaintiffs.

[00:25:55] Speaker 01:
I think the Supreme Court echoed this in the recent FDA versus Alliance for Hippocratic Medicine, where the plaintiff doctors were held not to have standing because they could simply refuse to engage in the injury-causing behavior about which they complained.

[00:26:11] Speaker 01:
Similarly, in the DC Circuit's national family planning case, the DC Circuit held that

[00:26:18] Speaker 01:
If the plaintiff has within its own means the ability to avoid the alleged injury about which they complain, they not only have failed to establish causation, but they've also failed to establish an injury in fact.

[00:26:31] Speaker 01:
And then the final point on standing on this APM theory is redressability.

[00:26:37] Speaker 01:
The plaintiffs have failed to establish that their alleged hypothetical injury here is likely to be addressed by setting aside state plan amendment 17 to

[00:26:48] Speaker 01:
or Medi-Cal RX.

[00:26:50] Speaker 01:
And here's how we know that.

[00:26:52] Speaker 01:
If a court were to set aside State Plan Amendment 17-2 and Medi-Cal RX as causing the plaintiff's injury, well, these same enactments could be reenacted in identical form.

[00:27:05] Speaker 01:
And all that would have to be done is eliminate this 20-year-old vestigial provision that allows FQHCs to elect to receive fee for service instead of the prospective payment system.

[00:27:15] Speaker 01:
If that were removed, then their injury would go away.

[00:27:18] Speaker 01:
And so for that reason, I don't think the plaintiffs have established that it's likely that the relief they seek would actually address the hypothetical injury that they haven't really even established in the first place.

[00:27:29] Speaker 01:
Next, even if this APM theory, this alternative payment methodology theory, were properly before the court, even if the plaintiffs had established standing to pursue it, which they haven't,

[00:27:40] Speaker 01:
They would then run into another barrier in terms of asserting APA claims against CMS, which is that the APA, specifically 5 U.S.C.

[00:27:50] Speaker 01:
Section 704, prohibits APA claims where there's an adequate alternative remedy.

[00:27:56] Speaker 01:
And here, the First Amendment complaint reveals the alternative adequate remedy to an APA claim, which is a Section 1983 claim against the state Medicaid agency.

[00:28:08] Speaker 01:
And from the First Amendment complaint, the claims and the theories are completely overlapping.

[00:28:13] Speaker 01:
The relief sought is essentially the same.

[00:28:16] Speaker 01:
Clearly, a Section 1983 claim against the Department of Health Care Services provides an alternative and adequate remedy.

[00:28:23] Speaker 01:
In plaintiff's reply brief,

[00:28:25] Speaker 01:
They say that section 1983 is not adequate because they're not able to get damages from the state because of state sovereign immunity.

[00:28:35] Speaker 01:
But that's just a red herring because you can't get damages under the APA either.

[00:28:39] Speaker 01:
So that doesn't really point out any inadequacy

[00:28:42] Speaker 01:
for a Section 1983 claim against the state Medicaid agency, as, again, the First Amendment complaint reveals, they can get the same relief that they want simply by pursuing 1983 claims against the state as opposed to seeking APA claims against CMS.

[00:28:59] Speaker 01:
And then another alternative remedy would be a petition for rid of mandate in state court

[00:29:04] Speaker 01:
which is exactly what happened in the case to Larry Pediatric Healthcare versus DHCS.

[00:29:11] Speaker 01:
Health center filed a petition for writ of mandate in state court to enforce the state's compliance with section 1396 ABB and obtained that remedy.

[00:29:24] Speaker 01:
So again, alternative adequate remedies abound that would preclude an APA claim.

[00:29:30] Speaker 01:
And then finally, I would just touch on

[00:29:33] Speaker 01:
I said the alternative payment methodology really comprised the bulk of plaintiff's appeal, but they also had raised this preemption argument.

[00:29:42] Speaker 01:
But it appears that by the time they get to their reply brief, the plaintiffs have all but abandoned it because they don't respond in any meaningful way to the answering brief's points that tamp down their preemption argument.

[00:29:55] Speaker 01:
Instead, the only time that they mention preemption is to say that they're not really arguing about preemption anymore.

[00:30:02] Speaker 01:
Instead, as per, has been their modus operandi in this case, the plaintiff switch gears again, and their new theory is that CMS failed to adequately consider the pervasiveness of the Medicaid exclusion file and the administrative burdens that paragraph seven

[00:30:24] Speaker 01:
of State Plan Amendment 17 to imposes on federally qualified health centers.

[00:30:30] Speaker 01:
Now, as I alluded to before, I think this is just a new theory that they've raised in their reply brief, so it's improper for that reason alone.

[00:30:36] Speaker 01:
But even if we were to look at it on its merits, I think it's first important to point out that a federal agency, as a general matter, a federal agency is not required to consider every possible issue

[00:30:49] Speaker 01:
that a plaintiff in litigation can come up with.

[00:30:52] Speaker 01:
Rather, as this court pointed out in Oregon Natural Resources Council versus Thomas, whether an agency has overlooked an important aspect of the problem turns on what a relevant substantive statute makes important.

[00:31:04] Speaker 01:
And the plaintiffs, although they say that CMS failed to consider the pervasiveness of the Medicaid exclusion file or the administrative burdens imposed by paragraph seven of state plan amendment 17.2, they don't point to

[00:31:18] Speaker 01:
any provision in the Medicaid statute that required CMS to really consider those issues when it approved State Plan Amendment 17-2.

[00:31:26] Speaker 01:
Instead, the Medicaid statute says the Secretary of Health and Human Services shall approve any plan which fulfills the conditions specified in subsection A. And subsection A of the Medicaid statute doesn't talk about

[00:31:41] Speaker 01:
considering the pervasiveness of the Medicaid exclusion file and things like that.

[00:31:46] Speaker 01:
And I think on this point, it's just also important to point out that this provision of State Plan Amendment 17-2 that the plaintiffs have attacked originally under a preemption theory, but now under a slightly different theory in the reply brief, it's important to point out that this provision, which the plaintiffs call kind of like a duplicate discount avoidance provision, it wasn't originated in State Plan 17-2.

[00:32:12] Speaker 01:
This provision actually originated many years earlier and was approved by CMS back in 2014.

[00:32:19] Speaker 01:
It was codified at California Welfare and Institutions Code 1.4.

[00:32:25] Speaker 01:
Let's see, 14105.46.

[00:32:28] Speaker 01:
And it spawned several years of litigation.

[00:32:30] Speaker 01:
It was the AIDS Healthcare Foundation versus Douglas cases, several years of litigation.

[00:32:36] Speaker 01:
And this court ultimately upheld that provision.

[00:32:38] Speaker 01:
So the plaintiffs really haven't explained in their new theory why CMS was at all obligated to take another look at a provision that it had approved years prior and which this court had already upheld after multiple years of litigation.

[00:32:55] Speaker 01:
I think those are the primary points that I want to address.

[00:32:57] Speaker 01:
I would just in closing reiterate that I think at this point it's quite clear that this case really is not about the plaintiffs getting the payment to which they are entitled to receive under the statute.

[00:33:09] Speaker 01:
They have been, they are now and have always been able to obtain that payment.

[00:33:15] Speaker 01:
What this really is, is really just an arrow in a quiver of lobbying efforts to get as many concessions from the state of California as the plaintiffs can obtain as California transitions to this one payer model.

[00:33:29] Speaker 01:
And I think at this point, this litigation has rather run its course and the court should affirm the district court's judgment below.

[00:33:39] Speaker 04:
Any other questions?

[00:33:40] Speaker 04:
No questions.

[00:33:41] Speaker 04:
All right, thank you.

[00:33:42] Speaker 04:
Thank you very much.

[00:33:45] Speaker 04:
Mr. Sondheimer.

[00:33:49] Speaker 00:
When your honor is made please to the court, I'm Joshua Sondheimer on behalf of Appellee Michelle Bass, the Director of the California Department of Health Care Services.

[00:33:59] Speaker 00:
Your Honor, the appellants only claim against the directors that SPA 17-2 somehow created an alternative payment methodology but does not meet the PPS equivalency requirement for such an APM.

[00:34:14] Speaker 00:
Their argument fails for two primary reasons.

[00:34:18] Speaker 00:
The district court did not abuse its discretion in dismissing plaintiff's action without leave to amend, because the theory was not alleged in the complaint, as my colleague already has identified, and plaintiffs specifically waived any intent to amend their complaint to assert the theory.

[00:34:38] Speaker 00:
For all the reasons set out in our papers, any amendment at this point would now be futile, because SPA 17-2 does not and cannot create an alternative payment mechanism.

[00:34:49] Speaker 00:
The SPA governs reimbursement for all types of providers.

[00:34:53] Speaker 00:
It was not created or designed to apply solely to FQHCs.

[00:35:03] Speaker 00:
plaintiffs can't establish and fail to establish that 13, that section 1396 ABB, that requirements to create an APM are met in this case, or that, or even that payment under the SPA would be less than the PPS rate.

[00:35:27] Speaker 00:
The fundamental flaw with plaintiff's theory that reimbursement under SPA 17-2 must meet PPS requirements is that the centers here have specifically chosen to opt out of the PPS system

[00:35:44] Speaker 00:
and to be instead reimbursed under an entirely separate fee for service system.

[00:35:50] Speaker 00:
They have not articulated any reason why this separate reimbursement for their pharmacy services that they've elected to receive specifically and expressly under the fee for service system must then

[00:36:04] Speaker 00:
also meet the PPS requirements.

[00:36:07] Speaker 00:
If they wish to receive PPS reimbursement for their pharmacy services, they have that option.

[00:36:13] Speaker 00:
That's still available to them to carve their pharmacy services within their PPS rate.

[00:36:20] Speaker 00:
But in order to opt out of that system, they must specifically submit a change in a formal

[00:36:30] Speaker 00:
document called a change in scope of services to the Department of Health Care Service to literally carve those services and the cost of those services out of their PPS reimbursement.

[00:36:42] Speaker 00:
That's what entitles them to be reimbursed under entirely separate

[00:36:47] Speaker 00:
optional system.

[00:36:48] Speaker 00:
By doing that, they're opting out of PPS reimbursement, and they just simply have failed to establish any reason why that separate reimbursement that they've elected to receive must then still meet PPS requirements.

[00:37:03] Speaker 05:
Pardon me.

[00:37:04] Speaker 05:
You're obligated to pay them a PPS amount, correct?

[00:37:11] Speaker 00:
Correct, if they've chosen to be reimbursed for PPS.

[00:37:13] Speaker 05:
If they chose to carve out and

[00:37:18] Speaker 05:
buy their drugs more cheaply and then charge you with a PPS rate.

[00:37:23] Speaker 05:
You're not hurt because you're obligated to pay them under the PPS rate anyway, right?

[00:37:30] Speaker 00:
Your Honor, yes, I think, just to clarification, I think you referred to the PPS, the payment under the PPS rate.

[00:37:38] Speaker 00:
If they're purchasing their drugs through the 340B program, they're charged the actual acquisition cost.

[00:37:49] Speaker 00:
They're entitled to receive the actual acquisition cost plus a dispensing fee.

[00:37:53] Speaker 05:
But if they don't choose to carve out, you would have to reimburse some of the PPS rate.

[00:38:01] Speaker 05:
Correct.

[00:38:02] Speaker 05:
If they choose to carve out and can make a buck on the side by buying low and negotiating a higher rate within the PPS rate, you're not hurt anywhere, are you?

[00:38:16] Speaker 00:
The state is not, no.

[00:38:17] Speaker 05:
No.

[00:38:18] Speaker 05:
So why don't you do that for them?

[00:38:22] Speaker 05:
I mean, if there's no money out of your pocket, why don't you allow them to make a buck?

[00:38:29] Speaker 00:
Well, that was, I mean, that was the policy prior to the adoption of Medi-Cal-Rx is that the state allowed the centers to make that extra buck.

[00:38:40] Speaker 00:
But now under Medi-Cal-Rx, the pharmacy benefit is no longer within the managed care system.

[00:38:49] Speaker 00:
So the centers can no longer negotiate a rate with the managed care plans.

[00:38:55] Speaker 00:
Instead, they bill for

[00:38:59] Speaker 00:
Uh, pharmacy services directly.

[00:39:01] Speaker 05:
So the Medi-Cal Rx plan means that the state can save some money if there's a carve out from the PPS rate, right?

[00:39:12] Speaker 00:
Well, the state didn't, uh, uh, the state, I, I, in, in, it does save money.

[00:39:20] Speaker 00:
Yes, essentially that was a significant reason for the Medi-Cal Rx program.

[00:39:24] Speaker 00:
Oh, okay.

[00:39:24] Speaker 00:
Got you.

[00:39:25] Speaker 00:
Initiative.

[00:39:30] Speaker 00:
I think I've made the principle points, Your Honor, with respect to the claim against the director.

[00:39:34] Speaker 00:
I would just say the

[00:39:38] Speaker 00:
plaintiffs asserting new issues that really were not raised in the papers relating to their alleged inability to receive costs.

[00:39:47] Speaker 00:
There was a claim in the district court that CMS had failed to consider certain costs in approving SPA 17-2.

[00:39:57] Speaker 00:
That was not an issue that is presented to this court on appeal, and we don't believe the court should consider it.

[00:40:02] Speaker 00:
Thank you very much.

[00:40:03] Speaker 04:
Thank you.

[00:40:03] Speaker 04:
Any additional questions?

[00:40:05] Speaker 04:
No more questions.

[00:40:11] Speaker 04:
Why don't we put two minutes on her time?

[00:40:13] Speaker 02:
Thank you, Your Honor.

[00:40:14] Speaker 02:
All right.

[00:40:15] Speaker 02:
All right.

[00:40:16] Speaker 02:
First, on the concern about whether the APM theory was sufficiently alleged in the complaint, we alleged in paragraphs 25, 46, 55, 59, and 66 that the SPA reimbursement rate does not comply with 1396 ABB.

[00:40:35] Speaker 02:
It is true we did not use the term APM, and we did not

[00:40:40] Speaker 02:
specifically call out subparagraph six, but if you review the transcript of the hearing, the court asked, if I conclude that your claims as currently pled or even as referred to in opposition briefs, where some theories that I don't think were pled are raised, that those theories too are not recognizable, why do you believe, why you believe that leave to men would not be futile?

[00:41:03] Speaker 02:
And the answer is that if he, if the district court found that all of our

[00:41:09] Speaker 02:
including the ones in our opposition brief that raised the APM were not legally cognizable, it would have been futile to try to amend the complaint.

[00:41:18] Speaker 02:
But if this court finds that any of our claims are legally cognizable, we would reassert our desire to amend the complaint as necessary to address issues like that.

[00:41:33] Speaker 03:
But that's effectively asking us to decide an issue that you didn't plead, which if you then decide that it might be meritorious, you would be willing to amend your complaint in order to include.

[00:41:44] Speaker 03:
It just feels like the whole thing is backwards.

[00:41:46] Speaker 02:
Under the short and short, actually missing the thing, statement of a claim, our position is we didn't have to call out APM or subsection six.

[00:42:00] Speaker 03:
So your position is that you have adequately pledged.

[00:42:03] Speaker 02:
Right, but if we were given an opportunity to amend again, we would clearly address the things that are concerning the court and respondents to be more clear on that issue.

[00:42:12] Speaker 04:
I thought you were given an opportunity and you chose not to.

[00:42:16] Speaker 04:
What I was... Am I wrong about that?

[00:42:19] Speaker 02:
The court asked whether if he found that none of our theories as alleged in the complaint or as argued before him were, none of them were legally cognizable,

[00:42:32] Speaker 02:
would amend either the plate be futile.

[00:42:34] Speaker 02:
And basically we agreed that if he found that none of those theories were legally cognizable, it would be futile to amend.

[00:42:42] Speaker 02:
So we would not seek to amend something where it would be futile.

[00:42:46] Speaker 02:
If it would not be futile and our theories were found to be legally cognizable, but not adequately pled,

[00:42:55] Speaker 02:
We would seek to amend.

[00:42:58] Speaker 04:
Thank you, counsel.

[00:42:59] Speaker 04:
Any additional questions?

[00:43:00] Speaker 02:
I'm sorry.

[00:43:01] Speaker 02:
I'm standing.

[00:43:03] Speaker 04:
I think you're out of your time, but I appreciate the arguments today.

[00:43:07] Speaker 04:
Thank you so much for your presentation to both counsel, to all three counsel, actually.

[00:43:12] Speaker 04:
Thank you very much.

[00:43:13] Speaker 04:
This matter will be submitted.