[00:00:00] Speaker 01: Case number 23-5055, Asante et al at balance versus Xavier Becerra in his official capacity, Secretary, Department of Health and Human Services et al. [00:00:11] Speaker 01: Mr. Johnson for the balance, Ms. [00:00:13] Speaker 01: Neumeister for the athletes. [00:00:16] Speaker 04: Good morning, counsel. [00:00:17] Speaker 04: Mr. Johnson, please proceed when you're ready. [00:00:20] Speaker 02: Good morning. [00:00:21] Speaker 02: May it please the court? [00:00:23] Speaker 02: Initially, I would like to emphasize two important points that may not be obvious in the papers. [00:00:29] Speaker 02: The first point is that all hospitals lose money when they treat Medicaid patients. [00:00:37] Speaker 02: We know this because from 1965, which is when the Medicaid Act was enacted, to 1980, all hospitals were paid on the same basis, which was 100% of their actual costs. [00:00:51] Speaker 02: Then the federal government abandoned cost-based reimbursement in 1980 [00:00:57] Speaker 02: by adopting the Borne Amendment, states had the ability to pay hospitals much less than their actual costs. [00:01:05] Speaker 02: These facts have two important implications for the application of the Commerce Clause here. [00:01:13] Speaker 02: First, there is no profit to be made here. [00:01:16] Speaker 02: There are no willing sellers in a free marketplace. [00:01:20] Speaker 02: As a result, there is no logic here to the application of the market participant exception to the Commerce Clause because there is no free market. [00:01:31] Speaker 02: Second, this case is not about the flow of Medi-Cal patients. [00:01:36] Speaker 02: Instead, it is about the flow of all patients. [00:01:40] Speaker 02: By not having equality in the Medi-Cal payments, [00:01:43] Speaker 02: California is putting out of state hospitals at a competitive disadvantage vis a vis in state hospitals for all patients. [00:01:55] Speaker 05: The second important market participant doctrine just depends on whether the government is acting as a regulator doesn't depend on what the profit margins are. [00:02:06] Speaker 02: Well, there has to be a free marketplace. [00:02:10] Speaker 02: there has to be a demand curve and a supply curve. [00:02:13] Speaker 02: And in this case, the state simply sets by fiat the price and there are no willing sellers because what seller would ever participate in a marketplace where they can't make any money. [00:02:30] Speaker 02: The second point I'd like to make is the statutory regulatory one, which is that federal law has always required parity in payments [00:02:39] Speaker 02: between in-state and out-of-state hospitals. [00:02:43] Speaker 02: Obviously, all hospitals, both in-state and out-of-state, were paid on the same basis from 1965 to 1980, which was cost-based reimbursement. [00:02:53] Speaker 02: Then, when the federal government abandoned cost-based reimbursement, the respondents themselves changed the language in Section 431.52 to ensure continued parity in payments between in-state and out-of-state hospitals. [00:03:09] Speaker 02: This means this court does not need to look beyond the federal statutes and regulations to decide this case. [00:03:17] Speaker 02: But let me explain these points in a little bit in more detail. [00:03:21] Speaker 04: Can I just ask you as a framing question? [00:03:24] Speaker 04: So am I right in understanding that the amount that the out-of-state facilities get is different depending on whether [00:03:36] Speaker 04: you would prevail under your constitutional claims as opposed to your claim under the regulation. [00:03:41] Speaker 02: In other words, that's not right. [00:03:44] Speaker 02: The relief would be the same, which would be to invalidate the state plan amendment and to force the state to go back and develop a plan that takes into account out-of-state hospitals. [00:03:55] Speaker 04: Now we... Okay, so I take that point. [00:03:57] Speaker 04: I mean, in terms of if the relief is invalidating or avoiding the [00:04:00] Speaker 04: plan, that's going to be the same. [00:04:02] Speaker 04: But in terms of your theory about what you're owed, if the program were extended to your facilities, it seems like the amounts that would be coming to your facilities are less under the regulation than under the constitutional claims. [00:04:19] Speaker 04: Because under the regulation, by its terms, it's limited to certain subcategories of services that are provided to Medi-Cal patients. [00:04:29] Speaker 04: it's needed because of a medical emergency. [00:04:31] Speaker 04: It's the four specific types of services that are defined in subsection D of the regulation. [00:04:38] Speaker 02: Yes, your honor. [00:04:39] Speaker 02: The out-of-state hospitals cannot even treat a medical patient unless that patient falls into one of those four categories, because they wouldn't be qualified to treat those patients. [00:04:52] Speaker 02: Is that true? [00:04:53] Speaker 02: I thought, is that true they can't be treated? [00:04:56] Speaker 02: Well, they have to treat under EMTALA. [00:04:59] Speaker 02: But they won't get payment unless they fall into one of those four categories. [00:05:05] Speaker 04: They won't get payment at all? [00:05:07] Speaker 02: Not at all. [00:05:09] Speaker 04: They don't get the QIF subsidy, but doesn't the patient carry Medi-Cal with them wherever they go? [00:05:18] Speaker 04: So whoever provides them services, they would get a check from [00:05:25] Speaker 02: First off, you're right. [00:05:26] Speaker 02: Because of Antalla, the hospital must treat under those circumstances the patient. [00:05:32] Speaker 02: Whether or not the hospital gets paid depends upon how the state of California reviews the claim. [00:05:38] Speaker 02: If they say it doesn't fall within any of these four categories, they're not going to pay it at all. [00:05:46] Speaker 00: Is there supplemental payment through other state plans for all of the plaintiff states? [00:05:52] Speaker 02: No, what happens is every state pays for its own Medicaid patients. [00:05:57] Speaker 02: So I know the respond has made the claim that, well, we have a supplement, the supplemental payment programs in other states, they would only pay for their own patients. [00:06:07] Speaker 02: California is responsible for paying supplemental payments for its Medi-Cal patients. [00:06:13] Speaker 02: So the payments have to come from the state in which the Medi-Cal patient resides. [00:06:19] Speaker 04: OK, I see what you're saying now. [00:06:21] Speaker 04: Under EMTALA, the services have to be provided. [00:06:24] Speaker 04: I'll just use Medicaid now, because the regulation starts with Medicaid. [00:06:30] Speaker 04: Whether Medicaid pays depends on whether the interaction falls within one of these subcategories. [00:06:37] Speaker 02: Yes, sir. [00:06:38] Speaker 02: Yes. [00:06:40] Speaker 02: Okay. [00:06:40] Speaker 02: With respect to the market participant exception, I would direct the court to the case of Children's Hospital V Bonta 118 Cal Reporter second 629. [00:06:50] Speaker 02: This is a California MediCal case involving out of state hospitals, in which there was a two week trial, followed by an appeal and a decision by Justice Klein. [00:07:01] Speaker 02: And in that decision, Justice Klein very succinctly outlined the many reasons why the market participant exception does not apply. [00:07:09] Speaker 02: And he says, among other things, it's the MediCal patient choosing the hospital, not the state. [00:07:15] Speaker 02: It's the state is not setting rates that are all responsive to market forces. [00:07:22] Speaker 02: The provision of Medicaid services is inherently unprofitable. [00:07:25] Speaker 02: Hospitals serve MediCal patients only because they cannot legally refuse to do so. [00:07:31] Speaker 02: It's a very complete analysis. [00:07:32] Speaker 02: And you cannot have a market participation exemption when you have no willing sellers and you have no free marketplace. [00:07:40] Speaker 02: It simply doesn't make any sense. [00:07:43] Speaker 02: But there's another issue here that's also very important, and that is another issue that Justice Klein addressed in his decision, which is the article of commerce here we're talking about is not Medi-Cal patients, but the provision of care to all persons to whom a hospital can make it available. [00:08:05] Speaker 02: This is a very important point. [00:08:07] Speaker 02: No one really wants to treat Medicaid patients. [00:08:10] Speaker 02: They do it because they cannot legally refuse to do it. [00:08:14] Speaker 02: But what happens when the California hospitals keep all of the money and don't pay the out-of-state hospitals for the medical patients they're treating, it's putting those California hospitals at a competitive disadvantage vis-a-vis in-state hospitals in competing for all types of patients. [00:08:34] Speaker 02: And Justice Klein talks about that in his decision. [00:08:38] Speaker 00: But it sounds like you want to restructure the program because you're not paying the tax. [00:08:44] Speaker 00: You have the ability to do so. [00:08:46] Speaker 00: and then get the subsidy and join the program just like the in-state programs. [00:08:51] Speaker 00: But that is not what these plaintiffs appear to want to do. [00:08:54] Speaker 02: Well, that is really a ruse. [00:08:57] Speaker 02: The whole statute that they passed followed the litigation that I participated in against the state of California 10 years ago. [00:09:07] Speaker 02: and we entered a settlement in which the out-of-state hospitals were paid QRAF monies. [00:09:12] Speaker 02: That settlement went on for 10 years. [00:09:14] Speaker 02: The state didn't like it. [00:09:15] Speaker 02: They wanted to get out of it. [00:09:17] Speaker 02: So one thing they did is they said, well, we're going to adopt this statute which says that out-of-state hospitals can participate just like in-state hospitals. [00:09:27] Speaker 02: The problem is if you use the same rules for out-of-state hospitals, [00:09:32] Speaker 02: they're going to lose between $100 and $300 million a year because their volumes are a lot lower than in-state hospitals. [00:09:39] Speaker 02: Everyone knew it was a roost and that it wouldn't work and CHA in fact said that in their [00:09:46] Speaker 02: declarations in the earlier case. [00:09:49] Speaker 02: But the other thing they did is they passed a statute which said the out-of-state hospitals can't even sue because if they sue the cloth program and lose, then the court of appeal has to ignore that decision. [00:10:01] Speaker 02: So there's been one level of discrimination on top of another against the out-of-state hospitals. [00:10:07] Speaker 00: But what is equity to you then? [00:10:10] Speaker 00: The equity would be- That then doesn't somehow diminish what is going on with the in-state hospital. [00:10:16] Speaker 02: Well, we achieved equity in our settlement agreement that's been in effect for the last 10 years, which was that out-of-state hospitals were basically paid the same benefit that in-state hospitals received under the QOF program. [00:10:30] Speaker 02: If you equalize the benefits and everything's fine, because all you really care about is the end result. [00:10:36] Speaker 02: You don't want to care about how you get there. [00:10:38] Speaker 02: And there's very easy ways in which the state could do that. [00:10:42] Speaker 02: But the state has refused not to use those mechanisms and to in fact totally deny out-of-state hospitals from getting any money. [00:10:52] Speaker 04: So can I just ask you about the regulatory argument, the argument under the regulation? [00:10:57] Speaker 04: Yes. [00:10:59] Speaker 04: So the regulation starts under subsection A and it's a statutory basis. [00:11:03] Speaker 04: Section 1902A16 of the Act, which is the main statutory provision as I understand it, [00:11:08] Speaker 04: relevant to this argument, authorizes the Secretary to prescribe state plan requirements for furnishing Medicaid to state residents who are absent from the state. [00:11:17] Speaker 04: So I think I understand your argument if we construe the regulation to be about furnishing services to Medi-Cal beneficiaries. [00:11:28] Speaker 04: because the QAF subsidy in some sense is tethered to the levels at which any facility, whether out of state or in state, furnishes services to Medi-Cal recipients. [00:11:40] Speaker 04: But the way A is framed is it's furnishing Medicaid to state residents. [00:11:46] Speaker 04: And when I think about furnishing Medicaid to state residents, what I immediately think about is somebody who goes to the hospital, gets services, and then they would get a check [00:11:57] Speaker 04: from Medicaid to help them pay for the services. [00:12:00] Speaker 04: That's my insurance payment. [00:12:02] Speaker 04: But as an accounting mechanism, instead of giving the money directly to me, what I used to pay for my bill, the money just goes directly to the provider. [00:12:12] Speaker 04: But it's an insurance payment to the patient. [00:12:16] Speaker 04: Under the words of A, it's furnishing Medicaid to state residents. [00:12:19] Speaker 04: But the QAF subsidies, they don't furnish Medicaid to state residents. [00:12:24] Speaker 04: They give money to hospitals. [00:12:27] Speaker 04: and it's related to providing services to MediCal recipients, but it's not furnishing Medicaid to state residents. [00:12:34] Speaker 04: And what's wrong about that? [00:12:35] Speaker 02: Well, what's wrong is the hospitals get the payment, not the patient. [00:12:38] Speaker 02: It's just like any other insurance carrier. [00:12:41] Speaker 04: It's true that the hospitals get the payment under QAF or the hospitals get the payment for? [00:12:46] Speaker 02: Well, the in-state hospitals get the payments under QAF, and they also get a payment for what's called an APR-DRG. [00:12:55] Speaker 02: So they get two payments. [00:12:58] Speaker 02: They get the APR-DRG payment and the cloth payment. [00:13:02] Speaker 04: I don't know the acronyms. [00:13:05] Speaker 04: You're much more steep in this than I am. [00:13:08] Speaker 04: Did you say APR-DRG? [00:13:10] Speaker 04: Yes. [00:13:11] Speaker 04: Is APR-DRG what? [00:13:14] Speaker 04: That's like a normal insurance payment, which is that. [00:13:17] Speaker 04: Right. [00:13:17] Speaker 04: So that one I get because with a normal insurance payment, [00:13:22] Speaker 04: It's one way to think about a normal insurance payment is it's money that goes to the patient. [00:13:28] Speaker 04: And then the patient can use that to pay the bill. [00:13:30] Speaker 04: But instead of doing it that way, the insurer just pays the provider directly. [00:13:34] Speaker 04: And then the provider then bills the patient less. [00:13:37] Speaker 02: Well, there's no provider payment here. [00:13:39] Speaker 02: I mean, typically not because you're talking about Medicaid. [00:13:43] Speaker 02: But yes, the hospital gets the payment. [00:13:45] Speaker 02: But let me let me make an important point here. [00:13:47] Speaker 02: There's a direct payment made based on what are called diagnosis-related groups to the hospital. [00:13:56] Speaker 02: In-state hospitals also receive a supplemental payment. [00:13:59] Speaker 02: And I want to make, before my time goes away, I want to make a very important point here, which is the QAF payment is based upon the specific days of care that are provided. [00:14:13] Speaker 02: And if you look at the joint appendix 544, [00:14:17] Speaker 02: page 544. [00:14:24] Speaker 02: This is part of the state plan amendment at issue here. [00:14:28] Speaker 02: And page 544 lists the payments that would be paid to in-state hospitals for QAF. [00:14:37] Speaker 02: And you have, for example, a payment of $1,588 for each Medi-Cal general acute care day, $975 for each Medi-Cal acute psychiatric day. [00:14:49] Speaker 02: My point here is this, whether it is a direct payment, in other words, a DRG payment, or a cloth payment, it is still based upon the volume of services provided. [00:15:01] Speaker 04: That I understand it's based on the volume of services provided. [00:15:05] Speaker 04: What I don't understand is even if it's helpful to point to that part of the appendix, but that it's still hard to conceive of that as furnishing Medicaid to state residents. [00:15:17] Speaker 04: What is the other one is normal. [00:15:18] Speaker 04: I'm covered by Blue Cross Blue Shield. [00:15:21] Speaker 04: When I go in and get care, Blue Cross Blue Shield could give me a check that then I could use to pay for the care. [00:15:28] Speaker 04: But instead, what happens is I get the care. [00:15:31] Speaker 04: What I'm billed by the provider is less because they're going to get a check from Blue Cross Blue Shield. [00:15:36] Speaker 04: That's how I read A. But instead of Blue Cross Blue Shield, it's Medicaid. [00:15:41] Speaker 04: But that's not true of the QAF payment. [00:15:43] Speaker 04: It doesn't work that way. [00:15:44] Speaker 04: It's not meant to be. [00:15:46] Speaker 04: It's not meant to be in lieu of a payment that otherwise would go directly to the resident. [00:15:50] Speaker 02: The payments don't go to the residents. [00:15:52] Speaker 02: The payments go to the hospitals for Medicaid. [00:15:55] Speaker 04: I understand that, but I think, and we can ask the government about this too, the payments do go to the hospitals, but that's just, it's just sending the money directly to the provider instead of going through two steps where you'd send the money to the patient and then the patient would use it to pay the provider. [00:16:13] Speaker 04: It's true that it goes directly to the provider in the same way that the quaff payment goes directly to the provider. [00:16:17] Speaker 04: I understand that. [00:16:18] Speaker 04: But it seems like for one of them, it's just as a matter of convenience, it goes to the provider. [00:16:24] Speaker 04: It's really what it is. [00:16:25] Speaker 04: It's a payment to the insured by the insurer. [00:16:28] Speaker 02: Well, in both cases, [00:16:30] Speaker 02: The point that I would like to make is that whether it is a direct payment, an APR-DRG payment, or a cloth payment, it is still based upon the volume of medical services provided. [00:16:44] Speaker 02: And to that extent, and it's a very important point, to that extent, it is a payment for services. [00:16:51] Speaker 04: That, I think, is the strongest part of your argument under the regulation. [00:16:56] Speaker 04: It does appear to be [00:16:59] Speaker 04: understandable as a payment for services to Medi-Cal patients, payment for services provided by the provider to Medi-Cal patients. [00:17:08] Speaker 04: What it's a little harder to conceive of is that it's a Medicaid payment to the patient. [00:17:14] Speaker 04: That's what it is. [00:17:16] Speaker 04: It is true that the payment to the provider is pegged to the level of services provided to Medi-Cal patients. [00:17:21] Speaker 04: But it doesn't feel like it's just a substitute for a Medicaid payment to the patient, which is how I read A. And we can ask the government about whether that understanding is correct. [00:17:30] Speaker 04: Maybe that's totally off. [00:17:31] Speaker 04: But that is how I understood A, is it's talking about Medi-Cal as an insurance program that pays patients. [00:17:43] Speaker 02: I guess all I can say is that [00:17:46] Speaker 02: That's never been the way I've looked at it, so. [00:17:50] Speaker 04: Okay, then let me just ask you this. [00:17:51] Speaker 04: That's helpful. [00:17:53] Speaker 04: Do you consider the QAF program to constitute the furnishing of Medicaid to state residents? [00:18:05] Speaker 02: It's a payment toward the cost of the Medicaid services [00:18:10] Speaker 02: to, of course, they never get back all of their costs, but it is a payment that goes toward the cost of Medicaid services. [00:18:18] Speaker 02: I'm having a hard time understanding your distinction because it just seems to be so foreign to what I understand. [00:18:27] Speaker 04: I may not be articulating it well. [00:18:28] Speaker 04: Maybe we can ask the government about whether this understanding is totally off, but I appreciate you at least entertaining the question. [00:18:38] Speaker 04: Let me make sure my colleagues don't have additional questions for you at this time. [00:18:41] Speaker 00: Well, you did ask for your relief to be vacating all the quaff orders. [00:18:44] Speaker 00: So what's the effect of that? [00:18:47] Speaker 02: Well, the effect of that would be that the state would have to go back and devise some sort of program that would treat in-state, out-of-state hospitals and in-state hospitals so that they have the same end result. [00:19:01] Speaker 02: There's lots of different ways to get there. [00:19:03] Speaker 02: It's not up to me or to the court to devise those means, but if they redo it and don't get it right, then we just end up back here again. [00:19:11] Speaker 02: But certainly they have a variety of means that they can use to accomplish that. [00:19:16] Speaker 02: We've accomplished that in the last 10 years because we've had a settlement agreement that everyone has been happy with. [00:19:23] Speaker 00: But you also have a case in the Ninth Circuit holding that the state of California's determination of its Medicaid reimbursement methodology [00:19:30] Speaker 00: is exempt from dormant commerce clause restrictions? [00:19:34] Speaker 02: Well, yeah. [00:19:36] Speaker 02: We think that decision is simply wrong. [00:19:39] Speaker 02: That decision said that the market participant exception applies. [00:19:46] Speaker 02: It can't apply because there's no willing sellers. [00:19:48] Speaker 02: There's not a seller in the world who's going to sell something at less than cost, which is what happens always with Medicaid. [00:19:55] Speaker 02: And she said that, well, she said in response to the argument of EMTALA, she said, well, EMTALA applies across the board. [00:20:05] Speaker 02: Yes, that's true. [00:20:07] Speaker 02: It does apply across the board, but hospitals don't lose money when it applies with respect to all the other patients. [00:20:13] Speaker 02: They only lose money under EMTALA with respect to Medicaid patients. [00:20:18] Speaker 02: Medicaid patients are always losers. [00:20:21] Speaker 02: And that was my first point because it's very important here. [00:20:24] Speaker 02: It's important because it means that you can't have a free market if there are no willing sellers or providers of services. [00:20:32] Speaker 02: This is all done through compulsion and fiat. [00:20:35] Speaker 02: It has no attributes of a free market. [00:20:37] Speaker 00: And just quickly going back to your formula where you say that this would equalize itself if they went back to the drawing board and came back up with this, are you asking for [00:20:46] Speaker 00: you not paying the tax and just getting the subsidy or paying the tax and then getting the subsidy based on a different formula that is not only Medi-Cal days. [00:20:59] Speaker 02: Well, let me propose one solution, which I've already done in the papers before the trial court, which was the state of California currently pays something on the order of $40 million a year to public hospitals. [00:21:14] Speaker 02: They use QAF money to do it, federal QAF monies, but CMS does not review that program. [00:21:21] Speaker 02: And according to respondents, there is no approval of that program by CMS. [00:21:29] Speaker 02: Therefore, it's not subject to any of the distribution rules that CMS would apply. [00:21:35] Speaker 02: If, for example, the state were to say, we're going to treat out-of-state hospitals, we're going to give them a special exception, just like we do to the public hospitals in California, and we're going to give them, say, $10 million a year allocated based upon the medical days that they provide. [00:21:53] Speaker 02: Well, that would be very similar to what it currently does with respect to public hospitals, and there wouldn't be any problem with that because according to the respondents, those public hospital monies are not subject to any of the CMS rules. [00:22:09] Speaker 02: By the same token, without any QAF fee, the state could [00:22:15] Speaker 02: remedy the problem just by treating them like they do the in-state public hospitals right now. [00:22:20] Speaker 02: But that's only one of many different ways it could be used, but it certainly can be done. [00:22:25] Speaker 05: This may be a different way of asking the same question, but is there a moodness problem here? [00:22:34] Speaker 05: This order before us governs the terms on which [00:22:44] Speaker 05: money was to have been spent between, I forget the years, but the term has expired, presumably the money's been spent. [00:22:57] Speaker 05: Is there some legal obligation for California to repay money that's already been spent or automatically make adjustments in future plans? [00:23:11] Speaker 02: Well, we would hope they would adjust future plans. [00:23:14] Speaker 02: I mean, the only reason we're here we're dealing with this far. [00:23:21] Speaker 02: came into effect, I think, in 2020, 2021. [00:23:25] Speaker 02: And we filed a summary judgment motion on July 4, 2020. [00:23:28] Speaker 02: I mean, shortly after that thing took effect. [00:23:31] Speaker 02: The problem was the trial court took 955 days to rule on the summary judgment motion. [00:23:38] Speaker 05: Maybe that's unfortunate. [00:23:39] Speaker 02: That's why we're here dealing with such a retroactive period that's so far in the past. [00:23:46] Speaker 02: is because we were stymied for two and a half years in the trial court. [00:23:51] Speaker 02: And of course, the state and CMS every two years, they were to enact a new spot. [00:23:55] Speaker 02: But we can't keep up with that because the court schedule doesn't allow us. [00:24:00] Speaker 02: Once we sue under one, by the time we get to the Court of Appeal, there's a new one in effect. [00:24:04] Speaker 02: But in essence, they're all the same anyway. [00:24:07] Speaker 02: They're just changing the dates and the dollar amounts, but they're all structured the same. [00:24:12] Speaker 04: OK. [00:24:14] Speaker 04: We'll hear from the government now. [00:24:15] Speaker 04: We'll give you a little time for rebuttal. [00:24:18] Speaker 02: Thank you. [00:24:28] Speaker 04: It's Newmeister. [00:24:31] Speaker 03: Thank you, Your Honor. [00:24:37] Speaker 03: May I please record McKay Newmeister on behalf of the government. [00:24:40] Speaker 03: The district court correctly upheld CMS' approval of California's Medicaid plan amendments. [00:24:46] Speaker 03: And the plaintiff's equal protection and dormant commerce clause claims fail for the same fundamental reason. [00:24:50] Speaker 03: The plaintiffs aren't being burdened because they don't pay the quality assurance fee. [00:24:55] Speaker 03: This is a California tax levied on the state's own private in-state hospitals to fund a number of different in-state healthcare programs. [00:25:03] Speaker 03: The QAF subsidy at issue here is just one of them. [00:25:07] Speaker 03: By plaintiff's own account, if they were treated the same as in-state private hospitals that have to pay this tax, they would be significantly worse off paying millions but receiving only a small proportion back in subsidies. [00:25:19] Speaker 03: But this makes them no different than many in-state hospitals that have the same result. [00:25:24] Speaker 03: All of this underscores that plaintiffs are not similarly situated to in-state hospitals for equal protection purposes. [00:25:30] Speaker 03: nor are they burdened for purpose of the dormant commerce laws. [00:25:34] Speaker 03: What plaintiffs really want is an equal treatment. [00:25:36] Speaker 03: It's special treatment. [00:25:38] Speaker 03: They don't want to pay any in-state tax, but they want subsidies anyway. [00:25:42] Speaker 03: The Constitution does not require this result. [00:25:45] Speaker 03: Finally, plaintiffs remaining claims fail for two independent reasons. [00:25:49] Speaker 03: First, the regulation at issue doesn't address subsidies at all. [00:25:53] Speaker 03: And second, as CMS has concluded for decades, this regulation is about coverage for services rather than base rates for services. [00:26:01] Speaker 05: Let's talk about that. [00:26:03] Speaker 05: Right. [00:26:04] Speaker 05: The regulation seems to be so that Shrina Boston focused on A, which is the statutory authority. [00:26:14] Speaker 05: I want to focus on B, which is the substantive obligation. [00:26:19] Speaker 05: And at first glance, it seems to be an anti-discrimination provision about Medi-Cal beneficiaries, the class who receive [00:26:34] Speaker 05: treatment in California and the class who receive treatment somewhere else, right? [00:26:40] Speaker 05: And it requires, it says, shall pay for services furnished in another state to the same extent that it would pay for the beneficiary who gets treatment in state, right? [00:26:53] Speaker 05: Yes. [00:26:54] Speaker 05: All right, so the prepositional phrase, to the same extent, what does that modify? [00:27:00] Speaker 05: It modifies pay. [00:27:02] Speaker 05: right, shall pay to the same extent. [00:27:07] Speaker 03: We understand that, Your Honor, the importance is to read the phrase as a whole. [00:27:10] Speaker 03: It's to pay for services furnished. [00:27:13] Speaker 03: to the same extent. [00:27:14] Speaker 03: And in this context, read in light of the statute and the restless regulation, pay for services furnished refers to furnishing Medicaid. [00:27:24] Speaker 03: And so to the same extent in this context means that the scope of Medicaid coverage, the specific procedures that are covered by Medicaid for this beneficiary are the same in state and out of state. [00:27:38] Speaker 03: If California has to cover a heart surgery for a patient in state and they're permitted to go out of state under the regulation, heart surgery is also covered for them. [00:27:47] Speaker 05: Do you think you think it's a fair use of language to say beneficiary number one gets the heart transplant in a California hospital, beneficiary number two gets it in the border hospital, [00:28:04] Speaker 05: and the first hospital gets compensated $10,000 and the second one $500. [00:28:13] Speaker 05: You think it's a fair use of the English language to say that those hospitals have been paid for services furnished to the same extent? [00:28:26] Speaker 03: I do your honor and that's reading this regulation in the context of the rest of it. [00:28:30] Speaker 05: Let's start with the regulation. [00:28:31] Speaker 05: I'll let you go to context first, but let's start with text. [00:28:35] Speaker 05: It seems like you're running decidedly uphill just on this text. [00:28:41] Speaker 03: The fundamental thing to keep in mind when reading this text is that there is a separate statutory provision that addresses precisely the situation that your honor posited. [00:28:51] Speaker 03: That's the statutory provision at issue in the Armstrong case. [00:28:55] Speaker 03: That's A30A, which specifically provides that state plans must provide [00:29:01] Speaker 05: I'm sorry, where are you? [00:29:03] Speaker 03: Sorry, I'll give you the full US code citation. [00:29:06] Speaker 03: It's 42 USC 1396 A, A 30 A. [00:29:14] Speaker 03: And as I mentioned, this was a statute that the Supreme Court addressed in the Armstrong case. [00:29:19] Speaker 03: And this provides that state plans must provide for payments that are, quote, sufficient to enlist enough providers so that care and services are available under the plan, at least to the extent that such care and services are available to the general population in the geographic area. [00:29:38] Speaker 03: And this statutory requirement, which is implemented by other regulations in a different part of the CFR, [00:29:43] Speaker 03: is specifically addressed to ensuring that these payments are sufficient so that if a beneficiary is entitled to receive services out of state, those services are being compensated at a level to ensure that they will be available. [00:29:57] Speaker 05: I'll study it in a second, but you're jumping to two levels, right? [00:30:02] Speaker 05: You're jumping from the reg to the statute and you're jumping from [00:30:07] Speaker 05: The directly controlling statutory provision, which is the one I was focused on, which is 16 rather than 30. [00:30:14] Speaker 05: So yes, I'll get to 30, but you have anything else on just the text of the reg. [00:30:20] Speaker 03: So. [00:30:21] Speaker 03: The text of this regulation, and using the entire phrase, pay for services furnished, is talking, that phrase essentially is a synonym for furnishing Medicaid, which is the reading of that regulation, if it's read in light of the governing statutory provision, which talks about furnishing medical assistance under the plan to a beneficiary, and it's confirmed by the other regulatory provisions here. [00:30:47] Speaker 03: As Judge Funervasin was discussing subsection A of the regulation, [00:30:51] Speaker 05: discusses furnishing medicaid subsection c talks about furnishing medical services it's focused on the sort of furnishing of care um to beneficiaries and specifically coverage to beneficiaries so a does um use that phrase and it was statutory authority which is 16 yes right which says furnishing medical assistance right but that's a defined term [00:31:17] Speaker 05: the statutory definition of medical assistance is it's one of two things it's either providing the services directly right California can run the state hospital to do that which is not an issue here or payment of part or all of the cost of the care and we're right back to payment well [00:31:41] Speaker 03: We're back to furnishing Medicaid. [00:31:44] Speaker 03: So to the extent that the statute permits of those two things, subsection A says that this regulation. [00:31:52] Speaker 05: We're back to furnishing medical assistance, the furnishing of medical assistance. [00:31:58] Speaker 03: Yes, Your Honor. [00:31:59] Speaker 05: Medical assistance is the defined term. [00:32:01] Speaker 03: Correct, Your Honor. [00:32:02] Speaker 03: And so the statute has that. [00:32:03] Speaker 03: And then the regulation opens with subsection A, which says the regulation is going to be implementing that statute and is implementing it [00:32:11] Speaker 03: with these requirements with respect to furnishing Medicaid, which is synonymous with furnishing insurance coverage for these beneficiaries. [00:32:22] Speaker 03: And then subsection B effectuates that by ensuring that when these beneficiaries travel out of state, if they meet certain conditions, they can receive that Medicaid coverage to the extent they receive it in state. [00:32:35] Speaker 03: And as I mentioned, this is consistent with a reading of the statutory text. [00:32:40] Speaker 03: It's confirmed by the surrounding subsections of this regulation. [00:32:46] Speaker 03: It's confirmed by the rest of the Medicaid statute, as I mentioned, A30A, which is a specific requirement governing payments based on geographic location. [00:32:59] Speaker 03: A30A is implemented by different regulations, which are found in part [00:33:05] Speaker 03: Part 447 of the CFR, Part 447 is titled, Payments for Services. [00:33:11] Speaker 03: The regulation we have here is, yes, sir. [00:33:13] Speaker 04: Can I ask the question this way? [00:33:14] Speaker 04: I don't want to interrupt the line of question, but. [00:33:16] Speaker 04: No, I just, well, give me a minute to work through 30. [00:33:19] Speaker 04: So I'll let you go for. [00:33:21] Speaker 04: Yeah, I'm not at 30 yet. [00:33:22] Speaker 04: So just on this, the regulation and the main statute 16. [00:33:28] Speaker 04: If I asked whether the QAF subsidy, which does involve Medicaid money, [00:33:35] Speaker 03: Right? [00:33:36] Speaker 04: Yes, Your Honor. [00:33:37] Speaker 04: So if I asked whether that Medicaid money is being paid to a provider for phishing services to Medi-Cal recipients, I would think, yeah, maybe so. [00:33:48] Speaker 04: Because the way that Medicaid money is allocated to a provider is we figure out how much did that provider serve Medi-Cal patients. [00:33:59] Speaker 04: We count patient days. [00:34:00] Speaker 04: And we even do it by services. [00:34:03] Speaker 04: then that determines the level of the QAF payment to a provider. [00:34:07] Speaker 04: So it does start to sound like it's a payment of Medicaid money to a provider for the furnishing of services to MediCal. [00:34:14] Speaker 04: It sounds like that. [00:34:18] Speaker 04: So I think as far as that goes, I can understand the challenger's argument. [00:34:22] Speaker 04: And under B, it does talk about payment for services furnished. [00:34:28] Speaker 04: And if you talk about payment for services furnished, [00:34:31] Speaker 04: it can be understood in a way that would encompass the QAF subsidy. [00:34:37] Speaker 04: What does the work in my mind is A's reference to furnishing Medicaid to state residents, because that makes it sound like it's only talking about the insurance component, where it's actually providing money to a patient because of a particular procedure they got. [00:34:55] Speaker 04: And instead of just cutting the check to the patient, [00:34:58] Speaker 04: They just give the money directly to the provider. [00:35:00] Speaker 04: But it's as if you gave the money to the patient. [00:35:03] Speaker 04: And then the patient turned around and gave it to the provider. [00:35:05] Speaker 04: That's the way I'm thinking of it. [00:35:06] Speaker 04: I was causing a lot of confusion earlier. [00:35:08] Speaker 04: But am I understanding your position correctly, or am I off? [00:35:12] Speaker 03: So I think that is one way to think about it, Your Honor. [00:35:14] Speaker 03: But I sort of want to situate where we are in our arguments. [00:35:18] Speaker 03: It's been CMS's longstanding position that this regulation does not create any kind of equal payment requirement [00:35:25] Speaker 03: It's just about coverage. [00:35:28] Speaker 03: But the court doesn't have to reach that question if it says that, regardless, whatever this actually means, it does not apply to these QAF subsidies. [00:35:38] Speaker 03: So the court doesn't have to definitively resolve whether there is a payment requirement. [00:35:43] Speaker 03: And so in that alternative, where the court is narrowly saying QAF subsidies are not covered here, then I think what Your Honor is discussing with the meaning of furnishing payment [00:35:53] Speaker 03: uh and the fact that it's not really compensating covering insurance specifically by giving money to a beneficiary or giving it to the beneficiary by paying on their behalf then i think that's another way to think about it yes another way to distinguish [00:36:13] Speaker 03: the scope of B. What we explained in our brief is that- Did you raise the theory that Judge Srinivasan has proposed? [00:36:22] Speaker 05: It seems to me different from the position you wrote in your brief. [00:36:28] Speaker 03: I think they're compatible, Your Honor. [00:36:30] Speaker 05: What we explained in our brief is that to the extent this- Your position was payment for services under B just means coverage. [00:36:39] Speaker 03: That is the agency's longstanding position, Your Honor. [00:36:42] Speaker 03: But we also explain that the court doesn't need to reach that because B does not cover subsidies in any event. [00:36:49] Speaker 04: I got this from your brief because I may have misunderstood your brief. [00:36:52] Speaker 04: But because you actually quoted A. Yes. [00:36:55] Speaker 03: And so we. [00:36:56] Speaker 04: That's where I even thought of this, is that you quoted A as the part of A that says furnishing Medicaid to state residents. [00:37:03] Speaker 03: Yeah. [00:37:03] Speaker 03: So I think this is compatible with what we explained in the brief, Your Honor. [00:37:08] Speaker 04: How is it different? [00:37:09] Speaker 04: So I'm not sure that the argument in the brief, the main argument in the brief, the CMS is long standing position. [00:37:16] Speaker 04: Why, if it's, how did you describe what this regulation is about? [00:37:21] Speaker 03: The regulation is about the scope of coverage, Medicaid coverage for individuals when they go out of state. [00:37:29] Speaker 00: So- And how this to you means a service. [00:37:32] Speaker 03: This scope of insurance coverage that the state is, or rather, the scope of procedures for which the state has an obligation to cover them. [00:37:43] Speaker 03: Yes, the scope of, yes. [00:37:44] Speaker 00: But I mean the procedure, like whatever is going to happen to the patient. [00:37:47] Speaker 00: Yes, Your Honor, the scope of services. [00:37:48] Speaker 00: You don't mean coverage like you walk in the dentist's office, are you going to cover my tooth extraction? [00:37:54] Speaker 00: You do mean the procedure, but the layperson might mean is the insurance going to pay for it? [00:38:01] Speaker 03: We mean that we've been covered in the sense that California has to pay for these services, but it's about the scope of services they have to pay for and not the level of payment that's required. [00:38:16] Speaker 03: And so back to Judge Finnevast's question, our reading of B excludes subsidies, because if anything, B is referring to payment for [00:38:28] Speaker 03: specific services furnished to a particular beneficiary under certain conditions. [00:38:34] Speaker 03: And so that's consistent with furnishing Medicaid. [00:38:36] Speaker 03: It's the concept of. [00:38:37] Speaker 04: It is, but why isn't it also consistent with the QAF subsidy payments? [00:38:41] Speaker 04: Because at some level, they go to providing specific services to Medi-Cal recipients. [00:38:49] Speaker 04: And is the part of the joint appendix that the opposing council referred to not a way that you calculate the level of the QAF subsidy? [00:38:57] Speaker 03: It is your honor, but we read that the state plan very differently. [00:39:00] Speaker 03: B is about specific services. [00:39:03] Speaker 03: QAF subsidies are not tied to specific services. [00:39:07] Speaker 03: And so if you look at the state Medicaid plan, that's JA 540 to 547, it contains several features that underscore that it is not tied to compensating providers for the cost of specific services. [00:39:21] Speaker 03: In particular, [00:39:25] Speaker 04: That's true. [00:39:26] Speaker 04: It's not, it doesn't say because you perform service X to patient Y on date Z. Here's the amount we're going to give you, if that's what you mean. [00:39:36] Speaker 04: Yes, Your Honor. [00:39:37] Speaker 04: I get that, but I don't know why you have to, why B has to be read that narrowly because it's still taking into account the type of service that's being provided, the number of days for which [00:39:47] Speaker 04: Medi-Cal recipients received payments. [00:39:50] Speaker 04: So it's pegged to the level of services and type of service to Medi-Cal recipients. [00:39:56] Speaker 03: But it's a very loose correlation, Your Honor, because it isn't really trying to compensate for specific services. [00:40:02] Speaker 03: It's trying to compensate hospitals to the extent they're valuable to this program. [00:40:07] Speaker 03: And so some of the important features of the plan to understand this disconnect is that many of these subsidies are based on Medi-Cal days from past years, not this year. [00:40:18] Speaker 03: California has already furnished Medicaid for those things. [00:40:20] Speaker 03: This is just using those numbers to estimate a hospital's continuing participation in the program. [00:40:26] Speaker 03: The plan also specifies that if the hospital does not furnish any Medicaid within a quarter, it doesn't get any of that quarter. [00:40:35] Speaker 03: The hospital did provide the services in 2016, but it's not going to get paid for them because it's not providing services at present. [00:40:43] Speaker 03: Another example is the fact that these payments are made on a lump sum basis. [00:40:47] Speaker 03: I believe it's quarterly. [00:40:48] Speaker 03: They're not done as increases to current reimbursement. [00:40:51] Speaker 03: That's explained on the first page of the plan. [00:40:53] Speaker 04: You could do them on a lump sum basis, and they could be a tabulation of all a bunch of individual services. [00:40:57] Speaker 04: And then that argument, that's just an accounting question, right? [00:41:01] Speaker 03: It could, Your Honor, but this just underscores that in every way this plan is structured so as not to be compensating for specific services. [00:41:08] Speaker 04: So I guess what I'm not getting is when you say it's not compensating for specific services, what is compensating for specific services? [00:41:16] Speaker 04: In other words, what you think this covers, isn't that coterminous with the understanding that I'm getting from A? [00:41:24] Speaker 04: What's the difference? [00:41:25] Speaker 04: Because it seems like when you're saying this is only about compensating for specific services, [00:41:29] Speaker 04: What it means is it's the payments that would otherwise go to the patient for a specific service, but they're going to the provider for the specific service. [00:41:37] Speaker 03: I'm not disagreeing with you, Your Honor. [00:41:38] Speaker 03: I think that in thinking about this argument, I wasn't bringing A to bear on my reading of B. But I think this is correct. [00:41:48] Speaker 03: A way to think about it is that to the extent B is talking about anything, it's talking about specific services where Medicaid is furnished to a beneficiary. [00:41:56] Speaker 03: But that's not what the QAF subsidies [00:41:58] Speaker 04: So then why are the two arguments different? [00:42:00] Speaker 04: They seem like they're the same argument. [00:42:02] Speaker 04: You said you could base it on the argument we've been focusing on our brief, which is CMS's longstanding understanding. [00:42:09] Speaker 04: Or you could base it on A, which talks about the furnishing of Medicaid to state residents. [00:42:14] Speaker 04: Sounds to me like they just actually ultimately get to the same place. [00:42:17] Speaker 04: But maybe there's a difference there. [00:42:18] Speaker 03: I think there's an important difference, Your Honor, because even if you read B to be about specific payments for services, [00:42:29] Speaker 03: Well, sorry, just to step back. [00:42:34] Speaker 03: I don't necessarily think that they are different. [00:42:38] Speaker 03: However, we want to be very clear that CMS reads B as not creating a payment requirement for either base rates or the supplemental rates. [00:42:47] Speaker 03: So I think that's the difference. [00:42:48] Speaker 03: We read B as being about coverage and focused on the rights and entitlements of the beneficiary, not creating any kind of equal payment requirement. [00:42:59] Speaker 03: even for base rates. [00:43:00] Speaker 03: So I think that's the difference that CMS is long standing position. [00:43:06] Speaker 03: That this is not this is coverage. [00:43:07] Speaker 03: This is not a payment requirement at all. [00:43:10] Speaker 04: But the court doesn't must provide that the state will pay for services furnished to the same extent that it would pay for services furnished. [00:43:19] Speaker 04: That seems like that's equalizing pay. [00:43:23] Speaker 03: And CMS has previously explained that that's not what it was doing in this regulation. [00:43:28] Speaker 03: There's the Mary Hitchcock case, which we cite in our briefs, where the agency laid out its position in that case. [00:43:34] Speaker 03: There's also an amicus brief that the government filed back in 1996, shortly after this regulation was enacted. [00:43:40] Speaker 03: That's cited in the Northern District of California Assante case. [00:43:43] Speaker 03: from 2015, which is cited, I believe, in plaintiff's briefing, which cites to the government's amicus brief from 1996, demonstrating that this is the CMS's long-standing interpretation of this regulation. [00:43:58] Speaker 03: But ultimately, the court doesn't need to [00:44:01] Speaker 03: to say definitively whether this is any kind of payment requirement because this does not cover the QAF subsidies and base payments are not at issue in this case. [00:44:12] Speaker 04: Then I guess I get back to Judge Katz's question, which is if it's just about whether you're getting to the same services, regardless of the level of pay, then the level of pay could be dramatically different, but the government's position is that still consistent with B. [00:44:28] Speaker 03: Yes, Your Honor, because B is not about the level of pay. [00:44:31] Speaker 03: That's not what this regulation is protecting. [00:44:34] Speaker 03: That scenario is being addressed in the separate statutory provision that I mentioned. [00:44:39] Speaker 03: That's 1936 AA30A, which is enforced by CMS. [00:44:46] Speaker 03: CMS considers it, for instance, considered it in approving this plan here, whether or not that requirement was satisfied and found that it was. [00:44:55] Speaker 03: And that is the statutory requirement [00:44:58] Speaker 03: with its own implementing regulations that are designed to prevent that scenario from happening. [00:45:02] Speaker 05: Well, let's talk about 30 then, because we've been talking about what I've called anti-discrimination provision, and you say it's about coverage. [00:45:15] Speaker 05: We're questioning whether it's about payment. [00:45:17] Speaker 05: 30 seems different. [00:45:19] Speaker 05: 30 seems like it's just a minimum floor requirement. [00:45:23] Speaker 05: It says that the plan has to provide [00:45:27] Speaker 05: sufficient payment as may be necessary to ensure a bunch of things like just adequate quality of care for Medicaid patients doesn't didn't really address the question of in state versus out of state. [00:45:45] Speaker 03: Well, Your Honor, CMS understands it to apply to payments both in state and out of state. [00:45:51] Speaker 03: But it's not creating necessarily parity requirement. [00:45:54] Speaker 03: Right. [00:45:54] Speaker 05: But it just doesn't speak to the question of whether coverage and or payment needs to be the same when you have similarly situated Medicare beneficiaries and one gets treatment in state and one gets treatment out of state. [00:46:13] Speaker 03: Yes, because the Medicaid statute and its implementing regulations do not contain that kind of parity requirement. [00:46:21] Speaker 05: But I mean, 16 speaks to the equal treatment requirement, whatever it is, pretty directly. [00:46:29] Speaker 05: And 30 just doesn't speak to it. [00:46:31] Speaker 05: So I don't know why we would look to 30 to substantially change our reading of 16. [00:46:38] Speaker 03: Because, Your Honor, 30 is specifically about payments and the level that payments have to be set at in order to be adequate under the statute. [00:46:48] Speaker 03: And 30 is implemented by various regulations that can be found, as I mentioned earlier, in part 447 of the CFR, which is titled Payments for Services. [00:47:00] Speaker 03: There are specific regulations there which cite A30A, explain that they're implementing A30A. [00:47:07] Speaker 03: If CMS were to create a parity in payment requirement, it would have created it in those regulations that specifically address payment. [00:47:16] Speaker 03: The regulation we're talking about here is found in the general administrative requirements section, and it's sandwiched between two other regulatory sections that are specifically about the entitlements of providers, about the fact that plans have to give providers [00:47:33] Speaker 03: have to provide transportation to obtain services, that providers have a freedom of choice, a right to freedom of choice in selecting their providers. [00:47:42] Speaker 03: Those are the immediately surrounding provisions of 431.52, which just demonstrates further that in context, this is not a payment provision. [00:47:52] Speaker 03: This is a coverage provision. [00:47:54] Speaker 04: So I guess what you're saying is the way CMS understands the regulations that's directly at issue, [00:48:01] Speaker 04: is that even though it's got the word payment all over it, what it means is just any payment. [00:48:08] Speaker 04: What it's really about is you got to pay for services. [00:48:12] Speaker 04: Services is the key. [00:48:14] Speaker 04: Any payment for services, as long as it's for the same services, is enough, even if it's one cent. [00:48:20] Speaker 03: It doesn't set a minimum, Your Honor. [00:48:22] Speaker 03: Yes, there has to be. [00:48:23] Speaker 04: In other words, as long as you're covering the same services, [00:48:27] Speaker 04: You could pay $0.01 as opposed to $10,000, and the regulation would be satisfiable. [00:48:34] Speaker 03: Yes. [00:48:34] Speaker 04: Take the payment to the same extent. [00:48:36] Speaker 03: There's nothing that in 430.51 that speaks to the level of payment. [00:48:42] Speaker 03: It's the separate statutory provision, A30A, and all of its implementing regulations that do the work in ensuring that the payment an individual beneficiary can obtain out of state rather, sorry, that the services they can obtain out of state [00:48:55] Speaker 03: are going to be available because the level of payment is going to be sufficient to ensure that they're available. [00:49:00] Speaker 03: So that work is done by A30A and it's implementing regulations. [00:49:04] Speaker 05: You just tried to distinguish the supplemental payment as being less tethered to provision or payment for individual services than the base payment. [00:49:21] Speaker 05: But just looking at the [00:49:23] Speaker 05: state statute that authorizes this program. [00:49:28] Speaker 05: If I have it right, it says that the purpose of the program is to, and I'm paraphrasing here, but to improve funding for hospitals in serving the state's Medi-Cal beneficiaries. [00:49:43] Speaker 05: Sounds like it's about payment issues as to Medicaid. [00:49:49] Speaker 03: It's about compensating in-state hospitals [00:49:53] Speaker 03: extra to help ensure that they continue operating and are available to serve beneficiaries and make sure that vulnerable populations within the state will continue to have access to care. [00:50:06] Speaker 03: So in a broad sense, it is. [00:50:08] Speaker 03: They can only obtain these payments if they are continuing to serve Medicaid beneficiaries. [00:50:14] Speaker 03: But they're not payments tied to specific services, which are the kinds of payments that [00:50:22] Speaker 03: subsection B, the only kinds of payments subsection B could be read to apply to. [00:50:26] Speaker 05: I mean, they sort of are, and they sort of aren't. [00:50:31] Speaker 05: I mean, the formula for the supplemental payment is mind-numbingly complicated. [00:50:39] Speaker 05: It has lots of variables, but one of them is volume of services provided. [00:50:47] Speaker 05: One might say the same thing about the DRG calculation, which is the basis for the base payment, as I understand it. [00:50:56] Speaker 05: And as well as I do, if you read the DRG statute, you'll get the same kind of, God knows, 50 input variables, one of which is volume of services. [00:51:09] Speaker 03: Yes, but I think you've hit on something important, though. [00:51:11] Speaker 03: The state could have tied the QAF subsidies to the DRG, which would have at least tied it in the most of the same degree. [00:51:21] Speaker 03: It could have, yes. [00:51:21] Speaker 03: The DRG is supposed to approximate the level of services that are being provided and compensate in relation to that estimated level. [00:51:30] Speaker 03: The state could have tried to tie the QAF to that so that it would be more directly compensating [00:51:35] Speaker 03: or the level of services as as understood but they didn't do that they tied it to these general categories of different kinds of days without respect to the particular drg of the patient the services that were being provided on that day tethering is less direct but it seems to me it's a question of degree [00:51:56] Speaker 03: And, Your Honor, even if that's the case, there are still the other elements of this program, which demonstrate that the state is not tying it to specific payments. [00:52:05] Speaker 03: It's based on previous payment years. [00:52:07] Speaker 03: If a provider stops serving Medicaid beneficiaries, it won't get these payments, even if it did treat in previous years. [00:52:14] Speaker 03: One of these categories, I believe, I'm sorry, excuse me. [00:52:20] Speaker 03: Furthermore, they pay on this lump sum basis. [00:52:22] Speaker 03: They're not doing it as increases on particular payments. [00:52:25] Speaker 03: And so overall, it supports the state's explanation of the goals of this program, which are to support these hospitals and continue ensuring access to care. [00:52:35] Speaker 03: They're not attempting to just specifically compensate for the cost of particular services. [00:52:42] Speaker 04: If we thought that, or maybe if I thought, that A was doing work in understanding the scope of B, et cetera, then is it right to say that what this regulation is supposed to be getting at, even if I don't talk about payment levels, is the thing that happens when a person goes into a hospital to get treated [00:53:09] Speaker 04: And instead of the check going to them and then they pay the provider, the check goes directly to the provider. [00:53:17] Speaker 04: That's the corpus of stuff that's being talked about. [00:53:19] Speaker 04: Now, whether you want to say that for that corpus of stuff, the level of payment has to be the same. [00:53:25] Speaker 04: I mean, in theory, you could bracket that and say the regulation either does or doesn't speak to that. [00:53:31] Speaker 04: But when you say that's the corpus of stuff that the regulation encompasses, that isn't what QAF is about. [00:53:38] Speaker 03: Yes. [00:53:38] Speaker 03: And I think the court can resolve this issue by saying only that, that getting this regulation, it's just about what Your Honor has just explained. [00:53:47] Speaker 03: The QAF is something separate. [00:53:49] Speaker 03: The court doesn't ultimately need to resolve one way or another what B is doing, whether it's a payment requirement or a coverage requirement. [00:53:57] Speaker 03: It's beside the point because this is only about furnishing Medicaid, those specific payments for services to the providers. [00:54:05] Speaker 03: And those are not at issue in this case. [00:54:07] Speaker 04: So they're the kind of payments to providers that are another way of paying the patient. [00:54:14] Speaker 03: Yes, that it's essentially what we refer to as the base rates. [00:54:18] Speaker 03: It's essentially the base rate, which is intended to reimburse for specific services, that at the very least, the regulation is only talking about that. [00:54:26] Speaker 03: It is not talking about any subsidies and supplemental payments, which is what we're dealing with with the QAF. [00:54:32] Speaker 04: And is that why A, is that your understanding of why A speaks in terms of furnishing Medicaid to state residents? [00:54:40] Speaker 04: Because it's not talking about furnishing Medicaid to providers. [00:54:44] Speaker 04: It's talking about furnishing Medicaid to state residents. [00:54:47] Speaker 03: Yes, your honor. [00:54:48] Speaker 03: And that's consistent with the statute. [00:54:49] Speaker 03: A-16 also refers to furnishing medical assistance under the plan to beneficiaries. [00:54:55] Speaker 03: So we think that that is consistent with how the statute is framing this requirement. [00:55:05] Speaker 05: Two final questions. [00:55:09] Speaker 05: Is there any mootness or redressability issue in our hypothetically setting aside an expired plan? [00:55:19] Speaker 03: We have it. [00:55:20] Speaker 03: We don't think there is, Your Honor. [00:55:22] Speaker 03: In addition to vacatur and district court plaintiffs also mentioned other forms of relief. [00:55:28] Speaker 03: And as my friend on the other side noted, these plans are time limited and they ultimately [00:55:35] Speaker 03: can be replaced with another plan. [00:55:37] Speaker 03: My understanding is that there have been two subsequent plans approved since the programs at issue in this litigation. [00:55:43] Speaker 03: We don't see any problem with that. [00:55:44] Speaker 05: Last question on scope of relief. [00:55:47] Speaker 05: Just assume for the sake of argument, we accept your friend's challenge on the statute. [00:55:59] Speaker 05: Conventional view would be we set aside the agency action on review, which is approval of this plan. [00:56:08] Speaker 05: Sure, you know, there's a lot of question on whether that's the right way of thinking about judicial review and one other option might be weak. [00:56:19] Speaker 05: provide as applied relief to the border hospitals who were the parties before us. [00:56:26] Speaker 05: Does the government have a preference or a view on which remedial approach would be better? [00:56:34] Speaker 03: It's not something that we've considered, Your Honor. [00:56:37] Speaker 03: I'm not prepared to take a position on that. [00:56:40] Speaker 04: OK. [00:56:40] Speaker 04: Do you have an understanding that there's a challenge here that the regulation is inconsistent with the statute? [00:56:46] Speaker 03: No, Your Honor. [00:56:47] Speaker 03: I don't believe that that's [00:56:48] Speaker 03: the challenge. [00:56:51] Speaker 00: Ultimately, when you're talking about the goals of the plan, is it to have this access to care or to have this reimbursement to the in-state hospitals? [00:57:00] Speaker 00: And the reason I asked for that is because the tenants are suggesting that they're providing the care for your residents as long as they come within those particular categories. [00:57:12] Speaker 00: And so why shouldn't they have the opportunity for these subsidies? [00:57:15] Speaker 03: Well, Your Honor, this goes to the policy judgments of the state of California in structuring its program. [00:57:24] Speaker 03: As an initial matter, all these hospitals are receiving compensation in the form of base rates for the services that they are providing. [00:57:33] Speaker 03: And California had the option of [00:57:37] Speaker 03: and introducing an additional supplemental payment under Medicaid. [00:57:42] Speaker 03: And it determined that it was going to structure this program in a way that would support the hospitals that were most crucial to providing Medicaid access to in-state beneficiaries. [00:57:53] Speaker 03: And the vast majority of in-state beneficiaries receive services from hospitals within the state of California. [00:57:59] Speaker 03: So the state structured its plan by limiting these subsidies to in-state hospitals in order to serve [00:58:07] Speaker 03: those goals. [00:58:08] Speaker 03: And again, that's a line drawing question and exercise of the state's policy judgment. [00:58:14] Speaker 03: That rational basis review simply isn't positioned to second guess that. [00:58:20] Speaker 03: This is eminently reasonable for the state to structure the program this way to meet these goals. [00:58:27] Speaker 04: Thank you, counsel. [00:58:28] Speaker 03: Thank you, Your Honor. [00:58:29] Speaker 03: We ask this court to affirm. [00:58:31] Speaker 04: Mr. Johnson, we'll give you three minutes for rebuttal. [00:58:34] Speaker 02: I can do that pretty quickly, Your Honor. [00:58:37] Speaker 02: First, if you look again at JA 544, it's very, the respondents council indicated that these payments were not based upon patient days or they were based upon other years or whatever. [00:58:53] Speaker 02: But it's very clear that the payment changes every year. [00:58:57] Speaker 02: And so there's a connection between the amount of money a hospital is receiving and the amount of Medi-Cal days it's providing in a particular category in each year. [00:59:08] Speaker 02: There is a clear connection between the cloth payment and the service provided, number one. [00:59:14] Speaker 02: Number two, the court mentioned 30A. [00:59:18] Speaker 02: 30A is unenforceable. [00:59:21] Speaker 02: The decision that held that is Armstrong v. Exceptional Child, 575 U.S. [00:59:26] Speaker 02: 320, which held there's no private right to enforce Section 30A. [00:59:32] Speaker 02: It's entirely irrelevant for purposes of our discussion. [00:59:35] Speaker 05: They're not trying to enforce it. [00:59:37] Speaker 05: They're just citing it as an interpretive consideration. [00:59:41] Speaker 05: when we look at the 16 and it's implementing regulation. [00:59:47] Speaker 02: Well, it has nothing to do with in-state versus out-of-state hospitals. [00:59:51] Speaker 02: It has to do with the minimum payment rate that the Supreme Court said there's no private right of action to enforce. [00:59:59] Speaker 02: The third point, and I agree with Judge Kastas here, is that if you look at the goals of the CLAAF program, it clearly relates to payment for services. [01:00:09] Speaker 02: It talks about improving funding, improving hospital reimbursement, increasing federal financial participation. [01:00:16] Speaker 02: clearly the cost program is designed to provide additional payment for services. [01:00:23] Speaker 02: There's no way that a hospital ever received all of its costs back, but at least it's something. [01:00:29] Speaker 02: And one point I'd like to stress here, which is that we're not even talking about parity, because if you look at Children's Hospital Vivanta, again, Justice Klein's decision, [01:00:40] Speaker 02: We did an extensive analysis in that trial, and we determined that out-of-state hospitals treat patients who are two to three times sicker than those treated by California hospitals. [01:00:52] Speaker 02: So what has California done? [01:00:54] Speaker 02: It said, even though these patients are two to three times sicker, we're going to entirely exclude you from receiving any share of the $4 billion in exclusively federal money which we receive. [01:01:07] Speaker 02: And beyond that, it said, oh, by the way, you also can't sue us because here, look at this statute which says you can't sue us. [01:01:14] Speaker 02: Oh, and by the way, we have a program for you here. [01:01:17] Speaker 02: We'll treat you just like in-state hospitals, but we all know that will result in losses of hundreds of millions of dollars. [01:01:24] Speaker 02: The state of California has done this for the last 25 years. [01:01:28] Speaker 02: And you can look back at all the cases. [01:01:31] Speaker 02: They all affirm that particular point. [01:01:33] Speaker 02: This court should overturn what the state has done [01:01:37] Speaker 02: and overturn CMS's approval for that particular reason. [01:01:42] Speaker 04: Okay. [01:01:43] Speaker 04: Thank you, counsel. [01:01:44] Speaker 04: Thank you to both counsel. [01:01:45] Speaker 04: We'll take this case under their submission.