Case: Independent Living Center of Southern California v. Maxwell-Jolly

In 2008 and 2009, the California Legislature passed three statutes modifying the State's Medicaid plan, reducing payments made to health providers. Under Title XIX of the Social Security Act, 42 U.S.C. §§ 1396 et seq. (The Medicaid Act), such modifications must be approved by the federal Department of Health and Human Services Centers for Medicare and Medicaid Services (CMS) prior to being put in place. In September and December 2008, California submitted amendment proposals to CMS that incorporated most of the rate reductions the Legislature had already included in the three statutes. This suit, and several others seeking injunctions to prevent the rate reductions, was filed before CMS had completed its review of the amendments.

The Independent Living Center of Southern California (a disability advocacy group), two branches of the Gray Panthers (a healthcare and anti-ageism advocacy organization), individual Medicaid benefit recipients, and several pharmacies and pharmacists (collectively, "the petitioners") filed this suit as a petition for writ of mandamus to compel the State of California not to implement the reductions to its Medicaid program ("Medi-Cal"). The providers argued that if the cutbacks were approved, the state would not provide the level of care required under Medicaid. The case was originally filed in the Los Angeles County Superior Court on April 22, 2008, but was removed to federal U.S. District Court for the Central District of California on May 19, 2008. The defendants had requested the removal to federal court; the removal was granted because the case involved questions of federal law.

According to the plaintiffs' Petition for Mandamus, prior to the rate reduction, California Medicaid rates for physicians were 61% or less of what Medicare paid for the same services. The plaintiffs claimed that "as a result of the low Medi-Cal rates, only 55% of primary care physicians and less than 50% of specialists [were] willing to participate in the Medi-Cal program." They argued that a ten percent reduction in the fee-for-service rate would reduce physician participation to even lower levels. The plaintiffs alleged that the rate reductions violated the Medicaid Act, because they had not been approved by CMS and because the State had failed to study the potential effects of the rate reductions on the quality of and level of access to care available to Medi-Cal recipients. Plaintiffs argued that California had not shown that, were the rate reductions to go into effect, the State would be able to enlist enough providers as to make Medi-Cal services sufficiently available to benefit recipients, as required by 42 U. S. C. §1396a(a)(30)(A). The plaintiffs alleged that because these rate reductions violated the Medicaid Act, they were therefore preempted by federal law due to the Supremacy Clause of the U.S. Constitution. The plaintiffs sought declaratory and injunctive relief, asking the court to find that the rate reduction was a violation of federal law and to prevent its enforcement. They also maintained that the rate reduction was prohibited by the Americans with Disabilities Act (“ADA”).

On May 30, 2008, the petitioners filed a motion for a preliminary injunction that would prevent the rate reductions from coming into effect until further review by the District Court. On June 25th, the Court (Judge Christina A. Snyder) denied this motion, finding that the petitioners’ case had no likelihood of succeeding because the Medicaid Act did not expressly create an individual right that could be the basis of a cause of action and therefore the petitioners probably did not have standing to bring their suit. Independent Living Center of Southern California v. Shewry, 2008 WL 4298223 (C.D. Cal. 2008). The petitioners appealed this decision to the Ninth Circuit Court of Appeals, which vacated the lower court's decision on July 11, 2008, finding that the Supremacy Clause could serve as the basis for their action. Independent Living Center of Southern California v. Shewry, 543 F.3d 1047 (9th Cir. 2008).

In light of the Ninth Circuit's order, on August 18, 2008, District Judge Snyder granted in part and denied in part the petitioners' motion for a preliminary injunction, finding that their Supremacy Clause case was likely to succeed on its merits. The Court therefore issued a preliminary injunction against the implementation of the Medi-Cal fee-for-service rate reductions for physicians, dentists, pharmacies, adult day health care centers, clinics, and health systems for services provided on or after July 1, 2008. Independent Living Center of Southern California v. Shewry, 2008 WL 3891211 (C.D. Cal. 2008). On August 27, 2008, the Court issued an order modifying this injunction, so that it did not retroactively apply to the period between July 1 and August 18, 2008. On November 17, 2008, Judge Snyder granted the petitioners' motion for a preliminary injunction against the rate reductions for non-emergency medical transportation services and for in-home health services. On July 9, 2009, the Ninth Circuit (Judge Milan D. Smith Jr.) affirmed the ruling establishing the injunction, and reversed the modification. Independent Living Center of Southern California v. Maxwell-Jolly, 572 F.3d 644 (9th Cir. 2009).

Back in the district court, on March 26, 2010, Judge Snyder granted a motion to allow several outside groups to join the case as intervenor plaintiffs, who raised issues similar to those of the original petitioners. Independent Living Center of Southern California v. Shewry, 2010 WL 1235762 (C.D. Cal. 2010).

On February 10, 2010, the defendants sought review in the United States Supreme Court of the decision of the Ninth Circuit holding that the Supremacy Clause of the U.S. Constitution could serve as a basis for a cause of action in this case. The Supreme Court granted certiorari review on January 18, 2011, consolidating this case with four others that raised the same issue, 131 S.Ct. 992 (2011). These four cases were California Pharmacists Association v. Maxwell-Jolly, Managed Pharmacy Care v. Maxwell-Jolly, Dominguez v. Schwarzenegger, and Santa Rosa Memorial Hospital v. Shewry (Docket #: 3:08-cv-05173-SC). On June 1, 2011, Judge Snyder issued an order removing this action from the list of active District Court cases pending the decision of the Supreme Court.

Oral argument before the Supreme Court took place on October 3, 2011. After oral argument, while the cases were pending in the Supreme Court, CMS approved California's amendments to its Medicaid plan. In light of this, on February 22, 2012, the Supreme Court declined to issue a ruling on whether the Supremacy Clause could serve as a basis for a private suit to enforce Title XIX against a state. Instead, the Supreme Court vacated the Ninth Circuit Court's decision and remanded the case to the Ninth Circuit for reconsideration, with instructions to take into account CMS's approval of the amendments. Douglas v. Independent Living Center of Southern California, 132 S. Ct. 1204 (2012).

On April 12, 2012, the petitioners moved to have the stay lifted in the District Court. The Court denied this motion because issues that would be determinative of the outcome of the case were still awaiting adjudication at the Ninth Circuit Court. Independent Living Center of Southern California v. Douglas, 2012 WL 1622346 (C.D. Cal. 2012). Following the Supreme Court’s ruling, the parties entered into mediation efforts. On May 22, 2012, the parties' unanimous joint motion to enter mediation, and to stay the supplemental briefing schedule during the pendancy of mediation was granted by the Ninth Circuit.

The District Court directed the parties to submit a joint status report, which was filed on July 23, 2013. On November 5, 2013, the District Court reviewed the parties' positions from the joint status report, as well as issues presented in a certiorari petition pending in the United States Supreme Court in a totally different case (brought by other parties against the same defendant, involving some but not all the same issues)(Managed Pharmacy Care v. Sebelius, S.Ct. Docket 13-253). In this and another 19 similar cases, the District Court stayed or continued an existing stay of the proceedings.

The parties then settled, and filed a joint request for dismissal of several appeals in the Ninth Circuit; this was granted on May 28, 2014. Back in the district court, on August 14, 2014 the parties filed a Joint Motion for Approval of Settlement Agreement; Judge Snyder granted the motion on September 22, 2014.

In the settlement, all parties agreed to dismiss any remaining pending appeals pursuant to the original preliminary injunction. The petitioners also agreed to dismiss the entire case with prejudice. The District Court retained jurisdiction to decide the plaintiffs’ motions for attorneys' fees, and also to determine any of the plaintiffs’ motions to enforce the Agreement up to January 1, 2016. Each side would bear its own costs, outside of any plaintiffs’ attorneys’ fees that the District Court decided to award. Since fee-for-service delivery systems are where health care providers are paid for each service, the preliminary injunction against rate reductions for Medi-Cal cost the defendants money. Due to this, the defendants had filed claims against Medi-Cal providers in order to recoup these funds. In the Settlement Agreement, the defendants agreed to forego these claims outside of a few specified exceptions.

The plaintiffs also agreed to release state and federal entities from liability for claims concerning payment reductions, unless the claims related to the accuracy of reimbursement. In return, the defendants agreed to release the plaintiff from liability for claims of “excess payment”, including payments made while the preliminary injunction was in effect, but where the rate reductions ultimately received federal approval.

After the Settlement Agreement was approved, pursuant to its terms, on April 22, 2015, the petitioners and intervenors filed to dismiss the case and made a motion for attorneys’ fees and costs as the prevailing party. They also brought three other motions for attorneys’ fees and costs the next day. On April 23, 2015, Judge Snyder, considering application, ordered that this case be dismissed with prejudice, and that each party bear its own costs in accordance with the Settlement Agreement. Judge Snyder declined to grant any attorneys' fees.

On July 24 and 28, 2015, the plaintiff and intervenors appealed to the Ninth Circuit this order denying fees. On November 21, 2018, the Ninth Circuit vacated and remanded this case to the district court to determine whether the appellants (plaintiff and intervenors) should recover attorneys’ fees, and, if so, the amount of the award. The court also remanded for a determination of whether appellants can recover any fees from the relief obtained in 2010. Judge Milan Smith Jr., writing for the majority, found that the district court abused its discretion in denying plaintiffs’ motion to set aside funds for attorneys’ fees following the decision permitting retroactive monetary relief from the Medi-Cal reimbursement reduction. On January 14, 2019, the Ninth Circuit Court also denied the plaintiff and intervenors' petition for rehearing en banc.

The case is still ongoing in the district court to determine the payment of attorney's fees. On April 10, 2019 the plaintiffs and the intervenors filed motions for attorney's fees. The defendants opposed these motions. A hearing on the motion for attorney's fees was held on June 24, 2019. On August 6, 2019, the court denied the motion. The court ordered additional briefing on the issue, which was submitted by both parties in August and September 2019. Oral argument was held on January 13, 2020.

On January 24, 2020, Judge Snyder granted the motion for attorney's fees. The court awarded the intervenor's counsel $4,254,713.88, and awarded the plaintiff's counsel $2,731,800. 2020 WL 418947.

The plaintiff's appealed the decision on attorney's fees to the Ninth Circuit (Appeal Docket No. 20-55193 ) on February 21, 2020. The plaintiff-appellants filed their opening briefs on June 30, 2020. The defendant-appelles have not yet filed a brief in opposition. As of July 2020, the Ninth Circuit appeal remains ongoing.