Case: California Association of Health Facilities v. Maxwell-Jolly; Development Services Network v. Maxwell-Jolly

On April 30, 2010, the California Association of Health Facilities filed a lawsuit against the California Department of Health Care Services in the U.S. District Court for the Central District of California under 42 U.S.C. § 1983. On the same day, the Developmental Services Network and the United Cerebral Palsy/Spastic Children's Foundation of Los Angeles and Ventura Counties also filed a lawsuit against the same defendants in the same court. The plaintiffs in both suits were represented by private counsel. In the first case, the plaintiffs represented intermediate care facilities for the developmentally disabled as well as freestanding pediatric subacute care facilities. The plaintiffs in the second case also represented intermediate care facilities for the developmentally disabled.

The plaintiffs in both cases sought declaratory and injunctive relief to prevent California from implementing aspects of legislation passed by the State Assembly that would freeze Medicaid reimbursement rates for these facilities at either their 2008-09 or 2009-10 levels (the Clearinghouse contains several related cases filed in response to this and similar legislation). 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. The legislation passed by the California assembly was not conditioned on such approval. The plaintiffs alleged that no studies or other analyses had been conducted that could show that the rate freezes were consistent with efficiency, economy, and quality of care requirements of 42 U. S. C. §1396a(a)(30)(A). The plaintiffs in both cases sought relief under the Supremacy Clause of the United States Constitution, arguing that the California law was incompatible with federal Medicaid law and therefore preempted. The plaintiffs in Developmental Services Network also claimed as a cause of action 42 U.S.C. § 1983, which creates a private cause of action for state violations of federally guaranteed rights under color of law.

On May 27, 2010, the plaintiffs in Developmental Services Network filed an amended complaint, which made further arguments in support of the plaintiffs' standing to bring the suit, but the complaint did not appear to have added any substantive claims or requests for relief.

On June 15, 2010, the Court granted the defendants' motion to consolidate the two cases. From this point on, all orders and opinions referred to both cases, and the plaintiffs from both cases were required to file joint briefs.

On June 24, 2010, Judge Christina A. Snyder stayed the case pending the outcome of several petitions for certiorari review to the Supreme Court from related cases. California Association of Health Facilities v. Maxwell-Jolly, 2010 WL 2612694 (C.D. Cal. 2010). On February 9, 2011, the Supreme Court granted cert in these cases, consolidating them for the purpose of review. See Douglas v. Independent Living Center of Southern California.

On March 28, 2011, the Court granted the plaintiffs' ex parte motion to lift the June 2010 stay, and on May 5, 2011, the Court granted the plaintiffs' motion for a preliminary injunction, preventing the implementation of the Medi-Cal reimbursement rate freezes for intermediate care facility services for the developmentally disabled as well as for freestanding pediatric subacute facilities. Cal. Assoc. of Health Facilities v. Maxwell-Jolly, 2011 WL 6938438 (C.D.Cal. 2011). The defendants appealed this decision to the Ninth Circuit Court of Appeals on May 26, 2011 and the docket number 11−55852 was assigned. Pending the outcome of this appeal, the case was again stayed.

On November 30, 2011, the Appellate Court (Judges Ferdinand Francis Fernandez, Consuelo M. Callahan, and Ralph R. Erickson, district judge sitting by designation) vacated the order granting the preliminary injunction and remanded the case to the District Court, finding that although California did have an obligation to submit Medicaid plan amendments to CMS and obtain approval prior to implementing these amendments, there was no individual cause of action under 42 U.S.C. § 1983 available to the plaintiffs. Developmental Services Network v. Douglas, 666 F.3d 540 (9th Cir. 2011). The defendants applied for a rehearing at the Ninth Circuit, arguing that the Court failed to address recent events and newly issued opinions which it argued should have led to a holding that a State may modify its reimbursement rates without receiving prior approval. The Appellate Court declined to grant a rehearing.

In a February 7, 2014 status report, the parties reported a pause in action due to a stay pending the petitions for writ of certiorari in Managed Pharmacy Care v.

Sebelius, et. al. and California Medical Association v. Sebelius, et. al., Supreme

Court Docket Nos. 13- 253 and 13-380, respectively, which were denied on January 13, 2014. The parties were considering a joint motion to dismiss at this time.

On March 19, 2014, the District Court granted the plaintiffs’ motions in both cases to amend their complaints. On the same day, the Court ordered the cases stayed, in light of the Supreme Court's decision in Independent Living Center, which remanded that case and the related cases to the Ninth Circuit for further deliberation. On June 2, 2014, the court lifted the stay in the case.

On June 9, 2014, the parties filed a joint motion to dismiss the case with prejudice. The next day, Judge Snyder dismissed the consolidated case and each party would bear its own attorney’s fees and costs. The case is closed.