Filed Date: May 14, 2021
Closed Date: May 10, 2022
Clearinghouse coding complete
This is a case about the Biden administration's attempt to rescind a Medicaid waiver granted to the State of Texas. On May 14, 2021, Texas and its Health and Human Services Commission filed this lawsuit in the United States District Court for the Eastern District of Texas against the Centers for Medicare and Medicaid Services (CMS), the Acting Administrator for CMS, the U.S. Department of Health and Human Services (HHS), the Secretary of HHS, and the federal government. Texas brought suit under the Administrative Procedure Act (APA) and sought declaratory and injunctive relief. The case was assigned to Judge J. Campbell Barker.
Under the Medicaid program, a state can apply for a waiver or demonstration project in order to receive exemption for certain requirements of the program. Through this process, a state can propose an alternative means of serving some part of its Medicaid population. At issue here was the Texas Healthcare Transformation and Quality Improvement Program ("THTQIP" or the "demonstration project"). Texas had relied on this program in some form since 2011 and it had been extended in 2016, 2017, and 2021. In its complaint Texas alleged that it "had used its demonstration projects to achieve (among other things) the goal of shifting from an outdated fee-for-service delivery model for Medicaid to a modern, managed-care-provider delivery model."
In November of 2020, Texas filed a fast track application to request an extension of THTQIP in response to COVID-19. On January 15, 2021, CMS approved the request, extending the program until 2030. On April 16, 2021, the acting administrator of CMS sent Texas a letter purporting to rescind approval of the extension. Texas argued that the administrator did not have the power to rescind the approval once it was given and, even if that weren't the case, that the letter would not suffice as proper notice under the APA. Texas alleged that CMS's motivations were also questionable, in that they intended to force Texas to expand Medicaid under the Patient Protection and Affordable Care Act (ACA).
First, Texas alleged that the rescission violated statutory limits on agency power. The State claimed that the defendants were not authorized to rescind approvals or extensions of a demonstration project and were therefore exercising a power that Congress had not given to them. The State also argued that, even if the defendants were allowed to rescind approvals or extensions, they were constrained by the time limits put in place by Congress. The State asserted that the statutory language gave the administrator 120 days to either approve or deny an application for an extension of a demonstration project and that a failure to act within that window would result in an automatic approval. In this case, Texas argued that the rescission of the approval occurred 122 days after the application was submitted, meaning the administrator no longer had the power to rescind the approval. Texas further argued that the defendants could only exercise the power to approve or disapprove an extension of a demonstration project to the extent that the choice was likely to assist in promoting the objectives of the Medicaid program. The State argued that its program fell within the objectives of Medicaid—pointing to the numerous laws Congress had passed since the beginning of the pandemic as proof of those objectives—and therefore the rescission was arbitrary and capricious in violation of the APA.
Texas also alleged that CMS failed to follow agency procedures in rescinding its approval. Texas asserted that the enumeration of CMS's powers implied they did not have the power to rescind an extension of a demonstration project and argued that CMS's ability to terminate or suspend a demonstration project provided the administrator the ability to end demonstration projects, but did not authorize the reversal of extensions. Even if the administrator could issue the April 16 letter without additional rule making, Texas argued they were still required to follow the rules HHS and CMS had promulgated. According to the complaint, in order for the letter to be valid, it would've had to find that Texas had materially failed to comply with the terms of its project and also would've had to afford the state the opportunity to request a hearing to challenge CMS's determination prior to the effective date. The April 16 letter did neither.
Texas next argued that the defendants were not allowed to re-issue a letter without providing notice and comment regarding the cancellation of the extended demonstration project. The State noted that its original application was exempt from the notice-and-comment procedure, but argued that the exception did not change the general rule. Because the April 16 letter did not provide the public with notice or an opportunity to comment, Texas argued that the rescission lacked legal force.
Next, Texas argued that even if the defendants were allowed to cancel the program without notice and comment, they could not do so for the reasons given in the letter. Asserting that the State had relied on the approval of the extension by expending resources and time on the project, Texas argued that CMS should have considered its reliance interests on the decision to grant an extension and that by failing to do so, the defendants had acted arbitrarily and capriciously.
Texas also argued that the decision was arbitrary and capricious in violation of the APA because it rested on an erroneous premise. First, the letter wrongly rested on the legal assertion that Texas had failed to show a sufficient basis for its request for an exemption from regular public notice and comment obligations. Texas argued that the defendants held the position that the demonstration project had been created to address COVID-19 and that COVID-19 was irrelevant because by the time the demonstration project expired in September of 2022, COVID-19 would no longer be an issue to the Texas healthcare system. Texas, in response, argued that it was arbitrary for the defendants to conclude that Texas didn’t need to extend the program because it was then being used to address COVID-19 concerns and was set to expire before the predicted end of the pandemic. Texas noted that the pandemic was predicted to run through 2021 and that the program would actually expire in September of 2021.
Texas further argued that the defendants were estopped from revoking prior approval of Texas's request for an exemption from notice-and-comment requirements for its THTQIP. Texas asserted that "where a party gives up valuable rights based on the conduct of a government official, courts will estop the government from denying those actions to 'prevent manifest injustice.'"
Finally, Texas argued that Congress could not use its spending power to force the State into adopting the federal government's preferred policy. The State argued that the Administrator had rescinded the extension in order to pressure them into adopting the Medicaid expansion of the Patient Protection and Affordable Care Act. Texas asserted that this violated the Spending Clause of the U.S. Constitution, art. I, § 8, cl. 1.
On July 16, 2021, Texas moved for a preliminary injunction. The State argued that it was likely to succeed on the merits of its claims because the defendants' actions violated the Social Security Act, CMS's own regulations, and the APA in multiple ways. The State argued that if the court declined to grant a preliminary injunction, Texas and Texas Medicaid providers and recipients would suffer irreparable harm. Texas would suffer from increased costs that were unrecoverable if the extension were to be rescinded. The market for Texas Healthcare Providers would contract significantly which would harm the state, the providers, and patients. The subsequent decrease in both the quantity and quality of care available would affect Texans reliant on Medicaid.
On July 26, 2021, the defendants filed both a response to the motion for preliminary injunction and a motion to dismiss. The defendants argued that preliminary relief was not warranted because, even without the requested relief, the program would be allowed to continue until September of 2022. They further argued that, even with this in mind, Texas was asking to enforce a 10-year extension of the program that they did not have the power to grant in the first place, and for this reason they had rescinded the acceptance because it was void and without legal effect. If the extension were to be revoked, the plaintiffs would have at least a year to reapply for the extension and comply with the notice-and-comment process. The defendants also argued the case should be dismissed for lack of subject matter jurisdiction because the court lacked jurisdiction under the APA. The defendants asserted that there had been no final agency action and, because the State’s claims were not ripe, Texas lacked standing.
On August 11, 2021, Texas moved for a temporary restraining order. For the same reasons stated in its motion for a preliminary injunction, the State asked the court to (1) forbid the defendants from implementing or otherwise enforcing the rescission of the extension and (2) require the defendants to abide by the terms and conditions of the waiver granted to Texas.
On August 12, 2021, the court held the State’s motion for a temporary restraining order in abeyance and clarified the standards for sanctions. The court said that Texas had called into question whether the defendants’ actions outside of the court matched their representation of their actions to the court. The court clarified a certain section of the terms and conditions of the project and gave the defendants the chance to clarify their behavior before a hearing on the pending motions for a preliminary injunction and temporary restraining order, at which the court would determine the veracity of their statements. 2021 WL 5154086.
On August 21, 2021, the court granted the motion for a preliminary injunction and denied the motion to dismiss and motion for a temporary restraining order. The court concluded that: 1) Article III jurisdiction existed, 2) jurisdiction was not barred by the final-agency-action limitation on the APA's waiver of sovereign immunity, and 3) jurisdiction was not barred by the committed-to-agency-discretion-by-law limitation on the APA's waiver of sovereign immunity. The defendants had argued that Texas did not have standing because the rescission had been stayed pending an administrative appeal and therefore the State had not shown an injury. The court disagreed, holding that the stay did not negate the injury caused by the rescission. Texas had also put forward evidence that at least some officials were dragging their feet in implementing the stay. The court also held that the rescission letter was a final agency action because it was neither tentative nor interlocutory. First, it announced a final decision and bound both CMS and Texas. Second, it determined rights and had legal and practical consequences because, by withdrawing approval of the demonstration project, CMS determined Texas's legal right to receive federal Medicaid money. The court also held that the rescission was not within the APA's narrow exception to the presumption of judicial review. The defendants had failed "to cite any authority holding that the approval, disapproval, rescission, or withdrawal of a Medicaid demonstration project is unreviewable pursuant to § 701(a)(2)."
The court also found that the State had proved its entitlement to a preliminary injunction. The court determined that Texas showed a likelihood of succeeding on at least its claim that the rescission was unlawful and must be set aside as arbitrary and capricious. The court found that the letter was clearly meant to be binding, as shown in the diction that the defendants employed. The court also found the decision arbitrary and capricious because the defendants had not properly considered the reliance interests on the initial approval of the program. For these reasons, the court granted the preliminary injunction and denied the defendants' motion to dismiss. 2021 WL 5154219.
On August 31, 2021, the State filed an amended complaint, adding a claim that the defendants had unlawfully withheld and unreasonably delayed agency action by not abiding by the extension.
On October 4, 2021, the defendants moved for partial judgment on the pleadings as to counts nine, ten, and eleven. The defendants argued that the agency actions Texas claimed were unlawfully withheld or unreasonably delayed were not required by law. They also argued that the State’s estoppel claim failed because estoppel could not lie against the federal government where public money was at stake. Lastly, they argued that the State’s spending clause claim failed because it had not challenged the constitutionality of any statute or regulation.
Texas moved to enforce the preliminary injunction on November 2, 2021. The State argued that the defendants were not acting in good faith by dragging their feet in implementing the extension of Texas’s demonstration project. Texas asserted that “CMS [had] repeatedly and needlessly delayed the process and avoided making final decisions.”
On December 23, 2021, the defendants filed a notice with the court claiming that, in response to the State’s motion to enforce the preliminary injunction, they had expedited consideration and approval of the special terms and conditions of the January demonstration project extension and that the relief requested by Texas in that regard was moot.
On March 11, 2022, the court granted in part and denied in part the State’s motion to enforce the preliminary injunction and ordered CMS to issue a final decision as to the remaining terms and conditions. The court declined to impose sanctions on the defendants for the delay in issuing their decisions. 2022 WL 741065.
On May 10, 2022, the parties stipulated to dismissal. In order to obtain the dismissal, the defendants withdrew their April 16, 2021 letter and agreed to “consider Texas’s THTQIP demonstration to be approved as extended and governed by the Special Terms and Conditions (STCs) that CMS approved on January 15, 2021.” The court dismissed the case the same day.
This case is closed.
Summary Authors
Rhea Sharma (4/15/2023)
For PACER's information on parties and their attorneys, see: https://www.courtlistener.com/docket/59906839/parties/state-of-texas-v-brooks-lasure/
Barker, J. Campbell (Texas)
Henneke, Robert Earl (Texas)
Lewis, John (Texas)
Barker, J. Campbell (Texas)
See docket on RECAP: https://www.courtlistener.com/docket/59906839/state-of-texas-v-brooks-lasure/
Last updated March 10, 2024, 4:02 a.m.
State / Territory: Texas
Case Type(s):
Public Benefits/Government Services
Key Dates
Filing Date: May 14, 2021
Closing Date: May 10, 2022
Case Ongoing: No
Plaintiffs
Plaintiff Description:
The State of Texas and the Texas Health and Human Services Commission
Plaintiff Type(s):
Public Interest Lawyer: Yes
Filed Pro Se: No
Class Action Sought: No
Class Action Outcome: Not sought
Defendants
Department of Health and Human Services (- United States (national) -), Federal
Centers for Medicare and Medicaid Services (- United States (national) -), Federal
United States of America (- United States (national) -), Federal
Defendant Type(s):
Case Details
Causes of Action:
Administrative Procedure Act, 5 U.S.C. §§ 551 et seq.
Medicaid, 42 U.S.C §1396 (Title XIX of the Social Security Act)
Available Documents:
Outcome
Prevailing Party: Plaintiff
Nature of Relief:
Injunction / Injunctive-like Settlement
Preliminary injunction / Temp. restraining order
Source of Relief:
Form of Settlement:
Content of Injunction:
Issues
Benefit Source: