IN THE SUPERIOR COURT FOR THE STATE OF ALASKA THIRD JUDICIAL DISTRICT AT ANCHORAGE ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIATION, Plaintiw?: v. Case No. CI STATE OF ALASKA, DEPARTLENT OF HEALTH AND HUMAN SERVICES, Defendant. ORDER RE: PRELIMINARY INJUNCTION This matter is before the Court on the Alaska State Hospital and Nursing Home Association?s motion for preliminary injunction. seeks to enjoin the Department of Health and Social Services ?'om enacting or enforcing two different regulations: (1) emergency regulations reducing Medicaid reimbursement rates, speci?cally ending increases for in?ation and cutting certain rates by and (2) proposed regulations permanently enacting these same reductions. After considering the parties? brie?ng, extensive oral argument, and supplemental brie?ng, the Court noti?es the parties of its inclination to grant motion for preliminary injunction. The Court also rules on some of legal arguments, as requested by the parties at oral argument. The Court is inclined to ?nd that has raised, at the 1trery least, serious and substantial questions regarding ?nding of emergency. Therefore, the Court is likely to enjoin enactment or enforcement of the emergency regulations, if not the permanent regulations. Given both parties? acknowledgement of the serious repercussions of this decision, for the State, for members, and for Medicaid recipients, the Court provides the parties an opportunity to confer and ?le any additional briefing in ALASKA STA TE HOSPITAL AND NURSING HOME ASSOCIA TION v. STATE OFALASM, DEPARTMENT OF HEALTH AND UMAN SEE. VICES, CI Order Re: Preliminary Injunction light of the Court?s inclination and legal rulings. The Court is particularly interested in any further information or argument regarding whether the circumstances leading to issuance of the emergency regulations constituted an actual emergency. The Court also requires further response by to request for a $3.3 million bond, in light of the mandatory nature of the Rule requiring that a bond be posted. I. Discussion ASPWHA asserts it is entitled to a preliminary injunction under either the probable success on the merits standard or the balance of hardships standard.I The applicable standard ?depends on the nature of the threatened injury.?2 If the plaintiff faces irreparable harm and the defendant can be adequately protected, the balance of hardships standard applies.3 Under this standard, ?the plaintiff must raise serious and substantial questions going to the merits of the case.?4 If, on the other hand, the plaintiff faces ?less than irreparable? harm or if the defendant cannot be adequately protected, the plaintiff must make a ?clear showing of probable success on the merits)? For the purposes of assessing the harm to a party, a court must assume that that party will ultimately prevail.?S If a court grants a preliminary injunction, the court must require the applicant to post security? Here, the Court ?nds that ASHNI-IA faces irreparable harm such that the balance of hardships standard applies. If the Court denied request for a preliminary injunction, but ultimately succeeded in striking down emergency regulations, then some of members could be, in theory, reimbursed retroactively. However, the Court is persuaded by evidence and argument that other, more ?nal or permanent harms would result, particularly the loss of Specialist physicians, including pediatric specialists, who are likely to decide not to practice in Morian?r Preliminary Injunction, p. 1?3 (July 12, 2019). 3.9mm, as. ofElections v. Matcaaf?z, 110 P.3d 976, are (Alaska 2005). Id. 4 Airworth v. Seybert, 323 P.3d 4'7, 54 (Alaska 2014) (quotation and citation omitted). 5 Meredith, I 10 P.3d at 978 (quotation and citation omitted). Almvortlr, 323 P.3d at 54. 7 AK R. Civ. P. 559:). ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIATION v. STATE OF ALASKA, DEPARTMENT OF HEALTH AND SERVICES, SAN-1908244 CI Order Re: Preliminary Injunction Alaska if the emergency regulations remain in place while a ?nal ruling is pending.3 The loss of such specialists, and the similar harms described in the af?davits accompanying brie?ng, are irreparable. Meanwhile, if the Court issued a preliminary injunction, but DHSS ultimately succeeded, DHSS would certainly incur the costs of changing rates again and may have dif?culty recovering amounts it overpaid to Medicare providers in the intervening time? The Court recognizes, as does that these harms to DHSS are substantial. However, unlike the losses referenced above, the costs to DHSS can be accounted for, particularly through the requirement of a bond, as requested by DHSS. Without determining which party is better positioned to represent the interests of Medicaid recipients, the Court notes that recipients are likely to suffer harm both as a result of these rate reductions and as a result of the disruption caused by a preliminary injunction enjoining the reductions. Given the respective harms to the parties themselves, the Court will grant a preliminary injunction if ASHNHA can raise serious and substantial questions on the merits. As discussed below, ASHNI-LA likely has raised such questions regarding finding of emergency. Moreover, even if the harm to ASI-EINHA is repairable or if a bond will not adequately protect DI-ISS, the Court is inclined to ?nd that ASW has satis?ed the probable success on the merits standard as well. ASPWHA will probably succeed in arguing that no emergency existed to justify the emergency regulations. contention that no emergency existed is the ?rst of ?ve legal theories under which ASI-INHA believes the emergency regulations are unlawful and must be enjoined. After addressing ?nding of emergency as a basis for a potential preliminary injunction, the Court will address four other theories. As Outlined in its complaint ASHNI-IA contends that emergency regulations are unlawful under (1) federal Medicaid law, speci?cally 42 U.S.C. 1392a(a)(30)(A) (hereinafter ?Section (2) AS 47.01070, which requires that Medicaid rates be based on the ?reasonable costs related to patient care?; (3) holdings under which a Motionfor Preliminary Injunction, p. 7. 9 Opposition to Morionfor Preliminary in Junction, 25 (July 29, 2019) [hereinafter Opp]. ALA SKA STA TE HOSPITAL AND NURSING HOME ASSOCIA TION ST A TE OF ALASKA, DEPARTMENT OF HEALTH AND HUMN SERVICES, 3AN-19-08244 CI Order Re: Preliminary Injunction emergency regulations may not be arbitrary or unreasonable; and (4) procedural due A. Finding of Emergency Emergency regulations must respond to an actual emergency. Under Alaska law, agencies may issue emergency regulations, without the usual requirements of the state Administrative Procedure Act (APA), upon a ?nding of emergency.?] Any person may challenge an emergency regulation ?upon the ground that the facts recited in the statement do not constitute an emergency . . . Furthermore, ?[th is the state policy that emergencies are held to a minimum and are rarely found to exist.?12 Despite the explicit judicial review provision and stated policy, the Court was unable to locate a single instance in which a court in Alaska overturned an emergency regulation on the grounds that no emergency existed.13 As such, the Court is without the bene?t of direct precedent on what circumstances do and do not constitute an emergency. There is some indication, in dicta, that ?a ?nding of emergency follows a fact-intensive inquiry into a set of events unlikely to be repeated.?I4 It also appears as though some amount of consideration by an agency in advance of an emergency regulation, including holding a public meeting, does not preclude the agency from issuing the emergency regulation.Is Notwithstanding the absence of direct precedent, the Court believes that an emergency must be a sudden, unusual, and unpredictable event.IG Events which take place periodically, or which are reasonably foreseeable, do not ordinarily constitute emergencies; if they did, then emergencies would not be rare, as required by law. An 1? AS Although not at issue here, emergency regulations must also be ?necessary for the immediate preservation of the public peace, health, safety, or general welfare." id. as '2 as 44.62270. '3 But see Order Granting Petitioners Motionfnr Sitar, Washington Chapter ofine American Coiiege of Emergency Pinuicinns er ai. v. State ofii?nsiringran, Heniriz Care Authority, No. 11-2-02109-0, 3 Wash. Saper. Nov. 13, 201 I) (staying emergency regulations related to Medicaid services because ?no emergency existed," presumabiy under Wash. Rev. Code 34.05.2550). '4 Stare afAiaska, Ainsirn an. ufFisireries v. Grnnerr, 139 P.3d 1226, 1233 (Alaska 21105). ?5 See Krcirn v. State, Dep anisiz a Game, 933 P.2d 1019, 111211 (Alaska 1997). See EMERGENCY, Black's Law Dictionary (1 ed. 2019). ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIA TION v. STATE OF ALASKA, DEPARTMENT OF HEALTH AND HUAMN SERVICES, CI Order Re: Preliminary Injunction overbrcad de?nition of emergency would allow agencies to frequently circumvent the requirements of the APA. The Court is concerned that DI-ISS has exceeded its emergency regulation authority, in this instance and perhaps in prior instances, by ?nding that the long-predicted outcome of a yearly budgeting process constituted an emergency. On June 28, 2019, DHSS issued a Finding of Emergency solely on the grounds that the state budget for ?scal year 2020 ?signi?cantly underfunded" the Medicaid program.? Also on June Governor Dunleavy vetoed portions of the state budget, ?irther reducing the ?unds available for Medicaid.13 DHSS, however, esplains that its ?nding of emergency was in response to the state budget alone, and not the Governor?s vetoes.l9 In fact, DHSS reports that it had no advance knowledge of the Governor?s vetoes.? Therefore, the question is, did the state budget, putting aside the Governor?s vetoes, constitute an emergency? The timeline produced by DHSS appears to show that it did not. DHSS knew about and began planning for the reductions to the state budget at least six months in advance of the emergency regulations. DHSS reports that it ?expected? reductions to Medicaid in the state budget,21 and actually ?knew they were coming.?22 Like the public, DI-ISS learned late last year that the Governor intended to reduce Medicaid funding signi?cantly: ?Upon taking of?ce [in December 2018], the governor proposed reductions to the Alaska Medicaid program in the amount of $225 million?? DHSS then worked between ?January 5 and March 27, [2019]? to formulate its response.24 In March, the Of?ce of Management and Budget proposed a DI-ISS budget that re?ected the substance of the eventual emergency regulations: an end to increases for inflation and a 5% rate cut.25 On May DHSS made the call to issue emergency regulations,26 which it did on Finding ofEmergency (July 1, 2019). 1? Motion for Judgment, p. 2 (July 12, 2019). One. pv 6. 20. 2" Af?davit of Donna Steward, p. 9. 2; 0.09.. P- 6. Second Af?davrt of Donna Steward, p. 2. ?3 Affidavit of Donna Steward, p. 3. 24 Id; 2? Opp-.11 5- ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIATION v. STATE OFALASM. DEPARTMENT OF HEALTH AND HUMAN SEE WCES, CI Order Re: Preliminary Injunction June As characterized by DHSS, ?[t]he emergency regulations were the result of months-long, int-depth eXploration of various cost containment options? in response to the anticipated budget cuts.? Thus, the state budget and response to it have none of the hallmarks of an actual emergency. The reductions to Medicaid in this year?s budget were reasonably foreseeable and, in fact, actually predicted and planned for by DHSS. DHSS had at least six months? notice before the state ?nalized the budget, a process the state completes every year. While this year?s budgeting process may have been unusual, the reductions to Medicaid were not surprising. DHSS cannot argue that it had to wait for the ?nal budget before issuing the emergency regulations, because DHSS began preparing regulations months before the state ?nalized the budget. desire to skip the non-emergency regulation process and realize cost savings in the ?rst quarter of the ?scal year does not justify emergency regulations;28 only an actual emergency can justify emergency regulations. Notably, in its own Finding of Emergency, DHSS cited its authority to implement cost containment measures in response to the state budget.29 If DHSS has ample authority to reduce rates without issuing emergency regulations, then the decision to issue emergency regulations may be one of convenience, rather than necessity. Indeed, DHSS used emergency regulations in the same manner in 2015 and 2016,? further indicating that while DHSS may ?nd emergency regulations convenient, DHSS may ?nd emergencies in too many instances. In order to give meaning to the statutes authorizing DI-ISS to issue emergency regulations, there must be some limit on the situations that justify emergency regulations. The Court is inclined to ?nd that has shown that long?anticipated reductions to Medicaid funding in the state budget do not constitute an emergency. This ?nding renders the emergency regulations unlawful and requires the Court to enjoin their 1? Second Af?davit of Donna Steward, ex. A, p. 5. 17 Opp, p. 19. 25 See Af?davit of Donna Steward, p. 8?10; Second Af?davit of Donna Steward, p. 2. 19 Finding of Emergency (citing AS 47.01036). 3" Af?davit of Donna Steward, p. 4. ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIATION v. STATE OF ALASKA, DEPARTMENT OF HEALTH AND UMAN SER VICES, CI Order Re: Preliminary Injunction enactment or enforcement until it issues a ?nal ruling on the merits. The Court is also likely to require that ASHNHA post a bond, as mandated by Rule 65. ASHNHA has indicated in oral argument that it is not prepared to post a bond, but has not at this time offered substantive argument against the amount of the bond suggested as appropriate by DHSS. ASHNI-IA has suggested that it may prefer that the Court avoid making this ruling on a preliminary basis, but rather reserve ruling until addressing the issue on summary judgment. Any further brie?ng of the parties should clarify their respective positions on this procedural suggestion, in light of the discussion in this order, and following an opportunity for the parties to confer. B. Section Turning to other arguments in support of a preliminary injunction, the Court ?nds that ASHNI-IA cannot enforce federal Medicaid law, even as a matter of state law. As such, the Court will not grant a preliminary injunction on these grounds. ASHNHA argues that emergency regulations violate Section of federal Medicaid law. This section requires that states receiving federal Medicaid funding provide such methods and procedures . . . as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with ef?ciency, economy, and quality of care and are suf?cient 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.31 Precedent dictates that states submit reimbursement rate changes to the Center for Medicaid Services (CMS) as part of the State Plan Amendment process, during which CMS must ensure that a rate change actually complies with Section ASHNHA alleges that DHSS violated this section by: not submitting its rate changes to CMS in advance; not studying in advance whether the rate changes comply with Section not providing certain information to CMS as required by federal regulations; and issuing rate changes that do not actually comply with Section 3142 U.S.C. 1396a(a)(30)(A). 32 Managchharmoqr Care v. Sebafirrs, 716 F.3d 1235, 1242, 1249 (9th Cir. 2613). ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIA TION v. STA TE OFALASKA, DEPARTMENT OF HEALTH AND SERVICES, CI Order Re: Preliminary Injunction The problem with argument is that providers, like ASHNI-IA, do not have a federal right of action to enforce Section According to the U.S. Supreme Court in v. Exceptional Child Center, Inc, federal Medicaid law ?precludes private enforcement of in the No matter how ASHNHA characterizes alleged violation of Section ASHNI-IA may not state a federal claim under that section. The U.S. Supreme Court reasoned that due to the ?judicially unadministrable? nature of Section that section must be enforced by CMS, if at all.? In response, ASHNHA attempts to characterize its claim as one under state law, rather than federal law. This argument is also unavailing. ASHNHA cites a post- Ninth Circuit case for the proposition that providers can sue under a particular California state law for that state?s violation of Section This is not accurate though. In the case cited by ASHNHA, the Ninth Circuit was very Speci?cally considering whether the involved providers? pre?Armsa?ong claim, which had since been settled, was based on federal or state law.36 The Ninth Circuit strongly suggested that state law claims incorporating the requirements of Section are no longer available The Ninth Circuit also specifically noted disagreement in California?s Court of Appeals, recognizing one such persuasive court holding prevents providers from refraining Section violations as violations of state law.33 Alaska law may reference federal Medicaid law when it directs DHSS to set rates in accordance with federal law39 and permits DHSS to ?make those arrangements or regulatory changes [that are] not inconsistent with? federal law.? But these references? 331.35 s. or. 1373, 1335 (2015). 3-1 Id. 3: Indep. Living Ctr. ofS. Caii?arnitr Inc. v. Kent, 909 F.3d 272, 231 (9th Cir. 2013). 1d 3? Id. at 283 (Judge Christen, concurring). 3? at citing Santa Rosa Men: '7 Hosp, Inc. v. Kent, 25 Cal. App. 513 311, 322, 236 Cal. Rptr. 3:1 199, 207 (Ct. App. 2018), reh?g denied (Aug. 21, 2013) ("Plaintiffs contend, and the trial court ruled, that precludes private enforcement of section only in federal court. We disagree. All of the reasoning in applies equally to proceedings in state as well as federal courts"). 39 as 47.07.070. 4" as 47.07.040. ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIATION v. STATE OPALASRZA, DEPARTMENT OF HEAL TH A ND UMN SER VICES, BAN- I 9-03244 CI Order Re: Preliminary Injunction to all of federal Medicaid law and not to Section Speci?cally?do not create an independent state law cause of action under Section Accordingly, ASI-INHA may not state a claim under Section as a matter of federal or state law, at least as state law currently stands. The Court thus rules that section requirements cannot serve as a basis for issuance of a preliminary injunction. C. ASHNHA ?s State Law Claims asserts three other arguments for a preliminary injunction, which are based entirely on state law. While these arguments may ultimately have merit, there is currently insuf?cient evidence before the Court for the Court to determine whether ASHNHA has raised serious and substantial questions or shown probable success on the merits. For these reasons, the Court denies request for a preliminary injunction on these three grounds. First, ASHNHA alleges that DHSS violated AS 4707070. This statute requires that DHSS ?shall, within the limit of appropriations made by the legislature for the department?s programs . . . set rates for facilities that are based on [the] reasonable costs related to patient care?? argues that DHSS failed to consider the reasonable costs related to patient care before it issued the emergency regulations and that DHSS set rates that are not, in fact, based on the reasonable costs related to patient care. As an initial matter, the Court is not persuaded by argument that AS 47.07 .070 allows DHSS to set rates according to the state budget, without limitation. That interpretation of AS 47.07.070 would obviate the following requirement that rates relate to the costs of patient care. Where all of AS 47.07.070 must be given effect, claim becomes a question of what DHSS considered before it issued the emergency regulations, andfor a question of the actual relationship between the rates and the reasonable costs related to patient care. The Court lacks suf?cient evidence to grant a preliminary injunction on either point. At oral argument, counsel for DHSS described six thousand pages of 4? as 47.01010. ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIA TION v. STATE OFALASKA. DEPARTMENT OF HEALTH AND HUMN SERVICES, CI Order Re: Preliminary Injunction evidence regarding deliberations in advance of the emergency regulations, which DHSS was in the process of providing to None, or very little, of this evidence is yet before the Court. On the second point, ASI-INHA only alleges in general terms that the emergency regulations ?will result in reimbursement to many providers that is below ?42 This allegation, without additional evidence or the actual cost of providing the care. data, does not allow the Court to compare rates to the reasonable costs relating to patient care. Based on the insufficiency of the evidence, the Court is unable to assess the strength AS 47.07.070 claim. This Court does recognize that in two prior cases, the Alaska Supreme Court has concluded that DHSS violated current or former versions of AS 47.07.070 when DHSS set reimbursement rates.43 However, both of those cases addressed DI-ISS reimbursement rates for individual facilities and included detailed considerations of Specific costs.44 Also, in both cases, DHSS had reason to doubt the data it ultimately relied on in setting rates.45 Under those cases, AS 47.07.070 has not been applied to general rate reductions, has not been applied in the absence of speci?c data on costs, and, actually, has only been applied when DHSS used data it should have known was inaccurate. In its next claim under state law, ASHNHA contends that the emergency regulations are invalid because they are arbitrary and unreasonable.? While emergency regulations are exempt ?om certain requirements of the APA, emergency regulations are otherwise judged by the same standards as conventional regulations.? Emergency regulations, like non-emergency regulations, are presumed valid, placing the burden on the challenger.? ASHNHA argues that, if the Court examines process, rather the ?2 Motion?ir Preliminary Injunction, p. 6. ?3 State, nap ofHeolth a: Soc. Servs. v. N. Star Hosp, 280 P.3d 575, 532 (Alaska 2012); Store, Dep?: ofHeolrn Soc. Saws. v. Volley Hosp. Ass '11, Inc, 1 16 P.3d 530, 535 (Alaska 2005) (holding that ?a regulation that significantly under-compensated every facility?s actual costs would be presumptively inconsistent with? a prior, similar version ofAS 4107.070). 4" N. So;- Hosp, 230 P.3d at 573; Valley Hosp. Ass a. Inc, 1 16 P.3d at 532. "5 N. Stor Hosp., 230 P.3d at 582; Volley Hosp. Ass to, Inc., 1 16 P.3d at 587. 4r- Grtmert, 139 P.3d at 1232. :2 Id. (?We review emergency regulations in the same way we review other agency regulations"). Id. ALASKA STATE HOSPITAL AND NURSING HOME ASSOCIATION v. STATE OFALASM. DEPARTMENT OF HEALTH AND HUMNSER VICES, 3AN-19-08244 CI Order Re: Preliminary Injunction emergency regulations themselves,? the Court should ?nd the emergency regulations arbitrary and unreasonable, because DI-ISS failed to take a ?hard look at the salient problems and . . . genuinely engage[] in reasoned decision making.?50 argument regarding process in the lead up to the emergency regulations also requires the Court to examine what DHSS considered. For the reasons discussed above, the Court lacks suf?cient evidence to complete this examination. Therefore, the Court denies request for a preliminary injunction on these grounds as well. Finally, ASHNHA argues DHSS violated the due process clause of the Alaska constitution by setting rates by emergency regulation, without notice and comment.5 As the Court understands it, ASHNHA argues that federal Medicaid law requires notice and comment, so a process that does not include notice and comment violates procedural due process. DHSS reaponds that ASE-MBA could have, and did, provide input while DHSS prepared the emergency regulations?2 However, informal involvement by ASHNHA cannot satisfy procedural due process. More importantly, as discussed above, Alaska law does not incorporate federal Medicaid law such that has a state right of action to enforce it. To the extent ASHNHA is characterizing an alleged violation of Section or the case law interpreting it, as a due process violation, the Court ?nds that this claim is unlikely to succeed.? To the extent ASI-INHA is alleging process, as a factual matter, violated procedural due process above and beyond argument that DHSS could not declare an emergency then the Court again confronts the issue of the insuf?ciency of the evidence regarding what DHSS considered. Either way, the Court denies a preliminary injunction on procedural due process grounds, except to the extent ?9 v. Lloyd, 342 P.3d 325, sac?31 (Alaska 2014). 5" Grimm, 139 P.3d at 1232. 5? Marion?rr Sraammy Judgment, p. 14?15. 52 Opp, p. 21. 53 The Court also notes that AS 47.07.075, which applies to DHSS rate setting, references the APA, which includes AS 44.62.2150, thereby permit rate setting by emergency regulation. STATE HOSPITAL AND NURSING HOME ASSOCIATION v. STATE DEPARTMENT OF HEALTH AND HUMAN SERVICES, CI Order Re: Preliminary Injunction that this argument is inherently tied to the improper utilization of an emergency process where the Court is inclined to ?nd there was no emergency. .0. DHSS Preposcd Permanent Regulations Although the Court agrees that the issue of the suf?ciency of notice provided by DHSS of its proposed permanent regulations may be ripe, is not likely to succeed in pursuing such a claim to the extent it relies Upon enforcement of Section and related regulations. To the extent that ASHNHA otherwise seeks to enjoin the proposed permanent regulations, the Court recognizes that these proposed permanent regulations are not ?nal, and holds that additional challenges of the regulations at this time are not ripe. 11. Conclusion For the reasons discussed above, the Court is inclined to grant a preliminary injunction as to emergency regulations, because those regulations lack a necessary precondition, namely, an actual emergency. The Court is also likely to require a bond be posted in accord with Civil Rule 65(c). Given these likely conclusions, the Court welcomes additional, responsive evidence andfor brie?ng on the issues of ?nding of emergency, the amount of any ordered bond, and any changes in the parties? procedural request of the Court in handling these issues. Both parties may submit such evidence or brie?ng by Friday, September 6, 2019.54 DATED at Anchorage, Alaska this 30?? day ofAugust, 2019. I certify that on USISGIZDIQ a copy of the above was mailed to: Lindemuth, Harri n, Kraly he mm Secr?'iawi'Deputy Clerk 5? The Court recognizes that this schedule may depart from the parties' expectations, and will certainly consider requests to vary from that deadline. ALASKA STATE HOSPITAL AND NURSING HOME ASSOCM TION STA TE OF ALASKA, DEPARTMENT OF HEALTHAND SERVICES, CI Order Re: Preliminary Injunction