California Ass'n of Rural Health Clinics v. Douglas, 738 F.3d 1007

Background

California enacted Cal. Welf. & Inst. Code § 14131.10 during a 2009 budget crisis to eliminate certain optional Medi‑Cal services (adult dental, podiatry, optometry, chiropractic); the Department implemented the cuts and submitted a State Plan Amendment (SPA) to CMS.
Rural health clinics (RHCs) and Federally qualified health centers (FQHCs) challenged the implementation, seeking declaratory and injunctive relief under federal preemption and § 1983, arguing Medicaid requires payment for the full range of “physicians’ services.”
The district court held the Clinics had a private right of action, ruled § 14131.10 consistent with Medicaid, and enjoined implementation pending CMS approval of the SPA.
After judgment but before appeal briefing, CMS approved California’s SPA retroactively to July 1, 2009; the Department cross‑appealed the § 1983 ruling and injunctive relief.
The Ninth Circuit affirmed that the Clinics may bring a § 1983 claim under 42 U.S.C. § 1396a(bb), rejected Chevron deference to CMS’s SPA approval, held § 14131.10 unlawfully eliminated mandatory services, reversed the district court’s statutory interpretation, and remanded.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Clinics have a private right of action under § 1983 to enforce 42 U.S.C. § 1396a(bb)	§ 1396a(bb) contains rights‑creating, mandatory language naming RHCs/FQHCs and requiring payment, so § 1983 relief is available	No individual entitlement was conferred; Congress did not unambiguously create § 1983‑enforceable rights here	Held: § 1396a(bb) creates enforceable rights; Clinics may sue under § 1983
Whether Chevron deference binds the court to CMS’s post‑judgment SPA approval	Clinics: statutory text is dispositive; Chevron inapplicable because Congress spoke clearly	Department: CMS approval reflects agency interpretation and should be afforded deference	Held: Chevron deference does not apply; court interprets the statute de novo
Whether Medicaid permits California to exclude services (dental, podiatry, optometry, chiropractic) from RHC/FQHC reimbursement	Clinics: Medicaid imports Medicare’s definitions; “physicians’ services” in RHC/FQHC context includes these professions, so exclusion conflicts with federal law	Department: Medicaid’s cross‑reference points only to §1395x(r)(1) (MD/DO), so other professions need not be covered	Held: Medicaid imports Medicare definitions; mandatory RHC/FQHC services include services by dentists, podiatrists, optometrists, chiropractors; § 14131.10 impermissibly eliminated mandatory services
Whether the Department’s cross‑appeal is moot after CMS approval of the SPA	Department: challenges to the injunction and declaratory relief remain reviewable	Clinics: CMS approval removes the live controversy; exception for capable‑of‑repetition‑yet‑evading‑review not satisfied here	Held: Cross‑appeal is moot because CMS approved the SPA; exception does not apply given subsequent precedent and procedural realities

Key Cases Cited

Gonzaga Univ. v. Doe, 536 U.S. 273 (2002) (test for whether a statute creates rights enforceable under § 1983)
Blessing v. Freestone, 520 U.S. 329 (1997) (three‑factor framework for § 1983 rights from federal statutes)
Chevron U.S.A. Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984) (framework for judicial deference to agency statutory interpretations)
Developmental Servs. Network v. Douglas, 666 F.3d 540 (9th Cir. 2011) (states must obtain SPA approval before implementation; discussed mootness implications)
Burke v. Barnes, 479 U.S. 361 (1987) (Article III mootness requirement for live controversy)
Concilio de Salud Integral de Loiza, Inc. v. Perez‑Perdomo, 551 F.3d 10 (1st Cir. 2008) (holding § 1396a(bb) enforceable under § 1983)
Pee Dee Health Care, P.A. v. Sanford, 509 F.3d 204 (4th Cir. 2007) (same)
Rio Grande Cmty. Health Ctr., Inc. v. Rullan, 397 F.3d 56 (1st Cir. 2005) (same)