Managed Pharmacy Care v. Kathleen Sebelius, 716 F.3d 1235

Medicaid is a federal-state program; California sought to reduce Medi-Cal reimbursement rates via SPAs approved by CMS (Secretary) and challenged by providers/beneficiaries.
Plaintiffs alleged SPAs violated § 1396a(a)(30)(A) by failing to consider costs and other factors before reductions.
DHCS identified rate reductions for multiple services (pharmacy, DP/NFs, transportation, etc.) and submitted SPAs 11-009 and 11-010 to CMS for retroactive approval.
CMS approved SPAs, finding they complied with § 30(A) and that monitoring data demonstrated beneficiary access.
District court granted preliminary injunctions blocking reductions; court found Orthopaedic Hospital required cost studies and questioned DHCS methods.
Panel reversed, held Chevron deference applies to SPA approvals, Secretary’s interpretation allowable, and approvals comply with the APA; takings and Supremacy Clause claims unlikely to succeed; case remanded to proceed under this opinion.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Orthopaedic Hospital controls here.	Plaintiffs rely on Orthopaedic Hospital.	Secretary’s interpretation is persuasive and deference applies.	Orthopaedic Hospital not controlling; deference applies.
Whether Secretary’s SPA approvals are entitled to Chevron deference.	Secretary’s view that no fixed methodology required should be rejected.	Secretary’s SPA approvals are within delegated authority and entitled to Chevron deference.	Secretary’s approvals receive Chevron deference.
Whether the SPA approvals comply with § 30(A).	Approvals lacked required analysis of costs and access impact.	Approvals satisfied § 30(A) with MACPAC framework and monitoring plan.	Approvals comply with § 30(A). APA review not arbitrary.
Whether Supremacy Clause claims against the Director have merit.	Private action for preemption exists under Supremacy Clause.	Secretary’s approval reasonably determines compliance; private right unlikely.	Supremacy Clause claims unlikely to prevail against Director.
Whether takings claim has any merit given voluntary participation in Medicaid.	Hospitals may have property interest in reimbursement rates due to ongoing participation.	Participation is voluntary; no protected property interest in continued payments.	Takings claim fails; no unconstitutional taking.

Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir. 1997) (requires cost consideration for § 30(A) but not controlling when agency interpretation changes)
Douglas v. Independent Living Ctr. of S. Cal., 132 S. Ct. 1204 (U.S. 2012) (recognizes deference framework for SPA approvals; later applied here)
Alaska Dept. of Health & Soc. Servs. v. Centers for Medicare & Medicaid Servs., 424 F.3d 931 (9th Cir. 2005) (administration of § 30(A); gap-filled by CMS; deference for approvals/disapprovals)
Price v. Stevedoring Servs. of Am., Inc., 697 F.3d 820 (9th Cir. 2012) (Mead/Chevron framework; delegation of authority enables deference)
Medicaid case law: Mead Corp. v. United States, 533 U.S. 218 (2001) (framework for when agencies receive deference in statutory interpretation)
Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984) (establishes deference to agency interpretations under § 30(A))
National Cable & Telecommunications Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005) (clarifies when prior court interpretations may be superseded)
Independent Living Ctr. of S. Cal. v. Shewry, 543 F.3d 1050 (9th Cir. 2008) (Supremacy Clause standing for preemption cases)
Pharmaceutical Research and Manufacturers of America v. Thompson, 362 F.3d 817 (D.C. Cir. 2004) (SPA approvals can have force of law; defer to agency)