STATE OF TEXAS; STATE OF KANSAS; STATE OF LOUISIANA; STATE OF INDIANA; STATE OF WISCONSIN; STATE OF NEBRASKA, Plaintiffs - Appellees Cross-Appellants v. CHARLES P. RETTIG, in his Official Capacity as Commissioner of Internal Revenue; UNITED STATES OF AMERICA; UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; UNITED STATES INTERNAL REVENUE SERVICE; ALEX M. AZAR, II, SECRETARY, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, Defendants - Appellants Cross-Appellees
No. 18-10545
United States Court of Appeals, Fifth Circuit
February 12, 2021
REVISED February 12, 2021
Before BARKSDALE, HAYNES, and WILLETT, Circuit Judges.
HAYNES, Circuit Judge:
We withdraw our prior opinion of July 31, 2020, Texas v. Rettig, 968 F.3d 402 (5th Cir. 2020), and substitute the following.
This case involves constitutional challenges to Section 9010 of the Affordable Care Act (the “ACA“) and statutory and constitutional challenges to
I. Background
A. Regulatory Background
In 1965, the Medicaid Act1 “established the Medicaid program as a joint Federal and State program for providing financial assistance to individuals with low incomes to enable them to receive medical care.” See Medicaid Program; Medicaid Managed Care: New Provisions, 67 Fed. Reg. 40,989, 40,989 (June 14, 2002) [hereinafter “2002 Final Rule“]. The federal
States have two options for providing care to Medicaid beneficiaries: a “fee-for-service” model and a managed-care model. Id. Under the fee-for-service model, a doctor who treats a Medicaid beneficiary submits a reimbursement request to the state Medicaid agency. Id. The state pays the bill after confirming the individual‘s eligibility and need for service. See id. Then the state seeks reimbursement from the federal government for a percentage of the cost. See
Under the more widely used managed-care model, the state pays a third-party health insurer (“managed-care organization” or “MCO“) a monthly premium (the “capitation rate“) for each Medicaid beneficiary the MCO covers, and the MCO provides care to the beneficiary. 2002 Final Rule, 67 Fed. Reg. at 40,989. States may receive reimbursement from the federal government for some percentage of the capitation rate so long as the underlying MCO contract is “actuarially sound.” See
As states began moving away from the fee-for-service model, HHS recognized that its definition of “actuarial soundness“—based on the cost of services under a fee-for-service model—was untenable. See 2002 Final Rule, 67 Fed. Reg. at 41,000 (stating that “there [was] an increasing number of States that lack[ed] recent [fee-for-service] data to use for rate setting“). It thus promulgated a final rule redefining “actuarial soundness” in 2002. Id. at 41,079-80 (redefining “actuarial soundness“). Under this new rule, capitation rates must satisfy three requirements to be actuarially sound. First, the rates must “[h]ave been developed in accordance with generally accepted actuarial
In 2010, Congress enacted the ACA, comprised by the Patient Protection and Affordable Care Act (“PPACA“), Pub. L. No. 111-148, 124 Stat. 119 (2010), and the Health Care and Education Reconciliation Act of 2010 (“HCERA“), Pub. L. No. 111-152, 124 Stat. 1029 (2010). The ACA made two changes to the regulatory scheme requiring states that requested Medicaid reimbursements for their MCO contracts to provide actuarially sound capitation rates. First, Congress imposed a new cost on certain MCOs: a federal health-insurance
In 2015, the Board, an independent organization that sets appropriate standards for actuarial practices in the United States, published Actuarial Standard of Practice 49: Medicaid Managed Care Capitation Rate Development and Certification (“ASOP 49“). ACTUARIAL STANDARDS BD., ACTUARIAL STANDARD OF PRACTICE NO. 49: MEDICAID MANAGED CARE CAPITATION RATE DEVELOPMENT AND CERTIFICATION (2015) [hereinafter ASOP 49]. ASOP 49
In summary, for states to receive federal reimbursement under the managed-care model, their MCO contracts must be approved by HHS as actuarially sound. See
B. Procedural Background
The States sued the United States, claiming that the Certification Rule and Section 9010 were unconstitutional and/or unlawful. See Texas v. United States (Texas I), 300 F. Supp. 3d 810, 820 (N.D. Tex. 2018). Regarding the Certification Rule, they claimed that the rule violated the nondelegation doctrine from Article I, section 1, of the U.S. Constitution and that HHS violated the APA on multiple grounds. See id. at 826. Regarding Section 9010, they claimed that the statute violated the Spending Clause of the U.S. Constitution and the doctrine of intergovernmental tax immunity under the Tenth Amendment. See id. at 826, 854.
The district court thus set aside the Certification Rule. Id. at 856-57. It then granted the States equitable disgorgement of their Provider Fee payments under the APA, resulting in a final judgment against the United States for more than $479 million. See Texas v. United States, 336 F. Supp. 3d 664, 675 (N.D. Tex. 2018). Both parties timely appealed.
II. Standard of Review
We review a district court‘s grant of summary judgment de novo. Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299, 304 (5th Cir. 2010). “On cross-motions for summary judgment, we review each party‘s motion independently, viewing the evidence and inferences in the light most favorable to the nonmoving party.” Id. (citation omitted). Summary judgment is proper when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
III. Discussion
The parties contest the constitutionality and lawfulness of the Certification Rule and the constitutionality of Section 9010. We hold that both the Certification Rule and Section 9010 are constitutional and lawful; as a
A. The Certification Rule Claims
The States’ challenge to the Certification Rule is based upon a sequence of events they allege is impermissible. Through the Certification Rule, HHS gave authority to the Board to promulgate binding rules through Actuarial Standards of Practice (“ASOPs“). Before it published ASOP 49 in 2015, the Board provided only a nonbinding “practice note” that permitted, but did not require, actuaries to consider fourteen separate factors in assessing expected MCO revenues and expenses under contracts with state Medicaid agencies, including any “state-mandated assessment and taxes.” MEDICAID RATE CERTIFICATION WORK GROUP, ACTUARIAL STANDARDS BD., ACTUARIAL CERTIFICATION OF RATES FOR MEDICAID MANAGED CARE PROGRAMS 8-9 (2005). According to the States, ASOP 49 introduced the requirement that actuarially sound capitation rates account for government-mandated taxes.7 The States thus contend that the Certification Rule unlawfully delegates to the Board the task of formulating, and making binding decisions about the applicability of, rules governing States’ access to Medicaid funds. The States further argue that HHS‘s incorporation of ASOP 49 in the Certification Rule violated the APA in two respects: (1) the rule exceeded HHS‘s statutory authority, and (2) HHS adopted the rule without notice and comment.
The United States contends that we lack jurisdiction because the States lack standing to challenge the Certification Rule and because their APA claims were barred by the statute‘s six-year statute of limitations. On the merits, the United States argues that the States’ Certification Rule challenges are
Thus, at issue here are two jurisdictional questions: whether the States have standing and, if so, whether their APA claims are time-barred. If we have jurisdiction, we must next address the parties’ merits claims: whether the Certification Rule violates the nondelegation doctrine, and whether HHS violated the APA. We hold that the States have standing for their Certification Rule claims but that their APA claims are time-barred which, in this context, is a jurisdictional issue. We therefore address the merits of only the States’ nondelegation argument and hold that the Certification Rule is constitutional.
1. Standing
To satisfy Article III‘s standing requirement, plaintiffs must demonstrate (1) an injury that is (2) fairly traceable to the defendant‘s allegedly unlawful conduct and that is (3) likely to be redressed by the requested relief. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). “The party invoking federal jurisdiction bears the burden of establishing these elements.” Id. at 561 (citations omitted). At the summary judgment stage, plaintiffs “must set forth by affidavit or other evidence specific facts, which . . . will be taken to be true,” to support each element. Id. (internal quotation marks and citation omitted). If one plaintiff has standing for a claim, then Article III is satisfied as to all plaintiffs. Rumsfeld v. Forum for Acad. & Institutional Rights, Inc., 547 U.S. 47, 52 n.2 (2006) (citations omitted). We review standing issues de novo. Nat‘l Rifle Ass‘n of Am., Inc. v. McCraw, 719 F.3d 338, 343 (5th Cir. 2013) (citation omitted).
Accepting their factual allegations, summarized above, as true, we hold that the States satisfy the three requirements for standing. First, the States
However true the United States‘s argument may be, the invalidation of the Certification Rule (and thereby, the removal of requiring compliance with ASOP 49) nonetheless would remove one explicit requirement to pay the Provider Fee. To be sure, the States may still be required to pay the Provider Fee under § 1396b, but this statutory injury is not complained of here. Barrett Comput. Servs., Inc. v. PDA, Inc., 884 F.2d 214, 218 (5th Cir. 1989) (“[S]tanding concerns the right of a party to bring a particular suit.” (emphasis added)). Here, the States allege they were directly forced to pay the Provider Fee per ASOP 49 and the Certification Rule. Larson, 456 U.S. at 242-43 (finding standing when appellants contested a “rule [that] was the sole basis for” the “discrete injury” that “gave rise to the present suit“). As such, the States attack an injury caused by the Certification Rule. Therefore, though the States may still have to pay the Provider Fee under § 1396b, success here will nonetheless remove one of two legal barriers to defeating this obligation—in other words, the States will no longer “be required to [pay the Provider Fee] by virtue of [ASOP 49 and the Certification Rule].” Id. at 242. Taking the States’ factual allegations to be true, see Lujan, 504 U.S. at 561, we conclude that the States have alleged that the injury complained of in this case is redressable with a
2. Statute of Limitations
However, we lack jurisdiction to address the States’ APA claims because they are time-barred. APA challenges are governed by
HHS published the Certification Rule in 2002, thirteen years before the States filed their complaint. See 2002 Final Rule, 67 Fed. Reg. at 40,989. However, a plaintiff may “challenge . . . a regulation after the limitations period has expired” if the claim is that the “agency exceeded its constitutional or statutory authority. To sustain such a challenge, the claimant must show some direct, final agency action involving the particular plaintiff within six years of filing suit.” Dunn-McCampbell, 112 F.3d at 1287. An agency‘s action is direct and final when two criteria are satisfied. “First, the action must mark the ‘consummation’ of the agency‘s decisionmaking process.” Bennett v. Spear, 520 U.S. 154, 177-78 (1997) (citation omitted). “[S]econd, the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.” Id. at 178 (quotation omitted). These rights,
The district court concluded that HHS took three “direct, final agency actions” in 2015 against the States and that those actions triggered a new six-year statute of limitations period. Texas I, 300 F. Supp. 3d at 839 (citation omitted). But, as the United States argues, none of these actions were direct and final.
First, the district court pointed to a 2015 letter sent by HHS to the Texas Medicaid Director approving Texas‘s amended MCO contract, which included Provider Fees in the capitation rates for additional groups of Medicaid beneficiaries. Id. This letter does not show that HHS was issuing a new ruling requiring Texas to include Provider Fees in its capitation rates. Further, Texas paid costs associated with Provider Fees for the 2013 calendar year even though the 2015 letter applied only from May 1, 2015 to August 31, 2015. Thus, even before the letter, Texas accounted for the Provider Fee in its capitation rates. The letter did not mark a change to Texas‘s obligation under the Certification Rule.
Second, the district court stated that the government‘s collection of the Provider Fee through the States’ 2015 capitation rate constituted direct, final agency action. Id. But, as explained above, the IRS does not collect the Provider Fee directly from states. The government‘s decision to collect from MCOs is not a “direct . . . action involving the [States].” See Dunn-McCampbell, 112 F.3d at 1287. As such, this argument does not support the district court‘s conclusion.
Third, the district court stated that HHS‘s 2015 guidance document “for use in setting [capitation] rates . . . for any managed care program subject to the actuarial soundness requirements” obligated the States to include the cost of the Provider Fee in their capitation rate calculations in 2015. Texas I, 300
We conclude that HHS took no direct, final agency action in 2015 to create a new obligation. The States identified no other such action that occurred after 2009 (when the six-year statute of limitations expired). We thus reverse the district court‘s judgment on the States’ APA claims and dismiss those claims as time barred.
3. Nondelegation Doctrine
Because we lack jurisdiction over the States’ APA claims, the only claim we address on the merits is whether HHS unlawfully delegated authority to the Board when it promulgated the Certification Rule. The United States argues that the Certification Rule was not an unlawful delegation because HHS simply “prescribed the conditions” necessary to receive federal funds. See Currin v. Wallace, 306 U.S. 1, 16 (1939) (brackets omitted). The States disagree, arguing that the Certification Rule impermissibly gave the Board and its actuaries—private actors—a discretionary veto over HHS‘s approval of States’ Medicaid contracts, as well as the power to define the content of a federal law as it applies to someone else. The district court held that the Certification Rule unlawfully vested in the Board and its actuaries the
A federal agency may not “abdicate its statutory duties” by delegating them to a private entity. See Sierra Club v. Lynn, 502 F.2d 43, 59 (5th Cir. 1974). But an agency does not improperly subdelegate its authority when it “reasonabl[y] condition[s]” federal approval on an outside party‘s determination of some issue; such conditions only amount to legitimate requests for input. See, e.g., U.S. Telecom Ass‘n v. FCC, 359 F.3d 554, 566-67 (D.C. Cir. 2004). Therefore, the primary inquiry here is whether HHS‘s requirements—that state-MCO contracts be certified by a qualified actuary and that the Board‘s practice standards be followed—were reasonable conditions for approving the contracts. See id. at 567.
A condition is reasonable if there is “a reasonable connection between the outside entity‘s decision and the federal agency‘s determination.” Id. By way of example, the Third Circuit has upheld a U.S. Department of Homeland Security‘s (“DHS‘s“) regulation requiring H-2B visa employers to first obtain a temporary labor certification from the U.S. Department of Labor (“DOL“). La. Forestry Ass‘n v. Sec‘y U.S. Dep‘t of Labor, 745 F.3d 653, 672-73 (3d Cir. 2014). In so doing, the Third Circuit observed that there was a reasonable connection in DHS conditioning an H-2B visa on a certification from DOL: Congress charged DHS with admitting aliens into the United States to perform temporary work that cannot be performed by unemployed persons in this country, id. at 672 (citing
The Certification Rule‘s conditions for actuarial soundness, like the DHS conditions addressed by the Third Circuit,10 are reasonable. Congress requires capitation rates to be actuarially sound, as defined by HHS. See
But, even assuming arguendo that HHS subdelegated authority to private entities, such subdelegations were not unlawful. Agencies may subdelegate to private entities so long as the entities “function subordinately to” the federal agency and the federal agency “has authority and surveillance over [their] activities.” Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 399 (1940);12 cf. Lynn, 502 F.2d at 59 (holding that total delegation or “rubber stamping” is impermissible). An agency retains final reviewing authority if it “independently perform[s] its reviewing, analytical and judgmental functions.” Id. at 59. We have therefore held, for instance, that a federal agency‘s requirement that depreciation expenses reflect “state regulator approved depreciation rates” was not an unlawful subdelegation because the agency “exercised its role when it initially reviewed and accepted the . . .
Here, HHS‘s subdelegation of certain actuarial soundness requirements to the Board did not divest HHS of its final reviewing authority. HHS “reviewed and accepted” the Board‘s standards. See La. Pub. Serv. Comm‘n, 761 F.3d at 552; accord 2002 Final Rule, 67 Fed. Reg. at 40,998. Further, HHS has the ultimate authority to approve a state‘s contract with MCOs; certification is a small part of the approval process. To obtain HHS approval of its capitation rate for reimbursement purposes, a state sends its MCO
B. Section 9010 Claims16
The States raise two constitutional challenges against Section 9010. They claim that it violates the Spending Clause and the Tenth Amendment doctrine of intergovernmental tax immunity. We address each claim in turn and hold that Section 9010 does not violate either constitutional provision.
The parties contest whether the Spending Clause applies to Section 9010 at all. The United States argues that Section 9010 is instead a constitutional tax that Congress imposed under its taxing power, which fully resolves the Spending Clause claim. The States argue that the Provider Fee, as applied to them, functions as a condition on spending and thus implicates the Spending Clause. We hold that the Provider Fee is a constitutional tax that fully resolves the States’ Spending Clause claim and does not impose a condition on spending.
For a payment requirement to qualify as a tax, it must “produce[] at least some revenue for the Government.” Nat‘l Fed‘n of Indep. Bus. v. Sebelius (NFIB), 567 U.S. 519, 564 (2012). In addition, the Supreme Court has identified three factors to be considered in determining whether a payment requirement is a tax rather than a penalty: (1) whether the tax is enforced by the IRS; (2) whether the tax “impose[s] an exceedingly heavy burden“; and (3) whether the tax has a scienter requirement, which is typical of a penalty. Id. at 565-66. The Provider Fee produces revenue for the United States and satisfies at least two of the three factors.17 The Provider Fee is enforced by the IRS, see
2. Tenth Amendment—Intergovernmental Tax Immunity
Although a constitutional tax properly enacted through Congress‘s taxing power is generally not subject to other constitutional provisions, the Tenth Amendment doctrine of intergovernmental tax immunity imposes two limitations when the federal government imposes an indirect tax, like Section 9010, on states. See South Carolina v. Baker, 485 U.S. 505, 523 (1988).19 First, the tax must not discriminate against states or those with whom they deal. Id.
a. Discrimination Against Entities
The Provider Fee is nondiscriminatory because it is imposed on “any entity which provides health insurance,” subject to certain non-state-based exclusions. PPACA § 9010(c), 124 Stat. at 866. It does not impose the Provider Fee on only states, nor on only those MCOs that deal with states. Thus, there is no unlawful discrimination, meaning MCOs contracting with states may impose “part or all of the financial burden” of the Provider Fee on the States. See Baker, 485 U.S. at 521 (citations omitted).
The States make two arguments on this point, both of which are misplaced. First, the States argue that the Provider Fee discriminates against them because states are the only entities that run Medicaid programs and are the only government entities that stand to lose their exemption under Section 9010(c)(2)(B) as a result of the actuarial-soundness requirement. But the discrimination inquiry asks who Congress targets, not who ultimately bears the economic burden of paying the tax. See id. (stating that the Supreme Court has “completely foreclosed any claim that the nondiscriminatory imposition of costs on private entities that pass them on to States . . . unconstitutionally burdens state . . . functions“); Washington v. United States, 460 U.S. 536, 543-44 (1983) (holding that the discrimination analysis does not consider whether the tax burden would necessarily shift to state actors).
Second, the States argue that the Provider Fee discriminates against them because the fee has a disproportionate economic impact on them. They claim that because their contracts with MCOs have historically low profit margins, the MCOs pass the entire economic burden of the Provider Fee on to
Washington, which the States cite as support, holds that whether an unfair economic burden is discriminatory depends on “the whole tax structure of the state.” 460 U.S. at 545 (citation omitted). In that case, the Supreme Court held that the state‘s tax did not single out contractors who worked for the United States for discriminatory treatment because the “tax on federal contractors [was] part of the same [tax] structure, and imposed at the same rate, as the tax on the transactions of private landowners and contractors.” Id. Here, the Provider Fee is similarly imposed at the same rate for all entities, so there is no unfair economic burden. See PPACA § 9010(b)(1), 124 Stat. at 865. We thus hold that the Provider Fee is nondiscriminatory.
b. Legal Incidence
We also hold that the legal incidence of the Provider Fee does not fall on states. Legal incidence is determined by the “clear wording of the statute,” not “by who is responsible for payment to the state of the exaction.” United States v. State Tax Comm‘n of Miss., 421 U.S. 599, 607-08 (1975) (cleaned up). For example, a state tax statute that directs each vendor in the state to “add to the sales price and [to] collect from the purchaser the full amount of the tax imposed” is a statute that “imposes the legal incidence of the tax upon the purchaser” because the text of the statute indisputably provides that the tax “must be passed on to the purchaser.” First Agric. Nat‘l Bank of Berkshire Cty. v. State Tax Comm‘n, 392 U.S. 339, 347 (1968) (citations omitted).
Here, as the States concede, Congress did not intend to tax States because the statute‘s “clear wording” shows that Congress clearly and expressly excluded states from the Provider Fee. See PPACA § 9010(c)(2)(B), 124 Stat. at 866; accord State Tax Comm‘n of Miss., 421 U.S. at 607. It is also clear and “indisputable” that Section 9010 “by its terms” does not pass on the
The States misunderstand the meaning of legal incidence. They argue that the legal incidence falls on them because all of the economic burden of the Provider Fee is charged to the States. But, as stated above, the question is not who practically bears the responsibility for paying the tax. See State Tax Comm‘n of Miss., 421 U.S. at 607-08; see also Baker, 485 U.S. at 521 (citations omitted) (upholding a nondiscriminatory tax collected from private parties as constitutional “even though . . . all of the financial burden f[ell] on the other government“). The States also argue that because the legal consequence of not paying the Provider Fee falls on them, so too does its legal incidence; if they do not pay the Provider Fee, then they lose Medicaid funding. Assuming arguendo that the States’ interpretation of healthcare law is correct, the Supreme Court explicitly held that legal incidence is not defined as “the legally enforceable, unavoidable liability for nonpayment of [a] tax.” State Tax Comm‘n of Miss., 421 U.S. at 607 (citation omitted).
In sum, we conclude that the Provider Fee does not discriminate against states or those with whom they deal because it is imposed on any entity that provides health insurance (with certain exclusions). We also conclude that the legal incidence of the Provider Fee does not fall on the states because Congress expressly excluded states from paying the fee. Accordingly, we hold that Section 9010 does not violate the Tenth Amendment doctrine of intergovernmental tax immunity.
IV. Conclusion
For the foregoing reasons, we AFFIRM the district court‘s ruling that the States had standing. But we REVERSE the district court‘s ruling that the States’ APA claims were not time-barred and DISMISS the States’ APA claims for lack of jurisdiction. On the merits, we AFFIRM the district court‘s