Stewart v. Azar
313 F. Supp. 3d 237 (2018)
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Rule of Law:
Under the Administrative Procedure Act, an agency action is arbitrary and capricious if the agency fails to consider an important aspect of the problem. The approval of a state's Section 1115 Medicaid waiver is arbitrary and capricious if the Secretary of Health and Human Services fails to adequately consider the project's impact on providing medical assistance coverage to its citizens, which is a central objective of the Medicaid Act.
Facts:
- Following the passage of the Affordable Care Act (ACA), Kentucky expanded its Medicaid program, resulting in over 428,000 new residents receiving medical assistance by April 2016.
- In March 2017, the Centers for Medicare & Medicaid Services (CMS) circulated a letter encouraging states to apply for waivers to alter Medicaid requirements, particularly for the ACA expansion population.
- In July 2017, Kentucky submitted an application for a Section 1115 waiver project called "KY HEALTH," which proposed to condition Medicaid eligibility on an 80-hour per month "community-engagement" requirement, and also included new premiums and stricter reporting requirements.
- Kentucky's own application materials estimated that the implementation of the Kentucky HEALTH program would cause approximately 95,000 people to lose Medicaid coverage within five years.
- On January 12, 2018, the Secretary of Health and Human Services (HHS) approved Kentucky's waiver application, allowing the state to implement the Kentucky HEALTH program.
- Fifteen Kentucky residents, Plaintiffs in this case, were enrolled in the state's Medicaid program and feared losing their health coverage due to the new requirements of the Kentucky HEALTH program.
Procedural Posture:
- Fifteen Kentucky residents (Plaintiffs) filed suit against the Secretary of Health and Human Services (Defendant) in the U.S. District Court for the District of Columbia.
- Plaintiffs sought declaratory and injunctive relief, challenging the Secretary's approval of the Kentucky HEALTH waiver as a violation of the Administrative Procedure Act (APA).
- The Commonwealth of Kentucky's motion to intervene as a defendant was granted by the court.
- Defendants' motion to transfer the case to a federal court in Kentucky was denied.
- The parties filed cross-motions for summary judgment, bringing the case before the court for a final decision on the administrative record.
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Issue:
Is the Secretary of Health and Human Services' approval of Kentucky's Section 1115 Medicaid waiver project arbitrary and capricious under the Administrative Procedure Act for failing to adequately consider the project's effect on providing medical assistance to Kentucky's citizens?
Opinions:
Majority - Boasberg
Yes. The Secretary's approval of the Kentucky HEALTH project is arbitrary and capricious because he failed to adequately consider whether the project would promote the principal objective of the Medicaid Act, which is to furnish medical assistance. The court's review revealed that the Secretary entirely failed to consider the state's own estimate that the project would cause 95,000 people to lose health coverage. This failure to grapple with a critical aspect of the problem—the project's impact on coverage—is a hallmark of arbitrary decision-making under the Administrative Procedure Act, as established in precedents like Motor Vehicle Mfrs. Ass'n v. State Farm. The Secretary's stated rationale for approval, which focused on promoting health, well-being, and financial independence, was a 'sleight of hand' that impermissibly substituted these goals for the statute's primary objective of providing health care coverage. While the Secretary has discretion, he cannot ignore the text and purpose of the statute he is administering. Therefore, the approval must be vacated and the matter remanded to the agency for further consideration consistent with the law.
Analysis:
This decision significantly constrains the authority of the Secretary of HHS to approve Section 1115 waivers that fundamentally alter the nature of the Medicaid program. It establishes that projected coverage loss is a 'salient factor' that the agency must explicitly analyze and address for its approval to survive judicial review under the arbitrary and capricious standard. The ruling reaffirms that Medicaid's core statutory purpose is providing health coverage, not achieving other social or economic policy goals like promoting work or self-sufficiency. This case sets a major precedent for challenges to similar Medicaid work-requirement waivers approved in other states, requiring the agency to demonstrate a rational connection between a proposed project and the objective of furnishing medical assistance, rather than simply asserting alternative policy justifications.
