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State v. United States

United States District Court, N.D. Texas, Wichita Falls Division

March 5, 2018

STATE OF TEXAS, et al., Plaintiffs,
UNITED STATES OF AMERICA, et al., Defendants.



         This case is about the lawfulness of a tax in the Patient Protection and Affordable Care Act (“ACA”) and of a regulation that the United States Department of Health and Human Services (“HHS”) uses to implement it. The ACA imposed a tax on medical providers but exempted the states from paying it. Notwithstanding Congress's direction in the ACA, the HHS regulation effectively requires the states to pay this tax. Plaintiffs now challenge both the tax and the regulation. Because Plaintiffs have standing to challenge both, the Court must decide the legality of each.

         The Court concludes that the challenged ACA tax is lawful, offending neither the structure nor substance of the Constitution. But the HHS regulation violates the non-delegation doctrine, delegating to a private entity the authority to decide who must pay this tax. Pursuant to that unlawful delegation, the private entity decreed that the states must pay this tax, contrary to Congress's express directive. HHS's unlawful delegation enabled a private entity to effectively rewrite the ACA, wrongfully forcing Plaintiffs to pay this tax. It is therefore the regulation-not the tax-that harms Plaintiffs. For the reasons that follow, the Court will GRANT in part Plaintiffs' claims challenging the regulation and declare the offending regulation “contrary to constitutional right, power, privilege, or immunity, ” and “in excess of statutory jurisdiction, authority, or limitations, or short of statutory right . . . .” 5 U.S.C. § 706(2)(B)-(C). The Court will DENY Plaintiffs' claims challenging the tax.[1]

         Accordingly, having considered the motions, related briefing, and applicable law, the Court finds that Plaintiffs' Motion for Summary Judgment (ECF No. 53) should be and is hereby GRANTED in part and DENIED in part; and Defendants' Motion for Summary Judgment (ECF No. 62) should be and is hereby GRANTED in part and DENIED in part.[2]

         I. BACKGROUND

         Plaintiffs (alternatively, “Plaintiff States”) are the States of Texas, Indiana, Kansas, Louisiana, Nebraska, and Wisconsin. Am. Compl. 1, ECF No. 19. Defendants are the United States of America (the “Government”); the United States Department of Health and Human Services; Alex Azar, in his official capacity as Secretary of HHS[3]; the United States Internal Revenue Service (the “IRS”); and David Kautter, in his official capacity as Acting Commissioner of the IRS.[4] Id. at 1-2. Plaintiffs allege that Defendants, in violation of the ACA, the Administrative Procedure Act (the “APA”), and the United States Constitution, require them to pay the ACA's Health Insurance Providers Fee (the “HIPF”) to the managed care organizations (the “MCOs”) who contract with them to service their Medicaid recipients. Id. at 3-19.

         In the ACA, Congress expressly exempted states from paying the HIPF. ACA § 9010(c)(2)(B) (2010); see 26 C.F.R. § 57.2(b)(2)(ii)(B). This effectively changed in March of 2015, when the Actuarial Standards Board (the “ASB”)-a private organization that sets practice standards for private actuaries certified by the American Academy of Actuaries (the “AAA”)- enacted Actuarial Standard of Practice Number 49 (“ASOP 49”).[5] ASOP 49 forbids AAA actuaries from certifying any Medicaid contract between a state and an MCO unless the contract requires the state to pay the HIPF to the MCO. See ASOP 49 § 3.2.12(d).[6] Without this AAA certification, the Centers for Medicare & Medicaid Services (“CMS”)-a component of HHS-will not approve the MCO contract. See 42 C.F.R. § 438.6(c)(1)(i)(A)-(C) (2002) [hereinafter “the Certification Rule”].[7] If CMS does not approve the contract, the state becomes ineligible for Medicaid funding. See 42 U.S.C. § 1396b(m)(2)(iii). The end result is that by delegating this certification power to the ASB, HHS effectively requires states to pay the HIPF-even though Congress exempted them from doing so-or risk losing Medicaid funds.[8]

         The ACA, the HIPF, and the Certification Rule interact with several public health programs. The first of these programs actually began in 1965, when Congress enacted, and President Lyndon Johnson signed into law, the Medicaid program. See Social Security Amendments Act of 1965, Pub. L. 89-97, 79 Stat. 286 (1965). Medicaid subsidizes states to provide healthcare to low-income families; children; related caretakers of dependent children; pregnant women; people aged 65 years and older; and adults and children with disabilities. See 42 U.S.C. §§ 1396-1396w. To receive Medicaid subsidies, states must provide coverage to a federally mandated category of individuals according to a federally approved state plan. See 42 U.S.C. § 1396a; 42 C.F.R. §§ 430.10-430.12. Plaintiffs participate in the program, providing Medicaid services and receiving Medicaid subsidies. See 79 Fed. Reg. 3385. Plaintiffs provide these services at substantial cost. See, e.g., Pls.' App. 1168-74, ECF No. 54-1. For example, in 2015 Texas spent 28.6% of its budget on Medicaid, serving 4.06 million Texans-around one in seven members of its population.[9] The other Plaintiff States likewise provide Medicaid to millions of their citizens at the cost of a considerable portion of their annual budgets. See Pls.' Br. Supp. Summ. J. 8 n.23-29, ECF No. 54 (citing data) [hereinafter “Pls.' Br.”].[10]

         When Plaintiffs first began implementing the Medicaid program, they primarily relied on fee-for-service providers (“FFSPs”) to deliver Medicaid services. See Pls.' App. 120, 133, 291, 485, 1008, 1162-63, ECF No. 54-1. Over time, however, Plaintiffs discovered that managed care organizations were more efficient and less expensive. See, e.g., id. at 120. In a managed care arrangement, the state enters into a contract with an MCO, wherein the MCO agrees to deliver healthcare services to citizens of the state, and in exchange, the state pays the MCO a fixed monthly fee per covered individual, known as a “capitation rate.” Id. at 1168.

         In order to realize the benefits and savings of managed care, Plaintiffs began a long-term transition from FFSPs to MCOs. See Id. at 120, 133, 291, 485, 1008, 1162-63. Texas began this transition in 1993. Id. at 1006. By the end of 2005, 40% of Texas's Medicaid beneficiaries received services through MCOs, and by 2012, that percentage reached 80%. Id. at 1007. When Plaintiffs filed this suit in 2015, Texas MCOs served around 87% of Texas's Medicaid population. Id. Texas anticipates that this year MCOs will serve 93% of its Medicaid population. Id. at 1007-08. Each Plaintiff now provides a substantial portion of their Medicaid services through MCOs. See Id. at 120, 133, 291, 485, 1008, 1162-63.[11] Plaintiffs have saved hundreds of millions of dollars by transitioning to MCOs. See Id. at 121, 133-34, 291-92, 493-94, 1010, 1163. In January 2015, HHS announced in a press release-titled “Better Care. Smarter Spending. Healthier People: Why It Matters”-that it too would transition to MCOs. Id. at 13-14.

         In 1981, Congress passed, and President Ronald Reagan signed into law, legislation requiring MCO capitation rates to be “actuarially sound.” Omnibus Budget Reconciliation Act of 1981, Pub. L. No. 97-35, 95 Stat. 357, 814 (1981) (codified at 42 U.S.C. § 1396b(m)(2)(A) (1981)).[12] HHS did not interpret the meaning of “actuarially sound” until 2002, when it promulgated the Certification Rule. This rule defined “actuarially sound” in the following way:

(i) Actuarially sound capitation rates means capitation rates that-
(A) Have been developed in accordance with generally accepted actuarial principles and practices;
(B) Are appropriate for the populations to be covered, and the services to be furnished under the contract; and
(C) Have been certified, as meeting the requirements of this paragraph (c), by actuaries who meet the qualification standards established by the American Academy of Actuaries and follow the practice standards established by the Actuarial Standards Board.

See 42 C.F.R. § 438.6(c)(i)(A)-(C) (2002) (emphasis in original). Thus, under the Certification Rule, “actuarially sound capitation rates” are capitation rates certified by an AAA actuary who, following the ASB's practice standards, determines that the rate has “been developed in accordance with generally accepted actuarial principles and practices.” Id.

         The AAA is a private, membership-based professional organization that exists to set qualification, practice, and professional standards for credentialed actuaries.[13] The AAA sets these standards through the ASB, another independent, private organization.[14] The ASB establishes and improves standards of actuarial practice by enacting Actuarial Standards of Practice (“ASOPs”) to identify what AAA actuaries should consider, document, and disclose when performing an actuarial assignment.[15] In 2005, the AAA defined “actuarially sound” capitation rates as including inter alia state taxes-but not federal taxes.[16] In 2013, the ASB enacted ASOP 1, explaining that “the phrase ‘actuarial soundness' has different meanings in different contexts . . . .”[17]

         In 2010, Congress passed, and President Barack Obama signed into law, the ACA. The Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119-1025 (2010). The ACA requires health insurance providers who are “covered entities” to pay the HIPF to the IRS. See ACA § 9010. A covered entity must pay a portion of the HIPF proportionate to the provider's share of net premiums for the previous year. See Id. The first HIPF payments came due on September 30, 2014. Pls.' App. 96, ECF No. 54-1. The total amount of the fee for all covered entities combined was $8 billion in 2014 and increased to $14.3 billion in 2018. See 26 C.F.R. § 57.4(a)(3). Advocates for enacting the HIPF argued that the ACA would increase enrollment for MCOs, that this increase would significantly raise profits, and that the MCOs would pay the HIPF out of their increased profits. See Pls.' App. 19, ECF No. 54-1.[18]

         The ACA explicitly excludes states from the definition of “covered entities, ” thereby exempting them from paying the HIPF. ACA § 9010(c)(2)(B). Because the ACA protects states from paying the HIPF, Plaintiffs did not initially pay the HIPF in their capitation rates when the IRS first began collecting the HIPF from MCOs in 2014. See Pls.' App. 1168-70, ECF No. 54-1 (“For fiscal year 2014, Texas did not include [the HIPF] in its appropriations . . . Texas did not reimburse MCOs for the 2014 HIPF until fiscal year 2015.”). In 2014, private actuaries-following the AAA's 2005 definition of “actuarially sound” and the ASB's 2013 definition in ASOP 1- certified those MCO contracts, and HHS approved them. In October of 2014, HHS issued a guidance document stating its belief that the states should include the HIPF in their MCO capitation rates.[19] But HHS did not say that the Certification Rule required states to pay the HIPF. See 2014 MCO Guide (explaining that states have “flexibility” to pay the HIPF through retroactive adjustments to their capitation rates, provided the initial and subsequent capitation rates are “actuarially sound”).

         Then in March 2015, the ASB enacted ASOP 49, which stated:

The actuary should include an adjustment for any taxes, assessments, or fees that the MCOs are required to payout [sic] of the capitation rates. If the tax, assessment, or fee is not deductible as an expense for corporate tax purposes, the actuary should apply an adjustment to reflect the costs of the tax.

ASOP 49 § 3.2.12(d). Since the HIPF is a non-deductible tax, [20] ASOP 49 effectively required states to pay MCOs the full amount of the HIPF in their capitation rates, because an AAA actuary could no longer certify the capitation rate as actuarially sound unless it did so. In September 2015, HHS issued a guidance document embracing ASOP 49 and declaring that the Certification Rule required AAA actuaries to certify that state capitation rates met ASOP 49's requirements.[21]

         After the ASB enacted ASOP 49, the states capitulated, included the HIPF in their capitation rates, and budgeted for the HIPF. See Pls.' App. 137, 1164, 1170, ECF No. 54-1. In 2015, Texas appropriated $79, 685, 024.00 to pay the HIPF for fiscal year 2014, $16, 906, 502.00 for fiscal year 2015, and $244, 219, 902.00 for fiscal years 2016 and 2017. Id. at 1170-72. Over the next decade, the federal government will collect between $13 and $14.9 billion in HIPF revenue from the combined payments of all fifty states.[22]

         On October 22, 2015, Plaintiffs filed suit, attacking the lawfulness of the HIPF itself, as well as the Certification Rule that enabled the ASB to impose the HIPF on the states through ASOP 49. Compl, ECF No. 1.[23] Plaintiffs seek various injunctive and declaratory remedies to relieve them from the burden of paying the HIPF. See Am. Compl. 27-29, ECF No. 19.[24]


         A. Federal Rule of Civil Procedure 56(a)

         The Court may grant summary judgment where the pleadings and evidence show “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “[T]he substantive law will identify which facts are material.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute as to any material fact exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. The movant must inform the Court of the basis of its motion and demonstrate from the record that no genuine dispute as to any material fact exists. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         When reviewing the evidence on a motion for summary judgment, the Court must decide all reasonable doubts and inferences in the light most favorable to the non-movant. See Walker v. Sears, Roebuck & Co., 853 F.2d 355, 358 (5th Cir. 1988). The court cannot make a credibility determination in light of conflicting evidence or competing inferences. Anderson, 477 U.S. at 255. If there appears to be some support for disputed allegations, such that “reasonable minds could differ as to the import of the evidence, ” the Court must deny the motion. Id. at 250.

         III. ANALYSIS

         Plaintiffs move for summary judgment, claiming that: (1) the statutory provision enacting the HIPF violates Article I's Spending Clause and the Tenth Amendment [the “HIPF claims”]; and (2) the Certification Rule violates Article I's Vesting Clause, the APA, and the ACA [the “Certification Rule claims”]. See Pls.' Br. 21-42, ECF No. 54. Defendants also move for summary judgment on all counts, claiming that: (1) Plaintiffs lacks Article III standing; (2) sovereign immunity bars Plaintiffs' Certification Rule claims; (3) the Anti-Injunction Act (the “AIA”) bars Plaintiffs' HIPF claims; (4) the HIPF is valid under Article I's Taxing Clause; and (5) the Certification Rule is valid under Chevron. See Defs.' Br. Supp. Mot. Summ. J. 9-50, ECF No. 63 [hereinafter “Defs.' Br.”]. The Court will address each of these arguments in turn, beginning with the preliminary question whether there is subject matter jurisdiction to consider any of Plaintiffs' claims.

         A. Subject Matter Jurisdiction

         Article III confines the federal judicial power to “cases” and “controversies.” U.S. Const. art. III, § 2. The case or controversy requirement ensures that the federal judiciary respects “the proper-and properly limited-role of the courts in a democratic society.” DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 341 (2006) (quotation marks omitted). The Court must first assess jurisdiction, for “without proper jurisdiction, a court cannot proceed at all . . . .” Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 84 (1998). The party invoking federal jurisdiction must demonstrate that a constitutional case or controversy exists as to each claim asserted. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992).

         Defendants argue that: (1) there is no Article III case or controversy here because Plaintiffs either have no injury, manufactured the injury, or request remedies that will not redress the injury; (2) the AIA bars Plaintiffs' HIPF claims because their requested remedies would enjoin the collection of federal taxes; and (3) sovereign immunity bars Plaintiffs' Certification Rule claims because Plaintiffs brought them outside the APA's six-year statute of limitations. Defs.' Br. 9-21, ECF No. 63.

         1. Article III Standing

         The Court will first consider whether Plaintiffs have Article III standing. To establish Article III standing, a plaintiff must show: (1) an injury in fact that is (2) fairly traceable to the defendant's challenged conduct, and that (3) a favorable judicial decision will likely redress the injury. Lujan, 504 U.S. at 560-61. A plaintiff must support each standing element “with the manner and degree of evidence required at the successive stages of the litigation.” Id. at 561. “[T]he presence of one party with standing is sufficient to satisfy Article III's case-or-controversy requirement.” Rumsfeld v. Forum for Acad. & Institutional Rights, Inc., 547 U.S. 47, 53 n.2 (2006). To determine whether Plaintiffs have standing here, the Court will evaluate the State of Texas and its claims.

         a. Injury in Fact

         A plaintiff must show that it has suffered an “injury in fact, ” which is “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” Spokeo, Inc. v. Robbins, 136 S.Ct. 1540, 1548 (2016) (quoting Lujan, 504 U.S. at 560). For an injury to be “concrete” it must “actually exist, ” meaning it is “real” and “not abstract.” Spokeo, 136 S.Ct. at 1548. For an injury to be “particularized” it must “affect the plaintiff in a personal and individual way.” Spokeo, 136 S.Ct. at 1548. Defendants argue that the Certification Rule did not injure Plaintiffs because it imposed no monetary cost and preserved an economically sustainable MCO market. See Defs.' Br. 14-16, ECF No. 63. Plaintiffs argue that the Certification Rule-in conjunction with ASOP 49-injured them by requiring them to pay the HIPF in violation of the ACA. See Pls.' Br. 12-14, ECF No. 54.

         ASOP 49 requires Texas to pay the HIPF in its MCO capitation rates in order to obtain a private actuarial certification, ASOP 49 § 3.2.12(d), and the Certification Rule prevents CMS from approving any MCO contract without this certification. See 42 C.F.R. § 438.6(c)(1)(i)(A)-(C) (2002); see also Defs.' App. 155, ECF No. 63-1 (“[T]he state actuary must certify the rates or rate ranges . . . After ensuring . . . that it contains the rate certification . . . the [CMS Regional Office] forwards the contract package to [CMS].” (emphasis added)). The Certification Rule therefore gives Texas two choices: include the HIPF in its capitation rates or lose Medicaid funds. See 42 U.S.C. § 1396b(m)(2)(iii).[25] In response to this Hobson's choice, Texas appropriated millions of dollars to pay the HIPF. See Pls.' App. 1170-72, ECF No. 54-1 This injury is real and affects Texas as an individual state. Texas has shown an injury-in-fact.

         “Once injury is shown, no attempt is made to ask whether the injury is outweighed by benefits the plaintiff has enjoyed from” the injurious action. Texas v. United States, 809 F.3d 134, 155-56 (5th Cir. 2015), as revised (Nov. 25, 2015), aff'd by an equally divided court, 136 S.Ct. 2271 (2016) (per curiam) (quotation marks omitted). The benefits of an injury only negate standing in unique circumstances where “[t]he costs and benefits [arise] out of the same transaction.” Id. at 156 (citing Henderson v. Stalder, 287 F.3d 374, 379-81 (5th Cir. 2002) (holding that taxpayers could not demonstrate a monetary injury-in-fact where the state produced a pro-life license plate and required users of the license plate pay an additional fee that covered its costs)). Without this “tight[ ] nexus, ” the Court will not consider whether the benefits resulting from an injury negate standing. See Id. (citing Henderson, 287 F.3d at 379-81).

         Defendants argue that unless Texas includes the HIPF in its MCO capitation rates, its MCO contracts will be-in an objective sense-actuarially unsound and financially unsustainable. See Defs.' Br. 15, ECF No. 63.[26] Even if this were true, the potential benefit of contracting with MCOs at some distant point in the future-because the MCOs did not bear the burden of the HIPF and consequently did not go out of business-does not arise “out of the same transaction” as Texas's 2015 HIPF payments. Cf. Texas, 809 F.3d at 156; Henderson, 287 F.3d at 379-81. The Court finds that any future benefit to paying the HIPF does not negate Texas's injury-in-fact.

         b. Fairly Traceable to Defendants' Challenged Conduct

         A plaintiff's injury must also be “fairly traceable” to the challenged action. Lujan, 504 U.S. at 561. Plaintiffs here challenge the Certification Rule (42 C.F.R. § 438.6(c)(1)(i)(A)-(C) (2002)) and the HIPF (ACA § 9010(f)). Defendants argue that Plaintiffs' claimed injury is not fairly traceable to the HIPF because Plaintiffs can avoid the HIPF entirely by transitioning back to FFSPs, HIPF-exempt non-profit MCOs, or some combination of the two. Defs.' Br. 9-14, ECF No. 63. Plaintiffs contend that HIPF-exempt MCOs alone cannot provide adequate Medicaid coverage to everyone in the state, and that transitioning back to FFSPs would be costly and harmful to them and their Medicaid recipients. Pls.' Br. 12-19, ECF No. 54.

         “[T]he possibility that a plaintiff could avoid injury by incurring other costs does not negate standing.” Texas, 809 F.3d at 156-57. In Texas, the plaintiff states challenged the federal government's DAPA[27] program that gave lawful presence to 4.3 million illegal aliens. Id. at 148. Because DAPA would have required the plaintiff states to incur significant costs by issuing driver's licenses to DAPA beneficiaries, the Fifth Circuit held that the plaintiff states suffered an injury-in-fact. Id. at 155. The Government argued that these costs were not “fairly traceable” to DAPA because “the state[s] could avoid injury by not issuing licenses to illegal aliens or by not subsidizing its licenses.” Id. at 156. The Fifth Circuit emphatically rejected this argument. It noted that while Texas could avoid financial loss by requiring applicants to pay the full cost of the licenses, “it could not avoid injury altogether.” Id. The threat of paying the cost of the licenses would coerce the Texas into changing its laws-which is itself a harm. See Id. Holding that Article III does not require a state government to change its laws to avoid an injury, the Fifth Circuit explained:

Indeed, treating the availability of changing state law as a bar to standing would deprive states of judicial recourse for many bona fide harms. For instance, under that theory, federal preemption of state law could never be an injury, because a state could always change its law to avoid preemption. But courts have often held that states have standing based on preemption. And states could offset almost any financial loss by raising taxes or fees. The existence of that alternative does not mean they lack standing.

Id. at 156-57 (footnotes omitted).

         Defendants employ the same impermissible argument here. They contend that Plaintiffs could avoid the HIPF entirely by transitioning to FFSPs and HIPF-exempt MCOs. Defs.' Br. 9- 14, ECF No. 63. But such a transition would require Texas to alter its Medicaid contracts, restructure its Medicaid appropriations, and reshape its Medicaid policies. Texas holds that Article III's case or controversy requirement does not oblige a plaintiff state to make such changes. Cf. 809 F.3d at 156-57.

         Defendants also claim that Plaintiffs have manufactured their injury because every year after Congress passed the ACA, Plaintiffs increasingly moved away from FFSPs toward MCOs. Defs.' Br. 11-13, ECF No. 63.[28] While it is true that Texas is increasing its reliance on MCOs, it is doing so as part of a long-term transition that predates the ACA and the 2002 Certification Rule. In 1993, in order to realize the superior benefits of managed care, Texas began to transition from FFSPs to MCOs. See Pls.' App. 1006-08, ECF No. 54-1. Now Texas provides somewhere between 80% and 93% of its Medicaid services through MCOs. See Id. at 1007-08.[29] Defendants have not shown that Texas transitioned to MCOs to manufacture an injury.[30]

         Defendants also argue-erroneously-that under Texas, “an injury is self-inflicted and insufficient to confer standing where, as here, a federal policy leaves the option to ‘achieve[ ] their policy goal in myriad ways.'” Defs.' Br. 13 n.8, ECF No. 63 (quoting Texas, 809 F.3d at 159). Defendants reach this conclusion by quoting a portion of the Texas opinion comparing the harm caused by DAPA to the manufactured harm in Pennsylvania v. New Jersey, 426 U.S. 660 (1976). See Id. In Pennsylvania, the plaintiff states challenged the defendant states' laws increasing taxes on nonresident income. 426 U.S. at 661-64. Because the plaintiffs gave their residents credits for taxes paid to other states, the defendants' tax increases also increased the plaintiffs' tax credits, causing the plaintiffs to lose revenue. Id. The Supreme Court held that this injury was self-inflicted because the plaintiff states established their tax credits knowing that the credits could fluctuate based on the tax decisions of other states. See Id. at 664. “[T]he plaintiff states in Pennsylvania v. New Jersey could have achieved their policy goal in myriad ways, such as basing their tax credits on residents' out-of-state incomes instead of on taxes actually paid to other states.” Texas, 809 F.3d at 159. In other words, “the pressure that Pennsylvania faced to change its laws was self-inflicted.” Id. at 157 n.63. Texas did not hold that plaintiff states, who have done nothing to inflict harm on themselves, must change their laws to avoid a harm if there are “myriad ways” to do so.[31]

         Not only does Texas not require a state to change its laws to avoid a harm, Plaintiffs have shown that they are unable to do so here. First, Texas cannot rely exclusively on HIPF-exempt non-profit MCOs because Texas already contracts with all of the HIPF-exempt MCOs in the state and those MCOs are incapable of servicing the entire state alone. See Pls.' App. 1043-44, ECF No. 54-1 (“[U]ltimately non-profit coverage of every county's population is not feasible.”). And even if it were possible for Texas to rely entirely on the few HIPF-exempt MCOs operating in Texas, doing so would be risky. Because the healthcare market is in a state of flux, see Pls.' App. 122, ECF No. 54-1, there is a danger that some of those MCOs might leave the market, which would cause many people to lose Medicaid services entirely.

         Nor can Texas avoid their injury by transitioning back to FFPSs. Plaintiffs have saved hundreds of millions of dollars by moving to MCOs. See Pls.' App. 121, 133-34, 291-92, 493- 94, 1010, 1163, ECF No. 54-1. Texas reduced its healthcare costs by six percent in the year 2013 alone. See Id. at 1010. Returning to FFPSs would therefore substantially increase healthcare and administrative costs for Texas. See Id. It would injure Texas's citizens, as managed care now provides better healthcare services to its Medicaid recipients. See Id. And it would take time. As Plaintiffs' counsel observed at the summary judgment hearing, it took Texas more than two decades to switch to MCOs, and switching back to rely exclusively on FFSPs would take years. See October 25, 2017 Hr'g Tr. 10:14-22, ECF No. 85.[32] During this transition, the Certification Rule-in conjunction with ASOP 49-would still require Texas to pay the HIPF.

         With these facts in mind, Texas has even bleaker options here than it did in the Texas case. In Texas, the Government claimed that the plaintiff states could avoid an injury by changing their laws to stop subsidizing driver's licenses. Texas, 809 F.3d at 156. Here, the Government claims that Plaintiff States could avoid paying millions of dollars to cover the HIPF by changing their laws to pay millions of dollars to transition over many years back to an outdated healthcare model.[33] Texas will pay a significant monetary price no matter what choice it makes.

         For these reasons, Defendants' citation to Clapper v. Amnesty Int'l USA, 568 U.S. 398 (2013) is inapposite. In Clapper, respondents asserted that they suffered ongoing injuries fairly traceable to a surveillance statute because the threat of surveillance required them to take “costly and burdensome measures to protect the confidentiality of their communications.” 568 U.S. at 415. The Supreme Court rejected this argument and held that a plaintiff “cannot manufacture standing merely by inflicting harm on themselves based on their fears of hypothetical future harm that is not certainly impending.” Id. at 416. As the analysis above demonstrates, this case is readily distinguishable. Here, the harm of paying the HIPF is neither future nor hypothetical; it is certain and has already happened. And Plaintiff States have not inflicted the harm on themselves.

         Finally, Defendants argue that Plaintiffs' theory of standing has no principled limit because it would allow states to sue the federal government for any tax that resulted in a downstream increase in the cost of Medicaid. Defs.' Br. 10, ECF No. 63. The Court is unpersuaded by this argument, as the Fifth Circuit considered and rejected an almost identical argument in Texas. 809 F.3d at 161-62 (“The United States submits that Texas's theory of standing is flawed because it has no principled limit. In the government's view, if Texas can challenge DAPA, it could also sue to block . . . any federal policy that adversely affects the state . . . .”). The Court's finding of standing in this case announces no new interpretations of, or exceptions to, the Supreme Court's standing doctrines, and as such, it does not undermine Article III's case or controversy requirement in any way.

         There is therefore no genuine dispute of material fact that the HIPF-as imposed on the states through the Certification Rule and ASOP 49-injures the Plaintiffs, and that to avoid this injury Plaintiffs would have to change their laws and incur additional costs-both of which constitute additional, independent injuries. Because the Court finds that Plaintiffs' injury is not manufactured, Plaintiffs' injury is fairly traceable to Defendants' challenged conduct: the HIPF and the Certification Rule.

         c. Redressable by Favorable Judicial Decision

         Plaintiffs must show that a favorable judicial decision will likely redress their injury. Lujan, 504 U.S. at 561. To redress an injury, the judicial remedy must “personally . . . benefit [the plaintiff] in a tangible way . . . .” Warth v. Seldin, 422 U.S. 490, 508 (1975). Defendants have injured Plaintiffs by legally coercing them into paying the HIPF-a tax from which Plaintiffs are statutorily exempt. See supra Part III.A.1.a-b. To redress this injury, Plaintiffs ask the Court to invalidate the HIPF and the Certification Rule. Am. Compl. 27-29, ECF No. 19. The Court will next consider whether these requested remedies, if granted, will likely redress Plaintiffs' injury.

         First, if the Court invalidates the HIPF, the Government will no longer be able to collect the HIPF from MCOs. Plaintiffs would then be free to stop accounting for the HIPF in their MCO capitation rates, and private actuaries could certify those rates excluding the HIPF as actuarially sound under ASOP 49. See ASOP 49 § 3.2.12(d) (requiring capitation rates to include all non-deductible taxes). Private actuaries may ultimately withhold their certification, and CMS its final approval, for reasons unrelated to the HIPF. But the Certification Rule would no longer require Plaintiffs to pay the HIPF-as the ACA envisions-in order for Plaintiffs to obtain Medicaid funds. The Court finds that this remedy would redress Plaintiffs' injury.

         Second, if the Court invalidates 42 C.F.R. § 438.6(c)(1)(i)(A)-(C) (2002)-the Certification Rule's interpretation of “actuarially sound” capitation rates-the law would no longer require Plaintiffs to pay the HIPF in their capitation rates in order to obtain CMS approval.[34] This remedy, like the one before it, would relieve Plaintiffs' legal obligation to pay the HIPF in order to receive Medicaid funds. This would also redress Plaintiffs' injury. Defendants argue that, even without the Certification Rule, the statutory mandate that capitation rates be “actuarially sound” would still require Plaintiff States to include the HIPF in their rates. See Defs.' Br. 26, ECF No. 63. But the HIPF did not exist when Congress enacted the “actuarially sound” requirement in 1981, and when it enacted the ACA in 2010, Congress-presumably aware of the “actuarially sound” requirement-plainly exempted the states from paying this tax. See 42 U.S.C. § 1396b(m)(2)(A).

         Finally, if the Court only invalidates 42 C.F.R. § 438.6(c)(1)(i)(C) (2002)-the portion of the Certification Rule requiring a private actuarial certification of MCO capitation rates-the law would give Plaintiffs freedom to negotiate to exclude the HIPF from their rates and give CMS freedom to approve those rates. Like the other remedies, the Court finds that this too would redress Plaintiffs' injury.

         It might be objected that if the Court only invalidates 42 C.F.R. § 438.6(c)(1)(i)(C) (2002), there remains a possibility that CMS will conclude, on a case-by-case basis, that capitation rates excluding the HIPF have not “been developed in accordance with generally accepted actuarial principles and practices, ” as required by 42 C.F.R. § 438.6(c)(1)(i)(A) (2002). Indeed, HHS has stated in multiple guidance letters that it prefers for states to include the HIPF in their capitation rates. First, in 2014, HHS issued a guidance letter encouraging states to do so. See 2014 MCO Guide; supra note 19. Then in 2015, HHS issued another guidance letter, referencing its 2014 letter and reiterating its view that states should pay the HIPF. See 2015 MCO Guide; supra note 21. Moreover, CMS now uses ASOP 49 to make internal determinations on whether MCO capitation rates are actuarially sound. See Defs.' App. 156, ECF No. 63-1. If HHS prefers for states to pay the HIPF in their capitation rates, and CMS uses ASOP 49 to evaluate capitation rates, it is possible that CMS will ultimately disapprove future capitation rates that do not include the HIPF.

         Notwithstanding this possibility, the Court nonetheless finds that invalidating 42 C.F.R. § 438.6(c)(1)(i)(C) (2002) would redress Plaintiffs' injury. The law explicitly exempts states from paying the HIPF, ACA § 9010(c)(2)(B) (2010), and the Court must “presume that agencies will follow the law.” Pit River Tribe v. U.S. Forest Serv., 615 F.3d 1069, 1082 (9th Cir. 2010). The Court presumes, therefore, that CMS will not-in defiance of Congressional intention-condition Medicaid funds on whether Plaintiffs include the HIPF in their capitation rates.[35] CMS may continue to use ASOP 49 to make internal decisions whether capitation rates are “actuarially sound, ” but it cannot-and presumably will not-use ASOP 49 to ignore the ACA's statutory exemption and require Plaintiffs to pay the HIPF. Whether CMS will in due course approve every capitation rate excluding the HIPF is unclear from the facts before the Court-that it may do so in some or all cases is enough to establish redressability.

         Plaintiffs also fall within the “procedural right” exception to the redressability requirement. Under this exception, “The person who has been accorded a procedural right to protect his concrete interests can assert that right without meeting all the normal standards for redressability and immediacy.” Lujan, 504 U.S. at 572 n.7 (1992). For example, a person “living adjacent to the site for proposed construction of a federally licensed dam has standing to challenge the licensing agency's failure to prepare an environmental impact statement, even though he cannot establish with any certainty that the statement will cause the license to be withheld . . . .” Id. Similarly here, if the Court only invalidates 42 C.F.R. § 438.6(c)(1)(i)(C) (2002), Plaintiffs cannot establish with certainty that CMS will ultimately approve their capitation rates excluding the HIPF. But Plaintiffs assert a procedural right: their statutory exemption from paying the HIPF. ACA § 9010(c)(2)(B) (2010); see 26 C.F.R. § 57.2(b)(2)(ii)(B). By challenging the Certification Rule's certification requirement, “plaintiffs are seeking to enforce a procedural requirement”-their HIPF exemption-“the disregard of which could impair a separate concrete interest of theirs”-namely, their interest in not paying the HIPF, changing their laws to budget for the HIPF, or raising taxes to fund the HIPF. Cf. Lujan, 504 U.S. at 572. Accordingly, even if the Court's invalidation of 42 C.F.R. § 438.6(c)(1)(i)(C) (2002) would not satisfy “normal standards for redressability, ” it would redress Plaintiffs' injury under Lujan.

         There is therefore no genuine dispute of material fact that a favorable judicial decision invalidating either the HIPF or the Certification Rule would redress Plaintiffs' injury. The Court finds that Plaintiffs have shown redressability.

         d. Prudential Standing

         The Court also considers sua sponte whether Plaintiffs have satisfied prudential standing. The Supreme Court “interpreted § 10(a) of the APA to impose a prudential standing requirement in addition to the requirement, imposed by Article III of the Constitution, that a plaintiff has suffered an injury in fact.” Nat'l Credit Union Admin. v. First Nat'l Bank & Trust Co., 522 U.S. 479, 488 (1998). “For a plaintiff to have prudential standing under the APA, ‘the interest sought to be protected by the complainant [must be] arguably within the zone of interests to be protected or regulated by the statute . . . in question.” Id. (quoting Ass'n of Data Processing Serv. Orgs., Inc. v. Camp, 397 U.S. 150, 152 (1970)) (alterations in original). The “zone of interests” test applies “[i]n cases where the plaintiff is not itself the subject of the contested regulatory action, ” and it only “denies a right of review if the plaintiff's interests are . . . marginally related to or inconsistent with the purposes implicit in the statute . . . .” Clarke v. Secs. Indus. Ass'n, 479 U.S. 388, 399 (1987). This test is “not meant to be especially demanding” and the Court applies it in keeping with Congress's intent that agency action is presumptively reviewable. Texas, 809 F.3d at 162 (quoting Clarke, 479 U.S. at 399).

         Plaintiffs bring several APA claims challenging the Certification Rule's interpretation of “actuarially sound, ” which enabled the ASB to impose the HIPF on Plaintiffs. Am. Compl. 19-27, ECF No. 19. Plaintiffs are the subject of this contested regulatory action. Cf. Clarke, 479 U.S. at 399. And Plaintiffs' asserted interest-exemption from paying the HIPF-is within the zone of interests Congress meant to protect or regulate by enacting the HIPF, because the ACA expressly exempts states from paying the HIPF, and the Certification Rule allowed the ASB to nullify that exemption. Cf. Nat'l Credit Union Admin., 522 U.S. at 488. Accordingly, the Court finds that there is no genuine dispute of material fact that Plaintiffs have prudential standing under the APA.

         Because Plaintiffs have shown Article III and prudential standing, the Court DENIES Defendants' Motion for Summary Judgment (ECF No. 62) as to standing.

         2. Anti-Injunction Act

         The Court will next consider whether the AIA bars Plaintiffs claims. Defendants argue that the AIA deprives the Court of jurisdiction because Plaintiffs seek to prevent collection of a tax. Defs.' Br. 16-22, ECF No. 63. The AIA states, “[N]o suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.” 26 U.S.C. § 7421(a). The AIA divests the court of jurisdiction over any claim-including constitutional claims-brought by any person that would affect the IRS's ability to assess and collect anyone's taxes. See Alexander v. Americans United Inc., 416 U.S. 752, 759 (1974). Regardless of the HIPF's label as a “fee, ” because the ACA treats the HIPF as a tax for purposes of the Internal Revenue Code (the “IRC”), ACA § 9010(f)(1), the AIA applies to Plaintiffs' claims. See Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 544-45 (2012) [hereinafter NFIB] (concluding that the AIA applies to an exaction that the enacting statute treats as a tax for purposes of the IRC).[36] Because Plaintiffs' HIPF claims would restrain the assessment and collection of a tax, the Court must determine whether its jurisdictional bar extends to Plaintiffs' HIPF claims.

         Plaintiffs claim that the AIA is inapplicable because states are not “person[s]” under the statute. Pls.' Reply 13, ECF No. 66. To determine whether Congress intended states to be “person[s]” under the AIA, the Court must begin with the text of the statute and ascertain its plain meaning by considering its language and design as a whole. See K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988). The Court first considers whether the statute defines its terms. Cf. United States v. Santos, 553 U.S. 507, 511 (2008) (considering first the statutory definitions). The AIA itself does not define “person.” See 26 U.S.C. § 7421. However, the AIA is codified in the IRC, and the IRC's general definitional provision states, “The term ‘person' shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.” 26 U.S.C. § 7701(a)(1) (emphasis added). When a statutory definition “includes” enumerated examples, those examples are illustrative, not exhaustive. Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 162 (2012). Because the list of entities in § 7701(a)(1) is illustrative, the IRC's definition section could include states as “person[s]” under the AIA.

         “When a term is undefined, we give it its ordinary meaning.” Santos, 553 U.S. at 511. A legal “person” is typically an entity “recognized by law as having the rights and duties of human beings.” Black's Law Dictionary 1178 (9th ed. 2004); see also Webster's Third New International Dictionary 1686 (1971) (defining “person” as “a human being, a body of persons, or a corporation, partnership, or other legal entity that is recognized by law as the subject of rights and duties.”). Because the law often recognizes states as having the rights and duties of human beings, the Court finds that “person[s]” under the AIA include states. See, e.g., Estate of Wycoff v. Comm'r, 506 F.2d 1144, 1151 (10th Cir. 1974) (holding that the term “person” in § 7701(a)(1) includes the states); see generally South Carolina v. Regan, 465 U.S. 367 (1984) (assuming that states are persons under the IRC for purposes of the AIA). It also harmonizes with Supreme Court decisions holding that states are “persons” under other IRC provisions that do not explicitly define “person” to include states. See Sims v. United States, 359 U.S. 108, 112 (1959) (holding that 26 U.S.C. § 6332(b)'s definition of “person” applied to the State ...

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