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From Health Law Daily, January 25, 2018

Class action says ‘radical’ Kentucky Medicaid work requirement is unlawful

By Jeffrey H. Brochin, J.D.

A group of Kentucky Medicaid beneficiaries filed a class-action lawsuit in federal district court in Washington, D.C., challenging HHS’ and CMS’ decision to grant the state a Medicaid waiver including a work requirement. The complaint seeks declaratory relief declaring CMS’ recent letter to state medical directors (see Trump’s CMS endorses Medicaid work requirements, January 11, 2018) and subsequent approval of the Kentucky HEALTH waiver application a violation of the Administrative Procedures Act (APA) and the Take Care Clause of the U.S. Constitution. The class seeks a permanent injunction enjoining CMS and Kentucky from implementing the work requirements purportedly authorized by the letter and the Kentucky HEALTH waiver application. The case is captioned Stewart v. Hargan, and is designated Case No. 1:18-cv-00152.

Background. Section 2001 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) expanded Medicaid coverage to nondisabled adults with income levels up to 138 percent of the federal poverty level (FPL). Not all states implemented the expansion, and states were granted the opportunity to waive certain requirements of the Medicaid program by applying for waivers and demonstration projects. In March 2018, the Trump Administration confirmed that state demonstration projects requiring eligible adult beneficiaries to engage in work or community activities would be supported by CMS. Kentucky applied for and was granted a waiver for a demonstration project dubbed "Kentucky HEALTH," which included a work requirement. Kentucky Governor Bevin (R) then signed an executive order implementing the newly approved program.

HHS’ waiver authority challenged. The complaint alleged that after the comment period closed on the Kentucky HEALTH application, CMS announced a new approach to Medicaid waivers that would fundamentally transform the program. The Kentucky Medicaid beneficiaries contend that HHS’ conduct deviated from the congressionally-established requirements of the Medicaid program and vastly exceeded any lawful exercise of the Secretary’s limited waiver authority.

APA violation arguments. The complaint noted that under the APA, a reviewing court may "hold unlawful and set aside" agency actions that are (1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (2) contrary to constitutional right, power, privilege, or immunity; (3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; or (4) without observance of procedure required by law. 5 U.S.C. §706(2)(A)-(D). The beneficiaries argue that in issuing the January 2018 letter, HHS purported to act pursuant to Section 1115 of the Medicaid Act, but the authorization of work and community engagement requirements was categorically outside the scope of the Secretary’s Section 1115 waiver authority. Furthermore, the contend that the letter was required to be—but was not—issued through notice-and-comment rulemaking.

The beneficiaries allege that the Kentucky HEALTH’s work and community engagement requirements are not experimental or likely to promote the objectives of the Medicaid Act. Therefore, they contend that in approving the Kentucky HEALTH work and community engagement requirements, the Secretary relied on factors which Congress had not intended him to consider, failed to consider several important aspects of the problem, and offered an explanation for his decision that ran counter to the evidence.

Constitutional arguments. The beneficiaries claim a non-statutory right of action to enjoin and declare unlawful official action that is ultra vires, and that the policy change violates the Executive branch’s Constitutional duty to "take Care that the Laws be faithfully executed." U.S. Constitution,art. II, Sec. 3. The Take Care Clause is judicially enforceable against presidential action that undermines statutes enacted by Congress and signed into law, and limits the President’s power to faithfully executing the laws passed by Congress.

Relief sought. The complaint seeks declaratory relief declaring that the letter and waiver approval violated the APA, the Social Security Act, and the U. S. Constitution, and injunctive relief enjoining HHS and Kentucky from implementing the work requirement.

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