On April 10, 2019, the Department of Justice filed notices[1] appealing two District Court rulings that struck down Medicaid work requirements in both Kentucky[2] and Arkansas[3] to the U.S. Court of Appeals for the District of Columbia Circuit. The rulings, issued on March 27, 2019, by Judge James E. Boasberg of the Federal District Court for the District of Columbia, held that the U.S. Department of Health and Human Services (“HHS”) acted arbitrarily and capriciously in violation of the Administrative Procedure Act (“APA”) when it approved the Arkansas Works Amendments and Kentucky HEALTH programs. Arkansas and Kentucky halted the programs, pending resolution of the appeals.

Background

Arkansas Works Amendments

In 2017, Arkansas Governor Asa Hutchinson proposed substantial amendments to the Arkansas Medicaid program (known as Arkansas Works since 2017) (the “Arkansas Works Amendments”). While States generally must meet specific federal requirements when implementing their Medicaid programs, Federal law allows the Secretary of HHS (the “Secretary”) to waive federal requirements for “experimental, pilot, or demonstration project[s]” proposed by States.[4]   Specifically, if, in the Secretary’s judgment, the proposals would be “likely to assist in promoting [Medicaid’s] objectives,”[5] then the Secretary may waive compliance with certain Federal Medicaid requirements to the extent necessary to enable the State to carry out its proposed project (a “Section 1115 Waiver”).[6]

The Arkansas Works Amendments included a new requirement that adults ages 19 to 49 complete 80 hours of employment, or earn income equivalent to 80 hours of employment, each month as a condition of continued Medicaid coverage.[7] On March 5, 2018, the Secretary approved the work requirements and issued a Section 1115 Waiver allowing Arkansas to implement the new requirements. After the work requirements were implemented, more than 16,900 individuals lost Medicaid coverage for at least some period of time due to not reporting their compliance.[8]

Arkansas Medicaid recipients filed suit against the Secretary in August 2018. They asserted that the Secretary’s approval of the Arkansas Works Amendments was arbitrary and capricious, exceeded the Secretary’s statutory authority, and violated the “Take Care Clause” at Article 2, Section 3 of the Constitution – such clause requiring that the President, “take care that the laws be faithfully executed.”[9]

Kentucky HEALTH

In 2018, Kentucky submitted its own Medicaid proposal – the Kentucky HEALTH program – which CMS approved.[10] Like the Arkansas Works Amendments, Kentucky HEALTH made significant changes to Kentucky Medicaid, including, among other things, the implementation of work requirements. Kentucky HEALTH would require Medicaid beneficiaries to spend at least 80 hours per month on certain qualified activities, including: (i) employment; (ii) job skills training; (iii) education; (iv) community service; and (v) participation in Substance Use Disorder treatment. Failure to meet the 80 hour threshold, or failure to report compliance, would result in loss of Medicaid coverage.[11]

Two weeks after the Kentucky HEALTH program was approved, Kentucky Medicaid recipients sued the Secretary. The plaintiffs argued that the Secretary failed to consider Medicaid’s objectives and exceeded his statutory authority when he approved Kentucky HEALTH. The Federal District Court for the District of Columbia agreed with the plaintiffs, and vacated the Secretary’s approval on June 29, 2018, and remanded to HHS for reconsideration.[12]

Following remand, HHS re-opened public comments for Kentucky HEALTH, and approved a slightly modified proposal on November 20, 2018. Again, Kentucky Medicaid recipients sued the Secretary, arguing that the Secretary still had not considered Medicaid’s core objectives in violation of the APA.[13]

The Administrative Procedure Act

The APA establishes two important frameworks: (1) procedures which executive agencies must follow when developing, reviewing, and promulgating rules and regulations; and (ii) a judicial framework for courts to review executive agency actions.[14] Under the APA, courts must “hold unlawful and set aside agency action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”[15] An agency must “examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made,” or the agency’s action may be stuck down by the courts.[16]

The District Court Held That HHS Failed to Consider Medicaid’s Core Objective

Using the APA framework, the court analyzed whether HHS identified the objectives of Medicaid and explained why the Arkansas Works Amendments and Kentucky HEALTH programs would promote such objectives.[17] The court found that, while HHS had considered several Medicaid objectives, HHS failed to consider one critically important objective – providing medical assistance to needy populations.[18]

While HHS itself admitted that providing health coverage to vulnerable populations is “Medicaid’s core objective,”[19] the court found that HHS failed to consider the impact that the Kentucky and Arkansas projects would have on current and future Medicaid coverage.[20] The court determined this failure alone made the Secretary’s approval of the states’ work requirements arbitrary and capricious.[21] The court vacated HHS’s approval of both the Kentucky and Arkansas programs, and remanded both programs to HHS for reconsideration.[22]

Arkansas and Kentucky Halt Implementation of Work Requirements Pending Appeal

Following the District Court decision, Arkansas suspended the changes made by the Arkansas Works Amendments, which have been in effect since June 2018, and Kentucky halted implementation of its Kentucky HEALTH program, which was scheduled to take effect on April 1, 2019. Governor Hutchinson praised the Justice Department’s decision to appeal the cases, and indicated that the Government will likely seek an expedited appeal.

[1] Notice of Appeal, Stewart v. Azar, Case No. 1:18-cv-152-JEB (D.D.C. Apr. 10, 2019); Notice of Appeal, Gresham v. Azar, Case No. 1:18-cv-1900-JEB (D.D.C. Apr. 10, 2019)

[2] Memorandum Opinion, Stewart v. Azar, Case No. 18-152-JEB (D.D.C. Mar. 27, 2019)

[3] Memorandum Opinion, Gresham v. Azar, Case No. 18-1900-JEB (D.D.C. Mar. 27, 2019)

[4] 42 U.S.C. § 1315(a)

[5] Id.

[6] 42 U.S.C. § 1315(a)(i).

[7] Gresham at 7-9.

[8] Id. at 8-9.

[9] Gresham at 10.

[10] Stewart at 4.

[11] Stewart at 5.

[12] Stewart at 6-7.

[13] Stewart at 5-8.

[14] See generally 5 U.S.C. § 551 et seq.

[15] 5 U.S.C. § 706(2).

[16] Stewart at 10 (quoting Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983))

[17] Gresham at 16; Stewart at 14-15.

[18] Gresham at 17-18; Stewart at 14.

[19] Gresham at 17.

[20] Stewart at 16-17

[21] Stewart at 15

[22] Gresham at 33; Stewart at 48.