UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Concord Hospital, Inc.

v. Civil No. 23-cv-486-LM Opinion No.

P NH Department of Health and Human Services, et al.

ORDER

Plaintiff Concord Hospital, Inc. brings this action for declaratory and

injunctive relief against the Commissioner of the New Hampshire Department of

Health and Human Services (“the Commissioner”) and several federal defendants.1

With respect to the Commissioner, plaintiff—a provider of services to Medicaid

patients—contends that the Commissioner violated certain provisions of the

Medicaid Act and plaintiff’s due process rights in seeking to: (1) recoup from

plaintiff more than $8 million in “disproportionate share hospital” payments (“DSH

payments”); and (2) allocate the discharged Medicaid debts of two bankrupt

hospitals to plaintiff. With respect to the Federal Defendants, Plaintiff alleges that

they improperly approved New Hampshire’s Medicaid state plan for fiscal years

2011 through 2017 in violation of the Administrative Procedure Act (“APA”).

1 The federal defendants named in the complaint are the Secretary for the

United States Department of Health and Human Services, the Administrator for the Centers for Medicare & Medicaid Services, and the Centers for Medicare & Medicaid Services. The court will refer to these three defendants, collectively, as “the Federal Defendants” throughout this order. Presently before the court is the Commissioner’s motion to dismiss pursuant

to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) (doc. no. 19) and plaintiff’s

motion for a preliminary injunction (doc. no. 2).2 For the following reasons, the court

grants in part and denies in part the Commissioner’s motion to dismiss, and grants

the motion for a preliminary injunction.

STANDARDS OF REVIEW

I. The Commissioner’s Motion to Dismiss

A defendant may challenge the court’s subject-matter jurisdiction under Rule

12(b)(1) in one of two ways. Freeman v. City of Keene,

, 25

(D.N.H. 2021). First, the defendant may challenge the sufficiency of the allegations

relied upon in the complaint to support jurisdiction.

Alternatively, the defendant

can challenge the accuracy of the complaint’s jurisdictional allegations.

The

court’s standard of review differs depending on the challenge brought.

Where a

defendant challenges the sufficiency of the complaint’s jurisdictional facts, the

standard of review is the same as the Rule 12(b)(6) standard.

Where a defendant

challenges the accuracy of the plaintiff’s allegations, those allegations “are entitled

to no presumptive weight,” and “the court must address the merits of the

jurisdictional claim by resolving the factual disputes between the parties.” Valentin

v. Hosp. Bella Vista,

(1st Cir. 2001).

2 The court will address the Federal Defendants’ motion to dismiss the APA

claim (doc. no. 44) in a separate order. 2 Here, the Commissioner challenges only the sufficiency of the facts alleged in

the complaint that would support the existence of jurisdiction. Therefore, the court

applies the familiar 12(b)(6) standard to all of the Commissioner’s arguments for

dismissal.

Under Rule 12(b)(6), the court must accept the factual allegations in the

complaint as true, construe reasonable inferences in the plaintiff’s favor, and

“determine whether the factual allegations in the plaintiff’s complaint set forth a

plausible claim upon which relief may be granted.” Foley v. Wells Fargo Bank, N.A.,

(1st Cir. 2014) (quotation omitted). In addition to the

complaint’s well-pled factual allegations, the court may consider exhibits submitted

with the complaint or sufficiently referred to in the complaint, official public

records, documents central to the plaintiff’s claim, and documents the authenticity

of which is not disputed. See Newman v. Lehman Bros. Holdings, Inc.,

(1st Cir. 2018). A claim is facially plausible “when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is

liable for the misconduct alleged.” Ashcroft v. Iqbal,

(2009).

Analyzing plausibility is “a context-specific task” in which the court relies on its

“judicial experience and common sense.”

.

II. Plaintiff’s Motion for a Preliminary Injunction

“A preliminary injunction is an extraordinary remedy never awarded as of

right.” Winter v. Nat. Res. Def. Council,

(2008). To obtain a

preliminary injunction, the moving party must show: (1) a likelihood of success on

3 the merits; (2) that it is likely to suffer irreparable harm in the absence of a

preliminary injunction; (3) that the balance of equities weighs in the movant’s favor;

and (4) that the injunction would serve the public interest. Arborjet, Inc. v. Rainbow

Treecare Sci. Advancements, Inc.,

(1st Cir. 2015). Irreparable

harm and a sufficient likelihood of success on the merits are the most important

factors. Thomas v. Warden, Fed. Corr. Inst., Berlin, N.H.,

, 336

(D.N.H. 2022). These two factors are reviewed on a “sliding scale,” such that a

strong showing on one prong can make up for a somewhat weaker showing on the

other. Vaquería Tres Monjitas, Inc. v. Irizarry,

(1st Cir. 2009);

accord Bos. Taxi Owners Ass’n, Inc. v. City of Boston,

(D.

Mass. 2016) (explaining that courts “sometimes award[ ] relief based on a lower

likelihood of success on the merits when the potential for irreparable harm is high”);

see, e.g., Pub. Serv. Co. of N.H. v. Patch,

(1st Cir. 1998)

(affirming preliminary injunction where “one or more of the claims put forth

. . . provide[d] fair grounds for further litigation—this lesser standard being

defensible in light of the rather powerful showing of irreparable injury”).

BACKGROUND

I. The Medicaid Act: Statutory and Regulatory Background

Medicaid is a cooperative federal-state program designed to provide medical

services to individuals who, because they lack financial resources, cannot otherwise

obtain medical care. N.H. Hosp. Ass’n v. Burwell, Civ. No. 15-cv-460-LM,

, at *1 (D.N.H. Mar. 11, 2016) [hereinafter “N.H. Hosp. Ass’n I”]. The

4 Medicaid Act,

et seq., “provides financial support to states that

establish and administer state Medicaid programs in accordance with federal law.”

Long Term Care Pharm. All. v. Ferguson,

(1st Cir. 2004).

If a state elects to participate in Medicaid, it must comply with the

requirements of the Medicaid Act, Harris v. McRae,

(1980),

including the requirement that the state adopt a Medicaid “plan,” 42 U.S.C.

§ 1396a(a). “The state plan is required to establish, among other things, a scheme

for reimbursing health care providers for the medical services provided to needy

individuals.” Wilder v. Va. Hosp. Ass’n,

(1990). The state plan

must be submitted to the Centers for Medicare & Medicaid Services (“CMS”) for

approval. N.H. Hosp. Ass’n v. Burwell, Civ. No. 15-cv-460-LM,

, at

*1 (D.N.H. Mar. 2, 2017) [hereinafter “N.H. Hosp. Ass’n II”]. If CMS determines

that the state plan complies with the Medicaid Act, CMS “shall approve” the plan.

42 U.S.C. § 1396a(b). Once the state plan is approved, the federal government

provides reimbursements to the state for a portion of the expenditures that it incurs

for Medicaid benefits, and for the necessary and proper costs of administering the

state plan. N.H. Hosp. Ass’n I,

, at *1. The state then reimburses

the medical facilities for the care they provide to Medicaid patients. N.H. Hosp.

Ass’n v. Azar,

(1st Cir. 2018) [hereinafter “N.H. Hosp. Ass’n III”].

States must also amend their state plans “whenever necessary to reflect . . .

[m]aterial changes in State law, organization, or policy, or in the State’s operation

of the Medicaid program.”

(c)(1). Such an amendment is known as

5 a “State Plan Amendment” (“SPA”). SPAs, like the state plans themselves, must be

submitted to CMS for approval,

§ 430.12(c)(2), and CMS must approve SPAs if

they comply with the Medicaid Act, 42 U.S.C. § 1396a(b).

II. DSH Payment Overview

In addition to reimbursements for the cost of care to eligible patients, the

Medicaid Act provides for additional payments to “hospitals which serve a

disproportionate number of low-income patients with special needs.” 42 U.S.C.

§ 1396a(a)(13)(A)(iv); see N.H. Hosp. Ass’n III,

(citing 42 U.S.C.

§ 1396r-4(c)). States must ensure that hospitals serving a disproportionate share of

such patients receive “an appropriate increase in the rate or amount of payment for

such services” and that the reimbursements “reflect not only the cost of caring for

Medicaid recipients, but also the cost of charity care given to uninsured patients.”

La. Dep’t of Health & Hosps. v. Ctr. for Medicare & Medicaid Servs.,

(5th Cir. 2003) (quotation omitted). These payments are known as DSH

payments.

Under the Medicaid Act, each state participating in Medicaid is allocated a

lump sum from which it will make DSH payments to qualifying hospitals. See 42

U.S.C. § 1396r-4(f). The state plan must define which hospitals are eligible to

receive DSH payments and how eligible hospitals will receive DSH payments. See

42 U.S.C. § 1396r-4(a)(1)(A)-(B). Although the Medicaid Act requires states to

designate certain hospitals as DSH-payment-eligible, see 42 U.S.C. § 1396r-4(b),

states generally have discretion in designating other hospitals as disproportionate

6 share hospitals, so long as they have a Medicaid utilization rate of at least one

percent and employ at least two obstetricians with staff privileges who treat

Medicaid patients, see 42 U.S.C. § 1396r-4(d). States also have considerable

discretion in determining how DSH payments will be calculated and in prioritizing

DSH payments among different disproportionate share hospitals. See 42 U.S.C.

§ 1396r-4(c) (outlining three broad DSH payment methodology models that states

may employ); see also

, 77,911 (Dec. 19, 2008) (noting that

“[s]tates have considerable flexibility in developing DSH payment methodologies”).

Regardless of the methodology the state elects to include in its state plan for

making DSH payments, that methodology must go through a notice-and-comment

process. See 42 U.S.C. § 1396a(a)(13)(A) [hereinafter “Section (13)(A)”]. Section

(13)(A) provides that state plans “must” provide “for a public process for

determination of rates of payment under the plan for hospital services.” Id. Under

this public process:

(i) proposed rates, the methodologies underlying the establishment of such rates, and justifications for the proposed rates are published,

(ii) providers, beneficiaries and their representatives, and other concerned State residents are given a reasonable opportunity for review and comment on the proposed rates, methodologies, and justifications,

(iii) final rates, the methodologies underlying the establishment of such rates, and justifications for such final rates are published, and

(iv) in the case of hospitals, such rates take into account (in a manner consistent with [42 U.S.C. § 1396r-4]) the

7 situation of hospitals which serve a disproportionate number of low-income patients with special needs . . . .

Id. Section 1396r-4(a)(2)(D), referenced in subsection (iv) of Section (13)(A), provides

in pertinent part:

A State plan . . . shall not be considered to meet the requirements of [Section (13)(A)] . . . unless the State has submitted to the Secretary . . . a description of the methodology used by the State to identify and to make payments to disproportionate share hospitals . . . .

42 U.S.C. § 1396r-4(a)(2)(D) [hereinafter “Section (2)(D)”]. States must also provide

notice “of any significant proposed change in its methods and standards for setting

payment rates for services.”

(a). Other regulations set forth the

manner in which such notice must be given. See

(d).

In 1993, Congress amended the Medicaid Act to limit DSH payments in

response to reports that some hospitals had received DSH payments in excess of

“the net costs, and in some instances the total costs, of operating the facilities.” N.H.

Hosp. Ass’n III,

(quotation omitted). In response to these reports,

Congress enacted legislation setting a hospital-specific upper limit on the amount of

DSH funding an individual hospital may receive. See Omnibus Budget

Reconciliation Act of 1993,

(b)(1),

(codified

at 42 U.S.C. § 1396r-4(g)). The relevant provision of the Medicaid Act provides that

DSH payments to an individual hospital cannot exceed: (1) the costs incurred by

that hospital for providing services to Medicaid patients, plus (2) the costs incurred

by that hospital for providing services to patients without insurance or other source

of third-party coverage, minus (3) Medicaid payments received by that hospital

8 (other than DSH payments) and minus (4) self-payments from uninsured patients.

See 42 U.S.C. § 1396r-4(g)(1). This hospital-specific limit is known as the hospital’s

“uncompensated care costs.” 42 U.S.C. § 1396r-4(j)(2).

To monitor DSH payments, Congress would later enact into law a

requirement that each participating state provide the federal government with an

annual report and audit on its DSH payment program. See Medicare Prescription

Drug, Improvement, and Modernization Act of 2003,

(d),

(codified at 42 U.S.C. § 1396r-4(j)). The audit must confirm, among

other things, that “[o]nly the uncompensated care costs of providing inpatient

hospital and outpatient hospital services to individuals described in [42 U.S.C.

§ 1396r-4(g)(1)(A)] are included in the calculation of the hospital-specific limits” for

DSH payments. 42 U.S.C. § 1396r-4(j)(2)(C). Where an audit reveals that a hospital

has received a DSH payment in excess of its uncompensated care costs (i.e., in

excess of the hospital-specific cap on DSH payments set by the Medicaid Act), the

state has one year to recoup the overpayment; otherwise, CMS may reduce the

State’s DSH funding in a subsequent year to offset the overpayment. See 42 U.S.C.

§ 1396b(d)(2)(C).

Implementing regulations pertaining to these auditing and reporting

requirements provide that states must annually submit information “for each

. . . hospital to which the State made a DSH payment.”

(c). One

of the many pieces of information required by this regulation is each hospital’s total

annual uncompensated care costs, and the regulation establishes a formula to

9 determine whether given hospital-specific limits are being correctly calculated. See

§ 447.299(c)(16). Other regulations require the yearly audits to verify six specific

items. See

(d). The audit must verify that the state has

documented and retained information and records regarding the cost of providing

Medicaid-eligible services and services to the uninsured, as well as information and

records regarding Medicaid payments and self-payments by the uninsured.

(d)(5). The audit must also verify “the methodology for calculating

each hospital’s payment limit,” including “how the State defines incurred . . . costs

for furnishing . . . services to Medicaid individuals . . . and [uninsured] individuals.”

(d)(6).

III. New Hampshire’s Medicaid Plan

New Hampshire participates in Medicaid and had a state plan in place for

each year relevant to the instant lawsuit (2011 through 2017). The methodology set

forth in the state plan for distributing DSH payments underwent amendment via

SPAs from year-to-year, but generally speaking, the methodology was as follows.

For each year, the state plan provided that, if an in-state, non-public general

hospital (1) had at least two obstetricians with staff privileges who had agreed to

provide obstetrics services to Medicaid patients and (2) had a Medicaid utilization

rate of at least one percent, then the hospital “shall receive” a DSH payment. E.g.,

doc. no. 1-2 at 11.3 For 2011 through 2013, the state plan provided that “critical

3 Accord doc. no. 1-3 at 9; doc. no. 1-4 at 5; doc. no. 1-5 at 5; doc. no. 1-6 at 4

(showing that page 5a of state plan was not amended); doc. no. 1-7 at 4 (same). 10 access hospitals” would receive a DSH payment equal to one hundred percent of

their uncompensated care costs. See id.; doc. no. 1-3 at 9. Remaining DSH funds

would be paid to “non-critical access hospitals” (of which plaintiff is one) on a

uniform, pro rata basis of such hospitals’ uncompensated care costs using whatever

funds remained after making DSH payments to critical access hospitals. See doc.

no. 1-2 at 11; doc. no. 1-3 at 9. Subsequent amendments to the state plan provided

that, in years 2014 through 2017, critical access hospitals would receive a DSH

payment equaling seventy-five percent of their uncompensated care costs, with the

remainder paid to non-critical access hospitals using a pro rata methodology. See,

e.g., doc. no. 1-4 at 5.

For each year in question, the state plan provided that disproportionate

share hospitals would initially receive an interim DSH payment for that year based

on projected uncompensated care costs. For each year, the state plan set forth that

“[t]his payment amount is reconciled in a subsequent year to account for variances

identified between projected uncompensated care costs and actual uncompensated

care costs.” E.g., doc. no. 1-2 at 11. Starting in 2014, the state plan clarified that

this reconciliation would be based on hospitals’ actual uncompensated care costs “as

determined by the independent certified audit” required by the Medicaid Act and its

regulations. E.g., doc. no. 1-4 at 5. And beginning in 2015, the state plan further

clarified that the State “will use funds resulting from such . . . reconciliation . . . to

pay appropriate DSH payment amounts to hospitals where such . . . reconciliation

results show DSH underpayments.” Doc. no. 1-5 at 7. Thus, the state plan

11 established a methodology by which a disproportionate share hospital could be

required to remit some of its interim DSH payment where the federally required

audit revealed that the hospital’s actual uncompensated care costs were lower than

its projected uncompensated care costs—even if the interim payment the hospital

received was still less than its total uncompensated care costs (i.e., even where the

interim payment did not exceed the hospital-specific limit set forth in the Medicaid

Act).

The state plan did not define what hospital costs are included in the

calculation of a hospital’s uncompensated care costs. Rather, the state plan defined

uncompensated care costs simply by referring to the definition set forth in the

Medicaid Act: the cost of providing inpatient and outpatient hospital services to

Medicaid patients and uninsured patients, minus other Medicaid payments received

and self-payments. See, e.g., doc. no. 1-2 at 11.

IV. Factual Background4

Plaintiff received interim DSH payments in 2011 and 2014 through 2017

based on its projected uncompensated care costs for those years. Plaintiff did not

receive any DSH payments in 2012 or 2013. In 2015, an accounting firm completed

the federally required audit for New Hampshire’s 2011 DSH payments. The report

summarizing the audit’s findings calculated the uncompensated care costs for each

hospital receiving a DSH payment in that year. Of the twenty-seven New

4 The following facts are drawn from plaintiff’s complaint and the exhibits

attached thereto. They are not in dispute for purposes of plaintiff’s preliminary injunction motion. 12 Hampshire hospitals receiving an interim DSH payment based on their projected

uncompensated care costs, twelve received an interim payment that was ultimately

in excess of their actual uncompensated care costs. In addition, the report stated

that several hospitals receiving DSH payments were unable to provide certain

documentation needed to accurately calculate those hospitals’ actual

uncompensated care costs.

In January 2016, the Commissioner sent plaintiff a letter explaining that the

audit regarding 2011 DSH payments had been completed and that the audit had

calculated hospitals’ uncompensated care costs for that year. The letter explained

that the Commissioner would recoup DSH payments that were in excess of

hospitals’ uncompensated care costs and redistribute them to other eligible

hospitals. The letter also explained that the state plan “required that all DSH

payments be reconciled and adjusted against the federally required audit findings”;

as such, the Commissioner stated she was “required . . . to recalculate the amount of

[DSH payment] owed to each hospital for [fiscal year] 2011 and recoup and

redistribute.” Doc. no. 1-12 at 2-3. The letter referred to New Hampshire’s state

plan which provided that, after making DSH payments to critical access hospitals at

100% of such hospitals’ uncompensated care costs, remaining DSH funds would be

paid to non-critical access hospitals (such as plaintiff) at a “lower, uniform

percentage of their [uncompensated care costs].” Id. at 2.

Attached to the letter was a chart demonstrating the methodology by which

the Commissioner determined whether each hospital receiving a DSH payment in

13 2011 needed to remit some of its interim payment. See id. at 5. The chart set forth

that, after making payments to critical access hospitals, sufficient DSH funding

remained to make pro rata DSH payments to non-critical access hospitals such that

each non-critical access hospital would receive a DSH payment equal to 64.3% of

the hospital’s uncompensated care costs. The chart showed that, although plaintiff’s

interim DSH payment was not in excess of its uncompensated care costs as

determined by the audit (i.e., was not greater than the hospital-specific limit set

forth in the Medicaid Act), the Commissioner nonetheless needed to recoup a

portion of plaintiff’s interim DSH payment because plaintiff’s actual uncompensated

care costs turned out to be lower than its estimated uncompensated care costs.

Because the state plan entitled plaintiff, as a non-critical access hospital, to a DSH

payment equaling 64.3% of its uncompensated care costs, the fact that plaintiff’s

actual uncompensated care costs turned out to be lower than its projected costs

meant that plaintiff had received an interim DSH payment that was greater than

64.3% of its uncompensated care costs. Therefore, the Commissioner planned to

recoup a portion of plaintiff’s interim DSH payment and redistribute it to other

hospitals that the audit revealed to be underpaid.

The audit, however, had determined hospitals’ uncompensated care costs in

reliance on certain sub-regulatory guidance issued by CMS. The New Hampshire

Hospital Association (“the Hospital Association”), of which plaintiff is a member,

brought suit in this court challenging the validity of this guidance. See N.H. Hosp.

Ass’n I,

, at *1. This court issued a preliminary injunction

14 enjoining CMS from relying on this guidance and from recouping any federal DSH

funds provided to New Hampshire based on the application of this guidance. See id.

at *19. This court subsequently granted summary judgment to the Hospital

Association, permanently enjoining CMS from applying this guidance until it was

properly promulgated as a regulation. See N.H. Hosp. Ass’n II,

, at

*16. The First Circuit later affirmed the summary judgment order. See N.H. Hosp.

Ass’n III,

.

Because of this litigation, the reconciliation process for 2011 DSH payments

was delayed. The firm that had previously completed the audit of 2011 DSH

payments would later issue an addendum to its audit recalculating hospitals’ actual

uncompensated care costs for 2011 without applying the enjoined guidance. The

recalculations revealed once again that, although plaintiff’s interim DSH payment

was not in excess of its actual uncompensated care costs for 2011, plaintiff had

nonetheless received an interim payment that was greater than the payment it was

entitled to under the state plan’s pro rata methodology. This same firm also

completed audits for 2014 through 2017—the other years at issue in this case. The

audits revealed that plaintiff had received a greater payment than it was entitled to

under the state plan methodology for 2014, 2015, and 2016. However, the audits

revealed that plaintiff’s interim DSH payment for 2017 was lower than it was

entitled to under the state plan methodology (i.e., that it was owed an additional

payment for 2017).

15 Another obstacle to the Commissioner’s implementation of the reconciliation

process arose in 2020 when LRGHealthcare, which operated two hospitals in the

Lakes Region of New Hampshire, filed for bankruptcy. See In re: HGRL, Case No.

20-10892-MAF (Bankr. D.N.H.). Audits had revealed that LRGHealthcare received

DSH overpayments between 2011 and 2017. LRGHealthcare’s debts became

unrecoverable in 2021 when a joint plan for liquidation was confirmed. As a result,

the Commissioner has been unable to recover the overpayments from

LRGHealthcare and the total amount of DSH funding available for the

reconciliation process for 2011 through 2017 has been reduced by the extent of the

unrecoverable overpayments.

Because the methodology for DSH payments in New Hampshire’s state plan

for 2011 through 2017 based non-critical access hospitals’ DSH payments on the

total amount of DSH funds available, the inability to recover LRGHealthcare’s

overpaid DSH benefits would result in a reduction of each such hospital’s final

payment under the state plan. However, at the Hospital Association’s request, the

Commissioner decided to deviate from the state plan’s methodology such that only

hospitals that were underpaid in their interim DSH benefits in a given year would

absorb the cost of the Commissioner’s inability to recoup overpayments to

LRGHealthcare for that year. In other words, instead of requiring all non-critical

access hospitals to bear the cost of the reduction in overall DSH funding available,

the Commissioner decided to account for the reduction in funding by requiring only

hospitals which had been underpaid in DSH benefits in a given year to absorb the

16 cost of the funding shortfall in that year. Plaintiff, which had been underpaid in

DSH benefits for 2017, stood to lose approximately $280,000 in DSH payments for

that year as a result of this decision.

In August 2023, the Commissioner informed plaintiff that, after the

uncertainties caused by the New Hampshire Hospital Association litigation and

LRGHealthcare’s bankruptcy, the Commissioner had finalized reconciliation

calculations for 2011 through 2017. Then, in October 2023, the Commissioner sent

plaintiff a letter stating that the Commissioner would seek to recoup overpayments

in DSH benefits to plaintiff from 2011 through 2017. The letter states that plaintiff

is required to remit approximately $8 million due to overpayments in those years.

Plaintiff thereafter instituted this action against the Commissioner and the

Federal Defendants. Plaintiff brings five counts, four of which are brought against

the Commissioner and one of which is brought against the Federal Defendants:

• In Count I (Medicaid Act claim), plaintiff asserts that the Commissioner violated certain provisions of the Medicaid Act (specifically, Sections (13)(A) and (2)(D), discussed above) by failing to include “a legally sufficient description of the methods used to calculate or audit uncompensated care costs” in the state plan. Doc. no. 1 ¶ 88. Plaintiff contends that Sections (13)(A) and (2)(D) require state plans “to provide a methodology for calculating uncompensated care costs.” Id. ¶ 82. In addition, plaintiff contends that Sections (13)(A) and (2)(D) require this methodology for calculating uncompensated care costs to be “clear.” Id. ¶ 93. Plaintiff’s ultimate contention appears to be that, because the definition of uncompensated care costs in the state plan mirrors the definition set forth in the Medicaid Act and provides no greater specificity than does the Medicaid Act, the state plan violates Sections (13)(A) and (2)(D) of that same Act.

17 • In Count II (Medicaid Act claim), plaintiff contends that the Commissioner’s plan to require hospitals that were underpaid in DSH benefits in a given year to absorb the reduction in overall funding occasioned by LRGHealthcare’s bankruptcy violates Sections (13)(A) and (2)(D). Plaintiff argues that the Commissioner’s plan “amounts to a substantive change” to the state plan which did not undergo the notice-and-comment procedures required by those sections. Doc. no. 1 ¶ 95.

• In Count III (procedural due process claim), plaintiff asserts that the Commissioner’s plan to recoup DSH overpayments from plaintiff violates plaintiff’s procedural due process rights. Plaintiff contends that it has “a protected property interest in having DSH payments calculated in accordance with the statutorily defined process.” Doc. no. 1 ¶ 106. According to plaintiff, before the Commissioner may recoup any overpayments, the Commissioner must provide “adequate guidance for calculating uncompensated care costs through notice- and-comment rulemaking,” among other things. Id. ¶ 113.

• In Count IV (procedural due process claim), plaintiff contends that the Commissioner’s allocation to plaintiff of LRGHealthcare’s DSH overpayments for 2017 violates procedural due process because it would deprive plaintiff of a DSH payment to which it is entitled without adequate process.

• In Count V (APA claim), plaintiff contends that the Federal Defendants violated the APA by approving the state plan in effect from 2011 through 2017 despite the fact that the plan does not meet the requirements of the Medicaid Act (i.e., despite the fact that it does not offer a more specific definition of uncompensated care costs than is set forth in the Medicaid Act).

Counts I through IV are brought under

. Count V is brought

under the APA’s cause of action,

. Plaintiff seeks declaratory and

injunctive relief.

18 Plaintiff filed a motion for a preliminary injunction along with its complaint.

Plaintiff moves to preliminarily enjoin the Commissioner from recouping the alleged

DSH overpayments and from allocating to plaintiff LRGHealthcare’s discharged

Medicaid debts. Plaintiff contends that, because sovereign immunity would bar

plaintiff from recovering any payments remitted to or retained by the state, plaintiff

would be irreparably harmed absent a preliminary injunction.

The Commissioner objects to the preliminary injunction motion and moves to

dismiss Counts I through IV. The Commissioner raises numerous arguments

disputing plaintiff’s likelihood of success on the merits and in support of its motion

to dismiss. The court will first consider the Commissioner’s motion to dismiss. It

will then consider plaintiff’s motion for a preliminary injunction.

DISCUSSION

I. Sovereign Immunity Does Not Bar Plaintiff’s Claims

The Commissioner contends that the doctrine of sovereign immunity

embodied in the Eleventh Amendment bars all claims against it. The Eleventh

Amendment provides: “The Judicial power of the United States shall not be

construed to extend to any suit in law or equity, commenced or prosecuted against

one of the United States by Citizens of another State, or by Citizens or Subjects of

any Foreign State.” U.S. Const. amend. XI. “The Supreme Court has held that the

doctrine of sovereign immunity reaches beyond the words of the Eleventh

Amendment, extending immunity to state governments in suits not only by citizens

of another state, but by its own citizens as well.” Irizarry,

(citing

19 Alden v. Maine,

(1999)). “An administrative arm of the state is treated

as the state itself for the purposes of the Eleventh Amendment, and it thus shares

the same immunity.”

An exception to sovereign immunity, the Ex parte Young doctrine, “permits

suits to proceed against state officers in their official capacities to compel them to

comply with federal law.” Id. at 477-78; see Ex parte Young,

(1908).

However, such suits “may only seek prospective injunctive or declaratory relief; they

may not seek retroactive monetary damages or equitable restitution.” Irizzary,

. “[T]he difference between the type of relief barred by the Eleventh

Amendment and that permitted under Ex parte Young will not in many instances

be that between day and night.” Edelman v. Jordan,

(1974). For

example, an “ancillary effect” on the state’s treasury as a “necessary result of

compliance with” court orders which “by their terms [are] prospective in nature”

does not run afoul of the Eleventh Amendment.

. In some instances, a

permissible ancillary effect on the public treasury due to compliance with

prospective relief may be quite substantial. See, e.g., Milliken v. Bradley,

(1977) (upholding district court order requiring school system to

implement educational programs despite estimates that it would cost the state

approximately $6 million to do so).

Here, the complaint names the Commissioner of the New Hampshire

Department of Health and Human Services, in her official capacity, as the

defendant for each of Counts I through IV. The complaint seeks relief declaring that

20 the Commissioner’s recoupment and reallocation plans are unlawful and enjoining

the Commissioner from recouping DSH payments from plaintiff and from allocating

LRGHealthcare’s discharged bankruptcy debts to plaintiff. However, the

Commissioner contends that plaintiff’s claims are barred by the Eleventh

Amendment. According to the Commissioner, plaintiff seeks retroactive monetary

relief because “[p]laintiff seeks to impose a monetary loss on the State as a remedy

for an alleged past breach of a legal duty.” Doc. no. 19-1 at 10. The Commissioner

argues that the relief requested in the complaint is no different from an award of

damages because it would permit plaintiff to retain funds that had only been

awarded on an interim basis.

The Commissioner is incorrect. As the First Circuit has explained, “[o]nly if

the state is forced to use funds from the state treasury to satisfy a compensatory

judgment do the adverse consequences that the Eleventh Amendment prohibits

occur.” Libby v. Marshall,

(1st Cir. 1987). “That an equitable

remedy results in the payment of monies to plaintiff does not, in itself, render the

relief monetary compensation . . . .” Irizzary,

. To determine

whether Ex parte Young applies, “a court need only conduct a ‘straightforward

inquiry into whether the complaint alleges an ongoing violation of federal law and

seeks relief properly characterized as prospective.’” Verizon Md., Inc. v. Pub. Serv.

Comm’n of Md.,

(2002) (quoting Idaho v. Couer d’Alene Tribe of

Idaho,

(1997) (O’Connor, J., concurring in part and concurring in

the judgment)).

21 In this case, plaintiff seeks to preliminarily and permanently “enjoin [the

Commissioner] from recouping the alleged DSH overpayments made to” plaintiff

and to “enjoin [the Commissioner] from redistributing the bankrupt hospitals’ debts

to” plaintiff. Doc. no. 1 at 24. This is forward-looking, prospective relief. The

complaint seeks to prevent the Commissioner from taking certain actions which

plaintiff claims would violate the public process requirements of the Medicaid Act

and plaintiff’s due process rights. That the requested relief would result in plaintiff

retaining funds previously disbursed does not convert the requested relief from

prospective to retrospective in nature.

The Eleventh Circuit’s opinion in Turner v. Ledbetter,

(11th

Cir. 1990), is instructive. There, the State of Georgia sought to recoup alleged

overpayments made pursuant to the Aid to Families with Dependent Children

(“AFDC”) program, and the recipients of said payments brought suit to enjoin the

state from doing so.

. The state argued that enjoining the

recoupment of overpayments would violate the Eleventh Amendment because such

relief would have a direct impact on the state treasury and would be the functional

equivalent of a damages award.

. The Eleventh Circuit disagreed “because

the recipients are not seeking damages, but rather are seeking to prevent the state

from essentially accomplishing a . . . termination of AFDC benefits.”

Because the

requested relief “sought to prevent state officials from future violations of federal

law” rather than a monetary award stemming from a past violation of federal law,

the Eleventh Amendment posed no bar.

22 District courts have applied Ledbetter to hold that the Eleventh Amendment

does not prohibit injunctions against clawing back previously disbursed Medicaid

benefits. See Ron Grp., LLC v. Azar,

, 1106-08 (M.D. Ala. 2021)

(ruling that sovereign immunity did not prohibit injunction prohibiting recoupment

of Medicaid reimbursements “in order to satisfy another Medicaid provider’s debt”);

Conn. Hosp. Ass’n v. O’Neill,

(D. Conn. 1995) (ruling that

sovereign immunity did not prohibit injunction preventing state from offsetting

future Medicaid payments in order to recoup prior overpayments). This court joins

those courts in concluding that plaintiff’s claims against the Commissioner, which

seek only to prevent the Commissioner from taking actions that would allegedly

violate federal law, do not run afoul of the Eleventh Amendment. See Verizon,

.

II. Other Disproportionate Share Hospitals Are Not Necessary Parties

In the alternative to its sovereign immunity defense, the Commissioner

argues that plaintiff’s claims against her should be dismissed for failure to join

other disproportionate share hospitals. Federal Rule of Civil Procedure 19 provides

that certain persons are required to be joined as parties to civil actions when

feasible. Fed. R. Civ. P. 19(a). The rule “is geared toward circumstances ‘where a

lawsuit is proceeding without a party whose interests are central to the suit.’”

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Flanders-Borden,

(1st

Cir. 2021) (quoting Bacardi Int’l Ltd. v. V. Suárez & Co.,

(1st Cir.

2013)). If a necessary party cannot be joined, the court must make a “pragmatic,

23 practical” judgment as to “whether the action should proceed among the existing

parties or be dismissed.”

(quoting Bacardi,

). The Commissioner, as

the moving party, bears the burden on this issue. Frangos v. Bank of N.Y. Mellon,

Civ. No. 16-cv-436-LM,

, at *3 (D.N.H. Oct. 5, 2017).

A person is a necessary party who must be joined if, “in that person’s

absence, the court cannot afford complete relief among existing parties.” Fed. R.

Civ. P. 19(a)(1)(A). In addition, a person is a necessary party if the person has “an

interest relating to the subject of the action” and proceeding without that person

may “impair or impede the person’s ability to protect [their] interest” or “leave an

existing party subject to a substantial risk of double, multiple, or otherwise

inconsistent obligations.” Fed. R. Civ. P. 19(a)(1)(B).

The Commissioner contends that other hospitals who were underpaid in DSH

benefits between 2011 and 2017 are necessary parties because they have an interest

in this action that would be impaired or impeded if the suit proceeded in their

absence. The Commissioner points out that, if she is enjoined from recouping

portions of plaintiff’s interim DSH payments, the overall amount of DSH funding

available to reallocate to underpaid hospitals will be reduced, such that underpaid

hospitals would not receive the final DSH payments to which they are entitled

under New Hampshire’s state plan. Because such a result is contrary to those

hospitals’ interest, the Commissioner contends that those hospitals are necessary

parties, and plaintiff’s failure to join them compels dismissal.

24 The Commissioner has not shown that other disproportionate share hospitals

are necessary parties. “[W]here the interests of an absent party are aligned closely

enough with the interests of an existing party, and where the existing party pursues

those interests in the course of the litigation, the absent party is not required under

Rule 19.” Merrill Lynch,

; accord Bacardi,

; Pujol v.

Shearson Am. Express, Inc.,

(1st Cir. 1989) (Breyer, J.). “The

interests of the absent and existing parties need not be ‘virtually identical.’” Merrill

Lynch,

(quoting Bacardi,

). Rather, where the absent

parties’ interests are “vigorously addressed” by a named party, joinder is not

required. Nat’l Ass’n of Chain Drug Stores v. New Eng. Carpenters Health Benefits

Fund,

(1st Cir. 2009).

Here, while it is apparent that hospitals that were underpaid in DSH benefits

in the years in which plaintiff was overpaid have an interest in the recoupment of

plaintiff’s overpayments, that interest is aligned with the Commissioner’s interest—

clawing back plaintiff’s overpayments and distributing them to these very same

hospitals. Indeed, the Commissioner does not attempt to argue that the absent

hospitals’ interests diverge from the Commissioner’s interests, or that the

Commissioner’s position in this litigation would inadequately address those

hospitals’ interests. As such, the Commissioner has not shown that other

disproportionate share hospitals are necessary parties, and Rule 19 provides no

basis for dismissal.

25 III. Medicaid Act Claims

The Commissioner argues that neither of plaintiff’s Medicaid Act claims—

Counts I and II—state a plausible claim to relief. The court will first consider Count

I, then turn to Count II.

A. Count I Fails to State a Claim

Count I alleges that the Commissioner violated Sections (13)(A) and (2)(D) of

the Medicaid Act by failing to include a “legally sufficient” and “clear” description of

the state’s methodology “to calculate or audit uncompensated care costs” in the state

plan that was in effect from 2011 through 2017. Doc. no. 1 ¶¶ 88, 93. The problem

with this claim, however, is that neither Section (13)(A) nor Section (2)(D) impose

substantive requirements on the description of the methodology set forth in a state

plan for calculating DSH payments (or, by extension, uncompensated care costs).

These provisions impose procedural requirements which the state must follow in

promulgating its DSH payment methodology, but they do not require any particular

degree of specificity in the description of the state’s methodology that is ultimately

promulgated.

The court begins with the language of the statutes. Section (13)(A) sets forth

that state plans “must” provide “for a public process for determination of rates of

payment under the plan for hospital services.” 42 U.S.C. § 1396a(a)(13)(A). Under

this public process:

(i) proposed rates, the methodologies underlying the establishment of such rates, and justifications for the proposed rates are published,

26 (ii) providers, beneficiaries and their representatives, and other concerned State residents are given a reasonable opportunity for review and comment on the proposed rates, methodologies, and justifications,

(iii) final rates, the methodologies underlying the establishment of such rates, and justifications for such final rates are published, and

(iv) in the case of hospitals, such rates take into account (in a manner consistent with [42 U.S.C. § 1396r-4]) the situation of hospitals which serve a disproportionate number of low-income patients with special needs . . . .

Id. Section (2)(D) in turn provides in pertinent part:

A State plan . . . shall not be considered to meet the requirements of [Section (13)(A)] . . . unless the State has submitted to the Secretary . . . a description of the methodology used by the State to identify and to make payments to disproportionate share hospitals . . . .

42 U.S.C. § 1396r-4(a)(2)(D).

With respect to Section (13)(A), the First Circuit has explained that Section

(13)(A) “requires something on the order of notice and comment rulemaking for

states in their setting of rates for reimbursement.” Long Term Care,

.

Section (13)(A) requires state plans to provide “for a public process for

determination of rates of payment under the plan.” 42 U.S.C. § 1396a(a)(13)(A).

Under this process, the state must publish “proposed rates, the methodologies

underlying the establishment of such rates, and justifications for the proposed

rates.” Id. § 1396a(a)(13)(A)(i). Stakeholders and citizens must be “given a

reasonable opportunity for review and comment on the proposed rates,

methodologies, and justifications.” Id. § 1396a(a)(13)(A)(ii). Moreover, the state

must publish its “final rates, the methodologies underlying the establishment of

27 such rates, and justifications for such final rates.” Id. § 1396a(a)(13)(A)(iii).

Payment rates which undergo this notice-and-comment process must “take into

account (in a manner consistent with [Section (2)(D)]) the situation of”

disproportionate share hospitals. Id. § 1396a(a)(13)(A)(iv).

Nothing in Section (13)(A) imposes substantive requirements on the

description of the DSH payment methodology that is ultimately included in the

state plan. To be sure, the statute requires that states have a DSH payment

methodology and that this methodology be promulgated pursuant to a public

process. But at the conclusion of this process, the statute does not require that a

state’s DSH payment methodology provide a particular level of granularity in

explaining the manner in which the state will calculate and distribute DSH

payments. In this case, plaintiff seeks to use Section (13)(A) to do just that. Despite

the fact that the state plan defines uncompensated care costs in a manner that is

identical to the Medicaid Act, plaintiff contends that Section (13)(A) requires the

state plan to provide greater specificity in how the state will go about calculating

hospitals’ uncompensated care costs. The plain language of Section (13)(A) imposes

no such requirement. Because the plain language of the statute makes clear that it

imposes only procedural, non-substantive requirements on a state’s DSH payment

methodology, plaintiff’s claim—that the relevant versions of the state plan violate

Section (13)(A) by failing to contain a “legally sufficient” or “clear” description of

uncompensated care costs—fails as a matter of law.

28 Plaintiff contends, however, that Section (13)(A) must be read in conjunction

with Section (2)(D). On this score plaintiff is correct, see § 1396a(a)(13)(A)(iv)

(providing that payment rates must be “consistent with [Section (2)(D)]”), but

Section (2)(D) does not save Count I. Section (2)(D) provides that a state plan “shall

not be considered to meet the requirements of” Section (13)(A) “unless the State has

submitted to the Secretary . . . a description of the methodology used by the State to

identify and to make payments to disproportionate share hospitals.” 42 U.S.C.

§ 1396r-4(a)(2)(D). But, as with Section (13)(A), the plain language of Section (2)(D)

does not impose any substantive requirements on the description of a state’s DSH

payment methodology in the state plan. It merely requires the state to inform the

federal government of whatever payment methodology the state elects to use.

Resisting Section (2)(D)’s unambiguous text, plaintiff contends that the

statute does, in fact, impose substantive requirements on a state’s methodology for

making DSH payments. According to plaintiff, Section (2)(D) requires the state plan

submitted to the Secretary to contain “a description of the methodology used by the

State to identify . . . [DSH] payments.” Doc. no. 34 at 32 (plaintiff’s objection)

(emphasis and alterations in objection) (quoting Section (2)(D)). This, however, is a

selective, partial quotation of Section (2)(D). The statute actually provides that the

state must provide the Secretary with “a description of the methodology used by the

state to identify and to make payments to disproportionate share hospitals.” 42

U.S.C. § 1396r-4(a)(2)(D) (emphasis added). Plaintiff would construe the statute

such that the verbs “to identify” and “to make” both modify the subsequent phrase

29 “payments to disproportionate share hospitals,” meaning that the statute would

impose an obligation that the state plan “identify” DSH payments.

As an initial matter, it is not at all clear that such a construction would

achieve the result plaintiff seeks. Plaintiff does not explain why a requirement that

a state plan “identify” DSH payments meaningfully differs from a requirement that

the state plan identify its DSH payment methodology. In either case, such a

requirement would merely seem to entail that the state plan describe how it goes

about making DSH payments. In any event, the court does not agree with plaintiff’s

construction of the statute.

Section (2)(D) seemingly can be read in one of two ways. It can be read in the

manner plaintiff urges, such that its two antecedent verbal phrases are “to identify”

and “to make,” each of which modify the consequent phrase “payments to

disproportionate share hospitals.” Alternatively, Section (2)(D) can be read such

that its two antecedent verbal phrases are “to identify” and “to make payments to,”

with each modifying the consequent phrase “disproportionate share hospitals.”

When “antecedents and consequents are unclear,” courts determine the contours of

a statute’s antecedent and consequent phrases “by reference to the context and

purpose of the statute as a whole.” Go-Video, Inc. v. Akai Elec. Co., Ltd.,

(9th Cir. 1989); accord 2A Norman Singer & Shambie Singer,

Sutherland Statutes & Statutory Construction § 47:26 (7th ed.) (“Where a sentence

contains several antecedents and several consequents, courts read them

30 distributively and apply the words to the subjects which, by context, they seem most

properly to relate.”).

Section (2)(D) appears in a provision of the Medicaid Act addressing DSH

payments. See 42 U.S.C. § 1396r-4 (entitled “Adjustment in payment for inpatient

hospital services furnished by disproportionate share hospitals”). The provision

requires state plans to “specifically define[ ]” the hospitals within a state that are

eligible to receive DSH payments. Id. § 1396r-4(a)(1)(A). Indeed, as previously

noted, the statute gives states fairly broad discretion in determining which

hospitals qualify as disproportionate share hospitals and are therefore eligible to

receive DSH payments. See id. § 1396r-4(b) & (d)(1), (3).

In addition to conferring broad discretion on states to determine hospitals

eligible for DSH payments (and requiring states to make such a determination), the

statute in which Section (2)(D) appears requires state plans to “provide[ ] . . . for an

appropriate increase in the rate or amount of payment” for disproportionate share

hospitals. Id. § 1396r-4(a)(1)(B). In other words, the statute requires state plans to

provide for DSH payments. As with determining hospitals eligible to receive DSH

payments, the statute gives states substantial leeway in fashioning their

methodology for making DSH payments. See id. § 1396r-4(c) (outlining three broad

models upon which states may base their DSH payment methodology).

Thus, the statutory provision in which Section (2)(D) appears confirms that

state plans must “specifically define[ ]” the hospitals which can receive DSH

payments, in addition to requiring that state plans “provide[ ]” for DSH payments.

31 Id. § 1396r-4(a)(1)(A)-(B). At the same time, states have considerable discretion in

defining disproportionate share hospitals and in designing their DSH payment

system. Given this statutory framework, the most natural reading of Section (2)(D)

is as requiring states to provide the federal government with a description of how

the state “identif[ies] . . . disproportionate share hospitals,” (i.e., how the state

“specifically defines” such hospitals, id. § 1396r-4(a)(1)) as well as a description of

how the state “make[s] payments to disproportionate share hospitals.” Id. § 1396r-

4(a)(2)(D). Plaintiff’s alternate construction—that Section (2)(D) requires the state

to describe how it “identifies [DSH] payments,” but not how it identifies

disproportionate share hospitals—is not only inconsistent with the statute’s context

and purpose, it would eliminate a requirement that the state inform the federal

government of which hospitals it has defined as disproportionate share hospitals.

That would be an odd result, especially given the Medicaid Act’s general concern

with ensuring federal oversight of state plans through mechanisms such as

independent audits, preapproval of state plans and amendments thereto, and

reporting requirements.

What is more, plaintiff’s construction is an awkward fit with the plain

meaning of Section (2)(D)’s text. The ordinary meaning of “identify” is “to establish

the identity of.” Identify, Webster’s Third New Int’l Dictionary, at 1123 (1993).

Similarly, “identity” means “sameness of essential or generic character in different

examples or instances,” or “the condition of being the same with something.”

Identity, Webster’s Third New Int’l Dictionary, at 1123. These definitions fit snugly

32 with a construction of Section (2)(D) as requiring states to describe how they

identify disproportionate share hospitals—as such hospitals must share common

characteristics established by the state. It hardly bears repeating that a

construction which comports with the statute’s plain language is favored over one

which does not. E.g., United States v. Letter from Alexander Hamilton to the

Marquis De Lafayette Dated July 21, 1780,

, 524-25 (1st Cir. 2021).

Plaintiff contends that the Medicaid Act’s implementing regulations support

its interpretation of Sections (13)(A) and (2)(D) as requiring a state plan to define

“uncompensated care costs” with greater specificity than that phrase is defined in

the Medicaid Act itself. Plaintiff points to

and 455.304(d).

Section 447.205 requires the state agency overseeing the state plan to “provide

public notice of any significant proposed change in its methods and standards for

setting payment rates for services.”

(a). However, the fact that

the state must disclose any material alterations in its payment methods and

standards does not show that the Medicaid Act itself imposes substantive

obligations on the state. The state has discretion in setting its payment methods

and standards—it just has to notify the public as to how it exercises that discretion.

Section 455.304(d) does not advance the plaintiff’s position either. That

regulation pertains to findings that the annual audits of a state’s DSH payment

program must render. DSH payment audits are an “enforcement mechanism” by

which the federal government ensures that disproportionate share hospitals are not

receiving payments in excess of their uncompensated care costs. N.H. Hosp. Ass’n

33 III,

. Nothing in the Medicaid Act suggests that the requirements

imposed upon the annual audits are wholesale applied to the state plan.

For these reasons, the court does not construe Sections (13)(A) or (2)(D) as

imposing substantive requirements on states’ methodologies for making DSH

payments. Given this construction, Count I—which alleges that the relevant

versions of the state plan fail to contain a “legally sufficient” or “clear” definition of

how the state defines uncompensated care costs—fails to state a claim upon which

relief may be granted.

B. Count II States a Claim Because Plaintiff Plausibly Alleges That the Commissioner Amended the State Plan without Complying with the Medicaid Act’s Public Process Requirements

The court reaches a different conclusion with respect to Count II. As

previously noted, Count II alleges that the Commissioner’s planned allocation to

plaintiff of LRGHealthcare’s DSH overpayment for 2017 violates Sections (13)(A)

and (2)(D) because there is no mechanism set forth in the state plan which would

allow for such an allocation to occur. Plaintiff contends that the relevant versions of

the state plan are silent with respect to the handling of DSH overpayments to

hospitals which subsequently go bankrupt.

The parties seem to agree that LRGHealthcare’s bankruptcy reduced the

overall amount of funding available for the reconciliation of final DSH payments in

each of 2011 through 2017 by the extent to which LRGHealthcare was overpaid in

each of those years. While previous versions of the state plan provide that a

noncritical access hospital’s DSH payment is contingent on the availability of

34 funding, it does not appear that the state plan for 2017 contained such a

contingency. Rather, that version of the state plan seems to state that, for 2017,

each noncritical access hospital “shall be paid 50% of its uncompensated care costs,”

with certain exceptions not here relevant. E.g., doc. no. 1-7 at 5. While the

Commissioner argues that the state plan contemplated that a reduction in overall

funding could correspondingly reduce a hospital’s DSH payment, the 2017 state

plan provisions (or at least those that the parties have provided to the court) do not

seem to contemplate this possibility.

Regardless, even if the state plan provided that a reduction in overall DSH

funding could reduce non-critical access hospitals’ DSH payments, the state plan

nevertheless states that non-critical access hospitals are entitled to receive a 2017

DSH payment that is proportional to their uncompensated care costs for that year.

While a reduction in overall DSH funding could reduce the reimbursement

percentage of those hospitals’ uncompensated care costs (say, by reducing

reimbursement from 50% of uncompensated care costs to 45%), the state plan

contemplates that non-critical access hospitals will receive DSH payments on a pro

rata basis. In other words, the state plan contemplates that the reimbursement

percentage for all noncritical access hospitals will be equivalent.

The Commissioner’s plan to account for LRGHealthcare’s bankruptcy

deviates from pro rata DSH payments. Instead of reducing each non-critical access

hospital’s DSH payment by a uniform percentage, the Commissioner has elected to

only reduce DSH payments for hospitals that received an interim payment that was

35 lower than the audits revealed them to be entitled to. While Section (13)(A) does not

impose substantive requirements on states’ DSH payment methodologies, it does

require that whatever DSH payment methodology the state elects undergo notice

and comment. Moreover, any changes to a state’s DSH payment methodology must

undergo this same process. See

(a). Plaintiff alleges that the

Commissioner has substantially altered the state’s DSH payment methodology

without complying with Section (13)(A)’s public process requirement. These

allegations state a claim for violation of the Medicaid Act.

The Commissioner nevertheless seeks dismissal of Count II on standing

grounds,5 and pursuant to the statute of limitations and the doctrine of laches.6 In

addition, the Commissioner contends that there is no private right of action under

which plaintiff can bring Count II. The court will consider each of these arguments

in turn.

5 The Commissioner purports to challenge plaintiff’s standing as to Count II

under Rule 12(b)(6). But standing is an issue of the court’s jurisdiction, and is therefore subject to review under Rule 12(b)(1), not 12(b)(6). See Freeman, 561 F. Supp. 3d at 25-26. Because the Commissioner does not challenge the accuracy of the facts relied upon in the complaint to support standing, however, the standard of review is the same regardless of whether the court applies 12(b)(6) or 12(b)(1). See id.

6 The Commissioner argued in her original motion to dismiss that all of the

claims against her should be dismissed as untimely and pursuant to the doctrine of laches. However, in her reply, the Commissioner appears to abandon the argument that Count II should be dismissed pursuant to the statute of limitations or laches. See doc. no. 38 at 4 (arguing only that “Counts I and III are barred by the statute of limitations and laches”). The court need not determine whether Count I is timely or barred by laches given its conclusion that Count I fails to state a claim. However, for the sake of completeness, the court will address the statute of limitations and laches with respect to Count II despite the Commissioner’s possible intent to abandon those arguments as to Count II. 36 1. Plaintiff Has Adequately Alleged Standing

The doctrine of standing emanates from Article III’s case-or-controversy

requirement. Freeman, 561 F. Supp. 3d at 30. For a plaintiff to have standing, the

plaintiff must have suffered a “concrete” injury. TransUnion LLC v. Ramirez,

(2021). The Commissioner argues that Count II should be dismissed

because plaintiff has not plausibly alleged that it has suffered or will suffer a

concrete injury as a result of the Commissioner’s decision to allocate

LRGHealthcare’s overpayments in each year exclusively to hospitals that were

underpaid in DSH benefits in those years, rather than requiring all hospitals to

evenly bear the reduction in overall DSH funding resulting from LRGHealthcare’s

bankruptcy. The Commissioner claims that, although plaintiff alleges that it will be

deprived of its final DSH payment for 2017—approximately $281,000—as a result of

the methodology change, this is insufficient to show an injury for standing purposes

because plaintiff, having been overpaid in DSH benefits for 2011, 2014, 2015, and

2016, has a lesser repayment obligation for those years as a result of the

methodology change. In other words, the Commissioner contends, “[p]laintiff alleges

no facts demonstrating that the reduction to its final DSH payment adjustment for

2017 exceeds the sum of any increase to its final DSH payment adjustments for

2011, 2014, 2015, and 2016 resulting from the methodology change.” Doc. no. 19-1

at 33.

The court finds that plaintiff has sufficiently alleged standing at the pleading

stage. Plaintiff alleges a substantial financial injury as a result of the

Commissioner’s decision to allocate LRGHealthcare’s discharged bankruptcy debts 37 to underpaid disproportionate share hospitals. “[M]onetary harms” are among “[t]he

most obvious” types of injuries giving rise to standing. TransUnion,

;

see also 13A Edward H. Cooper, Federal Practice & Procedure § 3531.4 (3d ed.)

(stating that “[s]tanding is found readily . . . when injury to some traditional form of

property is asserted”). Despite the Commissioner’s argument to the contrary,

plaintiff’s complaint need not affirmatively allege that it would not have suffered

financial harm (or at least would have suffered a lesser financial harm) had the

Commissioner simply reduced all hospital’s final DSH payments for each year

instead of only reducing underpaid hospitals’ payments. See Peters v. Aetna, Inc.,

(4th Cir. 2021) (holding that ERISA claimant had standing to

seek restitution for alleged overpayments for a particular service under a

challenged health insurance scheme even if, considering all of plaintiff’s claims

under the plan in the aggregate, she benefitted from the challenged scheme). “The

fact that an injury may be outweighed by other benefits does not negate standing.”

New York v. U.S. Dep’t of Homeland Sec.,

, 60 (2d Cir. 2020) (brackets

and ellipses omitted) (quoting Denney v. Deutsche Bank AG,

(2d

Cir. 2006)). “Once injury is shown, no attempt is made to ask whether the injury is

outweighed by benefits the plaintiff has enjoyed from the relationship with the

defendant.” Cooper, supra, § 3531.4; see also Peters,

n.10 (collecting

cases). For these reasons, the court rejects the Commissioner’s standing challenge

to Count II.

38 2. Count II Is Timely

Count II is brought under

. In § 1983 actions, “the relevant

limitations period is that which governs personal injury claims in the state where

the claim arose.” Gorelik v. Costin,

(1st Cir. 2010). New

Hampshire’s limitations period for personal injury actions is three years. RSA

508:4. “It is federal law, however, that determines when the statute of limitations

begins to run.” Gorelik,

.

“As a general matter, the statute of limitations begins to run when the

plaintiff has a ‘complete and present cause of action.’” Reed v. Goertz,

(2023) (quoting Bay Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar

Corp. of Cal.,

(1997)). This requires consideration of the “specific

. . . right alleged to have been infringed.”

The plaintiff has a complete and

present cause of action “when all of the acts comprising the specific constitutional

[or statutory] violation have been completed.” Oullette v. Beaupre,

(1st Cir. 2020); see also 3 Sheldon H. Nahmod, Civil Rights & Civil Liberties

Litigation: The Law of Section 1983 § 9:10 (Sept. 2023 update) (explaining that

accrual presents “the question of when all the elements of a § 1983 cause of action

are present”).

The complaint alleges that LRGHealthcare went bankrupt in 2021 and that

the Commissioner elected to allocate LRGHealthcare’s overpayments to underpaid

hospitals sometime between 2021 and August 11, 2023. As Count II is premised on

that alleged decision, plaintiff did not have a complete and present cause of action

39 until 2021 at the earliest. Plaintiff filed this action in October 2023, within three

years of 2021. As such, Count II is timely.

3. The Doctrine of Laches Does Not Bar Count II

The Commissioner argues that Count II should be dismissed pursuant to the

doctrine of laches. “In general terms, the doctrine of laches restricts the assertion of

claims or defenses by litigants who have slept upon their rights or prerogatives and,

thus, have prejudiced opposing parties by or through their inexcusable delay.”

Letter from Alexander Hamilton, 15 F.4th at 526. It is “an equitable doctrine which

penalizes a litigant for negligent or willful failure to assert [its] rights.” Oriental

Fin. Grp., Inc. v. Cooperativa De Ahorro Y Crédito Oriental,

(1st Cir.

2012) (ellipsis omitted) (quoting Valmor Prods. Co. v. Standard Prods. Corp.,

(1st Cir. 1972)). Where, as here, a defendant raises laches as an

affirmative defense to a claim brought within the statute of limitations, the

defendant must show (1) that the plaintiff’s delay in bringing its claim was

unreasonable, and (2) that the delay resulted in prejudice to the defendant. K-Mart

Corp. v. Oriental Plaza, Inc.,

(1st Cir. 1989).

The complaint’s allegations do not suggest that plaintiff delayed in bringing

Count II, much less that any delay was unreasonable. As noted, plaintiff alleges it

was notified of the Commissioner’s intent to allocate LRGHealthcare’s discharged

bankruptcy debts to hospitals that were underpaid in DSH benefits in August 2023.

Plaintiff brought this action within months of being so notified. Given the lack of

any indication in the complaint that plaintiff unreasonably delayed bringing Count

40 II, the court does not find that the doctrine of laches provides grounds for dismissal

of that count.

4. Plaintiff Has a Private Right of Action to Enforce Sections (13)(A) and (2)(D)

The Commissioner next contends that Count II must be dismissed because

there is no private right of action to enforce Sections (13)(A) and (2)(D). As noted,

plaintiff brings its Medicaid Act claims under

. A cause of action

exists under § 1983 for claims alleging violation of any “rights, privileges, or

immunities secured by the Constitution and laws” of the United States.

. However, “[n]ot all violations of federal law give rise to § 1983 actions: ‘the

plaintiff must assert the violation of a federal right, not merely a violation of federal

law.’” Rio Grande Cmty. Health Ctr., Inc. v. Rullan,

(1st Cir. 2005)

(quoting Blessing v. Freestone,

(1997) (brackets omitted)

(emphasis in Blessing)). Violation of a federal statute is actionable under § 1983

only if, by enacting the law, “Congress intended to create a federal right.” Gonzaga

Univ. v. Doe,

(2002) (emphasis omitted).

“For a statute to create such private rights, its text must be ‘phrased in terms

of the persons benefitted.’”

at 284 (quoting Cannon v. Univ. of Chicago,

, 692 n.13 (1979)); accord Alexander v. Sandoval,

(2001)

(statute must contain “rights-creating language” (quotation omitted)); see, e.g.,

Cannon,

n.3, 690-93 & n.13 (reasoning that language of Title IX

supported private right of action because statute’s language focused on persons

benefitted: “[n]o person . . . shall, on the basis of sex, . . . be subjected to

41 discrimination”). “Statutes that focus on the person regulated rather than the

individuals protected create ‘no implication of an intent to confer rights on a

particular class of persons.’” Sandoval,

(quoting California v. Sierra

Club,

(1981)). Nevertheless, “[l]anguage that directs state officials

in the implementation of statutory objectives may still create an enforceable right

where it ‘mentions a specific, discrete beneficiary group within the statutory text’

and ‘speaks in individualistic terms, rather than at the level of institutional policy

or practice.’” Colón-Marrero v. Vélez,

(1st Cir. 2016) (quoting Rio

Grande,

).

In addition to rights-creating language, the presence or absence of alternative

means of enforcement bears on whether Congress intended to create a federal right.

See Gonzaga,

. Also relevant is whether “the right assertedly

protected by the statute is . . . so ‘vague and amorphous’ that its enforcement would

strain judicial competence,” and whether the right is “couched in mandatory, rather

than precatory, terms.” Blessing,

-41 (quoting Wright v. Roanoke

Redev. & Hous. Auth.,

(1987)).

The First Circuit has found certain provisions of the Medicaid Act enforceable

under § 1983 post-Gonzaga. In Rio Grande, the First Circuit found that the

requirement for “wraparound” payments for federally-qualified health centers

contained in 42 U.S.C. § 1396a(bb) created a right which could be asserted in a

§ 1983 action. See Rio Grande,

. The court found that the provision

was “phrased in terms of the person benefitted” because it stated that state plans

42 must provide such payments “to the center.” Rio Grande,

(quoting 42

U.S.C. § 1396a(bb)(5)(A)). Moreover, the statute spoke in mandatory rather than

precatory terms: it said that states “shall” provide wraparound payments to

federally-qualified health centers. Id. (quoting 42 U.S.C. § 1396a(bb)(5)(A)). Further

supporting the existence of an enforceable right was the fact that the statute spoke

“in individualistic terms, rather than at the aggregate level of institutional policy or

practice.” Id. “The mere fact that all Medicaid laws are embedded within the

requirements for a state plan does not, by itself, make all of the Medicaid provisions

into one stating a mere institutional policy or practice rather than creating an

individual right.” Id. Finally, the right to wraparound payments set forth in the

statute was readily enforceable by the courts because it was “written in highly

specific terms” that tell the state “exactly how to calculate the wraparound

[payment] and it gives a maximum duration (4 months) between wraparound

payments.” Id. at 75.

In Long Term Care (another post-Gonzaga case), the First Circuit strongly

implied that Section (13)(A) creates rights enforceable under § 1983. Long Term

Care involved Section (13)(A) as well as another Medicaid provision: 42 U.S.C.

§ 1396a(a)(30)(A) [hereinafter “Section (30)(A)”]. In that case, a group of pharmacies

providing prescription drugs to nursing homes and similar institutions sued to

enjoin Massachusetts from lowering reimbursement rates for the provision of

pharmaceuticals. Long Term Care,

. The pharmacies contended

that the state’s failure to provide them with a hearing before lowering rates violated

43 Section (13)(A), and that the proposed lowered rate violated Section (30)(A)’s

requirement that rates be “sufficient to enlist enough providers to provide services

similar to those generally available in the area.”

at 52-53 (quoting 42 U.S.C.

§ 1396a(a)(30)(A)). However, the First Circuit did not reach an explicit conclusion as

to whether Section (13)(A) conferred a right enforceable under § 1983 because the

state conceded that a violation of Section (13)(A) was actionable for purposes of that

case. See id. at 54. The court instead concluded that the plaintiffs had not stated a

claim for violation of Section (13)(A) because the pharmacies were not providing

services covered by the statute’s notice-and-comment procedures. See 42 U.S.C.

§ 1396a(a)(13)(A) (public process requirements only apply to “rates of payment . . .

for hospital services, nursing facility services, and services of intermediate care

facilities for the mentally [disabled]”); Long Term Care,

.

The court did find, however, that the plaintiffs had no private right of action

to enforce Section (30)(A), and in so doing, the court contrasted Section (30)(A) with

Section (13)(A). While the court explained that Section (13)(A) “has a narrow subject

(rates for three specified rates of services) and confers procedural rights on

designated persons or entities,” Section (30)(A) “has much broader coverage, sets

forth general objectives, and mentions no category of entity or person specially

protected.” Long Term Care,

(emphasis added). Section (30)(A),

“unlike [Section] (13)(A), has no ‘rights creating language’ and identifies no discrete

class of beneficiaries.”

at 57 (quoting Gonzaga,

). “[I]nstead,”

Section (30)(A) “focuses upon the state as ‘the person regulated rather than

44 individuals protected.’”

(quoting Sandoval,

). This court has

previously relied on Long Term Care in ruling that Section (13)(A)’s public process

requirements are enforceable in a private right of action. See Dartmouth-Hitchcock

Clinic v. Toumpas,

(D.N.H. 2012). The District of Maine

has reached the same result, albeit before Long Term Care was decided (but after

Gonzaga was). See Am. Soc’y of Consultant Pharmacists v. Concannon,

(D. Me. 2002), abrogated on other grounds by Long Term Care,

.

Outside the First Circuit, the Seventh Circuit has held that the public

process requirements of Section (13)(A) are enforceable under § 1983. See BT

Bourbonnais Care, LLC v. Norwood,

(7th Cir. 2017). In Bourbonnais,

several nursing homes sued the Illinois state agency responsible for administering

Medicaid funds for failing to comply with the state’s own payment methodologies,

arguing that deviating from the state’s duly promulgated payment methodologies

violated Section (13)(A)’s public process requirements. See

. The

Seventh Circuit held that Section (13)(A) conferred enforceable rights upon the

plaintiffs because the statute stated that plaintiffs “‘must’ be given an opportunity

to review and comment on the proposed reimbursement rates” and “it identifies

providers [such as the plaintiffs] as the beneficiaries of the federal law,” given their

clear interest in the process by which the state sets Medicaid payment rates.

. Moreover, the right conferred by Section (13)(A) was not vague or amorphous.

Rather, the statute “spells out exactly what the procedural requirements are for the

45 process of rate-setting: publication of the proposed rates, methodologies used, and

justifications; reasonable opportunity to comment; and publication of the final rates,

methodologies, and justifications.”

. Nor did Section (13)(A) “leave any

room for discretion on the part of the state” given its unambiguous language that

state plans “‘must’ provide the public process described in the law.”

.

In light of the foregoing authorities, the court finds that plaintiff may sue for

alleged violations of Sections (13)(A) and (2)(D) under § 1983. As the First Circuit

explained in Long Term Care, Section (13)(A) “confers procedural rights” on a

“discrete class of beneficiaries—two touchstones in Gonzaga’s analysis.”7

. The state plan “must” give “providers” of specified services “a reasonable

opportunity for review and comment on” the state’s “proposed [payment] rates,

methodologies, and justifications.” 42 U.S.C. § 1396a(a)(13)(A). The state plan

“must” also provide for a process by which providers are notified of proposed and

final payment rates, along with the methodologies and justifications behind those

rates. Id. Thus, although Section (13)(A) “directs state officials in the

7 The Commissioner characterizes the First Circuit’s analysis of Section (13)(A)

in Long Term Care as dicta because the First Circuit did not expressly hold that § 1983 supplies a cause of action to enforce Section (13)(A). The court does not agree. The First Circuit’s characterization of Section (13)(A) was necessary to its holding that Section (30)(A) did not confer procedural rights capable of enforcement under § 1983. See Long Term Care,

(reasoning that there was no private right of action to enforce Section (30)(A) in part because, “unlike [Section] (13)(A), [it] has no rights creating language and identifies no discrete class of beneficiaries” (quotation omitted)). Because the First Circuit’s analysis of Section (13)(A) was necessary to its holding, it is not dicta. See, e.g., Arcam Pharm. Corp. v. Faría,

(1st Cir. 2007) (“[W]hen a statement in a judicial decision is essential to the result reached in the case, it becomes part of the court’s holding.” (quoting Rossiter v. Potter,

(1st Cir. 2004))). 46 implementation of statutory objectives,” (by specifying the public process that the

state must engage in), it nevertheless contains rights-creating language because the

statutory objective which the officials must carry out is to comply with individual

rights the statute confers upon a discrete group of beneficiaries. Colón-Marrero,

.

Moreover, the rights secured by Sections (13)(A) and (2)(D) are readily

susceptible to judicial enforcement—i.e., they are not “vague and amorphous.”

Blessing,

(quotation omitted). The procedural requirements set

forth in Sections (13)(A) and (2)(D) are “garden-variety procedural rules” to notice

and comment, procedural rights “which courts are very good at enforcing.”

Bourbonnais,

. Nor do these sections speak in precatory terms. State

plans “must” provide the public process set forth in those statutes. See

Such

mandatory obligations are akin to the clear prohibitions on discrimination

contained in Titles VI and IX, which the Gonzaga court pointed to as the exemplars

of mandatory language suggesting conferral of an enforceable right. See Gonzaga,

& n.3; see also Bourbonnais,

(finding it “difficult, if

not impossible, as a linguistic matter, to distinguish the import of the relevant

Medicaid Act language—‘A State Plan must provide’—from the ‘no person shall’

language of Titles VI . . . and IX” (brackets omitted) (quoting S.D. ex rel. Dickson v.

Hood,

(5th Cir. 2004))).

The Commissioner contends that Section (13)(A) is not enforceable in a

private right of action because the statute in which that section appears “is phrased

47 as a directive to the federal agency charged with approving state Medicaid plans,

not as a conferral of the right to sue upon the beneficiaries of the State’s decision to

participate in Medicaid.” Doc. no. 19-1 at 25 (quoting Armstrong v. Exceptional

Child Ctr., Inc.,

(2015) (plurality opinion)). True, another

provision of § 1396a, the statute in which Section (13)(A) appears, states that the

federal government “shall approve any plan which fulfills the conditions specified

in” Section (13)(A), among other sections of the statute. 42 U.S.C. § 1396a(b). But

plaintiff’s Medicaid Act claims are not premised upon a violation of this provision;

they allege only violations of Sections (13)(A) and (2)(D). “The Supreme Court has

made clear that generalized language in some sections of a statute is not a barrier

to a private right of action under another section of the same statute.” Colón-

Marrero,

(citing Blessing,

, and Sandoval,

); see also Bourbonnais,

(explaining that “[e]ach part of the

statute must be evaluated on its own”). Thus, the question before this court “is

whether the specific provision[s] on which” plaintiff relies “create a private right.”

Colón-Marrero,

. The Commissioner’s argument as to whether

citizens may have a private right of action to enforce other provisions of the statute

is therefore not persuasive.

The Commissioner also argues that there is no private right of action here

because the Medicaid Act contains an alternative enforcement mechanism, namely,

the withholding of federal funds. However, this enforcement mechanism exists in

every piece of Spending Clause legislation, and the caselaw has never gone so far as

48 to suggest that Spending Clause legislation cannot support an action under § 1983.

See Bourbonnais,

(finding “nothing in Armstrong, Gonzaga, or

any other case [to] support[ ] the idea that plaintiffs are now flatly forbidden in

section 1983 actions to rely on a statute passed pursuant to Congress’s Spending

Clause powers”). The Commissioner points to the Supreme Court’s opinion in

Armstrong, where the Supreme Court found that the possibility of funding

withdrawal when combined with the lack of rights-creating language in Section

(30)(A) as well as the “judicially unadministrable nature” of the provision’s

requirements foreclosed private rights of action.

. Here,

by contrast, Sections (13)(A) and (2)(D) contain rights-creating language and are

easily administered by courts. “The fact that the Federal Government can exercise

oversight of a federal spending program and even withhold or withdraw funds

. . . does not demonstrate that Congress has ‘displayed an intent not to provide the

more complete and more immediate relief that would otherwise be available” in a

private right of action. Va. Off. for Prot. & Advoc. v. Stewart,

, 256 n.3

(2011) (quoting Verizon,

). Indeed, if the possibility of funding

withdrawal sufficed to eliminate private rights of actions to enforce Spending

Clause legislation, “there would have been no need [in Gonzaga] to send lower

courts off on a search for ‘unambiguously conferred rights’” when considering

whether Spending Clause legislation is privately enforceable. Bourbonnais,

.

49 The Commissioner points to cases in which courts have found that Sections

(13)(A) or (2)(D) were not enforceable in a private right of action. None is

persuasive. In New York Association of Homes and Services for the Aging, Inc. v.

DeBuono,

(2d Cir. 2006), the Second Circuit summarily affirmed a

district court order concluding that Section (13)(A) did not confer any substantive

enforceable rights to “reasonable and adequate” Medicaid payments.8 Here, Count

II does not allege that plaintiff has any substantive right to a particular DSH

payment, but rather that the Commissioner failed to go through the statutorily

required public process in altering its methodology for distributing DSH payments

when overall DSH funding is reduced as a result of one disproportionate share

hospital’s bankruptcy. As discussed, Sections (13)(A) and (2)(D) confer a procedural

right to notice of and comment upon a state’s DSH payment methodology.

Other cases cited by the Commissioner suffer from the same issue. See

Child.’s Seashore House v. Waldman,

, 659 (3d Cir. 1999) (“[B]y

replacing the Boren Amendment with a requirement that a state establish a public

process by which its rates would be determined, Congress has removed a party’s

8 Section (13)(A) previously contained a provision known as the “Boren Amendment,” which required state plans to provide for “reasonable and adequate” DSH payments. Long Term Care,

. Congress repealed the Boren Amendment in 1997.

Prior to the Boren Amendment’s repeal, the Supreme Court had held that Medicaid providers had a cause of action “to have the State adopt rates that it finds are reasonable and adequate rates to meet the costs of an efficient and economical health care provider.” Wilder,

. The Boren Amendment’s repeal, however, resulted in the Second Circuit’s affirmance of the district court’s order finding that Section (13)(A) no longer conferred an enforceable right to a substantively reasonable rate. See In re NYAHSA Litig.,

(N.D.N.Y. 2004). 50 ability to enforce any substantive right.” (emphasis added)); id. at 660 (concluding

similarly that Section (2)(D) did not allow plaintiff “to press its claims” that it had a

substantive right to DSH payments); Springfield Hosp. v. Hoffman, No. 09-cv-254-

cr,

, at *9-11 (D. Vt. Apr. 9, 2010) (applying Second Circuit’s

opinion in DeBuono). More importantly, to the extent the cases cited by the

Commissioner even support her position, those cases are inconsistent with the First

Circuit’s holding in Long Term Care, which this court is not free to disregard (and

would not disregard even if Long Term Care’s analysis of Section (13)(A) were dicta,

which it is not).

Finally, the Commissioner contends that Plaintiff lacks a cause of action

because, as a matter of statutory interpretation, Section (13)(A)’s public process

requirements do not apply to DSH payment methodology. The Commissioner is

incorrect.

Under Section (13)(A), a state plan must provide:

for a public process for determination of rates of payment under the plan for hospital services, nursing facility services, and services of intermediate care facilities for the mentally retarded under which—

(i) proposed rates, the methodologies underlying the establishment of such rates, and justifications for the proposed rates are published,

(ii) providers, beneficiaries and their representatives, and other concerned State residents are given a reasonable opportunity for review and comment on the proposed rates, methodologies, and justifications,

51 (iii) final rates, the methodologies underlying the establishment of such rates, and justifications for such final rates are published, and

(iv) in the case of hospitals, such rates take into account (in a manner consistent with [Section (2)(D)]), the situation of hospitals which serve a disproportionate number of low-income people with special needs.

42 U.S.C. § 1396a(a)(13)(A). Section (2)(D) provides:

A State plan under this subchapter shall not be considered to meet the requirements of [Section (13)(A)(iv)] (insofar as it requires payments to hospitals to take into account the situation of hospitals that serve a disproportionate number of low-income patients with special needs) . . . unless the State has submitted to the Secretary . . . a description of the methodology used by the State to identify and to make payments to disproportionate share hospitals . . . .

42 U.S.C. § 1396r-4(a)(2)(D).

The Commissioner argues that the public process requirements set forth in

Section (13)(A)(i) through (iii) do not apply to DSH payment methodology. However,

Section (13)(A), in which subsection (iv) appears, requires a state plan to provide

“for a public process for determining rates of payment under the plan for hospital

services.” 42 U.S.C. § 1396a(a)(13)(A). Subsection (iv) provides that “such rates,”

i.e., the proposed and final payment rates that must undergo the notice-and-

comment process set forth in Section (13)(A), must “take into account . . . the

situation of” disproportionate share hospitals. § 1396a(a)(13)(A)(iv). The manner in

which those payment rates take disproportionate share hospitals into account must

be “consistent” with Section (2)(D). Id. Section (2)(D) in turn provides that a state

plan “shall not be considered to meet the requirements of [Section (13)(A)(iv)]

52 . . . unless the State has submitted a description” of its DSH payment methodology.

§ 1396r-4(a)(2)(D). In other words, Section (2)(D) injects into Section (13)(A)(iv) a

requirement that, in setting hospital payment rates pursuant to the statutorily

required public process, the state must establish a methodology for making DSH

payments.9 The court therefore rejects the Commissioner’s argument that a state’s

DSH payment methodology falls outside Section (13)(A).

C. Summary

The court’s conclusions as to plaintiff’s Medicaid Act claims (Counts I and II)

are as follows. Count I fails to state a claim upon which relief can be granted

because Sections (13)(A) and (2)(D) impose procedural—not substantive—

requirements on state’s DSH payment methodologies. Those statutes do not require,

as plaintiff urges, that state plans provide for a certain degree of specificity in how

the state determines uncompensated care costs or in making DSH payments. Count

II, by contrast, states a claim because the Commissioner’s methodology for

allocating LRGHealthcare’s discharged overpayments did not go through the public

process required by those statutes. Plaintiff has standing to pursue the claim

alleged in Count II, and that claim is neither untimely nor barred by laches.

Finally, plaintiff has a private right of action to enforce the public process

requirements of Sections (13)(A) and (2)(D).

9 It is noteworthy that the Commissioner’s co-defendants—the Federal Defendants—agree with plaintiff and the court that DSH payment methodologies are subject to Section (13)(A)’s public process requirements. See doc. no. 44-1 at 11. 53 For these reasons, the court grants the Commissioner’s motion to dismiss as

to Count I but denies it as to Count II.

IV. Due Process Claims

The court next addresses the Commissioner’s arguments for dismissal of

plaintiff’s due process claims—Counts III and IV. The Commissioner argues that

neither Count III nor Count IV states a claim upon which relief may be granted. To

state a procedural due process claim, the plaintiff must plausibly allege facts that

would show that (1) the plaintiff has been deprived of a protected interest by the

state (2) without sufficient procedural protections. Reed,

. In Count

III, plaintiff alleges that recoupment of plaintiff’s overpayments in interim DSH

benefits would violate procedural due process. In Count IV (brought in the

alternative to Count III), plaintiff alleges that the Commissioner’s planned

allocation of LRGHealthcare’s DSH overpayments violates plaintiff’s procedural due

process rights because it will deprive plaintiff of a DSH payment it is entitled to

without adequate process.

A. Count III Fails to State a Claim Because Plaintiff Does Not Plausibly Allege the Deprivation of a Protected Property Interest

“The procedural component of the Due Process Clause does not protect

everything that might be described as a ‘benefit’: ‘To have a property interest in a

benefit, a person must have more than an abstract need or desire’ and ‘more than a

unilateral expectation of it. He must, instead, have a legitimate claim of entitlement

to it.’” Town of Castle Rock v. Gonzales,

(2005) (quoting Bd. of

54 Regent of State Colls. v. Roth,

(1972)). “Such entitlements are, ‘of

course, . . . not created by the Constitution. Rather, they are created and their

dimensions are defined by existing rules or understandings that stem from an

independent source such as state law.’”

(quoting Paul v. Davis,

(1976)).

A benefit is not a protected property interest “if government officials may

grant or deny it in their discretion.”

The more the government’s discretion to

grant or deny a benefit is circumscribed, the more likely the benefit is to be a

protected property interest. Clukey v. Town of Camden,

(1st Cir.

2013). The types of entitlements that may give rise to a protected property interest

are varied. See, e.g., Lowe v. Scott,

(1st Cir. 1992) (holding that

physician had a property interest in hospital privilege to supervise nurse midwives).

Regardless of the precise nature of the interest, a “protected property interest exists

where substantive criteria clearly limit discretion ‘such that the plaintiff cannot be

denied the interest unless specific conditions are met.’’” Rock River Health Care,

LLC v. Eagleson,

(7th Cir. 2021) (quoting Bell v. City of

Country Club Hills,

(7th Cir. 2016)).

In Count III, plaintiff alleges that it has a protected property interest “in

having DSH payments calculated in accordance with the statutorily defined

process.” Doc. no. 1 ¶ 104. In other words, plaintiff contends that it has a protected

property interest in having its DSH payments calculated in the manner required by

the Medicaid Act. Plaintiff doubles down on this position in its objection to the

55 Commissioner’s motion to dismiss, asserting that “federal law places substantive

limits on the state when it comes to distributing DSH payments to hospitals.” Doc.

no. 34-1 at 36.

The property interest plaintiff alleges is materially identical to the Medicaid

Act claim in Count I. Essentially, plaintiff claims that the Medicaid Act confers an

entitlement to a certain degree of specificity in the state’s publicly-promulgated

DSH payment methodology, and that the descriptions of the methodology set forth

in the relevant versions of the state plan deprives plaintiff of this interest because

they do not adequately describe how the state will ascertain hospitals’

uncompensated care costs. However, as discussed above in considering whether

Count I stated a claim upon which relief could be granted, the Medicaid statutes

plaintiff relies upon do not impose any substantive criteria against which the

specificity of the state’s methodology for calculating DSH payments or

uncompensated care costs may be judged. They merely require that a state go

through a public process in promulgating whatever DSH payment system the state

elects to adopt. It is undisputed in this case that New Hampshire’s state plan was

promulgated in compliance with Section (13)(A)’s requirements.

Plaintiff cites the Seventh Circuit’s opinion in Rock River in support of its

position, but that case is inapposite. In Rock River, three long-term nursing care

facilities sued the state of Illinois, arguing that the state violated their procedural

due process rights by retroactively recalculating the plaintiffs’ Medicaid

reimbursement rates.

. The plaintiffs alleged that the state failed

56 to follow the procedures set forth under state law regarding how such

reimbursement rates may be recalculated.

. Because Illinois state law

“strictly circumscribed” the procedures by which the state could retroactively adjust

reimbursement rates, the Seventh Circuit held that an alleged failure to abide by

those procedures stated a procedural due process claim.

; see

at 771-

72 (explaining the rate calculation procedure mandated by state law). Here, by

contrast, the Medicaid Act provisions plaintiff relies upon do not require states to

use any particular DSH payment methodology—they require states to follow a

public process in deciding what DSH payment methodology they will use. Because

the Commissioner adhered to a public process in implementing a DSH payment

methodology requiring that interim DSH payments be reconciled in subsequent

fiscal years to account for variations between projected uncompensated care costs

and actual uncompensated care costs, Count III fails to plausibly allege the

deprivation of a protected property interest, and accordingly fails to state a claim

upon which relief may be granted.10

B. The Commissioner Has Not Shown That Count IV Should Be Dismissed

In Count IV, plaintiff alleges that it has a protected property interest in its

2017 DSH payment. Doc. no. 1 ¶ 116 (alleging that the Commissioner’s “planned

reallocation to other hospitals of the bankrupt hospitals’ alleged DSH overpayments

violates procedural due process because it will deprive [plaintiff] of a DSH

10 In light of this conclusion, the court need not address the Commissioner’s

argument that Count III is barred the statute of limitations or laches. 57 underpayment it is owed without adequate pre- or post-deprivation procedures”).

The Commissioner does not dispute that plaintiff has a property interest in its 2017

DSH payment. The Commissioner argues, similar to her standing argument as to

Count II, that Count IV fails to allege that plaintiff will be deprived of this interest

because “[p]laintiff alleges no facts demonstrating that the reduction to its final

DSH payment for 2017 exceeds the sum of any increase to its final DSH payment

adjustments for 2011, 2014, 2015, and 2016 resulting from the methodology

change.” Doc. no. 19-1 at 38. The Commissioner does not explain why plaintiff

needed to allege such facts in order to plausibly allege that the Commissioner’s

planned actions would deprive plaintiff of its 2017 DSH payment without adequate

process, and the court is unaware of any authority that would impose such a

requirement on plaintiff. To the extent the Commissioner intended to argue that

plaintiff lacks standing as to Count IV, that argument fails for the same reason it

failed as to Count II. Therefore, the Commissioner has failed to show that Count IV

should be dismissed.11

11 In its reply to plaintiff’s objection to the motion to dismiss, the

Commissioner asserts for the first time that Count IV fails to state a claim because plaintiff does not plausibly allege a risk of erroneous deprivation of its 2017 DSH payment in the absence of additional procedural protections. This argument is waived because it was raised for the first time in a reply brief. See Frese v. MacDonald,

, 290 (D.N.H. 2021). Even if it was not waived, the court would find it insufficiently developed. See Debaker v. Comm’r of U.S. Soc. Sec. Admin., Civ. No. 19-cv-107-JL,

, at *2 (D.N.H. Aug. 27, 2019).

The Commissioner also argued that Count IV was untimely and barred by the doctrine of laches. The court rejects those arguments for the same reasons it rejected them as to Count II. 58 V. A Preliminary Injunction Will Issue to Preserve the Status Quo

The court next turns to plaintiff’s motion for a preliminary injunction.

Plaintiff seeks a preliminary injunction that would enjoin the Commissioner in two

respects. See doc. no. 2 at 2 (prayer for relief). First, plaintiff seeks to enjoin the

Commissioner from clawing back plaintiff’s DSH overpayments. Second, plaintiff

seeks to enjoin the Commissioner from reallocating LRGHealthcare’s alleged

overpayments to plaintiff. Ostensibly, the first form of relief plaintiff seeks relates

to Counts I and III, as those are the counts that challenge the legality of the

Commissioner’s attempts to recoup plaintiff’s DSH payments. By the same token,

the second form of relief plaintiff seeks relates to Counts II and IV, which challenge

the lawfulness of the Commissioner’s attempts to force hospitals that were

underpaid in DSH benefits in a given fiscal year to bear the cost of the state’s

inability to recover overpayments to LRGHealthcare in said year.

“The purpose of a preliminary injunction is to preserve the status quo,

freezing an existing situation so as to permit the . . . court, upon full adjudication of

the case’s merits, [to] more effectively remedy discerned wrongs.” CMM Cable Rep.,

Inc. v. Ocean Coast Props., Inc.,

(1st Cir. 1995). As noted, to obtain

a preliminary injunction, the movant must show: (1) a likelihood of success on the

merits; (2) that it would be irreparably injured in the absence of a preliminary

injunction; (3) that the balance of equities tips in its favor; and (4) that the

injunction is in the public interest. Thomas, 596 F. Supp. 3d at 336. The first two

factors—irreparable harm and likelihood of success on the merits—are the most

important. Id. These two factors are viewed in tandem, such that a strong showing 59 of irreparable harm can excuse a comparatively weaker showing of likelihood of

success on the merits. Bos. Taxi Owners,

. Where the

potential for irreparable harm is high, a preliminary injunction may issue if the

plaintiffs’ claims present “fair grounds for further litigation.” Patch,

-

27.

Plaintiff makes a strong showing of irreparable harm. The Commissioner has

demanded that plaintiff return millions of dollars in DSH funds, and has declined to

award plaintiff a DSH payment of nearly $300,000 for 2017, which plaintiff would

otherwise be owed but for the Commissioner’s plan to allocate LRGHealthcare’s

2017 overpayment to disproportionate share hospitals that were underpaid in that

year. While monetary harms are considered reparable in most instances, “if a

movant seeking a preliminary injunction will be unable to sue to recover any

monetary damages against a government agency in the future . . . financial loss can

constitute irreparable injury.” Tex. Child.’s Hosp. v. Burwell,

(D.D.C. 2014) (quoting Nat’l Mining Ass’n v. Jackson,

(D.D.C. 2011)). Here, plaintiff would be unable to recover any DSH payments

returned to or retained by the state if the court does not issue injunctive relief. The

state plan provides no mechanism for recovering recouped or retained DSH

payments, and the Commissioner intends to redistribute any funds clawed back

from plaintiff to other disproportionate share hospitals. See N.H. Hosp. Ass’n I,

, at *18 (finding harm posed by recoupment of DSH funds to be

irreparable because “New Hampshire does not have a procedure for recovering DSH

60 funds once they have been recouped”). Moreover, sovereign immunity would bar

plaintiff from obtaining a damages award of any recouped or retained DSH funds.

E.g., Edelman,

. “Where a plaintiff stands to suffer a substantial

injury that cannot adequately be compensated by an end-of-case award of money

damages, irreparable harm exists.” Rosario-Urdaz v. Rivera-Hernandez,

(1st Cir. 2003). In short, in the absence of preliminary relief, plaintiff will

be forced to forfeit millions of dollars with no adequate remedy at law. “Similarly

unrecoverable economic loss has been found to be ‘more than sufficient, especially

when considered with the other preliminary-injunction factors, to justify a

preliminary injunction.’” Tex. Child.’s Hosp.,

(brackets

omitted) (quoting Brendsel v. Off. of Fed. Hous. Enter. Oversight,

(D.D.C. 2004)).

Plaintiff has also established a strong likelihood that it will ultimately

prevail on Counts II and IV. Except in one respect, the parties’ arguments regarding

plaintiff’s likelihood of success on these counts mirror their arguments for and

against dismissal of these counts.12 Plaintiff is likely to prevail on the merits as to

12 The Commissioner contends that plaintiff is unlikely to succeed on the merits of Counts II and IV because plaintiff is equitably estopped from challenging any change in the state plan methodology relative to treatment of the bankrupt hospitals’ DSH overpayments, insofar as any change was requested by the Hospital Association, which the Commissioner contends was acting as plaintiff’s agent. See generally Mimiya Hosp. Inc. SNF v. U.S. Dep’t of Health & Hum. Servs.,

(1st Cir. 2003); Planet Fitness Int’l Franchise v. JEG-United, LLC,

, 14 (D.N.H. 2021). However, the testimony at the evidentiary hearing on the preliminary injunction motion established that the Hospital Association did not have actual or apparent authority to request any change relative to the treatment of

61 Count II because the state plan in effect for 2017 does not provide a mechanism by

which the state can force hospitals that were underpaid in DSH benefits in that

year to absorb the funding shortfall occasioned by the state’s inability to recoup

DSH overpayments made to bankrupt hospitals. By implementing a plan to do just

that without complying with the public process requirements of Sections (13)(A) and

(2)(D), the Commissioner violates those provisions of the Medicaid Act. Similarly,

plaintiff is likely to prevail on the merits as to Count IV. It is undisputed that,

under the version of the state plan for 2017 that underwent the Medicaid Act’s

public process requirements, plaintiff is entitled to a DSH payment.

Implementation of the Commissioner’s plan to deviate from the 2017 state plan—

which did not undergo notice and comment, and which the Commissioner has not

afforded plaintiff a meaningful opportunity to challenge—would deprive plaintiff of

that payment. See, e.g., Cleveland Bd. of Educ. v. Loudermill,

(1985).

As for Counts I and III, while the court has found those counts should be

dismissed, the legal viability of those counts present questions of first impression.

The parties have not cited to any cases in which courts have grappled with whether

Sections (13)(A) and (2)(D) impose substantive requirements on state plans to define

how the state will calculate DSH payments with a particular degree of specificity,

bankrupt hospitals’ overpayments on plaintiff’s behalf. Henry Lipman, the Medicaid Director at the New Hampshire Department of Health and Human Services, testified that he was aware that plaintiff was not bound by any request the Hospital Association made and that plaintiff objected to the Hospital Association’s requested approach for handling the bankrupt hospitals’ DSH overpayments. 62 and this court is not aware of any such guidance in the case law. The Supreme

Court has lamented the Medicaid Act’s “Byzantine construction,” making the Act

“almost unintelligible to the uninitiated.” Schweiker v. Gray Panthers,

(1981) (quoting Friedman v. Berger,

, 727 n.7 (2d Cir. 1976)

(Friendly, J.)). Here, while the court has determined that Counts I and III fail to

state a claim based on the court’s interpretation of the relevant provisions of the

Medicaid Act, the complexity of these issues of first impression suggests that

reasonable judicial minds could reach a different conclusion. In other words, the

legal viability of Counts I and III presents “fair grounds for further litigation.”

Patch,

. At the same time, it is a virtual certainty that plaintiff would

be irreparably and substantially harmed absent a preliminary injunction. Plaintiff

would be forced to forfeit over $8 million in DSH payments with no ability to recover

those funds. Considered against plaintiff’s strong showing of irreparable harm if the

court does not grant the requested preliminary injunction, plaintiff has sufficiently

demonstrated a likelihood of success on the merits as to Counts I and III. See

The balance of equities and the public interest weigh in favor a preliminary

injunction. See Does 1-6 v. Mills,

(1st Cir. 2021) (explaining that the

third and fourth preliminary injunction factors “merge when the government is the

opposing party” (brackets omitted) (quoting Nken v. Holder,

(2009))). Disproportionate share hospitals, such as plaintiff, are already not fully

reimbursed for all of the uncompensated care they provide. See N.H. Hosp. Ass’n I,

at *19. DSH funds are necessary to ensure that such hospitals

63 can provide low-income, elderly, and disabled citizens with needed medical care.

Absent an injunction, plaintiff would be forced to remit approximately $8 million—

the loss of such a substantial amount could have negative impacts on plaintiff’s

operation, and may cause plaintiff to cut programs and services for Medicaid

patients. See id. at *18. As for the Commissioner, the requested injunction would

simply preserve the status quo while this litigation plays out; if the Commissioner

is ultimately successful, she will be able to recover any overpayments from plaintiff.

“It is thus not the case that the alleged irreparable economic injury suffered by

[plaintiff] would be offset by the corresponding economic injury to [the

Commissioner].” Tex. Child.’s Hosp.,

(quotation omitted).

Finally, although Federal Rule of Civil Procedure 65 ordinarily requires

parties obtaining injunctive relief to post bond, here the court concludes that no

bond is required. “First, and perhaps most importantly, [the Commissioner] ha[s]

not asked that plaintiff[ ] post a bond.” N.H. Hosp. Ass’n I,

, at *19

(citing Aoude v. Mobil Oil Corp.,

(1st Cir. 1988)). Moreover, while

Rule 65 “speaks in mandatory terms, an exception for the bond requirement has

been crafted for, inter alia, cases involving the enforcement of public interests

arising out of comprehensive federal health and welfare statutes.” Dartmouth-

Hitchcock Clinic v. Toumpas, No. 11-cv-358-SM,

, at *1 (D.N.H.

Mar. 2, 2012) (quoting Pharm. Soc’y v. N.Y. State Dep’t of Soc. Servs.,

,

1174 (2d Cir. 1995)).

64 CONCLUSION

The Commissioner’s motion to dismiss (doc. no. 19) is granted as to Counts I

and III but denied as to Counts II and IV.

Plaintiff’s motion for a preliminary injunction (doc. no. 2) is granted as

follows:

1. The Commissioner of the New Hampshire Department of Health and Human

Services is hereby enjoined from recouping alleged DSH overpayments from

plaintiff pending the resolution of this action on the merits.

2. The Commissioner of the New Hampshire Department of Health and Human

Services is hereby enjoined from reallocating to plaintiff LRGHealthcare’s

DSH overpayments for fiscal year 2017 pending the resolution of this action

on the merits.

SO ORDERED.

__________________________ Landya McCafferty United States District Judge

August 5, 2024

cc: Counsel of Record

65