Under the Administrative Procedures Act (APA), federal agencies may not take actions that are “arbitrary or capricious.”  If they do, federal courts are instructed to hold the action unlawful and set it aside.  Late yesterday afternoon, that’s exactly what Judge James E. Boasberg of the U.S. District Court in the District of Columbia did with respect to the Arkansas and Kentucky Medicaid waivers, which impose work reporting requirements on Medicaid beneficiaries.  He found that the Secretary’s approval of the Arkansas demonstration (Arkansas Works), and the Secretary’s reapproval of the Kentucky demonstration (Kentucky HEALTH), was in each case arbitrary and capricious, and he vacated and remanded both demonstrations back to the Secretary.  As a result, on April 1, Arkansas Medicaid beneficiaries will not be disenrolled for failure to meet that state’s work reporting requirements, and Kentucky will not be able to impose its work reporting requirements on its Medicaid beneficiaries. In addition, any states considering going down this path are likely to face litigation on the same grounds, in the same court, with the same judge.

Judge Boasberg’s opinions are lengthy:  35 pages in the Arkansas case (Gresham v. Azar), and 48 pages in the Kentucky case (Stewart v. Azar).  Both contain extensive references to his June 2018 opinion in Stewart v. Azar (60 pp.) You could think of these three cases as a treatise on the APA as it applies to Medicaid and section 1115 of the Social Security Act.  There is a lot going on, and this blog can’t unpack it all.  But here, on a first read, are some initial take-aways.

First, a quick recap of how these waivers got to this point.  The ideological source for each was CMS Administrator Verma’s November 7, 2017 remarks to the National Association of State Medicaid Directors: “One of the things that states have told us time and time again is that they want more flexibility to engage their working-age, able bodied citizens on Medicaid.  They want to develop programs that will help them break the chains of poverty and live up to their fullest potential….Let me be clear to everyone in this room, we will approve proposals that promote community engagement activities.”

Two months later, this agenda was codified in CMS guidance.

Arkansas was the third state to receive permission to impose work reporting requirements on Medicaid beneficiaries but the first state to implement them.   The Secretary approved the state’s “demonstration” waiver in March 2018 and the state began to apply the requirements on June 1, 2018.  On August 14, 2018, Medicaid beneficiaries filed a lawsuit in federal district court  (Gresham v Azar) challenging the Secretary’s approval as a violation of the Administrative Procedure Act (APA); the case was assigned to Judge Boasberg.  In early November 2018, the Medicaid and CHIP Payment and Access Commission (MACPAC), an agency of the Congress, formally requested that the Secretary suspend the Arkansas demonstration due to the mounting, unexplained disenrollments.   The CMS Administrator declined to do so.

By January of 2019, over 18,000 Medicaid beneficiaries in Arkansas had been disenrolled for failing to meet the work reporting requirements; of those, about 2,000 had applied for reenrollment.  The next round of disenrollments was expected to begin April 1.

Kentucky was the first state to receive approval to impose work reporting requirements on its Medicaid beneficiaries.

The state has been unable to implement, however, because of a June 2018 ruling by Judge Boasberg  that the Secretary’s approval of the Kentucky demonstration was “arbitrary and capricious” and therefore violated the APA (Stewart v. Azar).   The Judge vacated the approval and remanded the matter to the Secretary.  Some observers, yours truly included, had expected the Secretary to appeal the Judge’s order.

We were quickly proven wrong.  Instead of appealing, CMS opened up another 30-day comment period. Despite receiving more than 11,500 comments, most of them opposed, the agency reapproved the state’s demonstration with almost no changes.

Before Judge Boasberg’s June 2018 ruling in the Kentucky case, the Secretary had approved section 1115 waivers for work reporting requirements in four states: Kentucky, Indiana, Arkansas, and New Hampshire.  Since the Judge’s ruling, the Secretary has approved similar waivers in five more states: Wisconsin, Maine, Michigan, Arizona, and Ohio.  Three of these approvals—Maine, Michigan, and Arizona and Ohio—came after MACPAC’s November letter asking the Secretary to hit the pause button. (In January, Maine’s Governor declined to accept the Secretary’s approval and will not implement work reporting requirements).  In short, the Secretary and Administrator Verma have not been moved by either the Judge’s first ruling in the Kentucky case or by MACPAC’s letter.

We’re about to find out whether Judge Boasberg’s invalidation of the Arkansas approval and Kentucky reapproval will make any difference.  Having missed the mark last time around, I’m reluctant to speculate on the Department’s response in either case and, given the logical inconsistencies in this Administrations reasoning on Medicaid policy, it makes for a challenging task. Early indications are that these decisions have not changed the Administrator’s mind.

But based on what the Judge did not do, this much seems clear:

1. The Judge’s decisions are narrow. He did not rule on the question of whether the Secretary has the authority under either the Medicaid statute or section 1115 to allow states to impose work reporting requirements as a condition of Medicaid eligibility.   He did not rule on whether CMS’s issuance of the January 2018 State Medicaid Director letter was a violation of the APA.  He simply ruled that, on the administrative record before him in each case, the Secretary’s approval was arbitrary and capricious, requiring that he vacate and remand to the Secretary.  In short, Judge Boasberg is proceeding on a case-by-case basis, insisting that the federal agency, as required by the APA, give a full and reasoned explanation of its actions on each individual state demonstration based on the administrative record.
2. The Judge did not order the Secretary to suspend or withdraw approval of demonstrations already granted. There are six states other than Arkansas and Kentucky with approved waivers.  In one of those states, New Hampshire, Medicaid beneficiaries have filed a similar challenge to the Secretary’s approval of work reporting requirements in the same federal District Court.   There has been no decision in that case.  That leaves Arizona, Indiana, Michigan, Ohio, and Wisconsin.  Unless the Secretary decides to suspend or withdraw the waivers he has already approved, or unless those states decide not to implement the waivers he has approved (as Maine’s Governor did), the best chance that Medicaid beneficiaries in those states have to block implementation is an APA challenge to the approval in their state.
3. The Judge did not prohibit the Secretary from approving any Medicaid work requirements waivers in the future. In fact, he makes clear that even though HHS failed to provide a “legally sufficient rationale” for its reapproval of the Kentucky waiver after he had vacated and remanded it last June, this “does not mean it will be impossible for the agency to justify its approval of a demonstration project like [Arkansas Works].  The Court’s decision does not go that far.”  There are seven states with applications for work reporting requirements demonstrations waiting for the Secretary’s approval:  Alabama, Mississippi,  Oklahoma, South Dakota, Tennessee, Utah, and Virginia.  Again, either the Secretary or the state could hit the pause button—or not.
4. The Judge did not allow the Department to hide the ball on coverage losses. If the Secretary decides to approve any of the seven pending waivers, or any future applications, he will have to explain the effects of the waiver on coverage in a way that will survive an APA challenge:  “The Court has said this before and will say it again:  if, as Arkansas and HHS admit (and this Court has found), ensuring Medicaid coverage for the needy is a key objective of the Act, the Secretary’s failure to consider the effects of the project on coverage alone renders his decision arbitrary and capricious; it does not matter that HHS deemed the project to advance other objectives of the Act.” (Gresham v. Azar, p. 23).  That means that, in each case, HHS will at a minimum have to estimate how many beneficiaries are likely to lose coverage, what will happen to those who lose coverage, and explain why that coverage loss is justified—exactly the ball that states and CMS have been desperately trying to hide.