Sierra Med. Servs. Alliance v. Jennifer Kent , 883 F.3d 1216 ( 2018 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SIERRA MEDICAL SERVICES No. 14-56483
ALLIANCE; CARE FLIGHT; RIGGS
AMBULANCE SERVICE, INC.; D.C. No.
SCHAEFER AMBULANCE SERVICE,
INC.; AMERICAN AMBULANCE OF 2:10-cv-04182-
VISALIA; DESERT AMBULANCE CAS-MAN
SERVICE; SAN LUIS AMBULANCE
SERVICE, INC.; FIRST RESPONDER
EMERGENCY MEDICAL SERVICES- OPINION
SACRAMENTO, INC.; FIRST
RESPONDER EMERGENCY MEDICAL
SERVICES, INC.; IMPERIAL
AMBULANCE SERVICES, INC.; SIERRA
LIFESTAR, INC., DBA Lifestar
Ambulance; DEL NORTE
AMBULANCE, INC.; PINER’S
AMBULANCE, INC.; AMERICAN
LEGION POST 108 AMBULANCE
SERVICE; PROGRESSIVE AMBULANCE,
INC., DBA Liberty Ambulance;
HALL AMBULANCE SERVICE, INC.;
CITY AMBULANCE OF EUREKA, INC.;
PATTERSON DISTRICT AMBULANCE;
K.W.P.H. ENTERPRISES, DBA
American Ambulance; COMMUNITY
AMBULANCE SERVICES, INC.; SIERRA
AMBULANCE SERVICE, INC.; CARE
AMBULANCE SERVICE, INC.; DELANO
AMBULANCE SERVICE, INC.; KERN
EMERGENCY MEDICAL
2 SIERRA MED. SERVS. ALLIANCE V. KENT
TRANSPORTATION CORPORATION,
DBA Kern Ambulance; WESTMED
AMBULANCE, INC.; CALIFORNIA
AMBULANCE ASSOCIATION;
REGIONAL EMERGENCY MEDICAL
SERVICES AUTHORITY; METRO WEST
AMBULANCE SERVICE, INC.,
Plaintiffs-Appellants,
v.
JENNIFER KENT, Director of the
Department of Health Care Services
of the State of California,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Christina A. Snyder, District Judge, Presiding
Argued and Submitted November 7, 2017
Pasadena, California
Filed March 6, 2018
Before: Stephen Reinhardt, Ronald Lee Gilman, *
and Kim McLane Wardlaw, Circuit Judges.
Opinion by Judge Gilman
*
The Honorable Ronald Lee Gilman, United States Circuit Judge
for the U.S. Court of Appeals for the Sixth Circuit, sitting by designation.
SIERRA MED. SERVS. ALLIANCE V. KENT 3
SUMMARY **
Medicaid
The panel affirmed the district court’s summary
judgment in favor of the Director of the California
Department of Health Care Services in an action brought by
private ambulance companies, challenging the
reimbursement rate for their transportation of patients
covered by Medi-Cal, the California Medicaid program.
The reimbursement rate is set by DHCS pursuant to state
statutes and regulations that have been approved by the
Centers for Medicare and Medicaid Services, the federal
agency that administers the Medicaid program on behalf of
the Department of Health and Human Services. The
ambulance companies alleged that their constitutional rights
were violated because they received only 20 cents in
reimbursement for every dollar that they spent to transport
Medi-Cal patients.
The panel affirmed the district court’s summary
judgment on the ambulance companies’ claim under the
Takings Clause. The panel held that the ambulance
companies lacked a constitutionally protected property
interest in a particular reimbursement rate, but the
mandatory-care provision of Cal. Health & Safety Code
§ 1317(d) implicated a constitutionally protected property
right. The panel held that § 1317(d) did not effect a
regulatory taking because, under the Penn Central test, the
ambulance companies did not establish that the statute had
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4 SIERRA MED. SERVS. ALLIANCE V. KENT
more than a negligible economic impact on them, nor that it
interfered with their investment-backed expectations, and
they did not provide evidence as to the character of the
government action at issue.
The panel held that the ambulance companies did not
establish a due process claim regarding DHCS’s failure to
ensure that Medi-Cal reimbursement rates kept pace with
their costs because they lacked a constitutionally protected
interest in any particular reimbursement rate. Under the
rational-basis standard, the ambulance companies did not
establish an equal protection violation regarding a
supplemental-reimbursement program that favors public
over private providers. The ambulance companies also did
not establish a claim under the Contract Clause or the
Dormant Commerce Clause.
The panel held that there was no procedural error in the
district court’s grant of summary judgment, and it declined
to address claims omitted from the operative complaint.
COUNSEL
Michael K. Hagemann (argued), and Kevin R. Warren, M.K.
Hagemann P.C., Century City, California, for Plaintiffs-
Appellants.
Hadara R. Stanton (argued), Deputy Attorney General;
Susan M. Carson, Supervising Deputy Attorney General;
Julie Weng-Gutierrez, Senior Assistant Attorney General;
Office of the Attorney General, San Francisco, California;
for Defendant-Appellee.
SIERRA MED. SERVS. ALLIANCE V. KENT 5
OPINION
GILMAN, Circuit Judge:
California law requires ambulance companies to provide
emergency medical transportation irrespective of a patient’s
ability to pay. To at least partially offset the cost of
providing such transportation, California has an established
reimbursement rate for those companies voluntarily enrolled
as providers with the state’s Medicaid program (Medi-Cal)
when they transport Medi-Cal patients. The relevant
reimbursement rate is set by California’s Department of
Health Care Services (DHCS) pursuant to state statutes and
regulations that have been approved by the Centers for
Medicare and Medicaid Services (CMS), the federal agency
that administers the Medicaid Program on behalf of the
Department of Health and Human Services.
At the heart of this case is the Plaintiffs’ complaint that
private ambulance companies receive only 20 cents in
reimbursement for every dollar that they spend to transport
Medi-Cal patients, a shortfall that they contend violates their
constitutional rights. After discovery, DHCS moved for
summary judgment, which the district court granted on all
counts. The court held that the Plaintiffs had failed to
produce sufficient evidence to sustain any of their claims.
For the reasons set forth below, we AFFIRM the judgment
of the district court.
6 SIERRA MED. SERVS. ALLIANCE V. KENT
I. BACKGROUND
A. Factual background
1. Federal Medicaid program
Medicaid is a state-administered program financed
jointly by the federal and state governments that provides
healthcare coverage to low-income Americans. See
42 U.S.C. §§ 1396 et seq. The percentage of the program’s
costs that the federal government covers varies by state, with
poorer states receiving a greater share of federal dollars. See
42 U.S.C. § 1396d(b). For the fiscal years in question,
California bore half the cost of covering its Medicaid
population. See 80 Fed. Reg. 73,781, tbl. 1 (Nov. 25, 2015).
A state can satisfy its share of Medicaid spending both
through direct appropriations to state and local Medicaid
agencies and by certified Medicaid expenditures incurred by
other state and local agencies. 42 C.F.R. § 433.51(a), (b).
In exchange for receiving their allotment of federal
funds, states design and administer Medicaid State Plans that
must comply with federal Medicaid law. See 42 U.S.C.
§ 1396a. CMS can remedy a state’s noncompliance with
federal Medicaid law by withholding future funding.
42 U.S.C. § 1396c; Armstrong v. Exceptional Child Ctr.,
Inc., 135 S. Ct. 1378, 1385 (2015) (“[T]he sole remedy
Congress provided for a State’s failure to comply with
Medicaid’s requirements . . . is the withholding of Medicaid
funds by the Secretary of Health and Human Services.”).
2. Medi-Cal
Entities that enroll as Medi-Cal providers are entitled to
reimbursement for the services that they provide to the
program’s beneficiaries. Cal. Welf. & Inst. Code
SIERRA MED. SERVS. ALLIANCE V. KENT 7
§ 14019.3(c), (g). The Medi-Cal statute stipulates that
“payment received from the state in accordance with Medi-
Cal fee structures shall constitute payment in full” for
services provided. Id. § 14019.3(d). And when providers
enroll in the program, they must sign a Medi-Cal Provider
Agreement that contains a condition to the same effect. Cal.
Welf. & Inst. Code § 14043.2(a); Cal. Code Regs. tit. 22,
§§ 51000.45, 51200(a), 51501(b); DHCS, Medi-Cal
Provider Agreement (DHCS 6208) 5-6 (2017),
http://files.medi-cal.ca.gov/pubsdoco/Publications/
masters-other/provappsenroll/02enrollment_DHCS6208.pdf
(“[P]ayment received from DHCS in accordance with Medi-
Cal fee structures shall constitute payment in full . . . .”).
DHCS administers Medi-Cal, and its responsibilities
include setting reimbursement rates for covered services.
Cal. Welf. & Inst. Code §§ 10740, 14105(a). In 2003, the
agency adopted Attachment 4.19-B to California’s State
Plan, which sets forth a “methodology” for DHCS to
“establish[] payment rates.” State Plan Under Title XIX of
Social Security Act: California, attach. 4.19-B, at 1,
http://www.dhcs.ca.gov/formsandpubs/laws/Documents/Sta
te_Plan_Attachment_4.19B_1–5.pdf. The procedures set
forth in Attachment 4.19-B require DHCS to “develop[] . . .
an evidentiary base or rate study” to guide its rate setting, to
solicit public input by “present[ing] . . . the proposed rate at
a public hearing,” and to determine a final reimbursement
rate “based on” the aforementioned evidence and public
input. Id.
3. Reimbursement for emergency ground-
transportation services
Ambulance companies that operate in California must
provide emergency services to any “person . . . in danger of
loss of life[] or serious injury or illness” regardless of his or
8 SIERRA MED. SERVS. ALLIANCE V. KENT
her ability to pay. Cal. Health & Safety Code § 1317(a), (d).
Those ambulance companies that are enrolled as Medi-Cal
providers are entitled to at least partial reimbursement—
$118.20 for a one-way ride—for the services that they
provide when they transport patients who are insured
through Medi-Cal. Cal. Welf. & Inst. Code §§ 14019.3(c),
(g), 14132(i); Cal. Code Regs. tit. 22, § 51527. According
to the Plaintiffs, that reimbursement accounts for only 20%
of the actual cost that they incur to transport Medi-Cal
beneficiaries, causing them $60 million in annual losses.
DHCS has not promulgated new reimbursement rates for
medical-transportation services since adopting Attachment
4.19-B in 2003. Instead, reimbursement rates that predate
the Attachment remain in effect. See Cal. Code. Regs. tit.
22, § 51527. DHCS adopted those reimbursement rates in
1984 and has amended them several times, most recently in
2002. Id. As required by California’s Administrative
Procedure Act, DHCS held public hearings and provided an
opportunity for public comment before enacting § 51527
and each amendment thereto. Cal. Govt. Code
§§ 11346.45, .6. One of the Plaintiffs in this case—the
California Ambulance Association—participated in those
hearings. (A more extensive discussion of the regulation’s
history is found in Sierra Med. Servs. All. v. Douglas, No.
B220443, 2011 WL 985520, at *2–*3 (Cal. Ct. App. Mar.
22, 2011) (unpublished).)
California makes supplemental reimbursement available
to publicly owned providers of emergency-medical ground
transportation (e.g., local fire departments) for up to the
actual cost incurred to transport Medi-Cal beneficiaries, but
not to private providers like the Plaintiffs. Cal. Welf. & Inst.
Code § 14105.94. Recently, California adopted an
additional supplemental-reimbursement program (without
SIERRA MED. SERVS. ALLIANCE V. KENT 9
repealing the existing one) that is available to both private
and public providers of emergency-medical transportation.
See id. §§ 14129–14129.7.
B. Procedural background
The Plaintiffs filed this action in the United States
District Court for the Central District of California. The
operative complaint alleges violation of the Fifth
Amendment’s Takings Clause, the Fourteenth
Amendment’s Due Process Clause, the Commerce Clause,
and the Contract Clause of the United States Constitution.
Plaintiffs also allege that the reimbursement program
violates the Equal Protection Clause of the Fourteenth
Amendment because public providers of emergency-
transportation services are eligible for supplemental Medi-
Cal reimbursement that is unavailable to private ambulance
companies.
Three of the Plaintiffs were involved in a prior state court
action, which was on appeal when this case was filed. See
Sierra Med. Servs. All., 2011 WL 985520, at *1, *3. The
district court held that those plaintiffs could assert only an
equal protection claim, because the remaining claims were
barred by res judicata. Those Plaintiffs have not appealed
that ruling.
DHCS filed its motion for summary judgment in this
case after the close of discovery, along with a request (to
which the Plaintiffs objected) that the court take judicial
notice of several items, including excerpts of California’s
State Medicaid Plan, state legislation and legislative
documents, materials from DHCS’s website, administrative
records from the public hearings surrounding the adoption
and amendment of the Medi-Cal reimbursement rate for
medical-transportation services, and the California Court of
10 SIERRA MED. SERVS. ALLIANCE V. KENT
Appeal’s unpublished decision in the related case of Sierra
Medical Services Alliance v. Douglas.
The Plaintiffs opposed DHCS’s motion for summary
judgment, but, before the motion was fully briefed, the
district court stayed proceedings in light of the Supreme
Court’s consideration of a petition for writ of certiorari in
another case challenging Medi-Cal’s reimbursement rates.
See Managed Pharmacy Care v. Sebelius, 716 F.3d 1235
(9th Cir. 2013), cert. denied, 134 S. Ct. 900 (2014) (mem.).
After the Supreme Court denied certiorari in that case, the
district court lifted its stay, reopened discovery for a four-
month period, and granted the Plaintiffs permission to file a
second opposition to DHCS’s motion for summary
judgment, which they did after conducting additional
discovery. After hearing argument, the district court granted
DHCS’s motion.
II. ANALYSIS
A. Standard of review
We review de novo a district court’s grant of summary
judgment. Smith v. Clark Cty. Sch. Dist., 727 F.3d 950, 954
(9th Cir. 2013). “Summary judgment is appropriate only if,
taking the evidence and all reasonable inferences drawn
therefrom in the light most favorable to the non-moving
party, there are no genuine issues of material fact and the
moving party is entitled to judgment as a matter of law.”
Furnace v. Sullivan, 705 F.3d 1021, 1026 (9th Cir. 2013)
(quoting Torres v. City of Madera, 648 F.3d 1119, 1123 (9th
Cir. 2011)). A genuine dispute of material fact exists “if the
evidence is such that a reasonable jury could return a verdict
for the nonmoving party.” Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). Where, as here, the party moving
for summary judgment is not the party that bears the burden
SIERRA MED. SERVS. ALLIANCE V. KENT 11
of proof at trial, it may secure summary judgment by
“‘showing’—that is, pointing out to the district court—that
there is an absence of evidence to support the nonmoving
party’s case.” See Celotex Corp. v. Catrett, 477 U.S. 317,
325 (1986).
B. Preliminary matters
At the outset, we will briefly address two procedural
issues raised by the Plaintiffs on appeal. First, the Plaintiffs
argue that the district court erred by entering judgment for
DHCS on purely legal grounds instead of sifting through
what the Plaintiffs contend are contrary factual assertions.
The Plaintiffs, however, apparently misapprehend the nature
of Rule 56 of the Federal Rules of Civil Procedure. That
Rule “mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against a party
who fails to make a showing sufficient to establish existence
of an element to that party’s case, and on which that party
will bear the burden of proof at trial.” Celotex, 477 U.S. at
322.
This litigation languished in the federal district court for
five years, and not one, but two discovery deadlines elapsed
before the court rendered judgment on DHCS’s motion. If,
as the court found and as DHCS argues on appeal, the record
lacks evidence upon which the Plaintiffs can sustain their
claims, then the court properly entered judgment for DHCS.
Second, the Plaintiffs object to DHCS’s submission of
several public records in conjunction with its motion for
summary judgment. But the district court’s opinion does not
refer to any of those records, and most of them are readily
accessible on government websites. The exceptions are the
California Court of Appeal’s unpublished opinion in Sierra
Medical Services Alliance v. Douglas and the exhibits from
12 SIERRA MED. SERVS. ALLIANCE V. KENT
the parties’ Joint Appendix in that case. There is no basis
for the Plaintiffs to credibly claim that they were unfamiliar
with the latter two items, however, because three of the
Plaintiffs were themselves parties to the state-court case.
C. Claims not raised below
We also note that the Plaintiffs raise two substantive
claims on appeal that do not appear in their amended
complaint, which means that the district court had no
opportunity to render judgment on those claims. One of
these is the Plaintiffs’ renewal of the Supremacy Clause
claim that they quite intentionally excluded from their
operative, first amended complaint. As stated in their
motion to amend, the Plaintiffs amended their initial
complaint based on the “belie[f] that their Constitutional
claims were stronger than their section (a)(3)(A)/Supremacy
Clause claim.”
The Plaintiffs waived a Supremacy Clause claim by
omitting it from the operative complaint. See Lacey v.
Maricopa County, 693 F.3d 896, 928 (9th Cir. 2012)
(holding that “claims [that are] voluntarily dismissed” are
“waived if not repled” in an amended complaint”). And
even if the Plaintiffs could renew their Supremacy Clause
claim, the Supreme Court’s relatively recent decision in
Armstrong v. Exceptional Child Center, Inc., 135 S. Ct. 1378
(2015), defeats it. Id. at 1383 (“[T]he Supremacy Clause is
not the ‘source of any federal rights,’ and certainly does not
create a cause of action.” (quoting Golden State Transit
Corp. v. Los Angeles, 493 U.S. 103, 107 (1989))).
Also absent from the Plaintiffs’ operative complaint is
the argument that several different sections of the Medicaid
statute allow for private causes of action. One of the
sections—42 U.S.C. § 1396a(a)(30)(A)—was the statutory
SIERRA MED. SERVS. ALLIANCE V. KENT 13
basis for their abandoned Supremacy Clause claim. The
Plaintiffs have never before asserted claims based on the
other Medicaid provisions, and therefore, in the absence of
exceptional circumstances not present here, they are
precluded from raising those provisions for the first time on
appeal. Fed. Ins. Co. v. Union Pac. R.R. Co., 651 F.3d 1175,
1178 (9th Cir. 2011).
D. Takings Clause
Of the claims that do appear in the Plaintiffs’ amended
complaint, the most plausible is their Takings Clause claim,
which we will now address. The Fifth Amendment’s
Takings Clause prohibits the taking of “private property . . .
for public use, without just compensation.” U.S. Const.
amend. V. A Takings Clause claim requires proof that the
plaintiff “possesses a ‘property interest’ that is
constitutionally protected.” Turnacliff v. Westly, 546 F.3d
1113, 1118 (9th Cir. 2008) (quoting Schneider v. Cal. Dep’t
of Corr., 151 F.3d 1194, 1198 (9th Cir. 1998)).
The district court held that the Plaintiffs lack a
constitutionally protected property interest. In doing so, it
relied on Managed Pharmacy Care v. Sebelius, 716 F.3d
1235 (9th Cir. 2013), in which this court held that “[b]ecause
participation in Medicaid is voluntary, . . . providers do not
have a property interest in a particular reimbursement rate.”
Id. at 1252.
The Plaintiffs respond by arguing that “[e]ven if . . .
[they] don’t have a property right in Medicaid
reimbursement rates, . . . their ambulances, equipment,
wages, supplies, insurance, goodwill, and ambulatory-
service and employment contracts . . . are also property
rights at issue.” But, as the district court noted, the Medi-
Cal program does not compel the Plaintiffs to furnish those
14 SIERRA MED. SERVS. ALLIANCE V. KENT
resources for public use. The program provides
compensation at predetermined rates only to those providers
that voluntarily choose to participate.
A separate statute, however, requires providers to render
their emergency services “without first questioning the
patient or any other person as to his or her ability to pay.”
Cal. Health & Safety Code § 1317(d). This mandatory-care
provision does not stipulate what, if any, compensation that
providers are entitled to receive when they render services to
Medi-Cal patients or to anyone else. It states only that “after
the services are rendered,” “the patient or his or her legally
responsible relative or guardian shall execute an agreement
to pay” for the services “or otherwise supply insurance or
credit information.” Id.
The district court did not analyze whether § 1317(d)
effects a taking because it held that the Plaintiffs did not
“identify, much less assert a takings claim against, the statute
or regulation which obligates them to provide” emergency-
transportation services without respect to the patient’s ability
to pay. To the contrary, however, the Plaintiffs do reference
the mandatory-care provision, albeit obliquely, in their
amended complaint by alleging that they
are required by law to respond to all
emergency calls and provide emergency
treatment and transportation to every Medi-
Cal client that requests emergency assistance.
[They] cannot choose to decline to treat or
transport . . . Medi-Cal clients or even
identify them prior to treatment or transport
[in order] to have the option of declining to
treat or transport them.
SIERRA MED. SERVS. ALLIANCE V. KENT 15
And the Plaintiffs’ appellate briefing refers to the
compulsory effect of § 1317(d) on several occasions. These
references to the mandatory-care provision are sufficient to
show that the Plaintiffs intended to rely upon § 1317(d) as
part of their Takings Clause claim.
The district court also read Managed Pharmacy Care for
the proposition that “providers cannot state a takings claim
even when they are under a legal obligation to provide care.”
But Managed Pharmacy Care’s holding is narrower and
more nuanced. The provision at issue in that case prohibits
nursing facilities that are enrolled as Medi-Cal providers
from withdrawing from the program until all of their
“Medi-Cal patients . . . are: (1) transferred to another
facility; (2) appropriately discharged; or (3) lose
entitlements to Medi-Cal benefits.” California Hospital
Association v. Douglas, No. CV 11-9078 CAS (MANx),
2011 WL 6820229 at *10 & n.18 (C.D. Cal. Dec. 28, 2011),
rev’d sub nom. Managed Pharmacy Care v. Sebelius, 716
F.3d 1235 (9th Cir. 2013). By contrast, § 1317(d) applies to
all emergency-medical-transportation providers, whether or
not they enroll as Medi-Cal providers. And if the Plaintiffs
unenrolled as Medi-Cal providers, the provision would
continue to apply to them indefinitely, not for just a
transitional period of time. Those material differences,
along with the Plaintiffs’ property interest in their
ambulances, equipment, wages, supplies, insurance,
goodwill, and ambulatory-service and employment
contracts, rather than the reimbursement rate per se, make
Managed Pharmacy Care inapposite. Accordingly, the
district court erred in concluding that the Plaintiffs lack a
constitutionally protected property right upon which
California law intrudes.
16 SIERRA MED. SERVS. ALLIANCE V. KENT
Because of our determination that §1317(d) implicates
the Plaintiffs’ constitutionally protected property, we must
next examine whether the provision effects a taking. “The
paradigmatic taking requiring just compensation is a direct
government appropriation or physical invasion of private
property.” Lingle v. Chevron U.S.A. Inc., 544 U.S. 528, 537
(2005). But a so-called “regulatory taking” can also occur
where “government regulation of private property . . . [is] so
onerous that its effect is tantamount to a direct appropriation
or ouster.” Id. If § 1317(d) effects a taking, it is a regulatory
one because DHCS does not directly appropriate the
Plaintiffs’ ambulances or other personal property through
the mandatory-care provision. DHCS instead regulates how
the Plaintiffs can use their property.
Although real property is the traditional realm of takings
law, the Fifth Amendment also protects against the taking of
personal property without just compensation. Horne v.
Dep’t of Agric., 135 S. Ct. 2419, 2426 (2015) (“Nothing in
the text or history of the Takings Clause, or our precedents,
suggests that the rule is any different when it comes to
appropriation of personal property.”). And voluntary
participation in a market that is subject to regulation does not
defeat a takings claim. See id. at 2430–31 (holding that
raisin farmers’ voluntary decision to participate in the raisin
market did not defeat their takings claim against the
Department of Agriculture’s raisin-reserve requirement).
Accordingly, § 1317(d) has the potential to effect a
regulatory taking even though the Plaintiffs could avoid the
regulation by simply ceasing to operate as ambulance
companies.
The Supreme Court has set forth an “ad hoc, factual
inquir[y]” for determining whether a regulation amounts to
a taking. Penn Centr. Transp. Co. v. City of New York,
SIERRA MED. SERVS. ALLIANCE V. KENT 17
438 U.S. 104, 124 (1978). This inquiry analyzes (1) “[t]he
economic impact of the regulation on the claimant,” (2) “the
extent to which the regulation has interfered with distinct
investment-backed expectations,” and (3) “the character of
the government action.” Id. California’s mandatory-care
provision constitutes a temporary restriction on Plaintiffs’
use of their property, so this balancing test applies. See
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S.
419, 435 n.12 (1982).
This presents an insurmountable obstacle to the Plaintiffs
because they failed to produce sufficient evidence in support
of their takings claim under Penn Central. Starting with the
economic-impact factor, the record simply shows that the
Plaintiffs operate at a loss when they serve Medi-Cal
patients. But evidence of red ink generated by serving this
one segment of California’s population tells us nothing about
the overall economic impact of § 1317(d). When pressed on
this point at oral argument, counsel was unable to identify
any relevant record evidence. Due to the record’s
deficiencies, we have no way of knowing the losses that the
Plaintiffs in the present case incur as a result of § 1317(d).
Section 1317(d) might in fact have no more than a
negligible effect on the Plaintiffs’ bottom line, depending on
the amount of revenue that the Plaintiffs recoup by
transporting non-Medi-Cal patients. In the analogous case
of Franklin Memorial Hospital v. Harvey, 575 F.3d 121 (1st
Cir. 2009), for example, a hospital brought a Takings Clause
challenge to a Maine regulation that required it to provide
free, medically necessary, inpatient- and outpatient-hospital
services to residents whose incomes are at or below 150% of
the federal poverty level. Id. at 123–24 (citing Me. Code R.
§§ 1.01(A), 1.02(C)). Although the regulation caused the
hospital to provide free care at an annual cost of hundreds of
18 SIERRA MED. SERVS. ALLIANCE V. KENT
thousands of dollars, the First Circuit concluded that the
regulation did not amount to a regulatory taking, id. at 129,
and noted that the amount of free care that the hospital
actually provided pursuant to the regulation equaled only
0.51% of the hospital’s gross revenue, id. at 124.
The record is similarly lacking when it comes to the
Plaintiffs’ investment-backed expectations, the second Penn
Central factor. They have not identified any distinct
expectations that they had when they entered the emergency-
transportation market, let alone provided evidence that
§ 1317(d) has interfered with those expectations. Nor have
the Plaintiffs provided evidence or raised any arguments as
to the the character of the government action, the third Penn
Central factor.
Section 1317(d) also does not fit into either category of
per se regulatory takings identified by the Supreme Court. It
does not require the Plaintiffs “to sacrifice all economically
beneficial uses” of their property, Lucas v. S.C. Coastal
Council, 505 U.S. 1003, 1019–20 (1992) (emphasis in
original), because neither § 1317(d) nor Medi-Cal places any
limit on the rates that the Plaintiffs can charge to
non-Medi-Cal patients. And it does not constitute
“permanent physical occupation authorized by
government,” Loretto v. Teleprompter Manhattan CATV
Corp., 458 U.S. 419, 422, 426 (1982), because the Plaintiffs
also transport non-Medi-Cal patients.
In sum, the Plaintiffs have not carried their burden of
producing evidence upon which “a reasonable jury could
return a verdict” in their favor. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). The district court
therefore did not err in entering judgment in DHCS’s favor
on the Takings Clause claim.
SIERRA MED. SERVS. ALLIANCE V. KENT 19
E. Due Process Clause
Unlike the Plaintiffs’ Takings Clause claim, which
involves a statutory provision separate and apart from the
Medi-Cal statutes and regulations, the Plaintiffs’ procedural
and substantive due process claims are directed exclusively
at DHCS’s failure to ensure that Medi-Cal reimbursement
rates have kept pace with the Plaintiffs’ costs.
Due process claims, like Takings Clause claims, require
a “showing of a liberty or property interest protected by the
Constitution.” Wedges/Ledges of Cal., Inc. v. City of
Phoenix, 24 F.3d 56, 62 (9th Cir. 1994). As discussed above,
the Plaintiffs voluntarily participate in Medi-Cal and
therefore have no constitutionally protected interest in any
particular Medi-Cal reimbursement rate (as opposed to a
constitutionally protected interest in their ambulances and
other personal property). See Managed Pharmacy Care v.
Sebelius, 716 F.3d 1235, 1252 (9th Cir. 2013). Their due
process claims are therefore without merit.
F. Equal Protection Clause
The Plaintiffs concede that their Equal Protection claim
must be analyzed under a rational-basis standard. (Although
California’s adoption of a new program in 2017 that offers
supplemental reimbursement for the transportation of Medi-
Cal patients, see Cal. Welf. & Inst. Code §§ 14129 14129.7,
could muddle this analysis, the new program appears to
complement rather than replace the supplemental-
reimbursement program that is the focus of the Plaintiffs’
equal protection claim. See id. § 14105.94.) And DHCS has
offered a perfectly reasonable justification for a
supplemental-reimbursement program that favors public
over private providers: payments to public providers count
toward the state’s share of Medicaid dollars, whereas
20 SIERRA MED. SERVS. ALLIANCE V. KENT
payments to private providers do not. See 42 C.F.R.
§ 433.51(a), (b). Steering more Medi-Cal spending toward
public providers is therefore in the state’s fiscal interest.
Accordingly, the supplemental-reimbursement program
survives rational-basis review. See FCC v. Beach
Commc’ns, Inc., 508 U.S. 307, 313 (1993) (“[A] statutory
classification that neither proceeds along suspect lines nor
infringes fundamental constitutional rights must be upheld
against equal protection challenge if there is any reasonably
conceivable state of facts that could provide a rational basis
for the classification.”).
G. Contract Clause
A Contract Clause claim requires proof that (1) a
contractual relationship with the state exists, (2) “a change
in law” has occurred that “impairs that contractual
relationship,” and (3) “the impairment is substantial.” Univ.
of Haw. Prof’l Assembly v. Cayetano, 183 F.3d 1096, 1101–
02 (9th Cir. 1999) (quoting Seltzer v. Cochrane, 104 F.3d
234, 236 (9th Cir. 1996)). The Plaintiffs allege that DHCS’s
failure to issue updated reimbursement rates substantially
impairs their contracts with cities, counties, and special
districts that name them as the exclusive or semi-exclusive
providers of emergency-medical-transportation services for
the localities.
But this is an objection to legislative inaction, not to a
“change in law.” See id. at 1101 (quoting Selzter, 104 F.3d
at 236). Moreover, the Plaintiffs have identified no explicit
or even implicit term in their contracts with localities that
DHCS has substantially impaired. Their Contract Clause
claim therefore fails.
SIERRA MED. SERVS. ALLIANCE V. KENT 21
H. Dormant Commerce Clause
This brings us to the Plaintiffs’ final cause of action, the
one based on the so-called Dormant Commerce Clause, an
implicit aspect of the Commerce Clause that “denies the
States the power unjustifiably to discriminate against or
burden the interstate flow of articles of commerce.” Rocky
Mountain Farmers Union v. Corey, 730 F.3d 1070, 1087
(9th Cir. 2013) (quoting Or. Waste Sys., Inc. v. Dep’t of
Envtl. Quality of State of Or., 511 U.S. 93, 98 (1994)). On
appeal, the Plaintiffs argue for the first time that the
supplemental reimbursements available to public providers
discriminate against out-of-state private providers, which
they never pleaded in their amended complaint. And even if
their amended complaint had alleged that the supplemental-
reimbursement program violates the Dormant Commerce
Clause, the relevant comparison would be between in-state
and out-of-state public providers. Because none of the
Plaintiffs are out-of-state public providers, they have no
standing to challenge the supplemental reimbursements on
Dormant Commerce Clause grounds. See Warth v. Seldin,
422 U.S. 490, 499 (1975) (“[T]he plaintiff generally must
assert his own legal rights and interests, and cannot rest his
claim to relief on the legal rights or interests of third
parties.”). Accordingly, their Dormant Commerce Clause
claim is without merit.
III. CONCLUSION
For all of the reasons set forth above, we AFFIRM the
judgment of the district court.