NB Ex Rel. Peacock v. District of Columbia

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 16, 2012 Decided June 8, 2012
No. 11-7084
NB, BY HER PARENT AND NEXT FRIEND, MICHELLE PEACOCK,
ET AL.,
APPELLANTS
v.
DISTRICT OF COLUMBIA, A MUNICIPAL CORPORATION, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 1:10-cv-01511)
Bruce J. Terris argued the cause for appellants. With him
on the briefs were Kathleen L. Millian, Jane M. Liu, and Jane
Perkins.
Rochelle Bobroff was on the brief for amicus curiae
Legal Aid Society of the District of Columbia, et al., in
support of appellants.
Richard S. Love, Senior Assistant Attorney General,
Office of the Attorney General for the District of Columbia,
argued the cause for appellees. With him on the brief were
Irvin B. Nathan, Attorney General, Todd S. Kim, Solicitor
2
General, and Donna M. Murasky, Deputy Solicitor General.
Before: TATEL and KAVANAUGH, Circuit Judges, and
GINSBURG, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge TATEL.
TATEL, Circuit Judge: Five Medicaid recipients filed this
class action against the District of Columbia, alleging that the
District systematically denies Medicaid coverage of
prescription medications without providing the written notice
required by federal and D.C. law. The district court dismissed
the case on the pleadings, concluding that plaintiffs lacked
standing to pursue their claims for injunctive and declaratory
relief. Because we believe that the facts alleged in the
complaint are sufficient to establish standing, we reverse.
I.
Medicaid is a “cooperative federal-state program that
provides federal funding for state medical services to the
poor.” Frew v. Hawkins, 540 U.S. 431, 433 (2004). States
electing to participate in Medicaid must comply with
requirements imposed by federal law. Id. As relevant here,
federal regulations mandate procedural protections for
Medicaid recipients, including provision of written notice
“[a]t the time of any action affecting [a Medicaid recipient’s]
claim.” 42 C.F.R. § 431.206(b), (c)(2). Such notice must
contain a statement of what action the state intends to take,
the reasons for that action, the specific regulations supporting
the action, the individual’s right to a hearing, and an
explanation of the circumstances under which coverage will
be continued if a hearing is requested. Id. § 431.210. District
of Columbia law imposes the same requirements. D.C. Code
§ 4-205.55.
3
In the District, the Department of Health Care Finance
(DHCF) implements much of the Medicaid program,
including prescription drug coverage. As permitted under
federal law, DHCF places restrictions on the medications
covered by Medicaid. In particular, for certain medications—
including medications not on DHCF’s Preferred Drug List,
medically necessary brand-name medications with generic
equivalents, and medications with quantity limits—DHCF
imposes a prior authorization requirement, meaning that the
prescribing physician must obtain approval from DHCF
before it will cover the prescription. See ACS Solutions
Center, District of Columbia Pharmacy Benefits Management
Prescription Drug Claims System (X2) Provider Manual
Version 0.09, at 8, 11–12, 15 (2012), available at
http://www.dcpbm.com/documents/DC%20MAA%20Provide
r%20Manual%20v9.pdf; see also 42 U.S.C. § 1396r-
8(d)(1)(A), (d)(5) (permitting prior authorization programs,
subject to certain requirements). According to the allegations
in the complaint, DHCF contracts with a company called
Affiliated Computer Services, Inc. (ACS) to process claims
for prescription drug coverage using an electronic claims
management system. Compl. ¶ 29. Under this system, when a
Medicaid recipient presents a prescription to a pharmacy, the
pharmacy submits an electronic claim to ACS, and ACS
immediately provides an automatic reply indicating whether
Medicaid will cover the prescription. If coverage is denied,
ACS gives the pharmacy a “rejection code” identifying the
reason for the denial. Id. at ¶ 30.
Plaintiffs allege that the District, in violation of both
federal and D.C. law, systematically fails to provide Medicaid
recipients with timely and adequate written notice of the
reasons for prescription coverage denials or reductions, the
right to request a hearing, and the circumstances under which
coverage will be reinstated if a hearing is requested. Deprived
4
of these procedural protections, plaintiffs claim they have no
opportunity to prevent or challenge denials or reductions of
coverage or to obtain reinstated coverage pending appeal.
This, they argue, leaves them with two choices: (1) forego
medically necessary prescriptions, at least temporarily, or (2)
pay for the prescriptions with money needed for other life
necessities. In their complaint, plaintiffs recount multiple
instances in which they were denied prescription coverage
without written notice of either the reason for the denial or
their procedural rights. In some cases, plaintiffs allege, they
had to pay out-of-pocket in order to obtain necessary
medications; in other cases, they were eventually able to
obtain their medication at a different pharmacy or at a later
date. Plaintiffs seek no compensation for either the expense or
inconvenience caused by DHCF’s failure to provide adequate
notice. Instead, they request declaratory and injunctive relief
requiring the District to provide the procedural protections
that they claim are mandated by statute and by the Due
Process Clause.
The district court dismissed the complaint, finding
plaintiffs lacked standing to seek such relief. In its view,
because “in many of the instances alleged by plaintiffs, they
were, in fact, ultimately able to obtain their prescriptions at no
cost,” there was “no injury.” NB v. District of Columbia, 800
F. Supp. 2d 51, 56 (D.D.C. 2011). And though acknowledging
that “plaintiffs may have suffered a cognizable injury based
on the various out-of-pocket expenses incurred after being
denied coverage,” the district court concluded that these
injuries were neither traceable to defendants nor likely to be
remedied by a favorable ruling. Id. at 57. Our review is de
novo. LaRoque v. Holder, 650 F.3d 777, 785 (D.C. Cir. 2011)
(“We review de novo the district court’s dismissal for lack of
standing[.]”).
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II.
Several well-accepted principles of standing govern our
review of the district court’s decision. As we have explained,
“[t]he mere violation of a procedural requirement . . . does not
permit any and all persons to sue to enforce the requirement.”
Fla. Audubon Soc’y v. Bentsen, 94 F.3d 658, 664 (D.C. Cir.
1996) (en banc). Our jurisdiction is limited to “actual cases or
controversies between proper litigants,” and if this suit is to
proceed, plaintiffs must demonstrate that they have
“constitutional standing to invoke the authority of an Article
III court.” Id. at 661. As the Supreme Court explained in
Lujan v. Defenders of Wildlife, to establish constitutional
standing, plaintiffs must satisfy three elements: (1) they must
have suffered an injury in fact that is “concrete and
particularized” and “actual or imminent, not conjectural or
hypothetical”; (2) the injury must be “fairly traceable to the
challenged action of the defendant”; and (3) “it must be
likely, as opposed to merely speculative, that the injury will
be redressed by a favorable decision.” 504 U.S. 555, 560–61
(1992) (alteration, omission, and internal quotation marks
omitted). Where, as here, plaintiffs seek to enforce procedural
(rather than substantive) rights, they must establish that “the
procedures in question are designed to protect some
threatened concrete interest of [theirs] that is the ultimate
basis of [their] standing.” Id. at 573 n.8. Once plaintiffs
establish that a law “accord[s] a procedural right to protect
[their] concrete interests,” however, they “can assert that right
without meeting all the normal standards for redressability
and immediacy.” Id. at 572 n.7; see also Ctr. for Law & Educ.
v. Dep’t of Educ., 396 F.3d 1152, 1157 (D.C. Cir. 2005)
(“Where plaintiffs allege injury resulting from violation of a
procedural right afforded to them by statute and designed to
protect their threatened concrete interest, the courts relax—
while not wholly eliminating—the issues of imminence and
redressability[.]”). In assessing plaintiffs’ standing, “we must
6
assume they will prevail on the merits” of their claims,
LaRoque, 650 F.3d at 785—in this case, that the Constitution,
federal regulations, and D.C. law require written notice when
DHCF denies coverage of prescription medications.
Moreover, because the district court dismissed the complaint
at the pleadings stage, “the burden imposed” on plaintiffs to
establish standing “is not onerous,” Equal Rights Ctr. v. Post
Props., Inc., 633 F.3d 1136, 1141 n.3 (D.C. Cir. 2011), and
“general factual allegations of injury resulting from the
defendant’s conduct may suffice.” Lujan, 504 U.S. at 561.
This case turns primarily on the injury element of
standing. Because plaintiffs seek only forward-looking
injunctive and declaratory relief, “past injuries alone are
insufficient to establish standing,” and plaintiffs must show
that they “suffer[] an ongoing injury or face[] an immediate
threat of injury.” Dearth v. Holder, 641 F.3d 499, 501 (D.C.
Cir. 2011). As the District points out, none of the plaintiffs
expressly allege an imminent threat of future injury in the
complaint. This failure, however, is not by itself fatal. In
reviewing a motion to dismiss, we “treat the complaint’s
factual allegations as true . . . and must grant [plaintiffs] the
benefit of all inferences that can be derived from the facts
alleged.” In re Interbank Funding Corp. Sec. Litig., 629 F.3d
213, 216 (D.C. Cir. 2010) (omission in original) (internal
quotation marks omitted). The question, then, is whether the
complaint contains facts that, viewed in the light most
favorable to plaintiffs, establish an imminent threat of injury.
At least with regard to one plaintiff, John Doe, the facts
alleged satisfy this standard. See Comcast Corp. v. FCC, 579
F.3d 1, 6 (D.C. Cir. 2009) (“[I]f one party has standing in an
action, a court need not reach the issue of the standing of
other parties when it makes no difference to the merits of the
case.” (internal quotation marks omitted)).
7
As an initial matter, Doe alleges past injuries that quite
clearly constitute injury in fact. The procedural rights at issue
are undoubtedly “designed to protect some threatened
concrete interest of his,” Lujan, 504 U.S. at 573 n.8, namely
his interest in timely receiving the Medicaid prescription drug
benefits to which he is entitled. As amici curiae explain,
DHCF’s alleged failure to provide adequate notice describing
the reasons for coverage denials, the right to a hearing, and
the potential for reinstatement of coverage pending appeal
“can prevent a beneficiary from receiving essential
medications indefinitely, or at least for some period of time
while the individual tries to remedy the cause of denial
without adequate information.” Legal Aid Soc’y et al. Amicus
Br. 12. Moreover, even if recipients are able to pay out-of-
pocket for medications, such payments “can result in financial
harm to a population acutely vulnerable to such injury.” Id.Alleging just such an injury, Doe explains that when DHCF
denies coverage, his mother has to pay out-of-pocket for his
medications, “typically” causing her to “forego paying a bill
or another necessary living expense in order to buy the
medication.” Compl. ¶ 74. Doe also alleges instances in
which his mother paid for medications in response to
coverage denials made without adequate notice and in
circumstances where notice of the reasons for the denial
would likely have enabled him to remedy the problem and
obtain coverage. See id. ¶ 73 (explaining that Doe’s mother
paid $75.99 for a prescribed nasal spray because she was
never informed that the prior authorization previously
obtained by Doe’s physician had expired, triggering the
coverage denial); id. ¶¶ 63, 65 (describing repeated denials,
without explanation, of Doe’s prescription for a second
inhaler, causing his mother to pay out-of-pocket). We have no
doubt that injuries of this sort—that is, procedural violations
that threaten an individual’s ability to obtain Medicaid
8
coverage of prescription medications—satisfy the injury
element of constitutional standing.
Nor do we doubt that Doe’s allegations are sufficient to
establish an ongoing or imminent threat of injury. For one
thing, the complaint alleges that Doe “continues to be denied
refills of inhalers” without adequate notice. Id. at ¶¶ 69–70
(emphasis added). And even if this ongoing harm were
insufficient, Doe also alleges facts that establish an imminent
threat of future injury. Whether Doe faces such a threat
depends upon three contingencies: (1) whether Doe has
alleged an ongoing need for prescription coverage; (2)
whether he is likely to be denied coverage in the future; and
(3) whether DHCF will fail to provide the required notice
upon denial.
Doe has clearly alleged the first of these contingencies.
According to the complaint, Doe is a disabled Medicaid
recipient who “suffers from severe and chronic asthma,” as
well as other conditions. Id. ¶¶ 60, 62, 71–72, 75. To prevent
serious asthma attacks, he “must have 2 inhalers every 30
days,” id. ¶ 63, along with other medications, and the out-of-
pocket cost of his prescriptions ranges from “several hundred
to over one thousand dollars each month,” id. ¶ 59. Given
this, Doe is virtually certain to need Medicaid prescription
coverage on a monthly basis for the foreseeable future.
Doe likewise faces an imminent threat of future coverage
denials—the second contingency on our list—as demonstrated
by two specific factual allegations. First, the complaint
contains statistical evidence suggesting that DHCF denies
prescription medication coverage at quite a high rate. Relying
on data collected by ACS during an eleven-month period
(April 30, 2008 to March 31, 2009), plaintiffs allege that “a
significant number of point-of-sale electronic claims
9
submitted by pharmacy providers are denied on a daily basis.”
Id. ¶ 40. On a single day during that eleven-month period
(March 31, 2009), for example, District pharmacies denied
nearly half (49.7 percent) of all Medicaid prescription claims.
Id. And data from the DC Chartered Health Plan, which
provides health care for some of the District’s Medicaid
recipients, showed that in a single month (May 2009), DHCF
denied coverage to 32.4 percent of Plan members who
presented prescriptions. See id. ¶ 41. Of course, as the District
points out, we have no way of knowing from these
preliminary statistics alone whether these denial rates “relate[]
to Medicaid beneficiaries who are in circumstances
comparable to these plaintiffs’ circumstances.” Appellees’ Br.
16. But at this stage of the proceedings, we grant plaintiffs the
benefit of all reasonable inferences that can be drawn from the
facts alleged. Viewed in this light, the complaint in this case
fairly shows that Doe will face a relatively high likelihood of
denial—possibly ranging from thirty to fifty percent—each
time he submits a prescription for coverage. And given that
Doe is virtually certain to submit at least one prescription
every month, the cumulative chance that he will be denied
coverage at some point over the course of a year—or “within
some [other] fixed period of time in the future,” Newdow v.
Roberts, 603 F.3d 1002, 1015 (D.C. Cir. 2010) (Kavanaugh,
J., concurring in the judgment) (alternation and internal
quotation marks omitted)—is likely even higher. See also Lee
v. Weisman, 505 U.S. 577, 584 (1992) (finding “a live and
justiciable controversy” because the alleged injury-causing
event was likely to occur at plaintiff’s high school graduation,
which was several years away when the complaint was filed);
LaRoque, 650 F.3d at 788 (finding standing where the alleged
injury-causing event was 19 months away).
Second, as plaintiffs point out, although “past exposure to
illegal conduct does not in itself show a present case or
10
controversy regarding injunctive relief,” “[p]ast wrongs” may
serve as “evidence bearing on whether there is a real and
immediate threat of repeated injury.” City of Los Angeles v.
Lyons, 461 U.S. 95, 102 (1983) (alteration and internal
quotation marks omitted). And here, Doe’s past experience
suggests that coverage denials and reductions are both
frequent and recurring. According to the complaint, DHCF
first reduced Doe’s inhaler coverage in March 2009, when a
pharmacist told Doe’s mother that Medicaid would no longer
cover two inhalers per month, forcing her to pay for her son’s
second inhaler out-of-pocket. Compl. ¶ 63. Although DHCF
resolved this problem for a few months, it recurred in June
2009, and Doe continued to experience problems obtaining
coverage for his second inhaler for another eight months until
the problem was “fixed” for a second time in February 2010.
Id. ¶¶ 63, 65. In the meantime, in December 2009, Doe began
experiencing coverage denials for refills of his inhaler
prescription. Id. ¶ 66. Although DHCF had previously
covered the prescribed number of refills without requiring
separate prior authorizations, one pharmacist informed Doe’s
mother that Medicaid would no longer cover refills unless
Doe’s physician obtained a prior authorization for each thirty-
day supply. See id. ¶¶ 66–67. And in May 2010, Doe
encountered yet another prior authorization problem when he
was denied coverage of a nasal spray prescription, forcing his
mother to pay more than $75 out-of-pocket. Id. ¶ 73. Because
the pharmacy never informed Doe’s mother of the reason for
the denial, either orally or in writing, she had no way of
knowing that coverage had been denied because the
medication, which Doe had received on at least five prior
occasions without any problem, was subject to a prior
authorization requirement and that the existing prior
authorization had expired. Id.
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The District contends that Doe’s history of coverage
denials actually undermines his claim to standing. Because his
coverage problems have been “fixed,” the District argues,
Doe is unlikely to experience denials in the future. Appellees’
Br. 14; Oral Arg. Rec. at 13:03–25. But Doe’s experience—
especially DHCF’s repeated denials of his inhaler prescription
for recurring and varying reasons—suggests that, in practice,
resolving a denial once does not necessarily make a problem
less likely to recur and that DHCF’s evolving coverage
restrictions can result in denials of prescriptions previously
obtained without difficulty. Moreover, given that prior
authorizations expire, and, as amici curiae explain, that
doctors treating hundreds of patients cannot easily stay
abreast of how any given patient is insured and which
prescriptions require prior approval, it is far from clear that
resolving a prior authorization issue once will make a
Medicaid recipient less likely to experience prior
authorization-based denials in the future. See Legal Aid Soc’y
et al. Amicus Br. 15 (“Many physicians care for patients with
a wide variety of insurance coverage options and do not know
or simply guess at which medication is preferred, and thus
available with or without prior authorization, under a given
patient’s insurance plan.”). Indeed, as noted above, the
complaint alleges that Doe “continues to be denied refills of
inhalers,” Compl. ¶ 69, presumably due to continued prior
authorization problems (though, of course, without adequate
notice, Doe may be unable to determine whether any given
denial stems from lack of prior authorization or some other
DHCF-imposed restriction). All of this, we believe, is
sufficient to show that Doe is likely to be denied coverage in
the future.
Finally, the complaint clearly alleges the third
contingency required for imminence: that DHCF has a policy
of denying prescription coverage without providing the
12
various forms of notice that plaintiffs claim are required.
Specifically, the complaint alleges not only that numerous
specific denials of coverage were made without adequate
notice, see id. ¶¶ 46, 48–49, 53–54, 70, 73, but also that
DHCF’s guidance and manuals for ACS and pharmacies
(obtained by plaintiffs through a freedom of information law
request) contain no provisions for giving Medicaid recipients
written notice of the reasons for coverage denials, their right
to a hearing, or their right to continued coverage pending
appeal, id. ¶¶ 34–39. In other words, assuming plaintiffs are
correct that such notice is required (as we must in evaluating
standing), and taking their detailed allegations as true (as we
must at this stage), it seems extremely likely that Doe will
suffer a procedural injury—and a concomitant threat to his
interest in Medicaid prescription drug benefits—if DHCF
denies him coverage in the future.
To be sure, these allegations do not add up to absolute
certainty. But absolute certainty is not required. Unlike
plaintiffs in Lujan, Doe, to the extent he has any control over
future injury, has alleged not mere “ ‘some day’ intentions” to
seek coverage, Lujan, 504 U.S. at 564, but an actual, ongoing
need for monthly prescriptions paid for by Medicaid. And the
probability that Doe will experience future coverage denials,
accompanied by deprivations of procedural protections
affecting his concrete interest in prescription benefits, is far
from speculative. Compare O’Shea v. Littleton, 414 U.S. 488,
496 (1974) (finding no standing where “the prospect of future
injury rests on the likelihood that respondents will again be
arrested for and charged with violations of the criminal law
and will again be subjected to bond proceedings, trial, or
sentencing before petitioners”). Given Doe’s persistent health
problems, he will regularly seek prescription coverage from
DHCF and will almost certainly suffer the alleged procedural
violations if, as is quite likely, coverage is denied. Cf. Shays v.
13
FEC, 414 F.3d 76, 85 (D.C. Cir. 2005) (“[W]hen agencies
adopt procedures inconsistent with statutory guarantees,
parties who appear regularly before the agency suffer injury
to a legally protected interest in fair decisionmaking.”
(internal quotation marks omitted)). We thus conclude that the
facts alleged in plaintiffs’ complaint and the reasonable
inferences drawn from them establish a “ ‘likelihood’ of
injury that rises above the level of ‘unadorned
speculation’ ”—that is, a “ ‘realistic danger’ ” that Doe will
suffer future harm. See Biggerstaff v. FCC, 511 F.3d 178, 183
(D.C. Cir. 2007) (quoting Pennell v. City of San Jose, 485
U.S. 1, 8 (1988)) (holding that plaintiff had standing to
challenge the legality of a defense where plaintiff had
encountered the defense in past litigation and alleged that he
had refrained from suing other companies who would likely
raise the defense).
Having determined that Doe faces an imminent threat of
future injury, we find that the remaining two elements of
constitutional standing are easily satisfied. With respect to
causation, the alleged procedural injury—and the associated
threat to Doe’s interest in prescription drug benefits—is
directly traceable to DHCF’s failure to establish policies and
procedures for providing the required notices when
prescription coverage is denied at the point of sale. Claiming
otherwise, the District contends that Doe’s injuries are
traceable not to DHCF’s actions, but instead to the actions of
private physicians who failed to obtain required prior
authorizations or to Doe’s “need for more medication than
was allowed by Medicaid rules.” Appellees’ Br. 27. But these
arguments conflate the cause of Doe’s coverage denials—
such as lack of prior authorization and Medicaid coverage
restrictions—with the cause of his alleged injury. For
purposes of Doe’s standing, it makes no difference that a
physician may cause a coverage denial by failing to seek prior
14
authorization, for the injury he alleges is not the initial denial
of coverage, but rather DHCF’s failure to provide the
information he needs to remedy that denial and obtain
medically necessary prescriptions without undue cost or
delay. The complaint nicely illustrates just how DHCF’s
actions cause this type of injury. Had DHCF’s policies
required pharmacies to provide written notice of the reasons
for coverage denials, as Doe alleges the law requires, Doe’s
mother could have remedied the denial of Doe’s nasal spray
prescription by contacting Doe’s doctor and asking him to
obtain the necessary prior authorization. But without such
notice, Doe’s mother lacked sufficient information to resolve
the coverage issue (information she obtained only two months
later) and had to pay out-of-pocket for the medication. See
Compl. ¶ 73.
Finally, the remedy Doe seeks—declaratory and
injunctive relief requiring the District to provide Medicaid
recipients written notice of the reasons for prescription
coverage denials, the right to request a hearing, and the
circumstances under which coverage will be reinstated if a
hearing is requested—will redress his alleged injuries by
ensuring that he receives the information he needs to correct
any underlying problems with his coverage in a timely
manner. True, notice may not always enable Doe to obtain
full and prompt prescription coverage. Some denials may
ultimately prove justified and some delay may be inevitable.
But a “plaintiff who alleges a deprivation of a procedural
protection to which he is entitled never has to prove that if he
had received the procedure the substantive result would have
been altered.” Sugar Cane Growers Coop. of Fla. v.
Veneman, 289 F.3d 89, 94 (D.C. Cir. 2002). Given this
“relax[ed]” standard for redressability in procedural rights
cases, Ctr. for Law & Educ., 396 F.3d at 1157, we have no
15
trouble finding that a favorable decision would redress Doe’s
injuries.
Satisfied that Doe’s allegations sufficiently establish
injury, causation, and redressability, we conclude that Doe
has standing, at least at this stage of the proceedings, to
pursue his claims for injunctive and declaratory relief. Thus
having no need to decide whether the other plaintiffs have
standing, see supra at 6, we reverse and remand for further
proceedings consistent with this opinion.
So ordered.