Case 6:21-cv-00191-JCB Document 1 Filed 05/14/21 Page 1 of 57 PageID #: 1
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
`
`Plaintiffs,
`
`
`STATE OF TEXAS; TEXAS
`HEALTH AND HUMAN SERVICES
`COMMISSION,
`
`
`
`v.
`
`ELIZABETH RICHTER, in her
`official capacity as Acting
`Administrator of the Centers for
`Medicare & Medicaid Services; THE
`CENTERS FOR MEDICARE AND
`MEDICAID SERVICES; XAVIER
`BECERRA, in his official capacity as
`Secretary of the Department of
`Health and Human Services; the
`UNITED STATES DEPARTMENT
`OF HEALTH AND HUMAN
`SERVICES; and the UNITED
`STATES OF AMERICA,
`
`
`
`Defendants.
`
`
`
`
`
`
`Case No. 2:__-cv-000__-Z
`
`§
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`COMPLAINT
`
`I. INTRODUCTION
`
`
`
`
`
`1.
`
`The poor shall always be with us. Texas, like every State, seeks to ensure
`
`its most vulnerable citizens have an opportunity to obtain quality healthcare despite
`
`their limited means. And like every State, Texas has “developed intricate statutory
`
`and administrative regimes over the course of many decades” to deliver these vital
`
`healthcare services through the Medicaid system. Nat’l Fed’n of Indep. Bus. v.
`
`
`
`1
`
`
`
`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
`
`Plaintiffs,
`
`
`STATE OF TEXAS; TEXAS
`HEALTH AND HUMAN SERVICES
`COMMISSION,
`
`
`
`v.
`
`ELIZABETH RICHTER, in her
`official capacity as Acting
`Administrator of the Centers for
`Medicare & Medicaid Services; THE
`CENTERS FOR MEDICARE AND
`MEDICAID SERVICES; XAVIER
`BECERRA, in his official capacity as
`Secretary of the Department of
`Health and Human Services; the
`UNITED STATES DEPARTMENT
`OF HEALTH AND HUMAN
`SERVICES; and the UNITED
`STATES OF AMERICA,
`
`
`
`Defendants.
`
`
`
`
`
`
`Case No. 2:__-cv-000__-Z
`
`§
`§
`§
`§
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`§
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`COMPLAINT
`
`I. INTRODUCTION
`
`
`
`
`
`1.
`
`The poor shall always be with us. Texas, like every State, seeks to ensure
`
`its most vulnerable citizens have an opportunity to obtain quality healthcare despite
`
`their limited means. And like every State, Texas has “developed intricate statutory
`
`and administrative regimes over the course of many decades” to deliver these vital
`
`healthcare services through the Medicaid system. Nat’l Fed’n of Indep. Bus. v.
`
`
`
`1
`
`
`
`Case 6:21-cv-00191-JCB Document 1 Filed 05/14/21 Page 2 of 57 PageID #: 2
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`Sebelius, 567 U.S. 519, 581 (2012) (“NFIB”). As of the filing of this Complaint, Texas
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`offers Medicaid to approximately 4.3 million of its citizens. Tex. Health & Human
`
`Servs. Comm’n, Texas Medicaid and CHIP Reference Guide, at 2 (13th ed. 2020),
`
`https://tinyurl.com/y4bhjfyv.
`
`2.
`
`Texas and the federal government cooperate to make Medicaid available
`
`in Texas. Generally speaking, Texans fund Medicaid through billions of dollars of
`
`taxes, and the federal government returns a portion of those taxes in the form of
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`grants to implement Medicaid. See NFIB, 567 U.S. at 581 (reporting a federal
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`government estimate that it would spend at least $3.3 trillion between 2010 and 2019
`
`on Medicaid expenditures). Participating States, including Texas, accept those grants
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`in exchange for providing medical assistance to needy individuals subject to federal-
`
`law requirements.
`
`3.
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`Texas is a (famously) large State with substantial regional differences
`
`in population, population density, demographics, health needs, and geography. By
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`default, federal law imposes a variety of statewide requirements on state Medicaid
`
`plans. For example, fee-for-service Medicaid must provide a “free choice of providers”
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`to all enrollees statewide, which generally prohibits a State from requiring
`
`participants to select a specific provider designated by the State. 42 U.S.C.
`
`§§ 1396a(a)(23), (e)(2), 1396n(a)-(b), 1396u-2; see also, e.g., 42 C.F.R. § 431.51.
`
`4.
`
`Federal law contemplates that each State is different, and that different
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`States will sometimes need to vary from uniform requirements under Medicaid.
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`Federal law therefore empowers federal authorities to allow States to deviate from
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`
`
`2
`
`
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`federal Medicaid requirements in various ways—including through a demonstration
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`project, by which a State may propose alternative means of serving some part of its
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`Medicaid population, a waiver, by which a State may be excused from one or more
`
`Medicaid requirements, or both.1
`
`5.
`
`Texas depends on a number of waivers and demonstration projects to
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`implement its Medicaid program. The one at issue here is the Texas Healthcare
`
`Transformation and Quality
`
`Improvement Program
`
`(“THTQIP” or
`
`the
`
`“Demonstration Project”). Texas has relied on THTQIP in some form since 2011. Since
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`2011, Texas’s THTQIP has been extended 3 times: in 2016, 2017, and 2021. Texas is
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`in routine contact with the federal government on numerous aspects of its Medicaid
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`program, including the Demonstration Project, other related waivers or authorities,
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`and the State’s overall Medicaid plan.
`
`6.
`
`Archetypal examples of how States can serve as laboratories of
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`democracy, demonstration projects allow States to experiment with innovative ways
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`to manage complex healthcare systems. They are temporary by design, enabling both
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`state and federal Medicaid regulators to examine and update these experiments
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`periodically. Because they are temporary, a State employing a demonstration project
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`may require extensions or additional demonstration projects in order to complete a
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`significant healthcare-related goal. Like other States, Texas has used its
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`demonstration projects to achieve (among other things) the goal of shifting from an
`
`
`1 See generally Medicaid 101: Waivers, MACPAC, https://www.macpac.gov/medicaid-
`101/waivers/ (last visited May 14, 2021) (summarizing the distinction between
`waivers and demonstration projects).
`
`
`
`3
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`
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`outdated fee-for-service delivery model for Medicaid to a modern, managed-care-
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`provider delivery model.
`
`7.
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`States who engage in demonstration projects are required to gather data
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`along a variety of metrics in order to determine whether various components of the
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`project are working as intended, advancing the goals of Medicaid, and better
`
`providing healthcare for citizens in need. This data allows state and federal
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`governments to see what policies work before rolling them out to larger segments of
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`the population.
`
`8.
`
`The temporary nature of demonstration projects also carries significant
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`risks and drawbacks for the States. Implementation of modern healthcare programs
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`requires considerable investments of time and treasure by both private and public
`
`actors, meaning that significant healthcare policies cannot be changed overnight. A
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`State that engages in a demonstration project requires periodic approvals extending
`
`the current project or implementing a new project. Federal regulators scrutinize state
`
`proposals closely, including any waivers of general federal requirements a State may
`
`request as part of a proposed project. State and federal officials may negotiate for
`
`months regarding the particulars of these waivers. Failure to obtain approval of an
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`extension to a demonstration project can leave a State with policies that are half-
`
`implemented and without an immediate option to reverse course.
`
`9.
`
`The nature and significance of many demonstration projects demand
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`that all parts of a State act immediately once it receives approval. By their nature,
`
`demonstration projects involve the provision of vital care to a State’s most needy
`
`
`
`4
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`citizens. Federal approval of a demonstration project sometimes necessitates
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`lawmaking, executive guidance, or regulatory action, requiring a State’s legislature,
`
`governor, and relevant administrative agencies to act. And because these projects
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`include components that will be performed under contract with private entities, they
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`often involve complex bidding processes or contract amendments that can take a
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`substantial amount of time to complete. In both situations—whether by way of
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`actions by a State’s public officials or by means of negotiations with private actors—
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`a State must move swiftly once it has regulatory approval to implement programs
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`providing care for those in need in order to make the most of the limited time
`
`available before the approval process must start anew.
`
`10.
`
`Such dispatch was particularly necessary in this instance. Following the
`
`onset of COVID-19 in early 2020, Texas’s healthcare system faced a severe market
`
`contraction because of changes in healthcare consumption related to the virus. This,
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`in turn, introduced an unexpected problem in Texas’s THTQIP: The project was
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`designed to expand managed care to additional populations and services with an aim
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`at aligning incentives between providers and patients, increasing financial stability,
`
`and creating opportunities for reimbursement of uncompensated costs in the system.
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`Yet the virus was an exogenous event that dramatically increased the demand for
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`emergency care and decreased the willingness of Medicaid beneficiaries to obtain
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`
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`5
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`healthcare that was not immediately necessary.2 This event made it difficult to
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`consistently measuring key metrics of plan success.
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`11. To examine and ultimately address these closely intertwined issues,
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`Texas commissioned a survey of all healthcare providers, including providers in its
`
`Medicaid network, in fall 2020. This survey led the State to conclude that it needed
`
`to allay providers’ fears by securing additional time for its current Demonstration
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`Project. Providers told the State that the increased costs and decreased revenue
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`wrought by the pandemic had significantly depleted their remaining financial
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`resources. As a result, providers were faced with multi-year decisions—whether to
`
`renew leases for their clinics, and whether to continue employment contracts, for
`
`example—all of which hinged on Texas’s plans for the Demonstration Project.
`
`12.
`
`Seeking such an extension from federal authorities would allow Texas
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`to ensure stability in its healthcare markets, to avoid a harmful contraction, and to
`
`gather more information about the efficacy of its current project. Texas filed a fast-
`
`track request for an extension from federal regulators of THTQIP in November 2020.
`
`Ex. A.3
`
`13. On January 15, 2021, after more than a month of negotiations—and
`
`significant concessions by Texas—CMS approved an extension of Texas’s current
`
`Demonstration Project, with new agreed-upon terms and conditions and a new end-
`
`
`2 Mark E. Czeisler, et al., Delay or Avoidance of Medical Care Because of COVID-19-
`Related Concerns, Centers
`for Disease Control
`(Sept.
`11,
`2020),
`https://tinyurl.com/ydwbh997.
`3 Unless otherwise specified, all references to exhibits are to documents attached to
`the Declaration of Lanora C. Pettit.
`
`
`
`6
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`date of September 30, 2030. Texas began operating under the new terms and
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`conditions that same day. Ex. B (Approval); Ex. C (Acceptance). As both usual and
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`expected, Texas immediately took action to shore up its provider network, continue
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`modernizing its healthcare delivery system in view of that longer time horizon, and
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`meet the deliverables of the agreement that were only months away.
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`14. That reliance proved costly. On April 16, 2021, with mere weeks
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`remaining in the Texas Legislature’s regular session, and without prior notice or an
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`opportunity for Texas to provide input, the acting Administrator for the Centers for
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`Medicare & Medicaid Services sent Texas an eight-page letter purporting to “rescind[]
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`[its] approval of the State’s . . . demonstration extension approval.” Ex. C at 7. This
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`letter acknowledged the potential “adverse consequences that might result from the
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`[S]tate or providers in the [S]tate making plans based on the January 15, 2021
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`approval.” Id. Nonetheless, the letter purported to reinstate the previous version of
`
`the Demonstration Project with the previous 2022 expiration date. Id.
`
`15. Federal authorities may not topple a State’s Medicaid system as a child
`
`might a sandcastle. Neither the Social Security Act, 42 U.S.C. ch. 7, nor Defendants’
`
`own regulations, 42 C.F.R. pt. 430, empower the federal government to rescind a
`
`demonstration project: In other words, “once the Secretary authorizes a
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`demonstration project, no take-backs.” Forrest Gen. Hosp. v. Azar, 926 F.3d 221, 233
`
`(5th Cir. 2019).
`
`16. Even if the Administrator had that authority, her eight-page letter
`
`would not suffice for a host of reasons. For example, the letter was issued in violation
`
`
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`7
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`of agency regulations, without even minimal prior notice to the State or the required
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`notice-and-comment that such a regulatory action requires. Moreover, it gave no
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`indication that Defendants considered options less disruptive than they chose, which
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`threatened to rip a thirty-billion-plus-dollar hole in Texas’s budget and deprive
`
`millions of Texans of improved care coordination. Agency action impacting this many
`
`lives requires at least some consideration of less destructive policies. Dep’t of
`
`Homeland Sec. v. Regents of the Univ. of Cal., 140 S. Ct. 1891, 1913-14 (2020). Even
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`more troubling, reports since the letter suggest that there was an ulterior—and
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`unconstitutional—motive behind
`
`the Administrator’s utter disregard
`
`of
`
`administrative procedural safeguards: to force Texas into expanding Medicaid under
`
`the Patient Protection and Affordable Care Act. Ex. E. It suffices to say that the
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`Administrator may not accomplish by letter what Congress could not by law. See
`
`NFIB, 567 U.S. at 581.
`
`II. PARTIES
`
`17. Plaintiff Texas is a sovereign State. Texas brings this suit both on its
`
`own behalf and on behalf of its citizens parens patriae in order to preserve much-
`
`needed stability in its healthcare system, ensure the federal government complies
`
`with statutory and administrative limitations when considering official actions that
`
`affect millions of Texans, and vindicate its sovereign prerogative not to be coerced by
`
`an Administration ostensibly unconcerned with structural limits on its power. Texas
`
`v. United States, 809 F.3d 134, 187 (5th Cir. 2015), aff’d by an equally divided Court,
`
`136 S. Ct. 2271 (2016) (per curiam).
`
`
`
`8
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`18. Plaintiff Texas Health and Human Services Commission (“HHSC”) is an
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`administrative agency organized under the laws of Texas. It is the state agency
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`designated under 42 C.F.R. § 431.10 to administer Texas’s Medicaid program and
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`demonstration projects related to that program. For simplicity, HHSC will be referred
`
`to collectively with the State as “Texas.”
`
`19. The Centers for Medicare and Medicaid Services (“CMS”) is a federal
`
`agency organized under the laws of the United States. It is responsible for federally
`
`administering Medicaid, and for approving State applications for demonstration
`
`projects and waivers under Medicaid. CMS maintains a regional office in the State of
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`Texas for administering its operations in Arkansas, Louisiana, New Mexico, and
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`Texas. CMS is a part of the United States Department of Health and Human Services
`
`(“HHS”).
`
`20. Defendant Elizabeth Richter, named in her official capacity, is the
`
`Acting Administrator for CMS. She signed the April 16 letter, which purported to
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`rescind the extension of THTQIP.
`
`21. Defendant United States Department of Health and Human Services is
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`a federal agency organized under the laws of the United States. It is responsible for
`
`administering federal healthcare policy and is the cabinet-level Department of which
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`CMS is a part.
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`22. Defendant Xavier Becerra, named in his official capacity, is the
`
`Secretary of HHS. As Secretary of HHS, Becerra is charged by statute with approving
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`demonstration projects and waivers. Recent regulations also require that he
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`personally approve significant guidance documents. 45 C.F.R. § 1.3(b)(1)-(2).
`
`23. Defendant United States of America is the federal sovereign.
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`III. JURISDICTION AND VENUE
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`24. This Court has subject-matter jurisdiction under 28 U.S.C. § 1331
`
`because this suit concerns the constitutionality and legality of actions taken by
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`federal agencies and federal officers in their official capacity.
`
`25. Court has subject-matter jurisdiction over the United States under 5
`
`U.S.C. § 702, which waives federal sovereign immunity.
`
`26. This Court is authorized to issue the requested declaratory and
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`injunctive relief under 28 U.S.C. §§ 1361, 2201-02, Federal Rules of Civil Procedure
`
`57 and 65, and by the general legal and equitable powers of this Court.
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`27. Venue lies in this district pursuant to 28 U.S.C. § 1391(e)(1)(B) because
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`the United States, two of its agencies, and two of its officers in their official capacity
`
`are Defendants. Plaintiff the State of Texas resides in this judicial district, and a
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`substantial part of the events or omissions giving rise to Texas’s claims occurred in
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`this district. Residents of Tyler and healthcare providers in Tyler would realize
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`significant benefits from THTQIP. THTQIP provided the authority under which
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`Medicaid beneficiaries who resided in Texas were transitioned from an outdated fee-
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`for-service delivery model to a modern managed-care model. See infra at ¶ 37. As a
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`result, Medicaid beneficiaries residing in Tyler have access to high-quality healthcare
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`model only because of the Demonstration Project.
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`10
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`28. Texas has standing to challenge the April 16 letter. CMS’s attempt to
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`withdraw approval of the extension of Texas’s Demonstration Project destabilizes
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`Texas’s healthcare system, threatens to impose significant additional financial costs
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`on the State, and will lead to significant reductions in the quality and availability of
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`care for Texans—including residents of this District. If allowed to stand, these
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`statewide costs could run into the tens of billions of dollars. Texas has also already
`
`taken administrative and regulatory actions in reliance on CMS’s January approval
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`of its new extension, the costs of which will be compounded if Texas is forced to re-
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`negotiate a new demonstration project on a compressed timeline.
`
`29. Texas also has standing parens patriae to bring this action on behalf of
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`the hundreds of thousands, if not millions, of Texans whose ability to access
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`healthcare will be adversely affected if CMS’s unlawful decision is permitted to stand.
`
`IV. FACTUAL BACKGROUND
`
`A. Overview of Medicaid
`Since 1965, Medicaid has been a prime example of “cooperative
`30.
`
`federalism,” under which programs are “financed largely by the federal government”
`
`but “administered by the States.” King v. Smith, 392 U.S. 309, 316 (1968). A State
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`that elects to participate in Medicaid must propose a comprehensive plan that meets
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`numerous federal-law requirements. See 42 U.S.C. § 1396a; 42 C.F.R. §§ 430.10-.25.
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`Once that plan is approved, the State becomes entitled to federal reimbursement for
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`certain covered services. 42 U.S.C. § 1396b; 42 C.F.R. § 430.30(a)(1).
`
`31. The precise compensation rates to which a State is entitled under
`
`Medicaid vary. It is largely based on a federal medical-assistance percentage, which,
`11
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`for Texas, is currently 68%. Federal Medical Assistance Percentage (FMAP) for
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`Medicaid and Multiplier, KFF, https://tinyurl.com/wwjs4nn4 (last visited May 14,
`
`2021).
`
`32.
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`States may provide Medicaid benefits to qualifying citizens under one of
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`two basic models for healthcare delivery: a fee-for-service model or a managed-care
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`model.
`
`33.
`
`In a fee-for-service model, a doctor who treats a Medicaid beneficiary
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`submits a reimbursement request to the relevant state agency, and, after confirming
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`the beneficiary’s eligibility and the need for the treatment, the State pays the doctor.4
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`The State then seeks partial reimbursement from the federal government for all
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`qualifying expenditures, typically on a quarterly basis. 42 C.F.R. § 430.30(a)(2);
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`Bowen v. Massachusetts, 487 U.S. 879, 883-84 (1988).
`
`34. The fee-for-service model has several substantial drawbacks. It can
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`decouple the incentives of doctors and patients such that patients may receive
`
`expensive procedures either unnecessarily or prematurely. The fee-for-service model
`
`likewise leads to patients receiving insufficient preventative care, which tends to be
`
`less expensive, instead relying on more expensive emergency care. See Better Care.
`
`Smarter Spending. Healthier People: Why it Matters, Ctrs. for Medicare & Medicaid
`
`Servs. (Jan. 26, 2015), https://tinyurl.com/u2h43w25, see also, e.g., Michael E. Porter
`
`
`4 Fact Sheet: The Medicaid Fee-for-Service Provider Payment Process, MACPAC (July
`2018), https://tinyurl.com/z4vfk8km.
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`12
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`& Robert S. Kaplan, How to Pay for Health Care, Harvard Bus. Rev. (July-Aug. 2016),
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`https://hbr.org/2016/07/how-to-pay-for-healthcare.
`
`35.
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`In a managed-care model, the State contracts with insurance companies
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`to provide Medicaid benefits. The State pays a managed-care organization a monthly
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`premium, known as a “capitation payment,” for each Medicaid beneficiary, regardless
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`of that beneficiary’s immediate health needs. The organization then assumes the risk
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`of the beneficiary falling ill—and thus has an incentive to encourage patients to use
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`primary-care physicians and preventative care, rather than specialists and
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`emergency care. Medicaid Managed Care: CMS’s Oversight of States’ Rate Setting
`
`Needs Improvement, U.S. Gov’t Accountability Off. GAO-10-810 (Aug. 4, 2010),
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`https://www.gao.gov/products/gao-10-810.
`
`36. Congress, the States, and the health-insurance market have largely
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`shifted from what is perceived as an out-of-date fee-for-service model to the managed-
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`care model of healthcare. See Aaron Mendelson et al., New Rules for Medicaid
`
`Managed Care—Do They Undermine Payment Reform?, 4 Healthcare 274, 274 (2016).
`
`37. Texas has joined this general trend, beginning in 1993 with the State of
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`Texas Access Reform (“STAR”) program, implemented in Travis County and in the
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`Tri-County Area of Chambers, Jefferson, and Galveston counties. This program itself
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`began through a waiver under section 1915 of the Social Security Act. 42 U.S.C.
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`§ 1396n. The program proved successful, and the Texas Legislature’s 2012-2013
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`biennium appropriation directed HHSC to transition Texas’s Medicaid program to
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`13
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`the managed-care model statewide. Ex. D at Attachment M (describing history of
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`THTQIP).
`
`B. Section 1115 Demonstration Projects
`38. Waivers like those that led to the STAR program are necessary because,
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`by default, the Social Security Act imposes numerous requirements regarding a
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`State’s Medicaid plan that are not always administrable immediately or in large
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`States. These requirements include obligations that apply statewide or to an entire
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`class of beneficiaries in that State. 42 U.S.C. § 1396a(a)(1).
`
`39. As a practical matter, it is more difficult for geographically and
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`demographically diverse States to meet these broad requirements than it is for
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`smaller and more homogeneous States to do so. For example, section 1902(a)(23)
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`entitles beneficiaries to receive services from a participating Medicaid provider of
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`their choice. 42 U.S.C. § 1396a(a)(23); 42 C.F.R. § 431.51. As a result, a State must
`
`allow a Medicaid member to be treated by any willing Medicaid provider in the State.
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`This and similar Medicaid requirements constrain a State’s—and particularly a large
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`State’s—ability to tailor a proposed Medicaid plan to the unique needs of its
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`population.
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`40. But Federal law provides CMS several ways to grant States additional
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`flexibility. Section 1115 of the Act is one such process. It empowers the
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`Administrator5 to authorize “any experimental, pilot, or demonstration project which,
`
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`5 The Act authorizes the Secretary of HHS to approve these projects. 42 U.S.C.
`§ 1315(a). HHS has largely delegated this authority to CMS’s Administrator.
`42 C.F.R. § 430.25(f)(2). Recent changes reserve to the Secretary a non-delegable
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`14
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`in the judgment of the Secretary, is likely to assist in promoting the objectives of” the
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`Act “in a State or States” by “waiv[ing] compliance with any of the requirements” of
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`various parts of the Act “to the extent and for the period he finds necessary to enable
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`such State or States to carry out such project.” 42 U.S.C. § 1315(a), (a)(1). This
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`enables a State to propose an alternative plan that varies from the Social Security
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`Act’s default requirements, but that serves the goals of Medicaid and Medicaid
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`beneficiaries within the State. See Forrest Gen. Hosp., 926 F.3d at 224.
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`41. Modernizing a State’s Medicaid system is a challenging endeavor
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`further complicated by the many requirements a Medicaid plan must satisfy. As part
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`of its efforts to shift from a fee-for-service to managed-care Medicaid model, Texas
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`adopted THTQIP, a demonstration project under section 1115.6
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`42. Texas first requested approval for THTQIP in July 2011, and it was
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`approved in December 2011. Under the demonstration as initially approved,
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`Medicaid managed-care was expanded statewide and funding pools were established
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`to reimburse providers for uncompensated-care costs, and to provide incentive
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`payments to certain healthcare providers that implemented delivery-system reforms.
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`To be effective, the project authorized the State to require Medicaid beneficiaries to
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`enroll in a managed-care organization and expanded both the product lines that
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`authority to review certain guidance documents. 45 C.F.R. § 1.3(b)(1)-(2). Defendants
`did not invoke this new regulation to justify the Administrator’s actions, nor did they
`claim in the April 16 letter that the Secretary reviewed the Administrator’s letter.
`6 Unless otherwise specified, information regarding the history of the Demonstration
`Project is taken from Exhibit D, Attachment M.
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`15
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`Case 6:21-cv-00191-JCB Document 1 Filed 05/14/21 Page 16 of 57 PageID #: 16
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`Texas Medicaid would provide through managed-care organizations and the State’s
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`eligibility criteria.
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`43. During THTQIP’s original five-year period, the State engaged in a series
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`of steps to gradually expand covered services and service areas. For example, when
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`initially created in 2011, THTQIP focused on expanding quality care to children,
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`disabled adults, and those needing behavioral-health services. Effective September
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`1, 2014, managed-care organizations began providing services to eligible adults over
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`age 21 and residing in certain Medicaid rural service areas. A new beneficiary
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`population was also added to acute-care managed care: individuals with intellectual
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`disabilities or a related condition. In 2015, nursing-facility services were also added
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`to benefits administered under managed care.
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`44.
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`In 2016, THTQIP again expanded to provide a separate program for
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`services to children and young adults with complex developmental and physical
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`conditions, including those needing home- and community-based services to avoid
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`institutionalization. Eligible children who had been in fee-for-service were moved to
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`this new managed-care program.
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`45. Because transforming a State’s entire healthcare model takes more than
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`five years, the State sought an extension of THTQIP in September 2015. In May 2016,
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`CMS granted a fifteen-month extension to allow the State to demonstrate the results
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`it had obtained during the first five years of the project. During this period, the
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`managed-care model was again expanded to cover beneficiaries in the Department of
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`16
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`Case 6:21-cv-00191-JCB Document 1 Filed 05/14/21 Page 17 of 57 PageID #: 17
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`Family Protective Services’ adoption-assistance and permanency care programs, and
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`women receiving care through the breast- and cervical-cancer program.
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`46. Due to the gradual expansion of the managed-care model through
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`THTQIP—conducted with the full knowledge and support of Defendants and their
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`predecessors—Texas operated much of its Medicaid program under that five-year
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`extension to the Demonstration Project (until it was superseded by the January 15,
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`2021 version of THTQIP). See Ex. F at 3 (“The waiver also represents the authority
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`for most Texas Medicaid managed care, which is the service delivery model for about
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`93 percent of Texas Medicaid clients.”). That extension took effect January 1, 2018,
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`and was originally scheduled to end on September 30, 2022. Ex. D at 1.
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`C. Delivery System Reform Incentive Program
`47. Texas’s Demonstration Project also continued the State’s ongoing efforts
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`to modernize its Medicaid delivery model in other ways. That is, Texas was able to
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`use the savings made available by transitioning away from the expensive and
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`inefficient fee-for-service model to finance an incentive program to expand coverage—
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`particularly in rural and semi-urban areas. Through this process, Texas set region-
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`specific goals addressing region-specific health needs and appointed
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`local
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`coordinators to address these goals. To encourage those regions and their
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`coordinators
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`to achieve quantifiable metrics regarding
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`those goals,
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`the
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`Demonstration Project implemented the Delivery System Reform Incentive Program
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`or “DSRIP.” See generally Ex. D, Attachment Q; All Texas Access, Texas Health and
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`Human Services, https://tinyurl.com/ydsjzzhx (last visited May 14, 2021) (collecting
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`information regarding regional plans for DSRIP programs).
`17
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`Case 6:21-cv-00191-JCB Document 1 Filed 05/14/21 Page 18 of 57 PageID #: 18
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`48. Throughout
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`its existence, DSRIP has complemented this
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`local
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`coordination structure by establishing a pool of funds through which the statewide
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`Medicaid program could pay performance bonuses to regions or providers for
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`improvement along a variety of identifiable measures relating to specific health-
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`related issues, such as primary care and prevention, pediatric primary care, and
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`maternal care. Ex. D, Attachment R at 1-3.
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`49. DSRIP participants have received over $20 billion since its inception.
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`These funds have gone to “offer[] flexibility to 1) innovate to deliver better care and
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`improve health outcomes; and 2) deliver services not traditionally billable to
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`insurance but that can improve health.” Ex. G at 2. These include disease prevention,
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`chronic-care management, and care coordination and care transitions—particularly
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`for patients with complex conditions (e.g., developmental disorders, cerebral palsy,
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`etc.). Id. For example, a hospital in Port Lavaca used the $1.2 million it received per
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`year to “start an outpatient behavioral health program geared toward older adults
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`and expand its cardiac rehabilitation program.” Aisha Ainsworth, DSRIP: How Texas
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`Hospitals Navigate the Make-or-Break Transition, Texas Hospital Association,
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`https://tinyurl.com/a6z4fjrw.
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`50. Nearly 300 entities participate in DSRIP, and under the current
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`Demonstration Project, federal support for DSRIP is set to expire in September 2021.
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`If DSRIP expires without a replacement, these entities will immediately lose a
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`substantial amount of their funding. This would be devastating as Texas, which is
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`more than 70% rural, “ha[s] the continued threat of rural hospitals and health care
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`18
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`Case 6:21-cv-00191-JCB Document 1 Filed 05/14/21 Page 19 of 57 PageID #: 19
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`facilities closing every year across our [S]tate.” Id. (internal quotation marks
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`omitted).
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`51. Both prior to the COVID-19 pandemic and during the early stages of
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`negotiating the Demonstration Project extension, Texas spent a significant amount
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`of time and effort working with CMS on a transition and extension plan for DSRIP.
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`As discussed in greater detail below, these transition plans would ultimately be
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`merged into the larger extension of the Demonstration Project.
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`D. The COVID-19 Pandemic
`In late 2019, COVID-19 began spreading throughout the globe, causing
`52.
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`untold disruption wherever it went. By spring 2020, it had swept through the United
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`States, including Texas. Neither federal nor state authorities anticipated the scope of
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`the COVID-19 pandemic, or the level of disruption it would inflict on healthcare
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`delivery in Texas and elsewhere.
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`53. This disruption interrupted normal planning and healthcare activities
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`statewide, including Texas’s plans to transition DSRIP, as all resources were tasked
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`with responding to the once-in-a-century pandemic. Texas was also unable to en
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