No. 87-2523.

United States Court of Appeals, Ninth Circuit.

Before WALLACE, ALARCON and K.K. HALL, Circuit Judges

MEMORANDUM*

Plaintiff-appellant the State of Arizona, through the Arizona Health Care Cost Containment System (AHCCCS), the Director of AHCCCS (collectively Arizona), and plaintiff-intervenor-appellant Coconino County, Arizona (Coconino) (collectively plaintiffs) appeal from a district court order dismissing their actions seeking a declaration that the alternate resource rule, as stated in 42 C.F.R. Sec. 36.23(f) (1987), and its application to them was invalid. They also appeal from the district court's order granting summary judgment for defendant-appellees the United States, Department of Health and Human Services (HHS), Indian Health Services (IHS), the Secretary of HHS and the Director of IHS (collectively United States), on Arizona's breach of contract claim.

1. Whether the IHS alternate resource rule, 42 C.F.R. Sec. 36.23(f), prior to its removal effective March 16, 1988, was valid as a matter of law.

2. Whether Arizona's AHCCCS statute that states that Arizona's health care program is a payor of last resort is valid.

3. Whether the application of section 36.23(f) to Coconino was valid.

4. Whether the district court has jurisdiction to hear Arizona's breach of contract claim in this declaratory judgment action.

In 1981, Arizona adopted AHCCCS, an experimental program, as an alternative to traditional medicaid programs. The program was approved by the Secretary of the Department of Health & Human Services (HHS). Prior to that time, Arizona had no medicaid health care program for its indigent citizens. AHCCCS started operating on October 1, 1982. Under AHCCCS, Coconino determines eligibility for the system.

For many years, pursuant to Arizona statute, Coconino operated an indigent health care program. At the same time AHCCCS was adopted, Arizona also froze the eligibility requirements for county programs. A.R.S. Sec. 11-291.01 (Supp.1987). Thus, citizens of Coconino have access to two indigent health care programs, AHCCCS and Coconino's programs. Applicants are screened simultaneously for both programs.

AHCCCS provides benefits to persons who are "categorically" eligible, pursuant to federal regulation, and to those persons who come within the Arizona definition of "medically needy" or "medically indigent." A.R.S. Sec. 36-2901 (Supp.1987). Pursuant to a federal statutory formula, the United States pays for a portion of the health care costs for the "categorically" eligible. 42 U.S.C. Sec. 1396d(b) (Supp. III 1985). Arizona pays the remainder of these costs for the "categorically" eligible and the entire amount for such services furnished to the "medically needy" or "medically indigent" who fulfill other AHCCCS requirements. Coconino County is responsible for the payment of the medical expenses of a "medically indigent" person who is denied benefits under AHCCCS.

Prior to the creation of AHCCCS, the United States, through the Indian Health Services (IHS), was the primary health care provider for Native Americans who lived on reservations. At that time, Coconino provided health care services to those Native Americans ineligible for government funds and living off the reservations. According to Arizona's amended complaint,

[p]rior to the creation of AHCCCS, HHS, through its division, the Health Care Financing Administration [HCFA] agreed with leaders of the Arizona legislature that AHCCCS would assume none of the federal responsibility for health care on Arizona reservations, that IHS would remain the primary health care provider on the reservations, and that AHCCCS would be merely a conduit to pass funds from HHS through to IHS.

At the time this action was filed, IHS had refused to pay providers of health care in Arizona for the cost of health care services provided to indigent or needy Native Americans who lived on reservations and who would otherwise qualify for AHCCCS benefits. Native Americans residing on reservations were directed to county medical assistance programs to fill out applications for AHCCCS benefits as a prerequisite to obtaining benefits from IHS. If IHS determined that the Native American would qualify for AHCCCS, it refused to provide benefits. Unpaid health care providers in Arizona, then demanded payment from AHCCCS. Because of IHS refusal, AHCCCS paid for the health care services for Native Americans who would have qualified for AHCCCS benefits if they had not resided within the reservation. Arizona alleges that as of the time filing of the amended complaint, it had paid under protest over $1,138,610.00 to health care providers who should have received payment for their services from IHS.

At the time of the filing of this action, providers of medical care to indigent Native Americans who live on reservations in Coconino County not eligible for AHCCCS benefits looked to Coconino for payment. As of December 7, 1987, Coconino had claims against it representing 134% of its total medical care budget for indigents. These claims represented health care expenses for 8 Native Americans living on reservations in Coconino County.

On July 9, 1986, Arizona filed a complaint against the United States seeking declaratory relief and "such other relief as the court deems just." The complaint sought declarations that

(A) provision of health care to Native Americans living on Arizona reservations is the primary, not "residual," responsibility of the defendants, (B) the "alternate resource" regulations set forth at 42 C.F.R. Secs. 36.21(a), 36.21(c), and 36.23(f) are invalid, being in excess of the legal authority of the Secretary of HHS, and, alternatively (C) application of these regulations in such manner as to transfer the defendants' responsibility to provide or pay for health care for Native Americans living on Arizona reservations to plaintiffs is arbitrary, capricious, an abuse of discretion, not in accordance with law, and therefore unlawful[.]

On August 20, 1986, the United States moved to dismiss the action claiming that Arizona lacked standing. On October 17, 1986, Coconino moved to intervene in the action as a plaintiff. On October 20, 1986, the district court held a hearing on the United States' motion to dismiss. On October 21, 1986, it entered an order dismissing the action for lack of standing.

On October 31, 1986, Arizona moved for leave to amend its complaint. On November 25, 1986, the district court granted Coconino's motion to intervene. On December 9, 1986, it granted Arizona leave to file an amended complaint. The amended complaint was identical to the original pleading except for a paragraph that alleged that Arizona had "paid under protest over $1,138,610 to providers who should have been paid by defendants."

Arizona then filed several discovery motions. On December 23, 1986, the United States again moved to dismiss the action. The United States also filed a motion for a protective order staying discovery.

On February 18, 1987, the district court filed an order stating "that the 'alternate source' regulations are valid and that the Indian Health Services' application of these regulations with respect to plaintiffs is not contrary to law." The court, however, refused to dismiss the action because of a paragraph in the complaint that the court thought appeared "to allege a contract between the United States and Arizona and its breach by the United States." The court ordered discovery limited to the issue of whether there was a contract. Arizona moved for reconsideration of the court's order limiting discovery on March 9, 1987.

On March 13, 1987, the United States filed a supplemental motion to dismiss, arguing that the district court did not have the jurisdiction to issue a declaration regarding the breach of contract claim because of the Tucker Act, 28 U.S.C. Secs. 1346(a), 1491 (1982). The United States further argued that no contract existed and that even if it did, the federal officials had no authority to enter into it. The United States attached several documents in support of its motion to dismiss.

On April 8, 1987, the district court granted Arizona's motion for reconsideration and set aside the order limiting discovery. On April 10, 1987, Arizona responded to the United States' supplemental motion to dismiss. Arizona attached several letters to the response.

On April 15, 1987, the United States moved for reconsideration of the district court's order allowing full discovery. Arizona agreed to stay discovery pending the district court's determination of the United States motions to dismiss and for reconsideration of the discovery order.

The two motions were argued on May 11, 1987. On June 19, 1987, the court filed a memorandum opinion and order. The district court reaffirmed its earlier ruling that the "alternate resource" regulation was valid and that its application to Arizona and Coconino was not contrary to law. The court then stated that, because both sides had presented materials outside the amended complaint for the court's consideration, it was going to treat the supplemental motion to dismiss Arizona's contract action as a motion for summary judgment. The court also ruled that it had jurisdiction over the breach of contract action. The court held further that the United States was not required by law to be the primary provider of health care benefits to Native Americans who live on reservations. The court concluded that the HCFA officials had no authority to enter into the alleged contract with Arizona. Finally, the court found that there was no factual support for the existence of the alleged contract between the United States and Arizona. For these reasons, the court dismissed the entire action.

Arizona and Coconino appeal separately from this order. We ordered the appeals consolidated.

Plaintiffs argue that the now removed "alternate resource" regulation, 42 C.F.R. Sec. 36.23(f), was invalid under federal law. At the time this action was filed, section 36.23(f) stated:

Alternate resources. Contract health services will not be authorized by the Indian Health Service when, and to the extent that, alternate resources for the provision of necessary medical services are available and accessible to the individual requesting the services or would be available and accessible upon application of the individual to the alternate resource.

Alternate resources were defined at 42 C.F.R. Sec. 36.21(a) (1986):

"Alternate resources" means resources other than those of the Indian Health Service contract health services program, available and accessible to the individual, such as health care providers and institutions (including facilities operated by the Indian Health Service), health care payment sources, or other health care programs for the provision of health services (e.g., medicare or medicaid) for which the individual may be eligible.

After the district court issued its ruling dismissing this matter, these regulations were amended. See 42 C.F.R. Secs. 36.10, 36.12(c) (1987). Because the amended regulations are not before us, we do not address them and offer no opinion as to their validity.

A. Standard of ReviewThe district court dismissed the plaintiffs' claim that section 36.23(f) was invalid because it was inconsistent with Congressional intent. This court reviews de novo the question whether the federal government's view that its responsibility for Native American health care is residual to a state program is consistent with congressional intent. McNabb v. Bowen, 829 F.2d 787, 791 (9th Cir.1987).

This court also reviews de novo a district court's order dismissing an action for failure to state a claim upon which relief can be granted. Greater Los Angeles Council on Deafness v. Baldrige, 827 F.2d 1353, 1357-58 (9th Cir.1987). All material allegations in the complaint must be accepted as true and construed in the light most favorable to the plaintiff. NL Indus. Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986). "Dismissal is warranted only if it appears to a certainty that [the plaintiff] would be entitled to no relief under any state of facts that could be proved." Id.

B. Validity of Section 36.23(f) as a Matter of Law

Plaintiffs argue that the "alternate resource" rule as set forth in section 36.23(f) violated "the federal government's historical trust relationship to Native Americans and [was] inconsistent with congressional intent as expressed in the Snyder Act, the Indian Health Care Improvement Act of 1976 (IHCIA) and the Arizona Enabling Act."

We resolved this issue in McNabb, 829 F.2d 787, after the district court entered its order on the matter sub judice. In McNabb, we agreed with IHS' argument that the "alternate resource rule is a valid attempt to distribute scarce funds to needy Indians." Id. at 790-91. We held that the interpretation of the section 36.23(f) rule "to include state and local programs in ... consistent with congressional intent." Id. at 792-93. We found that section 36.23(f) "is also consistent with the trust doctrine." Id. at 793 n. 5.

In arriving at this conclusion, we followed the "canon of liberal construction", resolving doubtful expressions of intent in favor of the Indians. Id. at 792. We then looked at congressional intent as expressed in the Snyder Act, 25 U.S.C. Sec. 13 (1982), and the IHCIA, 25 U.S.C. Sec. 1601 et seq. (1982). Id. We concluded in McNabb that Congress did not intend that the federal government have exclusive responsibility for Native American health care. Id. The district court correctly rejected Arizona and Coconino's claim that section 36.23(f) was invalid as a matter of law.

C. Validity of Section 36.23(f) as Applied to Native Americans Who Live On or Near Reservations

Coconino argues that section 36.23(f) is not valid as applied to Native Americans who live on or near reservations. According to Coconino, congressional intent in promulgating IHCIA shows that section 36.23(f) should be applied only to urban Indians. Coconino contends that "IHS's interpretation of the alternate resource regulation misconstrues congressional intent by using language directed at providing residual care for urban Indians and applying it to on or near reservation Indians." Coconino asserts that this reading of congressional intent "erroneously diminishes [IHS'] responsibility to on or near reservation Indians."

The statutory authority for section 36.23(f) is the Snyder Act. McNabb, 829 F.2d at 790. The Snyder Act, "which provides authorization for IHS activity in the Indian health area ... states that the administering agency 'shall direct, supervise, and expend such moneys ... for the benefit, care, and assistance of the Indians throughout the United States...." Id. at 792 (quoting 25 U.S.C. Sec. 13). The Supreme Court has held that an agency may "create reasonable classifications and requirements in order to optimally distribute limited funds appropriated under the Snyder Act...." Id. at 790 (citing Morton v. Ruiz, 415 U.S. 199, 230-31 (1974)). Thus, the reach of the Snyder Act is not limited to the health care of urban Indians. We conclude that Coconino's attempt to distinguish between urban and on or near reservation Indians unfounded.

D. The Validity of the Application of Section 36.23(f) to Arizona

The district court ruled that the application of section 36.23(f) to the plaintiffs was "not contrary to law" and that Arizona had failed to state a claim upon which relief could be granted. Arizona argues that this ruling is erroneous.

Arizona contends that it was not an "available and accessible resource" under section 36.23(f) because AHCCCS "is a payor of last resort for persons eligible for coverage." We agree.

A.R.S. Sec. 36-2903(G) (Supp.1987) states that "[t]he system shall act as a payor of last resort for persons defined as eligible ... unless specifically prohibited by federal law." Arizona argues that pursuant to this provision, AHCCCS benefits were not available to persons who qualified for IHS. The United States argues that, because of section 36.23(f), federal law prohibited Arizona from subordinating its payment responsibilities to those of IHS. In the alternative, the United States contends that if the Arizona statute is read as Arizona argues, it would be in conflict with section 36.23(f) and would violate the supremacy clause of the Constitution.

In McNabb, a Montana County refused to pay the plaintiff's medical bills because of "its own 'alternate resource' rule...." 829 F.2d at 789. IHS argued that the County's regulation violated the federal supremacy clause. Id. at 794. We held that because "Congress has not expressly prohibited a state from establishing its own residuality requirements [, t]he states' power in this area is ... not preempted." Id. Thus, we held, the states do not violate the Supremacy Clause by establishing their own residuality requirement. Id. (citing Hisquierdo v. Hisquierdo, 439 U.S. 572, 581 (1979)).

The question before us is whether the Arizona statute subordinates its payment responsibility to that of IHS. The key phrase in the Arizona statute is "unless specifically prohibited by federal law." A.R.S. Sec. 36-2903(G). There are no cases which explain what the Arizona legislature meant by this phrase. The plain meaning of the statute, however, requires a specific prohibition by federal law.

"Specific" is defined as "characterized by precise formulation or accurate restriction (as in stating, describing, defining, reserving): free from such ambiguity as results from careless lack of precision or from omission of pertinent matter...." Webster's Third New International Dictionary--Unabridged (1976). Section 36.23(f) did not expressly restrict a state from enacting a statute under which it becomes the payor of last resort. Cf. McNabb, 829 F.2d at 794 (Congress has not expressly prohibited a state from establishing its own residuality requirements). Section 36.23(f) provided that Native Americans must exhaust "available and accessible" alternate resources before payment could be received from IHS for care received at non-IHS facilities. 42 C.F.R. 36.23(f). Because Arizona is a payor of last resort, AHCCCS is not available and accessible to Native Americans who live on reservations.

Because AHCCCS does not violate the supremacy clause, and no federal law specifically prohibited a state from making itself the payor of last resort, the district court erred in dismissing Arizona's claim that IHS's application of 42 C.F.R. Sec. 36.23(f) to Arizona was invalid.

E. Validity of the Application of Section 36.23(f) to Coconino

Coconino argues that the Arizona Enabling Act precludes Coconino's jurisdiction over Indians who live on reservations. Accordingly, Coconino asserts that section 36.23(f) could not be applied to Arizona counties. In addition, Coconino argues that application of section 36.23(f) to it was invalid because it has no jurisdiction to tax the Native Americans who live on reservations. Finally, in its reply brief, Coconino contends (1) that its benefits were not accessible because of distance and (2) that it is a payor of last resort.

Section 20 of the Arizona Enabling Act provides

[t]hat the people inhabiting said proposed state do agree and declare that they forever disclaim all right and title to the unappropriated and ungranted public lands lying within said boundaries owned or held by any Indian or Indian tribes, the right of title to which shall have been acquired through or from the United States or any prior sovereignty, and that until the title of such Indian or Indian tribe shall have been extinguished the same shall be and remain subject to the disposition and under the absolute jurisdiction and control of the Congress of the United States.... That no taxes shall be imposed by the State upon lands or property therein belonging to or which may hereafter be acquired by the United States or reserved for its use....

Arizona Enabling Act, 36 Stat. 569-570 (1910).

According to Coconino, the Enabling Act deprives it of any authority over the reservations. While it is true that the Enabling Act restricts Coconino from taxing property on a reservation, it does not prevent it from offering to Native Americans living within its borders benefits available to all other eligible county residents. The district court did not err in dismissing Coconino's claim on this ground.

In its brief, Coconino argues that because it cannot tax Native Americans living on reservations, it "cannot fund the services for which IHS claims [it] is responsible." According to Coconino, "without a tax base, health care services are not actually available to Native Americans residing on reservation...."

As noted by the United States in its brief, the fact that a state or county provides benefits to Native Americans residing on a reservation does not give it the authority to tax those Native Americans. Moe v. Confederated Salish & Kootenai Tribes of the Flathead Reservation, 425 U.S. 463, 476 (1976) (citing McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164, 173 and n. 12 (1973)). Conversely, the inability to tax the Native Americans does not logically support an inference that a state or county lacks authority to provide equal benefits to all residents.

3. Distances Between Reservations and AHCCCS Facilities

Coconino argues in its reply brief that its medical program is not an available and accessible resource because of the distances of its health care facilities from the reservations. In response, the United States contends that the precise issue raised by Coconino's complaint is who must pay when a Native American, not entitled to AHCCCS benefits, has used a Coconino approved facility. According to the United States, the question whether a county must pay does not arise if a health care provider outside the reservation is in fact inaccessible to a Native American seeking medical services. We agree.

As stated above, section 36.23(f) was applicable only if a Native American used facilities other than those belonging to IHS. 42 C.F.R. Sec. 36.23(f). If a health care provider sought payment from Coconino for care furnished to a Native American, then the facility was "available and accessible" to that person.

Coconino argues that whether the reservations are too remote is a factual question that should not be decided on a motion to dismiss. The fact that the reservations are far removed from the county's approved facilities is irrelevant to the question of who must pay for the health care already provided to a Native American.

In its reply brief, Coconino suggests that, like the state of Arizona, it is a payor of last resort. Coconino has not cited any authority to support this argument. In its complaint, Coconino states that it is a payor of last resort, citing A.R.S. Secs. 36-2903(G) and 11-291(A) (Supp.1987). Section 36-2903(G) applies only to the AHCCCS program. Section 11-291(A) states:

Except as provided in Sec. 36-183.01 and title 36, chapter 29, the board of supervisors has the sole and exclusive authority to provide for the hospitalization and medical care of the indigent sick in the county, including long-term care and home health services as defined in Sec. 36-151, paragraph 3, to indigent persons and, to the extent that such expenses are not covered by a third party payor, to indigent persons under the supervision of a county corrections agency. For the purposes of this subsection, "third party payor" does not include the Arizona health care cost containment system or the Arizona long-term care system.

(Footnote omitted) (emphasis added). Section 11-291(A) does not state that Coconino is a payor of last resort to all providers of health care services to indigents within the county. The language in the statute that refers to the payment of expenses "to the extent that such expenses are not covered by a third party payor," does not apply to Native Americans, or any other indigents not confined in a county corrections facility. The record before us does not support Coconino's contention it is a payor of last resort.

The United States argues that Arizona's payor of last resort statute violates the Fourteenth Amendment's Equal Protection Clause. The district court did not reach this issue because it concluded that, under section 36.23(f), Arizona was an alternate resource. We have decided that Arizona was the payor of last resort under AHCCCS. Thus, the question whether AHCCCS violates the equal protection clause must now be resolved. Accordingly, we remand the issue to the district court to develop the facts necessary to decide this constitutional issue. See Miller v. Hedlund, 813 F.2d 1344, 1352 (9th Cir.1987) (twenty-first amendment issue, which may rest upon factual findings and which was not addressed below because the district court decided the case on another ground, was remanded for the trial court's initial determination), cert. denied, 108 S.Ct. 1018 (1988). We express no opinion concerning the standing of the United States to present this question.

In its order of February 17, 1987, denying the United States' motion to dismiss the amended complaint, the district court found that allegations in the amended complaint "appear to allege a contract between the United States and Arizona and its breach by the United States." The court then ordered discovery on the issue of whether such a contract in fact existed and whether such a contract was valid as a matter of law.

The United States filed a supplemental motion to dismiss arguing (1) the district court lacked jurisdiction over the breach of contract claim, (2) no contract exists, and (3) none of the officials who allegedly entered into the contract on behalf of the United States had the authority to do so. The district court, in its order of June 19, 1987, dismissed Arizona's complaint, disagreed with the United States jurisdiction argument, but ruled in favor of the United States holding that the officials who allegedly entered into the contract did not have the authority to do so and that no contract existed. We disagree with the district court's finding that it has jurisdiction over Arizona's request for a declaration that it has a contract with the United States that has been breached.

In North Side Lumber Co. v. Block, 753 F.2d 1482, 1486 (9th Cir.), cert. denied, 474 U.S. 931 (1985), we held that a cause of action that "is concerned solely with rights created within the contractual relationship and has nothing to do with duties arising independently of the contract ... is 'founed ... upon [a] ... contract with the United States' and is therefore within the Tucker Act and subject to its restrictions on relief." (Quoting 28 U.S.C. Sec. 1491(a)(1)). Because the Tucker Act precludes equitable relief, such as declaratory judgments, id. at 1485, the district court has no jurisdiction to issue a declaration regarding a pure breach of contract claim. Id. at 1486.

In inferring a breach of contract claim into Arizona's complaint, the district court stated that Arizona appears to allege that there is a contract between the United States and Arizona and that the United States is breaching it. This claim has nothing to do with "duties arising independently of the contract." Id. Accordingly, the district court does not have jurisdiction over the breach of contract claim.

We affirm the district court's dismissal of Arizona and Coconino's claim that 42 C.F.R. 36.23(f), was invalid as a matter of law. We also affirm the district court's dismissal of the claim that 42 C.F.R. 36.23(f) was invalid as applied to Coconino. We reverse the district court's order dismissing Arizona's claim that 42 C.F.R. 36.23(f) could not be applied to AHCCCS because of Arizona's payor of last resort statute. We remand that claim to the district court for proceedings consistent with this opinion and for a determination whether the United States has standing to assert the question of equal protection in this matter, and if so, whether Arizona AHCCCS violates the federal constitution. We vacate the district court's dismissal on the merits of Arizona's breach of contract claim. The district court is directed to dismiss the contract claim for lack of jurisdiction. The order dismissing Coconino's complaint is AFFIRMED. The order dismissing Arizona's complaint is AFFIRMED in part, REVERSED in part and REMANDED.