Health Care Law Alert: U.S. Supreme Court Sends Medicaid Rate Cut Challenge Back To Ninth Circuit

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On February 22, 2012, the U.S. Supreme Court vacated and remanded Douglas v. Independent Living Center of Southern California to the Ninth Circuit for further review. In Douglas, providers and Medicaid recipients brought suit directly under the Supremacy Clause of the U.S. Constitution, challenging budget cuts to the state's Medicaid program. The plaintiffs argued that those cuts were done in violation of Section 30(A) of the Medicaid Act because reduced payments under the program are not "consistent with efficiency, economy, and quality of care" and are not sufficient to "enlist enough providers" so that Medicaid services are available in a manner similar to care and services available to other Medicaid recipients.

In a 5-4 vote, the Court sidestepped the question of whether plaintiffs have standing under the Supremacy Clause to enforce the Medicaid Act. Instead, the Court vacated the Ninth Circuit opinion and remanded the case based on the fact that, after oral argument was heard by the Court, the Center for Medicare and Medicaid Services ("CMS") approved several of the California Medicaid state plan amendments ("SPAs") implementing the reductions as being consistent with federal law. The SPAs were designed to implement, among other things, 10 percent rate reductions in the state Medicare program approved by the California legislature in 2008 and 2009. The Court held that, although the Supremacy Clause issue was not moot, the posture of the case had changed, and therefore the answer may have changed as well. For instance, the plaintiffs may be required to seek review of CMS's determination under the federal Administrative Procedure Act rather than the Supremacy Clause. Because none of the issues had been argued below, the Court remanded so the parties could raise these arguments to the Ninth Circuit in the first instance.

In dissent, Justice Roberts, joined by Justices Scalia, Thomas, and Alito, criticized the majority for failing to resolve the question of whether private citizens can sue to enforce Section 30(A) of the Medicaid Act. He stated it is settled law in nearly every circuit, including the Ninth Circuit, that Congress vested enforcement of the Medicaid Act with CMS and did not give private citizens a right to sue. Thus, according to Roberts, the Court should have concluded that "the Supremacy Clause does not provide a cause of action to enforce the requirements of § 30(A) when Congress, in establishing those requirements, elected not to provide such a cause of action in the statute itself." The Supremacy Clause ensures that rules established by Congress control when state laws conflict with federal ones. Roberts contends that allowing a private right of action under the Supremacy Clause in the context of this case "would substantively change the federal rule established by Congress in the Medicaid Act."

As Justice Roberts pointed out, it is not clear what the Ninth Circuit will do on remand. Now that CMS has made a final decision about the SPAs, the court may determine that plaintiffs must challenge the federal agency's decision under the Administrative Procedure Act and dismiss the court challenge, which will leave the issue of standing under the Supremacy Clause unresolved. The question of private enforcement of the Medicaid Act is a significant one as legislators and agencies in many states struggle to deal with rising health care costs and state budget deficits. Decisions to cut rates paid to Medicaid providers must be made in accordance with Section 30(A) or the state could damage its fiscal position even more by losing federal Medicaid dollars. Receipt of those funds depends on compliance with all applicable federal laws, including Section 30(A). If private parties do not have standing under the Supremacy Clause to enforce Section 30(A), then their only recourse is a state or federal administrative action. Such a proceeding often requires exhaustion of remedies at the agency level before action can be filed in court, and the remedies available may be more limited than in a federal court case.

Please contact a key contributor if you have questions regarding this issue.

Key Contributors

Reilley D. Keating
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