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Armstrong  Supreme Court Decision - Comprehensive Summary
April 1, 2015

On March 31, 2015, the U.S. Supreme Court significantly diminished the ability of providers to challenge Medicaid rates as inconsistent with 42 U.S.C. section 1396a(a)(30)(A) (Section 30(A)) by overturning the Ninth Circuit Court of Appeal’s decision in Exceptional Child Center, Inc. v. Armstrong, 567 Fed. Appx. 496 (9th Cir. April 4, 2014).  Justice Scalia delivered the majority opinion (Roberts, C.J., Thomas, Breyer and Alito joining) of the Supreme Court on: (1) the background of the case; (2) the holding that the Supremacy Clause does not confer a private right of action granting plaintiffs access to the courts; and (3) that providers may not sue in equity to enforce Section 30(A).  Justice Scalia further delivered a plurality opinion (Roberts, C.J., Thomas, and Alito joining) that providers may not sue using Section 30(A) as a private right of action.  Justice Breyer filed an opinion concurring in this portion of the opinion delivered by Justice Scalia.  Justice Sotomayor filed a dissent, in which Justices Kennedy, Ginsburg, and Kagan joined.

In Exceptional Child Center, Inc. v. Armstrong, 567 Fed. Appx. 496 (9th Cir. April 4, 2014), the Ninth Circuit sustained the challenge of providers of Medicaid supported living services to Idaho’s failure, for lack of appropriated funds, to adopt significant rate increases that a state-commissioned study had recommended were necessary to substantially reimburse providers for their costs.  The Ninth Circuit held that the providers had a right of action under the Supremacy Clause to challenge Idaho’s rates as pre-empted by the Medicaid payment requirements of Section 30(A).[1]  On the merits, the Court held that the existing rates were invalid under Orthopaedic Hospital v. Belshe, 103 F.3d 1491 (9th Cir. 1997), because they failed to substantially reimburse providers for their costs without any justification apart from “purely budgetary reasons.”[2]  

The Supreme Court granted certiorari as to whether the providers had a right of action under the Supremacy Clause, but denied review on the issue of compliance with the substantive payment requirements of Section 30(A).  Oral argument was presented on January 20, 2015.

The majority opinion rules that the Supremacy Clause itself does not confer a private right of action.  By its text[3], the majority determines that the Supremacy Clause creates a rule of decision, i.e., a rule governing the laws that must be applied by courts, and is not an independent source of rights granting a private right of action.  The majority supports this holding with the absence of any reference in the historical pre-ratification record of the Constitution that the Supremacy Clause would give affected parties “a constitutional right to enforce federal laws against the States.”  The majority further supports this ruling in its reasoning that Article I of the Constitution, in which the Supremacy Clause is found, grants broad discretion to Congress; the majority finds it suspect that the Constitution would grant such broad discretion while prohibiting Congress from establishing methods of enforcement by necessarily requiring private enforcement under the Supremacy Clause. 

The majority acknowledges that the Supreme Court has previously permitted cases for injunctive relief to proceed against state (and federal) officers for violation of federal law.  However, the majority explained that these cases are not based on the Supremacy Clause as a private right of action.  “What our cases demonstrate is that, ‘in a proper case, relief may be given in a court of equity . . . to prevent an injurious act by a public officer.’”

The majority similarly dismisses the respondents’ contention that they could proceed in equity against the State under Section 30(A). Cautioning that the equitable power of federal courts “is subject to express and implied statutory limitations,” the majority finds that respondents cannot circumvent Congress’s intent to foreclose private enforcement of Section 30(A). The majority cites two aspects of Section 30(A) to support its holding that Congress intended to exclude private enforcement. First, Congress expressly provided a single administrative remedy for “a State’s failure to comply with Medicaid’s requirements”—“the withholding of Medicaid funds by the Secretary of Health and Human Services.” Acknowledging that this enforcement provision alone might not preclude equitable relief, the majority reasons that the enforcement provision would do so “when combined with the judicially unadministrable nature of §30(A)’s text.” The majority cites the breadth and lack of specificity of Section 30(A)’s “judgment-laden standard” in support of its holding that Congress intended to confer enforcement of Section 30(A) on the Secretary alone. 

The majority acknowledges the dissent’s disagreement as to whether Congress intended to preclude private enforcement of Section 30(A). However, the majority finds unavailing the dissent’s assertion that, based on the history of Section 30(A), Congress’s failure to expressly preclude private enforcement suggests that Congress did not intend to do so. In response to the dissent’s complaint that the majority has left the respondents with no options for relief, the majority explains that relief may be sought through the Secretary and expresses doubt that “the Secretary’s notice to a State that its compensation scheme is inadequate will be ignored.”

The plurality also dismisses the respondents’ contention that the Medicaid Act itself provides for a cause of action.  Stating that Section 30(A) “is phrased as a directive to the federal agency charged with approving state Medicaid plans,” the plurality explains that Section 30(A) lacks the sort of rights-creating language needed to imply a private right of action.  The plurality further explains that Section 30(A) explicitly confers a means of enforcement through the Secretary’s withholding of funding, and that this suggests that other means of enforcement, such as a private right of action, are precluded.  The plurality also states that, although providers are not intended beneficiaries of the Medicaid agreement, and therefore, are unlikely to have a right to sue to enforce the obligations of private contracting parties. Even if they were, “modern jurisprudence permitting intended beneficiaries to sue does not generally apply to contracts between a private party and the government . . . much less to contracts between two governments.”  Thus, the plurality concludes that the Medicaid Act itself does not unambiguously confer a private right of action.

Justice Breyer, concurring in part and concurring in the judgment, does not join the plurality concerning why the Medicaid Act itself does not provide for a private right of action.  Rather, Justice Breyer explains that several characteristics of the Medicaid Act “make clear that Congress intended to foreclose respondents from bringing this particular action for injunctive relief.” 

Specifically, Justice Breyer reasons that Section 30(A) sets forth a broad and nonspecific federal mandate that applies to something “that administrative agencies are far better suited to . . . than judges”—the setting of rates.  Justice Breyer continues that Section 30(A) “underscores the complexity and nonjudicial nature of the rate-setting task.”  Although federal courts are accustomed to reviewing agency rate-setting determinations for reasonableness or constitutionality, under Section 30(A), Justice Breyer cautions that States setting the rates makes the result different.  As Justice Breyer notes, “[t]o find in the law a basis for courts to engage in such direct rate-setting could set a precedent for allowing other similar actions, potentially resulting in rates set by federal judges . . . outside the ordinary channel of federal judicial review of agency decisionmaking.”  As such, Justice Breyer does not believe that Congress intended to allow such a situation, but does believe the power to sue the Secretary under the Administrative Procedure Act (APA) is an adequate form of relief in this complex rate-setting area.  Justice Breyer concludes that any difficulty for respondents in prevailing under the APA “is because Congress decided to vest broad discretion in the agency to interpret and to enforce §30(A)” and such difficulty is not a justification for a private right of action.

Authoring the dissenting opinion in the case, Justice Sotomayor disagrees with the majority opinion as to whether the language of Section 30(A) demonstrates the requisite congressional intent to restrict the equitable authority of the federal courts.  The dissenting opinion reasons that a challenge to governmental action under the Supremacy Clause should not be treated any “‘differently than every other constitutional claim for which ‘equitable relief has long been recognized as the proper means for preventing entities from acting unconstitutionally.’”  That is, the Court has “long entertained suits in which a party seeks prospective equitable protection from injurious and preempted state law without regard to whether the federal statute at issue itself provided a right to bring an action,” and that this case should be no different. 

Citing a distinction between an Ex parte Young analysis and the principles concerning whether a statute creates an implied right of action, or is enforceable through §1983, the dissenting opinion elaborates that “concluding that Congress has implicitly precluded private enforcement of §30(A) . . . ignores this critical distinction and threatens the vitality of our Ex parte Young jurisprudence.”  Moreover, Justice Sotomayor explains that for Ex parte Young not to be applicable, there needs to be a “carefully crafted and intricate remedial scheme for enforcement of §30(A).”  However, the dissenting opinion finds no such remedial scheme in the language of Section 30(A), instead reasoning that “§1396c provides no specific procedure that parties actually affected by a State’s violation of its statutory obligations may invoke in lieu of Ex parte Young.” 

Further, disagreeing with the notion that the language of Section 30(A) is “judicially unadministrable” and that therefore “Congress must have intended to preclude its enforcement in private suits,” the dissenting opinion asserts that Section 30(A)’s “breadth counsels in favor of interpreting §30(A) to provide substantial leeway to States, so that only in rare and extreme circumstances could a State actually be held to violate its mandate.”  Moreover, the dissenting opinion acknowledges that such appropriately made decisions by the States “should be accorded appropriate deference.”  The dissenting opinion, therefore, asserts that “[g]iven the courts’ ability to both respect States’ legitimate choices and defer to the federal agency when necessary, [there is] no basis for presuming that Congress believed the Judiciary to be completely incapable of enforcing §30(A).”

This decision substantially undermines the ability of providers to challenge Medicaid rates, discussed further here. While the Court preserved providers’ ability to assert a claim under the Administrative Procedures Act, such claims are generally subject to deference to CMS in its approval of state ratemaking.  It also preserves the ability of providers to assert other challenges under the Medicaid Act where those provisions confer private rights of action enforceable under 42 U.S.C. Section 1983 or where such provisions are not so “unadministrable” to permit judicial enforcement in equity.

[1] The Court did express “serious doubt” that the state’s “inaction” in adopting higher rates could be preempted under the Supremacy Clause, but deemed any potential argument on this issue by the state to have been waived.

[2] The Ninth Circuit panel did not mention the Ninth Circuit’s more recent decision in Managed Pharmacy Care v. Sebelius, 716 F.3d 1235 (May 24, 2013), where the Court, in the context of affirming the Secretary’s approval of state plan amendments that included rate reductions, upheld the Secretary’s interpretation that the Section 30(A) payment factors do not impose any particular methodology for considering provider costs.

[3] The Supremacy Clause states: “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.”

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