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U.S. Supreme Court Determines that Providers Cannot Challenge Medicaid Rates under 42 U.S.C. Section 1396a(a)(30)(A) 
April 1, 2015

On March 31, 2015, the U.S. Supreme Court removed a significant tool in the arsenal of providers to sue states to challenge insufficient Medicaid payment rates. 

The Court’s decision in Armstrong v. Exceptional Child Center, Inc., __ U.S. __, 2015 WL 1419231 (2015) (Armstrong) could shut the doors of the courts to providers and beneficiaries seeking to ensure that Medicaid rates are adequate to meet Congress’ mandate that rates ensure access to quality care.  Specifically, the Court held that providers and recipients could not sue states in federal court under the equal access provision of the federal Medicaid Act.       

The potential ramifications of the Court’s decision are enormous.  If providers and beneficiaries cannot go to court to hold the states’ feet to the fire to pay adequate rates, there may be a race to the bottom as state budgetary concerns drive Medicaid funding decisions.  This places the half-century old promise of Medicaid, to mainstream the poor so they would have adequate access to quality services, in substantial jeopardy.  It also places a dark cloud on health care expansion under the Affordable Care Act, which is based to a significant degree on Medicaid expansion.  If Medicaid eligibility is expanded, but rates are so deficient that not enough providers will participate in Medicaid, the expansion will be hollow indeed.

Providers have historically relied on 42 U.S.C. section 1396a(a)(30)(A) (Section 30(A)), to challenge inadequate Medicare rates. Section 30(A) requires that states establish rates that are consistent with efficiency, economy, quality of care and access, to challenge inadequate Medicaid rates.  A legal question presented in these challenges is whether providers and beneficiaries have a right to challenge Medicaid rates in the courts, or whether enforcement of federal law was left exclusively to U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS).

Since the early 1980s, the vehicle used by providers and beneficiaries to challenge Medicaid rates under Section 30(A) and other federal provisions has been the federal Civil Rights Act (42 U.S.C. section 1983 (Section 1983)), which was thought broadly to permit lawsuits against state officials challenging actions that violated federal law.  In 2002, the Supreme Court substantially narrowed the cases that could be brought under Section 1983, requiring “rights creating language” in the underlying statute showing that Congress intended to create a right on behalf of the class of parties bringing suit.[1]  Subsequently, courts like the Ninth Circuit held that providers could not enforce Section 30(A) through 42 U.S.C. section 1983.[2]  

Providers and beneficiaries then looked for another way to get into court.  Our firm and others brought a series of cases in 2008 and 2009 on behalf of providers and beneficiaries, , challenging budget-driven Medi-Cal rate cuts, directly under the Supremacy Clause of the United States Constitution. the Supremacy Clause establishes that federal law is supreme, so that incompatible state law that is preempted and invalid.  The Ninth Circuit, relying on two centuries of precedent allowing private parties to sue state officials for injunctive relief in federal court to challenge state laws under the Supremacy Clause, held that that the providers and beneficiaries could sue under the Supremacy Clause even if they could not under the Civil Rights Act.  Thus, the doors to the courts remained open, or so we thought.

On Tuesday, March 31, 2015, the Supreme Court in a 5 to 4 decision, issued its opinion in Armstrong.  A detailed summary of the court’s decision is available here.  The Supreme Court’s decision holds once and for all that providers cannot challenge Medicaid rates as violating Section 30(A) either under 42 U.S.C. section 1983 or the Supremacy Clause.

The Court majority includes four justices generally viewed as conservative. Justices Roberts, Scalia, Thomas, and Alito, along with, to the surprise of some, Justice Breyer who wrote a concurring opinion.  Side-stepping 200 years of precedent, the Court ruled that there must be evidence that Congress intended that private parties would be permitted to sue to enforce a federal law, and that in the absence of such evidence, either in the language of the statute or elsewhere, it would be implied that Congress did not intend to allow private enforcement in court, thereby turning the presumption in favor of judicial review on its head.

Justice Breyer emphasized that it would be impractical for courts to be in the position of reviewing Medicaid rates, and that this complex endeavor was best left to CMS.  This conclusion flies in the face of an amicus brief in Armstrong filed by former senior HHS officials, going all the way back to Joseph Califano, which told the Court that they relied on private enforcement of the Medicaid Act against states by providers and beneficiaries to ensure adequate rates, as the federal agency did not have the resources to enforce the federal law, performed only cursory reviews of state rate changes, and had only one remedy available—to completely cut off federal funding to the State, which was likely to be used in only the most extreme situations, if at all.  Additionally, the majority’s opinion ignores an amicus brief filed by members of Congress stating that Congress presumes private enforcement will be available when it legislates, so that it would be wrong to infer from Congressional silence that Congress intended that there would not be private enforcement.

Despite the decision in Armstrong, providers still may have the ability to challenge inadequate Medicaid rates under the Administrative Procedure Act (APA).

Despite the decision in Armstrog, Medicaid providers may still be able to challenge inadequate state rates in court:

  • Providers very likely may challenge a decision by CMS to approve a state plan amendment or a waiver affecting rates under the federal APA on the ground that CMS’ approval was arbitrary and capricious.
  • Language in Armstrong suggests that providers may request CMS to take action against a state that pays inadequate rates, and go to court to challenge CMS’s continued failure to take action under the APA.
  • Other provisions in the Medicaid Act apart from Section 30(A) may give rise to a private right of action by providers or beneficiaries under 42 U.S.C. Section 1983, such as the requirement that hospital and nursing facility rate changes go through a public process, and the requirement that medical assistance be made available with reasonable promptness.
  • Providers may be able to seek injunctive relief against states for provisions of the Medicaid Act that are not “unadministrable.”  For example, claims to enjoin states from implementing changes to Medicaid programs prior to CMS approval of a State Plan Amendment may fall into this category.
  • Providers may be able to sue using state law vehicles, such as the writ of mandate process available under California Code of Civil Procedure section 1085, to force State officials to comply with the Medicaid Act.
  • Providers may also be able to use state law vehicles to challenge state violations of state laws.

We at Hooper, Lundy & Bookman, PC have been involved with many cases challenging state Medicaid rates and continue to closely follow developments in this area.  If you have any questions about what the Supreme Court’s decision may mean for you or your organization, please contact: Lloyd Bookman or Jordan Keville in Los Angeles at 310.551.8111, Mark Reagan, Craig Cannizzo, or the San Francisco Office at 415.875.8500; or James Segroves in Washington, D.C. at (202) 580-7710.

[1] Gonzaga Univ. v. Doe, 536 U.S. 273 (2002).

[2] See e.g., Sanchez v. Johnson, 416 F.3d 1051 (9th Cir. 2005).

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