Supreme Court Begins Term With Medicaid Rate Litigation

As we noted earlier, on October 3, 2011, the United States Supreme Court began the new term with oral argument in Douglas v. Independent Living Center, in which  the Ninth Circuit Court of Appeals ruled that implementation of state law cutting in payments to Medicaid providers violated Soc. Sec. Act Sec 1902(a)(30)(A).  The arguments focused on a technical legal issue, specifically, whether the providers could sue under the Supremacy Clause of the United States Constitution to stop the state’s violation of the federal Medicaid statute.

The California officials argued that there can be no right to sue unless Congress specifically provides for it.  The providers, on the other hand, argued that a right to sue to enforce the law is implied unless Congress specifically prohibits it.  Essentially, the issue is whether Congress meant to give HHS the exclusive power to assure compliance with the federal law or assumed that court actions brought by private parties would supplement or compliment HHS’ enforcement efforts. California argued that there could be no right to sue because: (1) the legislation was enacted pursuant to the Spending Clause,  so an express statement in the law is needed to give the states notice of the consequences of violation;  and (2) the language of the statute is vague, so that it is necessary for the agency, HHS, to set the standards before the law may be enforced.

The discussion addressed the possibility that the courts could defer to the federal agency under the doctrine of primary jurisdiction.  However, HHS had never set standards for states to follow to determine whether their rates were sufficient. And the California agency implemented the rate reductions before it submitted the change to HHS for approval. Was that action an “end run” around HHS’ requirements? The agency’s attorney responded that the regulations only require the proposed amendment to be submitted within 90 days after it takes effect.

The court’s questions reflect a concern with what the “default” position should be when Congress has not specifically stated whether private actions are allowed, or whether the federal law is supposed to override state law. In a question to counsel for the California agency, Justice Kennedy noted that their amicus brief, former HHS officials said that there were 500 people to oversee a $400 billion program in 56 separate jurisdictions. Therefore, the officials argued, comprehensive enforcement by the agency was “logistically, practically, physically and politically unfeasible,”  and allowing private parties to sue would be more efficient. The state agency’s attorney  said that there would be a risk  that judges in the 700 different district courts would reach conflicting conclusions about whether rates were “sufficient” within the meaning of the statute.

One factor in that decision is the scope  of the enforcement mechanisms in the law. The statute gives HHS the authority to withdraw part or all of the state’s Medicaid funding for noncompliance with the law, but not to create or apply lesser remedies, such as civil money penalties or mandating corrective action.

In amicus briefs, both the members of Congress and  former HHS officials argue that Congress relied upon the availability of private lawsuits to obtain compliance. The members of Congress add that when Congress wants to preclude private lawsuits to enforce federal law, it knows how to say so.   They also reject the  argument made by state officials and the U.S. Solicitor General that private parties should not be able to enforce laws enacted under the Spending Clause of the Constitution to trump state law unless the state threatens to take enforcement action against the private party.  When Congress sets conditions for funding, they want agencies to comply in order to get it.

What the court will do is anyone’s guess.  There are several possible rulings, including:

  • Upholding the injunction to the extent that it barred implementation of the reduction until HHS has approved the state plan amendment
  • Allowing private  parties to sue to enforce the statute because the federal government created no real enforcement scheme
  • Deciding that the state agency must at least consider the factors in the statute,  specifically, consistency with efficiency, economy, and quality of care, and sufficiency to assure beneficiaries access to care comparable to the general population in the area
  • Finding the statute too vague to enforce in litigation

It’s  worth mention that CMS published a proposed rule that would require state agencies to document their consideration of the statutory factors and monitor beneficiaries’ access to services. When asked about the status of the rule making process, the Solicitor General stated that the agency was still reviewing comments and may not be on track to release a final rule by the end of the year.