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Divided Supreme Court Restricts Provider Challenges to State Medicaid Rates

A divided Supreme Court ruled by a 5-4 margin on March 31st that providers may not sue in federal court over the adequacy of state Medicaid rates. The decision in Armstrong v. Exceptional Child Ctr., Inc. has important implications well beyond the narrow group of providers of “habilitation” services for the mentally retarded in the state of Idaho.

A group of Idaho Medicaid providers, led by Exceptional Child Center, Inc., brought suit in Federal District Court seeking to overturn state Medicaid reimbursement levels on the grounds that the payment amounts were so low that they ran afoul of the federal Medicaid requirement that rates must be “sufficient to enlist enough providers so that care and services are available under the plan. .  . to the general population in the geographic area.” 42 U. S. C. §1396a(a)(30)(A) (“§30(a)”).  Importantly, this federal Medicaid provision governs all provider payment rates, not just providers of habilitation care. Both the District Court and the Ninth Circuit Court of Appeals found in favor of the providers with the appeals court finding that the Constitution’s Supremacy Clause (Art. VI, cl. 2) conferred an implied right of action for providers to seek injunctive relief under an §30(a).

In a majority/plurality opinion written by Justice Scalia, who was joined by the conservative wing of the Court (Justices Roberts, Alito, and Thomas) and also joined in a concurring opinion (in part) by Justice Breyer, the court ruled that neither the Supremacy Clause nor §30(a) created a private right of action.

In his concurring opinion, Justice Breyer based his reasoning on “several characteristics of federal statute,” one of which is the Administrative Procedures Act.  In other cases, as well as here, Justice Breyer has invoked administrative law principles, such as agency decisions held to an “arbitrary, capricious, and abuse of discretion” standard as well as deference afforded under Chevron U. S. A. Inc. v. Natural Resources Defense Council – all of which typically lead to results unfavorable to providers.  Breyer found that in these types of rate setting cases “administrative agencies are far better suited to this task than judges.”  Breyer added:

“The consequence, I fear, would be increased litigation, inconsistent results, and disorderly administration of highly complex federal programs that demand public consultation, administrative guidance and coherence for their success.”

Although the dissent, led by Justice Sotomayor (and joined by Justices Kennedy, Ginsburg and Kagan), obliquely conceded (in an introductory clause to a single sentence) that the Supremacy Clause does not grant such a private right of action, they argued that §30(a) impliedly grants such equitable relief in this case at the discretion of the courts, but not as a matter of right.

Much of the debate between the majority (with Breyer’s concurrence) and minority focused on the adequacy of alternative remedies.  To the majority, providers can petition the Department of Health and Human Services (“HHS”) to invoke §30(a) and withhold Medicaid funds if state rates are inadequate.  Not citing to the overwhelmingly adverse case law to providers and other petitioners, Justice Breyer also added that suits may be brought challenging HHS’s failure to act.  The dissent, argued pragmatically that these few remaining remedies for providers are insufficient.

The stakes here are significant as evidenced by the 15 amicus briefs filed.  Among the groups seeking to weigh in are 28 states, the National Governors Association and Council of State Governments, the Department of Justice (on behalf of the United States),  numerous provider trade associations (American Hospital Association, the Federation of American Hospitals, the American Medical Association and other national physicians groups), nine Democratic Senators and House Representatives, various advocacy groups, the American Civil Liberties Union and the Chamber of Commerce.  Left unsaid by the Court are the important implications of this case in relation to the Affordable Care Act (ACA), which expands the availability of health care insurance through, among other means, expanded Medicaid coverage.  The reality (although not said in polite company at the time the ACA was enacted) is that Congress used the vehicle of expanded Medicaid coverage for the simple reason that state Medicaid programs are historically the lowest payors. So the decision in Exceptional Child Center appears to give state Medicaid programs considerably more leeway to keep rates low, perhaps until there is a political backlash by providers voting with their feet to opt out of state Medicaid programs.

Finally, it is noteworthy that Justice Breyer voted with his conservative colleagues to create a majority here.  In reality, his concurring opining, speaking in APA qua judicial deference language, was not a surprise.  Ever since, at least, 2000 with Justice Breyer’s majority opinion in Shalala v. Illinois Council, Inc. (in which Justice Thomas filed a persuasive dissenting opinion), providers have learned that his strong judicial deference philosophy is a bar to advancing their interests in seeking judicial relief from HHS regulations.  This Exceptional Child Center judicial coalition between Justice Breyer and the conservative Justices, however, perhaps is a fleeting one of the moment.  As I will write in my next post, in a March Supreme Court decision, Perez v. Mortgage Bankers Association, three conservative Justices (Alito, Scalia, and Thomas) filed separate concurring opinions, each arguing to revisit various principles of APA judicial deference that are the hallmark of Justice Breyer’s jurisprudence.

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