Supreme Court Hears Arguments in Case with Major Medicaid Implications

The case could halt private lawsuits against state Medicaid agencies over doctor pay.
by | January 21, 2014

The U.S. Supreme Court heard from both sides Tuesday in a case that could upend the ability of doctors and patient advocacy groups to sue state Medicaid agencies for higher payment rates to health care providers.

At issue in Armstrong v. Exceptional Child Center is the ability of private individuals and groups to challenge state Medicaid laws under the Constitution’s Supremacy Clause, which holds federal law above state law. If the court decides the constitution doesn’t give that right, then a method doctors and patient advocates have used for decades to change benefit and reimbursement laws will no longer be available.

Doctors and many groups that advocate for low-income people argue they’d effectively lose their best tool for addressing Medicaid reimbursement, which is lower than private insurance and is commonly blamed for issues of patient access. State officials, on the other hand, argue a decision upholding the right to sue will only encourage more suits and make it harder to apply cuts that are sometimes necessary to avoid more harmful reductions to patient care.

Twenty-seven states and the National Governors Association filed briefs in support of Idaho, which refused to implement a higher rate plan it finalized with the federal government in 2009 despite studies recommending the legislature boost pay by $4 million. Multiple groups of providers who care for developmentally disabled Medicaid patients sued and won in a lower federal court in 2011.

Federal Medicaid law includes a provision requiring states to set payment models “sufficient to enlist enough providers” to meet patient demand. Providers and others argue when a state doesn’t follow its payment model it’s violating federal law, raising Supremacy Clause issues. Similar cases have reached federal courts in states ranging from California to Florida, where a federal judge recently ruled in favor of doctors and patient advocate groups.

Idaho’s deputy attorney general and the U.S. deputy solicitor general argued the Supremacy Clause shouldn’t apply, though, because unlike instances where states pass laws that clearly conflict with existing federal statutes, Medicaid is a “cooperative” program between the two, with the federal Department of Health and Human Services acting as an enforcer -- not the courts.

“We don’t have two sovereigns acting independently,” said Carl Withroe, Idaho’s deputy attorney general.

People defending the providers, which included former Department of Health and Human Services officials, argued in briefs that the Supremacy Clause has long been used by private parties in Medicaid and other federal programs, and the Armstrong case is no different.

The former HHS officials went as far as to say the entire Medicaid law is dependent on private parties for enforcement because HHS doesn’t have the resources. “Not only has HHS historically understood and accepted that the Medicaid Act is privately enforceable, it has come to rely on that fact,” the former officials wrote.

Additionally, the attorney for the doctors argued before the justices that there was no way for his clients to formally challenge the state, absent federal courts. “When the state receives approval [for a payment plan from HHS] but doesn’t implement it, there is no remedy,” said James Piotrowski.

The biggest challenges to Piotrowski’s arguments came from conservative justices, including John Roberts, Antonin Scalia and Samuel Alito -- all of whom have previously written that private groups can’t sue over Medicaid rates. That decision came in 2012’s Douglas v. Independent Living Center of Southern California, a similar case justices ruled 5-4 to send back to a lower court, avoiding the constitutional question.

The majority in that case consisted of the court’s liberal wing and Anthony Kennedy, who’s often served as a “swing” vote. Some legal observers have argued that majority’s opinion wasn’t a strong endorsement of a Supremacy Clause right, but others argue the court quickly dispatched the case after HHS accepted the contested payment model, making the point moot.  “Once they took the action to approve the very issue that was for it, my read was they quickly pivoted to that issue and saw the landscape factually had changed so much,” said Jane Perkins, legal director for the National Health Law Program, which advocates for patients.

Justices Elena Kagan, Sonia Sotomayor, Ruth Bader Ginsburg and Stephen Breyer struck empathetic tones with doctors at times in arguments Tuesday. Kennedy at times showed support for the medical groups “on merits.” But court observers generally shy away from reading into oral arguments too much.

States are already raising concerns that a decision in favor of the doctors in this case will inevitably lead to more suits that will effectively make rate reductions of any kind impossible, said Matt Salo, the director of the National Association of Medicaid Directors. Experiences from now-defunct Medicaid policies that did provide an express right to sue led to floods of litigation and bad policy, Salo argues.

“No one wants to lower reimbursement rates, but during a recession reimbursement rates can often be the least bad option of a whole lot of really awful options,” he said.

Perkins, however, argues that without a strong process for private groups to challenge methodologies, the federal government has few options but to withhold funding from states, which ultimately hurts everyone.  “There would be no way for an individual to enforce compliance other than begging the federal government to take an action against the state,” she said. “The problem there is the federal government’s ability to act is limited to withholding funding -- the nuclear option.”