Can medical providers sue under the Supremacy Clause of the United States Constitution, arguing that 42 U.S.C. § 1396a(a)(30)(A) preempts a state law that reduces Medicaid reimbursement payments?
A series of reforms passed by the California Assembly in 2008 and 2009 reduced the state’s payments made to California Medicaid providers. Respondents Independent Living Center of Southern California, the California Pharmacists Association, and Santa Rosa Memorial Hospital brought suit in the U.S. District Court for the Central District of California, claiming that the payment reductions violated 42 U.S.C. § 1396a(a)(30)(A), which requires that state Medicaid plans comply with federal law or lose federal funding. Petitioner Toby Douglas, the Director of the Department of Health Care Services for the State of California, argues that health care providers cannot sue to enforce § 30(A) because the statute does not grant any enforceable rights, and Congress did not intend for private parties to sue to enforce the statute. Conversely, the health care providers argue that the Supremacy Clause permits private parties to sue if they have suffered an injury from state action, and they assert that Congress did not explicitly disallow private lawsuits in § 30(A). The Supreme Court’s decision will affect the predictability of federal law, the ability of private parties to bring lawsuits to enforce federal law, and the availability of health care to Medicaid beneficiaries.
Questions as Framed for the Court by the Parties
1. Whether Medicaid recipients and providers may maintain a cause of action under the Supremacy Clause to enforce § 1396a(a)(30)(A) by asserting that the provision preempts a state law reducing reimbursement rates?
2. Whether a state law reducing Medicaid reimbursement rates may be held preempted by § 1396a(a)(30)(A) based on requirements that do not appear in the text of the statute?
The Medicaid program authorizes dissemination of federal funds to participating states to reimburse health care providers for services provided to individuals who are eligible for Medicaid. If a state elects to receive this federal funding, it must adhere to the requirements stipulated in the Medicaid Act. In order to receive federal funding, state Medicaid plans must reimburse health care providers at rates that are sufficient to provide quality medical care and to incentivize providers to join the plan. . California, as a Medicaid-participating state, must administer its Medicaid program, Medi-Cal, in accordance with the federal statute.
In February 2008, the California State Assembly (“Assembly”) passed Assembly Bill 5, which reduced payments to California health care providers participating in Medi-Cal by ten percent. . In September 2008, the Assembly passed Assembly Bill 1183, which specified reductions in reimbursement rates that depended on provider type and ranged from one to five percent.
In response, the Independent Living Center of Southern California (“Independent Living”) filed for a writ of mandamus to enjoin the implementation of Assembly Bill 5, arguing that the bill violated 42 U.S.C. § 1396a(a)(30)(A) and was therefore invalid under the Supremacy Clause. The U.S. District Court for the Central District of California denied Independent Living’s request for an injunction, holding that Independent Living did not have standing to sue because it was not a Medi-Cal recipient. On appeal, the U.S. Court of Appeals for the Ninth Circuit held that Independent Living could sue under the Supremacy Clause to enjoin a state law that was preempted by federal law, and remanded the case to the district court. The district court then granted the injunction. The Ninth Circuit affirmed the district court’s decision, holding that Independent Living had shown that it was likely to succeed on its Supremacy Clause claim, and that Assembly Bill 5 was likely to harm access to health care. The California Department of Health Care Services appealed on March 25, 2010.
On January 29, 2009, the California Pharmacists Association filed an action seeking an injunction prohibiting the implementation of Assembly Bill 1183, based on the bill's reduction of payments to adult day health care facilities. The district court granted the injunction, and the Ninth Circuit affirmed, holding that California did not consider the effect of Assembly Bills 5 and 1183 on access to health care. The California Department of Health Care Services appealed this decision on August 25, 2010.
In 2008, California passed Assembly Bills 5 and 1183, which reduced payments to health care providers participating in Medi-Cal, California’s Medicaid program. In this case, the Supreme Court will decide whether § (30)(A) provides a private right of action, and whether this federal law preempts state laws under the Supremacy Clause. Petitioner Douglas argues that § 30A does not create a private right of action because (a) Congress did not intend to provide for such a remedy, (b) laws passed under Congress’s Spending Power do not violate the Supremacy Clause, and (c) health care providers do not have standing to sue. On the other hand, the Respondent health care providers assert that § 30(A) grants a private right of action, that private parties can sue under the Supremacy Clause to prevent an injury, and that they have standing because the California statutes cause harm to health care providers.
Can a Plaintiff Sue under the Supremacy Clause to Prevent an Injury?
Petitioner Douglas argues that private parties can only use the Supremacy Clause to prevent the implementation of a state law if the federal law that preempts it created a privately enforceable right. See . He points out that the Respondent health care providers have not claimed that § 30(A) creates such a right. . Douglas presents two tests to determine if there is a cause of action when Congress has not explicitly specified whether a federal statute creates a privately enforceable right. . Douglas states that, under the first test, a private right of action exists if (1) the federal statute creates a right; (2) Congress intended to create a remedy; or (3) inferring a private remedy would be consistent with the purpose of the statute. . Under the other test, Douglas asserts that a plaintiff can sue under 42 U.S.C. § 1983 if (1) Congress created an individual right; (2) the right is not too vague to enforce; and (3) if the statute creates a mandatory right. . In either case, however, Douglas argues that Congress must have conferred an enforceable right upon the party in order for the health care providers to sue to enforce federal law. .
Independent Living argues that a plaintiff does not need a “right” in order to bring an action under the Supremacy Clause. . Independent Living asserts that a plaintiff only needs to claim an injury resulting from an action of a state or federal agency. However, Respondent Dominguez maintains that the Supremacy Clause allows private parties to seek an injunction to prevent an injury from the state law. Furthermore, Independent Living argues that the test for whether a plaintiff can sue to enforce a federal law under the Supremacy Clause is simply whether the party can demonstrate an injury, or a potential injury, from the state’s action, and whether a state law that upsets the balance between federal and state governments caused the injury.
Does § 30(A) Create a Private Right of Action?
Petitioner Douglas argues that private parties cannot sue to enforce § 30(A) because Congress did not include a statutory private remedy. . Douglas repeatedly asserts that Congress alone has the power to grant enforcement rights to private parties, and that Congress failed to demonstrate a clear intent to grant such a right. . Furthermore, Douglas contends that implying a cause of action goes against Congress’ intent to grant the power to enforce the Medicaid Act exclusively to the Department of Health and Human Services (“HHS”). Douglas argues that Congress demonstrated this intent when it repealed a law that allowed health care providers to sue to challenge state Medicaid rates. . Douglas further argues that the health care providers have not shown that there is a conflict between state and federal law giving rise to an action under the Supremacy Clause, since a state that fails to fulfill Medicaid funding requirements may nonetheless still comply with federal law.
However, the Respondents interpret Congress’ actions differently. Dominguez and Santa Rosa argue that Congress’ grant of power to HHS to enforce the Medicaid Act does not necessarily mean that Congress intended to take away the courts’ power to enjoin state laws that violate the Supremacy Clause. Furthermore, the California Pharmacists Association argues that Congress did not intend for HHS to have the sole power to enforce the Medicaid Act, pointing to the lack of a statutory provision giving HHS this authority and HHS’s delegation of approval of state Medicaid plans to local offices. Moreover, Santa Rosa notes that Congress did not explicitly limit private remedies in § 30(A). .
Are Federal Laws Enacted Under the Spending Clause Exempt from Supremacy Clause Enforcement?
Petitioner Douglas argues that laws passed pursuant to the Spending Power are like a contract: the state voluntarily agrees to abide by the conditions that the federal government sets, in return for federal funding. Douglas asserts that the remedy for noncompliance with § 30(A) lies within the contract between the state and the federal government, not the Supremacy Clause. Therefore, Douglas argues, a state is free not to comply with the Medicaid Act, and not to receive federal funding; far from being in conflict with federal law, the statute anticipates noncompliance and provides a remedy.
Respondent Santa Rosa argues that there is no reason to treat laws enacted under the Spending Clause differently from laws enacted under any other Congressional power. .Rather, Santa Rosa asserts that once a state has accepted the conditions that a federal statute orders, the state violates the Supremacy Clause if it passes a law that violates those conditions while continuing to accept federal funding. Respondent Dominguez makes an analogy to civil rights laws: under the Civil Rights Act of 1964, a person may choose not to operate a hotel chain, but if he elects to do so, he cannot discriminate against minorities. Similarly, Dominguez points out that, although California may choose not to participate in the Medicaid program, if it chooses to do so, it must follow the applicable federal laws. Furthermore, Dominguez notes that the Supreme Court has not previously hesitated to invalidate a state law that is inconsistent with a funding requirement in a Spending Clause statute.
Do the Respondents have Standing to Sue Under the Supremacy Clause?
Petitioner Douglas argues that the health care providers do not have standing to bring suit at all. First, Douglas argues that the respondents are seeking to enforce the right of a third party, the U.S. government, not a right of their own, a practice the courts have prohibited. . Furthermore, Douglas claims that the providers’ interests are not within the zone of interests that Congress intended to protect under § 30(A). Finally, Douglas argues that courts have repeatedly denied claims of standing based on the general goal of maintaining the proper balance between the federal and state governments, and he asserts that the Respondent health care providers have not claimed an injury under which they can establish standing.
The Respondent health care providers reply that the standing issue, even if valid, was not raised in the lower courts, and so cannot be raised before the Supreme Court. Moreover, Respondent Dominguez argues that its claim is based on the injury that the state law causes the providers, thus giving them a direct interest in the outcome. Santa Rosa adds that this injury, far from being a generalized grievance, is concrete and real, and provides standing for the suit.
In this case, the Supreme Court will determine (1) whether the Supremacy Clause grants Medicaid beneficiaries and providers a private cause of action to challenge a state law that reduces Medicaid reimbursement rates, and (2) whether 42 U.S.C. § 1396a(a)(30)(A) ("§ (30)(A)") preempts such a state law. The decision in this case will affect the consistency and predictability of federal law, private parties’ access to the courts to challenge state laws, and the availability of health care to Medicaid beneficiaries.
Enforcement of Federal Law
Several states argue that, if the Supreme Court upholds the Ninth Circuit’s holding, it will undermine the effective administration of federal law. They argue that, if the Court finds an independent cause of action under the Supremacy Clause, every individual litigant would be in a position like that of an attorney general: able to enforce their own interpretations of federal law. The states argue that removing the power to enforce federal law from the agency that Congress intended (the Centers for Medicare and Medicaid Services ("CMS")) and allocating it to any individual with standing will undermine the consistency and predictability of federal law. The United States argues that, if private parties are permitted to sue to enforce federal law, multiple federal courts will be judging state compliance with federal law, leading to inconsistent results, especially where the courts apply different standards. A number of state governors and legislatures agree, arguing that the Ninth Circuit’s holding will destroy Congress’s authority to define the law and will render legislatively-defined causes of action superfluous.
On the other hand, the American Civil Liberties Union ("ACLU") argues that eliminating or restricting direct legal action will leave important interests without protection. It argues that civil rights claims have been historically enforced through direct action. The ACLU asserts that without the power to bring a direct action, minorities, immigrants, indigent individuals, and other disadvantaged groups will have no means to challenge invalid and discriminatory state laws. Moreover, the ACLU contends that private actions are necessary to enforce federal law because the government does not have sufficient resources to litigate disputes between state governments and individuals. Former officials of the Department of Health and Human Services (“HHS”) add that the federal government does not have an incentive to enforce these disputes because, if states reimburse Medicaid providers at lower rates, it saves the federal government reimbursement money (when the government reimburses states for payments to Medicaid providers).
Effect on States and Beneficiaries
Several states suggest that permitting Supremacy Clause lawsuits to challenge the enforcement of Medicaid reimbursement laws will cause an unreasonable financial burden on the states. The states argue that permitting individual beneficiaries to obtain an injunction with respect to states’ reductions in Medicaid spending before the CMS has a chance to approve or reject the reductions will cause a financial burden on states already facing increasing health care costs. The states point out that California, for example, has been forced to pay an additional one billion dollars in Medicaid benefits after the courts enjoined Assembly Bills 5 and 1183.
Conversely, the American Health Care Association (“AHCA”) responds that CMS lacks sufficient access to information to evaluate state compliance with § 30(A). AHCA further argues that, if private litigants do not have a private right of action, states will avoid federal review of their Medicaid plans entirely because the only federal remedy is denial of federal funds. The American Medical Association adds that cutting off federal funds will only harm Medicaid beneficiaries by causing them to lose health care coverage entirely. The American Association of Retired Persons (“AARP”) asserts that Medicaid rate cuts cause health care providers to leave Medicaid programs and Medicaid beneficiaries to lose access to health care.
The Supreme Court will decide if medical providers can sue under the Supremacy Clause to block a state law that reduces Medicaid payments. Petitioner Douglas argues that medical providers cannot sue to enforce the Medicaid Act because the statute does not grant any enforceable rights, and that Congress did not intend for private parties to sue to enforce the statute. On the other hand, the Respondent health care providers argue that they can sue under the Supremacy Clause to prevent an injury that a state law causes, and that Congress did not explicitly prohibit private parties from suing to enforce the Medicaid Act. Ultimately, the question of whether private parties can sue under the Supremacy Clause to enforce federal laws has the potential to affect the ability of private parties to sue to challenge state law, the predictability of federal law, and the availability of health care to Medicaid beneficiaries.