Health Care Providers Cannot Sue States Over Low Medicaid Reimbursement Rates

On Tuesday, March 31, 2015, in a 5-4 vote, the Supreme Court of the United States ("SCOTUS") ruled in the case Armstrong v. Exceptional Child Center, Inc., that health care providers cannot sue a state to challenge low Medicaid reimbursement rates.

Initially, providers of 'habilitation services' (i.e., in-home care for individuals who, but for the provision of in-home care would require care in a hospital or nursing facility), sued Idaho Health and Welfare Department officials in Idaho district court, claiming that Idaho unfairly reimburses them at rates lower than the federal Medicaid Act permits, and they sought to force Idaho officials to increase rates. In response, Idaho argued that such private rights of action by health care providers, seeking enforcement of federal law are not permitted, and it is up to the federal agencies that oversee Medicaid to decide whether a state is in compliance with the Medicaid Act.

The Idaho District Court entered summary judgment for the providers and the 9th Circuit affirmed, concluding that the Supremacy Clause gave the providers an implied right of action, and that they could sue to seek an injunction requiring Idaho to comply with the Medicaid Act.

However, SCOTUS overruled the 9th Circuit decision and held that the Supremacy Clause of the US Constitution does not confer a private right of action on health care providers to sue a state to enforce federal law.

Pursuant to the federal Medicaid Act, Congress provides federal funds to states in exchange for the states' agreement to spend them in accordance with certain conditions. Those conditions include the requirement that states set procedures for determining reimbursement rates that "are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available [...]." The health care providers argued that Idaho officials were not in compliance with this condition because they had not increased reimbursement rates since 2006, despite studies showing that the cost of providing care had gone up.

Writing for the SCOTUS majority opinion, Justice Scalia stated that the Supremacy Clause, "instructs courts what to do when state and federal law clash, but is silent regarding who may enforce federal laws in court, and in what circumstances they may do so" and it "would be strange indeed to give a clause that makes federal law supreme a reading that limits Congress's power to enforce that law, by imposing mandatory private enforcement;" therefore, it "certainly does not create a cause of action." Scalia further stated that it is up to the federal agencies that oversee Medicaid to decide whether a state is in compliance and to remedy non-compliance by withholding federal funds from the state.

Justice Scalia was joined by Chief Justice John Roberts and Justices Clarence Thomas, Stephen Breyer and Samuel Alito in the majority ruling. Justice Sonia Sotomayor dissented, along with Justices Anthony Kennedy, Ruth Bader Ginsburg and Elena Kagan, and stated, nothing in the Medicaid Act indicates that private lawsuits are prohibited or that Congress intended any such prohibition. She noted there is a history of federal courts allowing private parties to enjoin government action, and unless Congress affirmatively manifests a contrary intent, that enforcement mechanism should be presumed.

The SCOTUS decision may come as a blow to health care providers who believe that the courts are the only avenue to compel state officials to comply with federal law, especially when federal agencies do not act to enforce compliance. However, Justice Breyer noted that there are other avenues of relief if withholding funds from states does not work, including a suit by the federal agency against a state to compel compliance with federal rules or a request by the health care providers that the federal agency interpret its rules to their satisfaction, modify the rules, or promulgate new rules, noting that if such requests are denied, an injured party can normally seek judicial review of the agency's refusal.

If you have questions about Medicaid participation or compliance, or other health care-related issues, please call Attorney Jillian Jagling at 401.824.5100 or email [email protected] We welcome your comments, questions and suggestions.

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