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Argument preview: Challenging Medicaid cuts

The Supreme Court will begin hearing cases in its public session next Monday, the opening day of the new Term.  The first case, starting at 10 a.m., grows out of challenges by health care providers in California to the state’s several moves to cut reimbursements for providing medical care for the poor and the disabled.   The Court has consolidated three cases on that issue, for one hour of oral argument; the lead case is Douglas, et al., v. Independent Living Center, et al. (docket 09-958).  When the cases were granted, David Maxwell-Jolly was the state director of health care services.  He has been succeeded by Toby Douglas; the case titles now reflect that change.   Arguing for the state will be Karin S. Schwartz of San Francisco, a senior deputy state attorney general, sharing 10 minutes of a 30-minute slot with Deputy U.S. Solicitor General Edwin S. Kneedler, representing the U.S. government as amicus.  Representing the health care providers, with 30 minutes of time, will be Carter G. Phillips of the Washington, D.C., office of the law firm of Sidley Austin.


The state of California’s fiscal woes are well-known — the state calls them a crisis that is “devastating, ongoing and deepening” — and policymakers and legislators in the state have been scrambling for ways to save money.  The only method chosen that is now at issue before the Supreme Court was a series of actions by the state legislature, in 2008 and 2009, to lower the amount of reimbursement that the state would pay to health care providers under the cooperative federal-state Medicaid program — the now very expensive program that provides funding to pay for care of the poor and for some disabled people.  The Court, however, will not be judging the legality of those cuts; the question before it is simply whether the providers and patients can sue, relying directly on the U.S. Constitution, to block those reductions.  In lower courts, the challengers won a right to sue, and used that right to obtain federal court orders blocking the cuts on the theory that they conflicted with federal Medicaid law.   The dispute now under review by the Justices, though, has implications well beyond Medicaid lawsuits, with the outcome likely to help determine how states may be held accountable for carrying out federal programs.

The Medicaid program is a huge part of the federal social “safety net,” originally passed by Congress in 1965.  It now functions as the nation’s single largest source of funding for delivery of medical services to low-income people.   It is said to provide medical care for more than one out of every four Americans, and one of every three children.  A state does not have to take part, but all 50 states now do, in order to get a share of the federal funds available under the program.  Each state must have a plan, approved by federal officials, to provide for the delivery of services.  Federal officials insist that the states are left with wide discretion to design and carry out their own Medicaid programs.

There is no doubt that federal officials, acting directly, have the authority to enforce the requirements laid down in federal Medicaid law and regulations.  One of the policy goals of federal enforcement, by the U.S. Department of Health and Human Services, is to assure that a state program gives the poor and disabled “meaningful access” to medical care, and that means a duty to insure that providers are available to deliver care.  Hanging over such enforcement, of course, is the threat of a loss of federal funding — a cut-off that would put the entire burden of caring for the needy on state tax revenues.   Among the obligations federal officials expect states to meet is weighing the impact on providers of any planned cuts in reimbursement payments.  Earlier this year, for example, HHS published a proposed new rule to create a clear and standardized process that states would use in considering how cuts might affect providers’ delivery of services.

Medicaid law, therefore, is going to be enforced, although there is considerable debate about how forceful federal agencies are in doing so.  The question before the Supreme Court now is whether patients and providers — such as doctors, dentists, hospitals, adult day care centers, pharmacists, and in-home care services — also can be enforcers themselves.   Medicaid law does not create an explicit right to sue for such private entities.   By contrast, some federal civil rights laws do give private entities a right to sue state governments for violations of rights guaranteed by such laws.  The Medicaid law, it is commonly agreed, does not give any needy or disabled person a legal right to health care.   But that may not mean — as the cases now at the Supreme Court illustrate — that no private party can sue to make sure that a state program is working as it should.   That, indeed, is what the Justices now must decide.

Beginning in February 2008, California’s legislature decided that the state’s budget crisis made it necessary to change “MedCal” — the state’s version of Medicaid — in order to save money.  In three sets of legislation, running through February 2009, the legislature imposed what it considered to be a series of reforms that had the practical effect of reducing payments to health care providers by a percentage, ranging from 1 percent to 10 percent, depending upon the kind of service or the kind of provider.

As early as April 2008, the providers and patients began suing state officials to head off the cuts.  A series of lawsuits then followed; ultimately, they resulted in seven separate rulings by the Ninth Circuit Court, upholding every District Court order blocking a cut in Medicaid payments, and overturning the one decision that had refused to enjoin a cut.   In the first of its decisions, in 2008, the Circuit Court ruled that. although Medicaid creates no right to benefits, providers could sue under the Constitution’s Supremacy Clause in order to obtain court orders to block state actions that, arguably, interfered with requirements of the federal Medicaid law and federal regulations. (The Supremacy Clause, of course, is a part of Article VI, and it declares that federal laws are “the supreme law of the land,” and it provides that no state law conflicting with such a federal statute can stand. A state law or action that gets nullified under that Clause is said to be “preempted.”)

The Circuit Court, in that ruling three years ago, said that the Supreme Court had repeatedly considered claims for court injunctions (to require or stop official state action) based on an argument of federal preemption, without demanding that there be an explicit right to sue, as under civil rights laws.   The state tried to challenge that ruling by appealing to the Supreme Court, but the Justices refused to review it in June 2009.   After that, federal judges began issuing injunctions to block the Medicaid cuts, finding them in conflict with federal requirements.  (Federal health officials who oversee state Medicaid programs have separately rejected five separate proposals by California officials to reduce their Medicaid reimbursement rates.)

After the Ninth Circuit upheld all of the court-ordered injunctions, and overturned the one denial of an injunction, state health officials filed three separate petitions in the Supreme Court (dockets 09-958, 09-1158, and 10-283).

Petitions for Certiorari

The state officials raised two questions, nearly identical in wording, in the three petitions.  The first was whether individual patients receiving Medicaid benefits, and providers of their care under the program, may sue state officials under the Supremacy Clause to claim that reimbursement cuts are preempted by federal Medicaid law and rules.  The second question was based on the substance of the Ninth Circuit’s opinions, which had concluded that the states had to apply specific methods of costing out of benefits even though those were not spelled out explicitly in the Medicaid law.  Thus, the second question asked the Court whether a state was barred, by preemption principles, from reducing the level of Medicaid reimbursement “based on requirements that do not appear in the text of the statute.”

It seemed clear that, in each of the petitions, California officials were most concerned about being required to abide by court-imposed costing requirements, believing that such commands intruded upon the discretion that they believed states are supposed to have in devising their own Medicaid programs and — just as important — that the consequences of the court orders were adding significantly to the state’s budget crisis.  The petitions argued that, as a result of the injunctions based on the new costing criteria, providers had filed claims for reimbursements approaching $1 billion, made up of some $700 million under one group of injunctions and some $250 million in retroactive payments that providers believed were due.  The claims, the officials asserted, were rising by $34 million a month, even if no further injunctions were issued.

Moreover, the petitions asserted that the Circuit Court’s acknowledgment of the right to sue, under the Supremacy Clause, was encouraging a wave of lawsuits around the country, based on a similar litigation theory.  There were at least 33 new cases in that category, and they not only challenged Medicaid decisions by state officials, but even targeted how state officials were reacting to the federal government’s new economic stimulus program following the financial crisis of 2008, state officials told the Court.

The petitions were supported by 22 other states, arguing that the Supreme Court had previously made clear that, if a state were disobeying a federally funded program, the remedy should be a cutoff of federal funding, not a wave of private enforcement lawsuits.

The providers and patients who had challenged California on the Medicaid issue urged the Court not to hear the case, arguing that the lawsuits testing the validity of the Medicaid reimbursement cuts were still in a pre-trial stage.  In any event, the challengers contended, the Supreme Court had long made clear that private parties may sue to block enforcement of state laws that intrude on federal prerogatives and thus arguably violate the Supremacy Clause.

In May 2010, the Supreme Court asked, in one of the cases, for the views of the U.S. Solicitor General on the petitions.   The top government advocate, responding in January 2011, urged the Court to deny review of all three petitions.  While saying that the Ninth Circuit was wrong in decreeing a particular costing method, the Solicitor General’s office said the cases were still in a preliminary stage, and noted that, in any event, HHS was planning to draft a new rule that could resolve any dispute in the cases.  In addition, the office said there was no conflict among lower courts on the question of suing under the Supremacy Clause to enforce federal mandates.

The Court on January 18 granted review of all three petitions, but limited its review solely to the question of whether the providers and patients could sue under the Supremacy Clause — that is, the first question in each petition.   It was obvious that, if the Court banned lawsuits under that theory, then none of the injunctions that District Court judges had issued would survive.

Merits Briefs

California officials, with significant support from the Obama Administration, argued on the merits that Congress has not given private parties the right to sue to enforce Medicaid law, and the Supremacy Clause does not do so, either.  The state briefs asserted that it is Congress’s “exclusive prerogative” to decide who may enforce a federal law, and how; that proposition is well-settled.   Were the Ninth Circuit’s contrary view to stand,the state contended, that “would fundamentally alter the traditional separation of powers among the branches and transform the courts into all-purpose regulatory enforcers of Spending Clause enactments.”

Already, the state brief said, “private suits have driven up Medicaid costs in California and elsewhere; undermined the national uniformity of federal Medicaid requirements; and resulted in an unworkable regulation-by-regulation system in which the states cannot predict their Medicaid costs with accuracy and are subjected to massive unfunded liabilities when they guess incorrectly what a court might do.”  If those woes were not enough, the brief added, private lawsuits are interfering with federal efforts to ensure that states comply with their Medicaid obligations.

The Administration’s merits brief, filed by the Solicitor General’s office, echoed the argument that Medicaid law does not include a private right to sue, but it is more nuanced in dealing with the situation of lawsuits by private entities seeking to stop states from taking action that is preempted by federal law.  The brief, indeed, conceded that the Court previously had decided “dozens of cases of preemption claims against state official on the merits in cases brought in federal court, perhaps implicitly assuming that some federal cause of action exists in some circumstances.”

It noted, however, that the Court “has never squarely decided if or when a private party has a cause of action to enjoin operation of state law as preempted by a federal statute that itself contains no private right of action and that does not confer individual rights enforceable” under Section 1983 of the federal civil rights laws.    The Solicitor General, cautiously, suggested that the Court need not reexamine its past practice of allowing some such lawsuits to proceed without a statutory basis.  It need not do so, the brief added, because the claims here are different from those in previous cases: they involve state actions carried out in implementing a joint federal-state effort, one that is like a contractual relationship, and the providers of health care for the needy face no enforcement action by the state to which they could respond by arguing preemption.

In four separate briefs on the merits, the California challengers basically argued four points, but they relied most heavily upon the fact that the Supreme Court — as the Solicitor General had conceded — had long allowed private parties who claim to be suffering from a state’s intrusion on a federal program to go into court to stop that intrusion on preemption principles.  They also contended that the fact that there is an administrative alternative to such lawsuits is beside the point and, they added, federal officials have not acted with sufficient vigor to protect the benefits of Medicaid patients from the effects of the state’s attempts to cut reimbursement rates. Moreover, they contended that the only remedy available to federal officials — a complete cutoff of funds to a disobedient state — is “draconian” in nature and would not in any event assure that Medicaid patients receive the care that the law provides.  Finally, they argued that the Supremacy Clause depends, for its vitality, upon court orders that police the constitutional line between national and state powers.  Such lawsuits, the briefs of the challengers said, are not seeking to vindicate any “rights” of the patients or providers, but rather are aimed at enforcing the Supremacy Clause.

The cases have not attracted a broad flow of amici support, but the filings in the opposite sides are significant additions.   Supporting California and its officials are 31 other states, a host of associations representing governors and other state and local officials, and a public policy advocacy group, APA Watch, that joined in the case to pursue its agenda of protecting against interference with agency prerogatives and contractual relationships.

The Obama Administration’s stance, and that of California, is sternly opposed by the Democratic leaders of the U.S. House and U.S. Senate, and other leading Democratic members of Congress, arguing generally in favor of private rights to sue to help enforce federal programs.  There also are supporting briefs from patient advocacy groups, a wide array of hospital and medical organizations, civil liberties groups, former federal health officials, pharmacy trade groups, and the U.S. Chamber of Commerce.


The Court will have to make, in deciding these cases, a fundamental choice between rather stark alternatives: the democratic principle that Congress is free, when it sets up a federal program, to design administrative machinery — to the exclusion of encouraging litigation –  to make that program work in a multitude of factual scenarios, the constitutional principle that the federal courts are front-line guardians of the supremacy of federal legislation, and the federalism principle of respect for the prerogatives of the states to make social policy for their citizens.   These three cases may be of most immediate consequence for the massive federal Medicaid program, but their potential looms very large, indeed.

What may work best in these cases, for the states and their supporters, is the nature of the Medicaid program itself: a kind of contractual partnership that depends on cooperation and shared responsibility.   The federal government, in fact, is depending very heavily upon that perception, too.  It is a perception that bespeaks the modern Administrative State, and how it may work pragmatically for a vast population.  But what may work best, for the patients and the providers, is an argument kept closely attuned to the constitutional architecture, particularly of Article VI, traced back to the very Founding itself.

The outcome has the promise of producing one of the new Term’s most important decisions for the structure of government, and for the future of the social “safety net.”

Recommended Citation: Lyle Denniston, Argument preview: Challenging Medicaid cuts, SCOTUSblog (Sep. 29, 2011, 6:00 AM),