Last week, the U.S. Supreme Court agreed to hear California's appeal of a lower court ruling that blocked it from implementing up to 10% rate cuts to hospitals, pharmacists, dentists, in-home care workers and other providers. The three cases will be heard together in one-hour oral arguments, most likely in the fall. A decision is expected by next spring.
“It's one of the most fundamental cases the court has taken up in a long time,” said Karin Schwartz, supervising deputy attorney general for California. “The issue is important to all states because they are dealing with spiraling Medicaid costs.”
At the heart of the issue is whether providers and patients have the legal right to sue the state over rate cuts to Medicaid. California is arguing that only the federal government can block such cuts because the program is essentially a contract between states and HHS. So far, 22 states have filed amicus briefs supporting the state of California.
The providers' so-called “private right of action,” if denied by the high court, could have ramifications across not only the healthcare sector, but other industries, said Craig Cannizzo, partner in the San Francisco office of Hooper, Lundy & Bookman, representing some of the providers in the case.
“To treat any welfare act, whether it be Medicaid or Social Security, as a giant contract, is an oversimplification,” Cannizzo said.
With many states seeking to cut Medicaid reimbursements to balance their budgets, the case is being closely watched. The rate cuts were enacted in 2008 by then-Gov. Arnold Schwarzenegger. California's new governor, Jerry Brown, has already proposed a budget with a 10% provider rate cut to Medicaid (called Medi-Cal in the state). The fate of that rate cut will likely depend on the outcome of the case, Cannizzo said.
Duane Dauner, president of the California Hospital Association, noted in a statement that the CMS rejected the 2008 rate cut. “California hospitals remain confident that previous court rulings barring arbitrary cuts in Medi-Cal payments to hospitals, doctors and other providers in an effort to reduce the state's budget deficit will ultimately be upheld,” Dauner said.
A similar case before the Supreme Court seeks to determine whether local governments and providers have the right to challenge an agreement between the HHS and a third party. In this case, Santa Clara and Santa Cruz counties are lead plaintiffs.
The counties, and their safety-net health facilities, are suing AstraZeneca and other major drugmakers for overcharges of prescription drugs provided through the Medicaid Drug Rebate Program. The voluntary program is a national pricing scheme enacted in 1992 that sets maximum costs for discounted prescription drugs provided to safety-net and children's hospitals and other providers serving the poor.
The drugmakers—as well as the federal government, which filed an amicus brief—told the Supreme Court in oral arguments Jan. 19 that if every hospital could sue over the prices, it would wreak havoc on the system.
“Allowing 14,000 covered entities to bring individual suits in different courts without HHS consultation, without the benefit of the government's input, could lead to substantial dis-uniformity despite the fact that these are supposed to be national prices,” Ginger Anders, attorney for the federal government, told the justices, according to a transcript of oral arguments.
Justice Stephen Breyer wondered why states have the right to mediation over these drug prices, but local providers don't have this recourse. “You know, Santa Clara County is just as big as Rhode Island,” Breyer told Anders. “And you say the attorney general of Rhode Island can bring the suit, am I right? And so why can't Santa Clara do it?”
A decision on that case is expected in the fall.