Supreme Court starts fall term with Calif. Medicaid case

The Supreme Court is dedicating the first case of its fall term Monday morning to hearing arguments over whether private parties have a right to sue states in order to block cuts in Medicaid rates.

The case, Douglas vs. Independent Living Center of Southern California, pits the rights of states to regulate their costly Medicaid programs against the rights of patients to have high-enough reimbursement rates that healthcare providers will accept patients who use government insurance. Experts say the case has national implications, with cash-strapped states across the country slashing Medicaid funding to balance budgets.

The specific controversy at issue involves a 3-year-old, 10% rate cut to hospitals in California's Medi-Cal program. Medi-Cal has more than 10 million enrollees in the state who, under federal Medicaid rules, are supposed to have equal access to medical care. The lawsuit was brought on behalf of healthcare providers who say the rate cuts would not allow them to care for Medicaid patients (PDF).

The Supreme Court case comes at a critical time for Medicaid, as the Patient Protection and Affordable Care Act is mandating states to expand the eligibility of Medicaid programs in order to add an estimated 14 million people to the state-run insurance programs.

Lloyd Bookman—a founding partner with law firm Hooper Lundy and Bookman, which is representing several healthcare-provider interest groups in the case—said in an interview that a victory for California in Douglas could hurt the reform law's efforts nationally to expand access.

“If this case comes out adversely and states are allowed to cut rates without fear of provider lawsuits, that could have an impact on the mechanisms in the ACA, because ... the ACA depends on many millions of people enrolled in state Medicaid programs,” Bookman said.

The Obama administration has sided with the state in the lawsuit, filing briefs saying that the federal Medicaid statute does not create a “private right of action” for individuals or healthcare providers sue to overturn Medicaid rate decisions.

The Ninth Circuit Court of Appeals ruled that although the Medicaid law doesn't contain a private right of action, it interpreted the Constitution's Supremacy Clause as giving healthcare providers a right to sue to enforce Medicaid's equal-access guarantee. In a friend-of-the-court brief, the National Governors Association (PDF) rejected that legal reasoning.

“The Supremacy Clause is not a roving commission to allow plaintiffs to seek judicial correction of perceived conflicts between state and federal law, where they personally have neither a right nor a defense under federal law,” the governors' brief said.