Providers can't sue state Medicaid agencies over rates, Supreme Court rules

(Story updated at 2:30 p.m. ET.)

Private healthcare providers cannot sue state Medicaid agencies over low reimbursement rates, the U.S. Supreme Court decided Tuesday in a 5-4 decision (PDF), reversing a lower court's ruling.

Justice Antonin Scalia wrote in the majority opinion that the supremacy clause of the U.S. Constitution, which says federal laws reign supreme over state ones, does not allow providers to sue state Medicaid agencies over rates. Scalia also wrote that the Medicaid Act implicitly does not allow private parties to enforce a part of the law that requires state plans to “assure that payments are consistent with efficiency, economy, and quality of care” while “safeguard(ing) against unnecessary utilization of ... care and services.” Congress, he concluded, did not mean for the court to be able to get around that part of the law.

Idaho providers had argued in the case, Armstrong v. Exceptional Child Center Inc., that suing over low rates is sometimes the only way to enforce federal payment requirements. Otherwise, low rates could lead to fewer providers agreeing to participate in Medicaid and thus less access to care for Medicaid patients, some had argued.

State Medicaid officials countered that Congress had not authorized such suits in the Medicaid Act and that allowing them could mean endless litigation that would slow the system.

Justice Sonia Sotomayor wrote in a dissenting opinion that the court's decision Tuesday “has very real consequences.” The outcome, she said, means only HHS—an already busy federal agency—may go after state Medicaid agencies that underpay providers, and then only “through the drastic and often counterproductive measure of withholding the funds that pay for such services.”

Scalia answered that argument in the majority opinion. “The dissent speaks as though we leave these plaintiffs with no resort. That is not the case," he wrote. "The dissent's complaint that the sanction available to the Secretary (the cut-off of funding) is too massive to be a realistic source of relief seems to us mistaken. We doubt that the Secretary's notice to a State that its compensation scheme is inadequate will be ignored.”

Ross D'Emanuele, a partner with Dorsey & Whitney in Minneapolis, said the justices seemed to fear in their opinion that allowing the suits would lead to a cascade of such actions. They also seemed to say the court shouldn't be in the business of deciding rate adequacy.

Jane Perkins, legal director of the National Health Law Program, said she finds that reasoning frustrating. She noted that's what courts do—make complex decisions. Also, she said there's no reason to believe allowing the suits would cause their proliferation.

“The majority acts as though to allow the supremacy clause actions would open up a floodgate to litigation and conflicting decisions, but that was the status quo when this case came before the court,” Perkins said.

But Matt Salo, executive director of the National Association of Medicaid Directors, said frequent lawsuits over rates have been a problem in the past. Years ago, the Boren amendment to the Medicaid Act allowed hospitals and nursing homes to be paid at certain levels, and many providers sued, he said.

“These became so frequent and so powerful—big hospitals and nursing homes can hire a lot of lawyers—in a lot of cases it was cheaper to just increase the rates than fight the case,” Salo said. That amendment was ultimately repealed in 1997.

Even with Tuesday's decision, it's possible some providers might still try to sue state Medicaid agencies, Perkins said. They just won't be able to do so by basing their arguments on the Supremacy Clause, which had been one of the foundations of such cases, she said. In the past, providers also had argued that a section of the Civil Rights Act had allowed them to bring such suits. But a 2002 Supreme Court decision in Gonzaga University v. Doe clamped down on that approach, she said.

Providers still might try to sue state Medicaid agencies, alleging they violated state or federal laws requiring agencies follow certain procedures in setting rates, she said. Or, they might try to claim agencies were acting capriciously, outside the bounds of the law. But both of those strategies are much more difficult to pursue, Perkins said.

“I think the avenue for judicial relief has certainly been shut down in a serious way, however, there are a couple of avenues that I think that providers will pursue. And the reason I think they will is because the ones I work with, pediatricians in particular, are absolutely dedicated to this population,” Perkins said.

She's unsure whether HHS would withhold funds from a state agency paying too-low rates as the majority in Tuesday's decision suggested. She is not aware of HHS ever withholding money on such a large scale in the past, she said.

“That is the nuclear option, double down,” Perkins said. “It's nonsensical they would ever do that.”

Salo, however, said that though he's also not aware of a large-scale withholding of funds, it is an option. He believes HHS would do it if the stakes were high enough, but it's not in anyone's best interest to get to that point.

The Supreme Court took up the case after Idaho residential providers for disabled patients sued state officials over the state Medicaid agency's failure to implement new, higher rates because the Legislature didn't provide sufficient funding. A federal district court ruled that Idaho's rates weren't in line with the federal law's requirements that the payments help ensure adequate access to care. That was upheld by the 9th U.S. Circuit Court of Appeals, which also sided with the providers.

In 2012, the Supreme Court declined to rule in a similar case in California, when providers sued the state over amendments to the state's Medicaid program including a 10% rate cut. The issue in that case also was whether providers could sue to enforce federal Medicaid law. At the time, the California Medical Association regarded the high court's refusal to take the case as a victory because it seemed to allow providers to sue over Medicaid rates. Perkins said providers have been wary of bringing cases since then, even though they weren't specifically barred from doing so until now.

Chief Justice John Roberts and justices Clarence Thomas and Samuel Alito also joined in the main majority opinion. Justice Stephen Breyer partly agreed and partly dissented from the majority opinion. Justices Anthony Kennedy, Ruth Bader Ginsburg and Elena Kagan joined in the main dissent.