Supreme Court ruling on Medicaid limits providers' ability to sue over low rates

Last week's Supreme Court 5-4 decision sharply limiting private healthcare providers' right to sue state Medicaid agencies over low payment rates could reduce low-income Americans' access to care.

Writing for the majority, Justice Antonin Scalia said the supremacy clause of the Constitution, which says federal laws reign supreme over state laws, does not grant providers the right to sue state Medicaid agencies over rates. Scalia also wrote that the Medicaid Act does not allow private parties to enforce the part of the law that requires states to “assure that payments are consistent with efficiency, economy and quality of care.”

He said HHS has the option to cut off all federal Medicaid funds to a state if it determines the state is paying inadequate rates.

Provider groups said the ruling could make it difficult for Medicaid beneficiaries to find hospitals, physicians and other providers to treat them, given that Medicaid is already the lowest payer among insurers. In the past, hospitals and other providers have filed lawsuits in a number of states to force Medicaid agencies to raise rates. The ruling comes as the number of Medicaid beneficiaries continues to grow thanks to the Affordable Care Act's eligibility expansion.

“You'll have all these people with the benefits (of Medicaid) who can't get care,” said Linda Rosenberg, CEO of the National Council for Behavioral Health.

“The main remedy providers now have is to stop providing services,” said William Dombi, executive director of the National Council on Medicaid Home Care. “It's the only way we have to get the point across.”

It's possible some providers may still try to sue state Medicaid agencies, said Jane Perkins, legal director of the National Health Law Program, which supported providers in the case. But they won't be able to use the supremacy clause, which was their major legal weapon. They could try to sue Medicaid agencies by alleging the agencies violated laws requiring them to follow certain procedures in setting rates, or they could claim agencies were acting capriciously. But those strategies are much more difficult. “The avenue for judicial relief has certainly been shut down in a serious way,” Perkins said.

In Armstrong v. Exceptional Child Center Inc., Idaho residential-care providers sued Idaho state officials over the Medicaid agency's failure to implement new, higher rates because the Legislature didn't provide sufficient funding. Two lower federal courts held that Idaho's rates were not in line with the federal law's requirements that payments be high enough to ensure adequate access to care.

In a dissenting opinion joined by Justices Ruth Bader Ginsburg, Elena Kagan and Anthony Kennedy, Justice Sonia Sotomayor wrote that the majority's decision means that only HHS 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.”

Some legal experts say it's unlikely HHS would withhold federal Medicaid dollars from a state in such situations because that would hurt Medicaid beneficiaries. Perkins said she is not aware of HHS ever previously withholding Medicaid money on a large scale. “That is the nuclear option, double down,” she said. “It's nonsensical (HHS) would ever do that.”

But Matt Salo, executive director of the National Association of Medicaid Directors, who applauded last week's ruling, said withholding the funds is an option. He said HHS would do it if the stakes were high enough, but that it's not in anyone's best interest to get to that point.

Salo said frequent lawsuits over Medicaid rates were a problem for states in the past.

The narrowed ability to go to court to seek a remedy for low Medicaid payment rates may force primary-care doctors into making some uncomfortable choices.

“Physicians will have a hard decision in terms of whether or not to take a Medicaid patient,” said Dr. Robert Wergin, president of the American Academy of Family Physicians. “If the reimbursement is too low, they will not take them.”

With the loss of legal recourse, providers will continue to push to reinstate an ACA provision that temporarily increased Medicaid reimbursement for primary-care services to match Medicare rates, Wergin said. And they will press the CMS and state officials about rate adequacy during each state's Medicaid rate-setting process.