Supreme Court Holds Medicaid Provider Can’t Sue for Higher Reimbursement

The United States Supreme Court handed down its decision in Armstrong v. Exceptional Child, Inc. on March 31, 2015, ruling that private health care providers cannot sue to force states to raise their Medicaid reimbursement rates to keep up with rising medical costs. The ruling is seen as a blow to many health care providers who believe that Medicaid reimbursement rates are so low that money is often lost when treating the program’s patients.

The United States Court of Appeals for the Ninth Circuit ruled in favor of the plaintiffs, a group of agencies providing supported living services to Medicaid-eligible individuals in Idaho. The Ninth Circuit found that Section 30(A) of the Medicaid Act requires that reimbursement rates bear a “reasonable relationship” to provider costs, and that “[w]here rates fail to ‘substantially reimburse providers their costs,’ there must be some justification other than ‘purely budgetary reasons.’” The defendants in the case, a director and deputy director of Idaho state health programs, had conceded that the reimbursement rates, unchanged since 2006, remained in place for budgetary reasons.

The Supreme Court’s opinion, delivered by Justice Antonin Scalia, sided with defendants, finding that it is up to the federal agencies to decide whether a state is in compliance with reimbursement rules. The Court found that medical companies had no private right of action under either the Supremacy Clause or under federal Medicaid funding laws. Justice Scalia stated that while the Supremacy Clause does make federal law supreme over state law, “[i]t would be strange indeed to give a clause that makes federal law supreme a reading that limits Congress’s power to enforce that law, by imposing mandatory private enforcement . . .” The Court also disagreed with plaintiffs’ contention that the suit could proceed against the state of Idaho in equity. Justice Scalia detailed that the Medicaid Act “implicitly” precludes private enforcement of Section 30(A) and that plaintiffs could not circumvent Congress’s exclusion of private enforcement by invoking the Court’s equitable powers.

The Court stated that plaintiffs retain a remedy in their ability to seek relief through the Secretary of Health and Human Services, who can sanction Idaho by cutting off the state’s funding. The Court suggested that the remedy was adequate because such a threat is unlikely to be ignored by the state.

The dissent, written by Justice Sonia Sotomayor and joined by Justices Kennedy, Ginsburg, and Kagan, stated there has been a long history of federal courts allowing private parties to stop unconstitutional government action. Citing to and providing examples from early 19th and 20th century Supreme Court cases, Justice Sotomayor relayed that equitable relief “‘has long been recognized as the proper means for preventing entities from acting unconstitutionally.’” The dissent concluded by stating:

Previously, a State that set reimbursement rates so low that providers were unwilling to furnish a covered service for those who need it could be compelled by those affected to respect the obligation imposed by §30(A). Now, it must suffice that a federal agency, with many programs to oversee, has authority to address such violations through the drastic and often counterproductive measure of withholding the funds that pay for such services. Because a faithful application of our precedents would have led to a contrary result, I respectfully dissent.

The ruling appears to foreclose a remedy that many health care providers believed to be their only option to make states comply with federal law and offer adequate reimbursement rates, since federal officials have taken no action. Idaho, however, said that the lawsuit frustrated Congress’s goal of allowing flexibility in the administration of Medicaid program. Regardless, the Court has clarified that if the federal government is to be involved in mandating changes to reimbursement rates, it will not be through the judiciary.

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