With Starbucks Venti in hand to ease the pain of waking up at 6:00 a.m. and the 45 degree weather, I eagerly lined up this morning to hear oral arguments at the Supreme Court with fellow health law fans, associates too far down the food chain to earn a seat at the counsel table, Mormon missionaries, a jury consultant, the Supreme Court’s biggest fan, and a (seemingly less eager) high school group. Before the Court was Douglas v. Independent Living Center. This case arose after the California government responded to the state’s 2008 “fiscal crisis” by cutting Medicaid provider reimbursement rates by 10%. Providers and beneficiaries claimed that the rate cut contravened the equal access provision, which states that Medicaid provider payments “must be sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.”
At issue before the Supreme Court is whether Medicaid beneficiaries and providers have a private right of action to challenge state budget cuts affecting access to health services. The 9th Circuit Court found that the plaintiffs could challenge the rate cut under the Supremacy Clause, granting an injunction to enjoin the rate reduction pending the resolution of the litigation. More broadly, this case raises several significant policy issues including the protection of vulnerable Medicaid beneficiaries, governmental health sector accountability, federalism and the status of co-operative funding programs, and institutional competence to adjudicate matters of complex social policy.
Historically, providers and beneficiaries challenged breaches of the equal access provision under §1983 of the Civil Rights Act. However, following the Supreme Court’s narrowing of that provision in Gonzaga University v. Doe, most circuit courts have interpreted Gonzaga to preclude private enforcement of the equal access provision through §1983. Accordingly, in Douglas, the plaintiffs advanced an alternate theory, arguing that because California’s rate cuts are inconsistent with the federal equal access provision, they violate the Supremacy Clause. The Supreme Court must now determine whether the Supremacy Clause grounds an implied right of action to challenge state legislation, or whether plaintiffs must first prove that the equal access provision creates a legally enforceable right (a finding which is highly unlikely given the post-Gonzaga equal access jurisprudence).
In its oral argument, the state of California stressed that the appropriate remedy for violations of the equal access provision is federal, not private, enforcement. Specifically, the Department of Health and Human Services must approve amendments to state Medicaid plans and can refuse to fund non-compliant states. Deputy State Attorney General Schwartz argued that this type of case “cries out” for administrative review rather than injunctive relief, claiming that judicial involvement has politicized and drawn out the HHS approval process. However, after prompting from Justices Ginsberg and Sotomayor, Schwartz admitted that the federal government has a history of lax enforcement. Justice Kagan was also concerned with the administrative process, accusing California of doing an “end-run” around the administrative process by implementing rate reductions prior to receiving HHS approval.
A second problem with federal enforcement is the blunt remedy of refusing to approve state payment rates and withholding federal funding. Justice Ginsburg was sensitive to the effect of this remedy on Medicaid recipients, noting that the withholding of federal funding is a “very drastic remedy” that would harm beneficiaries. Carter Philips, counsel for the providers and beneficiaries, emphasized his clients’ vulnerability, deeming this case “a life or death problem.” Justice Ginsburg has good reason to be concerned, given that evidence suggests that reimbursement rates for Medicaid providers are significantly lower than the rates paid by Medicare or private insurers, and providers frequently report losing money when treating Medicaid recipients. Financial deterrents to treating Medicaid recipients are particularly concerning, as they exacerbate existing health disparities between the rich and the poor. Furthermore, California’s across-the-board budgetary cuts are problematic as they affect all health services, with no regard for the efficacy or cost of those services.
While Justices Ginsburg and Kagan seemed most reluctant to foreclose a right of action, unsurprisingly, Justices Breyer and Roberts favored the State of California’s position. Justice Breyer expressed concerns that agencies would be paralyzed by a flood of lawsuits. Furthermore, he referred to the inconsistency that would result from courts across the country assessing state rate setting as “a mess.” Justice Sotomayor initially seemed to be in favor of a private right of action, noting that individuals had been suing to compel state compliance with federal law since 1824. However, after observing Phillips’ exchange with Justice Breyer, Justice Sotomayor pondered why Phillips was “fighting Justice Breyer so much.” Justice Roberts also seemed unlikely to vote against the state of California, stating that clear congressional intent is generally required for a private party to bring a cause of action. He queried why the Court has “wasted a lot of time” with its implied right of action jurisprudence if plaintiffs could have proceeded under the Supremacy Clause all along. As per usual, Justice Thomas did not give any hint at what his ultimate finding will be.
Medicaid budgetary concerns are likely to become more acute with the passage of the Affordable Care Act, which expands eligibility beginning in 2014. While federal funds will initially cover newly eligible individuals, the federal contribution will decrease over time. Furthermore, states will only receive the traditional federal contribution (50-75%) for previously eligible but unenrolled individuals, many of whom are expected to sign up for insurance due to mandated simplified application procedures, the individual mandate, and publicity surrounding eligibility criteria. In light of these mounting health system cost pressures, governments will increasingly be called upon to make difficult choices to preserve the sustainability of the system. Although the courts should not act as a barrier to these necessary decisions, they should also not stand by while the government makes politically easier choices—cutting provider reimbursement rates (which indirectly affect access)—rather than engaging in the politically unpopular but more principled analysis of determining what services are sufficiently cost effective to warrant public funding.