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Supreme Court Forecloses Use Of Supremacy Clause In Challenges To State Medicaid Payment Rates Brought By Medicaid Providers

On March 31, 2015, the U.S. Supreme Court, in a 5 to 4 decision, ruled in Armstrong et al. v. Exceptional Child Center, Inc., et al.1 that the Supremacy Clause of the U. S. Constitution2 does not provide a separate cause of action for Medicaid providers to challenge in federal court the adequacy of Medicaid payment rates set by states. 

The Court’s decision in Armstrong is significant in that it effectively curtails access by Medicaid providers to federal court seeking redress for low rates of reimbursement for services rendered to Medicaid beneficiaries.  Much of the jurisprudence that has developed regarding whether a private right action exists under the Medicaid statute has been influenced by the recognition that the Medicaid statute was enacted by Congress under the Spending Clause of the U.S. Constitution.3  Courts have previously decided that the Medicaid statute does not provide a private right of action to challenge Medicaid payment rates.  Courts have also applied the principles enumerated by the Supreme Court in Gonzaga University v. Doe4, and have ruled that 42 U.S.C. § 1983 does not afford Medicaid providers a cause of action to challenge the adequacy of state Medicaid rates.  

In Armstrong, Medicaid providers brought suit against Idaho State officials, contending that Idaho’s rates for reimbursement under its approved Medicaid state plan for residential habilitation services were inadequate, since the rates did not meet criteria established under 42 U.S.C. § 1396a(a)(30)(A) (“§ (30)(A)”).5  That section requires Idaho’s Medicaid plan to: 

“provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan . . . as may be necessary to safeguard against unnecessary utilization of such care and services and to assure that payments are consistent with efficiency, economy, and quality of care and are 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 . . .   .”

In the litigation, the providers sought an injunction, seeking an increase in rates under Idaho’s Medicaid program for residential habilitation services.  The providers invoked the Supremacy Clause as a source for their cause of action in federal court.  The district court ruled in favor of the providers, holding that Idaho failed to set its rates for habilitation services in compliance with § 30(A). The Ninth Circuit affirmed, ruling that the Medicaid providers had “an implied right of action under the Supremacy Clause to seek injunctive relief against the enforcement or implementation of state legislation.”6  On the merits, the court of appeals upheld the injunction issued by the lower court, requiring Idaho to raise rates for residential rehabilitation services.   

The Supreme Court granted a writ of certiorari to the Ninth Circuit to decide whether the Supremacy Clause provides a private cause of action to challenge the adequacy of rates under § 30(A).             

Writing for the Court,7 Justice Scalia in Armstrong explained that the Supremacy Clause “creates a rule of decision: Courts ‘shall’ regard the ‘Constitution,’ and all laws ‘made in Pursuance thereof.’ as ‘the supreme Law of the Land’.”8  Citing Gibbons v. Ogden,9 Justice Scalia emphasized that courts “must not give effect to state laws that conflict with federal laws.”  

Contrary to the views pressed in the litigation, the Supremacy Clause is not the “’source of any federal rights’,”10 and “certainly does not create a cause of action.”11 

The plaintiffs-respondents also sought to invoke the traditional equity powers of courts as a separate basis for their request for injunctive relief to receive a high rate of payment for residential habilitation services.  The majority opinion declined to adopt this view.  

Fundamentally, Justice Scalia explained that courts of equity are constrained in their powers by statutory limitations.  The Court construed the Medicaid statute as an expression by Congress to preclude private enforcement of § (30)(A).  Thus, congressional intent in this regard cannot be ignored when it comes to defining, and limiting, courts of equity.  The Court emphasized that Congress chose to rely solely on administrative mechanisms to enforce a state’s obligations under its Medicaid plan by authorizing the Secretary of Health and Human Services (“the Secretary”) to withhold federal funding to a state.12  The Court also viewed the judiciary as ill-equipped to administer the mandates imposed on state Medicaid plans under § (30)(A).  

Congress intended enforcement of § (30)(A) to be within the sole domain of the Secretary to ensure uniform application of the criteria under that section.  The dissent in Armstrong voiced concern that the Court’s limiting reading of Medicaid statute as precluding a private right of action would leave plaintiffs without recourse.  The Court’s majority disagreed, pointing to the authority of the Secretary to withhold funding as the means by which to influence a state to conform to the elements dictated in § (30)(A) in its state plan.    

Justice Breyer, while concurring in the Court’s judgment, wrote a separate concurring opinion.  

Rather than view the matter before the Court as one of whether the Supremacy Clause provides a cause of action, Justice Breyer looked to whether, in the circumstances presented, it was proper for federal courts to grant equitable relief enjoining state officials from violating federal law.  

Justice Breyer viewed the granting of such relief as inappropriate.  This was so in view of the complex nature of the rate-setting mandated under § (30)(A), and the need to rely on the expertise of the Secretary to ensure uniform application of standards.  In Justice Breyer’s view, there is sufficient authority vested in the Secretary to ensure compliance by a state with the criteria set forth in § (30)(A) by withholding federal funding.  Justice Breyer also wrote that plaintiffs-respondents had the option of seeking relief directly from the Secretary by petitioning the federal agency to interpret and enforce § (30)(A) more favorably.  Lacking a satisfactory response from the federal agency, an affected party has resort to the courts to compel agency action or overturn agency action as arbitrary or an abuse of discretion based on an Administrative Procedure Act type challenge.   

The dissenting opinion was written by Justice Sotomayor, and joined by Justices Kennedy, Ginsburg and Kagan.  The dissent, citing Ex parte Young,13 emphasized the long history of federal courts, in the exercise of their equitable powers, to grant injunctive relief precluding state officials from executing laws in violation of federal law.  It viewed reliance on the Supremacy Clause as supported by established jurisprudence of the Court.  Justice Sotomayor declined to endorse an implied right of action embedded in the Supremacy Clause.  Justice Sotomayor though wrote that the Court has in the past characterized “’the availability of prospective relief of the sort awarded in Ex parte Young’ as giving ‘life to the Supremacy Clause’.”14  The dissent was not persuaded by the majority’s view that Congress intended to deny the exercise of a federal court’s equitable powers in the context where a state’s Medicaid plan purportedly did not comply with § (30)(A).  Justice Sotomayor declined to embrace the majority’s reliance on the administrative scheme for remedying a state’s noncompliance with § (30)(A), whereby the Secretary can exercise the authority provided under 42 U.S.C. § 1396c to withhold payment of federal monies to the state.  In the dissent’s view, such a mechanism is ill suited to provide meaningful relief to parties adversely affected by a state’s reimbursement rate.  Finally, the dissent rejected the majority’s dire view of the consequences for courts in interpreting the criteria under § (30)(A) as a burden on the judiciary and inevitably leading to conflicting interpretations among the courts.  Justice Sotomayor wrote that the text of § (30)(A), its breadth and scope, more appropriately suggest that courts would give significant deference to states as the elements of § (30)(A) are applied to the rates under review.  “[O]nly in rare and extreme circumstances could a state actually be held to violate its mandate”15 under § (30)(A). It was contemplated, as well, that the courts could also enlist the views of the federal agency and apply agency expertise when construing that statutory provision. 

It is clear from the Supreme Court’s ruling in Armstrong that providers have now been foreclosed in seeking redress from the federal judiciary for low rates of reimbursement under the Medicaid statute. The message from the majority’s opinion is that federal officials charged with the responsibility of overseeing Medicaid state plans will face mounting pressures to exercise their authority over the flow of federal dollars to states where the adequacy of state plans come into doubt.

The views and opinions expressed in this article are those of the author, and cannot be attributed to the Office of the Inspector General for the District of Columbia Government.

1 575 U.S. ___ (2015).  

2 Art. VI, cl. 2.  

3 Art. I, sec. 8, cl. 1.  

4 536 U.S. 273 (2002).  

5 Provision of residential habilitation services under Idaho’s Medicaid state plan was approved in 1995 under a congressionally authorized waiver program, known as the Developmentally Disabled Home and Community Based Services Waiver.  Payment for such services under the State plan waiver was in lieu of services rendered in an institutionalized setting. 

6 2014 U.S. App. LEXIS 6291(9th Cir. 2014). 

7 Justice Scalia delivered the opinion of the Court except as to Part IV.   

8 Slip op. at 3, quoting the Supremacy Clause, Art. VI, cl. 2.

9 9 Wheat. 1, 210 (1824).

10 Slip op. at 3, quoting Golden State Transit Corp. v. Los Angeles, 493 U.S. 103, 107 (1989).

11 Slip op. at 3.

12 See 42 U.S.C. § 1396c.

13 209 U.S. 123 (1908).

14 Slip op. at 3, quoting Green v. Mansour, 474 U.S. 64, 68 (1985).

15 Slip op. at 10.

Copyright © Stuart Silverman National Law Review, Volume V, Number 93

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