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Supreme Court Rules That Providers and Suppliers Cannot Challenge Medicaid Reimbursement Rates in Federal Court

On March 31, 2015, a 5-4 plurality of the Supreme Court of the United States ruled that Medicaid providers do not have a private right of action under the Medicaid statute to challenge reimbursement rates.[1] The Supreme Court’s decision reversed a decision of the United States Court of Appeals for the Ninth Circuit, which had held in multiple decisions that a private right did exist.[2] The Supreme Court’s ruling eliminates a remedy that had been used by multiple providers, most notably in challenging rates under California’s Medi-Cal program.[3]

The underlying dispute involved providers of habilitation services to Medicaid beneficiaries with developmental disabilities that challenged the adequacy of the daily reimbursement rates paid by the Idaho Department of Health and Welfare. The plaintiffs relied on the Supremacy Clause of the Constitution, which states that federal law controls whenever there is a conflict between state and federal law, to argue that the rates set by the states under state law violated the requirement of Section 1902(a)(30)(A) of the federal Medicaid statute, which requires that states set their rates at a level “to assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers . . . .” Both the District Court and the Court of Appeals for the Ninth Circuit agreed that the providers could bring a cause of action in a federal court, and agreed that Idaho’s rates did not comply with Section 30(A).

The Supreme Court reversed. In the majority’s view, the Supremacy Clause did not confer a private right of action on Medicaid providers because Congress had not expressly authorized private lawsuits to enforce Section 30(A). In reaching this conclusion, the majority rejected the providers’ argument that their lawsuit could be based on an implied right of action based on the language in the Supremacy Clause. The decision explained that, since Congress had expressly authorized the Secretary of Health and Human Services to withhold federal matching funds to states whose Medicaid state plans were not in compliance with the Medicaid statute, it had foreclosed a private right of action to enforce the same requirements. The majority then stated that due to the complexity of determining a state’s compliance with Section 30(A), that task was properly delegated exclusively to the Secretary.

Four justices dissented and relied on the opposite premise. In their view, private causes of action in a federal court to enjoin state action inconsistent with federal law are permissible unless Congress has affirmatively foreclosed such litigation.

The Supreme Court’s decision eliminates judicial review by a federal court for providers seeking relief from Medicaid reimbursement rates that may have been set arbitrarily, as can happen when state Medicaid agencies fail to obtain sufficient data to justify the reimbursement rates, or when state legislatures approve rates for reasons unrelated to the criteria in Section 30(A), such as budget deficits. This leaves providers with two alternatives: first, providers can petition the Secretary directly to disallow federal matching funds claimed by a state that has not complied with Section 30(A). Second, in those states where judicial review of Medicaid rates is possible, providers may be able to bring an action in a state court.

[1] Armstrong v. Exceptional Child Center, Inc., No. 14-15 (U.S. Mar. 21, 2015).

[2] Exceptional Child Center v. Armstrong, 567 F. App'x 496 (9th Cir. 2014).

[3] See, e.g., Independent Living Center of Southern California v. Maxwell-Jolly,572 F.3d 644 (9th Cir. 2009); Independent Living Center of Southern California v. Shewry, 543 F.3d 1050, 1065 (9th Cir. 2008); Orthopaedic Hosp. v. Belshe,103 F.3d 1491, 1496 (9th Cir.1997).

©2020 Epstein Becker & Green, P.C. All rights reserved.National Law Review, Volume V, Number 103


About this Author

Stuart Gerson, Health Care Attorney, Epstein Becker Law Firm
Member of the Firm

STUART M. GERSON is a Member of the Firm in the Litigation and Health Care & Life Sciences practices, in the firm's Washington, DC, and New York offices. Much of Mr. Gerson's practice has been centered on providing representation to clients in the health care industry (including insurers, hospitals, pharmaceutical manufacturers, managed care providers, and private equity funds, among others). He has extensive experience litigating cases involving the cybersecurity of health care information, trade secrets, and other confidential data as well as civil...

Robert E. Wanerman, Epstein Becker Green, Health Lawyer

ROBERT E. WANERMAN is a Member of the Firm in the Health Care and Life Sciences practice, in the Washington, DC, office of Epstein Becker Green. His practice concentrates on regulatory, reimbursement, and compliance matters affecting health care manufacturers, service providers, and investors in health care organizations. He has extensive experience counseling clients in matters arising under the Medicare and Medicaid programs, administrative law and procedure, the False Claims Act, clinical research rules, grant administration rules, the Anti-Kickback and Stark laws, HIPAA, and EMTALA.