Can providers sue states to block Medicaid cuts? Supreme Court hears arguments

October 12, 2011

More than 30 states are seeking to cut Medicaid payments to physicians, and a California case before the U.S. Supreme Court will determine whether providers can use the courts to block those actions. Medical groups, including the American Academy of Family Physicians, have filed briefs in support of providers, warning that payment cuts could have dire consequences. What is likely to happen if the court prevents provider lawsuits and allows California to go forward with its plans to cut Medi-Cal payments by 10%?

Can providers turn to the courts to block states from making drastic cuts to Medicaid payments? That is the issue to be decided ultimately by the U.S. Supreme Court, which heard legal arguments on three consolidated lawsuits on the first day of its October term.

In Douglas v. Independent Living Center of Southern California, healthcare providers allege that California’s 10% rate cut for Medi-Cal in 2008 violates the federal Medicaid Act, which guarantees that public health program recipients have equal access to healthcare.

In an appeal of a 9th U.S. Circuit Court of Appeals decision, the nation’s highest court is being asked to decide whether, under the Supremacy Clause, healthcare providers and beneficiaries can sue in federal court to enforce federal Medicaid law. Numerous medical provider groups, including the American Academy of Family Physicians and the American Medical Association (AMA), have filed friend-of-the-court briefs supporting the right of providers and beneficiaries to challenge state action and arguing that “there is a well-established and predictable correlation between Medicaid provider payments and physicians’ willingness to treat Medicaid recipients.”

More than 30 states and the Obama administration have filed briefs in support of California’s position. If the Supreme Court rules in favor of California, it would “allow not only California, but all states, to defy federal law with virtual impunity,” states a brief filed by the American Hospital Association and other groups representing healthcare institutions.

“Shoring up state budgets with politically expedient cuts to Medicaid funding has driven doctors and other health professionals from the program,” said AMA President Peter W. Carmel, MD. “Without an adequate network of caring health professionals, Medicaid patients will not receive the services guaranteed by the Medicaid Act.”

Key Democrats in Congress have filed a brief supporting the healthcare industry’s position and opposing the executive branch. The group, including House Minority Leader Nancy Pelosi, D-California, and Senate Majority Leader Harry Reid, D-Nevada, said they support “private rights of action for equitable relief in this context.”

The state of California is arguing that only the secretary of the Department of Health and Human Services is empowered to review state conduct. In a recent issue of the New England Journal of Medicine, one commentator said: “In a shocking move, the solicitor general of the United States, representing the Obama administration, has entered the case on the side of the state, arguing that the courts are closed to private individuals where Medicaid-access litigation is concerned…”

That article, written by Sara Rosenbaum, JD, maintains that a recently issued proposed access rule underscores that “the administration does not intend to stop reductions in Medicaid provider payments.”

The National Conference of State Legislatures (NCSL) adamantly opposes that proposed rule, also known as Methods for Assuring Access to Covered Medicaid Services, saying it “would severely limit the ability of state legislators to propose and carryout rate reductions for Medicaid providers.” NCLS maintains that the rule ignores the state budget process and imposes requirements that would favor the federal and state executive branch over the state legislature. 

More than 30 states have proposed Medicaid cuts in their 2012 budgets, according to a report from the National Governors Association and the National Association of State Budget Officers.

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