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Paul Zimmerman
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Providers Cannot Sue State Officials Over Low Medicaid Reimbursements

On March 31, 2015, the U.S. Supreme Court in Armstrong v. Exceptional Child Ctr., Inc., 575 U.S. ___ (March 31, 2015) (No. 14-15), reversed the Ninth Circuit Court of Appeals’ decision that medical providers have a right to sue states to enjoin them from reimbursing providers at lower rates than provided in 42 U.S.C. §1396a(a)(30)(A) of the Medicaid Act (“Section 30(A)”), which provision requires state Medicaid plans to “assure that payments [to providers] are consistent with efficiency, economy, and quality of care.”

The genesis of the case began in 2005 when various Idaho providers sued officials at the Idaho Department of Health and Welfare (the “Department”), alleging that payments were so low that they were insufficient to treat the poor, and seeking to enjoin them from paying at rates lower than that required by Section 30(A). The district court granted summary judgment in favor of the providers.

The Ninth Circuit affirmed the ruling in favor of the providers, and held that the Supremacy Clause conferred an implied private right of action to seek injunctive relief against the state, and that the Department's actions violated precedent requiring reimbursement rates to bear a "reasonable relationship" to provider costs, based on "responsible cost studies.” 

In a 5-4 decision, the U.S. Supreme Court reversed the ruling, holding that neither the Supremacy Clause nor the Medicaid statute provides a private right of action permitting providers to sue state officials to enforce Section 30(A). Instead, the Supremacy Clause provides instructions to courts to give federal law priority when it conflicts with state law; it is not the “source of any federal rights.” The Supreme Court did recognize that providers, and others, do have an equitable right to sue to enjoin unconstitutional actions by state and federal officers; however, the action brought by the providers in the case cannot proceed in equity because the Medicare Act prohibited such action. The Supreme Court reasoned that Congress had intended to prohibit equitable relief by including an administrative remedy.

The Supreme Court’s ruling is particularly significant in California where the state has been reducing Medicaid spending in order to offset budget limitations. The consequence of the Supreme Court’s decision could be that unhappy providers opt out of Medicaid coverage altogether.  Indeed, given the narrow scope of the Medicaid Act’s administrative remedy, and the unavailability of an equitable cause of action, providers who are paid less than required by Section 30(A) are left with limited options. 

This article is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.