Supreme Court hears arguments in Medicaid payments lawsuit

Lawyers for California and the federal government urged the Supreme Court on Monday not to let patients and doctors sue over cuts to Medicaid payments.

The court heard oral arguments in Douglas v. Independent Living Center, a suit filed by several healthcare providers after California, which is experiencing a budget crisis, cut its Medicaid payments by 10 percent. The two sides clashed over who has the final say on Medicaid payment rates, and whether Congress intended to let suits like this one go to trial.

A decision would have national implications. If the court rules for the patients and doctors, that could open the floodgates for suits in any state that tries to cut its Medicaid rates — which many have done as they face tight state budgets and swelling Medicaid rolls.

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The court is likely to release its decision in the spring.

States participate in Medicaid voluntarily, but by doing so they have to accept the federal government’s terms for the program. Providers argued that California’s cuts took the state out of compliance with federal rules requiring Medicaid rates to be “sufficient” to keep doctors participating in the program.

Federal law doesn’t expressly allow providers to challenge payment cuts in court. But providers argue that they can sue under the Constitution’s supremacy clause, which says federal law trumps state statutes.

“I don’t think Congress has the authority to essentially say there are some conflicts between federal and state law that we will simply ignore,” said Carter Phillips, who represents one of the hospitals that sued California.

Some of the justices seemed skeptical of that justification, however, particularly after Phillips said that even if the federal Medicaid agency formally approved a proposed rate cut, patients and providers could still sue over rates they think are too low.

“Why does the agency get to determine federal law when Congress doesn’t?” Chief Justice John Roberts asked Phillips.

Deputy Solicitor General Edwin Kneedler told the Supreme Court justices that they should not allow third parties — whether that means patients, doctors or other healthcare providers — to enforce federal standards for Medicaid.

Justice Stephen Breyer pressed Phillips on that point, asking why people should be allowed to sue to enforce a contract they’re not part of. The providers’ argument, he said, would allow anyone to take the federal government to court any time he or she perceives a conflict between state and federal law — even if that person is not affected.

“A principle that says you can do that any time you want seems to me to create the real fear of far-reaching,” Breyer said, “in the extent that it just stops the agency of doing their business at the behest of anyone who would like to assert a state law,” Breyer said. “It’s a mess, in other words.”

The justices also had tough questions for California and the federal government, which argued jointly that because Congress did not explicitly create a right to sue over Medicaid rates, such a right can’t be inferred from the supremacy clause.

The case has divided Democratic lawmakers. The Obama administration’s Justice Department argued in California’s favor, saying the lawsuits should be barred. But several Democratic leaders in Congress — including House Minority Leader Nancy Pelosi (Calif.) — filed a brief in the providers’ favor. Individuals should be able to sue as a way to guarantee that they get the full benefit of the Medicaid program, they said.

Updated at 7:47 p.m.