Can Providers Sue in Federal Court to Challenge Medicaid Rate Cuts?

CLIENT ALERT, February 22, 2012
Can Providers Sue in Federal Court to Challenge Medicaid Rate Cuts?
Supreme Court Punts.

Douglas v. Independent Living Center of South. Calif.

Providers and state Medicaid officials have been waiting for the Supreme Court to decide whether Medicaid rate cuts can be challenged in federal court. After over four months spent pondering the issue, the Court by 5-4 vote ducked the question and sent the case back to the Ninth Circuit Court of Appeals. The basis for the majority decision was that things have changed since review was granted in early 2011. Specifically, whereas CMS had previously refused to approve California’s proposed rate cuts, after oral argument in the Supreme Court last October, the agency reversed itself and approved most of them (California withdrew the rest).

On this basis, the Court’s majority (led by Justice Steven Breyer) concluded that it was unnecessary to decide whether providers can use the Supremacy Clause of the Constitution to enforce the Medicaid Act, because providers may be able to challenge CMS’s decision to approve the rates, using the federal Administrative Procedure Act (APA). More ominously for providers, the Court’s majority also suggested that the Ninth Circuit may be compelled to give deference to CMS’s view of the adequacy of California’s reduced rates.

The four dissenting justices, in an opinion written by Chief Justice John Roberts, said that they would decide the question—against providers. The Chief Justice expressed the view that where Congress had not provided a remedy within the Medicaid Act itself, the Supremacy Clause cannot be used as an enforcement vehicle. He also questioned what could be accomplished by a remand—unless the Ninth Circuit simply reverses itself and agrees with CMS that the rate reductions comply with federal law.

At first blush, the remand decision makes little sense because the case in its present posture does not include an APA challenge to CMS’s approval of the rate cuts. In a more recent case, however, provider groups have successfully combined an APA challenge to CMS approval of rate cuts with suits against state Medicaid authorities. That case, California Hosp. Ass’n v. Douglas, No. Cv 11-9078, (C.D. Calif. 12/28/11) is now likely to become the focus of attention. The fundamental question presented there is whether the Ninth Circuit’s long-standing view that Section 30(A) of the Medicaid Act requires states to conduct credible cost studies demonstrating that their proposed rates are reasonably related to providers’ costs will prevail in the face of CMS’s contrary position that such cost studies are not required so long as reasonable access to care is afforded. Lower courts within the Ninth Circuit have thus far answered, “no” to this question. Whether the Supreme Court’s decision in Independent Living Center will change that answer remains to be seen.


If you have any questions regarding this decision, please contact Mike Madden at or 206.622.5511