Supreme Court Ruling Blocks Providers from Suing for Higher Medicaid Pay Under The Medicaid Act’s “Equal Access” Provision

On March 31, 2015, the U.S. Supreme Court struck down a provider’s ability to sue a state in federal court to enforce the “equal access” provision of the Medicaid Act. The 5-4 decision handed down in Armstrong et al v. Exceptional Child Center, Inc. reversed the Ninth Circuit’s judgment in favor of a group of Idaho providers seeking to compel the state to increase Medicaid reimbursement rates. The Supreme Court ruled that the Supremacy Clause does not confer a private right of action and that providers cannot sue to enforce the Medicaid Act against state officials.¹

At issue in this case is the “equal access” provision of the Medicaid Act, which provides, in relevant part, that as a condition to receiving federal matching funds, a state’s Medicaid plan must “assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent . . . available to the general population in the geographic area.”² The Idaho Medicaid program, funded by its Home and Community-Based Services waiver, provides “habilitation services,” an integrated set of non-institutional services that includes daily living skills, socialization, and mobility assistance.

In 2005, the Idaho legislature enacted a law to require the state’s Department of Health and Welfare, the agency responsible for administering the Medicaid program (the “Department”), to compile and furnish to the legislature, on an annual basis, information regarding the cost of care furnished by certain providers, including those providing habilitation services.³ Under this mandate, the Department engaged an outside organization to review the cost of care and recommend reimbursement rates accordingly. Although increased reimbursement rates were recommended, the Department did not receive appropriations from the legislature and therefore did not implement any changes. Respondents, a group of providers that contract with the state to provide habilitation services to Medicaid beneficiaries, filed suit, claiming that the Department’s failure to implement rate increases violated the equal access provision and that, under the Supremacy Clause, they had an implied right of action to seek to enjoin the state’s actions.

Historically, in instances where the Medicaid Act does not provide administrative procedures for an individual to enforce the law, private parties have sought remedy through judicial action,⁴ resulting in a circuit split with respect to the enforceability of the equal access provision.⁵ In Armstrong, the Ninth Circuit found in favor of the providers, holding first that the Supremacy Clause conferred an implied private right of action to seek injunctive relief against the state, and second, that the Department’s actions violated the court’s precedent requiring reimbursement rates to bear a “reasonable relationship” to provider costs, based on “responsible cost studies.”⁶

In reversing the Ninth Circuit’s ruling this week, the Supreme Court held that that the Supremacy Clause does not provide an implied private right of action to enforce a federal statute under a preemption theory. The sole avenue for enforcing the Medicaid Act, ruled the majority, is the federal Department of Health and Human Services’ authority to withhold matching funds, thereby precluding equitable relief. Concurring in judgment, Justice Breyer opined that the consequences of allowing courts to engage in the complex task of rate-setting would be “litigation, inconsistent results, and disorderly administration of highly complex federal programs that demand public consultation, administrative guidance and coherence for their success.”⁷

As states increasingly seek to offset budgetary constraints by reducing Medicaid spending, the Supreme Court’s ruling is significant in effectively blocking providers from challenging such payment reductions as violating the equal access provision. Commenters in the industry predict that, as a consequence of the High Court’s decision, frustrated providers may opt out of Medicaid participation, thereby creating more barriers to affordable care. Justice Sotomayor, in her dissent (joined by Justices Kennedy, Ginsburg and Kagan), voiced similar concerns regarding the consequence of removing the ability of private parties affected by the equal access provision to compel states to comply with it.

In 2011, the Centers for Medicare and Medicaid Services (“CMS”) issued a proposed rule to set forth detailed guidelines to achieve a standardized, transparent process for states to implement the equal access provision, but did not finalize such rules.⁸ If the impact of Armstrong v. Exceptional Child Center is to create insufficient access to covered care, which is the very result the equal access provision is designed to prevent, it is possible that the ruling will prompt CMS to take a greater role in state rate-setting procedures, including possibly to finalize these guidelines to ensure transparency in the process.

¹ Armstrong v. Exceptional Child Ctr., Inc., No. 14-15, 2015 WL 1419423 (U.S. Mar. 31, 2015).
² 42 U.S.C. § 1396a(a)(30)(A).
³ Idaho Code § 56-118.
⁴ Memisovski ex rel. Memisovski v. Maram, No. 92 C 1982, 2004 WL 1878332, at *7 (N.D. Ill. Aug. 23, 2004).
⁵ See, e.g., Orthopedic Hospital v. Belshe, 102 F.3d 1481, 1496 (1997), cert. denied, 522 U.S. 1044 (1998); Methodist Hospitals, Inc. v. Sullivan, 91 F.3d 1026, 1030 (1996).