On February 22, 2012, the Supreme Court in Douglas v. Independent Living Center of Southern California vacated and remanded to the Ninth Circuit a series of cases that challenge provider reimbursement cuts in California’s Medicaid program.  At issue in the case was whether providers and recipients had standing to sue state officials under the Supremacy Clause to enforce a federal Medicaid law.  The plaintiffs filed suit because California enacted legislation, without federal approval, that implemented budget cuts to its Medicaid program which reduced Medicaid payments to doctors, pharmacies, clinics, and providers of in-home care.  The plaintiffs asserted that the Medicaid cuts resulted in Medicaid rates that were so inadequate that they violated the requirement of federal law that rates be consistent with quality of care and sufficient to ensure that beneficiaries have equal access to services (the federal Medicaid Act).  The plaintiffs further asserted that because the Medicaid cuts violated the federal Medicaid Act, the California Medicaid program could be sued under the Supremacy Clause which provides that federal laws made pursuant to the United States Constitution shall be the supreme law of the land.

Before the case was heard by the Supreme Court, the Ninth Circuit held that interested parties have the right to sue the State under the Supremacy Clause if the federal Medicaid Act is violated through budget cuts to the California Medicaid program.  While the case was pending before the Supreme Court, the Centers for Medicare and Medicaid Services (CMS) retroactively approved the Californian legislation that implemented the budget cuts to the Medicaid program, even though it had previously disapproved of the same legislation.  Because federal approval for the budget cuts was obtained prior to the case being heard by the Supreme Court, the issue as to whether the budget cuts to the California Medicaid program violated the Supremacy Clause was no longer relevant.  As such, the Supreme Court, in a majority opinion written by Justice Breyer, remanded the case back to the Ninth Circuit to determine whether the California Medicaid program may be sued under the Supremacy Clause for making cuts to its Medicaid program that violate the federal Medicaid Act if prior federal approval was obtained.

In its opinion, the Supreme Court stated that if the plaintiffs could not proceed with a cause of action under the Supremacy Clause, the plaintiffs could possibly proceed under the Administrative Procedure Act.  The Court explained that the Administrative Procedure Act allows for judicial review of a final agency action, like CMS’s approval of the Medicaid budget cuts.  Therefore, the plaintiffs in the case could possibly file a claim asserting that while the California Medicaid program obtained federal approval to cut Medicaid rates, CMS’s approval of the budget cuts was an abuse of discretion or was not in accordance with the law.

It is unknown how the Ninth Circuit will rule in the remanded case, but the Chief Executive Officer of the California Medical Association, Dustin Corcoan, stated, “This is a win for physicians and their patients in California.  The lower court has previously ruled that interested parties indeed have the right to sue the state if the federal Medicaid Act is being violated. They will have the opportunity to decide that once again.”  And in this era of expanding budget cuts, we should expect more legal battles.