"Very Real Consequences" for Medicaid and Beyond

Back in January, I commented on the oral arguments in Armstrong v. Exceptional Child Center, the Medicaid reimbursement case that the Supreme Court decided yesterday.  I noted then that Justice Breyer seemed confused about Medicaid's operation; that Justice Kennedy appeared to be on the fence; and that the four dissenters from Douglas v. Independent Living Center appeared wedded their 2012 position that no private right of action is available under the Supremacy Clause.  Sure enough, the Court eliminated private enforcement of the Medicaid Act's payment adequacy provision ("30(A)") against non-compliant states.  This decision is a major victory for states, a questionable victory for the Obama Administration, and a potential defeat for access to care in the Medicaid program.

Justice Scalia authored the majority opinion (joined by Justices Thomas, Roberts, Alito, and Breyer), which began with an intentional description of Medicaid as a Spending Clause program.  Justice Scalia noted that states agree to spend federal funds "in accordance with congressionally imposed conditions."  The majority then effectively constructed a clear notice rule for the Supremacy Clause, indicating that the Supremacy Clause provides a "rule of construction" but does not "create a cause of action" unless Congress "permits the enforcement of its laws by private actors."  Although purporting to empower Congress, the majority actually limited the reach of federal legislation by requiring Congress to explicitly confer private rights of action under federal laws.  As a Brief by Former Administrators of HHS made clear (in Douglas and again in Armstrong), Congress and HHS rely on private actions to enforce the Medicaid Act, in part because the law has such a broad reach and the agency's staffing is so limited.  Contrary to the majority's bizarre characterization of private enforcement of federal laws as limiting, in the Medicaid context, private enforcement is critical for implementing the purposes of 30(A), which was written to ensure equal access to medical care for Medicaid beneficiaries.  30(A) requires on-the-ground observation for assessing states' payment adequacy, which HHS cannot do without the assistance provided by privately initiated enforcement actions.

The majority then cited Chief Justice Roberts' dissent in Douglas to support its position that Congress deliberately excluded private enforcement from the Medicaid Act.  This is simply not true. Congress did not "foreclose" or "exclude" private enforcement from the Medicaid Act, either in 1965 when Medicaid was enacted, or when 30(A) amended the Act.  In fact, Congress debated language that would have prevented providers and beneficiaries from seeking relief in federal court when states violate the Medicaid Act, but Congress never has added such language to the Medicaid Act.  Nevertheless, the majority concluded that the Secretary of HHS is solely responsible for enforcing 30(A) pursuant to her authority under 42 U.S.C. §1396c to withhold Medicaid funds from non-compliant states.  The Secretary is reluctant to withhold funds in Medicaid because such an act would harm beneficiaries, but the majority did not engage this quandary, instead deeming 30(A) judicially unmanageable, even though lower federal courts have guided states toward adequate payment decisions for years.  The majority also seems to be setting up HHS to fail; if the agency actually withheld Medicaid funding, the state might respond with a claim of coercion under NFIB v. Sebelius, thereby further undermining the program's operations.  (Justices Scalia, Thomas, Alito, and Kennedy would have struck down the Medicaid expansion in its entirety under the newly crafted doctrine of coercion in that case.)

The majority circled back to Medicaid's status as a spending program in Part IV of its opinion, which Justice Breyer did not join, and which may resurrect a theory of spending programs as being like contracts and unlike other federal laws.  Though the Court has long relied on the Pennhurst contract analogy for federal conditional spending programs, in some cases (e.g. Barnes v. Gorman), the Court has suggested that the "third party beneficiaries" of spending programs have no enforceable rights in those programs.  The majority opinion very briefly noted that "contracts between two governments" cannot be enforced by beneficiaries of those contracts - citing Justice Thomas's concurrence in PhRMA v. Walsh - as if the federal government and the states were co-equal sovereigns.  This dicta brings all Medicaid provider and patient actions into question, whether they are raised under the Supremacy Clause or section 1983, the other avenue for Medicaid private enforcement.  The majority thus opened the courthouse doors to further eroding of conditional spending statutes in the context of the Medicaid Act. [more after the jump]

Although Justice Breyer concurred, perhaps in an attempt to limit the reach of Justice Scalia's opinion, or perhaps in an attempt to reconcile his majority opinion in Douglas with this far-reaching decision, it is hard to understand his agreement with the majority in this case.  Breyer's move toward primary jurisdiction saved private enforcement actions in Douglas, but this vote has shut private actions down completely.  The dissent, led by Justice Sotomayor and joined by Justices Ginsburg, Kennedy, and Kagan, recognized that the majority's holding will have long-term and widespread effects.  The dissent appeared to have a clearer understanding of how Medicaid actually operates, the limited resources that HHS suffers, and the need for private actions to keep states paying Medicaid providers fairly.  

This case is a clear victory for states. A coalition of states has filed an amicus brief in every Medicaid action before the Court, arguing that providers should not be able to privately enforce the Medicaid Act against the states.  They have finally won that argument.  And, the majority's skepticism regarding all private enforcement of conditional spending signals a willingness to hear further arguments "protecting" states in conditional spending programs.  One wonders why the Solicitor General argued twice (here and in Douglas) that such private enforcement actions should be halted; in each case, HHS pointedly did not join the United States in its brief, instead arguing through a separate amicus that the agency relies on private enforcement actions to know what states are doing wrong in their Medicaid programs.  As I have argued, time and again, this position on the part of the Obama Administration is perplexing and self-defeating.  If the Obama Administration wants HHS to police the Medicaid program to the degree it ascribed in these cases, then the agency needs more resources to do so, yet those resources do not seem to be forthcoming.

Further, for the universal coverage in the ACA to work, health care providers have to be paid enough to actually want to treat Medicaid patients -- that was the whole point of the ACA's temporary increase in payments in 2013 and 2014.  Economists have shown that these short-lived payment increases improved physician willingness to treat Medicaid patients.  If HHS does not soon implement its own regulations regarding payment adequacy, which have been languishing for a couple of years now, Medicaid patients surely will experience unequal access to care, and soon.  Reimbursement rates matter, and they will matter even more as newly eligible Medicaid patients make their way into the health care system.  Armstrong jeopardizes their ability to find willing health care providers, because states are all too willing to set reimbursement rates so low that providers will drop out of the Medicaid program, and HHS is unwilling to penalize states.