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U.S. Supreme Court Will Hear Challenge to Medicaid Cuts

Around the country, states are struggling to balance their budgets, in part by making deep cuts in health and other benefits programs for low income residents. One area that continues to be vulnerable to these cuts is the Medicaid program - the joint federal-state public health insurance program that helps ensure health care for the very poor, and has been particularly important for pregnant women, children, people with disabilities, and elders. The cuts have sparked policy debates between state officials insisting such cuts are necessary in order to get their fiscal house in order, and patients' advocates who criticize states for trying to balance the budget on the backs of our most vulnerable citizens. Indeed, the cuts threaten to drive even more providers out of the Medicaid program, jeopardizing access further for Medicaid benefiticaries who already struggle to find providers willing to treat them.

One of the most common places where we see Medicaid cuts is in rate setting for physicians, hospitals, and other health care providers, and these payment cuts have sparked a fierce legal fight in federal court. Patients and health care providers around the country have brought suits challenging these payment reductions on the ground that they jeopardize health care access and quality in violation of federal law. These suits raise two important legal issues. The first has to do with the test for determining whether states have violated Medicaid requirements. The second concerns whether patients and providers have a right to challenge such violations in court.

What does federal law require?

The federal Medicaid Act requires states to consider a number of factors in rate setting: the federal government wants states to administer the program in a manner that is economical and efficient, but states must also consider the impact of rates on access and quality of care. The Medicaid Act contains an important provision referred to as the Equal Access Provision (42 U.S.C. Section 1396a(a)(30)(A)), which is the primary basis for lawsuits challenging payment cuts. The Equal Access provision requires payment rates to be sufficient to ensure that enough providers will participate in the Medicaid program so that patients will have meaningful health care access.

States have a great deal of discretion under federal law to set rates, and courts are very deferential to administrative agencies, especially in resource allocation decisions, which typically are viewed as more "political" than "legal" in nature. So it is not surprising that federal courts disagree about how closely they should scrutinize a state's rate-setting process and what kind of process is required. For example, a Connecticut district court, as well as the Third and Seventh circuits have held that the Equal Access Provision does not impose any procedural requirements on states. On the other hand, the Eighth and Ninth circuits have held that states must show that they specifically consider statutorily required factors (i.e., economy, efficiency, access, and quality) in determining rates. The Ninth circuit has gone the farthest in requiring states to conduct and rely on provider cost studies. While courts seem to agree that federal law creates substantive requirements that rates are sufficient to ensure access and quality, there is no clear test to help courts assess this. In fact, courts are typically more reluctant to second-guess the merits of a state's decision, than the process it uses.

Can plaintiffs challenge illegal Medicaid cuts in court?

These suits raise an even more fundamental question about whether patients and providers can sue in federal court to challenge state violations of the Equal Access Provision. Since the 1970s, patients and providers have used a federal civil rights statute 42 U.S.C. Section 1983 ("Section 1983") to enforce Medicaid requirements, including those contained in the Equal Access Provision. Section 1983 was viewed as a critical enforcement tool by beneficiaries and providers: without a private right of action, states could ignore federal access requirements because of lax oversight by federal administrative agencies.

However, in 2002 the U.S. Supreme Court in Gonzaga University v. Doe seemed to eviscerate this private right of enforcement - at least with respect to challenges to Medicaid cuts under the Equal Access Provision. Although Gonzaga did not involve a Medicaid challenge, it significantly limited the test for when a Section 1983 action was available. Since then almost every federal court that has applied the Gonzaga test in Medicaid cases has held that individual plaintiffs do not have a private cause of action to challenge illegal cuts in federal court. As a result, plaintiffs have offered a new legal theory for their private cause of action: the Supremacy clause. The Supremacy Clause of the U.S. Constitution provides that where federal and state law conflict, federal law trumps. In the Medicaid payment cases, plaintiffs claim that a state law reducing payments in violation of the Equal Access Provision is invalid because it conflicts with the goals and express requirements of federal law. Moreover, federal courts have long assumed that private plaintiffs could bring such challenges in federal court.

Appeal to U.S. Supreme Court

So far, plaintiffs have been successful in using the Supremacy clause to halt state Medicaid rate cuts on the grounds that they violate the federal Equal Access Provision. States are appealing these decisions, however, and earlier this year the Supreme Court agreeed to hear a case arising out of California, Maxwell-Jolly v. Independent Living Center of Southern California, Inc. Calfornia regulators petitioned the Supreme Court to review both of the issues discussed above.

Despite uncertainty in the federal courts about the legal standards for detemining a Medicaid violation, the Supreme Court did not grant cert on this issue. This may be due in part to the fact that the federal government filed a brief urging that the court not review this issue, noting that it plans to issue a rule clarifying the Equal Access Provision sometime this year.
The Supreme Court did grant cert on the question of whether private plaintiffs can challenge illegal Medicaid cuts in federal court, a decision which concerns some civil rights advocates.

For more information on this issue, look for other blog posts under Medicaid & Other Public Benefits.



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