“Very Real Consequences” for States, Medicaid and Beyond

April 3, 2015
Guest Post

by Nicole Huberfeld, H. Wendell Cherry Professor of Law, University of Kentucky

The Supreme Court recently decided Armstrong v. Exceptional Child Center, a low-profile case that could strike at the heart of the Medicaid program, a federal program that provides funding to states to facilitate mainstream medical care for low-income Americans. The Medicaid Act contains requirements that states must obey to receive federal funding, one of which is called the equal access provision, or "30(A)".  This provision requires states to ensure that “payments . . . are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.” Historically, Medicaid payment rates are lower than private insurance or Medicare rates, despite the 30(A) requirement for sufficient payment.

Additionally, the Medicaid Act does not provide explicit remedies for state failures in the program, other than authorizing the Department of Health and Human Services (HHS) to withdraw federal funding.  Thus, over the years, health care providers and patients have brought private enforcement actions under the civil rights statute known as Section 1983 or under the Supremacy Clause of the U.S. Constitution to enforce statutory rights under the Medicaid Act.  Section 1983 actions have been limited by the Supreme Court.  Consequently, health care providers and Medicaid beneficiaries turned to the Supremacy Clause, seeking injunctive relief against states under the theory that states violate federal law when they fail to pay sufficient reimbursement rates to ensure equal access.  Two years ago, the Court nearly eliminated Supremacy Clause actions in Douglas v. Independent Living Center, but deference to agency decision making ultimately stayed the Court’s hand.

Armstrong has done what the dissent in Douglas would have.  Justice Scalia’s majority opinion pointedly began by noting that states agree to spend federal funds "in accordance with congressionally imposed conditions."  The majority asserted 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."  The Court then determined that Congress intentionally excluded private enforcement from the Medicaid Act, and therefore providers cannot seek injunctive relief under the Supremacy Clause.

This conclusion is incorrect.  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 preventing providers and beneficiaries from seeking relief in federal court but never 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 because it could harm beneficiaries, but the majority did not engage this quandary.  Instead, the majority called 30(A) judicially unmanageable – even though lower federal courts have guided states under 30(A) for years – and held that HHS must directly engage the states without federal courts’ interference.

The majority circled back to Medicaid's status as a spending program in Part IV of its opinion, which may resurrect a dormant theory of spending programs as being like contracts and unlike other federal laws.  The Court often analogizes federal conditional spending programs to contracts under the Pennhurst decision, but in some cases (e.g. Barnes v. Gorman), Justices have suggested that the "third party beneficiaries" of federal spending programs have no enforceable rights.  The majority opinion reiterated this view of conditional spending statutes, noting that "contracts between two governments" cannot be enforced by beneficiaries of those contracts.  Not even the historical vision of strict dual sovereignty in federalism would have claimed that the federal government and the states are co-equal sovereigns, yet this dicta seems to embrace a vision of federalism that offers much more power to the states.  The majority opened the courthouse doors to further eroding of conditional spending statutes in the context of the Medicaid Act and perhaps beyond.

Justice Breyer concurred; his majority opinion saved private enforcement actions in Douglas, but this vote mistakenly ends them in the name of preserving agency authority over complex regulatory schemes.  The dissent authored by Justice Sotomayor (joined by Ginsburg, Kennedy and Kagan) recognized that the majority's holding will have long-term and widespread effects.  The dissent had a clearer understanding of how Medicaid operates, the limited resources that HHS suffers, and the need for private actions to keep states paying Medicaid providers fairly.

Armstrong is a victory for states, a questionable win for the Obama Administration, and a blow for equal access to care in the Medicaid program.  Armstrong is a triumph for states because they have asked the Court to limit private actions enforcing federal laws under the Supremacy Clause for years, both through direct challenges to private enforcement and through amicus briefs.  The states have finally won that argument, and the skepticism regarding private enforcement of conditional spending expressed in Part IV of the opinion signals willingness to hear further arguments "protecting" states in conditional spending programs.

As for the Obama Administration, the Solicitor General argued here and in Douglas that providers’ private enforcement actions should be halted.  In each case, HHS pointedly did not join the United States’ brief.  As the separate Brief by Former Administrators of HHS made clear (in Douglas and again in Armstrong), HHS relies 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.  In the Medicaid program, private enforcement is vital for fulfilling the goals of the law – especially 30(A), which requires on-the-ground observation for assessing states' payment adequacy.  The Administration and the Court’s majority seem to be setting up HHS to fail, in different ways: If the Obama Administration wants HHS to police the Medicaid program to the degree ascribed in Armstrong and Douglas, then HHS needs significantly more resources to do so; but if HHS actually withheld Medicaid funding as the Armstrong opinion suggests, it could lead to claims of coercion (recently recognized in NFIB v. Sebelius).

Further, for the universal insurance coverage in the Affordable Care Act to work all the way down, health care providers must be paid sufficiently to treat Medicaid patients.  This was the point of the ACA's temporary bump in provider payments to Medicare levels in 2013 and 2014.  Recent studies show that these payment increases improved physician willingness to treat Medicaid patients.  But without those increases, and with no providers acting as watchdogs for sufficient payments, Medicaid patients will experience widespread unequal access to care.