High Court to Weigh Healthcare Providers’ Standing to Sue States Over Medicaid Reimbursement

by Paul L. Croce

On January 20, 2015, the United States Supreme Court heard oral arguments in the matter of Armstrong v. Exceptional Child Care Center, et al., regarding whether healthcare providers have a right to challenge Medicaid reimbursement rates under the Supremacy Clause and Section 30(A) of the Federal Medicaid Statute or whether only the federal government is allowed to challenge rates during its approval process.

In Armstrong, a group of service providers for developmentally disabled Medicaid patients sued the State of Idaho for failing to increase Medicaid payments for several years.  Specifically, the Idaho Legislature disregarded cost studies performed by its agency which suggested the need for increased Medicaid reimbursement and instead continued to freeze rate increases through the appropriations process due entirely to budgetary considerations.  The District Court ruled in favor of the providers finding that the Legislature could not rely solely on such considerations in determining Medicaid reimbursement. The matter was appealed to the Ninth Circuit on the issue of whether the providers had standing to file such claims. The Ninth Circuit affirmed the lower court’s decision.

This case follows a long history of provider lawsuits challenging Medicaid rates under Section 30(A) which have generally been rejected by the Courts. See, Pa. Pharmacists Ass’n v. Houston, 283 F.3d 531 (3rd Cir. 2002); See also Sanchez v. Johnson, 416 F.3d 1051, 1058-1062 (9th Cir. 2005) (“[T]he flexible, administrative standards embodied in [§30(A)] do not reflect a Congressional intent to provide a private remedy for their violation”).  However, the Supreme Court, until now, has never specifically ruled on the issue.

While it is unclear how the Supreme Court will come down on the issue, its previous handling of the issue may provide some insight.  In a 2012 case from California entitled Douglas v. Independent Living Center of Southern California, 132 S.Ct. 1204 (2012), the Court was set to address this exact issue. However, the Court never clearly affirmed or negated the providers’ right to sue.  Rather, after the regulations at issue were approved by CMS, the matter was remanded back to the Circuit Court and then to the District Court.  However, four Justices (Roberts, Scalia, Thomas and Alito) issued a dissent which stated that without explicit language from Congress providing for the right to sue, private parties, such as providers or patients, should not be able to challenge Medicaid fees.

Based on the dissent issued by the four Justices, it will take a full complement of the remaining Justices to decide in favor of the providers in order for them to succeed on this appeal.  While it is unlikely that the Court will rule in favor of the providers, such a decision could lead to a flood of litigation by healthcare providers who have historically been inadequately reimbursed through the Medicaid program.  A decision is anticipated to be issued in late spring.