Published on: 2/23/2012
Richard Moore of Bleeke Dillon Crandall

The U.S. Supreme Court handed down an opinion on February 22, 2012, dealing with a procedurally complicated course of facts surrounding three statutes enacted by the California legislature reducing certain Medicaid reimbursement rates.  Medicaid is generally funded by states but includes federal subsidization, and the Centers for Medicare & Medicaid Services (CMS) administers Medicaid and its purely federal counterpart, Medicare.  The California statutes, enacted in 2008 and 2009, reduced the rates at which Medicaid payments would reimburse certain providers.

To comply with federal law, California was then required to include the reductions in a revised Medicaid plan submitted to CMS for approval.  Procedurally, once CMS approved or disapproved the plan, its decision would be subject to administrative review under the federal Administrative Procedure Act (APA).  However, before CMS had an opportunity to consider California’s plan, a group of Medicaid providers and beneficiaries filed federal lawsuits alleging that the statutory reductions conflicted with current Medicaid law, and were preempted under the Supremacy Clause of the U.S. Constitution.  Those lawsuits resulted in seven decisions by the Ninth Circuit Court of Appeals, all of which found that California’s revised Medicaid plan would not provide sufficient services.

The enforceability of the reductions then proceeded along two tracks, an administrative track through CMS under the APA, and a legal track through the federal courts.  CMS initially rejected California’s proposed Medicaid plan, and California sought further review within the agency under the APA.  While that review was pending, the U.S. Supreme Court granted certiorari to resolve a single constitutional question raised by the Ninth Circuit cases:  whether the plaintiffs had a valid cause of action under the Supremacy Clause.  After briefing and oral argument, but before the Supreme Court rendered its decision, CMS reversed itself on portions of California’s Medicaid plan, and actually approved some of the reductions.  California then withdrew the remaining portions of its plan which were not approved.

The Supreme Court, then, had two options:  Find the dispute moot, or take on the Supremacy Clause question.  The five-member majority did neither.  Justice Breyer, writing for himself and Justices Kennedy, Ginsburg, Sotomayor and Kagan, noted that the parties themselves agreed that the resolution under the APA did not make the cases moot, primarily because injunctions stemming from the lower-court litigation were still in place (Justice Breyer also noted that the plaintiffs still “believe” that the reductions violate federal law, but litigants’ beliefs or positions are not truly pertinent to the question of mootness).  With respect to the Supremacy Clause question, Justice Breyer concluded that to decide whether the matters could proceed directly, “it may be that not all of the considerations that may bear upon the proper resolution of the issue have been presented to and considered by the Courts of Appeals.”  The Court therefore vacated the Ninth Circuit decisions and remanded the cases for further argument, which would presumably focus on the impact of CMS’s approval of the reductions on the lower courts’ findings.

The four-member dissent led by Chief Justice Roberts was critical of the majority for declining to rule on the question before the Court.  Justice Roberts noted that the Medicaid Act itself does not allow any private right of action, but instead vests responsibility for enforcement with CMS.  He concluded that it simply made no sense, and was not the proper role of the Supremacy Clause, to infer under the Clause a private right of action on a federal statute that on its very face provides for administrative enforcement.  He further stated, “I am not sure what a remand without answering the preliminary question is meant to accomplish.”  He pointed out that on remand, the Supremacy Clause question would remain, and, however the Ninth Circuit ruled, the case may well return to the Supreme Court for further review.