Although public and media attention has been focused on the Affordable Care Act litigation pending in the Supreme Court, the Court’s February 22 decision in Douglas v. Independent Living Center is also of great importance.  The decision involved lawsuits brought by Medicaid providers and recipients claiming that California Medicaid payment cuts violated federal law.

Medicaid is, of course, a federal and state cooperative program through which the federal government provides funding to the states to fund health care services for certain low-income Americans.  States that accept Medicaid funding must comply with federal statutory requirements. In theory, the federal government could cut off funding to states that fail to comply with federal program requirements.  In practice, this has never happened.  Cutting off funding would cause most harm to those persons the program intends to help.

Since the late 1960s, therefore, the Supreme Court has recognized the right of public assistance recipients (including Medicaid recipients) to sue states to enforce federal Medicaid program requirements.  In 1990, the Supreme Court held that providers could also sue to enforce certain Medicaid requirements. Dozens, perhaps hundreds, of such cases have been brought, many being settled through consent decrees.

The legal basis for these lawsuits, however, has been problematic.  The Medicaid statute itself does not provide recipients or providers a right to sue.  Most lawsuits, therefore, have been brought under 42 U.S.C. section 1983, a Reconstruction-era civil rights statute that allows individuals to sue states for the “deprivation of any rights . . . secured by [federal] laws.”  Supreme Court decisions in recent years, however, have narrowed claims under 1983, requiring lawsuits to be based on a statutorily-based “unambiguously conferred right” intended to benefit the plaintiff and binding on the state.  Some provisions of the Medicaid statute have been interpreted as conferring such a right, but other provisions have not been read to do so.

Increasingly, therefore, recipients and providers have sued directly under the Supremacy Clause, claiming that the federal law is the “supreme law of the land” under the Constitution, and states must comply with it.  This theory was accepted by the ninth circuit federal court of appeals in the Douglas case. The Supreme Court took certiorari to decide whether recipients and providers could sue under this theory.

The Supreme Court has decided many cases in recent years in which businesses have challenged state laws under the Supremacy Clause, claiming the state laws were preempted by federal law.  California, however, joined by the Solicitor General of the United States as an amicus, claimed that the Supremacy Clause does not permit recipients and providers to sue states to enforce federal law requirements in a federal-state cooperative program.  Had the Supreme Court accepted this argument, as seemed likely to most observers, the rights of Medicaid recipients and providers would have been sharply curtailed.

In a five to four decision written by Justice Breyer, however, the Supreme Court did not do this. Rather the Court ducked the question, noting that during the time the case was pending the California reductions had been approved by HHS.  The Court vacated the ninth circuit decision and remanded the case for the appellate court to determine what effect this might have on the plaintiffs’ claims.  Specifically, the key decision is now the decision of HHS rather than of the state, and that decision can be reviewed under the federal Administrative Procedure Act.

Justice Roberts wrote a vigorous dissent for himself and justices Scalia, Thomas, and Alito, arguing that the Court should have reached the Supremacy Clause issue and decided that the Supremacy Clause does not provide a basis for a lawsuit when Congress has not separately created a right to sue, at least not unless the plaintiff faces a state enforcement action.   The Court did not, of course, decide that Medicaid recipients and providers do have a right to sue.  But Justice Roberts could not get a fifth vote for a decision that they do not.  The question remains open for another day, therefore, which is very good news for Medicaid recipients and providers, but bad news for the states.