Supreme Court Hears Medicaid Case

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Lawyers for California and the federal government today urged the U.S. Supreme Court not to allow patients and doctors to initiating lawsuits over cuts to Medicaid payments.

The court heard oral arguments in Douglas v. Independent Living Center, a suit filed by several health care providers after California, in response to its ongoing budget crisis, cut its Medicaid payments by 10%. The plaintiffs and defendants clashed over who has the final say on Medicaid payment rates, and whether Congress intended to allow such suits to go to trial.

In the course of their testimony, providers argued that the cuts initiated in California removed the state from compliance with federal rules requiring Medicaid rates to be “sufficient” to keep doctors participating in the voluntary program. While federal law does not expressly yield providers license to challenge payment cuts in court, they allege that they can sue under the Constitution’s supremacy clause, which says federal law trumps state statutes.

“I don’t think Congress has the authority to essentially say there are some conflicts between federal and state law that we will simply ignore,” Carter Phillips, an attorney who represents one of the hospitals that sued California, told the court.

According to the health care blog on www.thehill.com, a Web site that features coverage of goings-on on Capital Hill, some of the justices appeared skeptical of Phillips’ justification, particularly after he noted that patients and providers could still sue over rates they deem too low even if the federal Medicaid agency formally approves a proposed rate cut.

Why does the agency get to determine federal law when Congress doesn’t?” Chief Justice John Roberts asked Phillips.

Deputy Solicitor General Edwin Kneedler told the Supreme Court justices that they should not allow third parties — whether patients, doctors or other healthcare providers — to enforce federal standards for Medicaid.

Justice Stephen Breyer pressed Phillips on that point, inquiring why individuals should be allowed to sue to enforce a contract of which they are not a part. The providers’ argument, he contends, would allow anyone to take the federal government to court any time he or she perceives a conflict between state and federal law — even if that person is not affected.

"A principle that says you can do that any time you want seems to me to create the real fear of far-reaching, in the extent that it just stops the agency of doing their business at the behest of anyone who would like to assert a state law,” Breyer asserted. “It’s a mess, in other words.”

Democratic lawmakers are divided over the case. The U.S. Department of Justice argued in California’s favor, alleging that the lawsuits should be barred. However several Democratic leaders in Congress, among them House Minority Leader Nancy Pelosi of California, filed a brief in the providers’ favor, stating that individuals should be able to sue as a way to guarantee that they reap the full benefit of the Medicaid program.

The court is expected to issue a decision on the matter, which according to the blog will have national implications, this spring. A ruling in favor of the patients and physicians could open the floodgates for suits in any state that tries to cut its Medicaid rates.