In 2011, the Supreme Court granted certiorari in the case of Douglas v. Independent Living Center of Southern California (ILC), and Medicaid beneficiaries and providers have been on a roller coaster ride ever since. I have written about the case in earlier blogs, so I won't repeat all of the details here. In short, plaintiffs sued to challenge provider rate cuts in California's Medicaid program (Medi-Cal). Plaintiffs alleged that the rate-setting process violated federal law because state officials enacted the cuts solely in response to budgetary concerns and without considering how they would impact beneficiaries' access. Their concern was that the new rates were so low that providers would flee the Medi-Cal program or refuse to accept new patients, exacerbating an existing shortage of Medi-Cal providers and further jeopardizing health care access.
Plaintiffs won preliminary injunctions in the district court, which were affirmed by the Ninth Circuit. The state appealed, challenging the substantive decision that the cuts violated federal law and claiming that plaintiffs had no right to challenge the cuts in federal court in any event. The Supreme Court granted cert on the latter procedural question -- specifically, whether private plaintiffs could use the Supremacy Clause to challenge cuts in federal court. California officials argued that enforcement of federal rate-setting requirements should rest exclusively with the federal regulatory body charged with Medicaid oversight, the Department of Health and Human Services (HHS).
ILC was viewed as a high-stakes case, implicating providers' and beneficiaries' right to use the federal courts to enforce Medicaid access protections. Because the Supremacy Clause had been used in this way for years, many people were surprised when the Court granted cert on this question. There was speculation that the Court was going to eliminate this right -- a prediction that wasn't too far off since four members of the Court (Chief Justice Roberts, and Justices Scalia, Thomas, and Alito) were ready to do just that.
Surprisingly, a majority of the Court decided not to answer the question. It reframed the issue in light of "changed circumstances" - what changed was that federal regulators had approved the cuts during the course of the litigation. Federal law requires states to submit proposed rate changes to HHS for approval, but when plaintiffs sued initially, HHS had not yet acted. The majority decided that HHS approval may have changed the posture of the case by providing a different legal basis for challenging the cuts. Federal administrative action (like HHS approval of Medicaid rates) is governed by the Administrative Procedure Act (APA), which expressly provides for federal judicial review.
On its face, the decision seemed like a win for plaintiffs. By failing to answer the original question presented, the Court effectively preserved the status quo, which has allowed plaintiffs' to use the supremacy clause to challenge rates prior to HHS approval. After approval, the majority suggested, plaintiffs would be able to challenge rates under the APA.
Yet ILC is being interpreted in a way that significantly weakens this right to judicial review. In dicta, the ILC majority speculated that a decision by HHS to approve the cuts as consistent with federal law "may change" the lower courts' answer about whether the cuts were illegal. The court explained that this is because of the deference ordinarily applied to federal regulatory action. But this was only speculation, because the court never granted cert on the substantive question of how courts should determine if rates violate the law. In fact, the majority admitted that there are reasons why a court should not apply ordinary standards of deference that may apply in the case -- reasons that the Court had not yet had an opportunity to confront because the issue was never briefed.
This did not stop state and federal officials, and some scholars, from seizing on the Court's dicta about deference. They characterized it as a message to lower courts to be very deferential to HHS and proclaimed ILC a win for the states. They predicted that HHS would be a strong legal ally to the states in such disputes and that HHS approval would shield states from future judicial scrutiny into their rate-setting processes. In an earlier blog, I argued that this was not a foregone conclusion from ILC; but, to my surprise, the states' predictions seem to be coming true.
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