Alerts and Updates

Supreme Court Addresses Whether Supremacy Clause Provides Private Right of Action to Challenge Medicaid Cuts in Douglas v. Independent Living Center

March 12, 2012

Instead, the Supreme Court suggested that the Medicaid providers and beneficiaries could challenge the CMS determination under the federal Administrative Procedure Act.

Representing the latest decision involving Medicaid providers' attempts to judicially combat cuts to Medicaid reimbursement, on February 22, 2012, the U.S. Supreme Court handed down a five-to-four decision in Douglas v. Independent Living Center of Southern California ("Douglas"). At issue was whether Medicaid providers and beneficiaries, including pharmacies serving Medicaid beneficiaries, could challenge state Medicaid cuts based on a private action under the Supremacy Clause of the U.S. Constitution. Although the Supreme Court ultimately did not address this question due to changed circumstances in the case, the issues raised in Douglas are illustrative of the ongoing scrimmage between the Centers for Medicare and Medicaid Services (CMS), Medicaid providers and state Medicaid agencies to address shrinking state Medicaid budgets and increasing cuts to Medicaid reimbursement. This case drew attention from a variety of national and state industries, including the National Association of Chain Drug Stores; the National Community Pharmacists Association; the National Alliance of State Pharmacy Associations; and the American Pharmacists Association. (All were represented by Duane Morris LLP's Chicago and Philadelphia offices in the filing of an amici curiae brief.)

The Douglas case arose from three statutes the California Legislature passed in 2008 and 2009, changing that state's Medicaid plan. The first statute, enacted in February 2008, reduced by 10 percent payments that the state made to various Medicaid providers, such as pharmacies, physicians and clinics. The second statute, enacted in September 2008, replaced the 10-percent rate reductions with a more modest set of cuts. The last statute, enacted in February 2009, placed a cap on the state's maximum contribution to wages and benefits paid by counties to providers of in-home supportive services. In response to the rate cuts, groups of Medicaid providers and beneficiaries filed no less than five lawsuits against state officials, resulting in seven decisions by the U.S. Court of Appeals for the Ninth Circuit on the issue. In each decision, the Ninth Circuit held that a cause of action by which third parties may challenge state laws preempted by federal law does exist.

Before the Supreme Court, the providers and beneficiaries argued that years of Supreme Court jurisprudence, the Federalist Papers and common sense supported that position.

However, after the Supreme Court heard oral argument on October 3, 2011, CMS, which had originally denied California's proposed amendment to its state plan as inconsistent with federal law, changed course and approved several of California's statutory amendments to its state plan. Because of this change in circumstances, the majority in Douglas did not address whether the lower courts properly recognized a private cause of action based on preemption of federal law. Instead, the Supreme Court suggested that the Medicaid providers and beneficiaries could challenge the CMS determination under the federal Administrative Procedure Act (APA). The Supreme Court therefore vacated the Ninth Circuit's judgments and remanded the cases back to the Ninth Circuit.

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