Will the Supreme Court heal Medicaid providers’ wounds?

Hospitals and other healthcare providers who are dependent on Medicaid reimbursements may finally receive much needed first-aid from an unlikely source, the Supreme Court of the United States. On January 21, 2015, the Supreme Court heard arguments in Armstrong v. Exceptional Child Center, Inc., a case that could deliver healthcare providers with a sword to attack states who fail to provide proper reimbursements under Medicaid.

Idaho's regulatory agencies, as required under the Affordable Care Act, created a methodology to reimburse Medicaid providers by using a rate schedule that was approved by the Federal Department of Health and Human Services. However, despite HHS’s approval of the plan, the Idaho legislature created its own rate schedule that was tied to the state’s budget. As a result, healthcare providers were reimbursed significantly less than they would have been under the HHS approved plan. One such provider, Exceptional Child Center, Inc., sued the state seeking to enforce the HHS approved plan by arguing that the Supremacy Clause of the United States Constitution gave healthcare providers the “cause-of-action” necessary to launch a suit against the state. The Supremacy Clause generally proscribes that a validly enacted federal law trumps any contradictory state law. Exceptional Child Center's argument was successful at the Ninth Circuit Court of Appeals, and the State of Idaho appealed the Supreme Court. Twenty seven other states signed a "friend-of-the-court" brief supporting the State of Idaho.

At argument, the Justices were keenly aware of the implications that any ruling could have. Chief Justice Roberts, for instance, was concerned about how such cases, if allowed, would be resolved: “[t]he effect here is that federal judges get to decide what the reimbursement rates are in a particular area.” Justice Sotomayor, on the other hand, was concerned about what recourse healthcare providers had if their reimbursements were insufficient “[l]et’s assume, as inflation is going up constantly, what happens two years into the plan when providers can’t work for what the state is giving, or the state is imposing a tremendous hardship on them, which is happening to a lot of providers who are being underpaid.”

Predicting Supreme Court decisions is a notoriously dangerous exercise, but Armstrong provides a rare-example where the Supreme Court has given some indication of what it is thinking. In 2012, a similar issue appeared before the Court in Douglas v. Independent Living Center. However, before the Court could issue an opinion, developments at HHS caused five of the Justices to vote to send the case back to the appellate court without issuing an opinion. The other four justices disagreed with that order, in a dissent written by Chief Justice Roberts, stating that they did not believe the Supremacy Clause gave the healthcare providers the requisite cause-of-action. The opinion of the other five justices is unknown, as they only expressed the belief that the issue was not ready for their review in 2012. The four dissenters only need one of the five justices to agree that the Supremacy Clause does not provide the requisite “cause-of-action” to end Exception Child Center's suit against Idaho. If that happens, Medicaid providers will have to find a new "miracle cure" to fight against insufficient reimbursements.