The Supreme court on Monday heard opening arguments for Douglas v. Independent Living Center, a California case focused on Medicaid program cuts that could have significant implications for cash-strapped states across the country.
The case could provide two potential precedents depending on how the justices rule. First, it could answer the question of whether individuals and companies can files lawsuits. Second, it could help determine the extent to which states can cut their Medicaid programs, if the Court decides that deep cuts, which may cause providers to drop out of the Medicaid system, violate federal Medicaid statutes that require access to Medicaid members to be roughly equivalent to access afforded those with private insurance.
Karin Schwartz, a California deputy attorney general, argued that Congress has not allowed a provision for private parties to bring a lawsuit. "If Congress wants to provide for private party litigation, it must do so clear(ly) and unambiguously, and it has not done so in this case," she said in opening arguments.
Chief Justice John Roberts was inclined to favor that tack and expressed concern that allowing private lawsuits under the supremacy clause – which holds that federal laws hold sway over other conflicting state laws – would remove barriers to lawsuits in other settings.
"We have wasted a lot of time trying to figure out whether there's an implied right of action under a particular statute, if there has always been one under the supremacy clause," Roberts noted.
Justice Stephen Breyer also noted that a ruling allowing a lawsuit under the supremacy clause could open the floodgates of lawsuits by parties not happy with federal law.
But Justice Anthony Kennedy suggested that private party lawsuits in this case may have a valuable place in helping to regulate the industry. His backing was an amicus brief filed in August by former Health and Human Services officials that suggested current staffing at the agency made it virtually impossible to efficiently administer the $400 billion program.
The second issue has broad implications for states and how they fund their Medicaid programs, and indirectly for the Affordable Care Act, which could see as many as 30 million people added to state Medicaid roles.
The original lawsuits were brought against California in 2008 as it sought a 10 percent reduction in Medicaid reimbursement rates. In this case the state put the reduced rates into effect prior to getting approval from HHS, which is required under the Medicaid statute. California's 9th Circuit Court of Appeals granted an injunction in the case preventing the state from implementing the cuts and HHS subsequently denied the state's request.
Justices Bader and Ginsburg appeared sympathetic to the providers who brought the action, largely because California sought to implement the cuts prior to receiving approval from the federal government. Currently, the only recourse the federal government has to Medicaid program cuts that violate federal law is to deny federal funds to the program, a move that Justice Ginsburg noted is "a very drastic remedy that's going to hurt the people that Medicaid was meant to benefit."
In California, the administration of Gov. Jerry Brown is anxiously waiting a decision in this case. Already the state has approved a cut in the 2011-2012 budget of 10 percent to Medi-Cal to help balance the state budget. The state also wants to backdate those cuts to June 1, but would be blocked by additional lawsuits if the Supreme Court finds in favor of the plaintiffs in the current case.
Other states, including, but not limited to Florida, Texas and Arizona who have been forced to make significant cuts in their state Medicaid programs could also find themselves in lawsuit crosshairs should the Justices rule in favor of the plaintiffs.