Idaho Seeks SCOTUS Relief from Medicaid Waiver It Sought

Idaho wants the U.S. Supreme Court to rule on whether or not private parties have the right to sue the state for noncompliance of Medicaid laws when Congress has not specifically provided that right.

The U.S. Supreme Court agreed this week to hear a convoluted case that pits healthcare providers against the state of Idaho in a battle over Medicaid reimbursements.

In a nutshell, the key issue before the court in Armstrong vs. Exceptional Child Care Center, Inc., is whether or not the Supremacy Clause in the U.S. Constitution grants providers the "private right" to sue the state to increase its Medicaid reimbursement rates.

A federal district court in Idaho ruled in favor of the providers in 2012, and the 9th Circuit Court of Appeals upheld that ruling earlier this year. The 9th Circuit ruling appears to clash with a ruling by the 10th Circuit Court of Appeals in Douglas v. Independent Living Center of Southern California.  

The Supreme Court, however, did not formally address the Supremacy Clause question when it heard Douglas in 2012. Now, Idaho wants the high court to rule on whether or not private parties have the right to sue the state for noncompliance of Medicaid laws when Congress has not specifically provided that right.  

The high court is expected to hear oral arguments for Armstrong in early 2015.  

The case hasn't gotten much publicity beyond healthcare circles, but it has generated a lot of anxiety and 29 states have joined with Idaho in filing amicus briefs with the high court. Matt Salo, executive director of the National Association of Medicaid Directors, says there are concerns in state capitols across the country that a Supreme Court ruling for providers would open the litigation floodgates.

'Only One Sensible Result'
"This would slow down the machinery of the program as every provider who thinks they want to get paid more is going to start bring suits forward," he says. "Medicaid agencies and directors at the state and federal level have a lot of real work that needs to get done. This will siphon a lot of energy and bandwidth. If the plaintiffs win, it's clear the end result will be [that] states will have to spend more money and not get anything for it in return."

The divergent appeals court rulings on the issue create "a ripe time for the Supreme Court to look at it and from our perspective there is only one sensible result, which is to say 'no.' States and the federal government are partners in trying to administer these programs that take into consideration cost effectiveness, access and efficiency for beneficiaries, providers and taxpayers' dollars," Salo says.

Idaho claims it should be the federal government, not private parties, that determine if the state's Medicaid program is in compliance. Idaho contends that the providers' lawsuit is not necessary because other remedies are available and that the Centers for Medicare & Medicaid Services has "a powerful enforcement mechanism" to keep states in line.

"CMS may initiate a compliance action and withhold federal funds," Idaho said in its complaint. "If, for example, a state's Medicaid expenditures are inconsistent with its state plan, CMS may disallow the expenditure and force the state to repay federal funds."

James M. Piotrowski, a Boise-based attorney for the providers, says his clients simply want the state of Idaho to pay them a higher reimbursement that they'd already agreed to pay. The suit was necessary, he says, because the state wasn't going to act on its own and "CMS doesn't have a method for providers to appeal such things."

Recession, Then Red Ink
In 2005, he says, the state devised a new funding formula that increased from $268 a day to $496 a day the residential care reimbursement for about 2,000 developmentally disabled adults. CMS approved the new formula. Then, the recession hit, red ink flowed, and the state legislature never found the extra $12 million a year needed to fund the new formula.

"So, the state simply continued to pay the old rate which was calculated by a now outdated method," Piotrowski says. "Of course, my clients asked the department to use the new rate, but they weren't willing to do so, and the legislature apparently was not prepared to fund them or to pay it."

"This case presents a rather unique circumstance," he says. "It's unusual for a state to seek CMS approval for a method of operation that they don't actually intend to follow, but that is exactly what they did here."

Piotrowski rejects the idea that a ruling in favor of the providers would prompt a stampede to the court house by every provider with a Medicaid beef.

"First of all there are quite a number of other requirements we have to meet before we can file suit," he says. "We have to prove that they were injured by the allegedly federally pre-empted action here. So, we cannot just as taxpayers go complain that emergency room services are under-reimbursed because I am not an emergency room provider. There will always be limits on who can sue coming from multiple doctrines that are already embedded in the law."

"This is a case where CMS acted in favor of my clients. CMS approved this rate-setting methodology and the state chose not to pursue it. That presents a very unique situation that very few states would find themselves in. So, I don't think we are talking about opening the floodgates."

Salo remains unconvinced.

"For us it's cut-and-dried issue," he says. "We really just don't need to have every entity that is somehow involved in the Medicaid program to be granted this private right of action to be able to sue the state and the program every time something comes along that they don't like."