Round Two on Medicaid Reimbursement: Justices Consider Limits of Supremacy Clause

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By Jeffrey D. Koelemay

Jan. 20 — The justices raised familiar questions during oral argument Jan. 20 as the U.S. Supreme Court considered the intersection of Medicaid and the supremacy clause of the U.S. Constitution for the second time in four years.

At issue is whether the supremacy clause gives Medicaid providers a right of action against states to enforce alleged violations of the Medicaid Act's reimbursement provisions at 42 U.S.C. §1396(a)(30)(A).

A ruling against the providers would take an important tool away from recipients seeking to protect services in their communities, and depending on its scope, could affect all supremacy clause litigation, including civil rights litigation.

The high court faced a nearly identical question during the 2011-2012 term in Douglas v. Indep. Living Ctr. of S. Cal., Inc., 80 U.S.L.W. 4185, 2012 BL 42477 (U.S. Feb. 22, 2012), but remanded the case without fully reaching the merits.

Justice Stephen G. Breyer wrote the majority opinion in Douglas, and said during argument here, “This just seems like a normal case, like where—where there's a State statute, there is a claim for services rendered, he's entitled to services rendered, but a few words of that State statute are preempted by a Federal one.”

But “I must be wrong,” Breyer said, “because this has been the second time we heard this case, and I didn't understand why it was different than that the first time.”

Argument Tracks Douglas Split

The justices' questions here tracked closely along the lines of their 5-4 split in Douglas.

There, Chief Justice John G. Roberts Jr., joined by Justices Antonin Scalia, Clarence Thomas and Samuel A. Alito Jr., dissented, asserting that Section (30)(A) doesn't create private rights of action, and that the supremacy clause doesn't create an implied right of action when Congress hasn't explicitly provided one in the statute.

Arguing for the Medicaid providers, James M. Piotrowski of Herzfeld & Piotrowski LLP, Boise, Idaho, attempted to answer “the question that the Chief Justice raised in Douglas, which is: How can we conclude that something preempts if Congress says it doesn't?”

“It's a good question,” Roberts interrupted, earning a chuckle from Piotrowski and the gallery.

“Where no method of review is applied, where Congress has been silent on the subject, then the Court must exercise its Article III power,” Piotrowski said.

But with the exception of Thomas, who was characteristically silent, each of the dissenting justices continued pressing Piotrowski on the issue.

“What if Congress has been express?” Roberts asked.

“What if they say in the statute, and to be clear, there is no private right of action to enforce this provision, under the statute, under the Supremacy Clause, under anything?” Roberts wanted to know.

If one says “that Congress can cut off—that it can prevent a suit like yours, if it says that expressly, I don't know why it doesn't follow that Congress can also do that if it is clearly—if we can clearly infer from the statute that Congress didn't want that,” Alito said.

Where “does this express statement rule come from?” Alito asked.

“Express statement may be overstating it,” but the court has required Congress to “speak clearly” in other cases where “it wishes there not to be a” 42 U.S.C. §1983 “cause of action, for instance,” Piotrowski said.

“It could be a clear inference or implication, yet it must be clear,” Piotrowski said. “Here, where there is an existing right of action in equity based on the Article III power as well as on the Constitution itself, Congress should be required to speak equally clearly,” he argued.

‘Tee It Up.'

Arguing for the state of Idaho, Deputy Attorney General Carl J. Withroe of Boise picked up the dissenters' rhetoric and said the Medicaid providers here “have no rights under Section (30)(A), and so they have no privately enforceable right of action to enforce that statute” under 42 U.S.C. §1983 “or under an implied right of action.”

“The Supremacy Clause does not provide an alternate freestanding right of action to enforce Section (30)(A), either,” Withroe argued.

There aren't “two separate sovereigns regulating independently in overlapping territory,” he said.

But Justices Anthony M. Kennedy and Elena Kagan characterized his argument as going to the merits of the case rather than the court's jurisdiction.

“You might have an argument on the merits that there shouldn't be preemption here,” Kagan said, but “that's an argument on the merits; it's not a question about whether somebody can come into court and make that claim and tee it up for a court to decide whether there's been preemption in the case.”

Arguing for the U.S. government as a friend of the court in support of Idaho, Deputy Solicitor General Edwin S. Kneedler of the Department of Justice, Washington, said jurisdiction is missing because “the State is not regulating the business of providing medical care. The State is running a program to pay people, but it's not regulating primary conduct independent of the Federal program.”

Administrative Remedy ‘Nuclear Option.'

Scalia brought up “the coercive power” that the Centers for Medicare & Medicaid Services have “to simply cut off the funding” to states that violate Section (30)(A).

Withroe argued that rather than sue the state, providers should “bug CMS and get CMS to take an action.”

But Justice Ruth Bader Ginsburg was concerned about “this Draconian power,” repeating concerns she expressed during oral argument in Douglas.

“I mean, the reality is that a fund cutoff hurts everybody; the recipients don't get the benefits, the providers don't get money for the services they rendered. So it's theoretically a very powerful remedy, but practically it's never used as far as I know,” Ginsburg said.

“It is a nuclear option,” Piotrowski agreed.

And “one that the agency has never used so far as we know. And that's precisely the problem that this cause of action addresses,” Piotrowski said.

“The equitable action we pursued here requires as an element that there be no remedy at law. Where there is an adequate remedy at law, we can't prove our case,” he admitted.

Federal Judges Don't Balance State Budget

Roberts also expressed concern that the “competition here is not between the agencies and the providers. It's between the health-care sector and roads, schools, parks.”

The “effect here is that Federal judges get to decide what the reimbursement rates are in a particular area,” and “what would happen if you have five cases going, each one claiming rights to higher rates under the roads program, under the parks program?” Roberts asked Kneedler.

“Are you aware of any situation where the Federal judges get together and try to balance the State budget?” Roberts wanted to know.

“No,” but “there is no right to get into court” here, Kneedler argued.

Think of “the oddity of this suit,” where “a provider who wants to be—who is in a contractual relationship, going to court and asking the court to insist that the other party to the contract, the State, make it a better offer,” Kneedler said.

“That's—that's a very bizarre sort of lawsuit. There's—nowhere else in the law does one party to an existing or prospective contract have a right to insist that the other party make a better offer in order to tempt it or to induce it to come in,” Kneedler argued.

Roberts asked Piotrowski a set of similar questions.

With “dozens of different types of providers,” including “brain surgeons, orthopedic surgeons, everything,” what do you do “if each of those providers bring a lawsuit similar to yours?” Roberts asked.

“The effect” will be “putting the setting of budget priorities in the hands of dozens of different Federal judges,” Roberts said.

It “seems to me that this is a prescription for budget-busting across the board,” Roberts said.

But Piotrowski said that compared with the chief justice's broad hypothetical, the injunctive relief actually requested here is narrow.

Justice Sonia Sotomayor said, when “we're talking about a private right of action, we're talking about damages, we're talking about restitution, we're talking about all sorts of things. Here, we're talking just about stopping the State from doing something that's wrong.”

The “issue here is the violation of a constitutional provision. The remedy is the correction of that violation, and no more,” Piotrowski said.

Where's the Line?

Alito pressed Piotrowski with a hypothetical about the state-level legalization of marijuana “to understand how far your argument goes.”

Could a person “who can satisfy Article III standing,” who “could show injury in fact and the other elements,” file a lawsuit “like yours based on the Supremacy Clause to challenge the State law legalizing marijuana?” Alito asked.

“Assuming those elements are present, then, yes, there's a right of action to bring the preemption claim,” Piotrowski said.

Breyer expressed similar reservations.

If “your suit is allowed, I do not see how you distinguish—let's say there are 5 million medical procedures. Each has a cost. There are 500 judges. And 500 times 5 million is an awful lot of numbers and they will conflict with each other. And how do we get some coherence out of this?” Breyer asked Piotrowski.

“Although you've solved the problem here, we can't close the door to everybody else if we open it to you. So how is that problem solved?” Breyer wanted to know.

That's right, “We open the courthouse doors,” Piotrowski said. But “I submit that they have been open, and we haven't seen this problem arise,” he argued.

“Since at least 1969 this Court has allowed cases very similar to this, if not identical to this,” and “in that 45-year period, we haven't seen a flood of litigation,” Piotrowski said.

To contact the reporter on this story: Jeffrey D. Koelemay in Washington at

To contact the editor responsible for this story: Jessie Kokrda Kamens at