Supreme Court keeps California Medicaid pay cut lawsuit alive

The U.S. Supreme Court has declined to decide if California doctors can sue over Medicaid pay cuts enacted by the state, instead sending the case back to an appeals court for another review.

The California Medical Assn. called the ruling a victory, saying it keeps the lawsuit against the pay reductions alive. "It was great news," said Francisco Silva, the CMA's general counsel. "We didn't get everything that we wanted. Naturally, what we wanted was a clear-cut decision, but we have preserved a path" to battle the cuts going forward.

State officials backing the pay reductions saw the Supreme Court ruling differently. "This is an important decision recognizing the authority of states to better manage their health services programs," Jim Humes, executive secretary for legal affairs for Gov. Jerry Brown's office, said in a statement.

A spokesman for the California Dept. of Health Care Services, the state's Medicaid agency, declined to comment on the ruling.

The lawsuit stemmed from challenges to several rounds of cuts by the California Legislature, beginning in 2008, to offset state budget shortfalls. Doctors, hospitals, pharmacists and others sued the state, challenging a 10% cut scheduled for July 2008. The lawsuit claimed that the cuts violated federal Medicaid law. The doctors and others sued under the Supremacy Clause of the U.S. Constitution, which says federal law trumps state law.

A lower court blocked the 2008 cuts, and California appealed to the U.S. Supreme Court, which consolidated the case with others for review.

In a friend-of-the-court brief, the American Medical Association urged the high court to rule in favor of the California health professionals. Without adequate payment for physician services, it would be unrealistic to expect doctors to participate in Medicaid, leading to a lack of care for Medicaid recipients, the AMA said.

But while that lawsuit was pending before the high court, Brown in 2011 approved shearing another 10% off Medicaid payments to doctors and other health workers. The Centers for Medicare & Medicaid Services approved the 2011 cuts, a development that affected the Supreme Court's consideration. In their Feb. 22 ruling, the justices said CMS approval of the newest round of cuts does not render the 2008 cases moot, but it does put them in "a different posture."

"The federal agency charged with administering Medicaid has now found that the rate reductions comply with federal law," the court wrote. "That decision does not change the substantive question whether California's statutes are consistent with federal law, but it may change the answer." The justices added, "To allow a Supremacy Clause action to proceed once CMS has reached a decision threatens potential inconsistency or confusion."

Physicians challenging the pay cuts might want to seek review of CMS' recent approval under the Administrative Procedure Act, rather than under the Supremacy Clause, the court said. The APA is a federal statute governing how agencies may propose and establish regulations. The law includes a process for courts to review agency decisions and decide whether legal challenges against federal bodies have merit.

Meanwhile, a separate challenge to the latest 10% cut is ongoing. In December 2011, the CMA, joined by the California Dental Assn. and other groups, sued the Dept. of Health and Human Services for allowing CMS to approve the cuts. A judge in that case granted a preliminary injunction against the reduction that prevents the cut while the case is pending.

Having the older case back in the appeals court is a positive result for doctors, said Dustin Corcoran, the California Medical Assn.'s CEO.

"This is a win for physicians and their patients in California," he said. "The lower court has previously ruled that interested parties indeed have the right to sue the state if the federal Medicaid Act is being violated. They will have the opportunity to decide that once again."

The high court's opinion corresponds with the route the medical society has taken, Silva said. The plaintiffs sued under the APA in their most recent lawsuit against the 2011 reductions, he said. The association's focus now is on the newest cuts, especially since California has rescinded the plan amendments that were in dispute in the 2008 case.

The 9th U.S. Circuit Court of Appeals has several options: Rule on the case a second time, dismiss the suit or send the case back for further review.

"We're looking at the next step and what type of direction we get from the 9th Circuit," Silva said. "All in all, I think we're in a really good place."

Ruling may affect states' strategy

The Supreme Court ruling may impact legal challenges over Medicaid pay in other states.

The Florida chapter of the American Academy of Pediatrics, for example, is among several organizations suing Florida over alleged low Medicaid pay rates. The physicians want the rate raised to a fair level, said James Eiseman Jr., an attorney with the Public Interest Law Center of Philadelphia, among those representing the doctors in the case. Eiseman wrote the court brief in the California case on behalf of the AMA.

The Florida case does not mirror the California case exactly, but Eiseman and others were watching the California suit closely.

"The way in which it's going to impact us in Florida is by what it didn't do," Eiseman said. "The fact that the Supreme Court left the door open on some kind of enforcement of these Medicaid provisions is critical to our case being able to proceed."