Douglas v. Independent Living Center of Southern California, Inc. et al.

Brief Fact Summary. The California Legislature passed three statutes changing the state’s Medicaid plan by reducing payments to Medicaid providers and beneficiaries (Plaintiff).  The Medicaid providers and beneficiaries (Plaintiff) sued California’s Director of State Health Care Services (Defendant) arguing the state law was preempted by federal enactments under the Supremacy Clause.

Synopsis of Rule of Law. Once a federal agency has approved state statutes, Medicaid recipients and providers cannot maintain a cause of action under the Supremacy Clause by declaring that federal law preempts a state law reducing reimbursement rates without seeking review under the Administrative Procedure Act (APA) because of the issue of ripeness.

Facts. Medicaid is a cooperative federal-state program providing medical care to needy people.  To qualify for federal funds, states must submit their Medicaid Plan (Centers for Medicare & Medicaid Services) that details to a federal agency the nature and scope of the state’s Medicaid program.  A state is also required to submit any amendments to the plan that it may occasionally make.  And a state must receive the agency’s approval of the plan and any amendments.  The agency reviews the state’s plan and amendments to determine whether they comply with the statutory and regulatory requirements governing the Medicaid program.
  The State (Defendant) passed three statutes changing the State’s Medicaid plan reducing payments to Medicaid providers and beneficiaries (Plaintiff).  Defendant submitted a series of plan amendments designed to implement the majority of reductions those bills contain to the federal agency.  Before the agency completed their review of the amendments, groups of Medicaid providers and beneficiaries (Plaintiff) filed a series of lawsuits seeking to enjoin the rate reductions on the ground that they conflicted with, and were therefore preempted by, federal Medicaid law.
  Five lawsuits brought by Medicaid providers and beneficiaries (Plaintiff) against State (Defendant) officials are included in the consolidated cases before the Court.  Those cases produced seven circuit decisions.  The decisions ultimately affirmed or ordered preliminary injunctions that prevented the State (Defendant) from implementing its statutes.  They (1) held that the Medicaid providers and beneficiaries could directly bring an action based on the Supremacy Clause; (2) basically accepted the claim that the State (Defendant) had not shown that its Medicaid plan would provide sufficient services; (3) held that the amendments consequently conflicted with provisions in the statute; and (4) held that, given the Constitution’s Supremacy Clause, the federal statute must prevail.  In other words, the federal statute preempted the State’s (Defendant) new laws.
  In the meantime, the federal agency officials disapproved the amendments after reviewing the same state statutes to determine whether they satisfied the same federal statutory conditions and concluding that they did not.  The State (Defendant) then exercised its right to further administrative review within the agency.  The cases were in this position when the Supreme Court granted certiorari to decide whether respondents could mount a Supremacy Clause challenge to the State’s (Defendant) statutes and obtain a court injunction preventing the State (Defendant) from implementing its statutes.  Approximately one month following oral argument, the federal agency reversed course and approved several of the State’s (Defendant) statutory amendments to its plan.  The State (Defendant), in turn, withdrew its requests for approval of the remaining amendments, basically agreeing (with one exception) that it would not try to implement any unapproved reduction.  All parties agreed that the agency’s approval of the enjoined rate reductions does not make these cases moot.

Issue. Once a federal agency has approved state statutes, can Medicaid recipients and providers maintain a cause of action under the Supremacy Clause by declaring that federal law preempts a state law reducing reimbursement rates without seeking review under the Administrative Procedure Act (APA) because of the issue of ripeness?

Held. (Breyer, J.)  No.  Once a federal agency has approved state statutes, Medicaid recipients and providers cannot maintain a cause of action under the Supremacy Clause by declaring that federal law preempts a state law reducing reimbursement rates without seeking review under the Administrative Procedure Act (APA) because of the issue of ripeness. 
  This Court granted certiorari in these cases to decide whether Medicaid providers and recipients may maintain a cause of action under the Supremacy Clause to enforce a federal Medicaid law—a federal law that, in their view, conflicts with (and preempts) state Medicaid statutes that reduce payments to providers.  However, the relevant circumstances changed with the grant of certiorari.  CMS has now approved the state statutes as consistent with the federal law.  Due to the changed circumstances, the Court believes the question that is before us now is whether, upon the agency’s approval of the state statutes, groups of Medicaid providers and recipients may still maintain a Supremacy Clause action claiming that the state statutes are not consistent with the federal Medicaid law.
  While the cases are not moot, they are now in a different position.  CMS has determined that the challenged rate reductions comply with federal law.  The decision of CMS does not change the underlying substantive question, specifically whether the State’s (Defendant) statutes are consistent with a specific federal statutory provision (requiring that reimbursement rates be “sufficient to enlist enough providers”).  But it may change the answer.  And it may require the Medicaid providers and beneficiaries (Plaintiff) now to go forward by seeking review of the agency determination under the APA, rather than in an action against the State (Defendant) under the Supremacy Clause.
  For one thing, the APA would probably permit the Medicaid providers and beneficiaries (Plaintiff) to get an authoritative judicial determination of the merits of their legal claim.  The APA provides for judicial review of final agency action.  It permits any individual negatively affected or injured by agency action to obtain judicial review of the lawfulness of that action.  And it requires a reviewing court to set aside agency action found to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”  For another thing, the Medicaid providers’ and beneficiaries’ (Plaintiff) basic challenge now presents the kind of legal question that usually calls for APA review.  The Medicaid Act commits to the federal agency the power to administer a federal program.  In this case the agency has acted under this grant of authority.  That decision carries weight.  Finally, to allow a Supremacy Clause action to proceed once the agency has reached a decision could cause potential inconsistency or confusion.
  The parties have not explained why courts should not now (in the changed posture of these cases) apply those ordinary standards of deference.  The parties have also not explained why, once the agency has taken final action, a court should reach a different result in a case like this one, depending on whether the case goes forward in a Supremacy Clause action rather than under the APA for review of an agency decision.  Certainly, to allow a difference in result here would subject the states to conflicting interpretations of federal law by several different courts (and the agency), thereby threatening to defeat the uniformity that Congress intended by centralizing administration of the federal program in the agency and to make unnecessary or to undermine traditional APA review.  The Supremacy Clause, at best, is redundant if the two kinds of actions should reach the same result.  And to allow the continuation of the action in that form would seem to be inefficient, as the agency is not a participant in the pending litigation below, litigation that will decide whether the state rates approved by the agency violate the federal statute.
  In addition, it must be noted that the parties have not argued this question fully.  Therefore, it may be that there are more considerations yet to be presented to this Court, or in the arguments addressed to and considered by the appellate courts, that may bear upon resolving the issue properly.  Due to the complexity of these cases, rather than ordering re-argument, this Court vacates the judgments of the Ninth Circuit and remands the cases.

Dissent. (Roberts, C.J.)  The federal rule is that Medicaid reimbursement rates must meet certain criteria, but private parties do not have a statutory right to sue to enforce those requirements in court.  The Medicaid providers and beneficiaries (Plaintiff) sought to overcome that challenge by arguing that they could proceed against the State (Defendant) directly under the Constitution’s Supremacy Clause, even if they could not do so under the Medicaid Act.
  To decide this case, it is enough to conclude that the Supremacy Clause does not provide a cause of action when Congress, in establishing those requirements, elected not to provide such a cause of action in the statute itself.  The Supremacy Clause, on the other hand, is not a source of any federal rights.  Instead, the purpose of the Supremacy Clause is to make sure that, in a conflict with state law, whatever Congress says goes.  Therefore, if Congress does not intend for a statute to supply a cause of action for its enforcement, it makes no sense to claim that the Supremacy Clause itself must provide one.  Saying that there is a private right of action under the Supremacy Clause would substantively change the federal rule Congress established in the Medicaid Act.  That is not a proper role for the Supremacy Clause, which simply ensures that the rule established by Congress controls.
  The Court decides not to decide the question on which we granted certiorari but rather to send the cases back to the court of appeals, due to the recent action by CMS approving the State’s (Defendant) new reimbursement rates.  But the CMS approvals do not impact the question before this Court.  So, on remand, what is the court of appeals to do?  I would eliminate all these difficulties by simply holding what the reasoning of the majority’s own opinion suggests:  When Congress did not intend to provide a private right of action to enforce a statute enacted under the Spending Clause, the Supremacy Clause does not, by its own power, supply one. 

Discussion. In a peculiar twist, this 5-4 decision whose majority opinion was written by Justice Breyer, vacated and remanded the consolidated cases on the basis of the issue of ripeness.  This is not to be confused with the issue of mootness, which all of the parties agree has not occurred simply because of the federal agency’s determination that a State’s rate reductions are proper.  Chief Justice Roberts’ dissent got right to the main point which is whether or not the federal Medicaid legislation permits a private right of action, which he argues it does not.