Can Patients and Providers Sue to Enforce the Federal Medicaid Law?

Posted in: Constitutional Law

The Supreme Court opened its new term last week with an oral argument in a seemingly technical case that could nonetheless have important implications for the judicial enforcement of federal rights.  In Douglas v. Independent Living Center of Southern California, Inc., the lawyers and Justices pondered the question of whether private parties may sue states to demand that they comply with the requirements of the federal Medicaid law.

The case has scrambled familiar ideological divisions:  Traditionally, Republicans have been wary of litigation, whereas Democrats have favored broad rights of court access.  Yet the U.S. Chamber of Commerce, a traditionally pro-business and politically right-leaning organization, filed a brief urging the Court to recognize a broad right to sue.  Meanwhile, both the Obama Administration as amicus curiae and the State of California, led by a Democratic governor, have argued against a right to sue in Douglas.

The Democrats who oppose a private right to sue in Douglas hope to walk a tightrope.  They want the Court to reject a right to sue in this case, but not more generally.  As I shall explain in this column, however, this is a high-risk strategy, for a ruling rejecting a right to sue in Douglas could be used in later cases as the basis for rolling back court access more broadly, which Democrats would strongly oppose.

The Contested Medicaid Provision

Medicaid, as readers may know, is a state-administered federal program that delivers medical services to the poor.  Federal statutes and regulations set guidelines for state Medicaid programs, and states that accept federal grant money agree to comply with the rules set forth therein. The dispute in the Douglas case concerns one of the rules in a provision of the federal Medicaid statute.  That rule requires states to set reimbursement rates at levels that “are sufficient to enlist enough providers so that care and services are available under [Medicaid] at least to the extent that such care and services are available to the general population in the geographic area.”

In practice, however, states rarely satisfy that goal: Medicaid typically pays less than private insurance or Medicare (the federally run program for the elderly), and so, as a practical matter, the poor have worse access to medical care than others do.  The Douglas case arose when California cut its funding for Medicaid still further, but did so without approval from the federal Department of Health and Human Services, as required by the Medicaid law.  The parties dispute whether California simply cut funding for Medi-Cal (the name for the California program) or also increased its efficiency, as the state claims, so that actual care did not suffer, and thus the federal Medicaid statute’s rule was not violated.

The Supreme Court, in the Douglas case, will not decide whether or not the cuts to Medi-Cal were legal.  Instead, the case presents the issue whether private parties—here, Medicaid patients and providers—may sue a state for its alleged failure to administer its Medicaid program in accordance with federal law.

Two Lines of Prior Supreme Court Cases Are Relevant to the Douglas Case

The plaintiffs say that they can sue under precedent going back at least as far as the Supreme Court’s 1908 decision in Ex Parte Young.  In Young, the Court permitted a private party to sue a state official in order to obtain a court injunction against the enforcement of a state law that allegedly violated the Constitution.

Although Young involved a claim that a state law violated the federal Constitution, subsequent cases have permitted Ex Parte Young actions for violation of federal statutes as well.  That extension of Young makes logical sense, because the Young doctrine rests on the premise that the Supremacy Clause of Article VI authorizes suit, and the Supremacy Clause makes federal statutes, no less than the federal Constitution, superior to state law.

Accordingly, the lower courts permitted the Douglas lawsuit to proceed, and in the Supreme Court, the plaintiffs point to the long line of precedent going back to Young and even earlier as firmly establishing their right to sue.

However, another, more recent, line of cases recognizes that Congress has the power to decide whether to make statutory provisions enforceable through administrative action alone, or by private lawsuits—either instead of, or in addition to, such administrative enforcement.  The federal government clearly can enforce the Medicaid provision at issue in Douglas by withholding funding from states that set rates too low; that is well-established.  The case presents the question whether the provision can also be enforced through lawsuits by Medicaid patients and providers.

The statute is silent on that question.  Thus, the issue can best be understood as a choice between two default rules:  Are statutes enforceable by private Ex Parte Young actions absent an express statement to the contrary, or are such private rights of action forbidden unless expressly authorized?

Prior case law pretty clearly adopts the first default rule—that is, the rule that statutory silence means that Ex Parte Young actions are allowed.  But California and the federal government argue that this prior law is inconsistent with the Supreme Court’s approach in other cases:  If a statute is silent about private rights of action, the default rule has been that a private party does not have a cause of action to sue another private party.  And, the argument continues, there is no good reason to treat private suits against a state official differently from the way we treat private suits against other private actors.

In principle, not much is at stake in Douglas.  Whatever the default rule may ultimately be, Congress could easily override the default rule by specifying clearly in the text of a given statute whether particular provisions are or are not enforceable by private lawsuits against the government.

In practice, however, the stakes are quite high, because Congress has already enacted thousands of statutes that are silent on the question of private rights of action, and it is unlikely that anyone will be able to put together the sort of coalition that would be necessary to change the legal status quo.  That is because there are powerful actors on both sides of this issue.

Many left-leaning groups like Ex Parte Young because it permits lawsuits against state governments for failure to comply with federal statutes.  Big business likes Ex Parte Young because it permits companies to sue to block enforcement of strict state regulations that contradict laxer federal laws.  Meanwhile, on the other side of the issue, states do not like Ex Parte Young because it restricts their freedom of action, and some left-leaning groups do not like it because, when used by business interests, it can block progressive federal regulation.

Is Medicaid Special Because It Involves Spending?

Some of the Justices themselves may likewise be torn, regardless of ideology.  Accordingly, if California and the federal government are to win this case, it will almost certainly have to be on narrow grounds.  Wisely, they have offered the Court a number of such grounds, including a close parsing of the Medicaid Act, purporting to show that it is better suited to exclusively administrative enforcement than to a mix of administrative enforcement and private litigation.

In addition, California and its amici emphasize that the relevant provision is part of a spending measure.  Why should that matter?  The core idea is that a state that accepts federal funding for its Medicaid program enters into a contractual relationship with the federal government.  But third parties generally cannot sue to enforce a contract, even if they benefit from that contract, unless the contract manifests an intent by the contracting parties to confer rights on those very third parties.  In other words, only so-called “intended beneficiaries” of the contract may sue to enforce it.

Even if California and the federal government are right about that point, however, the case remains difficult because it is not at all clear whether Congress, in fact, treated Medicaid patients and providers as intended beneficiaries under the Act.  The plaintiffs argue that, given the long history of Ex Parte Young actions, Congress could have taken for granted that its saying nothing about the subject would have been understood to confer on private parties the right to sue.  And so we are more or less back where we started, puzzling over what should be the default rule.

Nonetheless, treating the case as special because it involves a spending provision would enable the Court to reject an Ex Parte Young action here without necessarily destabilizing the rest of its Ex Parte Young jurisprudence.  Accordingly, the Court could hold that the Medicaid provision at issue in Douglas cannot be enforced by private plaintiffs bringing an Ex Parte Young action, while leaving Ex Parte Young in effect for the enforcement of statutory rights arising under federal laws that do not involve spending.

The Lurking Issue: State Sovereign Immunity

But would the Court actually stop there?  In addition to arguing that private parties cannot sue to enforce contracts between a state and the federal government, California and its amici argue more broadly that principles of separation of powers leave to Congress the decision whether to create private rights of action.  That argument, if accepted, would apply to all federal statutory rights, not just rights contained in spending provisions.

And there’s more.  Under a principle of state sovereign immunity that the Supreme Court has found in the Tenth and Eleventh Amendments, states cannot generally be sued for damages for past unlawful conduct.  Ex Parte Young has long been understood as an exception to that principle:  It permits plaintiffs to sue state officials to enjoin future unlawful conduct.  But some Justices have questioned whether the Young doctrine is consistent with state sovereign immunity.

A holding in Douglas that Young has been superseded with respect to private rights of action could weaken Young more broadly, including weakening its vitality as an exception to sovereign immunity.  And that, in turn, would be supremely ironic.

Here’s why:  As readers will recall, the argument of the state and its amici in Douglas is that Congress should have the power to say how its own laws are enforced; yet because state sovereign immunity is a constitutional doctrine, rather than a mere statutory one, the extension of sovereign immunity that would result from an overruling of Young would actually weaken the ability of Congress to control how its laws are enforced.  Therein lies the irony:  The argument that Congress ought to have more power, may, if adopted, mean that it ultimately has less power.

A ruling for California in the Douglas case would not necessarily bring on the complete demise of Ex Parte Young, but it could begin a walk down the path towards that result.  For that reason, politicians and judges who generally favor broad court access are playing with fire in asking the Court to weaken Young.