Case Study – Private Parties Cannot Sue State for Underfunding of Medicaid

Armstrong v. Exceptional Child Center, Inc., 200 U.S. 321, 337 (March 31, 2015).

In this recent case, the U.S. Supreme Court rendered the decision that individual medical service providers have no constitutional right to sue a state over Medicaid reimbursement rates that are too low. The Federal Medicaid Statute, in §30A, requires all states who have a Medicaid plan to reimburse medical service providers at a rate sufficient to guarantee that enough providers will participate, and be able to provide the same quality of care as the local private market.

Medical service providers in the state of Idaho felt that the state reimbursement rates were too low, and not in compliance with the federal statute. Providers sued Idaho’s Department of Health and Welfare. Providers wanted the federal court to order the State of Idaho to increase the Medicaid reimbursement rates to be in compliance with the Federal Medicaid Statute, so that the providers could afford to continue serving people who rely upon Medicaid.

The Federal District Court found for the service providers. The 9th Circuit Court of Appeals upheld that decision. The Supreme Court overturned the lower court decisions, holding that the Supremacy Clause of the U.S. Constitution (Article VI, Section 2) does not allow a private right of action for individual service providers to sue the state for violations of the Federal Medicaid Statute.

With no right to sue the state for too-low reimbursement rates, the only remedies for service providers are (1) to pursue administrative relief through the Department of Health and Human Services, or (2) to stop providing services to people who rely on Medicaid. The effect of the ruling is likely to be that many service providers who would otherwise offer medical care to impoverished people or people with serious disabilities will be unable to do so, because state reimbursement rates for Medicaid-funded medical care are too low.

For additional information regarding this case, visit the NAELA e-Bulletin from April 8, 2015, and scroll down to paragraph 7.

Read the Supreme Court Decision.

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