Metropolitan News-Enterprise


Thursday, September 18, 2008


Page 3


Ninth Circuit Allows Lawsuit Against Medi-Cal Rate Cut to Proceed


By STEVEN M. ELLIS, Staff Writer


A panel of the Ninth U.S. Circuit Court of Appeals ruled yesterday that a group challenging a state law reducing payments to medical service providers under California’s Medicaid program by 10 percent can proceed with a suit to enjoin the law’s implementation.

Holding that plaintiffs are not required to assert a federally created “right” in order to seek injunctive relief under the Supremacy Clause of the U.S. Constitution, the court explained its July reversal of a district court’s order dismissing a motion for a preliminary injunction by a group who claimed the law enacted earlier this year to address the state’s budget deficit is preempted because it violates the federal Medicaid Act.

The federal government provides funds to states under the Medicaid program in order to provide low-income individuals with medical assistance, and requires participating states to administer their programs in compliance with individual plans approved by the federal Secretary of Health and Human Services.

In order to gain approval, a plan must establish reimbursement rates for health care providers that are both consistent with high-quality medical care, and sufficient to enlist enough providers to ensure that services are generally available to Medicaid recipients, and California’s Medi-Cal system operates pursuant to such a plan.

However, in February, during a special session convened by Gov. Arnold Schwarzenegger to address California’s budget deficit, the Legislature enacted Assembly Bill 5 instructing the director of the Department of Health Care Services to cut payments to physicians, dentists, pharmacies, adult day health care centers, clinics, health systems and other providers by 10 percent, effective July 1.

A group of pharmacies, health care providers, senior citizens’ groups and Medi-Cal beneficiaries filed suit in state court to stop the law’s implementation, maintaining that the reduction violated both the “quality of care” and “access to care” provisions, found in Sec. 30(A) of the Medicaid Act, and was therefore preempted under the Supremacy Clause.

Seeking a preliminary injunction, the group alleged that—even prior to the law’s passage—a substantial percentage of medical care providers were unwilling to participate in the Medi-Cal program due to low reimbursement rates, and claimed the law would drive even more providers out of the program and force those remaining to reduce services.

But U.S. District Judge Christina A. Snyder of the Central District of California—relying on the Ninth Circuit’s decision in Sanchez v. Johnson (2005) 416 F.3d 1051 that Sec. 30(A) does not “create an individual right” Medicaid recipients or providers may enforce in a civil rights suit under 42 U.S.C. § 1983—dismissed the motion after the action was removed to federal court.

Snyder rebuffed the plaintiffs’ argument that they were entitled to seek purely injunctive relief under the doctrine recognized by the U.S. Supreme Court in Shaw v. Delta Air Lines, Inc. (1983) 463 U.S. 85 that a plaintiff seeking injunctive relief from state regulation on preemption grounds presents a federal question over which federal courts have jurisdiction under 28 U.S.C. § 1331.

Writing that Shaw preemption claims were permitted only where a plaintiff claims that a state law requires the violation of federal law, that his conduct would be restricted by a preempted state law, or that a state law interferes with a federally created right, Snyder concluded the group’s claims did not fall into any of those categories.

However, on the plaintiffs request in July for emergency relief, the Ninth Circuit reversed and directed Snyder to consider the merits of the motion for preliminary injunction, reserving a full explanation of its rationale until yesterday.

Snyder later granted the motion in August, enjoining application of the rate cut except with respect to services provided at acute care hospitals, or reimbursements to managed care organizations.

Explaining the Ninth Circuit’s decision, Judge Marsha S. Berzon said that even though Sec. 30(A) of the Medicaid Act granted no “right” to injunctive relief under 42 U.S.C. § 1983, plaintiffs could “seek injunctive relief under the Supremacy Clause regardless of whether the federal statute at issue confers any substantive rights.”

She continued:

“[The plaintiffs] do not seek to enforce any substantive ‘right’ conferred by statute; instead, they argue that the cuts mandated by AB 5 are themselves unenforceable, because they exceed the scope of the State’s discretion under the [Medicaid] Act and violate federal standards. As AB 5 is causing injury to one or more of the plaintiffs and the other requirements of Article III standing are met, no more is required to allow this suit to go forward.”

Judges Stephen Reinhardt and Milan D. Smith Jr. joined Berzon in her opinion.

Los Angeles attorney Stanley L. Friedman told the MetNews that the opinion represented a “significant decision” solidifying the rights of Medi-Cal recipients to seek redress. He also predicted the decision would have national importance and was likely to go beyond health care, explaining that “any state action will empower citizens to file under the Supremacy Clause” for relief from laws allegedly preempted.

A spokesperson for California Attorney General Jerry Brown said the office is still reviewing the decision.

The case is Independent Living Center of Southern California, Inc. v. Shewry, 08-56061.


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