The Supreme Court has just heard oral argument in a case that raises the issue of whether the Supremacy Clause of the federal constitution provides plaintiffs with a direct cause of action to challenge state decisions that they believe to be incompatible with federal law. If the Supreme Court recognizes such a cause of action, it could greatly expand the number and variety of state decisions that could be challenged in federal court.
The specific state decision challenged in Maxwell-Jolly v. Independent Living Center of Southern California, Inc. is a California statute that cut Medicaid reimbursement rates. The courts have nearly unanimously held that the federal Medicaid statute itself creates no right for private parties to bring lawsuits about Medicaid rates. Undoubtedly aware of those adverse decisions, the Maxwell-Jolly plaintiffs used the Supremacy Clause as a way to enter the courthouse through a different door, arguing that the Medicaid rate cuts are "preempted" by federal law because they are inconsistent with the Medicaid statute.
One result of the California state fiscal crisis was a state statute imposing an across-the-board 10% reduction in Medicaid reimbursement rates for certain services. That reduction went into effect on July 1, 2008 (and was repealed as of Feb. 28, 2009).
Shortly after its enactment, Medicaid providers, recipients and advocates filed the Maxwell-Jolly lawsuit. They contended that the state statute reducing Medicaid rates violated a provision in the federal Medicaid statute, 42 U.S.C. sec. 1396a(a)(30)(A), that requires states participating in Medicaid to establish Medicaid reimbursement rates "sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population ... " The Maxwell-Jolly plaintiffs argued that this statute required California, before enacting a rate reduction, to study the effect of the reduction on the availability of services, among other things.
The federal district court refused to enjoin the new Medicaid rates, ruling that the federal Medicaid statute could not be enforced by private litigation. (A Massachusetts state court judge made similar rulings in December 2010 in two cases in which hospitals challenged state Medicaid reimbursement rates.) But the Ninth Circuit Court of Appeals reversed, ruling that the Medicaid recipients and providers could assert a direct constitutional claim that California had violated the Supremacy Clause. California sought review by the Supreme Court, which accepted the case, but said that it will consider only the following question: "Whether Medicaid recipients and providers may maintain a cause of action under the Supremacy Clause to enforce sec. 1396(a)(30)(A) by asserting that the provision preempts a state law reduction reimbursement rates?" The Supreme Court heard argument on that question on October 3, the first day of its new term.
This legal issue is complicated by earlier Supreme Court rulings. While the Supreme Court has never directly stated that a plaintiff can bring a direct claim under the Supremacy Clause that any state law is preempted by a federal law, it has occasionally reached the merits of such Supremacy Clause claims, thereby implicitly suggesting that a plaintiff can bring the type of suit brought by the Medicaid providers and recipients in Maxwell-Jolly. But if the Court says that out loud, the result might be an avalanche of private litigation challenging Medicaid reimbursement rates. Indeed, in seeking Supreme Court review in Maxwell-Jolly, California pointed the Supreme Court to 30 similar lawsuits around the country, inspired by the Ninth Circuit's ruling allowing the Maxwell-Jolly suit to go forward.
If the Supreme Court recognizes a direct right of action under the Supremacy Clause, that decision would be felt far beyond Medicaid rate-setting. Plaintiffs unhappy with state decisions have traditionally looked for an express or implied private right of action that would allow them to go to court to challenge the state government's action. If they cannot find such a right to sue – as the Maxwell-Jolly plaintiffs could find no private right of action under the Medicaid statute – they may now begin to canvass federal law for any provision that arguably conflicts with, and therefore "preempts," what the state has done. The upcoming Maxwell-Jolly decision might well give such plaintiffs a basis for a direct constitutional lawsuit even where Congress intended to deny them a statutory right to sue.
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