Home > On The Docket > Oct. Term 2014 > Armstrong v Exceptional Child, Inc.

Armstrong v Exceptional Child, Inc.

Response by Professor Sara Rosenbaum
Geo. Wash. L. Rev. Docket (Oct. Term 2014)

Armstrong v. Exceptional Child, Inc., 575 U.S. ___ (2015).
Docket No. 14-15; argued January 20, 2015; decided March 31, 2015
Slip Opinion | Kaiser Family Foundation | SCOTUSblog

Medicaid, Judicial Equity, and the United States Supreme Court
Armstrong v. Exceptional Child Center,1 decided on March 31, holds important implications for Medicaid, the single largest source of health insurance in the U.S., covering an estimated 70 million people. In 2012 the Court significantly undermined the Affordable Care Act’s Medicaid expansion in National Federation of Independent Businesses v. Sebelius (NFIB),2 by effectively transforming a nationwide reform into a state option; today over four million poor adults who would have qualified for coverage, remain without it.3 Armstrong focuses on the administration of Medicaid itself and specifically the power of the courts to intervene in provider payment disputes, essentially “sidelining” the courts in these cases, as Professor Nicholas Bagley has observed.4 But Armstrong’s stopping point is unclear, not only for a properly functioning Medicaid program but also for other situations in which private individuals face imminent threat to their federal interests as a result of governmental action.

A Capsule Overview of Medicaid in Law and Practice

As the largest of all federal grant programs, and one that creates an individually legally enforceable entitlement to benefits,5 Medicaid for decades has existed at the epicenter of the political and judicial federalism debate, a distillation of the tensions surrounding the federal/state relationship on matters of social welfare policy. These tensions boiled over in NFIB, in which the Court struck down the Affordable Care Act’s Medicaid expansion mandate as an unconstitutional coercion that forced states to accept a “new program” of coverage for the poor as part of national health reform or lose their traditional Medicaid funding.

The federalism tension is equally powerful in the context of Medicaid oversight and administration: Who gets to tell a state that its program violates federal law, and who has the power to require alterations? Given Medicaid’s size, complexity, and impact on the health care system, this question is enormous.

Before getting into Armstrong, it is worth focusing on Medicaid’s salient legal features and operational elements. Medicaid represents a massive federal investment in state health care for poor and vulnerable populations, but that investment comes with conditions. Participating states (all do so) are entitled to open-ended federal financing in accordance with a federal funding formula that awards them between 50 percent and 74 percent for each dollar spent on medical assistance. In exchange, states must cover certain populations and services and must administer their programs in conformance with a wide range of federal requirements.6

Medicaid’s sheer size and importance to beneficiaries and the providers that serve them hardly can be overstated. In 2013, Medicaid covered nearly one in five working-age Americans and their children.7 When children alone are considered, Medicaid covered 37 percent, over one in three that year.8 Using the most currently available data, the Kaiser Family Foundation reports that Medicaid represents 1 out of every 6 dollars spent on personal health care in the United States, more than half of all long-term care spending, 25 percent of all U.S. mental health expenditures, and is the principal source of funding for thousands of “safety net” hospitals and clinics that disproportionately serve the poor.9 Kaiser reports that in Fiscal Year 2013 federal Medicaid financing accounted for nearly half of the more than $512 billion in federal grant-in-aid funding sent to states that year and nearly 18% of total state general fund expenditures that year.

The Secretary of the United States Department of Health and Human Services (HHS) is responsible for enforcing the statute and has the legal authority to review state plans and plan amendments for compliance with federal requirements. In the event of noncompliance, the Secretary has the power to withhold federal funding and compel corrective state action. Nothing, however, stops states from instituting changes in their programs until Secretarial review is completed, and even if the Secretary finds non-compliance, states may proceed pending a final determination. Furthermore, in a remarkable amicus brief filed on behalf of the providers and in opposition to the Obama Administration (which sided with the state) former HHS officials chronicled the extent to which the oversight process has been chronically hamstrung both financially and politically.10 A companion brief filed on behalf of the provider by Members of Congress argued that lawmakers had long relied on the equity powers of the courts to supplement the official governmental enforcement process.11

One of Medicaid’s many conditions of participation concerns provider payment. A specific provision, informally termed the “equal access” statute provides that state programs must:

“Provide such methods and procedures relating to the utilization of,
and the payment for, care and services available under the plan . . .
as may be necessary to safeguard against unnecessary utilization of
such care and services and to assure that payments are consistent
with efficiency, economy, and quality of care and are 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 in the geographic area.”12

This provision is intended to act as an effective floor on provider payments, which have been historically low, and which are considered by experts to be a key factor in limiting program participation by private providers.13 To put it simply, successive Administrations have never implemented this provision. There are no rules regarding acceptable payment methods and no measures of population access to guide the payment process. The federal government reviews state payment methods but without published standards.

The Armstrong Case

The genesis for Armstrong was the Idaho’s legislature refusal to appropriate sufficient funds to comply with a provider payment method for long-term care services for children with severe disabilities previously approved by the Centers for Medicare and Medicaid Services (CMS), the HHS agency that administers Medicaid. Over the course of the litigation, CMS officials never conducted a review of state noncompliance and took no action.

Providers sued to enforce 30(A). Medicaid contains no express federal right of action, and the Ninth Circuit previously had ruled that under the high bar set by the Supreme Court in Gonzaga v. Doe,14 30(A) did not create the type of “unambiguously conferred right” that gives rise to a claim under 42 U.S.C. § 1983.15 As a result, providers sued under the Constitution’s Supremacy Clause, claiming a constitutional right to challenge state conduct violating federal law. The lower courts permitted plaintiffs to proceed on this basis.

Armstrong represents the second time in three years that the Court sought to answer the question whether the Supremacy Clause allows providers to bring suits to enforce 30(A), a signal of the huge stakes wrapped up in the case. In 2012, in Douglas v. Independent Living Center of Southern California16 (which involved actual cuts to provider payments instituted by California in the middle of the financial crisis),17 a narrowly divided Court decided to duck the question,18 since in between the appeal and the decision, CMS had adjudicated the legality of the state’s conduct. In Armstrong, however, CMS had taken no such intervening action, thereby making the underlying question—whether the Supremacy Clause affords a right of action 30(A) situations—ripe for review.

Justice Scalia’s Majority Opinion

In a remarkably brief opinion considering the issues involved, Justice Scalia, joined by Justices Thomas, Alito, Breyer and the Chief Justice, stripped courts of their equity powers to intervene in 30(A) disputes. His four-part opinion swept broadly, and Justice Breyer declined to join Part IV, concurring on more narrow grounds. Justice Sotomayor’s dissent underscored the legal flimsiness of the majority’s assertions.

Justice Scalia used Part I to set the tone for the rest of his opinion, describing Medicaid as a “bargain” between the federal and state governments, making no mention of its size or scope or the Court’s long line of decisions construing various Medicaid provisions. Nor did Part I ever mention either that Idaho had failed to comply with federal law or that CMS had stood by, doing nothing.

Resting on this abbreviated factual basis, Justice Scalia then focused on the Supremacy Clause, concluding that it created a “rule of decision” and not a right of action.19 Justice Scalia noted that it was “unlikely that the Constitution gave Congress such broad discretion with regard to the enactment of laws, while simultaneously limiting Congress’s power over the manner of their implementation, making it impossible to leave the enforcement of federal law to federal actors.”20 To Justice Sotomayor’s argument that a long line of Supreme Court precedents in fact recognize such a constitutional right of action, Justice Scalia replied that to the contrary, the cited cases show no more than the historic equity power of the courts, not a constitutional right of judicial access.

Having pulled the constitutional rug out from under Respondents, Justice Scalia used Part III as a major mop-up job, concluding on the basis of virtually no evidence that Congress had foreclosed the use of judicial equity powers in cases involving 30(A) claims. Because Medicaid contains no bar to judicial equity (indeed, the congressional brief stressed Congress’s historic reliance on the courts in Medicaid enforcement which, they argued, needed no affirmative expression on their part), Justice Scalia could not point to any provision of law; instead he found his mark in the interstices of the statute. First, he argued, the statute empowers the Secretary to withhold federal funds, thereby signifying congressional intent to displace other remedies. But this argument alone, carried to its logical conclusion, would foreclose equitable relief in all Medicaid enforcement actions, even actions involving federally guaranteed rights cognizable under § 1983. Since such a sweeping conclusion would have cost him Justice Breyer’s vote, Justice Scalia focused on a second, narrowing argument, namely that 30(A) itself precludes judicial review because its rate-setting provisions are complex and require a level of technical and programmatic expertise that judges, exercising their equity powers, simply lack:

Explicitly conferring enforcement of this judgment-laden standard
upon the Secretary alone establishes, we think, that Congress wanted
to make the agency remedy that it provided exclusive, thereby achieving
the expertise, uniformity, widespread consultation, and resulting
administrative guidance that can accompany agency decisionmaking, and
avoiding the comparative risk of inconsistent interpretations
misincentives that can arise out of an occasional inappropriate
application of a statute in a private action.21

To Justice Sotomayor’s argument that his reading of the statute eliminated judicial equity powers on the basis of absolutely no evidence, Justice Scalia paradoxically replied that Justice Sotomayor’s insistence on clear language would “[deny] statutory text its fairest reading” and that 30(A), fairly read in the context of the Medicaid Act, displays an intent to foreclose the availability of equitable relief.”22

But Justice Scalia did not stop here; instead, Part IV edges the Court toward an all-out frontal assault on private enforcement actions under Medicaid, a move that has been simmering for over a decade. This movement is visible in Gonzaga, which has narrowed access to § 1983 as a means of enforcing federal Medicaid provisions. But harkening to Pennhurst State Schooland Hospital v Halderman,23 Justice Scalia used Part IV to question the entire concept of private enforcement of Spending Clause statutes:

Spending Clause legislation like Medicaid ‘is much in the nature
of a contract. . . . The notion that respondents have a right to
sue derives, perhaps, from the fact that they are beneficiaries
of the federal-state Medicaid agreement, and that intended
beneficiaries, in modern times at least, can sue to enforce the
obligations of private contracting parties. . . . We doubt . . .
that providers are intended beneficiaries . . . of the Medicaid
agreement . . . More fundamentally, however, the modern
jurisprudence permitting intended beneficiaries to sue does not
generally apply to contracts between a private party and the
government—much less to contracts between two governments. Our
precedents establish that a private right of action under federal
law is not created by mere implication but must be unambiguously
conferred.24

Justice Breyer’s Concurrence

Emphasizing the narrower ground for his concurrence—that rate-setting statutes should be enforced in the first instance by expert agencies, Justice Breyer offered his viewpoint that there is no “simple, fixed legal formula separating federal statutes that may underlie . . . injunctive action from those that may not.”25 But 30(A) involved complex determinations involving a program serving “over 69 million patients across the Nation” and in which nearly one-and-a-half million physicians participate. Furthermore, Justice Breyer noted, private parties could rely on the Administrative Procedure Act to challenge both the absence of standards and the sufficiency of those standards, once set.

Justice Sotomayor’s Dissent

Offering a rare instance in which Justice Kennedy joined the losing side of a case, Justice Sotomayor’s dissent underscored the majority’s judicial overreach and the utter absence of evidence of clear congressional intent to foreclose judicial intervention in Medicaid rate-setting disputes. Indeed, as she noted, the courts had a long history of involvement in Medicaid cases, which Congress had never foreclosed.

The Future

Armstrong raises important implications for judicial intervention in Medicaid cases specifically and Spending Clause cases generally, and for the future of Medicaid itself.

Termed “unintelligible to the uninitiated”26 by no less a jurist than Henry Friendly, Medicaid contains literally thousands of provisions. A handful create the type of “unambiguously conferred right” demanded by the Court under the Gonzaga test for purposes of § 1983 enforcement. Most provisions create administration standards essential to the proper operation of the program. States must allow individuals to apply for assistance and must make prompt determinations.27 States must afford constitutional-level fair hearings to persons adversely affected state action.28 States must use reasonable standards to set program eligibility and coverage parameters.29 Arguably none of these provisions creates an unambiguously conferred federal right; instead they function as general operational rules crucial to program performance. It is now possible that under Armstrong, none will be considered privately enforceable at equity, leaving program beneficiaries wholly reliant on dysfunctional federal agency oversight. The vast Medicaid enrollment delays flowing from the Affordable Care Act’s coverage expansion have prompted litigation.30 In future challenges the outcome may depend on whether courts understand Armstrong as having curtailed their equity powers to intercede in what is arguably a complex question of Medicaid administration regarding the reasonableness of state program operations.

Furthermore, the basis for the opinion—that Congress has curtailed judicial equity by statutory implication—applies to other Spending Clause statutes as well. Will the Court conclude that the power to withhold federal funding, coupled with a statutory provision describing program operating standards, is sufficient to foreclose equitable relief when state conduct appears to violate federal law? Operational rules are intrinsic to grant-in-aid statutes. Do such rules, which inevitably require judgments regarding the quality of state administration, mean that courts can never intervene?

Finally, there are Armstrong’s implications for Medicaid generally. As the former HHS officials’ brief describes at length, the federalism battles that have defined Medicaid for fifty years manifest themselves in chronic underfunding of federal enforcement efforts and intense political pushback when agency officials do attempt to set standards. There is no better example of this than the literal disappearance of proposed federal rules, issued in 2011, that would have set standards for determining the access impact of provider rate cuts and would have halted state implementation pending federal review.31 In a world in which 1 in 6 Americans and over 1 in 3 children depend on Medicaid, is a crippled judicial system really the way to go?

 


Professor Sara Rosenbaum is the Harold and Jane Hirsh Professor of Health Law and Policy at the George Washington School of Public Health and Health Services and Professor of Law, by courtesy, at The George Washington Law School. Professor Rosenbaum has devoted her professional career to issues of health justice for populations who are medically underserved as a result of race, poverty, disability, or cultural exclusion. With a career of practicing law in the public interest, Professor Rosenbaum has been an advocate, academic, and policy consultant, and worked on health reform in both the Clinton and Obama administrations.

 


1. Armstrong v. Exception Child Center, Inc., No. 14-15, slip op. (U.S. Mar. 31, 2015).
2. Nat’l Fed’n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (2011).
3. See generally Kaiser Family Founation, Issue Brief: Medicaid Expansion, Health Coverage, and Spending: An Update for 21 States That Have Not Expanded Eligibility, available at http://files.kff.org/attachment/issue-brief-medicaid-expansion-health-coverage-and-spending-an-update-for-the-21-states-that-have-not-expanded-eligibility.
4. Nicholas Bagley, Sidelining the Court in Medicaid Enforcement, The Incidental Economist, http://theincidentaleconomist.com/wordpress/sidelining-the-courts-in-medicaid-enforcement/.
5. Sara Rosenbaum, David Frankford, Sylvia Law and Rand Rosenblatt, Law and the American Health Care System, 523-52 (2d ed. 2012).
6. For a comprehensive explanation of federal Medicaid law, including federal requirements related to eligibility, coverage, and conditions of federal funding, the single best source of information can be found in the Commerce Clearinghouse (CCH) Medicare/Medicaid Guide. Particularly good sources of general information about Medicaid spending and program performance can be found at the Kaiser Family Foundation’s website, see www.kff.org, and the Medicaid and CHIP Payment and Access Commission (MACPAC), a congressionally-established entity that advises Congress on federal Medicaid policy, see www.macpac.gov.
7. Kaiser Family Foundation, Summary: Health Insurance Coverage of Nonelderly 0-64, KFF.org, http://kff.org/other/state-indicator/nonelderly-0-64/.
8. Kaiser Commission on Medicaid and the Uninsured, Medicaid at 50, available at http://files.kff.org/attachment/report-medicaid-at-50
9. Id.
10. Brief for Former HHS Officials as Amici Curiae in Support of Respondents, Armstrong v. Exceptional Child Center, Inc., 132 S. Ct. 2566 (2015) (No. 14-15), available at http://www.americanbar.org/content/dam/aba/publications/supreme_court_preview/BriefsV4/14-15_amicus_resp_exHHS.authcheckdam.pdf.
11. Brief for Members of Congress as Amici Curiae in Support of Respondents, Armstrong v. Exceptional Child Center, Inc., 132 S. Ct. 2566 (2015) (No. 14-15) available at http://www.americanbar.org/content/dam/aba/publications/supreme_court_preview/BriefsV4/14-15_amicus_resp_Congress.authcheckdam.pdf
12. 42 U.S.C. §1396a(a)(30)(A) (2012) (hereinafter 30(A)).
13. Sara Rosenbaum, Medicaid Payments and Access to Care, Perspective, The New England Journal of Medicine, http://www.nejm.org/doi/full/10.1056/NEJMp1412488.
14. 536 U.S. 273 (2002).
15. Sanchez v Johnson, 416 F. 3d 1051 (9th Cir. 2005).
16. 132 S. Ct. 1204 (2012).
17. Provider payment reductions are viewed by states as preferable to eliminating eligibility and cutting benefits during tough financial times, a not-irrational preference.
18. Sara Rosenbaum, Suing States over Threatened Access to Care—The Douglas Decision, Perspective, The New England Journal of Medicine, http://www.nejm.org/doi/full/10.1056/NEJMp1202223.
19. Armstrong, 133 S. Ct. at 1383.
20. Id. at 1383.
21. Id. at 1385 (internal quotation marks omitted).
22. Id. at 1386 (internal quotation marks and citations omitted).
23. 451 U.S. 1 (1981).
24. 135 S. Ct. 1387–88 (internal quotation marks and citations omitted).
25. Id. at 1388.
26. Friedman v Berger, 547 F.2d 724 (2d Cir. 1976).
27. 42 U.S.C. § 1396a(A)(8) (2012).
28. 43 U.S.C. § 1396a(A)(4) (2012).
29. 42 U.S.C. § 1396a(A)(17) (2012).
30. Phil Galewitz, Groups Sue Tennessee Over Medicaid Enrollment Delays, Kaiser Health News, http://khn.org/news/groups-sue-tennessee-over-medicaid-enrollment-delays/.
31. Rosenbaum, supra note 13.

 


Recommended Citation
Sara Rosenbaum, Response, Armstrong v. Exceptional Child Center, Inc., Geo. Wash. L. Rev. Docket (May 23 2015), http://www.gwlr.org/armstrong-v-exceptional-child/.

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