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From Health Law Daily, September 24, 2013

California Medicaid providers seek Supreme Court review of rate cuts

By Kathryn S. Beard, JD

The California Medical Association (CMA) filed a petition for a writ of certiorari in the Supreme Court, seeking review of the 9th Circuit’s decision in Managed Pharmacy Care v Sebelius. The petition asks the Supreme Court to determine the level of deference that should be accorded to an implicit and informal agency interpretation. Specifically, CMA argues that the 9th Circuit improperly gave deference to CMS in its “routine” approval of the California Medicaid state agency’s 10 percent cut to provider reimbursement rates. CMA and its co-petitioners believe that the rate cut is illegal and should not have been approved. Supreme Court justices will meet September 30 to begin determining which petitions to grant during the upcoming term.

Background. Before a state may modify its Medicaid plan, CMS must review and approve the proposed amendment through the state filing a state plan amendment (SPA). The review does not require a formal hearing before a CMS regional administrator; approvals are often in the form of a letter stating that the amendment is approved. Interested parties including beneficiaries and providers have no express opportunity for input in an approved SPA. If an SPA is rejected and the state appeals that denial to the HHS Secretary, interested parties are given a chance to provide input.

The California legislature required the state Medicaid Director to reduce rates to the extent permissible under federal law, and to specifically determine that the rates were consistent with the statute. The California Medicaid director submitted two SPAs reducing rates by 10 percent. A number of interested parties were denied an opportunity to review the SPA materials; a CMS associate regional administrator approved both SPAs in “succinct” letters with no reference to statutory interpretation or other deliberations by CMS. Four groups of plaintiffs filed suit, claiming that the reductions violated the Social Security Act and that the CMS approval of the SPAs was invalid under the federal Administrative Procedure Act. The district court entered a preliminary injunction enjoining the cuts. The 9th Circuit court reversed these decisions and dissolved the injunctions, giving a high level of deference to CMS under Chevron U.S.A. Inc. v Natural Resources Defense Council, Inc.

Petition for certiorari. Chevron deference to CMS in similar cases has been granted in the 3rd, 5th, 6th, and D.C. circuit courts. In contrast, the 1st, 2nd, and 8th circuits have applied a lower level of deference to CMS’s implicit and informal SPA approvals using Skidmore v Swift & Co. The petition states that the Supreme Court’s review is necessary because the appropriate level of deference has “enormous consequences for millions of Medicaid beneficiaries and providers” in just California. If the case had been brought in one of the three circuits applying Skidmore deference, the outcome would have been different.

Need for uniformity. The petition states that with the current circuit split, the effect of even a single regional officer’s agency actions will vary geographically. CMS Regional Administrators make the decision to approve or disapprove an SPA, but CMS’s regional offices’ jurisdiction is not aligned with the federal circuits. As an example, CMS Region 6 is responsible for reviewing State Plan Amendments submitted by Arkansas, Louisiana, New Mexico, Oklahoma, and Texas. The federal courts in those same States are governed by one of the Fifth, Eighth, or Tenth Circuits—and at least two of these circuits have conflicting views about the deference owed to implicit agency “interpretations” like those issued through State Plan Amendment approvals. The result is that the same regional officer, applying the same interpretation and using the same procedures, may receive different levels of deference depending on which state’s SPA she is reviewing and where her actions are challenged. The petition claims that the Medicaid program is particularly vulnerable because it is a federal-state cooperative, and the disparity in treatment undermines the effectiveness of the program.

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