Amicus Curiae Brief — Douglas v. California Pharmacists Association, (2009) (No. 1158)

TOBY DOUGLAS, DIRECTOR OF THE DEPARTMENT OF

HEALTH CARE SERVICES, STATE OF CALIFORNIA, ET AL.

v.

CALIFORNIA PHARMACISTS ASSOCIATION, ET AL.

TOBY DOUGLAS, DIRECTOR OF THE DEPARTMENT OF

HEALTH CARE SERVICES, STATE OF CALIFORNIA,

v.

SANTA ROSA MEMORIAL HOSPITAL, ET AL.

ON WRITS OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THS AMERICAN HEALTH CARE

ASSOCIATION, AMERICAN HOSPITAL ASSOCIATION, AS-

SOCIATION OF AMERICAN MEDICAL COLLEGES, CATHO-

LIC HEALTH ASSOCIATION OF THE UNITED STATES,

FEDERATION OF AMERICAN HOSPITALS, NATIONAL AS-

SOCIATION OF CHILDREN’S HOSPITALS, NATIONAL AS-

SOCIATION OF COMMUNITY HEALTH CENTERS, NATION-

AL ASSOCIATION OF PUBLIC HOSPITALS AND HEALTH

SYSTEMS, NATIONAL COUNCIL FOR COMMUNITY BEHA-

VIORAL HEALTHCARE, AND SAFETY NET HOSPITALS FOR

PHARMACEUTICAL ACCESS AS AMICI CURIAE

IN SUPPORT OF RESPONDENTS

CHARLES A. LUBAND DOUGLAS HALLWARD-DRIEMEIER

DAVID Z. GROSS Counsel of Record

Ropes & Gray LLP LARRY 8S. GAGE

1211 Avenue of the Americas BARBARA D. EYMAN Library of Congress

New York, N.Y. 10086 Ropes & Gray LLP pee

One Metro Center

MATTHEW B. ARNOULD 700 12th Street. N.W., Suite 900

Ropes & Gray LLP Washington, D.C. 20005

Prudential Tower (202) 608-4600

800 Boylston Street Douglas.Hallward-Driemsier@

Boston, MA 02199 Topesgray.com

ee

Wis0n-Eres Prewrna Co., xc. — (202) 780-0088 -— Wasrancron, D.C. 20002

TAMARA L. SELTZER

Counsel to the National Counc!

for Community Behavioral

Healthcare

Progressive Policy Solutions

1112 Lamont St, NW

Washington, DC 20010

(202) 257-9084

WILLIAM H. VON OEHSEN

MAUREEN TESTON!

Safety Net Hospitals for Phar-

maceutical Access

1501 M Street, NW

Washington, DC 20006

202-662-5859

TABLE OF CONTENTS

I Br aiibiieiiiinininideicinnioinctintinnsinitiinaiibiapianconiiacediis l

emteeneRRees GING GUIINIIG oscececcccccscvcscnnssccccsscvecsncvccssonssoses 2

I. Supremacy Clause challenges play a critical rolein

vindicating the primacy of the Medicaid Act over

Se Nia tiisinniditinicitnderencncinnmmuintnprennsninsceees 7

A. Congress required states to set Medicaid

payment rates in a manner that would

ensure adequate access to health care for

Medicaid beneficiaries. ............2...2..0...020.2000000000 9

. Reduced payment rates threaten the

already fragile system for delivering the

level of services mandated by Congress...... |!

. State “flexibility” in administering the

Medicaid program does not extend to

reducing beneficiary access in response

to budgetary shortfalls _.................................. 1!

or

. Absent Supremacy Clause suits, states will

continue making indiseriminate rate cuts,

thus threatening Medicaid’ s ability to

1. CMS lacks the information that would

be necessary to assess state compliance

2. Federal injunetive relicf provides a

neeessary complement to hhs’s

ComMPOReNTNe GO WIETS ... ......22-2..200022000.--22erecceseee--- 19

[l. There is no basis to conclude that a Supremacy

Clause challenge is particularly inappropriate

in Cie TP GEE, 2 .2cccnc0222nceeesece.-..0000.0000- 21

4. The availability of a Supremacy Clause

challenge does not depend on whether the

Medicaid Act creates a cause of action or

an individually enforceable right .................. 23

‘i

B. A Supremacy Clause cause of action is not

limited to parties who are “regulated” by

the invalid state statute, but if it were,

: sec ne = ao

TABLE OF AUTHORITIES

Page(s)

CASES

Alden v. Maine, 527 U.S. 706 (1999).................. |

Alezander v. Sandoval, 532 U.S. 275 (2001)................ .. 24

American Insurance Ass'n v. Garamendi, 539

Amisub (PSL), Inc. v. Col. Dep't of Soc.

Services, 879 F.2d 789 (10th Cir. 1989), cert.

denied 496 U.S. 985 (1990)... eee ceeccencneees —

Ark. Dep't. of Health & Human Servs. v.

Ahlborn, 547 US. 268 (2006)... .ccecccccceeeeee 26, 32

Astra USA, Inc. v. Santa Clara a 1318S

Ct. 1342 (2011)... a

Blum v. Bacon, 457 U.S. 132 (1982)............ mentiinemaentiiedl 31

Bond v. United States, 131 S. Ct. 2355 (2011) ..... 7, 27, 30

Cantal Cities v. Crisp, 467 U.S. 691 (1984) .................. 25

Carleson v. Remillard, 406 U.S. 598 (1972) .................. 31

Gort v. Agta, SEB Uy TBGB GT iki. -nnnccccccccccccecccccccccesesccees 2

Crosby v. Nat'l Foreign Trade Council, 530 US.

SIs ciciinsieasetnsdaenasnnninigueieinentatisiintaiescnnccsailh passim

Dalton v. Little Rock Family Planning Servs.,

ne ia ccissintintcinniciininclbhactichientcannnniicerencveesnetil 3

iv

Ea parte Young, 209 U.S. 123 (1908) ...................2......-00. 23

Gade v. Nat 1 Solid Waste mgmt. Ass'n, 505 U.S.

einen ere hlaainititisiaaeesvnensnseiegipaniinanseiisionsiaaiy ain 25

Golden State Transit Corp. v. City of Los

Amgeles, 493 US. 103 (1989) ....................-.....-2.22 21, 25

Green v. Mansour, 474 U.S. 64 (1985) ...........---...0...... 5, 24

independent Living Center v. Maxwell-Jolly,

572 F'.3aG44 (Stile Cir. BOSD)... ..............0c00e--200- 9, 16

Kan. Hosp. Ass'n v. Whiteman, 835 F. Supp.

ES a 16

Lawrence County v. Lead-Deadwood Sch. Mst.,

I etinrtctienneeneneecenscommemntereagesesinitnananiassnini 25

Maine v. Thiboutot, 448°U.S. 1 (1980) ..............-........... 25

Minn. Homecare Ass'n v. Gomez, 108 F.3d 917

circa emeerisiinsiiartiniaieatihdanaseeninnichinitinlaeaenniiss 16

Pennhurst State School & Hosp. v. Halderman,

EE 23

Pennsylvania Prot. & Advocacy, Inc. v.

Houstoun, 228 F.3d 423 (d Cir. 2000) ............. 31

Pharm. Research & Mfrs. of Am. v. Walsh, 538

I eincniniciissiinslhitibiiilitcimmaniciiiiadibbiiansnneeiil 25

Rehab. Ass'n of Va. v. Kozlowski, 42 F.3d 1444

(4th Cir. 1994), cert. denied 516 U.S. 811

EE siuiaisUaeidiadeithssihvins.benaliiniaiensoscinttillan 30

v

Schweiker v. Hogan, 457 U.S. 569 (1982) ....0000000...-000 0... 7

Shaw v. Delta Air Lines, Inc., 463 U.S.

ERNE NE Re SE ke LS SA a EE 21, 23

Suter v. Artist M., 503 U.S. 347 (1992) ........000.00.000000 cee. 25

Townsend v. Swank, 404 U.S. 282 (1971)...........0...0000.2.. 31

United States v. Arizona, 641 F.3d 339 (9th Cir.

PN MRED RENE aes nee St Le ee 29

United States v. Locke, 529 U.S. 89 (2000)..................... 25

Verizon Maryland, Inc. v. Pub. Serv. Comm'n

of Maryland, 535 U.S. 635 (2002) .......0000000000000.. — 23

Zschernig v. Miller, 389 U.S. 431 (1968)... 6, 26

STATUTES AND REGULATIONS

Se ee is ee 32

ST 10

P| ee —

i 30 |

damm, nr nie 7

AZ U.SiC. VOOM) ean cececccesesececcecesnessveeesvnssuveessneesessseeeee 10

42 U.S.C. 1396 alay(VO) occ cconene seiianiaceageleans —

42 U.S.C. 1396 alayBOMA) .....ecccceeecceeccoeeeeeeesseeeesvee passim

ee i

vi

42 U.S.C. 1396d(a)(1)-(5), (17), (21) .......:ccecceeereereeeneeereees 10

ee Ei Be cetncstitinicenttsrhniinibinnivaiveninienaastnniiinncmennenes 10

Ae il ee Ie Cadtnccecinistcsdainnvchanduisbicnaapnnaeianestiomiiennsinn 29

Affordable Care Act, Pub. L. No. 111-148, 124

a ints cs cccisiencicosniiadecesndbactnainsbomitinbantaniemnciionnet 8

Cal. Welf. & Inst. Code § 14019.4(a) & (c)...................... 29

Omnibus Consolidated Appropriations Act, Pub.

L. No. 104-208, § 570, 110 Stat. 3009 (1996) ............. 27

i iietisbcncinthch a narcccteeain 27

i ietadicitdasninnttainceticnatitasiteaibienentenmsenuctiiadl 18

a rsietcatisaeciasesacioessseksecomsuedoisniegimieioeniiantn 19

I i biienichidcsnccenstactinnincserebamsionianeinmaiiniiplants 18

OG Ts QC Ie ciccieitactsiossiasinnes seliiinleitiieotimaninieanieiaantidioin 30

Er es en iiinceicachisecinssniiesin acnisaricnniciniaiatciiicinabiinariiihioais 17

74 Fed. Reg. 29703 (June 23, 2009) ..............-scsesceeeeneenee 18

75 Fed. Reg. 80058 (Dec. 21, 2010)............-.ccsseceesseeeeereees 18

76 Fed. Reg. 26342 (May 6, 2011) ..............-.cceeceeeeeees 15,18

76 Fed. Reg. 34711 (June 14, 2011) .......2......cccesceeeeeeeeees 18

76 Fed. Reg. 44591 (July 26, 2011) ..........coecsescscssscoessueeen 18

Vil

OTHER AUTHORITIES

Linda C. Baker & Laurence S. Baker, F xcess

Cost of Emergency Department Visits for

Nonurgent Care, 13 Health Affairs 162 (Nov.

(RAPS EET BE Sie SESS RASAEES Eat Shane ni nreaton ricer

California HealthCare Foundation, Issue Brief:

Overuse of Emergency Departments Among

Insured Californians (2006).......................ccccceceeee0

Centers for Medicare & Medicaid Services,

Medicaid State Plan Amendments,

https//www.cms.gov/MedicaidGenInfo/State

Plan/list.asp (accessed July 11, 2011)........-....-0

Peter J. Cunningham & Len M. Nichols, The

Effects of Medicaid Reimbursement on the

Access to Care of Medicaid Enrollees: A

Community Perspective, 62 Med. Care

Research & Rev. 676 (2005) .............cccccceeeeseeeeeeeeees

Eljay LLC, A Report on Shortfalls in Medicaid

Funding for Nursing Home Care (2010)..............

Exec. Order No. 13,047, § 7,62 Fed. Reg. 28,301

(May 20, 1997) ........--:cec-s-essresrerensersnsernessseneetsnssenseees

H.R. Rep. No. 101-247 (1989) .........eeccesseeesseneneseseesnees

Kaiser Commission on Medicaid and the

Uninsured, Physician Willingness and

Resources to Serve More Medicaid patients:

Perspectives from Primary Care Physicians

CBIBE 1) cececececscccccccncvencesescocccsscesnsccerecsesecceessesoveceosasesoess

a

Vili

Medicaid and CHIP Payment and Access

Commission (“MACPAC”), Report to the

Congress on Medicaid and CHIP (2011) .............. 8,14

Milliman, Hospital & Physician Cost Shift:

Patient Level Comparison of Medicare,

Medicaid, and Commercia! Payers (2008) ................ 12

National! Association of Children’s Hospitals and

Related Institutions, FY 2009 Annual Survey

on Utilization and Financia! Indicators of

Children’s Hospitals (2009).....220...222.......cccccccccececeeeees 12

Sara Rosenbaum, Medicaid and Access to

Health Care — A Proposal for Continued

Inaction?, 365 New Engl. J. Med. 102 (July

eg eee ticatiesisnissialelecnaieiseiedesteslionbansssitatengulanesig stibiaetaptistateiatitiniteian 18

Kevin Sack, As Medicaid Payments Shrink,

Patients are Abandoned, N.Y. Times, March

Bradley J. Sayles, Preemption or Bust: A

Review of Recent Trends in Medicaid

Preemption Actions, 27 J. Contemp. Health

PRD gf, __._| SRA EEE hae ee 30

The Lewin Group, Analysis of Medicaid Reim-

bursement in Oregon 44-45 (2008) ....................ce-0-00 13

U.S. Government Accountability Office,

Medicaid and CHIP: Most Physicians Serve

Covered Children but Have Difficulty

Referring Them for Specialty Care, GAO-11-

| IESE REISER SERS HE PUK NON Seren 14

ix

U.S. Government Accountability Office, Value in

Health Care: Key Information for

Policymakers to Assess Efforts to Improve

Quality While Reducing Costs, GAO-11-445

NE widdicsabiadiniciidbiacemna lh cnstentscuiscagainiematie emia reasanaies Gtiomeen 15

INTEREST OF AMICI’

Amici are the American Health Care Association,

the American Hospital Association, the Association of

American Medical Colleges, the Catholic Healt Asso-

ciation of the United States, the Federation of Ameri-

can Hospitals, the National Association of Children’s

Hospitals, the National Association of Community

Health Centers, the National Association of Public

Hospitals and Health Systems, the National Council for

Community Behavioral Healthcare, and Safety Net

Hospitals for Pharmaceutical Access.* Amici include

associations and networks of hospitals, health systems,

and other healthcare providers and _ collectively

represent over 20,000 facilities, in addition to more than

one hundred thousand individual practitioners, who

supply critically needed medical services to millions of

Americans throughout the nation. Amici share a strong

interest in the proper administration and enforcement

of the statutory requirements of the Medicaid Act.

As Medicaid providers, members of our organiza-

tions are acutely aware of the difficulties Medicaid re-

cipients face when seeking primary, secondary, and ter-

tiary care. Despite a continued commitment to treating

the Medicaid population, increased Medicaid volume at

‘ The parties have consented to the filing of this brief in let-

ters on file with the Clerk. No counsel for any party authored this

brief in whole or in part, and no person or entity, other than amici

curiae, their members, or their counsel, made a monetary contri-

bution intended to fund the preparation or submission of this brief.

* A short description of each of the amici organizations is in-

cluded in an appendix hereto.

2

reduced rates threatens our organizations’ members’

long-term financial viability and ability to adequately

serve Medicaid recipients.

The Supremacy Clause of the Constitution plays a

critical part in the system of structural federalism

adopted by the Founders. Provider suits such as those

brought by respondents vindicate the primacy of feder-

al law by ensuring that the Medicaid Act is not under-

mined or subverted by conflicting state law, and that

the Medicaid program serves Congress’s purpose of

providing meaningful benefits to Medicaid recipients.

Accordingly, amici curiae and their members have a

substantial interest in the important issues raised in

these cases.

INTRODUCTION AND SUMMARY

Petitioners ask the Court to hold that Medicaid

providers are powerless to stop California from enforc-

ing against them drastic cuts in Medicaid payment

rates that violate the mandates of federal law. As these

cases come to the Court, it is taken as a given that Cali-

fornia’s indiscriminate, across-the-board 10% cut in

rates, without any consideration of the impact of those

cuts on beneficiaries’ access to care, violates the Medi-

caid Act. It is also established that respondents, Medi-

caid providers, are directly and substantially injured by

these cuts, which further reduce payment rates that

are, for many providers, already significantly below the

cost of providing care. Finally, it is established that the

administrative review process is singularly ineffective

at vindicating the supremacy of federal law. In fact,

petitioners have essentially disregarded the adminis-

trative process for more than two years, and simply ig-

nored the federal oversight agency when it rejected

3

California’s plan amendment as unsupported by any

evidence. Petitioners nonetheless contend that, even

assuming all of this, Medicaid providers have no cause

of action under the Supremacy Clause to seek a decla-

ration that the cuts are invalid and an injunctén pre-

venting their enforcement against providers. Petition-

ers are wrong.

1. The Medicaid program is responsible for provid-

ing access to medical care for more than a quarter of

the population of the United States and one third of all

children, a percentage that is likely to grow even high-

er. One of the central requirements of any state Medi-

caid program is that the program must ensure access

for beneficiaries to medical services equal to the access

enjoyed by the general population.

Dramatic, indiscriminate cuts of the type at issue in

these cases pose a serious threat to an already over-

taxed safety net for our most vulnerable citizens, in-

cluding millions of seniors, children, pregnant women

and people with disabilities. Hospitals and nursing

homes already are paid by Medicaid programs at rates

far below their costs. Hospitals, on average, are com-

pensated at rates 15% less than their costs, and nursing

home facilities, on average, are paid at rates almost

10% below provider costs. As a result, providers have

been forced to forgo new initiatives and in some cases

cease providing certain services. Low reimbursement

rates have caused large numbers of doctors to with-

draw from the program, with adverse consequences for

the entire safety net. It has, for example, become in-

creasingly difficult for Medicaid beneficiaries to find a

physician, especially a specialist. Medicaid beneficia-

ries have difficulty obtaining specialty consultations at

an alarming rate, roughly three times more often than

4

insured patients. And, as access to physicians becomes

more difficult, patients turn to hospital emergency de-

partments, an inefficient use of resources that only

adds additional pressure to an already over-taxed sys-

tem.

Multiple courts of appeals have held that across-

the-board rate cuts, adopted for purely budgetary rea-

sons and without considering their effect on quality, ef-

ficiency, or the availability of care for beneficiaries, are

precluded by the Medicaid Act. Lawsuits brought un-

der the Supremacy Clause are the only effective way to

prevent states from implementing illegal rate cuts.

The system of administrative oversight by the De-

partment of Health and Human Services (“HHS”) is, by

constrast, structurally incapable of preventing states

from acting in derogation of Medicaid’s equal access re-

quirement. Limited to what information the state pro-

vides it, HHS is ill-equipped to serve as an independent

check against violations of the federal mandate. Nor,

when a violation is identified, does HHS have an effec-

tive way to bring the state into compliance. The

present case, in which petitioners simply ignored the

federal administrative proceeding, and continued to

implement California’s rate cuts even after the pro-

posed state plan amendment was rejected, demon-

strates the inadequacy of the administrative scheme.

Without the ability to bring a suit for declaratory

and injunctive relief under the Supremacy Clause, res-

pondents would have no avenue for relief, but would

instead simply have to endure California’s illegal rate

cuts.

2. This Court has repeatedly recognized that “the

availability of prospective relief of the sort awarded in

5

Ex parte Young gives life to the Supremacy Clause.

Remedies designed to end a continuing violation of fed-

eral law are necessary to vindicate the federal interest

in assuring the supremacy of that law.” Green v. Man-

sour, 474 U.S. 64, 68 (1985). Petitioners ackrewledge

the numerous cases in which this Court has entertained

a Supremacy Clause challenge and do not genuinely

dispute that there are many circumstances in which

such a cause of action exists. See Pet. Br. 42-44. Peti-

tioners spend most of their brief arguing instead that

such a cause of action should not be recognized in the

specific context of a suit to set aside a state law that is

invalid because it conflicts with 42 U.S.C.

1396a(a)(30)(A) (“Section 30(A)”). Those arguments are

mistaken.

There is no basis for petitioners’ contention that a

Supremacy Clause challenge is inappropriate in the

Section 30(A) context because Congress did not create

a separate statutory cause of action “to enforce” Medi-

eaid or confer privately enforceable “individual rights.”

Pet. Br. 20, 25. The absence of a separate statutory

cause of action is of no moment because a plaintiff as-

serting a cause of action under the Supremacy Clause

does not seek to “enforce” the statute. Such a suit does

not afford affirmative relief, such as an injunction di-

recting the defendant to take an affirmative act, or re-

trospective relief, such as damages. Rather, a Supre-

macy Clause challenge is limited to vindicating the

primacy of federal law over inconsistent state law

through a declaration that the state law is invalid and

an injunction against its enforcement.

The preemptive effect of federal law under the Su-

premacy Clause does not depend upon Congress having

created a cause of action against the state. Congress

6

need not specify a statute’s preemptive effect at all.

Indeed, state law can be invalid under the Supremacy

Clause even in the absence of congressional legislation.

In American Insurance Ass'n v. Garamendi, 539 U.S.

369 (2003), for example, an executive agreement was

held to preempt a California statute purporting to re-

gulate conduct relating to Holocaust-era insurance poli-

cies. Id. at 419-420. See also Zschernig v. Miller, 389

U.S. 431, 441 (1968) (state law interfering with foreign

policy can be preempted “even in the absence of a trea-

ty”). And a preemptive federal statute may be directed

at private parties, or even federal officials, rather than

at the state. See, e.g., Crosby v. Nat'l Foreign Trade

Council, 530 U.S. 363, 388 (2000) (statute authorizing

President to adopt calibrated sanctions policy against

Burmese regime preempted state secondary boycott of

companies doing business with Burma). In such cir-

cumstances, one would hardly expect Congress to

create a private cause of action against the state solely

on the off-chance a state enacted legislation to frustrate

the federal scheme.

Petitioners’ other arguments also fail to justify re-

fusing to recognize a Supremacy Clause cause of action

in this case. There is no basis for petitioners’ assertion

that the Supremacy Clause can only be vindicated by

parties who are “regulated” by the invalid state sta-

tute. Pet. Br. 43. In Crosby, for example, Massachu-

setts’ policy of not contracting with companies doing

business in Burma could not be “enforced” against pri-

vate entities, yet companies that were ineligible to re-

ceive state contracts were permitted to bring a Supre-

macy Clause challenge to the state statute. To the ex-

tent that being “regulated” is an essential prerequisite,

Medicaid providers are unquestionably at least as regu-

7

lated as (if not more than) other businesses that have

brought successful Supremacy Clause challenges before

this Court. Providers thus plainly have a sufficiently

direct injury from California’s rate cuts to confer stand-

ing. Precluding such directly injured parties from

bringing a Supremacy Clause challenge would be incon-

sistent with this Court’s recognition that “{aJn individ-

ual has a direct interest in objecting to laws that upset

the constitutional balance between the National Gov-

ernment and the States when enforcement of those

laws causes injury that is concrete, particular, and re-

dressable.” Bond v. United States, 131 S. Ct. 2355, 2364

(2011).

Nor does the fact that Medicaid was enacted under

Congress’s Spending Clause power diminish its

preemptive effect. And, finally, contrary to petitioners’

suggestion, Congress has not impliedly precluded a Su-

premacy Clause cause of action by creating an adminis-

trative remedy to enforce Section 30(A) that must be

exclusive in order to be effective. Indeed, the adminis-

trative process for overseeing state Medicaid programs

is structurally incapable of preventing states from vi-

olating Section 30(A).

I. SuPREMACY CLAUSE CHALLENGES PLAY A

CRITICAL ROLE IN VINDICATING THE PRIMACY

Or THE MEDICAID ACT OVER INCONSISTENT

STATE LAWS

Congress’s purpose in establishing the Medicaid

program, codified in Title XIX of the Social Security

Act (“SSA”), 42 U.S.C. 1396 et seq., was to provide

comprehensive health benefits to “the most needy in

the country.” Schweiker v. Hogan, 457 U.S. 569, 590

(1982) (quoting H.R. Rep. No. 213, 89th Cong., Ist

3

Sess., 66 (1965)). While originally targeting limited

subsets of individuals in particularly difficult circums-

tances, Medicaid was gradually expanded to protect

additional populations unable to secure insurance in the

private market. Many beneficiaries are unable to work,

and those who can are often unable to secure private,

employer-sponsored insurance. See Medicaid and

CHIP Payment and Access Commission (“MACPAC”),

Report to the Congress on Medicaid and CHIP 10

(2011) (the “MACPAC Report”). Today, Medicaid

(along with the Children’s Health Insurance Program

(“CHIP”)) provide coverage for 75 million beneficia-

ries—constituting more than a quarter of the popula-

tion of the United States and one-third of all children—

who otherwise would likely have no health care cover-

age at all. /d at 17, 75. That figure is likely to grow

even larger in the future. See, e.g, Affordable Care

Act, Pub. L. No. 111-148, 124 Stat. 119 (2010).

Medicaid’s beneficiaries rely on the program to

guarantee them access to critical medical services, in-

cluding preventive health checkups, specialist consulta-

tions, mental health counseling, and nursing home care.

These 68 million people benefit from Medicaid, but only

to the extent that it offers meaningful access to health

care services.

As the court of appeals concluded—in a holding

that this Court declined to review, and that therefore

provides the basic premise of this proceeding —

California’s imposition of indiscriminate reductions of

as much as 10 percent to Medicaid rates that were al-

ready below many providers’ costs was inconsistent

with the federal statutory requirements by which Con-

gress sought to ensure adequate access to medical care

for Medicaid beneficiaries. Whether Title XIX is con-

9

strued as establishing procedural requirements or

substantive ones, California’s across-the-board cuts

based purely on state budgetary considerations vi-

olated the federal statutory scheme. Indeed, although

“the State’s own Legislative Analyst warned that the

ten percent rate reduction had ‘the potential to nega-

tively impact the operation of the Medi-Cal Program

and the services provided to beneficiaries by limiting

access to providers and services,” no state official even

considered what impact the cuts might have on accessi

bility. Independent Living Center v. Maxwell-Jolly,

572 F.3d 644, 656 (9th Cir. 2009). Predictably, the cuts

did “force[] at least some providers to stop treating

Medi-Cal beneficiaries.” /d. at 657.

A decision in favor of petitioner would allow not on

ly California, but all states, to defy federal law with vir-

tual impunity. Indeed, in the absence of a Supremacy

Clause challenge, states will be emboldened to enforce

their invalid laws against individuals and businesses

who are directly injured thereby. Those injured parties

will have no avenue by which to vindicate the suprema-

cy of federal law over inconsistent state policy. Where,

as here, the state disregards the requirements of Medi-

caid, it is the Nation’s most vulnerable citizens, includ

ing millions of seniors, children, pregnant women and

people with disabilities, who will suffer most.

A. Congress Required States To Set Medicaid

Payment Rates In A Manner That Would

Ensure Adequate Access To Health Care

For Medicaid Beneficiaries

While Congress gave states a choice whether to es-

tablish a Medicaid program, if a state chooses to do so—

and to accept the associated federal! financial support-

10

it must comply with the federal requirements for the

program set forth in Title XIX and implementing regu-

lations. For those states that choose to participate in

Medicaid, Congress specified those requirements that

the state’s “plan for medical assistance must” satisfy.

42 U.S.C. 1396a(a) (emphasis added).

A central requirement of Title XIX is that each

state program offer meaningful medical benefits to its

Medicaid beneficiaries. Title X1X lists specific services

that any participating state Medicaid program “must”

make available to beneficiaries, which include inpatient

and outpatient hospital services, laboratory and x-ray

services, nursing facility services to beneficiaries aged

21 or older, and physician services. 42 U.S.C.

1396a(a)(10), 1396d(a)(1){5), (17), (21). States are pro-

hibited from limiting access to these services unless

and until they receive explicit permission from HHS

through a waiver. See 42 U.S.C. 1315(a), 1396n.

Congress recognized that meaningful access to

these mandated services requires adequate access to

health care providers. To assure such access, Congress

further required that participating state programs

must *** provide such methods and proce-

dures relating to the utilization of, and the

payment for, care and services available under

the plan * * * to assure that payments are con-

sistent with efficiency, economy, and quality of

care and are sufficient to enlist enough provid-

ers so that care and services are available un-

der the plan at least to the extent that such

care and services are available to the general

population in the geographic area.

1]

42 U.S.C. 1396a(a)(30)(A). Section 30(A) reflects Con-

gress’s specific and expressed intent to “assure” that

“eare and services are available” to Medicaid beneficia-

ries “at least to the extent that such care and services

are available to the general population.” /bid.

Moreover, Section 30(A) expressly links the statu-

tory requirement of available services to the level of

payments that state programs offer providers. Be-

cause state programs do not generally provide services

directly, Congress required that the state’s program

ensure that “payments *** are sufficient to enlist

enough providers” to make services available at a level!

equal to that of the general population. 42 U.S.C.

1396a(a)(30)(A). See also H.R. Rep. No. 101-247, at

2116 (1989) (noting that the expanded Section 30(A) co

dified a regulatory standard “requiring adequate pay-

ment levels”).’

B. Reduced Payment Rates Threaten The Al-

ready Fragile System For Delivering The

Level Of Services Mandated By Congress

A Medicaid program’s ability to provide adequate

access to services as required by Congress depends

upon its paying rates that are adequate to attract pro-

viders. States generally do not provide Medicaid bene-

* Petitioners cite Congress’s repeal of the “Boren Amend-

ment” of Title XIX as evidence that Congress regards private

suits challenging the adequacy of Medicaid payments as “antitheti-

cal” to States’ flexibility in administering Medicaid. Pet. Br. 31.

Petitioners are incorrect, as the repeal of the Boren Amendment in

1997 had no implications for suits to vindicate Section 30(A). See

Br. of Intervenor Resp. in No. 09-958 and California Pharmacists

Resp. in No. 09-1158, at 57-59.

i2

fits directly to program beneficiaries. Instead, states

contract with health care providers—physicians, dent-

ists, hospitals, clinics, mental] health centers, nursing

homes, home health agencies and others—to provide

them.

Medicaid payments, however, are often well below

the levels needed to sustain an adequate provider net-

work. Hospital and nursing home rates, for example,

not only lag behind payments offered by Medicare and

commercial payers for similar services, but also fall far

short of provider costs. The hospital industry has

found Medicaid margins to be on average almost /5

percent lower than hospital costs. See Milliman, Hos-

pital & Physician Cost Shift: Patient Level Comparison

of Medicare, Medicaid, and Commercial Payers 6 (Dec.

2008). Children’s hospitals experience an even greater

shortfall, with Medicaid on average paying only 77 per-

cent of their costs. National Association of Children’s

Hospitals and Related Institutions, FY 2009 Annual

Survey on Utilization and Financial Indicators of Child-

ren’s Hospitals (2009). Base payments to public hospit-

als on average are only 76 percent of hospital costs.

And although public hospitals often have access to ad-

ditional Medicaid payments to support their public mis-

sions, over 40 percent still report a loss on providing

Medicaid care. National Association of Public Hospitals

and Health Systems, America’s Public Hospitals and

Health Systems, 2009 Results of the Annual NAPH

Hospital Characteristics Survey 13-14 (2010). The

nursing home industry similarly has found that Medica-

id pays only 91 percent of provider costs. See Eljay

LLC, A Report on Shortfalls in Medicaid Funding for

Nursing Home Care 2 (2010). The same study calcu-

lated that, on average, nursing homes lose $17.33 per-

13

Medicaid patient, per-day. See ibid. In other words,

most providers lose money for each Medicaid benefi-

ciary that they treat.

Unchecked, and increasingly common, reductions

in Medicaid payment rates to institutional providt@rs

pose a direct threat to beneficiaries’ access to medica)

services. Many initiatives that would improve benefi-

ciary access to care have gone unimplemented, with

hospitals concluding that high Medicaid volumes,

coupled with below-cost reimbursement rates, would

make these initiatives financially unsustainable. See

The Lewin Group, Analysis of Medicaid Reimburse-

ment in Oregon 44-45 (2003). Existing services have, in

some cases, been discontinued for the same reason. In

one highly publicized case, a hospital in Clare, Michi-

gan, shuttered its obstetrical unit in direct response to

the state’s inadequate Medicaid payments. See Kevin

Sack, As Medicaid Payments Shrink, Patients ave

Abandoned, N.Y. Times, March 15, 2010. The state

program reimbursed only 65 percent of hospital costs.

Ibid.

Lowering payment rates for physicians likewise

presents a direct threat to Medicaid beneficiaries’

access to such services. Ample evidence, including

government reports, demonstrates that low reim-

bursement rates have led many physicians, and particu-

larly specialists, to stop treating Medicaid patients.

For example, while 79 percent of physicians participat-

ing in the Medicaid and CHIP accept all privately-

insured children as new patients, less than half—only

47 percent—accept all new patients covered by Medica-

id or CHIP. See U.S. Government Accountability Of-

fice, Medicaid and CHIP: Most Physicians Serve Cov-

ered Children but Have Difficulty Referring Them for

14

Specialty Care, GAO-11-624, at 11 (2011) (“GAO Re-

port”). Even more troubling, another survey found

that almost half of office-based physicians had difficult-

ly referring Medicaid patients for specialty consulta-

tions, more than three times the rate of difficulty expe-

rienced in referring privately insured patients for those

same services. See MACPAC Report at 132.

Physicians already cite inadequate payment as the

most common reason for not accepting Medicaid pa-

tients. MACPAC Report at 132. Among physicians

who do not serve Medicaid/CHIP children, 95% cited

low reimbursement rates as influencing their decision.

See GAO Report at 18; see also Kaiser Commission on

Medicaid and the Uninsured, Physician Willingness and

Resources to Serve More Medicaid patients: Perspec-

tives from Primary Care Physicians 3 (2011) (noting

that almost 90 percent of primary care practitioners

who accept no or only some new Medicaid patients cite

inadequate reimbursement as a reason for their deci-

sion not to participate).

Beyond the direct impact on the availability of phy-

sician services, inadequate payment rates for doctors

also have the indirect effect of shifting the cost of Medi-

caid services to hospitals, whose resources are already

strained. With shrinking access to office-based special-

ty care, many Medicaid beneficiaries turn to hospital

emergency departments for this care. California

HealthCare Foundation, Issue Brief: Overuse of Emer-

gency Departments Among Insured Californians

(2006); Peter J. Cunningham & Len M. Nichols, The Ef-

fects of Medicaid Reimbursement on the Access to Care

of Medicaid Enrollees: A Community Perspective, 62

Med. Care Research & Rev. 676, 691 (2005). Because

providing services at hospital emergency rooms is more

15

costly than at doctors’ offices,* indiscriminately reduc-

ing payments to doctors results in a net reduction in

efficiency for the Medicaid program.

C. State “Flexibility” In Administering The

Medicaid Program Does Not Extend To Re-

ducing Beneficiary Access In Response To

Budgetary Shortfalls

Medicaid’s federal-state partnership structure of-

fers states significant flexibility in establishing delivery

systems, developing payment methodologies, and set-

ting payment rates. While this flexibility is intended to

allow states to achieve the “best value” from their Me-

dicaid programs, see 76 Fed. Reg. 26342, 26343 (May 6,

2011), states have instead repeatedly invoked this

“flexibility” as an excuse to use Medicaid rate cuts to

balance their budgets, resulting in undermining effi-

ciency without improving quality, the two benchmarks

by which “value” is generally assessed. See, e.g., U.S.

Government Accountability Office, Value in Health

Care: Key Information for Policymakers to Assess Ef-

forts to Improve Quality While Reducing Costs, GAO-

11-445, at 2 (2011).

Multiple federal courts have found that Section

30(A) prohibits indiscriminate cuts to Medicaid pay-

ments in response to budgetary pressure. The Ninth

Circuit found that California had failed to consider the

potential impact of its 2008 and 2009 Medicaid rate cuts

on efficiency, economy, quality, or access to care, and

* See Linda C. Baker & Laurence S. Baker, Excess Cost of

Emergency Department Visits for Nonurgent Care, 13 Health Af-

fairs 162 (Nov. 1994).

16

the court therefore set aside the legislation as

preempted by Section 30(A). See Independent Living

Center, 572 F.3d at 652. Other courts have reached

similar conclusions. The Eighth Circuit has likewise

held that Section 30(A) “mandates consideration of the

equal access factors of efficiency, economy, quality of

care and access to services in the process of setting or

changing payment rates,” and that a state therefore

cannot make indiscriminate payment cuts based on

budgetary grounds alone. Minn. Homecare Ass’n v.

Gomez, 108 F.3d 917, 918 (1997). See also Amisub

(PSL), Inc. v. Col. Dep’t of Soc. Services, 879 F.2d 789,

800 (10th Cir. 1989), cert. denied 496 U.S. 935 (1990)

(“[Bjudgetary constraints cannot excuse noncompliance

with federal Medicaid law.”); Kan. Hosp. Ass’n v.

Whiteman, 835 F. Supp. 1556, 1570-1571 (D. Kan. 1993)

(holding that, where “the significant increase in the co-

pay requirement is proposed solely because of its bud-

getary impact in favor of the state, without considering

the other factors listed in the statute, the amendment

would appear to violate 42 U.S.C. § 1396a(a)(30)(A)”).

D. Absent Supremacy Clause Suits, States Will

Continue Making Indiscriminate Rate Cuts,

Thus Threatening Medicaid’s Ability To

Serve Its Congressional Purpose

Although it is well established that Congress pro-

hibited states from simply slashing their rates in an in-

discriminate fashion in order to close a budget gap, in

the absence of Supremacy Clause challenges, states will

remain largely free to do so. The system of federal ad-

ministrative oversight is simply inadequate to protect

the Medicaid Act from such state infringement. A\l-

though states must submit plans and any amendments

to those plans for approval by the Centers for Medicare

17

and Medicaid Services (“CMS”), which administers the

Medicaid program within HHS, CMS lacks the informa-

tion necessary to assess the impacts of state plan

amendments (“SPAs”) on access to care. And the sole

federal remedy once a_ violation is detected—

withholding federal funds—is so unpalatable that states

can largely ignore the federal administrative process,

as petitioners have done here. Supremacy Clause chal-

lenges provide an essential mechanism for ensuring

that states are not implementing Medicaid policies that

are contrary to superior federal law.

1. CMS Lacks The Information That Would

Be Necessary To Assess State Com-

pliance With Section 30(A)

No formal processes currently exist by which CMS

can assess the adequacy of beneficiary access to Medi-

caid services. To the extent CMS reviews access at all,

it does so informally, in the process of reviewing an

SPA. Any review in that context, however, must rely

entirely on information submitted by the state, because

the SPA approval process affords beneficiaries and

providers no meaningful role or redress.

The administrative review process affords CMS lit-

tle opportunity to gather any reliable information about

the extent of beneficiaries’ access to health services.

While CMS requires that states provide public notice of

proposed changes to payment methodologies, states

need not solicit or incorporate public comments in re-

sponse to this notice. 42 C.F.R. 447.205. Once an SPA

is submitted, negotiations occur exclusively and pri-

vately between CMS and the state, and most disputes

between CMS and the state are resolved during these

negotiations. Providers have no express opportunity

18

for input unless CMS denies a SPA and the state ap-

peals that denial to the Secretary of HHS. 42 C.F.R.

430.18. At that point, providers can seek to be recog-

nized as parties to the hearing or to participate as ami-

ci, 42 C.F.R. 430.76, but the rarity of reconsideration

requests renders provider participation virtually non-

existent.” Moreover, because SPA reviews relating to

payment cuts arise only when a state seeks CMS per-

mission for those cuts, the state lacks any incentive to

provide transparent and objective information demon-

strating the full impact of those cuts on beneficiaries’

access to care.°

* Since June 1, 2009, CMS has approved 640 SPAs. Centers

for Medicare & Medicaid Services, Medicaid State Plan Amend-

ments, https://www.cms.gov/MedicaidGenInfo/StatePlan/list.asp

(accessed July 11, 2011). During that same period, there have only

been four requests for reconsideration. 74 Fed. Reg. 29703 (June

23, 2009); 75 Fed. Reg. 80058 (Dec. 21, 2010); 76 Fed. Reg. 34711

(June 14, 2011); 76 Fed. Reg. 44591 (July 26, 2011).

° After the Court granted certiorari in these cases, CMS is-

sued proposed regulations to create a process by which states

could demonstrate compliance with Section 30(A). 76 Fed. Reg.

26342 (May 6, 2011). These proposed regulations have been widely

criticized as representing little improvement over the current SPA

approval process. See Sara Rosenbaum, Medicaid and Access to

Heaith Care — A Proposal for Continued Inaction?, 365 New

Engl. J. Med. 102-104 (July 14, 2011). Regardless of their final

form, the new regulations cannot obviate the need for a judicial

remedy against state laws that violate the Medicaid Act. CMS

cannot, through administrative rulemaking, give itself the power

to enjoin state laws that conflict with the Medicaid Act. And, as

described below, judicial injunctions against preempted state laws

are the only effective means of vindicating the supremacy of the

Medicaid Act.

19

2. Federal Injunctive Relief Provides A

Necessary Complement To HHS’s En-

forcement Powers

CMS’s enforcement powers are structurally inade-

quate to ensure state compliance with Section 30).

To the extent CMS identifies a violation, its sole reme-

dy is the disallowance process. Under this authority,

CMS may withhold or limit Medicaid support to that

state until the agency is satisfied that the program is

and will continue to be compliant. 42 U.S.C. 1396c; 42

C.F.R. 430.35. However, CMS’s decision to withhold

federal funds, either in part or in full, is fraught with

potentially adverse consequences. Such action is coun-

terproductive from a practical perspective; the lack of

federal funds would likely leave states unable to pay

providers, causing providers to stop treating Medicaid

beneficiaries and further exacerbating the access prob-

lem. Moreover, CMS almost certainly would be subject

to acute political pressure, both from the state itself

and its Congressional delegation, should it even threat-

en to withhold funds. Withholding funds is an extraor-

dinary remedy to be used only in the most extreme in-

stances of non-compliance. It is inappropriate, and like-

ly ineffective, for disputes of a lesser magnitude.

California’s 2008 and 2009 payment cuts demon-

strate the limitations of HHS’s enforcement powers

and the essential role played by federal courts in vindi-

cating the requirements of Section 30(A). In Septem-

ber 2008, after these cuts were enacted, they were

submitted for CMS approval through the SPA process.

See Br. of Intervenor Resp. in No. 09-958 and Califor-

nia Pharmacists Resp. in No. 09-1158, at 6. Within 90

days, CMS informed California that CMS could not ap-

prove the cuts because the state had provided inade-

20

quate information to demonstrate that the cuts would

not violate federal Medicaid requirements. Jbid. Cali-

fornia, however, simply ignored CMS’s request for fur-

ther information. /bid. Finally, on November 18, 2010,

over two years after California had implemented its

rate cuts, CMS denied the SPAs for lack of adequate

information. U.S. Cert. Amicus Br. 7. Throughout this

period, while the state was simply ignoring CMS’s ad-

ministrative review, and even after CMS had denied

approval of the SPAs, California persisted in paying

providers at the reduced rate except where the re-

duced rate was specifically enjoined by the federal

courts. Br. of Intervenor Resp. in No. 09-958 and Cali-

fornia Pharmacists Resp. in No. 09-1158, at 5. The only

cuts that California did not unilaterally implement were

those that had been enjoined in actions brought under

the Supremacy Clause.

A similar situation recently arose in Indiana, with

the state once again ignoring CMS’s disapproval of an

SPA. The Indiana legislature had passed legislation

prohibiting providers that furnish abortion services

from participating in the Medicaid program. This pro-

vision went into effect on May 10, 2011. Implementing

this provision immediately, Indiana then sought CMS

approval through the SPA process. CMS disapproved

the SPA on June 1, 2011, explaining that the Indiana

law violated the Medicaid Act. Despite this disapprov-

al, Indiana continued enforcing the legislation and CMS

undertook no enforcement activities. The policy was

not reversed until June 24, 2011, when the United

States District Court for the Southern District of Indi-

ana enjoined further enforcement. See Entry on Mot.

For Prelim. Inj., No. 1:11-cv-630-TWP-TAB (S.D. Ind.

June 24, 2011).

21

As these examples demonstrate, without an availa-

ble cause of action under the Supremacy Clause, states

would be free to adopt and enforce against providers

rate cuts that are precluded by federal law.

Il. THERE Is No Basis To CONCLUDE THAT ASu-

PREMACY CLAUSE CHALLENGE IS PARTICULAR-

LY INAPPROPRIATE IN THE MEDICAID CONTEXT

From its earliest cases, this Court has recognized

that “plaintiffs may vindicate [statutory] preemption

claims by seeking declaratory and equitable relief in

the federal district courts through their powers under

federal jurisdictional statutes.” Golden State Transit

Corp. v. City of Los Angeles, 493 U.S. 103, 119 (1989)

(Kennedy, J., dissenting); id. at 113-114 (collecting cas-

es so holding). And, as the Solicitor General recognizes,

the Court has “decided dozens of preemption claims

against state officials on the merits,” U.S. Br. 17, on the

premise that “{a] plaintiff who seeks injunctive relief

from state regulation, on the ground that such regula-

tion is pre-empted by a federal statute which, by virtue

of the Supremacy Clause of the Constitution, must pre-

vail, * * * presents a federal question which the federal!

courts have jurisdiction under 28 U.S.C. § 1331 to re-

solve.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96

n.14 (1983). Implicitly acknowledging the strength of

that precedent, much of petitioners’ brief, like that of

the Solicitor General, assumes the availability of a

cause of action under the Supremacy Clause in most

circumstances, and instead argues that such a cause of

action should not be recognized in the specific context

of a suit to set aside a state law that is invalid because

it conflicts with Section 30(A).

22

There is no basis, however, for petitioners’ conten-

tion that a Supremacy Clause challenge is particularly

inappropriate in the Medicaid context generally, or the

Section 30(A) context specifically. Petitioners’ argu-

ment that Congress did not create a statutory cause of

action to enforce Medicaid is inapposite. Unlike a sta-

tutory cause of action or one under Section 1983, a

cause of action under the Supremacy Clause does not

allow a plaintiff to seek retrospective or affirmative re-

lief, such as damages or an injunction directing the de-

fendant to take some affirmative action. Rather, relief

is limited to a declaration that the state law is invalid

and an injunction against its enforcement. Moreover,

the Supremacy Clause renders invalid state statutes

that conflict with federal law even in circumstances

where Congress would not be expected to have created

a cause of action against the state. For example, state

laws can be preempted even in the absence of any fed-

eral statute, or where the federal legislation, if there is

any, is directed at private parties, or even federal offi-

cials, rather than at the state.

Nor do petitioners’ other arguments justify refus-

ing to recognize a Supremacy Clause cause of action in

this case. This Courts’ cases do not support petitioners’

contention that the Supremacy Clause can only be vin-

dicated by parties who are “regulated” by the invalid

state statute. Pet. Br. 43. But, if being regulated is a

necessary prerequisite, Medicaid providers are easily

as regulated as other businesses that have successfully

brought Supremacy Clause challenges before this

Court. Nor does the fact that Medicaid was enacted

under Congress’s Spending Clause power diminish its

preemptive effect. And, finally, contrary to petitioners’

suggestion, the administrative review process for state

23

plans does not reflect a congressional intent to preclude

other remedies against state laws that violate Section

30(A).

A. The Availability Of A Supremacy Clause

Challenge Does Not Depend On Whether

The Medicaid Act Creates A Cause Of Ac-

tion Or An Individually Enforceable Right

While petitioners expend numerous pages seeking

to prove that Congress did not provide for a statutory

cause of action in the Medicaid Act itself (Pet. Br. 20-

26), that question is beside the point. This Court has

consistently held that “the existence of conflict cogniz-

able under the Supremacy Clause does not depend on

express congressional recognition that federal and

state law may conflict.” Crosby v. Nat’l Foreign Trade

Council, 530 U.S. 363, 388 (2000). No statutory cause of

action is necessary because the foundational decision in

Ez parte Young, 209 U.S. 123 (1908), established the

authority of federal courts to “vindicate federal rights

and hold state officials responsible to ‘the supreme au-

thority of the United States.’” Pennhurst State School

& Hosp. v. Halderman, 465 U.S. 89, 105 (1984). See

Alden v. Maine, 527 U.S. 706, 755, 757 (1999).

In Shaw, for example, the Court upheld the federal

courts’ authority to grant the plaintiff relief in a Su-

premacy Clause challenge, despite the absence of a

cause of action derived from the preemptive federal

statute. The Court noted that it “frequently has re-

solved pre-emption disputes in a similar jurisdictional

posture.” 463 U.S. at 96 n.14. More recently, in Veri-

zon Maryland, Inc. v. Pub. Serv. Comm’n of Mary-

land, 535 U.S. 635 (2002), the Court rejected the asser-

tion that a district court could not reach the merits of a

24

preemption claim unless the plaintiff had demonstrated

a statutory cause of action.

Petitioners’ suggestion (Pet. Br. 33) that recogni-

tion of a Supremacy Clause cause of action would per-

mit an “end-run” around Alexander v. Sandoval, 532

U.S. 275 (2001), and Cort v. Ash, 422 U.S. 66 (1975), is

mistaken. Petitioners’ arguments ignore the critical

distinctions between a cause of action for affirmative

relief to enforce a federal right, and a suit challenging a

state statute under the Supremacy Clause, which mere-

ly asks the court to set aside and enjoin enforcement of

the invalid state law. “(T]he availability of prospective

relief of the sort awarded in Ex parte Young gives life

to the Supremacy Clause. Remedies designed to end a

continuing violation of federal law are necessary to vin-

dicate the federal interest in assuring the supremacy of

that law.” Green v. Mansour, 474 U.S. 64, 68 (1985).

Indeed, in several decisions in which the Court has held

a damages remedy unavailable against a state, the

Court has stressed that denying a damages remedy

“strikes the proper balance between the supremacy of

federal law and the separate sovereignty of the States”

precisely because Ex parte Young and_ similar

“{ejstablished rules provide ample means to correct on-

going violations of law and to vindicate the interests

which animate the Supremacy Clause.” Alden, 527

U.S. at 757. Here, by contrast, if respondents are de-

nied a cause of action under the Supremacy Clause,

there will be no effective “means to vindicate” the pri-

macy of federal law over a conflicting state statute.

Petitioners’ focus on the purported absence of a

statutory “right” under Medicaid enforceable under

Section 1983 is similarly misplaced. “(Section] 1983

does not provide the exclusive relief that the federal

25

courts have to offer.” Golden State Transit Corp., 493

U.S. at 119 (Kennedy, J., dissenting). Indeed, this

Court has consistently upheld Supremacy Clause chal-

lenges without relying on either Section 1983, or the

preemptive federal statute to establish a cause of ac-

tion. See, e.g., Crosby, 530 U.S. at 363; United States v.

Locke, 529 U.S. 89 (2000); Gade v. Nat'l Solid Waste

mgmt. Ass’n, 505 U.S. 88 (1992); Lawrence County v.

Lead-Deadwood Sch. Dist., 469 U.S. 256 (1985); Capital

Cities v. Crisp, 467 U.S. 691 (1984).’

In the Medicaid context itself, the Court has ad-

dressed preemption claims in numerous cases in which

there was no individually enforceable right or statutory

cause of action. In Pharm. Research & Mfrs. of Aim. v.

Walsh, for example, an association of drug manufactur-

ers challenged the constitutionality of Maine’s prescrip-

tion drug rebate program. 538 U.S. 644, 650 (2003).

All seven Justices agreed that the Supremacy Clause

provided a preemption claim to challenge a state law as

' The Solicitor General’s brief discusses two cases that it

claims demonstrate that “the Court clearly viewed Section 1983 as

the sole source of a private right of action to enforce statutory

provisions governing joint federal-state programs under the SSA.”

U.S. Br. 29-30 (discussing Maine v. Thiboutot, 448 U.S. 1 (1980)

and Suter v. Artist M., 503 U.S. 347 (1992)). In each of those cases,

however, the plaintiffs sought affirmative relief that couk! not

have been provided by a cause of action under the Supremacy

Clause alone. See Suter, 503 U.S. at 353 (noting district court’s

“injunction requiring petitioners to assign a caseworker to each

child placed in DCFS custody within three working days of the

time the case is first heard in Juvenile Court”), Thibuutot, 448 U_S.

at 3 (noting that the Superior Court had “ordered [petitioners} to

adopt new regulations * * * and to pay the correct amounts re-

troactively to respondents”).

26

invalid under the Medicaid Act. Jd. at 667-668. See also

Ark. Dep’t. of Health & Human Servs. v. Ahlborn, 547

US. 268, 274, 292 (2006) (Medicaid Act preempted

ADHS’ assertion of a claim against proceeds that a be-

neficiary received from a personal injury settlement).

Petitioners’ argument that a Supremacy Clause

challenge is unavailable whenever Congress has failed

to provide a statutory cause of action or “right” is par-

ticularly misplaced in light of the fact that state law can

be preempted under the Supremacy Clause even in the

absence of federal legislation. In American Insurance

Ass'n v. Garamendi, for example, the Court upheld a

Supremacy Clause challenge based on conflict between

a state law and federal foreign policy reflected in Ex-

ecutive Agreements. 539 U.S. 396, 419-420 (2003). See

also Zschernig v. Miller, 389 U.S. 431, 441 (1968) (hold-

ing that “[wJhere [state] laws conflict with a treaty,

they must bow to the superior federal policy. Yet, even

in the absence of a treaty, a State’s policy may disturb

foreign relations.”). Because federal “law” that is not

enacted by Congress can preempt inconsistent state

policy, it would be incongruous to require a congressio-

nally enacted private right of action in order to vindi-

cate that preemptive federal policy.

Even where Congress has itself enacted the

preemptive law in question, it may have had no occa-

sion to consider whether to create a cause of action to

challenge a conflicting state law. In Crosby, for exam-

ple, the preemptive statute at issue authorized the

President to impose sanctions on the Burmese regime.

530 U.S. at 366. The statute disavowed creation of any

individual rights, and it did not provide a cause of ac-

tion against anyone, much less against a state in the

unexpected event that one might adopt its own conflict-

27

ing Burma sanctions policy. See Omnibus Consolidated

Appropriations Act, Pub. L. No. 104208, §570, 110

Stat. 3009 (1996); Exec. Order No. 13,047, § 7, 62 Fed.

Reg. 28,301 (May 20, 1997) (“Nothing contained in this

order shall create any right or benefit, substantiye or

procedural, enforceable by any party against the Unit-

ed States * * * or any other person.”); 31 C.F.R. pt. 537

(2003). This Court granted prospective injunctive relief

notwithstanding the absence of a statutory right or

cause of action. Congress undoubtedly intends that

state government officers may not systematically vi-

olate federal statutes, even ones that do not directly

regulate states. By recognizing an implied cause of ac-

tion under the Supremacy Clause in Crosby, the Court

gave effect to that congressional intent, and vindicated

the structural federalism that is fundamental to consti-

tutional design. See Bond v. United States, 131 S. Ct.

2355, 2364 (2011) (“An individual has a direct interest in

objecting to laws that upset the constitutional balance

between the National Government and the States when

enforcement of those laws causes injury that is con-

crete, particular, and redressable.”).

Significantly, pursuant to the Supremacy Clause,

federal legislation may constrain a state in ways that

private actors are not. In Crosby, for example, the fed-

eral Burma sanctions act did not preclude a private in-

dividual or corporation from engaging in a secondary

boycott of companies that did business with Burma.

But, under the Supremacy Clause, a state was forec-

losed from adopting such a sanctions policy because it

undermined the President’s capacity for diplomacy,

which was central to the federal sanctions legislation.

Conversely, a federal statute that regulates automobile

manufacturers may have no direct application to states

28

at all, but nonetheless constrains a state from adopting

legislation that conflicts with the federal standard.

Thus, asking whether the statute provides a statutory

cause of action to enforce its mandate tells one little, if

anything, about whether Congress intended that a

cause of action be available to set aside a state law that

conflicts with the federal policy. In short, a statutory

cause of action to enforce the statute’s requirements

through affirmative relief is distinct from a cause of ac-

tion under the Supremacy Clause to set aside an incon-

sistent state law. The availability, or absence, of the

former type of action is inapposite to the availability of

the latter.

B. A Supremacy Clause Cause Of Action Is Not

Limited To Parties Who Are “Regulated” By

The Invalid State Statute, But If It Were,

Medicaid Providers Would Qualify

Apparently recognizing that they cannot explain

this Court’s Supremacy Clause precedent by reference

to statutes that provided statutory rights or causes of

action, petitioners urge that the remaining cases mere-

ly represent instances in which a regulated party that

might otherwise have raised preemption as a defense to

an enforcement action was permitted to bring an antic-

ipatory claim for declaratory relief. Pet. Br. 43. That

explanation also fails to account for the full breadth of

the Court’s preemption precedent. But, to the extent

petitioners’ definition of “regulated” parties is broad

enough to encompass the remaining precedent, Medica-

id providers would easily so qualify.

Notably, petitioners appear to recognize that their

framework cannot explain the Court’s decision in Cros-

by, and so petitioners ignore the case. The Solicitor

29

General readily acknowledges that Crosby does not

“readily” fit petitioners’ artificially constructed catego-

ry. US. Br. 23n.8. The government contends, howev-

er, that Crosby is sufficiently analogous to the anticipa-

tory assertion of a defense against enforcement beaause

“the state law was an affirmative (and independent)

exercise of the State’s authority to impose and enforce

what were essentially state regulatory standards.” /b-

id. But that is not accurate. In Crosby, Massachusetts

had adopted a law prohibiting state contracting officers

from purchasing goods from companies that did busi-

ness with Burma. 530 U.S. at 367-370. There were no

“enforcement” proceedings that could be brought

against such companies; they were simply ineligible for

government contracts.”

Even assuming that it is necessary to be a “regu-

lated” entity in order to maintain a Supremacy Clause

challenge, Medicaid providers are easily as “regulated”

by a State’s Medicaid payment rates as were the busi-

ness plaintiffs in Crosby. Medicaid providers are paid

directly by Medicaid for the services they provide to

eligible beneficiaries, and, significantly, these payments

must be accepted as payments in full. See Cal. Welf. &

Inst. Code § 14019.4(a) & (c); see also 42 U.S.C. 1320a-

7b(d); 42 C.F.R. 447.15; Rehab. Ass’n of Va. v. Koz-

lowski, 42 F.3d 1444, 1447 (4th Cir. 1994), cert. denied

516 U.S. 811 (1995). Moreover, although providers, like

* Ironically, the Solicitor General’s position here would defeat

its ongoing challenge to Arizona’s immigration law, SB 1070.

United States v. Arizona, 6A1 F.3d 339 (9th Cir. 2011). The federal

government is not subject to enforcement under the law, and,

moreover, portions of Arizona’s immigration statute directly regu-

late only state officials. See, e.g., A-R.S. § 11-1051.

30

states, “opt in” to Medicaid, non-participation is virtual-

ly impossible as a matter of practical necessity. Pro-

viders who choose not to participate in Medicaid face

significant potential consequences. For instance, the

Emergency Medical Treatment and Active Labor Act

(“EMTALA”), 42 U.S.C. 1395dd et seg., requires hos-

pitals with emergency departments to treat Medicaid

beneficiaries who present themselves to those emer-

gency departments. Violations of EMTALA carry sig-

nificant civil penalties; see also Bradley J. Sayles,

Preemption or Bust: A Review of Recent Trends in

Medicaid Preemption Actions, 27 J. Contemp. Health

L. & Pol’y 120, 123-124 (2011). Medicaid providers are,

thus, at least as directly affected by a state’s across-

the-board cut in payment rates as were the businesses

in Crosby, which simply wanted to be able to bid for

more work from Massachusetts. To the extent that

Supremacy Clause challenges are limited to “regu-

lated” entities, respondents certainly qualify under the

criteria applied in Crosby.

The “regulated party” test, as construed by the So-

licitor General, really amounts to a proxy for the kind of

direct injury that would give a party standing. See

Bond, 131 S. Ct. at 2363-2365 (holding that individuals

with concrete injury have “standing to object to a viola-

tion of a constitutional principle that allocates power

within government”). Here, there is no doubt that res-

pondents and the patients they treat would be directly

injured if California were permitted to implement its

illegal rate cuts, and their Supremacy Clause challenge

is therefore proper.

31

C. There Is No Basis For According Spending

Clause Legislation Less Effect Under The

Supremacy Clause

Nothing in the text of the Constitution limits the

preemptive effect of a law depending upon the constitu-

tional power Congress was exercising in adopting the

statute. The preemptive effect under the Supremacy

Clause of statutes enacted under the Spending Clause

is the same as for laws enacted under any other consti-

tutional power. Like all statutes, laws enacted under

the Spending Clause are “supreme” over inconsistent

state law.

Thus, this Court has repeatedly recognized the

preemptive power of Spending Clause legislation, in-

cluding Medicaid in particular, over conflicting state

statutes. See, e.g., Dalton v. Little Rock Family Plan-

ning Servs., 516 U.S. 474, 476-478 (1996) (per curiam)

(leaving in place district court injunction enjoining ap-

plication of state law prohibiting expenditure of state

funds for abortions in the case of incest or rape to the

extent it “imposed obligations inconsistent with” the

Hyde Amendment to the Medicaid Act, a spending bill);

Blum v. Bacon, 457 U.S. 132, 145-146 (1982) (state pro-

gram discriminating against AFDC beneficiaries

preempted by federal regulation); Carleson v. Remil-

lard, 406 U.S. 598, 604 (1972) (state rule denying assis-

tance to children of military members preempted by

AFDC); cf. Pennsylvania Prot. & Advocacy, Inc. v.

Houstoun, 228 F.3d 423, 428 (3d Cir. 2000) (Alito, J.).

Similarly, in Townsend v. Swank, 404 U.S. 282, 285

(1971), this Court held that an Illinois statute was

“invalid under the Supremacy Clause” because it con-

flicted with the Aid to Families with Dependent Child-

ren program, a provision of the Social Security Act that

32

was adopted as Spending Clause legislation. See also

Ark. Dep't of Health & Human Servs., 547 U.S. at 268.

D. Congress Did Not Adopt An Exclusive Ad-

ministrative System To Enforce Section

30(A) That Would Preclude Challenges Un-

der The Supremacy Clause

Petitioners contend that permitting a cause of ac-

tion under the Supremacy Clause is incompatible with

“Congress’s decision to centralize enforcement authori-

ty in HHS.” Pet. Br. 26. There is nothing in Medicaid’s

administrative scheme, however, to suggest that Con-

gress viewed private suits to set aside preempted state

statutes as inconsistent with that scheme. Indeed, the

Solicitor General disavows any suggestion that “Con-

gress has displayed an intent” to preclude Supremacy

Clause challenges. See U.S. Br. 32 n.12 (internal quota-

tion omitted). The most the Solicitor General can say is

that Section 30(A) would not be “a ‘dead letter’”” if Su-

premacy Clause challenges were not permitted. Ibid.

But that is insufficient to support petitioners’ argument

for administrative exclusivity.

Petitioners cite this Court’s decision in Astra USA,

Inc. v. Santa Clara County, 131 S. Ct. 1342 (2011), in

support of their argument, but that case is readily dis-

tinguishable. See Br. of Intervenor Resp. in No. 09-

958 and California Pharmacists Resp. in No. 09-1158, at

41-42. In particular, the 340B program stands in stark

contrast to Section 30(A). In Astra, participating

pharmaceutical manufacturers each signed a standard-

form Pharmaceutical Pricing Agreement (“PPA”) with

HHS. 42 U.S.C. 256b(a). The PPA specifies the maxi-

mum price at which manufacturers may sell their drugs

to eligible providers, with this price being determined

33

using a uniform statutory formula. The Medicaid Act,

by contrast, is almost unique in its lack of uniformity

across the Nation. State Medicaid programs differ sig-

nificantly from one another. The Medicaid Act permits

states to develop unique benefit structures, delivery

systems, and payment methodologies. Such a structure

does not allow for enforcement under a single nation-

wide standard.

As previously discussed, see supra, 16-21, the ad-

ministrative system for monitoring compliance with

Section 30(A) is particularly lacking. The agency relies

on the submission of state plan amendments as the only

opportunity to assess rate cuts, and, even then, the

agency is entirely dependent on the information sub-

mitted by the state. Even when the state ignores the

administrative process, it is free to move ahead with its

rate cuts with seeming impunity. That is hardly the

type of “centraliz[ed] enforcement authority” that

would preclude other available means of preventing

states from enforcing laws that were contrary to Medi-

caid’s mandates.

CONCLUSION

The Court should affirm the holding of the court of

appeals.

34

Respectfully submitted.

DOUGLAS HALLWARD-DRIEMEIER

Counsel of Record

LARRY S. GAGE

BARBARA D. EYMAN

CHARLES A. LUBAND

DAVID Z. GROSS

MATTHEW B. ARNOULD

RopEsS & Gray LLP

AUGUST 2011