Challenging Medicaid Underpayments: Impact of the Armstrong Case

This article is reprinted with permission from the June 2015 edition of the American Health Lawyer Association Journal of Health and Life Sciences Law, volume 8, number 3 at page 3. The Journal has an online order link here for anyone who wishes to subscribe.
Healthcare and justice

(July 8, 2015): On March 31, 2015, the United States Supreme Court issued its decision in Armstrong v. Exceptional Child Center. [1]The decision is argu­ably one of the most important decisions to providers of services under Medicaid[2] since the inception of the program in 1965. The decision, by a 5-4 vote, essentially held that there is no private right of action for providers, or arguably beneficiaries, to enforce Section 1902(a)(30)(A) of the Social Security Act, commonly referred to as the “equal access” provision, by challenging inadequate provider rates under Medicaid. Since providers had relied on the equal access provision as the basis for seeking relief from deficient rates[3] the decision severely limits, if not eliminates, the use of federal courts as a forum for these disputes. The equal access provision requires state Medicaid programs to:

"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 services are available to the general [public]."[4]

The Court’s majority, comprised of Chief Justice Roberts and Jus­tices Scalia, Thomas, Alito, and Breyer, concluded that for the equal access provision to be enforceable by a private entity, Congress would need to provide specific language demonstrating its intent that private parties such as providers, and presumably beneficiaries, had a right to enforce the provision. The majority concluded that Congress had not. Instead, the majority stated that the appropriate remedy was for the United States Department of Health and Human Services (HHS) to cut off Medicaid funds to a state that violated the equal access provi­sion under 42 U.S.C. § 1396c, a remedy that provider and beneficiary representatives and most dispassionate observers would consider highly unrealistic.

Justice Breyer stated in a separate concurring opinion his belief that providers could petition the agency under the Administrative Procedure Act (APA) to “interpret its rules to respondents’ satisfac­tion, to modify those rules, to promulgate new rules or to enforce old ones[.]”[5] He then suggested providers could appeal a denial of such requests under the APA as constituting arbitrary and capricious agency conduct.[6]

Dissenting Justices Sotomayor, Kennedy, Ginsburg, and Kagan took the position that a private right of action existed under the equitable powers of federal courts and Ex parte Young,[7] and that the absence of specific language in the equal access provision specifically conferring such a right was unnecessary for providers and the Court to invoke this doctrine.

Without addressing the plausibility of the majority’s view, the ques­tion becomes what vehicles are left for providers to address deficient rates. First, in May 2011, the Centers for Medicare & Medicaid Services (CMS) published proposed rules that, if adopted in final, would have required states proposing rate reductions or changes in rate methodol­ogies to develop relatively contemporaneous data to demonstrate the adequacy of rates to retain sufficient provider participation, as well as to monitor access.[8] Many of us who remember the pre-Boren era when HHS took a far more active role in examining state rate structures for hospitals and nursing facilities were hopeful that perhaps the 2011 proposed rules signified a partial return to more aggressive federal oversight. Four years later, however, we are still waiting for final rules.

Provider representatives might redouble their efforts to seek strong regulations from CMS. While this may seem unrealistic, those of us who handled Boren amendment lawsuits recall Medicaid directors who relied on those challenges for leverage to remedy what they rec­ognized to be insufficient state appropriations. With the absence of federal court oversight under Armstrong, it may become more viable to find support for increased agency oversight.[9] Additionally, although likely cumbersome and in need of additional analysis, there is Justice Breyer’s suggested remedy of using the APA to force these efforts.

With the advent of delivery system reform and Medicaid expansion in those states that adopt it, states will be increasingly moving away from fee-for-service payment and toward alternative payment methods such as managed care, global fees, shared savings programs, and bundled payments. Providers concerned with the adequacy of reimbursement should take advantage of this sea change and look for opportunities to include shared savings mechanisms like payment incentives for reduced hospitalizations and unnecessary use of the emergency department, as well as the removal of rules, such as the three-day hospital rule under Medicare for eligibility for skilled nursing facility services.

Providers might also use the political process to place some teeth into requirements for Medicaid managed care organizations, either at the state or federal level, to ensure adequate payment rates. This may be more feasible now, given the focus on wellness and disease manage­ment and increased awareness that certain expenditures at one point in the system may reduce health care expenses overall.

Finally, providers will need to review carefully whether their state courts and administrative appeals processes provide a vehicle for addressing deficient rates, and where they do not, attempt to use the political process to change them.

This is not meant to be an exhaustive list of potential remedies, nor is it meant to imply that any of these actions will be easy. However, with the diminution or elimination of federal courts as a vehicle to enforce the need for adequate provider payment, and the impact that deficient rates can have on access, all stakeholders should have an incentive to find a politically viable alternative for such enforcement.

Michael Cook
Michael Cook is a Partner and Co-chair of the Health Care Group at Liles Parker PLLC. Mr. Cook has practiced health care law and policy full-time for more than forty years. He is a member of the Journal Editorial Board. Contact him via email at For a free consultation, call: 1 (800) 475-1906.
  • [1] Armstrong v. Exceptional Child Care Ctr., Inc., 135 S. Ct. 1378 (2015).
  • [2]42 U.S.C §§ 1396 et seq.
  • [3] Certain institutional providers such as hospitals, for inpatient hospital services, and nursing facilities had relied on Section 1902(a)(13)(a) of the Social Security Act, the so called Boren amendment, as a source to challenge deficient rates prior to its repeal as part of the Balanced Budget Act in 1997. See Pub. L. No. 105-33, § 4711 (1997).
  • [4] 42 U. S. C. § 1396a(a)(30)(A).
  • [5] Armstrong (Breyer, J. concurring).
  • [6] ld.
  • [7] Ex parte Young, 209 U.S. 123 (1908)
  • [8] Medicaid Program; Methods for Assuring Access to Covered Medicaid Services, 76 Fed. Reg. 26342 (May 6, 2011) (to be codified at 42 C.F.R pt. 447)
  • [9] One substantial question in this area is whether Congress will provide the necessary resources for CMS to handle this function, even if the agency has the will to do so.