The other big healthcare case this term is actually three cases. In Douglas v. Independent Living Center of Southern California, Douglas v. California Pharmacists Association, and Douglas v. Santa Rosa Memorial Hospital, the State of California has asked the Court to review 9th Circuit rulings that struck down the state’s effort to reduce Medicaid reimbursement rates for health care providers. The Court will hear oral argument in these cases on Monday, October 3, 2011.

(Not to be confused with The Big Healthcare Case, which is actually eighteen individual cases rattling around federal court dockets at all levels, including Thomas More Law Center v. Obama, where the government’s brief in opposition is due in the US Supreme Court next week; you can follow all of the Obama-care cases at the ACA Litigation Blog.)

In 2008, the California legislature passed a law that would have reduced state reimbursements to Medicaid providers by 10%. (In the course of litigation, lawmakers would make other attempts to reduce reimbursement rates, thus the three different cases currently pending.) Various providers and beneficiary groups sued to enjoin implementation of the new reimbursement scheme. Under the federal Medicaid Act, a participating state’s reimbursement plan must ensure that beneficiaries have the same access to quality healthcare as the general public. The plaintiffs worried that such a drastic reduction of payments would drive providers away from the Medicaid market, and would operate to diminish the availability and quality of care for Medicaid beneficiaries. They argued that the effect of the state law reducing payments conflicted with the text of the federal law demanding appropriate care for beneficiaries, and asked the court to strike the state law as a violation of the Supremacy Clause of the US Constitution.

After various dismissals, appeals, and remands–as well as an earlier failed petition to the US Supreme Court–the 9th Circuit agreed with the plaintiffs and voided California’s reduction of reimbursements. The circuit court found that the state should have commissioned a study of the law’s impact to insure that the new plan would meet the standards of the Medicaid Act. The court reasoned that even though the text of the federal statute only says that payments shall be sufficient to maintain a certain level of care, a state law that reduces payments without any apparent regard for the effect on care is preempted by the federal law.

Concurrent with the litigation, California submitted its various Medicaid plan amendments for approval by the US Department of Health and Human Services. HHS asked the state for information about the potential effect of the changes on healthcare access, but according to one briefer in this case, “The requested information was not forthcoming.” HHS disapproved California’s applications. (Requested to brief the issues at the petition-stage, the US Solicitor General urged the Court to deny the petitions because separate administrative processes ongoing before HHS could very well resolve the central disputes in these cases.)

The question the Court will consider on October 3rd is whether or not the plaintiffs can maintain a cause of action under the Supremacy Clause. One lower court held that preemption claims are only available where 1) a state law requires the plaintiff to violate a federal law, 2) a state law restricts the plaintiff’s conduct that is permitted by a federal law, or 3) a state law impairs a right the plaintiff enjoys under a federal law; that court also held that none of these conditions are present here. But the 9th Circuit applied a much broader standard, finding a “general rule” that permits individuals to pursue injunctive relief under the Supremacy Clause.

Although oral argument is less than two weeks away, a decision in the case will not be expected for at least a few months. But please tune in for all the developments in this other big healthcare case…