On February 22, 2012, the Supreme Court decided Douglas v. Independent Living Center of Southern California, No. 09-958, vacating several decisions of the United States Court of Appeals for the Ninth Circuit that had enjoined the state of California from implementing laws it passed authorizing reductions in payments to Medicaid providers.
In 2008 and 2009, the California legislature passed three statutes changing the state's Medicaid plan. The statutes reduced payments that the State made to various Medicaid providers, such as physicians, pharmacies, and clinics. Under Medicaid, a cooperative federal-state program designed to provide medical care to needy individuals, California was required to submit these changes as amendments to its state Medicaid plan to the federal agency charged with administering Medicaid, the Centers for Medicare and Medicaid Services (CMS). Before CMS approved these amendments, it needed to ensure that they complied with federal statutory and regulatory requirements governing Medicaid, including the requirement that any changes "assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers." 42 U.S.C. § 1396a(a)(30)(A).
Unhappy with these proposed rate reductions, several Medicaid providers and beneficiaries brought suit to enjoin the State of California from implementing its statutes. In a series of decisions, the United States Court of Appeals for the Ninth Circuit affirmed or ordered preliminary injunctions, essentially holding that (1) Medicaid providers and beneficiaries could bring suit under the Supremacy Clause; (2) California had not demonstrated that its proposed amendments and rate reductions would be "sufficient to enlist enough [Medicaid] providers"; and (3) because of the Supremacy Clause, the federal statute preempted the State's new laws.
The Supreme Court vacated the Ninth Circuit decisions. The Court focused its decision largely on the change circumstances since the Court had granted certiorari and the case had been argued––specifically, that CMS had "reversed course" and decided to approve several of California's statutory amendments to its Medicaid plan. Although this change did not make the cases moot, the Court held that the agency's new decision "may change the answer" to the question of whether the challenged rate reductions complied with federal law. This was particularly true given that the new CMS decision made the providers' challenge resemble an ordinary claim under the Administrative Procedure Act. "[T]o allow a Supremacy Clause Action to proceed once the agency has reached a decision threatens potential inconsistency or confusion," the Court explained.
The Court accordingly vacated the injunctions affirmed by the Ninth Circuit and remanded for further proceedings. It declined to decide whether the cases could proceed "in a Supremacy Clause action," or instead "under the APA for review of an agency decision." Because of the complexity of the case, and in light of the fact that not all considerations had "been presented in the briefs," the Court remanded for the Ninth Circuit to consider these issues in the first instance.
Justice Breyer delivered the opinion for the court, in which Justices Kennedy, Ginsburg, Sotomayor, and Kagan joined. Chief Justice Roberts wrote a dissenting opinion, in which Justices Scalia, Thomas, and Alito joined.