Circuit Approves Health Care Cuts in California

PASADENA, Calif. (CN) - The U.S. Department of Health and Human Services did not violate federal law with a 10 percent funding cut to a California program, the 9th Circuit has ruled.

In spring 2011, Gov. Jerry Brown signed Assembly Bill 97 to tackle the California's massive debt, cutting rates for providers of health care and the California Medical Assistance Program, or Medi-Cal.

Late last year, a Medi-Cal beneficiary, five pharmacies, a pharmacy organization, an independent living center and a California association of independent living centers sued California and Secretary of the U.S. Department of Health and Human Services Kathleen Sebelius in the Central District of California to block the cuts under the Medicaid Act.

After U.S. District Judge Christina Snyder blocked enactment of the cuts for some Medi-Cal programs, the state and federal government appealed.

The court also modified the injunction to exclude some services, and the plaintiffs cross-appealed that issue.

On Thursday, a three-judge panel vacated the injunctions in the four cases.

Sebelius was not required to "follow any specific procedural steps" to approve the cuts in reimbursement rates "such as considering providers' costs," the ruling states.

She also complied with the Administrative Procedures Act, it adds.

The court said its decision was compelled by Supreme Court precedent, the 1984 decision Chevron U.S.A v. Natural Resources Defense Council.

Chevon requires deference to Sebelius' interpretation of California's amendment to its Medicaid plan - called a state plan amendment, the ruling states.

"Considering all the evidence of Chevron-esque delegation in these cases, we hold that the balance tips to the side of deference - both to the secretary's implicit interpretation that states are not required to follow any specific methodology in submitting SPAs [state plan amendment] and to its explicit determination that the SPAs at issue comply with federal law," Judge Stephen Trott wrote for the panel.

The decision notes that Medicaid "is a colossal undertaking," with joint funding from the U.S. government and the states.

"Congress explicitly granted the secretary authority to determine whether a state's Medicaid plan complies with federal law," Trott wrote. "The secretary understands the [Medicaid] Act and is especially cognizant of the all-important yet sometimes competing interests of efficiency, economy, quality of care, and beneficiary access."

The Supreme Court's February 2012 ruling, Douglas v. Independent Living Center, also helped the circuit conclude that providers were unlikely to prevail on their claims that California had violated the supremacy clause of the U.S. Constitution.

"Even assuming that the supremacy clause provides a private right of action - the secretary has reasonably determined that the state's reimbursement rates comply with § 30(A) [of the Medicaid Act]," Trott wrote.

The court also rejected the claims under the takings clause, which prohibits the government from using "private property for public use without just compensation."

"Medicaid, as a voluntary program, does not create property rights," Trott wrote.

The court reversed the finding that providers would likely succeed on their claims, and remanded for further proceedings.

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