« Forum Shopping Goes North--Or Just Come to Southern California | Main | New wave of insider trading prosecutions, and Gordon Gekko is back (sort of) »

Tuesday, February 28, 2012

Douglas v. Independent Living Center: The most important healthcase federalism case you've never heard of?

One can make a plausible case, at least for this SCOTUS term, that there is an inverse relationship between the news coverage of a federalism case and that case's practical importance for the federal system's actual operation. Take HHS v. Florida (aka the PACA "individual mandate" case). The case is, of course, receiving piles of media and judicial attention, the Court having lavished two hours of oral argument on the individual mandate alone. But striking down the individual mandate on the grounds proffered by Florida has zero practical effect on the power of the federal government, which, under Florida's (aka Randy Barnett's) theory, could impose practically the same mandate on private individuals to buy health insurance just so long as the mandate was conditioned on some commercial activity -- say, working at a job affecting interstate commerce. In short, in the unlikely event that Florida wins, we will get more "federalism etiquette, akin to the requirement that guns cross state lines before the feds can ban 'em: Congress will just have to latch on to individual mandates some nexus to some commercial activity -- driving a car, buying or renting a house, holding down a job, etc.

Now consider a case that the media has pretty much ignored but that arguably has much more important implications for how our federalism operates -- Douglas v. Independent Living Center. In this decision handed down last Wednesday, the Court ducked a decision on whether beneficiaries of Medicaid have a right under the Constitutions' Supremacy clause to enforce the Medicaid grant program's requirements against the State of California. Those federal conditions require that California maintain payments "sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area" (42 U.S.C. section 1396a(a)(30)(A)). After California slashed payments by 10% without any findings as to "sufficiency," the affected healthcare providers sued under the Supremacy clause, effectively claiming that California's cuts were "preempted" by federal law.

Unlike the "individual mandate" issue, designing remedies for subnational governments' violations of conditions on federal grants is a vitally important issue, not just a way to give President Obama a black eye. As I suggest after the jump, the entire intergovernmental system of poverty alleviation -- not just Medicaid but also all of the other state-federal poverty programs like Title I of ESEA, CDBGs, TANF, Head Start, and the SNAP ("Food Stamps") program -- is threatened by familiar subnational incentives to "cheat" by diverting the money to ends other than relief of poverty. The Douglas Court used APA section 706 review of federal agency discretion rather than private causes of action directly against the state grantee as the tool of choice -- a sort of compromise between agency power and private rights. Whether it is a compromise that will succeed over the long haul is uncertain. But this sort of fine-grained institutional engineering is far more important for real federalism than the practically vacuous but politically fraught symbolism of the PACA litigation.


1. Consider, first, the problem of states' faithless agency when administering federal poverty programs. It is a familiar point that poverty programs provide a beneficial external effect that subnational governments tend to slight: Each state has incentives to encourage neighboring states to bear the cost of indigent citizens, by encouraging the latter to migrate to the former. One does not need to be an economist to see that (in Justice Cardozo's words) states will "h[o]ld back through alarm lest, in laying such a toll upon their industries, they would place themselves in a position of economic disadvantage as compared with neighbors or competitors" (Steward Machine at 588). Federal correction of this subnatinal incentive with grants, however, requires the feds to have some effective way of inducing the states to comply with federal grant conditions. Given that all money is green, monitoring such compliance can be tricky: How can one tell if states are not reducing their own fiscal efforts on behalf of the poor by exactly the amount of the federal grant? In particular, how can one tell if the states are spending "enough" when the program does not consist of a specific entitlement to a fixed sum of money but rather to an amorphous quantity of "adequate" care?

California's behavior in Douglas suggests precisely the sort of faithless agency that the feds are supposed to check. Initially (in early 2008), the California legislature simply imposed an "across-the-board" 10% cut on Medicaid expenditures. They made no findings that 10% was the right cut in light of medical costs or patient needs: The cut was driven purely by the need to reduce expenditures rather than raise taxes. By early 2009, California had backed off this most aggressive position and instead more modestly clipped spending (by, for instance, capped wages and benefits of in-home care providers). But there still was no systematic effort to measure how much cares costs and whether the cuts imposed were consistent with the federally defined minimum level of adequate care.

2. Second, consider the difficulty of using a private litigation remedy to correct states' bad incentives. Charles Reich's concept of "New Property" specifies that the beneficiaries have some sort of entitlement to the "right" level of care that they should be able to vindicate through some sort of private cause of action. The problem with such "New Property," however, is that, for complex programs -- health care and education, for instance -- the right is an entitlement to a collective good of sound decision-making in general, not an individual sum of money. Reducing wasteful or inefficient spending does not violate federal grant conditions, while reducing necessary spending does, and the distinction between the two has to be based on the overall quality of the states' decision-making process, not the state's denail of a particular benefit in any specific case.

Guided by the idea that federal poverty programs encourage collective governance rather than any specific individual benefits level, the SCOTUS has, in cases like Blessing v. Freestone, 520 U.S. 329 (1997) and Gonzaga University v. Doe, 536 U.S. 273 (2002) trimmed back on judicial inferences that either federal benefits statutes or section 1983 create any private cause of action to enforce federal benefit requirements. The plaintiff-respondents attempted an end-run around these SCOTUS decisions by claiming that California's 10% plan violated the Supremacy clause by running afoul of the Medicaid Act. But this re-packaging of the private cause of action was not likely to persuade the Court: Even the Obama Administration weighed in with an amicus brief arguing that there could not be a private cause of action to enforce the criteria with which states must comply in order to qualify for federal grants.

In principle, Ex Parte Young states that private persons can raise a federal law as a defense against state actions that are preempted by that law. But the Obama Administration relied on the pre-"New Property" idea that federal "preemption" of the state's denial of monetary assistance is different from the ordinary federal preemption of a state's "affirmative enforcement actions." But why, exactly? Both state actions arguably violate federal law: Why is an individual's protecting their access to health care from an illegal 10% cut different from an HMO's protecting itself from state tort liability with ERISA preemption?

The amicus brief did not offer any justification or even explanation for the distinction, but the implicit reasoning is easy to infer: Public money is different from private property or liberty -- even public money to which a private person is allegedly entitled. Both the Administration's and Court's intuitive sense is that private parties just cannot have the same access to the courts for claims on a state's fisc as for claims to be left alone by the state. This taken-for-granted distinction suggests how utterly dead Reich's concept of "New Property" is, forty years after it was triumphantly announced as the dawn of a new legal era.

3. So what should be the remedy for state disobedience to federal commands, if private causes of action against the state government are not permitted? The majority, in an opinion by Justice Breyer, offered an interesting compromise between total agency discretion and private entitlement to sue: The majority remanded the case to the Ninth Circuit for a determination of whether the respondents should proceed against the Center for Medicaid & Fedicare Services ("CMS") under the APA rather than against California under the Supremacy clause. This solution was plausible because CMS approved some of California's proffered plan amendments a month after oral argument, thereby giving rise to some administrative "action" that the federal courts could review pursuant to APA section 704.

How effective is such judicial review of federal agency action? On one hand, one could argue that it is better than a purely administrative remedy under which the federal agency threatens recalcitrant states with loss of federal money. Especially where the grant revenue funds a redistributive program that the state might be tempted to forego entirely, the threat to pull the grant might not be credible: Why would the federal agency hurt the very people that the federal program is trying to assist? On the other hand, judicial review of CMS's decision to settle with California places the agency squarely in the courtroom where it can defend its systematic approach to managing state-federal relations. Justice Breyer sent unsubtle signals that the Ninth Circuit should afford CMS maximum deference, citing Chevron and Brand X.

One can reasonably complain that Breyer's compromise was legally shady. As Chief Justice Roberts noted in a dissent joined by Justices Scalia, Alito, and Thomas, Justice Breyer's suggestion required a wholesale transformation of the plaintiffs' lawsuit -- not only the legal theory but the nature of the record, the defendant, and the standard of review. By contrast, the dissent "would dispel all these difficulties" by simply kicking the respondents out of court altogether.

As a matter of tight logic, it is hard to argue with Roberts' dissent. As a matter of practical federalism, however, I do not think that the majority could stomach leaving the plaintiff-respondents with no remedy whatsoever. I am not sure whether the sort of highly deferential remedy suggested by the majority will be very effective in the future: What will program beneficiaries do when the federal agency simply sits on its hands? Will such inaction constitute "action" under Heckler v. Chaney, Norton v. SUWA, 542 U.S. 55 (2004) and APA section 551(13)?

Search me. But I much more certain that the reality, as opposed to the PR, of federalism rests more on such nitty-gritty than on the high-falutin symbolism of the litigation over the individual mandate.

Posted by Rick Hills on February 28, 2012 at 10:22 AM | Permalink

TrackBack

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8341c6a7953ef01630222e920970d

Listed below are links to weblogs that reference Douglas v. Independent Living Center: The most important healthcase federalism case you've never heard of?:

Comments

AF writes:

If the ACA is overturned, that would have an immense practical effect on the federal system's operation.

I doubt this, AF: Overturning the individual mandate will have zero effect even on the PACA if the SCOTUS upholds the Eleventh Circuit on severability-- as I assume that they will. In such a case, there might be some financial effect -- but Congress will likely cure it by giving insurance companies some sort of tax break -- illustrating, once again, the purely formal character of this theory of the individual mandate's unconstitutionality.

(By the way, have you noticed that if Randy Barnett's theory is correct -- i.e., if the individual mandate is really unrelated to interstate commerce in insurance -- then the Obama Administration has to win on severability? After all, how can the individual mandate be so essential for the "guaranteed issue" provisions of PACA that it cannot be severed from them but somehow not also "necessary and proper" for the regulation of insurance markets through the guaranteed issue provisions? In short, there is no end to the silliness of this PACA litigation).

Posted by: Rick Hills | Feb 29, 2012 7:25:07 AM

I assume your point is that the Douglas has more practical effect on federalism *doctrine* than does HHS v. Florida. If the ACA is overturned, that would have an immense practical effect on the federal system's operation. And though it would be possible in theory for the legislation to be passed again with minor modifications, that would not actually happen as a practical matter.

Posted by: AF | Feb 28, 2012 4:27:41 PM

"'Joe,' if there is no cause of action under the federal statute, section 1983, or the Supremacy clause, then how can there be a cause of action in state court?"

This is a complicated question that will vary substantially on a state-by-state basis. If I was one of the affected providers, I'd submit a claim for the unreduced amount, and then when it was denied, appeal it. I could then argue federal preemption of the rate reduction statutes in the appeal. It would probably go to an administrative law judge or hearing officer who could not pass on that issue, but most states have mandamus-like mechanisms to take those sorts of purely legal disputes up to the state courts. And even if not, you still could litigate the claim through final agency decision and then go up on judicial review. That would be inconvenient, of course, but it's still a legal remedy.

There's also the possibility that you could bring a taxpayer suit or a public interest/importance suit, but you'd have a hard time showing the nexus between your taxes and the rate reduction statute (a requirement imposed by most but not all states) with respect to the former, and the latter is only permitted in the minority of states.

"Are you suggesting that a state's violation of the terms of its own Medicaid implementation plan create a state-law cause of action?"

This also would depend on the particular state plan. But again, I think it's probably unnecessary. A provider could submit a Medicaid claim for the unreduced amount and then take it from there.

Posted by: Joe (not that one) | Feb 28, 2012 2:45:33 PM

1. I. Glenn Cohen asks me about whether the Douglas majority really wanted tp preserve some sort of remedy for Medicaid beneficiaries. That's a fair question: The remedy that the majority provided is pretty thin.

In particular, I agree that the Douglas majority certainly signaled to the Ninth Circuit that they should reject the "Supremacy clause" cause of action in favor of an administrative remedy. I'd also agree that the Douglas majority strongly hinted that they expected the CMS's decision to strike a deal with California to be upheld by the Ninth Circuit applying the properly deferential standard of judicial review.

Finally, I am not quite sure what beneficiaries or health care providers could do if the CMS just sat on its hands while states violated the law. I suppose that the beneficiaries could file a petition with the CMS demanding that they take action against states that act illegally and then demand "a brief statement of the grounds for denial" of such petition under APA section 555(e). The CMS's statement and denial then could be reviewed under section 704 as final agency action, right? But I have some doubts: If there is no "agency proceeding" regarding some state legislature's violation of its own Medicaid plan, then would the petition be "in connection with an agency proceeding" under section 555(e)? Or could the agency simply sit on its hands, refuse to give any "brief statement" and refuse to respond at all to the beneficiaries' petition? I'm sure that more experienced admin lawyers out there have a more reliable answer than I do.

2. Sam asks whether the "New Property" lives on in states' claims that new conditions on old money are too "coercive." It is interesting and perhaps correct to think of such arguments for Spending Clause limits as examples of "New Property." But the states are not asserting that they are entitled to federal money, right? Instead, they are asserting that, if the feds confer money for one purpose, then they cannot add new conditions to that money, because the states will not be able freely to turn down the conditions. Such a "coercion" argument is really a sort of estoppel argument. I suppose that one might treat such a claim as a claim of "vested rights" to the continuation of federal funds. But, as I understand the theory, the feds would be perfectly free to terminate the medicaid program altogether: They just cannot continue the grants but add new conditions. This sounds more like unconstitutional conditions than "New Property" to me. (If the state welfare agency were free to terminate all indigent aid for any reason whatsoever, would we treat such aid as an instance of "New Property"?)

3. As for state court -- "Joe," if there is no cause of action under the federal statute, section 1983, or the Supremacy clause, then how can there be a cause of action in state court? Are you suggesting that a state's violation of the terms of its own Medicaid implementation plan create a state-law cause of action?

Posted by: Rick Hills | Feb 28, 2012 1:13:22 PM

"As a matter of practical federalism, however, I do not think that the majority could stomach leaving the plaintiff-respondents with no remedy whatsoever."

Cough, cough, state court, cough.

Posted by: Joe (not that one) | Feb 28, 2012 12:18:31 PM

Rick,
Great post on a case that has thus far flown too far below the radar. I wanted to ask you to say more on your thought that "As a matter of practical federalism, however, I do not think that the majority could stomach leaving the plaintiff-respondents with no remedy whatsoever." I read the majority opinion as a pretty strong indication to the 9th Circuit to find they get only the APA (or at least APA-style) cause of action. That's fine in this case given then agency's belated action that gave Breyer this out, but I did not read the majority opinion as in any way hospitable to a Supremacy Clause action had the Douglas litigation proceeded as planned (i.e., no last minute agency action). I am curious whether you think I am wrong in my reading, or if I am misunderstanding something about the case.
Thanks again for raising these issues.

Posted by: I. Glenn Cohen | Feb 28, 2012 11:41:05 AM

Rick,

Nice post. I agree that cases like Douglas make a huge practical difference in how federalism operates. And I agree with your assessment of what motivated the majority and some of the questions its approach will raise in the future. I doubt the assessment that the New Property is "utterly dead," though. Gasping, maybe, but New Property ideas still retain enough currency to constantly destabilize the doctrine. Take, for example, the Spending Clause challenge by states to the Affordable Care Act's Medicaid expansion. That's the issue presented in Florida v. HHS, which the Supreme Court is hearing along with the much more publicized challenge to the ACA's individual mandate. The argument by the states who are petitioners is totally a New Property argument: We rely on federal Medicaid money so much that new conditions that put that money at risk are necessarily coercive. Now, no court has accepted that argument. And I think the smart money is on the Supreme Court rejecting that argument, too. But the Court did grant cert on the question. The states-petitioners' argument certainly embodies a lot of the problems with New Property ideas in this context, problems that the many briefs filed in support of the Medicaid expansion (collected here, including one I filed on behalf of former Surgeon General Satcher and 78 organizations with interests in an array of Spending Clause statutes) highlight. But the New Property ideas are very much a part of every smart lawyer's vocabulary now, which I assume is why a smart lawyer like Paul Clement is relying on them notwithstanding their likely fatal problems here.

Posted by: Sam Bagenstos | Feb 28, 2012 11:18:51 AM

Post a comment