Douglas v. Independent Living Center of Southern California, Inc.

The original issue of whether Medicaid providers and recipients may maintain a Supremacy Clause action is not longer applicable because the federal administration in charge of administering Medicaid decided that the state statutes were consistent with federal law.

California passed several statutes reducing payments that the State made to Medicaid providers. Since Medicaid is a joint federal and state program, California had to submit the statutes to the Centers for Medicare & Medicaid Services (“CMS”) for approval in order to retain federal funding. While the statutes were pending before CMS, several Medicaid providers filed suit claiming that state statutes were inconsistent with federal law and because of the Supremacy Clause the state laws were preempted.

The Ninth Circuit issued preliminary injunctions preventing implementation of the California laws. While the cases were before the Ninth Circuit, CMS decided that the California statutes did not comply with the federal statutes. California filed for further administrative review with CMS. While this review was pending the Supreme Court granted certiorari to decide whether the Medicaid providers could maintain a Supremacy Clause challenge. After the Supreme Court heard argument, CMS changed their stance and approved several of the California statutes.

The Supreme Court held that although the changed status does not make the Supremacy Clause issue moot, the posture of the cases have changed significantly from when cert was granted. The Court reasoned that since CMS now says that the statutes comply with federal law, the question may need to be answered under the Administrative Procedure Act (“APA”). The Court states that allowing the Supremacy Clause action to continue may cause inconsistency and confusion. Consequently, the Court vacated and remanded the cases in order to permit the parties to argue before the Ninth Circuit in the first instance.