APA Deference After Independent Living Center: Why Informal Adjudicatory Action Needs a Hard Look
45 Pages Posted: 26 Feb 2014
Date Written: February 25, 2014
The Supreme Court’s decision to grant certiorari in Douglas v. Independent Living Center of Southern California (ILC) sent chills down the spine of Medicaid providers and health care advocates. Providers and beneficiaries had challenged provider rate cuts in California's Medicaid program (Medi-Cal), alleging that the state’s rate-setting process violated federal law. Their concern was that the new rates were so low that providers would flee Medi-Cal, exacerbating an existing provider shortage and further jeopardizing health care access. At stake in ILC was the right of private plaintiffs to use the Supremacy Clause to challenge rate cuts in federal court. And this case was closely watched because for decades providers and beneficiaries have relied on the courts to enforce federal access protections. California officials argued that enforcement should be left to the federal regulatory agency charged with oversight, the U.S. Department of Health and Human Services (HHS); but HHS has largely ignored access concerns linked to rate cuts, leaving a regulatory void for courts to fill. In a surprising move, the Court never answered the question on which it granted cert. By failing to answer the question, the Court effectively preserved the status quo which has allowed plaintiffs to bring such challenges in federal court, making the decision look like a win for plaintiffs.
Yet the decision is being interpreted in a way that significantly weakens this right to judicial review. In dicta, the majority speculated that if state cuts were approved by HHS, plaintiffs may not be able to successfully challenge the rates because of the deference ordinarily applied to federal regulatory action under the Administrative Procedure Act (APA). This was only speculation, because the court never granted cert on the substantive question of how courts should determine if rates violate the law, including how much deference, if any, courts should give to HHS. Nonetheless, the Ninth Circuit in Managed Pharmacy Care v. Sebelius invoked ILC’s dicta about APA deference to uphold the latest round of Medicaid cuts approved by HHS. In doing so, the Ninth Circuit ignored evidence that the state and HHS acted arbitrarily and capriciously, and perhaps more significantly, it ignored important limits on the application of deference established by the Supreme Court in Skidmore, Mead, and State Farm. The Ninth Circuit held that HHS’s interpretation and application of federal law deserved Chevron deference, despite the fact that HHS’s process for approving rates lacked the formality, consistency, and evidence of a thorough and reasoned deliberation that courts typically look for in granting deference to agency action.
This Article cautions against this troubling application of ILC. HHS exercises its oversight power through informal agency decisions that are not subject to the kind of APA procedures that govern notice-and-comment rulemaking and formal adjudication; that is, HHS approval of Medicaid rates lacks the safeguards that help ensure the legitimacy of its action from within. Without these safeguards, judicial review becomes even more important as an external check to ensure that agency action is not arbitrary, capricious, or inconsistent with statutory commands. Managed Pharmacy Care should serve as a cautionary tale of why this kind of informal adjudicatory action should get a more exacting deference inquiry, and why HHS approval of rate cuts, in particular, should get a hard look.
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