The Ex Parte Young Exception: A Lifeline for Healthcare Providers Offering Medicare and Medicaid Services

Healthcare providers participating in the Medicare and Medicaid programs face an intricate web of regulations and enforcement actions.

Disputes with state officials over payment practices, reimbursement rates, or compliance with federal laws can sometimes lead to financial hardship or even threaten the survival of a practice. Fortunately, providers may be able to use the Ex parte Young exception to challenge state actions that may violate federal law. This legal doctrine can be a powerful tool for providers to seek relief in federal court without running afoul of state sovereign immunity. And this exception is underused.

For example, healthcare providers that feel that a state Medicaid program is violating federal standards for reimbursement cannot directly sue the state for damages. However, they can use the Ex parte Young exception, named after a landmark 1908 U.S. Supreme Court case, to sue state officials to correct ongoing violations of federal law.

This doctrine creates a narrow but essential carve-out from the Eleventh Amendment, which generally prohibits federal lawsuits against states.

In the context of Medicare and Medicaid, healthcare providers can use the Ex parte Young exception to seek injunctive relief against state officials when state actions or enforcement of state laws conflict with federal statutes governing these programs.

Key elements of the Ex parte Young doctrine include the following:

• State officials as defendants: The lawsuit must target state officials responsible for enforcing the disputed law or regulation, rather than the state itself.

• Ongoing violation: The action must involve an ongoing violation of federal law, rather than a past one.

• Prospective relief: The relief sought must be prospective, such as an injunction to stop illegal enforcement of a state law, rather than retroactive monetary damages.

Providers facing disputes with state Medicaid agencies or officials often encounter issues like improper reimbursement rates, unlawful audit practices, or state regulations that conflict with federal laws. The Ex parte Young exception gives providers a pathway in federal court to challenge such actions, which might otherwise be shielded by sovereign immunity. In doing so, it helps providers:

• Prevent the enforcement of unlawful state actions: State Medicaid agencies may attempt to implement policies or take actions that violate federal Medicaid law. Ex parte Young allows providers to halt these actions through injunctive relief;

• Ensure compliance with federal standards: States administer Medicaid, but they must do so within the boundaries of federal law. Providers can use Ex parte Young to enforce federal standards when states deviate; and

• Protect reimbursement rates: If state-set reimbursement rates for Medicaid services fall below the federally mandated levels, providers can challenge these rates in federal court.

Some examples of providers winning under Ex parte Young include the following:

• Managed Pharmacy Care v. Sebelius (2012). In this case, California’s Department of Health Care Services (DHCS) reduced Medicaid reimbursement rates for healthcare providers. Managed Pharmacy Care, along with other provider groups, sued under Ex parte Young, arguing that the state’s reduced rates conflicted with federal Medicaid law. The Ninth Circuit agreed with the providers, granting them relief by ruling that the state’s rate reductions violated the federal requirement to ensure that Medicaid patients had sufficient access to services. Outcome: The court held that the state’s action conflicted with federal law, and the providers successfully stopped the rate cuts.

• Armstrong v. Exceptional Child Center, Inc. (2015). In this case, healthcare providers in Idaho used the Ex parte Young exception to sue state officials for setting Medicaid reimbursement rates too low to meet federal Medicaid standards. Although the case ultimately reached the U.S. Supreme Court on a different legal issue, lower courts had permitted the Ex parte Young claim to proceed, allowing the providers to challenge state actions that conflicted with federal law regarding Medicaid reimbursement. Outcome: The providers were able to use Ex parte Young to access federal courts and challenge inadequate Medicaid reimbursement rates, although the case was decided on other grounds.

• Planned Parenthood of Indiana and Kentucky, Inc. v. Commissioner of the Indiana State Department of Health (2018). Planned Parenthood sued Indiana state officials under Ex parte Young, seeking to block a law that would have excluded them from Medicaid funding. The organization argued that the law violated federal Medicaid statutes, which protect patients’ right to choose their healthcare provider. The Seventh Circuit ruled in favor of Planned Parenthood, holding that the state’s actions violated federal law, and granted the injunction to prevent the law from being enforced. Outcome: The Ex parte Young exception allowed Planned Parenthood to prevent the state from enforcing an illegal regulation that would have violated federal Medicaid law.

The Ex parte Young exception provides a vital legal pathway for healthcare providers to challenge state actions that conflict with federal Medicare and Medicaid laws. By targeting state officials who enforce these policies, providers can protect their right to fair reimbursement, stop the enforcement of federally unlawful state laws, and ensure compliance with federal standards. Cases like those involving rate reductions and unlawful exclusion from Medicaid funding demonstrate the power of this doctrine in ensuring that providers are treated fairly, and that states adhere to federal healthcare laws.

For Medicare and Medicaid providers, the Ex parte Young exception is more than just a legal technicality – it’s a lifeline that can help ensure they can continue serving patients while safeguarding their financial stability.