No. 96-1742

IN THE SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997

KIMBERLY BELSHIRE, DIRECTOR, CALIFORNIA
DEPARTMENT OF HEALTH SERVICES, PETITIONER

v.

ORTHOPAEDIC HOSPITAL, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE

SETH P.  WAXMAN
Solicitor General

FRANK W.  HUNGER 
Assistant Attorney General

EDWIN S.  KNEEDLER
Deputy Solicitor General

LISA SCHIAVO BLATT
Assistant to the Solicitor 
General

ANTHONY J.  STEINMEYER
JEFFREY CLAIR
Attorneys
Department of  Justice
Washington, D.C. 20530-0001
(202)514-2217

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QUESTIONS PRESENTED

1.  Whether hospital providers may bring an action
under 42 U.S.C.  1983 to challenge a State's Medicaid plan
on the ground that it fails to consider providers' costs, in
purported violation of 42 U.S.C.  1396a(a)(30)(A).
2.  Whether 42  U.S.C.  1396a(a)(30)(A)  requires State
Medicaid agencies to set hospital outpatient reimburse-
ment rates that bear a reasonable relationship to efficient
and economical hospital costs of providing quality serv-
ices.

(1)

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TABLE OF CONTENTS
                    
Page

Statement  . . . .  1
Discussion  . . . .  6
Conclusion  . . . .  20

TABLE OF AUTHORITIES

Cases:
Adickes  v.  S.H. Kress  &  Co., 398 U.S.  144 (1970)  . . . .  16
Alexander  v.  Choate,  469  U. S. 287 (1985)  . . . .  9
Arkansas Medical Society, Inc.  v.  Reynolds, 6 F.3d
519  (8th Cir.  1993)  . . . .  12, 14, 18
Atkins  v.  Rivers, 477 U. S.  154 (1986)  . . . .  2
Auer   v.  Robbins, 117S. Ct. 905 (1997)  . . . .  18
Barney  v.  Holzer Clinic, Ltd., l10 F.3d 1207 (6th
Cir. 1997)  . . . .  10
Blessing  v.  Freestone,  117 S. Ct. 1353 ( 1997) . . . .  13-14, 15
18, 20
Citizens Bank of Maryland  v.  Strumpf, 516 U.S.
16 (1995)  . . . .  16
Delta Air Lines, Inc.  v.  August, 450 U.S.  346
(1981)  . . . .  16
Field  v.  Mans, 516 U. S.  59 (1995)  . . . .  8
Fulkerson  v.  Comm'r,  Maine  Dep't  of Human
Servs., 802  F. Supp. 529 (D. Maine 1992) . . . .  13
Golden State Transit Corp.  v.  Los Angeles, 493 U.S.
103(1989)  . . . .  15
Illinois  Hospital  Ass'n   v.  Edgar,  765F. Supp.  l343
(N.D. Ill. 1991)  . . . .  13
Methodist  Hospital, Inc.  v.  Sullivan, 91 F.3d 1026
(7th Cir. 1996) . . . .  9, 12, 17
Minnesota  Homecare Ass'n  v.  Gomez,  108  F.3d 917
(8th Cir. 1997)  . . . .  9, 17

(III)

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IV

Cases-Continued:              

Page

New England Health Care Employees Union  v.
Mount Sinai Hospital, 65  F.3d 1024 (2d Cir.
1995)  . . . .  11
New York Conf. of Blue Cross  &  Blue  Shield Plans
v.  Travelers  Ins. Co.,  514  U. S.  645 (1995 )  . . . .  11
Northwest Airlines, Inc.  v.  County of Kent,
510 U.S.  355 (1994)  . . . .  15
Sobky  v.  Srnoley, 855 F. Supp.  1123 (E.D. Cal.
1994)  . . . .  13
Suter  v.  Artist  M.,  503  U.S.  347 (1992)  . . . .  4
Visiting Nurse Ass'n of North Shore, Inc.  v.  Bullen,
93  F.3d  997 (lst Cir. 1996), cert. denied, 117 S. Ct.
955  (1997)  . . . .  12-13, 18
Wilder  v. Virginia Hospital  Ass'n, 496 U.S.  498
(1990)  . . . .  2, 4, 8, 13, 14, 15
Wright  v.  Roanoke Redevelopment and Housing
Authority, 479 U.S.  418 (1987)  . . . .  15
Youakim  v.  Miller,  425  U.S.  231 (1976)  . . . .  16
Statutes and regulations:
Balanced Budget Act of 1997, Pub. L. No. 105-33,
4711, 111 Stat. 507-508  . . . .  19,20
Omnibus Reconciliation Act of 1981, Pub. L. No-
97-35,  2174(c), 95 Stat. 809  . . . .  9-10
Social  Security  Act, 42  U.S.C.  301 et seq.:
42 U.S.C.  1320a-2  . . . .  4, 18
42 U.S.C.  1320a-10  . . . .  4, 18
42 U.S.C.  1395M  . . . .  5, 10
Tit. XIX.  42 U.S.C.  1396 et seq  . . . .  1
42 U.S.C.  1396a  . . . .  2, 19
42 U.S.C.  1396a(a)  . . . .  2
42 U.S.C.  1396a(a)(13)(A)  . . . .  8, 11, 13
42 U.S.C.  1396a(a)(13)(E)  . . . .  8
42 U.S.C.  1396a(a)(19)  . . . .  9
42 U.S.C.  1396a(a)(23)  . . . .  10
42 U.S.C.  1396a(a)(30)(A)  . . . .  passim
42 U.S.C.  1396d(a)  . . . .  7

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V

Statutes and regulations-Continued:        

Page
  
42  U.S.C.  1396d(b)  . . . .  1
42  U.S.C.  1396r.4(a)  . . . .  11
42  U.S.C.  1983  . . . .  passim
Social  Security Amendments of 1967, Pub. L. No.
90-248. 237(b), 81  Stat.  .911  . . . .  9
Social  Security Amendments of 1994, Pub. L. No.
103-432,  211, 108 Stat. 4460  . . . .  4
42 C.F.R. (1996):
Section 430.10  . . . .  2
Section 431.51 (b)(1)(ii)  . . . .  10
Section 440.20(a)  . . . .  3
Section 447.204  . . . .  3
Section 447.304(a)  . . . .  9
Miscellaneous:
H.R. Conf. Rep. No. 1030, 90th Cong., 1st  Sess.
(1967)  . . . .  9
H.R. Rep.  No. 158, 97th Cong., lst Sess.  (1981)  . . . .  9, 10
H.R. Rep.  No. 247, 101st Cong., lst Sess.  (1989)  . . . .  14
H.R. Rep.  No. 149, 105th Cong., lst Sess.  (1997)  . . . .  19
H.R.  Conf.  Rep.  No.  217, 105th  Cong., 1st Sess.
(1997)  . . . .  19
Health Care Financing Admin., Dep't of Health and
Human Services, Medicaid Financial Management
Report Fiscal Year 1996  (1997)  . . . .  1
D.  Lewis-Idema, Increasing Provider Participation
(National Governors' Association 1988)  . . . .  11
National Governors' Association Policy, EC-8
Medicaid 8.3.3  (February 1997)  . . . .  19

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IN THE SUPREME  COURT OF THE UNITED STATES

OCTOBER TERM, 1997
       
No. 96-1742

KIMBERLY BELSHE, DIRECTOR, CALIFORNIA
DEPARTMENT OF HEALTH SERVICES, PETITIONER
         
v.
   
ORTHOPEDIC HOSPITAL, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE

This brief is submitted in response to the Court's order
inviting the Solicitor General to file a brief expressing the
views of the United States. 1

STATEMENT

1.  The Medicaid program established in 1965 by Title
XIX of the Social Security Act, 42 U.S.C.  1396 et seq., is a
cooperative federal-state program to provide medical care

___________________(footnotes)

1  The United States has a significant financial stake in the
interpretation of 42 U.S.C.  1396a(a)(30)(A).  BY law, the federal gov-
ernment provides between 50%  and 83%  of a State's cost of patient
care, as  determined  by a formula keyed to per capita income in the
State. See 42 U.S.C.  1396d(b).  In fiscal year 1996 alone, the federal
contribution to the Medicaid program for medical assistance totalled
approximately  $88 billion, making Medicaid one of the largest items in
the federal budget.  Of that amount, some  $8 billion was provided to
California.  See Health Care Financing Admin., Dep't of Health and
Human Services, Medicaid Financial Management Report Fiscal Year
1996 (1997).

(1)

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2

to needy individuals.  Wilder  v.  Virginia  Hospital Ass'n
496  U.S.  498, 502 (19901; Atkins  v.  Rivers, 477 U.S.  154,
156 (1986). State participation in Medicaid is voluntary,
but those States that elect to participate must comply
with requirements imposed by the Medicaid Act and by the
Secretary of Health and Human Services in her admini-
stration of the Act. See 42  U.S.C.  1396a, Wilder, 496 U.S.
at 502 Rivers, 477 U.S.  at 157.  Within those basic limits,
however, each State enjoys great flexibility in both de-
signing and administering its own program.
To qualify for federal funds, participating States must
submit to the Secretary, and receive approval of,  "a plan
for medical assistance"  detailing the nature and scope of
the State's Medicaid program.  42 U.S.C.  1396a(a); 42
C. F. R.  430.10 (1996); Wilder, 496  U.S.  at 502.  Among  other
requirements, a State's plan must

provide such methods and procedures relating to the
utilization of, and the payment for, care and services
available under the plan * * * as may be necessary to
safeguard against unnecessary utilization of such care
and services and to assure that payments are consis-
tent with efficiency, economy, and quality of care and
are 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.  1396a(a)(30)(A).
In implementing Section 1396a(a)(30)(A), the Secretary
has not required States to adopt any particular
methodology or rate-making procedures to provide for
payments for services under the Act.  The Secretary has,
instead, sought to preserve maximum flexibility for the
States to set Medicaid payment rates.  Accordingly, the
Secretary does not dictate what level of payments will
(assure  * * *  efficiency, economy and quality of care"  or

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3

be sufficient to provide for equal access to such care and
services. See 42 C.F.R. 447.204. Nor does the Secretary
require the States to adopt any particular procedure or
methodology for determining whether payments are
"necessary" to meet the general criteria in 42 U.S.C.
1396a(a)(30)(A), or require that the payments be made at
rates that will enable providers to recover their full costs
of furnishing covered services.  Rather, the Secretary
requires States to achieve the desired outcomes of equal
access and quality of care.
2.  In August 1990, respondents, a hospital and an asso-
ciation of health care providers, filed suit against peti-
tioner in the United States District Court for the Central
District of California, alleging that the State of Califor-
nia's Medicaid rates for outpatient services furnished by
hospitals do not meet the requirements of Section
1396a(a) (30)(A).  2.  California's Medicaid plan provides that
hospitals rendering such outpatient services will be paid
the lower of their usual charges or a prospectively-
determined flat rate for the particular type of outpatient
service. Pet.  App.  A7, B3-B4.
On October 6, 1992, the district court entered its order
on the parties' motions for summary judgment.  Pet.  App.
B5.  The district court first ruled that respondents had a
federal cause of action under 42 U.S.C.  1983.  Id.  at B7.
The court also held that California had failed adequately
to consider whether its payments for certain outpatient
hospital services were consistent with the statutory stan-
dards of  "efficiency, economy, and quality of care,"  and the
court therefore remanded the matter to petitioner for
further consideration of its Medicaid rates.  Id. at B5-B6.

___________________(footnotes)

2  Outpatient hospital services are  "preventive, diagnostic, thera-
peutic rehabilitative, or palliative services that are furnished to out-
patients"  under the direction of a physician or dentist by an institution
licensed as a hospital.  See  42 C.F.R.  440.20(a).

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4

On remand, the State conducted a study of its existing
rate structure and held a public hearing.  On April 15,
1994, the State readopted its previous reimbursement.
levels.  Respondents thereafter refiled suit in the district
court to challenge the readopted rates.  On March 20, 1995,
the district court held that California's payment rates
complied with Section 1396a(a)(30)(A), Pet.  App.  B1-B26.
As an initial matter, the court reaffirmed its earlier hold-
ing that respondents have a cause of action under Section
1983 to  enforce  Section  1396a(a)(30)(A).  Id. at B7-B9.  3.
On the merits, the court rejected respondents' conten-
tion that the  "efficiency, economy, and quality of care"
criteria in Section 1396a(a)(30)(A)  require California to
base reimbursement of hospitals on their costs of provid-
ing services.  The court concluded that  "[payments do not
have to be sufficient to reimburse hospitals for their costs,
but need only be sufficient to ensure access."  Pet.  App.
B14.  Noting that  "[t]he statute was enacted as a cost-
containment measure,"  the court concluded that as long as
Medicaid recipients have access to quality care,  "it is
irrelevant whether hospitals make or lose money treating
[Medicaid] beneficiaries."  Id. at B15, B16.  Finally, the
court ruled that petitioner had adequately considered the
factors of  ''efficiency, economy, and quality of care"  in set-
ting its payment rates for outpatient services, and that its

___________________(footnotes)

3  The court reconsidered the cause-of-action issue in light of this
Court's intervening decision in Suter  v.  Artist M., 503 U.S.  347 (1992),
and Congress's subsequent enactment of Section 211 of the Social
Security Act Amendments of 1994, Pub. L. No. 103-432, 108 Stat. 4460,
which addresses the enforceability of Social Security Act provisions
that specify the contents of a  State plan."  See 42 U.S.C.  1320a-2 and
1320a-10.  Reasoning that Section 211 requires courts to assess the
enforceability of  "State  plan"  provisions under the standards articu-
lated in  Wilderr  v.  Virginia Hospital Association, 406 U.S.  498 (1990),
the court  ''disregard[ed] Sutter"  and reaffirmed its earlier holding.  Pet.
App. B9.

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5

rates were rationally related to those statutory criteria.
Id.  at B16-B25.  The Court therefore entered summary
judgment in favor of petitioner.  Id.  at B25.
3.  The court of appeals reversed.  Pet.  App.  Al-A22.  It
held that petitioner  "must set hospital outpatient reim-
bursement rates that bear a reasonable relationship to
efficient and economic hospitals' costs of providing quality
services, unless [the State] shows some justification for
rates that substantially deviate from such costs."  Id.  at
A13.  The court reasoned that the State  "cannot set rates
consistent with efficiency and economy in the health care
system without considering the costs to the hospitals that
provide most of the services."  Id.  at A14.
The court of appeals recognized that  "[s]ome of the ser-
vices provided by hospital outpatient departments could be
provided more economically by non-hospital providers such
as freestanding clinics or doctors' offices because those
providers have lower fixed costs than do hospitals."  Pet.
App.  A6.  The court nonetheless rejected the State's argu-
ment that it would be neither efficient nor economical to
set payment rates that compensate hospitals for the
higher costs they incur in providing the same services.
Observing that the Medicare Act requires hospitals par-
ticipating in that program to provide emergency room ser-
vices, id.  at A17 (citing 42 U.S.C.  1395dd), the court rea-
soned that  "the majority of outpatient services are in fact
provided in hospitals, and that the majority of hospital
outpatient services are in the emergency room."  Id.  at
A20.  The court also pointed out that,  "[w]ith no incentive
to use the most economical provider, [Medicaid] benefi-
ciaries frequently choose the more accessible and conven-
ient hospital outpatient departments over less costly fa-
cilities, some of which may be entirely unavailable or less
available to them."  Id.  at A6-A7.

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6

Against this background, the court concluded that the
State  "cannot ensure access by relying on regulations re-
quiring hospitals to treat patients in the emergency room,
and then refuse to pay the cost of such treatment because
theoretically it could have been provided more efficiently
elsewhere."  Pet. App. A20-A21.  Thus, in the court's view,
notwithstanding the fact that  "[i]n this case there has
been no assertion of a provider participation problem; id.
at A17, the State  "must undertake to determine what it
costs an efficient hospital economically to provide quality
care,"  id. at A18.
Because the State  "did not base its readoption of exist-
ing rates on the conclusion that they adequately reim-
burse provider costs,"  the court of appeals concluded that
the readopted rates were arbitrary and capricious.  Pet.
App. A22.  "The court therefore remanded the case to peti-
tioner to  "undertake responsible cost studies that will pro-
vide reliable data as to the hospitals' costs in providing
outpatient services,"  with the State  "bearing the burden of
justifying any rate that substantially deviates from such
determined costs."  Ibid.
       
DISCUSSION

We agree with petitioner that the court of appeals erred
in reading Section 1396a(a)(30)(A) as imposing on States
an obligation to set payment rates for outpatient services
that  "substantially reimburse providers their costs."  Pet.
App.  A19.  We also agree with petitioner that the respon-
dent hospitals do not have a cause of action under 42
U.S.C.  1983 to challenge reimbursement rates as incon-
sistent with Section 1396a(a) (30)(A).  Those two issues are
interrelated and raise important questions regarding the
flexibility of the States in designing their Medicaid reim-
bursement rates.  Although there is no square conflict on
those issues, they may well warrant review by this Court
at some point.  Petitioner, however, did not preserve below,

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5

rates were rationally related to those statutory criteria.
Id.  at B16-B25.  The Court therefore entered summary
judgment in favor of petitioner.  Id.  at B25.
3.  The court of appeals reversed.  Pet.  App.  Al-A22. 
held that petitioner  "must set hospital outpatient reim-
bursement rates that bear a reasonable relationship to
efficient and economic hospitals' costs of providing quality
services, unless  [the State]  shows some justification for
rates that substantially deviate from such costs."  Id.  at
A13.  The court reasoned that the State  "cannot set rates
consistent with efficiency and economy in the health care
system without considering the costs to the hospitals that
provide most of the services."  Id, at A14.
The court of appeals recognized that  "[s]ome of the ser-
vices provided by hospital outpatient departments could be
provided more economically by non-hospital providers such
as freestanding clinics or doctors' offices because those
providers have lower fixed costs than do hospitals."  Pet.
App.  A6.  The court nonetheless rejected the State's argu-
ment that it would be neither efficient nor economical to
set payment rates that compensate hospitals for the
higher costs they incur in providing the same services.
Observing that the Medicare Act requires hospitals par-
ticipating in that program to provide emergency room ser-
vices, id. at A17  (citing 42 U.S.C.  1395dd), the court rea-
soned that  "the majority of outpatient services are in fact
provided in hospitals, and that the majority of hospital
outpatient services are in the emergency room."  Id.  at
A20.  The court also pointed out that,  "[w]ith no incentive
to use the most economical provider,  [Medicaid]  benefi-
ciaries frequently choose the more accessible and conven-
ient hospital outpatient departments over less costly fa-
cilities, some of which may be entirely unavailable or less
available to them."  Id.  at  A6-A7.

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7

and the court of appeals therefore did not address, the
threshold question of whether respondents have a right
of action under 42 U.S.C.  1983.  Accordingly, and because
of other developments, the case would not be an ap
propriate vehicle for plenary consideration of whether
hospitals have a right of action under Section 1963 or
whether the court of appeals correctly interpreted Section
1396a(a)(30)(A).
1.  The  court of appeals  construed Section
1396a(a) (30)(A)  to require States to make Medicaid
payments for out patient services so that a particular class
of providers of those services-hospitals-are reimbursed
for their costs.  In our view, that interpretation misreads
the plain language of Section 1396a(a) (30)(A)  and
frustrates that Section's purpose of giving States wide
discretion to set Medicaid payments that are consistent
with efficiency, economy, and access to quality care.
a The Medicaid Act defines the  "medical assistance"
provided under the Act to mean  "payment of part or all of
the cost"  of the covered service.  See 42 U.S.C.  1396d(a)
(emphasis added).  Thus, there is no general mandate
under Medicaid to reimburse providers for all or substan-
tially all of their costs.  Moreover, in directing States to
make Medicaid payments that  "are consistent with effi-
ciency, economy, and quality of care and are 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,"  the text of Section 1396a(a)(30)(A)
does not require States to set rates that reimburse hospi-
tals inparticular for their costs of providing outpatient  (or
other) services.  The focus of the Section is instead on the
availability of services generally.  The court of appeals'
contrary holding, that States must reimburse providers at

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8

rates that essentially ensure recovery of their costs, is
therefore incorrect.
Indeed, when Congress has intended to require States
to base Medicaid reimbursement rates on the costs
incurred in providing a particular service, it has said
so expressly in the text of the Act.  For example, the.
Boren Amendment to the Medicaid Act  (42 U.S.C.
1396a(a)(13)(A)), which was at issue in Wilder  v.  Virginia
Hospital Ass'n, 496 U.S.  498 (1990), but has recently been
repealed  (see pages 19-20, infra ), required States to make
payments based on rates that  "are reasonable and adequate
to meet the costs which must be incurred by efficiently and
economically operated facilities"  providing inpatient hos-
pital, skilled nursing, and other institutional services.  42
U.S.C.  1396a(a)(13)(A)  (emphasis added)  Wilder, 406 U.S.
at 502-503.  See also 42 U.S.C.  1396a(a)  (13)(E)  (requiring
Medicaid plan to pay 100 percent of the reasonable costs of
providing covered services in a rural health clinic or
federally qualified health center)  (emphasis added).  BY
contrast, Section 1396a(a)(30)(A)  does not set forth any
requirement that a State consider costs in making pay-
ments for outpatient or other services, much less that a
State fully reimburse a hospital's higher costs in furnish-
ing such services.  That mission is persuasive evidence
that Section 1396a(a)(30)(A) does not require a State to do
so.  See Field v.  Mans, 516 U.S.  59, 67 (1995)  ran express
statutory requirement here, contrasted with statutory
silence there, shows an intent to confine the requirement
to the specified instance").
In accord with the text and structure of the Medi-
caid Act, the Secretary has not construed Section
1396a(a)(30)(A)  to require the States to base reimburse-
ment rates for outpatient or other services on the costs
incurred by hospitals or other categories of providers.
Rather, implementing regulations leave the States broad

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9

discretion to set rates, provided that they do not exceed
the rates that would be paid by Medicare for comparable
services or the prevailing charges for comparable services
within the pertinent locality.  42 C.F.R.  447.304(a).  Those
regulations reflect the Secretary's view that Section
1396a(a) (30)(A)  gives States substantial flexibility to set
Medicaid payments that are efficient and economical, and
enlist sufficient providers for Medicaid recipients to have
access to quality care.  See Methodist Hospitals, Inc.  v.
Sullivan, 91 F.3d 1026, 1030 (7th Cir. 1996)  (Section
1396a(a)(30)(A)  "requires each state to produce a result,
not to employ any methodology for getting there,"  and
absent proof that a rate structure results in inadequate
access, States  "may say what they are willing to pay and
see whether this brings forth an adequate supply"); Min-
nesota Homecare Ass'n v.  Gomez, 108 F.3d 917, 918 (8th
Cir. 1997)  (Section 1396a(a)(30)(A)  "does not require the
State to utilize any prescribed method of analyzing and
considering  [the statutory] factors"); cf.  Alexander v.
Choate, 469 U.S.  287,303 (1985)  ("The [Medicaid]  Act gives
the States substantial discretion to choose the proper mix
of amount, scope, and duration limitations on coverage, as
long as care and services are provided in 'the best interest
of the recipients.'")  (quoting 42 U.S.C.  1396a(a) (19)).  4.

___________________(footnotes)

4  The decision below also is inconsistent with the history of Section
1396a(a) (30)(A).  As originally enacted, it directed the States to  "assure
that payments  * *  a are not in excess of reasonable charges con-
sistent with efficiency, economy, and quality of care."  Social Security
Amendments of 1967, Pub.  L.  No.  90-248,  237(b), 81 Stat. 911
(emphasis added).  See also H.R.  Conf.  Rep.  No.  1030, 90th Cong., 1st
Sess. 66-67 (1967).  In 1981, Congress deleted the  "reasonable charge"
limitation, in response to complaints that it imposed burdensome
administrative requirements on state Medicaid agencies and hampered
their ability to try innovative, more cost-effective approaches to pro-
vider reimbursement.  See Omnibus Reconciliation Act of 1981, Pub.  L.
No.  97-35,  2174(c), 95 Stat. 809;  H.R.  Rep.  No.  158,  97th Cong.,  1st

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10

b.  The court of appeals based its decision that Section
1396a(a)(30)(A)  mandates States to consider providers'
costs on its apparent understanding that the Medicare
Act, in 42 U.S.C.  1395dd, effectively requires hospitals to
provide outpatient services to Medicaid beneficiaries who
request them.  Pet.  App.  A6, A17.  That is incorrect.  The
Medicare Act requires only that a hospital participating in
the Medicare program determine whether a patient has an
emergency condition, and that the hospital treat or stabi-
lize the patient if an emergency condition is diagnosed.
42 U.S.C.  1395dd.  It does not require hospitals to provide
any patients with non-emergency care, such as diagnostic,
therapeutic, or rehabilitative services, that is provided on
an outpatient basis.  5.
The court below similarly erred in assuming that hospi-
tals generally cannot participate in the program in num-
bers sufficient to ensure adequate access to quality care

___________________(footnotes)

Sess.  Pt 2, 312 (1981).  The deletion was intended to  "allow States to
be more creative and offer incentives for improved delivery of care
under their programs."  Id.  at 313.  Congress, moreover, intended that
the amendment would  "reduce Federal outlays in Medicaid  * * *  in a
manner which  * * *  prow-ales the States with flexibility to institute a
number of measures in their programs to reduce coat and make them
more efficient."  Id.  at 279.  Indeed, the court below recognized  (Pet.
App.  A16)  that  "Congress intended payments to be flexible within a
range; payments should be no higher than what is required to provide
efficient and economical care, but still high enough to provide for
quality care and to ensure access to services."

5  Hospitals are not required by federal law' to provide the full
range of Medicaid-covered cervices to any beneficiary who seeks
treatment.  Barney  v.  Holzer Clinic, Ltd., 110 F.3d 1207, 1211-1212 (6th
Cir.  1997).  Rather, participation in the Medicaid program is voluntary,
and providers are obligated to offer only such non-emergency care to
Medicaid recipients as they are willing to undertake.  See 42 U.S.C.
1396a(a)(23); 42 C.F.R.  431.51 (b)(l) (ii).  Thus, to the extent respondents
are providing access to outpatient care under the rates they challenge,
it is not because they are compelled by federal law to do so.

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11

unless payment rates meet the full costs incurred by
efficient hospitals.  Pet.  App.  A14-A17.  To be sure, reim-
bursement levels affect provider participation rates.  See
generally D.  Lewis-Idema, Increasing Provider Partici-
pation 11-17  (Nat'l Governors' Ass'n 1988).  There is no
clear evidence, however, that Medicaid must assume all or
substantially all of the costs incurred by hospitals in order
to ensure reasonable access to quality care.  Factors other
than a State's basic Medicaid payment rates significantly
affect provider participation.  6.  Moreover, a hospital may
have a sufficient economic incentive to provide care to
Medicaid recipients as long as its marginal revenue from
treating additional Medicaid patients offsets its marginal
costs of doing so, even if the hospital does not fully recover
a pro rata portion of its total costs.  Recognition of that
reality in establishing reimbursement rates for outpatient
services under Medicaid is fair and reasonable, because the
higher costs incurred by hospitals may be attributable to
services other than non-emergency outpatient services-
such as furnishing inpatient and emergency care, the core
mission of most hospitals.
This case in fact confirms that reimbursement of sub-
stantially all of providers' fully allocated costs is not nec-
essary to ensure adequate access to quality care.  Al-
though California does not fully reimburse such costs of

___________________(footnotes)

6  For example, Medicaid requires that hospitals that serve a dispro-
portionate number of low-income patients receive additional payments
to compensate for the added costs incurred in serving such populations.
42 U.S.C.  1396a(a)(l3)(A), 1396r-4(a).  Similarly, some States have
established special funds to compensate providers for the costs of pro-
viding uncompensated or undercompensated care.  See, e.g, New Eng-
land Health Care Employees Union v.  Mount Sinai Hospital, 65 F.3d
1024 (2d Cir. 1995).  Some providers may also be able to defray uncom-
pensated costs by increasing charges to paying patients who have
private insurance.  See, e.g., New York Conf.  of  Blue Cross  &  Blue
Shield Plans  v.  Travelers Ins.  Co., 514 U.S.  645, 658-660 (1995).

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12

outpatient services for a majority of hospitals partici-
pating in its Medicaid program, Pet.  App.  A10, it has not
been demonstrated that recipients lack adequate access to
providers of outpatient services,  Indeed, the court of
appeals acknowledged that  "[i]n this case there has been
no assertion of a provider participation problem."  Id.  at
A17. 
c.  The decision below also conflicts with Congress's
clear intent to encourage cost-efficient provision of cov-
ered Medicaid services.  The court of appeals did not
dispute that  "[s]ome of the services provided by hospital
out patient departments could be provided more economi-
cally by non-hospital providers."  Pet.  App.  A6.  Thus, in
holding that petitioner must set rates sufficient to
reimburse costs incurred specifically by hospitals, the
decision below effectively requires petitioner to establish
rates of payment that perpetuate inefficient patterns of
utilization merely because such inefficiencies have become
entrenched in the marketplace.  That conclusion is incon-
sistent with Section 1396a(a)(30)(A)'s directive that States
set payments that are "consistent with efficiency  [and]
economy."
2.  Petitioner also requests the Court to consider
whether providers have a cause of action under 42 U.S.C.
1983 to challenge rates as inconsistent with Section
1396a(a)(30)(A).  Although we agree with petitioner that
providers have no such right, that issue does not warrant
plenary review in its own right, especially in this case.
a.  Every court that has considered the issue has held
that providers have a right of action under Section 1983
to enforce 42 U.S.C.  1396a(a)(30)(A).  Methodist Hospitals,
Inc.  v.  Sullivan, 91 F.3d at 1029; Arkansas Medical
Society, Inc.  v.  Reynolds, 6 F.3d 519, 528 (8th Cir. 1993);
Visiting Nurse Ass'n of North Shore, Inc.  v.  Bullen, 93
F.3d 997, 1002-1006 (lst Cir. 1996), cert.  denied, 117 S.  Ct.

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13

955 (1997).  7.  Those decisions have relied on this Court's
decision in Wilder, which held that the Boren Amendment,
42  U.S.C.  1396a (a)(13)(A),  "create[d]  a right enforceable by
health care providers under  [Section]  1983 to the adoption
of reimbursement rates that we reasonable and adequate
to meet the costs of an efficiently and economically oper-
ated facility that provides care to Medicaid patients."  496
U.S.  at 509-510.
We do not believe, however, that this Court's decision in
Wilder resolves the question whether Congress, in en-
acting Section 1396a(a)(30)(A), similarly intended to create
rights enforceable under Section 1983.  The Boren Amend-
ment mandated that a State provide for payments  "through
the use of rates  * * *  which  * * *  are reasonable and
adequate to meet the costs which must be incurred by
efficiently and economically operated facilities."  42 U.S.C.
1396a(a)(13)(A)  (emphasis added).  In contrast, Section
1396a(a)(30)(A)  does not specifically require that the State
consider providers' costs in setting Medicaid payments,
much less  "meet"  those costs; it simply requires that a
State provide for  "methods and procedures relating to the
* * *  payment for care and services  * * *  as may be
necessary  * * *  to assure that payments are consistent
with efficiency, economy, and quality of care"  and  "suf-
ficient to enlist enough providers"  so that there will be
equal access to care and services for Medicaid patients.
In order for an Act of Congress to create rights enforce-
able under Section 1983,  "Congress must have intended

___________________(footnotes)

7  See also Sobky  v.  Smoley, 855 F.  Supp.  1123, 1137-1138 (E.D.  Cal.
1994)  Illinois Hospital Ass'n  v.  Edgar, 765 F.  Supp.  1343, 1349  (N.D.
Ill. 1991).  Cf.  Fulkerson v.  Comm'r, Maine Dep't of Human Servs.,
802 F. Supp. 529, 533-535 (D. Maine 1992)  (concluding that Medi-
caid recipients have right under 42 U.S.C.  1983 to enforce Section
1396a(a)(30)(A)'s equal access provision, but not its requirement that
payments be consistent with  "efficiency, economy and quality of care").

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14

that the provision in question benefit the plaintiff."  Bless
ing v.  Freestone, 117 S.  Ct.  1353, 1359 (1997).  Here, Sec-
tion 1396a(a)(30)(A)  does not confer benefits on providers.      
It therefore is unlike the Boren Amendment, which re-
quired a  "system for reimbursement of providers."
Wilder, 496 U.S.  at 510.  As the district court below prop-
erly observed  (Pet. App. B15), Section 1396a(a)(30)(A)  "was
enacted as a cost-containment measure"  to limit Medicaid      
payments.  Indeed, respondents conceded below that Sec-      
tion 1396a(a)(30)(A)'s requirements that payments be con-
sistent with  "economy"  and  "efficiency"  serve to limit
Medicaid payments and do not confer on providers a right
to a minimum payment.  See Appellants' CA.  Reply Br.  3.
Respondents instead are that the requirement that
payments be sufficient to ensure  "quality care"  confers on
hospitals a right to cost-based Medicaid payments.  Br, in
Opp.  14-16.  The more natural reading of the statutory re-
quirement that payments be  "consistent with  * * *      
quality care,"  however, is that it is intended to benefit the
needy individuals who qualify under the  Medicaid program.
Cf. Arkansas Medical Society, Inc., 6 F.3d at 526 ("The
equal access provision is indisputably intended to benefits
the recipients by allowing them equivalent access to
healh care services.").  8.  Compare Blessing, 117 S.  Ct.  at
1360-1361 statutory requirement that State be in sub-
stantial compliance with child-support enforcement pro-
gram requirements was not intended to benefit individual
children or confer rights on them).               

___________________(footnotes)                            

8  The history of Section 1396a(a)(30)(A)  supports the conclusion that      
the equal access provision was intended to benefit Medicaid beneficiar-
ies, not providers.   See  H.R.  Rep.  No.  247, 10lst Cong., 1st Sess, 391
(1989)  ("The question which the Secretary must ask is whether Medi-
caid beneficiaries  have access to provider services that is at least
as great as that of  others  in the area.").

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15

Moreover, by reading Section 1396a(a)(30)(A)  to confer
enforceable rights on providers to payments that are  "con-
sistent with efficiency, economy, and quality of care,"  the
court below  (Pet.  App.  A19)  has created a right that is
"beyond the competence of the judiciary to enforce."
Wilder, 496 U.S.  at 509 (quoting Golden State Transit
Corp.  v.  Los Angeles, 493 U.S.  103,106 (1989)).  Neither the
Act nor any regulation promulgated by the Secretary
"gives any guidance"  (Blessing, 117 S.  Ct.  at 1362) as to
what portion of costs must be reimbursed by States for
how many of the providers, or gives more specific content
to the statutory criteria of  "efficiency, economy, and qual-
ity of care"  so that those general criteria could be en-
forced by a court. Accordingly,  "the right assertedly pro-
tected by the statute is  * * *  so 'vague and amorphous'
that its enforcement would strain judicial competence."
Id.  at 1359 (quoting Wright v.  Roanoke Redevelopment
and Housing Authority, 479 U.S.  418,431-432 (1987)).
b.  Despite  petitioner's  position  that  Section
1396a(a)(30)(A)  does not confer rights on providers that
may be enforced under 42 U.S.C.  1983, petitioner did not
preserve that issue in the court of appeals.  Although
petitioner argued to the district court that respondents
could not bring suit under Section 1983, petitioner did not
raise the issue as an alternative ground for affirmance in
the court of appeals after prevailing on the merits of the
statutory question.  See Northwest Airlines, Inc.  v.
County of Kent, 510 U.S.  355, 364 (1994).  The court of
appeals therefore did not address that threshold question.
Petitioner contends  (Reply Br. 3)  that she argued in the
court of appeals that Section 1396a(a)(30)(A)  was not
intended to benefit providers, and that that provision lacks
sufficient guidance to create judicially enforceable stan-
dards.  Petitioner advanced those contentions, however, in
support of her arguments on the merits regarding the

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16

proper interpretation of Section 1396a(a)(30)(A).  Peti-
tioner did not further argue that, in light of those factors,
Section 1396a(a)(30)(A)  does not even create rights en-
forceable under 42 U.S.C. 1983.  In circumstances such as
these, the Court would ordinarily decline to review the
issue.  See, e.g., Youakim v.  Miller, 425 U.S.  231, 234
(1976)  ("[ordinarily, this Court does not decide questions
not raised or resolved in the lower court"); accord Citi-
zens Bank of Maryland v.  Strumpf, 516 U.S.  16, 21 n.*
(1995); Delta Air Lines, Inc.  v.  August, 450 U.S.  346, 362
(1981); Adickes v.  S.H.  Kress  &  Co., 398 U.S.  144, 147 n.2
(1970).
3.  a.  The statutory question at issue in this case-
whether States must reimburse hospital providers for
their costs of providing outpatient care-could have sig-
nificant consequences for the Medicaid program.  By
ordering a system of cost-based reimbursement for out-
patient services, the decision below frustrates the intent
of Congress to accord States flexibility in encouraging
efficient and economical care.  In addition, depending upon
what measure of  "costs"  the court of appeals meant to be
reimbursed, the decision below could increase substan-
tially the expense of the Medicaid program to the States
and the federal government, without any corresponding
finding that, under the current system, needy individuals
lack access to quality care.  See Pet.  App.  A17.  Similarly,
whether respondents may bring suit under Section 1983 is
an important question that could have a significant impact
on the Medicaid program.  If providers such as respondents
could routinely bring suit in federal court alleging that a
State has failed to make adequate reimbursement to them
for particular outpatient services, the cost of the Medicaid
program could substantially increase, to the detriment of
both the state and federal governments, and the ultimate
detriment of Medicaid recipients.  Thus, at some point, the

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17

questions presented in this case may warrant this Court's
review.
In our view, however, this case would be an inappropri-
ate vehicle for plenary review of the court of appeals' deci-
sion on the merits, because the substantial threshold issue
of the availability of a cause of action under 42 U.S.C.  1983
has not been addressed below or preserved for the Court's
review.  That conclusion is particularly warranted here,
since many of the issues underlying a determination of
whether 42 U.S.C.  1983 confers a tight of action on pro-
viders, such as whether providers are the intended
beneficiaries  under Section 1396a(a)(30)(A)  and the degree
of flexibility conferred on the States by that Section,
overlap with the statutory question of whether Section
1396a(a)(30)(A)confers on hospitals a right to Medicaid
payments that reimburse all or substantially all of their
costs.  Thus, in our view, it would be appropriate for
this Court to defer review until there is a case that ade-
quately presents both the merits question under Section
1396a(a)(30)(A) and the threshold right-of-action question
under  42  U.S.C.  1983.
b.  This Court's ultimate review of both questions
presented will likely benefit from further consideration by
the lower courts.  Although petitioner and her amici are
correct in observing  (Pet.  11-12; States' Amici Br. 6-7)
that the Ninth Circuit's decision is in considerable ten-
sion with the decisions of two other courts of appeals
regarding whether Section 1396a(a) (30)(A)  requires States
to adopt a particular methodology in setting Medicaid
payment rates, those decisions did not squarely confront
the question whether States must reimburse providers'
costs in order to comply with that Section, See Methodist
Hospitals, Inc., 91 F.3d at 1030; Minnesota.  Homecare
Ass'n, 108 F.3d at 918.  The courts below did not have the
benefit of the views of the Secretary of Health and Human

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18

Services set forth in the brief concerning the interpreta-
tion of Section 1396a(a)(30)(A)  on that question.  Compare
Auer v.  Robbins, 117 S. Ct. 905, 911-912 (1997).  And the
precise scope of the Ninth Circuit's decision in this case is
uncertain, for it is not clear what measure of  "costs"  the
court intended that petitioner must allow the hospitals to
recover.  See Pet.  App.  A13-A15, A18, A19, A21-22, page
15, supra.
Similarly, those courts of appeals that have construed
Section 1396a(a)(30)(A)  as conferring rights enforceable
under 42 U.S.C.  1983 have not considered the issue in the
specific context of a challenge to a State's plan based on its
lack of consideration of providers' costs.  See, e.g.  Visiting
Nurse  Ass'n of North Shore, Inc., 93 F.3d at 1000 n.3 (pro-
viders challenged State's proposed rate changes as violat-
ing  "equal access"  provision); Methodist Hospitals, Inc., 91
F.3d at 1029 (providers argued that State could not change
rates without demonstrating effect on access to care);
Arkansas Medical Society, Inc., 6 F.3d at 531  (providers
and recipients challenged proposed reimbursement rate
reductions as based on budgetary concerns without con-
sidering reduction's impact on efficiency, economy, and
quality of care, as well as equality of access).
The courts of appeals also have not explored new author-
ity bearing on a plaintiff's right to enforce  "state plan"
requirements set forth in the Social Security Act through
an action under 42 U.S.C.  1983.  The Court has recently
clarified those standards in Blessing, 117 S.  CL.  at 1359-
1362.  In addition, Congress recently enacted legislation
concerning the scope of 42 U.S.C.  1983 actions under 42
U.S.C.  1983 to enforce provisions of the Social Security
Act.  See 42 U.S.C.  1320a-2, 1320a-10 Pet.  App.  B7-B9, note
3, supra.  Neither the decision below nor any of the other
appellate decisions construing Section 1396a(a)(30)(A) has
addressed that new provision.

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19

Finally, since the decision below was rendered, Con-
gress, in the Balanced Budget Act of 1997, has repealed the
Boren Amendment  (which required States to set rates
that  "meet"  the costs that must be incurred by reasonably
efficient hospitals for inpatient services and was found in
Wilder to confer rights on hospitals enforceable under 42
U.S.C.  1983)  and replaced it with a more limited require-
ment that States provide for public notice-and-comment
participation in their ratemaking processes.  See Pub.  L.
No.  105-33, 4711, 111 Stat.  507-508.  The legislative his-
tory of that recent enactment establishes Congress's firm
determination both to free the States from federal regula-
tion and increased rates and to eliminate a basis for causes
of action by hospitals to challenge reimbursement rates.
Thus, the House Report on the repeal of the Boren
Amendment noted that  "[a] number of Federal courts have
ruled that State systems failed to meet the test of
'reasonableness' and some States have had to increase pay-
ments to these providers as a result of these judicial inter-
pretations."  H.R.  Rep.  No.  149, 105th Cong., 1st Sess.  590
(1997); accord H.R.  Conf.  Rep.  No. 217, 105th Cong., 1st
Sess.  867 (1997).  9.  The House Report further stated that
"[i]t is the committee's intention that, following enact-
ment of this Act, neither this nor any other provision of
Section 1902  [of the Social Security Act, 42 U.S.C.  1396a]
will be interpreted as establishing a cause of action for
hospitals and nursing facilities relative to the adequacy of
the rates they receive."  H.R.  Rep.  No.  149, supra, at 591.
Yet under the decision below, Section 1396a(a)(30)(A)-

___________________(footnotes)

9  States had sought repeal of the Boren Amendment on the ground
that  "courts have interpreted  [it]  to embody a restrictive and
unrealistic set of requirements in setting reimbursement rates and
have in effect given judges the power to establish reimbursement rates
levels and criteria."  National Governors' Association Policy, EC-8
Medicaid  8.3.3 (February 1997).

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20

which applies to medical services generally-would re-      I
quire States to conform to federal standards of reasonable
costs and would subject them to causes of action that could
lead to increased costs, not only for the outpatient ser-
vices involved in this case, but also for the very same
inpatient services that were previously covered by the      .
Boren Amendment.  The lower courts should be afforded
the opportunity in the first instance to consider the sig-
nificance of this recent enactment for the interpretation of
Section 1396a(a)(30)(A)  and for the availability of a cause of
action under 42 U.S.C.  1983 to enforce it.

CONCLUSION

The petition for a writ of certiorari should be denied, In
the alternative, the Court may wish to grant the petition,
vacate the judgment below, and remand the case to the
court of appeals for further consideration in light of
Blessing v.  Freestone, 117 S.  Ct.  1353 (1997), Section 4711
of the Balanced Budget Act of 1997, Pub.  L.  No.  10.5-33, 111
Stat.  507-508 and the position taken by the Secretary of
Health and Human Services in this brief.

Respectfully submitted.

SETH P.  WAXMAN
Solicitor General

FRANK W.  HUNGER
Assistant Attorney General

EDWIN S.  KNEEDLER
Deputy Solicitor General        

LISA SCHIAVO BLATT
Assistant to the Solicitor
General              

ANTHONY J.  STEINMEYER
JEFFREY CLAIR
Attorneys

NOVEMBER 1997