9th Cir.: Preemption/§ 1983 ruling involving Medicaid provider

The Ninth Circuit rejected a preemption claim on the merits and dismissed a § 1983 claim in a challenge to California’s summary suspension from the Medi-Cal program of a doctor under investigation for illegal activities.

Notably, this conservative panel accepted without question the ability to bring a preemption claim under the Medicaid Act, albeit in the context of a provider suit. But curiously, the court conducted a different substantive analysis of the Medicaid claims under § 1983, rejecting the enforceability of a regulation under § 1983 but not considering its possible preemptive effect. Evaluating the statute under preemption, , the court held on the merits that the Medicaid Act does not limit the grounds on which states may suspend providers. Guzman v. Shewry, --- F.3d ----, 2008 WL 4307186 (9th Cir. Sep. 23, 2008) (No. 08-55326).

 

          Guzman is under investigation and faces criminal charges stemming from his alleged fraudulent use of non-FDA approved intrauterine devices from Mexico. He complained (1) that 42 U.S.C. § 1320a-7 restricts the grounds upon which states can suspend providers from the Medicaid program, and does not permit states to suspend because of a mere investigation; and (2) that that provision and federal regulations require a hearing before such suspension. For reasons that are unclear, the court analyzed the substantive claim (1) only under preemption and the procedural claim (2) only under § 1983. This could have been due to inartful pleading or argument, confusion by the court, or mootness concerns about the procedural claim.

 

          The panel analyzed the substantive claim as a straightforward preemption claim against the Medi-Cal suspension statute. The court rejected it on the merits because, while the federal statute does not permit the Secretary of HHS to suspend providers for a mere investigation, it appeared to contemplate state authority to suspend providers that is broader than the Secretary’s. Moreover, 42 C.F.R. § 1002.2(a) provides that federal law should not be construed to limit states’ authority to suspend providers “for any reason or period authorized by state law.”

 

          As to the procedural claim, the panel deemed procedural provisions of § 1320a-7 inapplicable because they deal only with suspensions by the Secretary. A more serious question was raised by 42 C.F.R. § 431.54(f), which does set out procedural requirements for state suspensions. The court noted that this regulation appears as an exception to Medicaid’s freedom of choice provision, and purports only to deal with suspensions of providers who provider inadequate or unnecessary care. But decisive for the court was that, even if the regulation applied to Guzman, “agency regulations cannot independently create rights enforceable through § 1983.” Save Our Valley v. Sound Transit, 335 F.3d 932, 936 (9th Cir. 2003). Because it analyzed the regulation only under § 1983 and not preemption, it did not resolve whether the regulation actually applied to these facts, in which case it would have partially preempted California law.

 

          The court also rejected Guzman’s due process claim, holding that he had no protected liberty interest in participating in Medi-Cal, and that the suspension from Medi-Cal posed no direct threat to his ability to practice medicine or his reputation.