The justices' 5-4 decision in a case from Idaho held that the Medicaid Act, which offers healthcare to low-income people, does not authorize medical providers to go to court if they believe a state's reimbursements are too low.
Tuesday's ruling reverses a decision from the U.S. 9th Circuit Court of Appeals in San Francisco, which has repeatedly blocked California from making cutbacks in its Medicaid payments.
It is not clear what effect the ruling will have on the Medicaid program because significant cutbacks are not pending.
But the California Legislature in the past has adopted provisions to reduce government spending by lowering the payments for Medicaid, a program that is operated jointly by the federal government and the states.
Before these cutbacks could go into effect, lawyers for the doctors, dentists and pharmacists sued, contending that the reduced rates violated the Medicaid Act. The legislation says the payments to providers should be "consistent with efficiency, economy and quality of care" and should be "sufficient to enlist enough providers" to serve the local population.
Judges cited this provision and ruled that California's proposed cutbacks would break the promise that healthcare would be available.
However, the high court in the Idaho case said the Medicaid Act did not give patients the right to sue in court and that it did not authorize judges to intervene on behalf of doctors and other providers.
"We hold that Medicaid providers have no right to seek injunctive relief" in court, said Justice Antonin Scalia, writing for the majority.
He said that Medicaid authorizes the secretary of Health and Human Services to ensure that the states are complying with the law. If doctors or dentists are unhappy with the payment rates in California or elsewhere, they should take their complaints to the agency in Washington, he said.
"We think that Congress wanted to make the agency remedy that it provided exclusive," he said in the case of Armstrong vs. Exceptional Child Center. Chief Justice John G. Roberts and Justices Clarence Thomas and Samuel Alito agreed entirely.
Justice Stephen G. Breyer agreed on the outcome and provided the fifth vote. "Congress decided to vest broad discretion in the [federal health] agency to interpret and enforce" the Medicaid Act, he said.
In dissent, Justice Sonia Sotomayor faulted the majority for ruling that federal judges may not enforce this part of federal law.
"The court's error today has very real consequences," she wrote. It will allow states to "set reimbursement rates so low that providers [are] unwilling to furnish a covered service for those who need it." Justices Anthony Kennedy, Ruth Bader Ginsburg and Elena Kagan joined in her dissent.
Though the case decided Tuesday arose in Idaho, it was based on the same 9th Circuit ruling that figured prominently in the series of California cases.
California Atty. Gen. Kamala D. Harris had urged the court to block lawsuits over Medicaid rates.
Since 2008, injunctions issued by judges "have cost California more than $1.5 billion by precluding the Department of Health Care Services from implementing cost reductions that the federal government determined are perfectly consistent with federal law," she said in a friend-of-the-court brief.
But the American Medical Assn., the American Dental Assn. and the American Hospital Assn. all had urged the court to protect Medicaid from state cutbacks.