Sunday, November 6, 2011

Obama Administration Approves new California Medicaid cuts while Supreme Court Decision on prior cuts is pending

[Note: See the February 2012 Update at the end of this post]

In 2008 the state of California imposed a 10% across the board reduction in payments to its Medicaid providers. Providers and advocates for consumers fought back by filing a federal lawsuit that argued that the reduction violated the equal access mandate. In July 2009, the 9th Circuit Court of Appeals upheld an injunction that was issued to prevent California from implementing the cuts. California appealed that decision to the United States Supreme Court. The Court opened its October 2011 term by hearing arguments in that case: Toby Douglas v. The Independent Living Center of Southern California

While a decision on the 2008 Douglas case is pending, the Federal Government has now approved a new request by the state of California to amend its Medicaid plan for additional reductions in Medicaid payments to hospitals and other health care providers. The 10% cuts which were approved by The Centers for Medicare and Medicaid Services on October 27th of this year may actually be higher since they are based on payment rates in effect two years ago. The cuts "will have a devastating effect on access to care" according to California Hospital Association President Duane Dauner.  State officials have projected that the new cuts will save $623 million.

As a result of the new cuts, the California Hospital Association filed suit on November 1. The 2011 case is California Hospital Association v. Toby Douglas, 11-9078, U.S. District Court, Central District of California (Los Angeles).

Both the 2008 and the 2011 Douglas cases involve Medicaid. (Toby Douglas is the Director of the California Department of Health Services). Medicaid provides health coverage for over 50 million poor and disabled Americans including millions of seniors. While a majority of Medicaid funding comes from the federal government, each state administers its own program. But to get the federal funding, a state must comply with certain federal requirements. One requirement, known as the equal access mandate, is that a state must reimburse Medicaid providers at levels that are sufficient to enlist enough providers to ensure that care and services are available to the program’s beneficiaries. 42 U.S.C. §1396a(a)(30)(A).

The most important issue in the Douglas-2008 case is not whether the 10% cuts were contrary to the federal law. Instead, the most critical question in the case is the preliminary issue of whether providers and consumers are allowed to sue at all when a state action conflicts with this mandatory provision of Medicaid law.  

In Douglas-2008, the State of California is arguing that while the federal government can enforce the equal access provisions of Medicaid law, providers and consumers cannot. If California is right, Medicaid providers and beneficiaries have no “private right of action” and cannot sue the state even if they will be hurt by the state cut in reimbursements. California’s position is supported by the Obama Administration. Other states, seeking ways to reduce their budgets, are watching the case closely. 

What if California wins? Is it realistic to expect that the federal government will take the action needed to force states to follow Medicaid laws?  Providers and Medicaid beneficiaries don’t think so. They argue that the federal government “utterly lacks the financial, legal, logistical and political wherewithal” to enforce this and similar Medicaid provisions. If the providers and consumers most affected by a state’s decisions are not allowed to sue, no one will. As a result, a decision in favor of California could set a precedent that will allow states to effectively disregard federal law in order to achieve state budgetary savings.  

The inability of consumers and providers to sue to enforce Medicaid’s reimbursement rules may ultimately make it more difficult for low-income people to obtain health care and drive some nursing homes and other Medicaid providers out of business. But the federal government and most states (31 of whom, including Pennsylvania, joined in filing an amicus brief in support of California) do not want state reductions in reimbursement rates to be challenged by private parties.  Look for a decision in the Douglas-2008 case in early 2012.   
Update: On February 22, 2012, the US Supreme Court vacated the lower court's decision in Toby Douglas v. The Independent Living Center of SouthernCalifornia and sent the case back for further consideration in light of the federal government's approval of cuts. Justice Breyer, writing for the majority of the court stated:

The federal agency charged with administering the Medicaid program has determined that the challenged rate reductions comply with federal law. That agency decision does not change the underlying substantive ques­tion, namely whether California’s statutes are consistent with a specific federal statutory provision (requiring that reimbursement rates be “sufficient to enlist enough pro­viders”). But it may change the answer. And it may require respondents now to proceed by seeking review of the agency determination under the Administrative Pro­cedure Act (APA), 5 U. S. C. §701 et seq., rather than in an action against California under the Supremacy Clause.

However, four of the nine Justices would have reversed the lower court and found that:
When Congress did not intend to provide a private right of action to enforce a statute enacted under the Spending Clause, the Supremacy Clause does not supply one of its own force.
Thus, the issue of whether private parties have standing to sue states to enforce federal Medicaid standards remains open for now - at least temporarily. But in general things don't look good for  private plaintiffs.  

See also: 
Supreme Court Sends California Medicaid Case back to Lower Court
For earlier information on the two Douglas cases see

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