Monday, January 2, 2012

Federal Judge Prevents California cuts to Medicaid

In March 2011 California enacted significant payment reductions for many classes of services provided under its state Medicaid program (Medi-Cal). Payments to some providers were to be reduced by 10% of more. The cuts were intended to help fill a multi-billion dollar deficit in the state budget.   

Because Medicaid is funded largely by the federal government, the cuts required federal approval. On October 27th, The Centers for Medicare and Medicaid Services (CMS) approved California’s proposed Medicaid State Plan Amendment effective retroactively to June 1, 2011. The California Hospital Association (CHA) immediately filed suit to block the cuts. CHA was representing hospitals with skilled nursing units inside them which provide Medicaid covered nursing services to Medi-Cal beneficiaries.
CHA asked the court to enjoin the implementation of the payment cuts because such massive reductions would threaten the ability of many hospitals to continue to operate skilled nursing units at all.  And the closure of hospital based units would create significant gaps in access to skilled nursing services for Medi-Cal beneficiaries and reduce quality of care, particularly for persons residing in medically underserved rural areas. 

Under federal law state Medicaid plans are required to make payments sufficient to attract enough providers so that care and services provided to Medicaid patients are at least as good as those offered the general public. States must provide such methods and procedures relating to the utilization of, and the payment for, care and services available under the plan . . . to assure that payments are consistent 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).  

On December 28th Federal Judge Christina Snyder issued a preliminary injunction which temporarily prevents California from implementing the 10% cuts and found that CHA was likely to eventually succeed at a trial of the case, California Hospital Association v. Toby Douglas. The Court issued a similar order in a suit brought by pharmacies.

In her opinion Judge Snyder refused to defer to the approval decision made by the federal regulators at CMS. She found that CMS’s reliance on a state generated analysis of the cuts impact on access and quality of care would likely be found to be arbitrary and capricious.  

The Court was able to dodge a critical preliminary issue in the case: whether CHA had “standing” to bring this action at all.  Can private parties bring an action against the state to enforce Section 30(A) of Medicaid law, or does only the federal government have that right? 

For the time being private parties like CHA can contest this kind of state decision, at least in California. But the “standing” issue is currently being decided by the United States Supreme Court in another case from California, Toby Douglas v. The Independent Living Center of Southern California. The Supreme Court decision in that earlier case, expected early this year, will eventually determine the fate of Judge Snyder’s injunction in California Hospital Association v. Toby Douglas. 31 states, including Pennsylvania, joined in filing an amicus brief in support of California in the earlier case that is now before the Supreme Court. They do not want cuts they make in their state Medicaid programs to be challenged by private parties.  Neither does the federal government. 

Underlying this case is a fundamental policy question: does a State's fiscal crisis outweigh the serious irreparable injury that will be suffered by Medicaid beneficiaries who are the ultimate casualties of these types of cuts.  Judge Snyder's answer - "State budgetary considerations do not . . . in social welfare cases, constitute a  critical public interest. . . . In contrast, there is a robust public interest in safeguarding access to health care for those eligible for Medicaid."   We may soon learn what the US Supreme Court has to say on this subject.   

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 things don't look good for CHA and other private plaintiffs.  

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