Medicaid provider rate cuts on the table? It could be illegal

Rates paid to Medicaid providers are "both a provider and a beneficiary issue," according to Byron J. Gross, BA, JD, an attorney in the Los Angeles office of the National Health Law Program.

"Providers obviously want to be paid more, and Medicaid rates tend to be very low," he says. "But it's also a beneficiary issue, because low provider rates have resulted in low provider participation, resulting in an access to care problem for Medicaid beneficiaries."

This is a particular problem in California, says Mr. Gross, because specialists accepting Medi-Cal, the state's Medicaid program, are not available in some counties. As an attorney with Hooper, Lundy & Bookman in Los Angeles, Gross served as co-counsel on cases challenging reductions in Medicaid rates, including Medi-Cal.

Five lawsuits were filed against the state of California in 2008 and 2009 to stop scheduled reductions in Medi-Cal provider payment rates, says Mr. Gross. These were based on the legal theory that the cuts violated the federal Medicaid "equal access" statute, he explains, which requires that Medicaid provider payments be sufficient to provide the same access to medical services as the general population.

For years, says Mr. Gross, providers and beneficiaries were generally able to enforce laws establishing a certain bottom level for Medicaid rates by suing under the Civil Rights Act, but this is no longer the case due to several recent court decisions. Cases have developed in California and some other states based on the Supremacy clause, he explains, which holds that if you have a state law that is inconsistent with federal law, the federal law can be enforced.

"In a series of decisions, the Ninth Circuit Court ruled that the state laws cutting back on Medicaid rates in California were inconsistent with the federal law saying that rates need to be sufficient to ensure equal access," Mr. Gross says.

Since California law was clear that rates had to be tied to costs, says Mr. Gross, if the state was going to set rates below costs they had to give a justification for it. "That was a strong law that we relied on," he says. "It hasn't been so clear in other states, because they don't have as clear an appellate decision on that."

The issue has gone all the way up to the Supreme Court, says Mr. Gross, and the case will likely be heard later this year. "Obviously, states are concerned about it," he says. "There was an amicus brief filed by 22 state attorney generals for the cert petition for the Supreme Court case. Governors want the flexibility to make cuts."

More enforcement from CMS

Almost all of the Medi-Cal provider rate cuts made in 2008, 2009, and 2010 were enjoined, says Mr. Gross, with the exception of some of the hospital rate reductions. "The hospitals recently worked out a settlement with the state, so that part of the case is resolved. But I would say that 90% of the cuts were enjoined through these various lawsuits," says Mr. Gross.

One problem in California, says Mr. Gross, was that the state made across-the-board cuts without studying how these would affect access to services.

"The rate reductions were clearly done solely for budgetary reasons, to save money for the state," he says. "They were making the cuts, then trying to justify them by having the Department of Health Services do studies to show there was no problem with access."

The court ruled that states need to do this type of analysis before determining whether cuts can be made, says Mr. Gross. Another problem for California, says Gross, is that the cuts were made without the approval of the Centers for Medicare & Medicaid Services (CMS).

The state Medicaid plan had to be amended to make the provider rate cuts, explains Mr. Gross, which the state is not allowed to do without approval from CMS. "The law is very clear in California. You can't implement a cutback until you have approval," says Mr. Gross. CMS has also made this clear through instructions it has issued, he adds.

If the Supreme Court ruling is not favorable, Mr. Gross says that the way CMS reviews state plan amendments will become a more important factor. "That's a part of the landscape that is changing a little bit," he says. "Previously, the regulatory framework for that review has been a little vague."

Mr. Gross explains that proposed regulations may change the way CMS reviews state plan amendments. "If things don't go well and there is no private enforcement, which we've always thought is key because there's only so much that CMS can do, the hope is that CMS will take a more active role in reviewing proposed rate cuts," he says.

Contact Mr. Gross at (310) 204-6010 or