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Bid to Force Higher Medicaid Payments Reaches Supreme Court

By Melanie Zanona, CQ Roll Call

January 20, 2015 -- The Supreme Court will hear oral arguments this week on whether states can be forced to raise Medicaid reimbursement rates in an effort to keep pace with rising costs.

The case comes several years after a group of private health care providers serving disabled adults and children in Idaho filed a lawsuit against the state's Health and Welfare Department for freezing Medicaid reimbursement rates at 2006 levels, despite a study showing costs had risen.

A U.S. district judge ordered Idaho to raise Medicaid payments in 2011—a decision that was upheld by the 9th U.S. Circuit Court of Appeals in 2013. The high court will now hear an appeal of that outcome, with a decision on the case expected in June. Idaho officials estimate that it cost an extra $12 million in 2013 to increase reimbursement rates in the state.

At the core of the debate is whether providers have the right to sue a state for not adequately reimbursing them for services provided under Medicaid, the federal-state health insurance program for the poor. The state's primary argument is that providers have no legal standing to sue and shouldn't be able to use the court system to receive higher rates.

But providers and health groups maintain that there needs to be a judicial process to ensure that Medicaid beneficiaries receive equal access to care, as mandated by law (PL 89-97).

"The nation's most vulnerable patients deserve the same access to high-quality medical care as patients with private insurance," said American Medical Association (AMA) President Robert M. Wah in a press release. "The sad fact is that Medicaid's guarantee of equal access has become an illusion in many states that have cut Medicaid funding and driven physicians and other health professionals from the program."

Frozen payment rates in some states have fallen below the average cost of care and thus make it unreasonable for physicians to take on Medicaid patients, according to the AMA.

The American Hospital Association echoed those arguments in the amicus brief it filed along with the Federation of American Hospitals, saying it is both unfair and illegal to suppress reimbursement rates in ways that ultimately inhibit Medicaid patients from receiving care.

The "promise of equal access is central to Medicaid's purpose—yet states have repeatedly cut reimbursement rates to levels far below providers' actual costs without taking into account how that harms providers or constrains the availability of health care for the neediest Americans," the brief stated. "Without recourse to the courts to enforce the conditions Congress set in place, hospitals and other providers will continue to bear losses that, for some, are unsustainable."

Under the Constitution's Supremacy Clause, which providers have used to say federal law preempts state law, Idaho officials argue that private parties are not allowed to enforce federal Medicaid laws unless Congress had created a private right to do so.

The state has said that it is up to federal agencies—not private parties—to determine whether states are in compliance with federal Medicaid statutes. They also contend that such lawsuits could subject states to obligations that were not anticipated when deciding to accept Medicaid and prevent them from staying within budgetary limits.

Twenty-seven states and the National Governors Association have backed Idaho in a brief on the case.

If the providers win, states could be forced to set higher reimbursement rates, but if Idaho wins, than private parties would likely be barred from bringing such suits against states in the future.

Some Medicaid reimbursement rates are already due for steep cuts this month after Congress' refusal at the end of 2014 to renew a fee bump in the health law (PL 111-148 , PL 111-152) designed to match the primary care payment rates for Medicare, the federal program for the elderly and disabled.

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