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Hospital Groups File Lawsuit to Block Medicaid Regulation

By Annie Johnson, CQ Staff

March 11, 2008 -- A group of hospital associations filed a lawsuit on Tuesday asking a federal court to stop the Bush administration from implementing a proposed Medicaid rule that could cut billions of dollars in funding to safety net hospitals.

"The impact would not just be felt by low income and vulnerable patients but by entire communities" said Larry Gage, president of the National Association of Public Hospitals and Health Systems.

The Centers for Medicare and Medicaid Services has been under fire for the set of proposed regulations, which now total at least seven and are slated to roll out this year.

The first regulation, which limits federal reimbursement for targeted case management, took effect Mar. 3; Tuesday's lawsuit focuses on a rule to be implemented May 25. Congress last year placed a moratorium on its implementation until May 25.

The coalition, led by the National Association of Public Hospitals and Health Systems, the American Hospital Association, the Association of American Medical Colleges, and supported by the National Association of Children's Hospitals, filed suit in the U.S. District Court for the District of Columbia asking the court to reject the regulation on three grounds:

  • CMS overstepped its authority in dictating to states the governmental status of entities within their jurisdiction.
  • Congress has barred the agency from imposing a cost limit on Medicaid payments to governmental providers.
  • CMS improperly issued the rule on the day (May 25, 2007) that a Congressional moratorium blocked the rule took effect.

The federal government pays about 57 percent of the cost of Medicaid, a joint federal-state health care program for the poor. The federal share is estimated to total about $204 billion in 2008.

The regulation would save almost $4 billion over five years by placing restrictions on the amount of Medicaid reimbursement for public hospitals at no more than the cost of providing that service, according to CMS.

The coalition of hospitals said the regulation would actually cut $5 billion from their budgets.

CMS said the rule is intended for hospitals to pay their share of Medicaid costs.

"The fact is, the purpose of the cost rule is to preserve the integrity of the Medicaid partnership, in which the federal government and the states share the financial obligations for serving people who rely on this important program," said Jeff Nelligan, spokesman for CMS. "It is ironic that hospitals are suing over a rule that is designed to protect them because we firmly believe it's the state responsibility to fund its share of the Medicaid program, not the responsibility of providers."

But hospitals have fired back that if funding is cut, then so will programs for beneficiaries.

In Alameda County, Calif., programs for patients with HIV/AIDS and the trauma center itself might be gutted, said Wright Lassiter III, CEO of the Alameda County Medical Center in Oakland.

"The first question that I have to consider and discuss with our board and community is, 'Can we find a way for the system to still be viable?'" Lassiter said.

For many hospitals, that answer is no, the groups said.

In all, the Bush administration's proposed Medicaid regulations would shift $50 billion in costs to the states, according to a report House Democrats released last week, a number CMS contests as too high. The Office of Management and Budget had estimated the new rules would reduce the federal share of Medicaid by about $15 billion over the next five years.

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