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Judge Blocks Rule Cutting Payments to Hospitals for the Poor

By John Reichard, CQ HealthBeat Editor

May 23, 2008 -- A federal judge in Washington, D.C., ruled Friday that the Bush administration can't immediately reinstate a rule cutting Medicaid payments to "safety net" hospitals and clinics after the current one-year moratorium on the regulation expires Sunday.

The rule can't be reinstated right away because a "maneuver" by the administration to evade the moratorium was not permissible, said U.S. District Court Judge James Robertson.

Safety net facilities treat unusually large numbers of patients who are poor or uninsured.

However, hospital lobbies that joined forces to oppose the administration tactic said Friday in a joint news release that the order by the U.S. District Court of the District of Columbia in Alameda County Medical Center v. Leavitt only temporarily delays the regulation.

"We urge Congress to move ahead swiftly to extend the moratorium" on the regulation, said the president of one of the lobbies, Larry S. Gage of the National Association of Public Hospitals and Health Systems.

Department of Health and Human Services Secretary Michael O. Leavitt announced Thursday that it was voluntarily delaying the regulation until Aug. 1, along with another regulation cutting Medicaid payments to hospitals for that provide graduate medical education.

But hospitals say that unless Congress acts to extend the moratorium on the regulation, CMS can soon reinstate it.

The Senate voted Thursday to delay, until April 2009, the two regulations affecting safety net facilities and graduate medical education payments, along with five other cost-cutting Medicaid regulations. But President Bush has threatened to veto the war supplemental spending measure (HR 2642) that carried the regulations language.

Robertson said in his decision that the administration thought it could avoid the moratorium on the regulation affecting safety net facility payments, which was signed into law May 25, 2007.

"On May 24, with full knowledge that the moratorium had been passed but had not yet been signed by the President, the [HHS] Secretary rushed a typo-ridden final rule to the Office of the Federal Register for 'emergency display and publication,'" Robertson wrote in his decision. The "'emergency'" was the impending presidential signature on the moratorium legislation, Robertson noted wryly.

But because a required notification to Congress to make the rule effective was transmitted on the 25th, the day the moratorium took effect, the rule violated the moratorium, the judge said.

Jeff Nelligan, a spokesman for the Centers for Medicare and Medicaid Services, said "we are still reviewing the decision. Importantly, the judge ruled on a technicality" relating to the effect of the moratorium "and did not rule against us on the substance of the rule. We remain convinced that the rule will ultimately be upheld on its merits by the judge." But Nelligan also noted that CMS plans to move on its own to delay the effective date of the rule until Aug. 1.

The agency has announced that step to give Congress time to deal legislatively with the issues underpinning the payment rule. CMS and independent analysts say that states use unjustified accounting tactics to boost federal Medicaid payments to safety net facilities, threatening the fiscal integrity of Medicaid.

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