In the last few months, a California district court has issued temporary injunctions to prevent Medi-Cal state cuts challenged in three separate lawsuits: California Hospital Association v. Douglas; California Medical Association v. Douglas; and Managed Pharmacy Care v. Sebelius. The cuts were part of Assembly Bill 97 ("AB 97"), which enacted significant payment reductions for many kinds of services, including skilled nursing, physician, clinic, dental, emergency medical transportation, durable medical equipment and supply, and pharmaceutical services. Lawmakers are using AB 97 to try to solve California's fiscal crisis, but providers and beneficiaries are fighting the cuts. They claim that cuts to provider reimbursement will exacerbate existing barriers to health care for Medi-Cal beneficiaries who already have trouble finding providers willing to serve them, and that the state's rate-setting process violates federal law.
Previously I have blogged about this problem and about the lawsuits brought by Medi-Cal providers and beneficiaries to prevent these kinds of cuts from going into effect. States must comply with procedural and substantive guarantees found at 42 U.S.C. Section 1396a(a)(30)(A), commonly referred to as the "Equal Access Provision" or "30A" requirement. Under this provision, states must "assure that provider 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 a least to the extent that such care and services are available to the general population in the geographic area." State officials cannot honestly and reasonably make such assurances without undertaking some kind of analysis to assess the impact that rates will likely have on access, and federal courts have consistently held that states cannot cut provider rates solely in response to fiscal concerns. Yet this is precisely what California lawmakers have tried to do a number of times before, until federal courts were asked to intervene and prevented the cuts.
Federal regulators are supposed to oversee the state rate-setting process to ensure 30A compliance. CMS (the Centers for Medicare and Medicaid Services), is the division of the U.S. Department of Health and Human Services that administers Medicaid, and the Medicaid Act requires states to submit proposals to change rates to CMS for approval. Until recently, however, federal regulators have been largely absent in this arena: HHS has failed to promulgate regulations providing guidance to states about how to comply with 30A, though the Obama administration has recently proposed such rules; and HHS has failed to use its enforcement power to reject rate cuts, even where state violations of federal law have been clear and egregious. It is because of this regulatory void that federal courts historically have played such a critical role in Medicaid payment suits.
Significance of the AB 97 Rate Cut Cases
The most recent decisions by a California district court enjoining the AB 97 rate cuts are noteworthy for a couple of reasons. First, both federal regulators and state officials seemed to take their 30A obligations seriously. When California submitted its rate cuts for approval, CMS did not simply rubber stamp them, it requested additional information concerning the implications of the cuts on health care access. California performed an access review, ultimately concluding that the cuts would not adversely impact quality or access. Based on this, CMS approved the cuts.
These cases are also important because of the current threat to providers' and beneficiaries' right to challenge illegal rate cuts in federal court. As I describe in greater detail in a prior blog, the Supreme Court will be deciding this issue soon, and HHS has sided with the states in advocating for the elimination of this judicial last resort. HHS's argument against allowing suits to challenge payment cuts is based, in part, on the fact that HHS has been explicitly charged with Medicaid oversight in rate setting. Implicitly, HHS seems to be claiming that it can be trusted to exercise its oversight effectively. Certainly, the Obama administration has done more than past administrations to try to earn this trust by stepping up its oversight activity with respect to access and proposing rules to give states guidance for complying with 30A.
There are still many unanswered questions about HHS's stated commitment to enforcing 30A obligations, and these recent cases provide a troubling glimpse of this "commitment" in practice. In all three cases, the court's opinion reveals fundamental flaws in the state's rate-setting process -- flaws that reflect a continuing disregard of federal law, and specifically access and quality protections. In approving these latest cuts, CMS seems to ignore these flaws, California's history of violating federal law, and even California's disregard of CMS's own suggested criteria for determining 30A compliance. Far from instilling trust in CMS's regulatory promises, these most recent cases reinforce the critical role that federal courts will need to continue to play in protecting Medicaid access in the future.
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