Court Action Is Necessary To Maintain Medicaid’s Integrity

Should private citizens be allowed to sue their state Medicaid programs for imposing rate cuts on doctors and other providers? That’s the question the Supreme Court is currently considering in Douglas v. Independent Living Center of Southern California, a case that pits California’s Medicaid program against providers and beneficiaries who charge that rate cuts force so many doctors, hospitals, pharmacies and other health care providers to drop out of the program that the poor, elderly and disabled no longer have adequate access to necessary medical care.

But beyond the particulars of California, this case raises serious questions about the federal government’s ability to maintain the essential integrity of Medicaid, the joint federal-state effort that provides care for nearly 60 million of the nation’s poor, elderly and disabled. With the roll-out of the Patient Protection and Affordable Care Act, Medicaid is set to expand coverage to an additional 16 million Americans, many of whom are currently uninsured. Without an adequate supply of primary care doctors, specialists, mental health professionals and hospitals willing to take on these new patients, essential medical care will remain out of reach.

Meanwhile, under pressure to slow the growth of their ballooning budgets, more states have turned to Medicaid as an attractive source of savings. In order to qualify for increased federal funding for Medicaid available through the Recovery Act, states had to maintain their enrollment levels and a minimum set of benefits. But this requirement did not apply to provider reimbursement. As a result, many states have imposed rate cuts on doctors, hospitals and nursing homes, driving payments down to levels far below what providers earn from private insurers or Medicare. This past July alone, Kaiser Health News reported that twelve states kicked off their new budget years by cutting Medicaid provider payments.

The net result, borne out in a number of regional studies, is a serious shortage of doctors and hospitals who will agree to treat Medicaid patients. As one hospital administrator put it, “we lose less money by keeping beds empty than by filling them with Medicaid patients.” Speaking on the steps of the Supreme Court this week, Dr. Ted Mazer, representing the California Medical Association, told NPR that “the California Medicaid program pays him $168 to perform a tonsillectomy on a child, including pre- and postoperative care, and that, he said, is not enough to even cover his costs.”

The California case began in 2008 when the state legislature approved rate cuts of up to 10% to MediCal providers. These cuts went into effect without the state asking for or receiving federal approval, and were extended again in 2009. Medicaid providers, beneficiaries and others affected by these rate cuts filed suit to block them in state and, eventually federal appeals court. They argued that as a result of cuts to reimbursement, many beneficiaries—the poor, elderly and disabled—will not be able to access care, in violation of a major section of the federal Medicaid law. Specifically, this provision of the federal law requires States to “assure that payments…are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.”

In the California case, the plaintiffs argued that federal Medicaid law preempts (or has “Supremacy” over) the California state law that cut provider payment rates. The Federal Appeals court agreed and issued an injunction blocking MediCal’s rate cuts. According to the San Francisco Chronicle, the court decided that “the state had failed to show that further cuts in the fees would allow equal access for health care to the poor, as federal law requires.”

The State of California is disputing this preemption; arguing that federal Medicaid law does not include anything about private parties having the right to file suit and use courts to block cuts in reimbursement. Enforcement of the Medicaid law (and therefore oversight of rate cuts), is the responsibility of a “supervising federal agency;” in this case the Department of Health and Human Services (DHHS). The National Governor’s Association, The National Association of State Medicaid Directors and several other groups representing state and local officials have jumped on this bandwagon. Together they filed an amicus (“friend of the court”) brief supporting California; arguing that allowing private parties the right to sue if they feel that states aren’t upholding federal statutes would have a “chilling effect on new and creative State and local solutions to dynamic fiscal and policy circumstances.”

These groups want states to be able to solve their budget crises without private interests—whether it be hospitals, pharmacies, patient advocacy groups or any other in a long list of potential litigants—filing lawsuits that second-guess these decisions. Some twenty-one states filed a separate brief to the Supreme Court reiterating these concerns and again insisting that the federal government, not the court system, is the sole enforcer of Medicaid law.

It should be obvious why states and national groups representing local officials want to put a lid on private citizens using the courts to enforce federal law—especially when it comes to health care. Conservative states are railing against the insurance mandate, requesting waivers, and refusing to set up health insurance exchanges; they are passing restrictive abortion laws that threaten reproductive choice; in some cases (like Texas) they are threatening to pull out of the Medicaid program altogether. When major provisions of the ACA are rolled out in 2013, states that resist implementing insurance exchanges, or refuse to meet the needs of an expanded Medicaid population, could face a raft of lawsuits from private parties demanding that courts take action to uphold the federal health reform law.

What is far from obvious is why the Obama administration is also taking California’s side. This is in direct conflict to the position taken by Democratic leaders Nancy Pelosi and Henry Waxman (both from California) and the administration’s own Judicial branch who argue that Congress intended for the courts to serve as a valuable check on state Medicaid cuts.

On Monday, Obama’s Deputy Solicitor General argued before the Court that only DHHS should be able to enforce state compliance with Medicaid law. Perhaps by taking this stance, Obama is trying to throw a bone to restive states who are struggling to balance their budgets and have opposed many provisions of the health reform bill. These states have made it clear that they want “flexibility” to run their Medicaid programs and insurance exchanges as best befits their particular state. In California, even as Douglas is being debated in the Supreme Court, Gov. Jerry Brown and the California state legislature recently approved yet another 10 percent cut in Medi-Cal reimbursement, with the goal of delivering $620 million in savings to help balance the state’s 2011-12 budget.

Obama’s short-sighted position will cause more harm than good in the long run. By taking away the right of citizens to pursue lawsuits that force states to comply with federal health care law, the President is removing a vitally important protection. His administration is depending on states to comply with Medicaid laws and, down the road, to fully implement health reform provisions as spelled out in the Affordable Care Act. This is wishful thinking, at best. If states don’t comply, the administration is saying that it is confident that federal agencies alone will be able to enforce compliance by withholding funding or issuing injunctions of their own.

This is a flawed assumption as the federal government has already proven to be a poor enforcer of Medicaid law. As Sara Rosenbaum, chair of the Department of Health Policy and Professor of Law at George Washington University wrote recently in the New England Journal of Medicine; “Despite the fact that this protection [equal access to care] has been part of the federal Medicaid statute for 22 years, the Department of Health and Human Services (DHHS) has never issued detailed compliance standards, much less enforced them.” Rosenbaum continues, “DHHS’s track record for Medicaid oversight is abysmal, and for good reason: the statute offers the secretary of health and human services virtually no meaningful enforcement tools.”

The only enforcement tool that DHHS has is to cut off funding for a state’s Medicaid program—a move that would ultimately cause direct harm to the vulnerable populations that the program serves. It’s worth noting that the agency has never used this enforcement tool. Any other federal actions require a lengthy review process (in the case of MediCal, it took two years before the federal government rejected the rate cuts) leaving beneficiaries “unprotected against conduct that immediately threatens health and life,” according to Rosenbaum.

As Douglas wends its way through the Supreme Court this issue of federal enforcement will be a major consideration. Many observers have the sense that the federal government has failed to protect the integrity of Medicaid; has stood by while states cut rates, Medicaid providers drop out, and the most vulnerable patients lose access to necessary medical services. “The great scandal of our health care system is low Medicaid reimbursement,” says Harold Pollack, professor of social service administration at the University of Chicago and adjunct fellow at The Century Foundation.

Obama is on the wrong side. It is time for the courts to step in and force states to grapple with Medicaid’s payment inequities and deep-seated access problems. They are endemic to the program, occurring in every state in violation of  federal law. Without the threat of court action, cash-strapped states will continue to slash Medicaid programs. And as we get closer to implementing the major provisions of the ACA, giving private parties access to those same courts will be an important enforcement tool for making sure the goals of affordable, high-quality and accessible care are available to all Americans.

3 thoughts on “Court Action Is Necessary To Maintain Medicaid’s Integrity

  1. There is no better proof of the Fed’s inability to make Medicaid access reasonable than to study the dental access history for poor kids over the last 45 years. The private sector has continually refuse to accept this program, and if it were not for CHCs and other clinics, most of these kids would not have had any access now or over the last 30-40 years. If patient lawsuits could make this poor excuse of a healthcare program work as it should, I am all for it.

  2. ng
    I agree with you on the dental access issue. There have been many cases over the years of private parties suing state Medicaid programs and the issue of equal access remains poorly defined. This is the first to reach the Supreme Court; if the ruling stands, there could be a lot more lawsuits demanding better access to care–dental or otherwise.