U.S. appellate court weighs legality of Medi-Cal cuts

The 9th U.S. Circuit Court of Appeals is set to consider a Medicaid physician reimbursement case that has garnered nationwide attention. The panel will decide whether to uphold a preliminary injunction that stopped California from slicing 5% from Medicaid fee-for-service payments to doctors and others.

Medicaid reimbursement in most states lags far behind Medicare and private insurance pay. Many state governments, faced with financial problems during the recession, have cut physician reimbursement further. But doctors in a few states are fighting back in court, and others could follow their lead, depending on the outcome.

In the California case, a lower court in 2003 said the California Medical Assn. and other associations that sued the state showed that there was a good chance that citizens enrolled in California Medicaid would be hurt if already-low physician payments were further reduced by the cut, which was scheduled to go into effect Jan. 1, 2004.

Data the groups presented in court showed that lower reimbursement causes physicians to no longer treat patients in the program, known as Medi-Cal. This limits access to care and increases the time patients must wait for appointments. It also harms continuity of care, especially preventive services. These problems hit children with chronic conditions the hardest, the groups said.

"It's very clear that this action has given a clear message of the concern of the underfunding of Medi-Cal," said Jack Lewin, MD, CMA's chief executive officer.

States can't just make arbitrary cuts without assessing their impact on care, said Craig J. Cannizzo, the attorney representing the CMA and other plaintiffs in the lawsuit.

A 1989 congressional act requires that health care professionals' Medicaid payments be "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."

Congress passed the act because lawmakers worried that states were reducing physician payments as an easy way to cut Medicaid costs, not considering the impact it could have on doctors' willingness to participate.

"If the state had done the assessment, it would have shown that patients would have a harder time accessing care," Cannizzo said.

The U.S. District Court for the Eastern District of California agreed that California's pay cut violated the Medicaid requirement. It also rejected the state's argument that Medi-Cal beneficiaries, as well as third-party groups, such as the CMA, do not have legal standing to challenge the state's decision in court.

The California Dept. of Health Services, the target of the lawsuit, would not comment because of the pending litigation, a DHS spokeswoman said. But court records show that the state is asking the 9th Circuit to reverse the lower court decision based, in part, on the notion that the groups don't have the right to bring a lawsuit.

Although the 9th Circuit ruling, expected by the end of the year, would have direct impact on what happens in only the states in that appellate district, many eyes are watching closely to see what the court has to say.

The American Medical Association/State Medical Societies Litigation Center and the American Academy of Pediatrics in July filed a joint friend-of-the-court brief in the California case urging the 9th Circuit to let stand the injunction against the pay cut and to allow physicians to sue on their patients' behalf.

"AAP has a goal for all children to have access to care," said the academy's president, Carden Johnston, MD. "If Medicaid doesn't pay, children don't have access."

In their brief, the AMA and AAP say it's critical for Medicaid beneficiaries and their physicians to be able to challenge state governments in court when they don't appear to be living up to the law. The states and federal government do little to ensure equal access to care mandated by federal law, the AMA and AAP argue.

The General Accounting Office in January 2003 found that most states do not set goals or analyze the availability of primary care physicians in Medicaid fee-for-service programs.

"Unless affected parties can ensure that federal law is obeyed, the costs of such noncompliance will fall disproportionately on one of the most defenseless segments of society," the AMA/AAP brief states. "The millions of poor children relying on Medicaid for basic health care require an effective mechanism to enforce the requirements of law."

Patient access is becoming an increasing problem in California and nationwide, the groups point out.

In the United States, an average of only 54.6% of private office-based primary care pediatricians accept all Medicaid patients who request care, according to an August 2002 study in Pediatrics. California had the third lowest rate among the states, at only 33.1%, the study showed.

A 2003 analysis by the Medi-Cal Policy Institute showed that nearly half of all physicians in California's urban counties are unwilling to accept new Medi-Cal patients. With physicians citing low reimbursement as a reason for leaving the program or not accepting new patients, that number will continue to grow to 60% or more in the next year even if cuts are avoided, Dr. Lewin predicted.

If payment remains the same, it is still a cut for doctors faced with increasing costs of doing business. Physicians hit a point where, from a business perspective, they can't afford to continue participating in Medi-Cal.

"We can no longer accept that kind of agreement," Dr. Lewin said. "The state doesn't take the commitment to the program seriously."

Action elsewhere

Physicians haven't often taken states to court over Medicaid payment, but this could be an option for others in the future.

In 2002, the 6th U.S. Circuit Court of Appeals said pediatricians and a Michigan children's welfare organization had standing to sue the state because children were not getting services that Medicaid mandates for those younger than 21.

Pediatricians in Oklahoma are involved in a lawsuit they and Medicaid recipients filed against the state because low payment has forced doctors to stop seeing Medicaid patients.

Dr. Johnston said the situation is not necessarily worse today than years ago. The AAP president added, however, that doctors and Medicaid beneficiaries have better documentation to show that access to care is being sacrificed.

"We're discussing Medicaid reimbursement more now than before because we are receiving data that children aren't receiving care at the same rate that other children are," he said. "Inadequate reimbursement equals inadequate care."