States' ability to slash Medicaid payments rests with top court

California maintains that physician pay cuts are necessary to reduce budget deficits. Doctors say lower rates hurt their practices and decrease access to care.

By Alicia Gallegos — Posted Jan. 31, 2011

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A recently revived California Medicaid case may impact whether states receive more freedom to reduce payments to physicians and other health care professionals.

The U.S. Supreme Court on Jan. 18 agreed to hear California's appeal of a lower court's decision blocking certain pay reductions for the California Medicaid program, Medi-Cal. The state Legislature passed several rounds of cuts beginning in 2008 to offset budget shortfalls.

"Obviously we would have preferred [the Supreme Court] not to have taken the case," said Francisco Silva, general counsel of the California Medical Assn. But "we are confident that the Supreme Court will get it right and affirm the [circuit court] ruling, which concluded California's move to lower Medi-Cal rates violated federal law."

The California Dept. of Health Care Services called the Supreme Court's announcement to review the case an important decision that hopefully will lead to rebuilding the state's budget.

"Legal rulings have for years hindered the state's efforts to construct a balanced budget," said department spokesman Norman Williams. "The current fiscal situation calls for tough, difficult choices. ... Medi-Cal, as the state's second-largest general fund expenditure, must be part of the solution."

The Supreme Court will review the state's appeal on one question: whether private parties have the right to sue in federal court to enforce federal Medicaid law.

Medicaid lawsuits

The case stems from several lawsuits challenging pay cuts to Medi-Cal.

California officials proposed the cuts to close annual budget deficits of $20 billion or more in recent years. Physicians, hospitals, pharmacists and other health professionals in 2008 filed a lawsuit fighting a 10% cut scheduled for July 2008.

Another multiplaintiff lawsuit challenged pay cuts of 5% to pharmacists and hospitals and 1% to physicians. A third complaint was filed by a group of noncontract hospitals. The Supreme Court has consolidated all three cases for its review.

In his initial budget plan, new California Gov. Jerry Brown, a Democrat, has proposed shearing 10% off payments to doctors and other health professionals, with the anticipation that the high court would allow the cuts to proceed. At this article's deadline, the governor's office had not returned calls seeking comment.

The CMA and others have filed a brief urging the Supreme Court to reject the state's appeal. California already has one of the lowest Medicaid pay rates in the country, said the CMA's Silva.

"If you cut any more, patients are going to lose access to care, because doctors aren't going to be able to survive that way," he said.

Because of low rates, the state has faced shortages of doctors willing to accept Medicaid, physicians have said. Doctors also have faced increased overhead and declining pay from insurers, said Ted Mazer, MD, a San Diego otolaryngologist and a past president of the San Diego County Medical Society.

The lawsuits are about improving patient access before the climate becomes even worse, he said.

"The state is abandoning these patients," Dr. Mazer said. "What we're trying to do is get these people out of the emergency room with primary care needs."

Support from other sectors

Despite the Supreme Court's reviewing the state's appeal, California physicians are optimistic cuts will be averted.

The Centers for Medicare & Medicaid Services recently rejected the state's proposal to lower physician rates, Silva said. Acting U.S. Solicitor General Neal Katyal also advised the Supreme Court not to consider the state's case. Katyal noted that other courts addressing similar issues have affirmed the right of individuals to sue in federal court over state law.

In an Oct. 29, 2010, letter to Katyal, American Medical Association Executive Vice President and CEO Michael D. Maves, MD, MBA, said a high court hearing was not necessary because previous courts have ruled against the Medicaid cuts. Dr. Maves said a ruling in favor of California could make Medicaid "an empty benefit without actual access to care."

If the Supreme Court sides with the state, Silva said health care professionals have several options, including filing the case in state court. They also can request that CMS refuse to approve any new cuts.

If plaintiffs win the case, the ruling will establish a federal precedent, Dr. Mazer said. It also would mean that the cuts implemented by the state before the injunction violated federal law. Physicians and other health professionals already affected by those cuts then could seek refunds from the state.

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