Supreme Court hears lawsuit challenging Medicaid rate cuts

Meanwhile, the California Medical Assn. sues the state over a lack of data relevant to physician pay reductions.

By Alicia Gallegos — Posted Oct. 17, 2011

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The U.S. Supreme Court heard oral arguments Oct. 3 on whether California physicians can sue the state for making certain cuts to its Medicaid program, Medi-Cal.

The ruling in Douglas v. Independent Living Center of Southern California may impact whether states receive more freedom to reduce Medicaid payments to doctors and other health care professionals.

The California Legislature issued several rounds of cuts beginning in 2008 to offset budget shortfalls. Physicians, hospitals, pharmacists and other health professionals sued the state in 2008, challenging a 10% cut scheduled for July of that year.

Two other health care organizations also filed suit over the reductions. A lower court blocked the 2008 cuts. California appealed to the Supreme Court.

California Gov. Jerry Brown this year proposed shearing another 10% off payments to doctors and other health professionals in anticipation that the high court would allow the cuts to proceed.

The Supreme Court is reviewing the case on one question: whether doctors and Medicaid recipients have standing to sue the state for failing to pay the Medicaid rates required by federal law.

During the hearing, justices seemed to be split, said Francisco Silva, general counsel of the California Medical Assn. CMA is a co-plaintiff in the case.

"There certainly was not a clear indication [as to what decision they would make]. They didn't show their cards," he said. "It looked to me, they were trying to find a compromise, based on the questioning back and forth by some of the justices."

In a transcript of the hearing, Justice Elena Kagan questioned if the state tried to bypass the proper administrative process to enact the cuts before federal approval.

Karin S. Schwartz, attorney for the state, disputed that California implemented the cuts in an improper way. "It's the position of the federal government that the state may implement its rate reductions while the state plan amendment is pending. ... We did not do an end-run around anything. We are entirely consistent with the administrative process," she said.

Justice Stephen Breyer questioned whether allowing doctors and others to sue over the cuts would supersede the government's authority and create a surge of similar lawsuits.

"I see a practical problem, and the practical problem is millions of rates all judged by the term 'sufficient.' And instead of the agency in charge deciding what's 'sufficient,' we ... have a lot of judges" making the decision, he said.

Legal experts say a decision by the court could come as early as December or as late as June 2012.

Support for California physicians

The American Medical Association and others, including the U.S. Justice Dept., have weighed in on the case.

In a friend-of-the-court brief joined by other medical and dental associations, the AMA urged the high court to rule in favor of California medical professionals. Without adequate payment for physicians, it is unrealistic to expect doctors to participate in the Medicaid program, thus leading to a lack of care for Medicaid recipients, the AMA said in its brief.

The Justice Dept. sided with the state. In the agency's brief, U.S. Solicitor General Neal Katyal said private citizens and health care officials shouldn't be able to sue states for cutting their Medicaid payments.

California doctors practice in one of the worst Medicaid rate climates in the country, said Ted Mazer, MD, a San Diego otolaryngologist and a past president of the San Diego County Medical Society.

"It's awful. [Patient] access is terrible because [the Medicaid program] is terribly underfunded," he said. If the cuts proceed, "it's almost guaranteed doctors will stop taking Medicaid."

A new legal challenge has emerged related to the case. The CMA sued the state again on Sept. 29 for failing to provide what it says is "public data" about the pay cuts.

The Centers for Medicare & Medicaid Services requested the data as it reviews whether the most recent California Medicaid cuts are appropriate. Under the federal Medicaid Act, the state must demonstrate Medicaid patients and privately insured patients have equal access to health care and that access will remain intact if the cuts are approved.

However, the state is ignoring requests by the CMA for the data going to CMS, Silva said.

"We certainly understand CMS' need for additional information from California's Dept. of Health Care Services," he said. "We're not convinced, however, that the state has the background information to share. They should have had that data ready to submit when the state plan amendments were sent to CMS, yet we have been told the information is not available to share."

Norman Williams, a spokesman for the California DHCS, said discussions between the state and CMS over the rate plan are confidential. "As soon as CMS renders its decision on these DHCS state plan amendments and access analyses, DHCS will publish those analyses and make them available to the public."

The reduction proposals meet all the criteria required by law, he added.

"Ensuring medical care and safety for the most needy continues to be our top priority."

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