Court defeat could open door to Medicaid doctor pay cuts

A judicial panel gives California the go-ahead to reduce pay by 10% to physicians and others, but the state medical society will appeal.

By — Posted Dec. 31, 2012

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An appeals court ruling allowing California to cut Medicaid payments could provide other states more freedom to pursue similar reductions, observers said. A panel of the 9th U.S. Circuit Court of Appeals ruled Dec. 13 that California may slash pay by 10% to doctors, pharmacists and others who serve low-income patients under Medi-Cal, the state's Medicaid program.

The three-judge panel said the federal Dept. of Health and Human Services has the authority to determine whether states are justified in cutting Medicaid rates, and that California need not have considered physicians' costs of providing all the medical services in question before receiving approval from the government for the rate reductions. If the decision stands, it would impede efforts by health professionals throughout the nation to resist unjust Medicaid cuts, said Francisco Silva, vice president and general counsel for the California Medical Assn. The medical society, a co-plaintiff in the case, will ask the full appeals court to rehear the case.

“All physician groups were looking at our case to see if it would give them a strategy to use in their own states,” Silva said. If the full court upholds the ruling, it could make such a strategy difficult for organized medicine to pursue in other states that are considering similar cuts, he said.

The decision involves challenges to several rounds of Medicaid cuts approved by the California Legislature, beginning in 2008, in an attempt to address state budget shortfalls. Doctors, hospitals, pharmacists and others sued the state, challenging a 10% cut first scheduled for July 2008. In 2011, California Gov. Jerry Brown backed the latest legislative attempt to shear 10% off Medicaid payments to doctors and other health care professionals. The Centers for Medicare & Medicaid Services approved that cut, and the CMA, the California Dental Assn. and other groups sued HHS for approving the reductions. California since has rescinded the plan amendments that were in dispute in the 2008 case.

The physicians sued the federal government under the Administrative Procedures Act, which authorizes a process for courts to review agency decisions and decide whether legal challenges against federal bodies have merit. The doctors said the state failed to assess adequately whether decreasing pay rates below physicians' costs of providing care would result in access problems for patients, and that HHS should have rejected the proposal on these grounds. A district court blocked the cuts based on these arguments, and the federal government appealed.

In their appellate decision, judges said the CMS approval of California's payment rates did not violate the Administrative Procedures Act, and the panel overturned several injunctions blocking the 2011 cuts from taking effect. In their ruling, the judges said deference must be given to the HHS secretary in determining whether a state pay cut proposal meets the requirements of federal laws, including whether states first must take any specific steps to consider the costs to health professionals of providing care.

“The executive branch has been giving careful consideration to the ins and outs of the program since its inception, and the agency is the expert in all things Medicaid,” the panel said. It later added, “The secretary must be free to consider, for each state, the most appropriate way for that state to demonstrate compliance” with the law.

Doctors ask state to reconsider cuts

The 9th Circuit decision protects California's right to make federally authorized pay reductions under Medi-Cal, said Gareth Lacy, a spokesman for Brown's office.

“The Court of Appeals ruled that trial courts cannot block California from making Medi-Cal cuts that were approved by the federal government,” he said. “This decision allows California to continue providing quality care for people on Medi-Cal while saving the state millions of dollars.”

But the CMA wants the state to reexamine whether the 10% cut is still necessary. The state recently increased taxes to aid in cutting its budget deficits.

“Our hope is that state officials and Gov. Brown can look at the situation and decide not to move forward with these cuts,” CMA President Paul R. Phinney, MD, said in a statement. “It was a tough budget decision that was made when the state was in a much more dire fiscal situation than it is now.”

If the reductions remain, access to care would be negatively impacted not only for current Medicaid enrollees but for an estimated 900,000 children moving into Medi-Cal from another assistance program, he said. Millions of patients newly eligible for Medicaid starting in 2014 under the Affordable Care Act also would be affected.

“We need to ensure that health insurance isn't just an empty promise for these patients,” Dr. Phinney said.

The American Medical Association long has supported California doctors in their fight against the cuts. In previous court briefs, the AMA stressed the access problems that would result if pay reductions made it unrealistic for physicians to participate in the program.

The governor's office did not comment on whether it will reconsider the cuts. In a statement, the California Dept. of Health Care Services said the department “relies on its federally approved access monitoring plan to ensure adequate access is provided to Medi-Cal members. The state continues to evaluate the court's decision, after which it will develop a plan to implement the approved reductions and collect retroactive payments.”

Ruling's broader effects unknown

The California decision could sway future judges into affording federal officials more deference in similar payment disputes, said James Eiseman Jr., an attorney with the Public Interest Law Center of Philadelphia. He is among those representing the Florida chapter of the American Academy of Pediatrics and others in a lawsuit over allegedly low Medicaid pay rates. In that case, physicians argue Florida has failed to raise health professionals' payments to an adequate level. At this article's deadline, the case was under review by a district court.

The California ruling “is one more roadblock that's been put in the way of private enforcement of the Medicaid law,” Eiseman said. “It doesn't completely bar the way, but it's a trend that's been going on for about 10 years.”

Eiseman does not believe the California ruling will impact his case significantly, but it if does have an effect, it will not be positive, he said.

Allowing the California payment cuts to stand would decrease doctors' participation further in Medicaid, said Scott Atlas, MD, a senior fellow and member of the Working Group on Health Care Policy at the Hoover Institution of Stanford University in California. The state already has some of the lowest pay rates in the country, and further reducing rates would worsen patient access to care, he said.

“Doctors are not indentured servants. They're not going to see patients and lose money at the same time,” Dr. Atlas said. Fixing prices has proven to be a failure for other industries in the past because “it just creates a shortage of the supply,” he said.

An October study by the Kaiser Commission on Medicaid and the Uninsured reported that significantly more states approved raising Medicaid physician pay in fiscal 2013 than those that approved pay cuts, reversing the trend in the years following the economic recession. But critics of the Affordable Care Act say the upcoming Medicaid eligibility expansion could put more strain on states that could force them once again to start targeting doctor pay rates for savings.

Still, it's not likely the ACA's Medicaid expansion will prompt many states to reduce pay rates for doctors, even if the California decision makes it harder for physicians to block such cuts, said Anne Gauthier, senior program director for the National Academy for State Health Policy.

Recently, such cuts “have not been the No. 1 cost-cutting measure” for states, she said. “They recognize Medicaid is a low payer, and there's very little room to give.”

Also, with the federal government paying the full cost of care for newly eligible Medicaid enrollees for the first three years, states will have little need to make pay cuts to help fund the ACA expansion, she said.

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Case at a glance

Should federal officials have allowed California to cut Medicaid physician payments without a full assessment by the state of whether the reductions would cause access problems?

The 9th U.S. Circuit Court of Appeals said yes. A panel of the court stated that deference must be given to the Health and Human Services secretary in determining whether a state pay cut proposal meets the requirements of federal law — including whether states first must take any specific steps to consider the costs to health professionals of providing care.

Impact: If the decision stands, physicians say it will lead to more California doctors refusing to accept Medicaid patients and could make it more difficult for doctors in other states to challenge similar pay cuts.

Managed Pharmacy Care et al. v. Kathleen Sebelius et al., 9th U.S. Circuit Court of Appeals, Dec. 13, 2012 (link)

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External links

Managed Pharmacy Care et al. v. Kathleen Sebelius et al., 9th U.S. Circuit Court of Appeals, Dec. 13, 2012 (link)

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