At issue is whether a private party, in this specific case, Idaho Medicaid providers, can sue a state agency for not paying them a fair rate for the services it provides the state's Medicaid beneficiaries.
All eyes are on the King v. Burwell case that the U.S. Supreme Court will hear in March and which could throw a major monkey wrench into the legal sustainability of health insurance exchanges, the hallmark of the Patient Protection and Affordable Care Act (PPACA).
But another case the justices will hear next week could give Medicaid providers a channel to remedy the lackluster reimbursement rates they receive from states.
At issue is whether a private party, in this specific case, Idaho Medicaid providers, can sue a state agency for not paying them a fair rate for the services it provides the state's Medicaid beneficiaries.
The question arises out of a 2009 lawsuit, brought by five Idaho residential habilitation Medicaid providers. The providers sued Richard Armstrong, director of the Idaho Department Health and Welfare (IDWH), and Leslie Clement, the state's Medicaid director. Armstrong is still the director of IDWH; Clement has since moved onto state healthcare administration in Oregon.
The providers allege Idaho's Medicaid rates were too low. Independent reviews done prior to 2009 showed that the state needed to increase its reimbursement rates, and the department proposed the rate hikes, but state legislators didn't fund recommendations. The independent analysis showed that its recommended increases would have added $4 million to the state budget.
The Medicaid providers won the suit in district court, and in a federal appeals court. The Supreme Court is hearing Idaho's appeal, Armstrong v. Exceptional Child Center, on January 20th.
2 Questions
Originally, the state asked SCOTUS to answer two questions:
- Do the providers have a right, as a private entity under the Supremacy Clause, to sue the state over its administration of a federal program?
- Does Medicaid reimbursement have to be reasonable, relative to provider costs?
The justices agreed to answer only the first question, which could imply that the court is more comfortable considering the limits or protections of the supremacy clause, which was raised in a similar case but never answered, says Anthony Nguyen, an attorney and senior writer and analyst in the health law division at Chicago–based Wolters Kluwer Law & Business firm.
In Douglas v. Independent Living Center of California, a case SCOTUS heard in 2012, the facts were essentially the same: providers rejected the Medicaid reimbursement rates of a state (California) and sued, using the Supremacy Clause as its shield. Back then, the justices sided, in a 5–4 split, with the plaintiffs, but did not address the Supremacy Clause issue because California health officials came up with a reimbursement rate the providers could live with.
"SCOTUS said the issue was moot since they [California] came up with the money," says Nguyen.
But an interesting sidenote to the decision is that Chief Justice John Roberts wrote the dissenting opinion, stating that the Supremacy Clause did not give private parties the right to sue. With the court agreeing to hear Idaho's first question, it could mean the Armstrong v. Exceptional Child Center case is a chance for the Supremacy Clause issue to be settled once and for all.
Nguyen believes the court will again side with the providers complaining about rates. "If they end up closing the door entirely, then states can do whatever they please and providers won't have a recourse," he says.
Converging Forces
The suit that could open the floodgates for other Medicaid providers to sue states for better reimbursement rates comes at a time when Medicaid rolls are expanding, but payments to physicians and other providers are not. In fact, after a temporary increase to some providers rates are headed back down.
PPACA Medicaid reimbursement rates went up for primary care services in 2013 and 2014, but now the temporarily inflated rates have expired. Physicians who got used to the higher rates are now reeling from steep cuts. A recent report from the Urban Institute showed that the ratcheting down of Medicaid's reimbursement rates could mean a decrease of nearly 43% in fees that providers who contract with states' Medicaid programs receive.
The cuts are also hurting states. Legislatures around the country are beginning their sessions with gaping budget holes to fill due, in part, to Medicaid growth. At least two states, Hawaii and Maine, are making up the federal reimbursement cut with state funds. Hawaii says it will make up the reimbursement rate gap for six months. Maine hasn't put such a timetable on its commitment to keep rates stable.
As state governments and federal healthcare officials push enrollment in the health insurance exchanges, it raises the question of whether there will be enough physicians to provide services for people who qualify for Medicaid.
Already, in some states, that answer is no. For example, in Texas, there are not many providers who accept Medicaid because the rates do not cover the cost of services. This is the issue that gets at the heart of Armstrong v. Exception Child Center.
In its decision affirming that the Idaho Medicaid providers had a right to sue the state for its subpar rates, the 9th Circuit Court essentially cited language in the Medicaid Act, which states that reimbursement rates have to be "sufficient to enlist enough providers" to take care of beneficiaries.
The opinion goes further, stating, "We have interpreted Section 30(A) to require that reimbursement rates bear a reasonable relationship to provider costs."
But when states do not adhere to this plain and simple language, there is not much the federal government can do, says Nguyen.
"The Centers for Medicare & Medicaid Services could penalize the states, but the way to do that is cut off funds entirely," he says.
Not a likely scenario because its patients who get punished.
States are watching the issue closely; 27 have filed briefs in support of Idaho. Physician and healthcare organizations are watching, too. The American Medical Association, the American Hospital Association, and others filed their own briefs in support of providers.
"Providers have argued that if reimbursement rates don't come up, [they] can't provide services," he says. "If SCOTUS doesn't constrain its decision narrowly, then under the Supremacy Clause, [an affirmation] has broad implications. It would be a pretty important tool... to force states' hands."
Jacqueline Fellows is a contributing writer at HealthLeaders Media.