Low Medicaid Reimbursement Rates Violate the Supremacy Clause?! …The Supreme Court to Weigh In!

Tomorrow is a big day.  Not only will most of us return to work after a long weekend, but the Supreme Court will hear oral arguments on a very important issue.

On January 20, 2015, (tomorrow) the Supreme Court of the United States will hear oral arguments on a very important issue that will affect every health care provider in America who accepts Medicaid, and, yet, there has been very little media coverage over this lawsuit.

Legal Issue: Does a Medicaid provider have a private right of action under the Medicaid Act to bring a lawsuit against states under the Supremacy clause.

The Issue Translated from Legalese to English: Can a Medicaid provider sue the state in which the provider does business if the provider believes that the Medicaid reimbursement rate for a particular service or product is too low? For example, can a dentist sue NC for a higher Medicaid reimbursement rate for tooth extractions? Can a long-term care facility and/or a home care agency sue due to low Medicaid personal care services (PCS) rates?

It is my opinion that Medicaid providers across the country have not brought enough lawsuits demanding higher Medicaid reimbursement rates. It is without question that Medicaid reimbursement rates across the country are too low. Low reimbursement rates cause health care providers to refuse to accept Medicaid recipients. See my blog NC Health Care Providers Who Accept Medicaid: Thank you!.

If you hold a Medicaid card, you do not automatically have access to good quality health care. You are segregated from the privately insured and the care you receive is not equal. You are limited in your choice of doctors. If you are an adult, you can forget any dental procedures. Even if you aren’t an adult, you require prior approval for almost all services (regardless of whether you are suffering from pain), which will often be denied (or reduced…or require a significant waiting period). You want mental health care? You better get the very least amount of help possible until you prove you need more help. See my blog NC Medicaid Expansion: Bad for the Poor.

And why won’t more health care providers accept Medicaid? The Medicaid reimbursement rates are too low!! The Medicaid reimbursement rates are too low for health care providers to yield a profit…or, in many instances, even cover the overhead. In fact, providers tell me that when they do accept Medicaid, they are forced to accept more privately insured patients to offset the losses from accepting the finite number of Medicaid patients. In many states, the states refuse to cover psychology costs for Medicaid recipients, and other states refuse to cover the costs for PCS.

So, I say, bring on the lawsuits!!! Force states to increase Medicaid reimbursement rates!!

For example, in obstetrics, if the national Medicaid reimbursement rate for ob/gyn visits is $1.00, here, in NC, we reimburse ob/gyns 88¢. Which is why only 34% of North Carolina ob/gyns accept Medicaid.  See Kaiser.

So far, across the country, federal courts have held that Medicaid providers do have a private right of action to sue states for low reimbursement rates. In fact, in most cases, the providers have PREVAILED and the states have been forced to pay higher rates!!!

Providers of all types have filed lawsuits across the country disputing the states’ Medicaid reimbursement rates as being too low. For example, in California, between April 2008 and April 2009, five lawsuits were filed against the state of California to stop scheduled reductions in reimbursement rates (on behalf of rehabilitation providers, nonemergency medical transportation providers, pharmacies, physicians, and emergency physicians).

A Florida lawsuit that was settled in December 2014 revolved around a young boy on Medicaid who was suffering from a painful sinus infection. His mother contacted multiple physicians and was denied appointments because the mother and her son were on Medicaid. He was forced to wait almost a week for an appointment. The judge in the case wrote, “I conclude that Florida’s Medicaid program has not compensated primary physicians or specialists at a competitive rate as compared with either that of Medicare or private insurance payers….I further conclude that Florida’s structure for setting physician reimbursement fails to account for statutorily mandated factors in the Medicaid Act, including the level of compensation needed to assure an adequate supply of physicians.”

Over the years, the Supreme Court has vacillated over even determining whether a Medicaid provider has a private right of action under the Medicaid Act to bring a lawsuit against states under the Supremacy clause.

In 2002, the Supreme Court denied certiorari (refused to hear the argument) on this very issue. Coming out of the 9th Circuit (which includes California), a Circuit which has been especially busy with lawsuits arguing Medicaid reimbursement rates are too low, the case of Independent Living Center of California v. Shewry would have squarely addressed this issue. But the Supreme Court denied certiorari and did not hear arguments.

In 2012, the Supreme Court decided to hear arguments on this issue. In Douglas v. Independent Living Center, Medicaid beneficiaries and providers sued the California state Medicaid agency, seeking to enjoin a number of proposed provider payment rate cuts. After the Supreme Court heard oral argument, but before it had issued its decision, the Centers of Medicare and Medicaid Services (CMS) approved California’s state plan amendment containing the rate cuts. Consequently, the Douglas majority held that the case should be sent back to the lower courts to consider the effect of CMS’s approval of the state plan amendment, without deciding whether the beneficiaries and providers had a right to sue.

Now the case Armstrong v. Exceptional Child Center will be heard by the Supreme Court on January 20, 2015.

How did this case come about?

In 2005, the Idaho state legislature passed a law requiring the state Medicaid agency to implement a new methodology to determine provider reimbursement rates, and in 2009, the state Medicaid agency published new, higher rates based, in part, on a study of provider costs. CMS approved the state’s new methodology. However, the new rates never were implemented because the state legislature failed to appropriate sufficient funding, making the refusal to increase the reimbursment rate a budgetary issue.  A group of Idaho residential habilitation providers that accept Medicaid sued the Idaho state Medicaid agency and alleged that the state’s failure to implement the new rates conflicted with federal law (the Supremacy Clause).

Section (30)(A) of the Medicaid Act requires state Medicaid agencies to take provider costs into account when setting reimbursement rates. Under case law precedent, the rate must “bear a reasonable relationship to efficient and economical . . . costs of providing quality services.” To deviate from this standard of reasonableness, a state must justify its decisions with more than budgetary reasons.

The argument is that the state’s low reimbursement rate for X service, is too low to provide good quality services and that the low rates were set for purely budgetary reasons.

Once you prove that the reimbursement rates are too low to expect good quality care (which would be fairly easy for almost all Medicaid services in NC), then you argue that the state’s reimbursement rates violate the Supremacy Clause because the federal law requires good quality care.

What is the Supremacy Clause?

The Supremacy Clause can be found in Article VI, Paragraph 2 of the U. S. Constitution. Basically, it establishes that federal law trumps conflicting state laws , even state constitutional provisions, on matters within the Constitution’s grant of powers to the federal government – such as Medicaid..

In this case, we are talking about a state’s Medicaid reimbursement rate violating the federal law requiring that the rate must bear a reasonable relationship to quality of care.

This is not a small matter.

After all is said and done, the Armstrong case, which will be heard by the Supreme Court tomorrow, will be extraordinarily important for Medicaid health care providers. I believe it is obvious which way I hope the Supreme Court decides…in favor of providers!! In favor of a ruling that states are not allowed to underpay health care providers only because the patient holds a Medicaid card.

My wish is that Medicaid providers across the country bring lawsuits against their state to increase Medicaid reimbursement rates…that the providers prevail…that more health care providers accept Medicaid…and that more Medicaid recipients receive quality health care.

Is that too much to ask?

The Supreme Court will most likely publish its opinion this summer.

Its decision could have an extreme impact on both Medicaid providers and recipients.  Higher Medicaid reimbursement rates would increase the number of physicians willing to accept Mediaid, which, in turn, would provide more access to care for Medicaid recipients.

Keep in mind, however, the issue before the Supreme Court in Armstrong is narrow.  If, for whatever reason, the Supreme Court decides that Medicaid providers do not have a private right to sue under the Supremacy Clause…all is not lost!!! There is more than one way to skin a cat.

About kemanuel

Medicare and Medicaid Regulatory Compliance Litigator

Posted on January 19, 2015, in "Single State Agency", Access to Care, Affordable Care Act, Appeal Rights, Assisted Living Facilities, Burden of Proof, California Medicaid, CMS, Constitutional Claim, Dental Medicaid Providers, Division of Medical Assistance, Doctors, Due process, Durable Medical Equipment, Federal Law, Health Care Providers and Services, Hospital Medicaid Providers, Hospitals, Increase in Medicaid Rates, Judicial Review, Jurisdiction, Lawsuit, Legal Analysis, Legal Remedies for Medicaid Providers, Legislation, Long Term Care Facilities, Medicaid, Medicaid Appeals, Medicaid Attorney, Medicaid Funds, Medicaid Providers, Medicaid Recipients, Medicaid Reimbursements, Medicaid Spending, Medicare, Medicare Attorney, NC, NC DHHS, North Carolina, Obamacare, Personal Care Services, Physicians, Primary Care Physicians, Tax Dollars, Taxes and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. 7 Comments.

  1. For 10 years the NC Medicaid and IPRS rate for Facility Based Crisis would only reimburse for 16 hours in a day, the other 8 hours our clients are sleeping (NC DMA rational when the rate was first floated at 16 hours instead of 24 hours). One of the primary symptoms of AOD withdrawal and psychiatric stabilization is insomnia, my clients are not sleeping I still have 2 Mental Health Workers covering the 8 hours which I have to reimburse them for their time. They are required to check on our clients every15/30 minutes, vitals check every 4 hours and medications are then given by the Med Tech. Using the Medicaid rate of $15.93 x 8 hours is $127.44, multiply that by our ADC12 = $1,529.28 per day, multiply that by 365 days = $558,187.20 x 10 years = $5.57 million. We are a private for-profit agency, but there has been no profit. The annual estimated loss of $500,000 keeps us from doing more for our clients, most of that money would be reinvested into the business; currently it is hand to mouth. If the Supreme Court agrees with Supremacy Clause does that mean I can sue NC Medicaid? How many years could I go back?. This rate was part of the Enhanced Behavioral Health Services. Should I talk with an attorney?

    • Very interesting, Carl. In my opinion, there is no reason to wait for the Supreme Court’s decision. As I stated in my blog, there is more than one way to skin a cat. For your remaining questions, I believe it would behoove you to consult an attorney. But you are talking about real money and real unrealized profit.

  2. Geoffrey Zeger, ACSW, LCSW

    I read the Argument Analysis post and it seems rather complex so I returned to this post to pose a question.

    Insurance companies have various rates. As a provider, I can pick and choose which insurance companies I want to contract with. If I don’t like the rates then I don’t have to become paneled with them.

    Does Medicaid take this position, too, and does it hold merit? Does NC Medicaid have the position of – “these are our rates and if you are Direct Enrolled as a Provider then you are contracting and agreeing to these reimbursements. We are not forcing you to do anything and if you no longer wish to participate then send us a letter opting out of the network”? Would this ‘take it or leave it’ argument stand in court?

    For Carl (the previous poster), I too am aware of the huge difference of what is clinically appropriate and necessary (24 hour monitoring for safety) versus what is reimbursed (16 out of 24 hours). There are many proverbial ‘unfunded mandates.’

    I look forward to hearing Knicole’s response concerning the ‘you can choose to contract with us or not’ position of NC Medicaid.

    • I believe that your “you can choose to contract with us or not” position is one of numerous arguments the state would make. However, the federal statute that requires that the rate take into account access to care, cost of care and quality of care trumps any “take it or leave it” argument. In other words, the state can set the rate and say “take it or leave it” until the rate drops below a certain threshold that now cannot reasonably compensate a provider for the cost of care. What that threshold is is unclear and would be the crux of any lawsuit.

  1. Pingback: Argument analysis: Working out the broader implications of a Medicaid suit | medicaidlaw-nc

  2. Pingback: NC Medicaid Reimbursement Rates for Primary Care Physicians Slashed; Is a Potential NC Lawsuit Looming? | medicaidlaw-nc

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