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From Health Law Daily, August 6, 2018

Challenge to Medicaid reimbursement reduction must go administrative route

By Patricia K. Ruiz, J.D.

The California Court of Appeal denied a challenge by a group of hospitals of a 10 percent reduction in Medicaid reimbursement rates, finding that the hospitals’ recourse under the Medicaid Act (42 U.S.C. § 1396) is an administrative action against the federal agency that approved the rates. The court disagreed with the hospitals that the reduction violated procedural requirements of the Medicaid Act, as the state followed proper notice procedure (Santa Rosa Memorial Hospital, Inc. v. Kent, July 31, 2018, Pollak, S.).

Statutory framework. The Medicaid Act contains 83 separate requirements with which a state plan must comply. When state plans are submitted to CMS for approval, CMS reviews the plan and amendments to determine whether they comply with those requirements. Under the Medicaid Act, providers and recipients can challenge CMS approval of a state plan under the Administrative Procedure Act (APA) (5 U.S.C. § 701), which requires the reviewing court to set aside agency action that is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Federal law requires a state plan provide a public process for determination of payment rates under the plan. Section 30(A) of the Medicaid Act does not mandate reimbursement of costs but requires that the state ensure payments are "consistent with efficiency, economy, and quality of care," rather than setting forth a specific methodology or form of reimbursement. State plans or amendments setting rates must provide methods and procedures for payment.

Reduction in reimbursements. The California Legislature reduced Medicaid hospital payments for the period of 2008 to 2011, limiting the reimbursement to 90 percent of a hospital’s audited allowable cost. The department published several notices explaining the rate reduction and submitted state plan amendments to CMS for approval. CMS approved the rate reduction. A group of noncontract hospitals challenged the reductions, alleging that they violate provisions of the Medicaid Act setting forth procedural and substantive requirements states must follow when establishing reimbursement rates. Previously, the lower court denied the hospitals’ request for a writ of mandate declaring the rates void and for an award of nearly $100 million in recalculated rates. The hospitals appealed.

Writ of mandate. Under the Medicaid Act, Medicaid providers may challenge the sufficiency of payment rates by petitioning the federal agency that approved the rates and can obtain judicial review if the agency upholds the rates. The court held that the hospitals may not seek a writ of mandate against the state agency, as an administrative action is the explicit remedial path under the Medicaid Act. The court further found that the requirements set forth by § 30(A) of the Medicaid Act are so broad and nonspecific that they are judicially unadministrable. Paired with the express provision of an administrative remedy, the court found that the Medicaid Act precludes private enforcement of § 30A. Further, the court found that the legislature and the state agency complied with applicable notice requirements under § 13(A) of the Medicaid Act. Thus, the court affirmed the lower court’s denial of the hospitals’ request for writ of mandate.

Attorneys: Dean Lee Johnson (Dean L. Johnson, Inc.) and Thomas Joel Weiss (Law Offices of Thomas J. Weiss) for Santa Rosa Memorial Hospital. Nimrod Pitsker Elias, CA Department of Justice, for Jennifer Kent.

Companies: Santa Rosa Memorial Hospital

MainStory: TopStory IPPSNews CMSNews MedicaidNews MedicaidPaymentNews CaliforniaNews

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