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From Health Law Daily, February 17, 2015

Holiday schedule preventing reimbursement for certain days found invalid

By Patricia K. Ruiz, J.D.

A state law implementing a uniform holiday schedule under which providers were not reimbursed for services was deemed invalid by the Eastern District of California, which granted a partial motion for summary judgment to two organizations representing individuals with developmental disabilities. The court permanently enjoined California from implementing or applying such a uniform holiday schedule and, additionally, enjoined the state from making future changes to payments without compliance with the requirements of 42 U.S.C. § 1396(a)(30(A) and approval from CMS (The Arc of California v. Douglas, February 11, 205, England, M.).

Background. The ARC of California (ARC) and the Cerebral Palsy Association of San Diego (CPA) filed suit against the California Department of Health Care Services (DHCS) and the California Department of Developmental Services (DDS) alleging that the DHCS and the DDS violated the rate setting requirements under 42 U.S.C. § 1396(a)(30(A), which requires payment for services to the disabled be consistent with “efficiency, economy, and quality of care,” in reducing certain payments to providers for to the support of individuals with developmental disabilities. In doing so, the organizations challenged four bills enacted by the California legislature—two of which made percentage reductions in provider rates, one of which enumerated 14 unpaid holidays for which vendors are not reimbursed for many services, and one of which limited regional centers to payment for only half a day if the patient was present for less than 65 percent of a program day. All of these bills operated to reduce freeze rates to home and community based service (HCBS) providers.

Motion to dismiss. Previously, the Ninth Circuit stated that DHCS must set hospital outpatient reimbursement rates by relying on responsible cost studies providing reliable data as a basis for rates that are consistent with an efficient and economical hospital’s costs of providing quality services. The Ninth Circuit also found that the waiver application materials submitted by HCBS did not directly disclose the uniform holiday schedule and the half-day billing rule such that “no deference to CMS’ approval of the application was warranted.” Furthermore, the lower court also found that California failed to study the likely effects on the efficiency, economy, and quality of care of the availability of service providers before implementing these billing rules. Based on these findings, the Eastern District of California held “the payment reductions at issue obviously do not comport with the Medicaid Act” such that a permanent injunction was justified as a matter of law.

The case is No. 2:11-cv-02545-MCE-CKD.

Attorneys: William Thomas McLaughlin, II (Lang, Richert & Patch) for Arc of California and United Cerebral Palsy Association of San Diego. Niromi W. Pfeiffer, California Office of the Attorney General for Toby Douglas.

Companies: ARC of California; Cerebral Palsy Association of San Diego; California Department of Health Care Services; California Department of Developmental Disabilities

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