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From Health Law Daily, December 22, 2015

Out-of-state hospitals cry Medi-Cal discrimination, Commerce Clause to the rescue

By Kayla R. Bryant, J.D.

The California Medicaid program’s (Medi-Cal) practice of providing higher reimbursements for similar services to in-state hospitals compared to out-of-state hospitals violates the Commerce Clause. The U.S. District Court for the Northern District of California granted summary judgment in favor of nineteen out-of-state hospitals bringing suit against the California Department of Health Care Services for discriminatory payment practices. These hospitals, located in Oregon, Nevada, and Arizona, often provide care to Medi-Cal enrollees who are unable to obtain similar in-state services due to proximity (Asante v. California Department of Health Care Services, December 21, 2015, Chen, E.).

Out-of-state payments. Under 42 C.F.R. section 431.52(b), Medi-Cal must reimburse for out-of-state acute inpatient services that are unavailable in California. Additionally, California regulations provide for reimbursements for medical services in adjacent states, particularly because some of the areas bordering these states are considered rural and do not have nearby in-state medical facilities sufficient to meet patients’ needs. In-state hospitals enjoy certain adjustments to the base rates paid out under the all patient refined diagnosis related group (APR-DRG) to which patients are assigned, such as those for labor components, rural locations, specialty services, and outlier payments. These adjustments have typically not been extended to out-of-state hospitals, although the state agency recently amended its state plan to include adjustments to “border hospitals” to better align in-state and out-of-state hospital payments.

Commerce Clause. The hospitals allege that the disparity between in-state and out-of-state payments for inpatient stays violates the Commerce Clause. The court first analyzed the issue under the dormant Commerce Clause theory, which limits states’ power to regulate commerce. Judicial review under the dormant clause is prohibited only if Congress has exercised its regulatory power over a certain field. The hospitals argued that because the Medicaid program is authorized by Congress by providing federal funding and delegating oversight to HHS. The court noted that the Medicaid Act’s purpose is to enable states to provide medical assistance to those who are unable to afford it, and that discrimination against out-of-state hospitals’ provision of services to residents undermines the purpose. The court found no clear congressional authorization to discriminate or exclude out-of-state hospitals, so the Commerce Clause applies.

The court then addressed whether the reimbursement rates violated the clause. If a statute directly discriminates against interstate commerce, it is typically found to be invalid and struck down. The court noted that the stipulated facts regarding the APR-DRG confirm that the reimbursement scheme directly discriminates against interstate commerce. The state agency argued that these hospitals provide an insignificant portion of Medi-Cal covered hospital stays, and that it would be administratively burdensome to establish reimbursement rates for each hospital. The court noted that the suing hospitals are the only large facilities available to Medi-Cal beneficiaries in certain areas of the state, making them “similarly situated” to California public hospitals despite the relatively low number of Medi-Cal hospital stays. The court similarly rejected the administrative burden argument, finding that the burden is not sufficient enough to overcome the presumption of invalidity that attached to the agency’s practices under the Commerce Clause.

Recent amendment. The agency argued that the discrepancies between in-state and out-of-state hospitals were addressed by the recent amendment to the state plan, which incorporates certain rate adjustments. The hospitals argued that there are still many adjustments unavailable to them, and that the amendment does not end discrimination against interstate commerce. The court agreed with the hospitals, finding that “there remains disparity between in- and out-of-state hospitals because out-of-state hospitals are being paid less.” The amendment does not completely resolve the disparity, and the state agency has not justified the remaining discrimination.

The case is No. 14-cv-03226-EMC.

Attorneys: Dean L. Johnson (Dean L. Johnson, Inc.) for Asante. Jennifer C. Addams, State Attorney General's Office, for California Department of Health Care Services.

Companies: Asante; California Department of Health Care Services

MainStory: TopStory CaseDecisions IPPSNews CMSNews MedicaidPaymentNews ProviderNews CaliforniaNews

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