California hospitals sue to block 10% Medicaid cut

Hospitals say CMS-approved cut would jeopardize patient care

Topics: Medicaid, Reimbursement, Finance, Payer and Regulatory Policy, Market Trends, Strategy, Health Policy, Recession/Downturn

November 3, 2011

The California Hospital Association (CHA) has filed a federal lawsuit against the state and HHS in an effort to block a 10% reimbursement cut for many state Medicaid providers, Bloomberg Businessweek reports.

Background on the cut

CMS last week approved the cut, which state officials have projected will save $623 million. According to the state Department of Health Care Services (DHCS), the approval allows the state to make a 10% reimbursement cut to a number of providers and outpatient services, including clinics, dentists, laboratories, optometrists, and pharmacists. It also allows cuts to freestanding nursing and adult sub-acute care facilities, as well as other nursing facilities.

Heath care providers and patient advocates argue that the cuts—which are retroactive to June 1—would cause more health care providers to stop treating Medicaid beneficiaries. They also say that the cuts could jeopardize the federal health reform law because the Medicaid system will be ill prepared to handle the large number of low-income patients who will become newly eligible for coverage.

Lawsuit details

The lawsuit argues that the payment reductions will hurt many hospitals' ability to operate skilled nursing facilities. In addition, the lawsuit argues that patients, many of whom live in rural and other medically underserved areas, will face delays or gaps in services because of the cuts. The lawsuit also states that the cuts violate federal Medicaid law that requires states to pay enough to ensure beneficiaries have adequate access to providers and services compared with the general public.

According to CHA President C. Duane Dauner, the "lawsuit is a regrettable but necessary step to protect access to care for California's most vulnerable patients." He adds that state hospitals "cannot stand by and allow these cuts to take effect."

However, CMS officials said in a statement that they approved the reimbursement cuts after DHCS submitted "extensive" data demonstrating that the reduction would not harm access to care. According to DHCS spokesperson Norman Williams, the cuts can be carried out "while still maintaining sufficient access" for Medicaid beneficiaries (Pettersson, Bloomberg Businessweek, 11/2; Helfand, "Money & Company," Los Angeles Times, 11/2; Carlson, Modern Healthcare, 11/2 [subscription required]).

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