Federal Judge Dismisses Hospital Groups’ Lawsuit to Stop HHS’ Plan to Reduce Medicaid Upper Payment Limit
A federal judge in Little Rock, Ark., on Monday dismissed a lawsuit filed by a group of hospital organizations seeking to stop the Bush administration's proposed reduction of the Medicaid upper payment limit, commonly known as the Medicaid loophole, the Arkansas Democrat-Gazette reports. The ruling allows HHS to implement the reduction immediately. U.S. District Judge G. Thomas Eisele wrote that HHS has made a "rational, reasoned decision, well within [its] discretion," to reduce the upper payment limit, which if left unchanged could lead to "abusive financing transactions that have the potential to disrupt and destabilize the Medicaid system" (Bleed, Arkansas Democrat-Gazette, 5/15). Under the loophole, some states reimburse hospitals for more than the actual cost of services, receive inflated Medicaid matching funds from the federal government and then have the facilities return the extra funds, which states then can use for services not related to health care. The Clinton administration issued a rule in January 2001 that set the upper payment limit at which states may pay facilities at 150% of the Medicare rate for any one service. Stating that the rule did not go far enough in curbing abuse of the loophole, the Bush administration issued a rule last November to reduce the upper payment limit to 100% for some states this year and to phase out the loophole completely by 2010 (California Healthline, 4/11). The administration added that the reduction would save the government about $9 billion over five years (Wiese, AP/Orlando Sentinel, 5/15). According to the American Hospital Association, one of the plaintiffs in the lawsuit, Eisele's ruling will eliminate about $27 billion in payments to public hospitals over the next 10 years.
The plaintiffs, which included community hospitals and health care groups across the country, argued that HHS' proposal to close the loophole was a violation of federal laws requiring the government to seek public comment on the change, which was being "pushed ... into effect too quickly." However, Eisele wrote that the states' "history of exploitation" of the loophole gave HHS Secretary Tommy Thompson "ample reason" to propose a change. Eisele added that the financial loss for public hospitals nationwide because of the ruling is "simply the unfortunate consequence of [Thompson] doing his duty." Hospital representatives said that the ruling will particularly affect hospitals that treat the uninsured and underinsured (Arkansas Democrat-Gazette, 5/15). Larry Gage, president of the National Association of Public Hospitals and Health Systems, said, "It now falls back on the Congress to assess the true needs of those who rely on safety net hospitals and health systems and take appropriate action" (AP/Orlando Sentinel, 5/15). Yesterday, lawmakers said they plan to propose legislation "officially disapproving" of closing the loophole. Sen. Blanche Lincoln (D-Ark.), who plans to sponsor one such bill, said that Eisele's ruling "shows a real lack of understanding in terms of what [public] hospitals are going through," adding, "They're getting hit from all sides, and we've got to look at some remedies that we can provide them in order to keep their doors open" (Arkansas Democrat-Gazette, 5/15).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.