White House Backs States’ Power To Cut Medicaid Payment Rates

On Monday, the Obama administration filed a brief supporting states' discretion to reduce Medicaid reimbursement rates, the New York Times reports (Pear, New York Times, 2/25).

California's Efforts To Cut Medi-Cal Payments

In October 2011, CMS approved California's plan to reduce certain Medi-Cal payments by 10%. Medi-Cal is California's Medicaid program.

State officials projected the cuts would save $623 million. However, in January 2012, U.S. District Court Judge Christina Snyder tentatively blocked the cut, saying it could cause irreparable harm to patients.

In her ruling, Snyder wrote that California's "fiscal crisis does not outweigh the serious irreparable injury plaintiffs would suffer absent the issuance of an injunction." The 9th U.S. Circuit Court of Appeals in December 2012 overruled Snyder (California Healthline, 2/14).

Obama Administration's Brief

In the brief -- filed in the 9th Circuit Court -- the administration defended the decision by California to reduce Medicaid payment rates and urged judges to uphold the cuts. The brief also affirmed states' "wide discretion" to set Medicaid rates. The cuts are being challenged by a number of stakeholders, including beneficiaries, physicians, hospitals, pharmacists and other providers.

The administration stated, "It is entirely appropriate for a state to review its Medicaid plan to determine whether it can continue to satisfy its statutory obligations at lower payment rates," adding that such reviews should be conducted regularly "to avoid the perpetuation of payment rates that are unnecessarily high."

Potential Ramifications, Reactions

According to the Times, the brief could have broad national ramifications as states decide whether to expand Medicaid under the Affordable Care Act. Some observers believe the brief might lure hesitant governors into expanding their states' Medicaid programs because it offers them more control over costs.

Byron Gross, a lawyer for the National Health Law Program, said the decision shows how the government "is trying to bend over backward to show flexibility and accommodate states as much as it can."

However, opponents have expressed concern that allowing states to reduce Medicaid reimbursement rates could reduce access to care.

California Medical Association President Paul Phinney, one of the plaintiffs, said, "Two-thirds of doctors in California cannot afford to participate in Medicaid because the rates are so low. The problem will only get worse if rates are cut as we move more and more people into Medicaid."

Gov. Jerry Brown (D) commended the brief and said that the cuts were essential for controlling budgetary costs, but he also noted that governors need "more authority than we now have ... to manage the Affordable Care Act and the expansion of Medicaid" (New York Times, 2/25).