In the last few months, a California district court has issued temporary injunctions to prevent Medi-Cal state cuts challenged in three separate lawsuits: California Hospital Association v. Douglas; California Medical Association v. Douglas; and Managed Pharmacy Care v. Sebelius. The cuts were part of Assembly Bill 97 ("AB 97"), which enacted significant payment reductions for many kinds of services, including skilled nursing, physician, clinic, dental, emergency medical transportation, durable medical equipment and supply, and pharmaceutical services. Lawmakers are using AB 97 to try to solve California's fiscal crisis, but providers and beneficiaries are fighting the cuts. They claim that cuts to provider reimbursement will exacerbate existing barriers to health care for Medi-Cal beneficiaries who already have trouble finding providers willing to serve them, and that the state's rate-setting process violates federal law.
Previously I have blogged about this problem and about the lawsuits brought by Medi-Cal providers and beneficiaries to prevent these kinds of cuts from going into effect. States must comply with procedural and substantive guarantees found at 42 U.S.C. Section 1396a(a)(30)(A), commonly referred to as the "Equal Access Provision" or "30A" requirement. Under this provision, states must "assure that provider payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available to the general population in the geographic area." State officials cannot honestly and reasonably make such assurances without undertaking some kind of analysis to assess the impact that rates will likely have on access, and federal courts have consistently held that states cannot cut provider rates solely in response to fiscal concerns. Yet this is precisely what California lawmakers have tried to do a number of times before, until federal courts were asked to intervene and prevented the cuts.
Federal regulators are supposed to oversee the state rate-setting process to ensure 30A compliance. CMS (the Centers for Medicare and Medicaid Services), is the division of the U.S. Department of Health and Human Services that administers Medicaid, and the Medicaid Act requires states to submit proposals to change rates to CMS for approval. Until recently, however, federal regulators have been largely absent in this arena: HHS has failed to promulgate regulations providing guidance to states about how to comply with 30A, though the Obama administration has recently proposed such rules; and HHS has failed to use its enforcement power to reject rate cuts, even where state violations of federal law have been clear and egregious. It is because of this regulatory void that federal courts historically have played such a critical role in Medicaid payment suits.
Significance of the AB 97 Rate Cut Cases
The most recent decisions by a California district court enjoining the AB 97 rate cuts are noteworthy for a couple of reasons. First, both federal regulators and state officials seemed to take their 30A obligations seriously. When California submitted its rate cuts for approval, CMS did not simply rubber stamp them, it requested additional information concerning the implications of the cuts on health care access. California performed an access review, ultimately concluding that the cuts would not adversely impact quality or access. Based on this, CMS approved the cuts.
These cases are also important because of the current threat to providers' and beneficiaries' right to challenge illegal rate cuts in federal court. As I describe in greater detail in a prior blog, the Supreme Court will be deciding this issue soon, and HHS has sided with the states in advocating for the elimination of this judicial last resort. HHS's argument against allowing suits to challenge payment cuts is based, in part, on the fact that HHS has been explicitly charged with Medicaid oversight in rate-setting. Implicitly, HHS seems to be claiming that it can be trusted to exercise its oversight effectively. Certainly, the Obama administration has done more than past administrations to try to earn this trust by stepping up its oversight activity with respect to access and proposing rules to give states guidance for complying with 30A.
There are still many unanswered questions about HHS's stated commitment to enforcing 30A obligations, and these recent cases provide a troubling glimpse of this "commitment" in practice. In all three cases, the court's opinion reveals fundamental flaws in the state's rate-setting process -- flaws that reflect a continuing disregard of federal law, and specifically access and quality protections. In approving these latest cuts, CMS seems to ignore these flaws, California's history of violating federal law, and even California's disregard of CMS's own suggested criteria for determining 30A compliance. Far from instilling trust in CMS's regulatory promises, these most recent cases reinforce the critical role that federal courts will need to continue to play in protecting Medicaid access in the future.
A Closer Look at California's Process: Determining 30A Compliance
Typically, courts are very deferential to action by administrative agencies: they affirm an agency's action unless it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." Federal courts have held that a decision is arbitrary and capricious if the agency relies on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. In this case, however, the California district court did not defer to the state's findings or CMS's approval. It found that the state's process did not comply with 30A, and thus CMS's approval was also inconsistent with federal law. Links to the full opinions are provided above, but I want to briefly highlight three important defects in the state's process that led the court to invalidate the cuts.
The Role of Provider Cost
One of the flaws in the state's process was its failure to consider provider cost as a factor in setting rates. Since 1997, the Ninth Circuit has interpreted 30A to require states to do cost studies and consider these costs in rate-setting. In fact, Medi-Cal cuts have been invalidated in the past on this basis, so lawmakers are aware of this requirement. Their failure to comply is simply the latest in a pattern of disregarding federal rate-setting requirements. The important link between the sufficiency of payment rates, provider cost, and provider participation has been recognized either explicitly or implicitly since Medicaid's enactment in 1965. Whether rates are sufficient to cover the "reasonable cost" of providing care is relevant for determining if rates encourage economical and efficient care (in other words, not too high), as well as for determining if they are consistent with access and quality (in other words, not too low).
CMS's position about the role of provider cost in determining 30A compliance has been, at best, inconsistent. In 1990, Medi-Cal beneficiaries challenged the extremely low payment rates and access for dental care in the case Clark v. Kizer. In the course of litigation, HHS filed an amicus brief explaining the informal criteria it used for measuring 30A compliance, affirming the relevance of provider cost in the process. As recently as 2005, in Alaska Department of Health and Social Services v. CMS, CMS denied Alaska's proposed rate changes out of concern that the rates were too high, citing as one reason for its denial Alaska's failure to consider provider cost. Currently, however, CMS is taking the opposite position: In its recent proposed regulations and in the AB 97 cases, it insists that 30A does not require cost studies, and it seems to devalue the importance of the link between rates, provider cost, and access. The court was disturbed by this inconsistency. CMS cannot assert that cost is relevant in one circumstance (when concerned that rates are too high), but claim that it is irrelevant in another (when the concern is that rates are too low or after a change in administration) without some rational explanation. This is precisely the kind of arbitrary and irrational agency action which is not entitled to judicial deference.
Measuring Beneficiary Access
State officials and CMS seemed to focus their review on access concerns, and, specifically, whether rates would continue to guarantee equal access for Medi-Cal beneficiaries as to those in the general population. However, the state failed to consider the kind of data necessary to effectively measure access. A lack of clear statutory or regulatory requirements for 30A compliance means that states have had a great deal of discretion to establish their own process for access review. However, HHS has offered a framework and suggested criteria for measuring access, through informal guidance, and, more recently, in its proposed rules. This framework includes obvious criteria, such as the level of physician participation, beneficiary need, and patient utilization. But HHS and the California district court in the Clark case have also made clear that these criteria must be assessed meaningfully and accurately; that is, states must try to assess the reality of access on the ground and from the perspective of Medi-Cal beneficiaries.
In the case of the AB 97 rate cuts, the court found that the state failed to do this; instead the state used a process and data that likely created a distorted picture of access. In the case of physician services, for example, the state determined the number of participating Medicaid providers by counting the number of physicians who had submitted at least one claim per year. It did not, however, gather information about how many of these physicians actually treated Medi-Cal beneficiaries regularly, and what kind of services they provided in light of beneficiaries' needs. The state's access analysis also failed to take into account the proximity of providers to beneficiaries, beneficiaries' level of need, and patterns of utilization (what kind of care they received and where). The lack of meaningful inquiry into each of these factors meant that the state made a number of unrealistic and overly optimistic assumptions about the level or kind of services that certain providers would be able or willing to provide.
Quality of Care
Many of the potential access concerns raised by plaintiffs implicate quality of care concerns as well. Plaintiffs alleged the record demonstrated "'no consideration' at all by DHCS or CMS of the impact of the rate reduction on quality of care." In response, state officials argued that they designed a monitoring plan to monitor both access and quality of care. They also claimed that they could rely on existing health and safety laws that require a minimal standard of quality care to ensure that Medi-Cal beneficiaries would get adequate care. The court rejected both responses. Section 30A requires states assess the possible impact of rate cuts on access and quality prior to rate implementation, and to use this information to either adjust the rates or implement other safeguards to prevent unnecessary harm. The state's monitoring plan was inadequate because it took a wait-and-see approach, creating a potential response only after a problem had been identified. Moreover, a number of courts have held that states can not rely on external quality protections as a way to satisfy 30A requirements. States must do their own quality impact assessment based on actual delivery trends and patient needs. States cannot use the fact that other laws regulate quality as a way to avoid their obligation to assure "that the payments themselves be consistent with quality care."
So what does this mean for the future of Medicaid access?
In a prior blog I posed a similar question about whether the Medicaid expansion would really improve health care access in light of existing barriers, including low reimbursement. At that time, I suggested that the answer would depend, in part, on the willingness of CMS to meaningfully review state Medicaid plans and to use its oversight power to enforce federal access protections. This case gives us the first glimpse of what we can expect under the Obama administration, and what it reveals is not very hopeful.
