Supreme Court

This Supreme Court Decision Could Have a Big Effect on Medicaid and State Budgets

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credit: dbking / Foter / CC BY

A Supreme Court ruling yesterday could have a big impact on one of the country's biggest programs. In a 5-4 decision, the High Court ruled that health care providers do not have the right to sue states over low Medicaid rates.

Under the law, states, which manage and jointly fund their Medicaid programs in conjunction with the federal government, are required to set rates in ways that are "consistent with efficiency, economy, and quality of care," but do not encourage excessive health care utilization.

In the suit, a group of providers in Idaho argued that they had the right to sue the state when rates were low enough that they didn't meet this standard. The state of Idaho argued that providers should not have a right to legal challenge. A lower court had previously ruled in favor of providers, saying Idaho had to cough up another $12 million in reimbursements for the program.

Writing for the majority, however, Justice Antony Scalia declared that the legal standard was too vague and too broad to be adjudicated by the courts, and would inevitably lead to numerous drawn-out legal disputes. Instead, he said, that providers who felt the rates were too low could appeal directly to the Department of Health and Human Services.

The case made for some strange alliances: Liberal Justice Stephen Breyer joined Scalia, as well as conservative Justices Clarence Thomas and Samuel Alito, while the rest of the liberals—Sonia Sotomayor, Ruth Bader Ginsburg, and Elena Kagan, plus Anthony Kennedy—form the dissent. The Obama administration, meanwhile, had filed briefs siding with states against health care providers, putting the White House on the side of the mostly conservative majority.

The upshot here is that states facing big budget crunches will now be able to make big cuts to Medicaid, which is typically among the largest budget items for states, and doctors and other providers will have little recourse except to complain to the federal government.

We've already seen one version of this play out in California, where providers sued the state over a 10 percent cut in Medicaid rates made during a budget crisis. That cut was initially blocked by a court challenge, but finally allowed in late 2012. To give an idea of how big a budget issue this is, California has said that legal challenges to rate cuts since 2008 have forced it to pay more than $1.5 billion

This week's Supreme Court decision, a lawyer representing pharmacists told the Sacramento Bee, "will make it extremely hard for any beneficiary or provider to be able to force the state" to hike payments, although some have suggested that the ruling may leave providers some other ways to sue. 

What it means, though, is that for providers, state-set Medicaid rates have now become take-it-or-leave-it. Which means that, should rate cuts start coming down the line again, some providers are going to decide to leave it. Because state budgets are under less pressure now than during the financial crisis, this may not have a huge immediate effect. But someday, state budgets will look tight again, and reimbursement cuts will once again be pushed through. And when that happens, it will, at least at the margins, make it more likely that doctors will exit the program. In addition, providers starting their careers, or starting new care organizations, will be somewhat less likely to take the program.

Overall, this is a victory for taxpayers; states will now be able to slash Medicaid budgets with less fear of being drawn into lengthy legal squabbles. But it's a problem for Medicaid, and for Obamacare, which relies on an expanded Medicaid program in many states for its increases in coverage. The program's beneficiaries will have coverage—but with fewer doctors and other providers, they will have a harder time getting care.

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  1. But it’s a problem for Medicaid, and for Obamacare, which relies on an expanded Medicaid program in many states for its increases in coverage.

    It’s also a problem for non-Medicaid patients who see providers that take Medicaid, since their rates will be jacked up to make up for the shortfall.

    1. If only this were the case. All to often, the private insurance companies will see what the government payors do and take it as an indication that it is appropriate. Hospitals have very little bargaining power when it comes to most insurance providers.

      1. I guess I shouldn’t have used the word “rates.”

        I mean that that procedure that cost $800 before the Medicaid cuts now costs $850 or $900, and the difference is passed on to the rest of us. If the insurance doesn’t cover the difference, then you get the bill. The hospitals are like any other business. They have to turn a profit. If Medicaid reimbursement drops, then they must charge everyone else more.

        1. That’s a good point. Yes, it’s not like a non profit can just lose money and stay in business. I will say that even the best of them live on razor thin margins though.

          1. Average hospital margins are usually in the 2% range. Many lose money. Some have higher margins.

            Yeah, we can’t take a 7 figure hit without making it up somewhere.

            1. “Yeah, we can’t take a 7 figure hit without making it up somewhere.”

              It’s “volume,” correct? That’t the answer, isn’t it?! Do I win a prize?

              1. We do it be selling harvested organs on the black market.

          2. Non-profits don’t just “lose money”, co-ops, for example, put net income into an equity account which periodically gets paid out to the members of the organization.

  2. Unfortunately, some hospitals (non profits) don’t have the luxury of “leaving” it. Do you think healthcare providers would willingly lose money on every government case if they weren’t forced to to maintain their non profit status?

    1. Its not just that. I know of no hospitals that don’t participate in Medicaid.

      Because they are going to see these people one way or the other. Regardless of whether you are a non-profit, federal law requires that you assess every single person who walks into your ED, and once they are assessed, you really have to treat them unless you want to be sued.

      1. Yes, but for profit hospitals do no have to admit patients, their physicians do not have to accept them as patients, etc. Also, you can always refuse to accept the low paying insurance and then bill the patient for the entire amount. That’s a way to bypass the issue of under payments from Medicaid, even if you might not recoup your losses.

        1. but for profit hospitals do not have to admit patients,

          If they come in through the ED and need to be admitted, then yes, for-profit hospitals do have to admit those patients.

          No physician, whether they work for a for-profit or a non-profit, has to see a patient in their practice. Many non-profit physician practices have limited Medicaid patient panels, as well. It is their option. But hospitals don’t have that luxury, because of EMTALA.

          And you cannot “balance bill” a Medicaid patient, even if you refuse to accept payment from Medicaid, if you are a Medicaid provider (like all hospitals are). Even if you do, they’re a fucking Medicaid patient – by definition, they have no money.

          1. Depends on how you do the accounting, but most hospitals don’t actually lose money on Medicaid patients. The average cost of providing a service may be greater than the Medicaid payment, but the marginal cost of providing that service is less than the Medicaid payment. So as long as private payors (and Medicare) are paying at rates decent enough to cover capital expenses, hospitals typically have no problem accepting Medicaid patients, especially if the alternative is that these patients are uninsured and use no services (EMTALA aside).

            The problems start when you reach some critical mass of Medicaid patients.

            1. Depends on how you do the accounting, but most hospitals don’t actually lose money on Medicaid patients.

              It varies by state, but Medicaid typically covers between 20% and 60% of the hospital’s out of pocket cost of providing care to Medicaid patients. There may be a few procedures that Medicaid covers the full cost, but all in all, Medicaid just reduces, but does not eliminate, losses.

              And hospitals are the world experts at cost accounting. Ask any hospital financial wallah about their cost report.

              . The average cost of providing a service may be greater than the Medicaid payment, but the marginal cost of providing that service is less than the Medicaid payment.

              If all you cover is your marginal costs, you’ll go out of business. You have to cover all costs, marginal and allocated fixed costs. When you allocate fixed costs, hospitals lose money.

              And if you say “EMTALA aside” when discussing hospital Medicaid patients, you are missing a large part of the issue.

              1. This is the classic trap of high capital cost/low marginal cost businesses, like hospitals. Pharmaceutical companies are like this too. They have huge capital costs to create the first pill, but producing each additional pill is cheap. So as long as you can find a sucker to pay for that first pill, all the rest of the users can free ride so long a they pay the marginal costs of their use. In pharma, the sucker is the US healthcare system writ large, and the free riders are the rest of the world’s socialized medical systems. In the hospital industry, the sucker is the private insurance companies.

          2. They must see the patient and offer treatment – not a cure.

            Example: Last year a new hire called in sick and went to the ER, thought he was having an asthma attack from the worst cold on earth. Diagnosis was a collapsed lung. The hospital asked for $500 to continue, and when he said he didn’t have $500, they gave him an inhaler and a script for antibiotics to fill elsewhere and sent him on his way.

            The extent of EMTALA has become more urban legend than fact. If you ain’t right this second dying, all they must do is offer treatment until you’re stable enough to walk out the door.

            1. If you ain’t right this second dying, all they must do is offer treatment until you’re stable enough to walk out the door.

              EMTALA requires that the hospital treat you until you are stable for discharge. That can get pretty fucking expensive, and that’s not an urban legend.

              Even for “urgent” patients who don’t need admission, we still have to assess (not free). And, once we’ve diagnosed, we have to provide care that meets the usual quality standards.

              What you describe above is almost certainly an EMTALA violation, and a failure to meet the standard of care for collapsed lung that will be a liability event for the hospital (and the ED doctor) unless the patient magically recovers.

              1. “That can get pretty fucking expensive, and that’s not an urban legend.”

                Would have been more pithy if I’d said the urban legend is that there’s no cost to providing health care.

                Surely you have also noticed the inflated views of what a magical wand EMTALA is. Progs be all, “They can just go to the ER.” Asinine statement; as if social ills can be cured by any hospital, paid for by fairy farts.

                “What you describe above is almost certainly an EMTALA violation, and a failure to meet the standard of care for collapsed lung that will be a liability event for the hospital (and the ED doctor) unless the patient magically recovers.”

                I found it pretty stunning myself. My best friend is in the field, so I called, saying all, “IS HE GONNA DROP DEAD IN THE MIDDLE OF WORK??”

                1. I guarantee you, if I heard my ED had done something like that, people would be up against the wall.

                  1. I treated people with pneumothorax. It would be a, very, unusual situation that would allow me to send a person home without PROPER treatment. If the patient worsened and died, how would they defend themselves? Then again, it would save money not treating the patient! It may be impossible for a poor family to find lawyer willing to take such a case, meaning the hospital, and treating physicians, would get away with negligent homicide! Don’t believe in death panels, yet?

      2. That right there is why I have never understood the progs argument for Obamacare being that people are denied healthcare and DYING because they don’t have insurance.

  3. Interesting test case for “judicial activism”.

    Which would be the activist decision here? Ordering the state to pay more because the statute, if it is to mean anything, must set a floor and be enforceable by the courts? Or say the statute is unenforceable and thus defer to the presumed legislative intent that this be purely an administrative matter, and then defer again to the executive branch’s inaction?

    1. Striking down the law as too vague and confusing. Any law which is so vague and unclear that the “best” judges in the land are divided 5-4 on what it means — strike it down, tell the legislature to try again.

    2. I don’t think the providers have standing to sue under the law (see below), so both decisions would be activism.

      Now, if it were PATIENTS suing due to loss of Medicaid provider access, Option 1 would probably be a right decision, since if rates that are so low Medicaid patients can’t find providers those rates would probably not qualify as “consistent with efficiency, economy, and quality of care”.

      Option 2 sounds more like judicial abdication than activism. If we’re talking about patients with poor or no Medicaid access, I don’t see how that would be a sound decision.

  4. It seems to me that the only people who have standing to sue are patients, since they’re the only ones who could be materially harmed by too-low rates. The healthcare providers don’t, since the government doesn’t owe them a certain amount of money. The providers freely choose to take Medicaid, they aren’t forced to (yet). Patients, on the other hand, could have their access to Medicaid harmed by rates that are too low, since there might be fewer Medicaid providers.

    1. A bit OT: There’s an interesting case (Barrows v. Burwell) winding its way through the courts in which a group of Medicare patients has claimed, among other things, that they have a property interest in Medicare and that therefore CMS decisions to deny claims without due process constitute a violation of the patients’ Fifth Amendment rights (i.e., it’s an illegal taking).

      1. Given Flemming v. Nestor, I don’t think that case will go anywhere.

    2. It seems to me that the only people who have standing to sue are patients, since they’re the only ones who could be materially harmed by too-low rates.

      They can’t be balance billed, so they suffer no harm at all.

      The healthcare providers don’t, since the government doesn’t owe them a certain amount of money.

      Well, that’s what the case was about: whether states were required to pay a certain amount of money by the (vague) statutory language.

  5. My ex-wife makes $75 every hour on the laptop . She has been laid off for seven months but last month her pay check was $18875 just working on the laptop for a few hours.
    Look At This. ???? http://www.jobsfish.com

  6. states facing big budget crunches will now be able to make big cuts to Medicaid, which is typically among the largest budget items for states, and doctors and other providers will have little recourse except to

    stop treating Medicaid patients.

    You kinda left that possibility unmentioned, Peter.

  7. You realize that you just posted in bold something that you have already posted in the same thread, right?

    For whom’s benefit did you repost this? In what way does this further your “argument”?

  8. Michael Hihn, insane?
    But he doth protest too much!
    Michael Hihn, insane.

  9. What is not being considered here is that providers operate under a government enforced legal monopoly over access to medical drugs and services. If these legal monopolies did not exist, then medical providers would be in the same situation as any other person who has to deal with “competitors” offering the same goods and services for less money. In other words “government” is already providing medical professionals with “protection” that allows them a higher income than what they would be able to command in a free market. What the providers apparently want is not only “protection”, but also the right to an income level of their own choosing. That allows them to extort more money from both the taxpayers and their patients for their own benefit.

  10. Doctors and other providers always have recourse; opt out of accepting Medicaid.

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