A LAWSUIT FILED in March against the Centers for Medicare & Medicaid Services seeks to stop the federal agency from implementing a regulation that would restrict how states fund Medicaid programs and pay public hospitals.
The suit, filed in the U.S. District Court for the District of Columbia, claims CMS acted improperly in issuing the rule and went beyond its authority because the rule would force federal rules on states.
Plaintiffs in the suit include the American Hospital Association, the National Association of Public Hospitals and Health Systems, the Association of American Medical Colleges and the Alameda County Medical Center. The suit also is supported by the National Association of Children's Hospitals.
CMS proposed the rule on May 25, 2007, but Congress intervened to pass a one-year moratorium prohibiting its implementation. That moratorium is set to expire on May 25.
If the CMS rule goes into effect, it is projected to reduce federal funding to state Medicaid programs by about $5 billion over five years, the plaintiffs estimate.
"These sweeping new limitations on the federal government's financial participation in state Medicaid programs will impermissibly and unwisely shift the burden of paying for the care of the Medicaid population to the states," the suit states. "The rule will destabilize state Medicaid programs, thereby threatening the viability of critical hospitals and other providers."
The suit charges that the rule imposes a cost limit that would unlawfully restrict Medicaid payments to government providers. The rule does not apply a provider-specific cost limit on payment to non-governmental providers.
The lawsuit focuses on three charges. It says the CMS rule defines "units of government" far more narrowly than permitted under law and severely restricts options that states may use to finance the non-federal share of their Medicaid program expenditures. That usurps states' ability to determine the governmental status of entities within their borders.
Also, the suit contends that CMS does not have the authority to limit Medicaid payments to public providers while continuing to allow private providers to be paid under a different methodology. Such an approach, the suit says, runs counter to Congressional intent and is arbitrary and capricious.
Finally, the moratorium effectively prohibited CMS from issuing a final rule that same day.
The plaintiffs say that, if the rule is enacted in May after the moratorium expires, the effect on financing would decimate essential healthcare services provided at public hospitals that serve as a healthcare safety net, and it would weaken regional trauma centers and other services.
"This regulation, together with a number of others proposed in the last several months by CMS, would do nothing less than diminish the historic role of the Medicaid program as a vital safety net for low-income children and families," said Larry S. Gage, president of the National Association of Public Hospitals. "The consequences for public hospitals ... would be devastating."
Legislation introduced in both sides of Congress would take action to extend the moratorium through May 2009.