A recent decision by a federal appeals court could provide the spark needed to increase Medicaid payments to hospitals for outpatient care nationally.
Earlier this month, the 9th U.S. Circuit Court of Appeals in San Francisco reversed a lower-court ruling that upheld California's authority to arbitrarily set Medicaid outpatient payments rates for its hospitals.
In a unanimous decision, a three-judge panel of the appeals court said the California Department of Health Services, which runs the state's Medicaid program, Medi-Cal, must consider such factors as efficiency, quality and access in determining hospitals' costs, which should then be used to set outpatient payment rates.
By not considering those factors, the panel said, the state violated federal Medicaid law, which says Medi-caid payments must be fair and adequate based on reasonable costs hospitals incur when treating recipients.
"This is a very significant ruling for hospitals that participate in the Medicaid program," said Patric Hooper, an attorney for the plaintiffs in the case. "Many states have ratcheted down outpatient Medicaid payments so low that they bear no resemblance to the costs of providing services, let alone their charges."
California's outpatient Medicaid rates were challenged first in 1990 and again in 1994 in federal court by Orthopaedic Hospital in Los Angeles and the California Healthcare Association, the state's hospital association.
The plaintiffs' attorneys said payments under the state's Medi-Cal program were just a fraction of the hospitals' actual costs. Medi-Cal outpatient payments to hospitals were $355 million in 1991. As a result of the ruling, they could increase by at least $200 million a year, the attorneys predicted.
The department argued that its reimbursement rates were intended to help shift some of the services provided by hospital outpatient departments to nonhospital providers, such as clinics or physician offices.
In 1995, a federal district court agreed that the department did not have to consider costs and should be allowed to provide incentives for one type of care over another.
On appeal, however, the appellate court said the department had failed to consider that emergency rooms provide the majority of hospital outpatient services, noting that they are typically the most accessible providers to Medicaid recipients and are not permitted to turn away patients.
The court concluded, in effect, that hospitals should not be punished financially because their emergency rooms are overused.
"Nowhere does it appear that the department inquired whether Medi-Cal beneficiaries had adequate access to outpatient services in nonhospital settings," it said.