Philadelphias largest hospital systems have banded together to legally challenge a small provision tucked into the Deficit Reduction Act that they say will cost them untold dollars and dissuade Medicaid managed-care plans from doing business with them.
In a lawsuit filed in Washington, D.C., District Court against HHS in late December, hospitals belonging to the Jefferson, University of Pennsylvania and Temple University health systems as well as 390-bed Childrens Hospital of Philadelphia challenged the constitutionality of the so-called default rate provision, which went into effect on Jan. 1.
The mandate stipulates that when Medicaid patients seek care from an out-of-network Medicaid provider, the fees will default to the fee-for-service rate, which in Pennsylvania happens to be absurdly lowon average only 75% of the costssaid David Simon, general counsel for the Jefferson Health System. Plaintiffs in the litigation are only limited to Philadelphia hospitals at the moment because the issue is not huge until it gets leveraged over a larger group of patients, Simon said.
Indeed, its an issue that Pennsylvania hospitals have fought for years and successfully resisted at the state level, prevailing in a 2005 state Supreme Court decision that found that mandated Medicaid fee-for-service rates violated the state constitution, noted Paula Bussard, senior vice president for policy and regulatory services at the Hospital & Healthsystem Association of Pennsylvania. It seems totally incongruous to us to have the federal government attempting to dictate the default rate, Bussard said.
As a matter of policy, officials at HHS do not comment on pending litigation, a spokeswoman said.
The Pennsylvania association has for the moment decided to challenge the new law legislatively rather than in the courtroom, but the trade group sympathizes with the Philadelphia hospitals position and hasnt ruled out litigation, she said. Because the fee-for-service rate is so low, the law would discourage Medicaid managed-care plans from even negotiating contracts with hospitals in the first place, Bussard said. Whats the incentive (for Medicaid managed-care plans) to negotiate adequate payment (with hospitals) if they know that if they dont have contracts, they can default to the lower Medicaid fee-for-service rate? she said.
In Pennsylvania, the Medicaid fee-for-service rate pays about 77 cents on the dollar, Bussard said, and Philadelphia has a disproportionately large number of Medicaid patients.
Andrew DeVoe, senior vice president and chief financial officer for the University of Pennsylvania Health System, said it was difficult to quantify what the law is costing the health system. UPHS currently contracts with two out of three available Medicaid HMOs, including provider-owned Health Partners, in which UPHS has a minority share. Nevertheless, Its not appropriate to take money out of providers hands and give it to an HMO whether we own it or not, DeVoe said.