Federal judge blocks Calif. Medicaid rate cuts

A federal judge in California has taken the extraordinary step of blocking sizable reductions in Medicaid rates to the state's hospital-based skilled-nursing units, concluding that state and federal officials likely relied on unreasonable projections and faulty reasoning about how the cuts would affect frail patients.

U.S. District Judge Christina Snyder in Los Angeles imposed a preliminary injunction on the 2011 rate cuts for acute skilled-nursing care, which would have rolled back rates to 10% below what the hospital-based units received in 2008-09, according to the opinion (PDF). State officials announced Thursday (PDF) that they would appeal Wednesday's injunction and seek a stay pending the outcome of the appeal.

The California Hospital Association argued cuts that severe would cause the closure of some hospital-based skilled-nursing units, while others paradoxically would be mandated to remain open while losing money because of legal prohibitions on closing units with patients still in them, amounting to a state "taking" of hospital services.

California Health Care Services Director Toby Douglas and HHS Secretary Kathleen Sebelius responded that patients are free to use freestanding skilled-nursing facilities rather than units located inside acute-care hospitals, which they said offer equivalent services and will remain plentiful. The officials also rejected the takings argument because Medicaid is a voluntary program for healthcare providers.

Snyder rejected Douglas' and Sebelius' reasoning on both counts, ruling that the association was likely to prevail at trial in its argument that hospital-based skilled nursing is a distinct service that will be irreparably harmed by rates set 10% lower than what was enacted two years ago.

Furthermore, Snyder ruled that the hospital association was likely to win its argument that state and federal officials relied on an arbitrary and capricious analysis in concluding the market would continue to offer enough acute skilled-nursing care to meet future demand under the lowered rates. Finally, the judge rejected state officials' assertions that a monitoring program for quality and access would safeguard the public because the program would require actual harm to occur before making any remedies.

“The state's fiscal crisis does not outweigh the serious irreparable injury plaintiffs would suffer absent the issuance of an injunction,” Snyder wrote. Snyder has not yet set a trial date for the case.

Also on Wednesday, Snyder imposed a similar preliminary injunction regarding 10% cuts in pharmacy and managed-care services.

State officials said they would also appeal that ruling.