Docs Battle States on Meager Medicaid Payments
Policy + Politics

Docs Battle States on Meager Medicaid Payments

Health providers who serve Medicaid patients are paying close attention to a new Medicaid case now before the Supreme Court that could have big financial implications.

Armstrong v. Exceptional Child Center, Inc., will decide whether providers can sue states for setting low Medicaid reimbursement rates that they say don’t sufficiently cover the cost to care for low-income patients in the program. The results could have a major impact on how much states pay hospitals and doctors.

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The practice of providers suing states for low Medicaid reimbursement rates is nothing new. Doctors and hospitals say that when it comes to getting paid sufficiently, it’s more efficient to go through the courts than the federal government, which is tasked with overseeing Medicaid reimbursement rates.

As MaryBeth Musumeci from the Kaiser Family Foundation notes, “Courts are uniquely positioned to provide injunctive relief – ordering the state to do or not do something. By contrast, the Health and Human Services secretary only can withhold federal funds in administrative actions to enforce state compliance with the Medicaid Act.”

States and the Obama administration are not huge fans of this maneuver. They argue that private entities shouldn’t bypass the government and skip right to the courts to get more money from states. Now the high court will weigh in.

The case of Armstrong v. Exceptional Child Center originated in Idaho. A group of providers serving people with developmental and intellectual disabilities sued the director of the state’s health department, Richard Armstrong, for reimbursing them for rates set in 2006. These are far below the new and higher rates that had been approved by the Centers for Medicare and Medicaid Services.

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Though CMS had approved a rate hike, the Idaho state legislature never passed appropriations – so that hike was never implemented. Because of this, the group of providers alleged the state violated the law by not paying the rates that had been approved by the federal government.


This is one of two major cases the high court will take up that could greatly impact the U.S. health care system. King v. Burwell, which centers on whether Obamacare enrollees who signed up on the federal exchange can legally receive federal subsidies, will be heard in March, and could change the fate of the president’s signature program.

Under the Medicaid Act, states are required to ensure that Medicaid payments are “sufficient to enlist enough providers” to serve Medicaid patients. Since Medicaid payments are well below that of Medicare and private health coverage, providers have less of an incentive to serve them. Data compiled by the Kaiser Family Foundation indicated that the average Medicaid payment is just 66 percent of Medicare rates.

The Idaho providers ultimately won that suit – and the state had to cough up an extra $12 million to satisfy the new reimbursement rates. The Ninth Circuit Court of Appeals upheld this decision. Now the High Court is hearing the state’s appeal, which challenges whether private entities have the right to sue the state over the administration of a federal program.

Related: Obamacare Subsidies Could Still Face Supreme Court

If the Court sides with the providers, it will likely result in more lawsuits against states. This could have a big impact on their bottom line: States spend on average about 16 percent of their budgets on Medicaid, according to the Pew Charitable Trusts. That’s likely to go up in the next few years, especially now that more people are on state Medicaid rolls through Obamacare’s Medicaid expansion. Over 9.7 million people have been added to Medicaid since 2013.

If the Court sides with Idaho, providers and beneficiaries will not be able to sue states to enforce the Medicaid Act’s equal access provision. The only way to dispute Medicaid reimbursement rates, then, would be through HHS.

Right now, if a state disputes HHS’s decision, it can request a hearing to repeal the decision. Meanwhile, the state keeps its current rates in place until that review is complete, since HHS’s process doesn’t provide for injunctive relief. Providers are concerned that ruling HHS is the only way to dispute state rates would make for an extremely slow, inefficient process – and with little room for oversight.

“The Medicaid Act contains numerous provisions that structure how the program is administered, from who is eligible for benefits to what services must be provided to how states oversee the program. None of these protections are meaningful if they cannot be enforced, and thus the ability of Medicaid beneficiaries and providers to initiate lawsuits seeking to invalidate state laws that conflict with federal law is an important area to watch,” Kaiser’s Musumeci writes.

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