Outline on State Medicaid Cutbacks and Responsive Advocacy
Copyright  2004 National Health Law Program.  All rights reserved.

To: Health Advocates
From: Jane Perkins
Date February 24, 2004

I. The current situation

• The rate of Medicaid spending growth is expected to decline slightly in FY 2004 (from 11.9% in FY 2002 to an estimated 8.2% in FY 2004).

• The rate of Medicaid enrollment growth is expected to slow (increasing by 5.5% in FY 2004, compared to growth rates that exceed 8% in FY 2002 and FY2003).

• Federal legislation enhanced federal medical assistance percentages (FMAP), but this is set to expire in June 2004. Just over half of all states report that this temporary fiscal relief allowed them to avoid cutbacks. For a state listing of FMAP, see http://aspe.hhs.gov/search/health/fmap.htm

II. Outlook for the future

• When FMAP relief expires, the percentage increases in the states’ cost of Medicaid will be the highest experienced in years.

• Recent, modest growth in state revenues will not fill the gap created in 2002, when state tax revenues fell more than 6%.

• The Medicare Prescription Drug Improvement and Modernization Act of 2003 shifts financial responsibility for the prescription drug coverage of dual eligibles from Medicaid to Medicare, effective 2006. Spending for dual eligibles accounted for 47% of states’ total Medicaid spending on prescription drugs. The new law will effect state budgets, but there is concern that a significant diminishment in purchasing power will affect Medicaid’s ability to negotiate rebates from manufacturers.

III. Proposed Cost Containment Activities

• Forty-nine states and the District of Columbia plan Medicaid cost containment strategies in FY 2004.
• States are implementing or considering:

• Eligibility cuts, e.g.:

FL: reduce poverty level aged/disabled from 90% to 88%;

GA, OK, TX: eliminate medically needy coverage;

CO, CT, MA, NM: eliminate non-emergency coverage of legal immigrants;

MN: lower eligibility level for poor children from 170% of FPL to 150%, and low eligibility level for pregnant women from 275% to 200%;

NE, NC: eliminate coverage of childless, non-disabled 19- and 20-year olds;

NC: lower eligibility level r pregnant women and infants from 185% of FPL to 151%;

OK: reduce nursing home and HCBW eligibility to the SSI level;

OR: eliminate most optional eligibility groups.

See also, NM: proposing recertification every 6 months (rather than annually)

• Benefit reductions, e.g.:

AL: 12 physician visits/year; 7 Rx/moth;

CT: occupational therapy, physical therapy, speech therapy, psychology services for adults;

GA: elimination of adult dental, vision, orthotics and prosthetics, in-home therapies;

LA: reduce prescriptions from 8 to 6 monthly (overriding limit would require appeal to the state);

MA: eliminate adult dentures, eyeglasses, prosthetics, orthotics, and chiropractic services;

MT: eliminate hospice and home health services;

NH: $4000 cap on mental health services;

NY: eliminate adult podiatrist, psychologist, audiologist, private duty nursing, dental and vision services; redefine personal care service;

OH: eliminate adult dental, vision and psychology services;

OR: eliminate coverage of most optional services; revise assessment tool and necessary scoring levels to qualify for long term care;

TN: limit all but children, SSI and pregnant women to 10 physician visits/year, 45 hospital days/year, 8 outpatient hospital visits/year, 6 Rx/month;

UT: eliminate adult podiatry, speech therapy, audiology, occupational therapy, physical therapy, and vision care.

• Increased cost sharing, e.g.:

CT, DE: copayment on transportation (as an administrative expense);

IN: $3.00 copayment for generics;

GA: premiums for disabled children eligible under the Katie Beckett option;

NH: copayment on emergency room use;

OH: $3.00 copayment for drugs not on preferred drug list;

SC: copayments for many services, including drugs, doctor visits, DME, clinics, and dental.

• Reduced provider payments, e.g.:

CA: across the board reduction in inpatient hospital

rates; reducing reimbursement for DME from retail to 80% retail, 80% Medicare fee schedule, or cost plus 67%.

NM: payments for eyeglasses, medical equipment

• Increased use of risk based managed care, e.g.:

IN: mandatory risk-based managed care expanded;

MD, MO, WA: enrollment of dual eligibles;

WI: new programs for mental health services.

• § 1115 "experimental, demonstration" waivers, e.g.:

CA, CT, FL, NH, MI: to "reform" Medicaid and perhaps "block grant" the program

• Some activities can produce savings without cutting eligibility and services, e.g.:

• Provider taxes, e.g.:

AL: nursing home bed tax;

IL, ME: hospital tax.

• Enhancing Medicaid as the secondary payer, e.g.:

MO: seek out veterans and help them enroll for VA benefits

• Interagency price negotiation, e.g.:

WA, CT, TX: Medicaid, workers’ compensation, and other state agencies;

MI: prescription drug purchasing pool with other states (CMS may view this as a violation of federal procurement procedures);

Other, e.g.: Bulk purchasing, Use of uniform national claim forms.

IV. Advocacy B monitoring the process

• State should consult with a medical care advisory committee.

E.g. 42 U.S.C. § 1396a(a)(4); 42 C.F.R. § 431.12.

• State should involve the public in development of § 1115 waivers.

E.g. 59 Fed. Reg. 49249 (Sept. 27, 1994).

• State must provide public process for any significant proposed change in its methods and standards for setting payments rates.

E.g. 42 U.S.C. § 1396a(a)(13)(A); 42 C.F.R. § 447.205.

• State must provide individual notices of change in coverage or eligibility but need not grant hearing if the sole issue is a change in law.

E.g.. 42 C.F.R. §§ 431.206, .210; 435.912, .919; Mitchell v. Johnston, 701 F.2d 337 (5th Cir. 1983) (cutbacks to EPSDT program required notification); Cramer v. Chiles, 33 F. Supp. 2d 1432 (S.D. Fla. 1999) (conversion of ICF/DD services to HCBW without hearing violated Medicaid law and due process); King v. Fallon, 801 F. Supp. 925 (D.R.I. 1992) (notice required to change level-of-care assessments governing eligibility for home and community based waiver services).

• If there is a change in eligibility, the Medicaid agency should engage in an automatic redetermination of eligibility under other available categories, with benefits continued pending the determination.

E.g. 42 U.S.C. §§ 1396a(e)((10)(B); 1396r-6(a)(3)8); 42 C.F.R. § 435.930.

• If implementation involves rules of general applicability, the state Administrative Procedure Act may require formal notice and opportunity for public comment, and rules not properly promulgated are ineffective.

E.g. Failor’s Pharmacy v DSHS, 886 P.2d 147 (Wash. Dec. 15, 1994) (reduced prescription drug payment schedules invalid because not promulgated under Washington APA).

• Without an underlying change in law, there should be no change in coverage without a change in medical needs.

E.g. Weaver v. Colo. Dep’t of Social Servs., 791 P.2d 1230 (Colo. Ct. App. 1990).

• The branch of government making the change must have authority to do so.

E.g. Moreau v. Lewis, 648 So.2d 124 (S.Ct. Fla. 1995) (copayments imposed through state budget act invalid under Florida single subject requirement for appropriations acts); Clemens v. Harvey, 1994 WL 711230 (Neb. Dec. 23, 1994) (under Nebraska separation-of-powers doctrine, Medicaid administrator lacked constitutional authority to eliminate medically needy coverage of caretaker relatives); Chiles v. Children A-F, 589 So.2d 260 (Fla. S. Ct. 1991) (invalidating elimination of medically needy coverage on ground that Governor and special executive branch violated state constitutional limits on executive power in enacting change); Jackson v. Stockdale, 264 Cal. Rptr. 525 (Cal. App. 1 Dist. 1989) (invalidating executive branch agency’s (Medicaid agency’s) reductions in dental services on ground that Legislature had implemented a statute that reserved that authority to itself). See also Thomas v. Dep’t of Human Resources, 478 S.E.2d 816 (N.C. Ct. App. 1996) (ordering state to apply a case to others similarly situated, based on separation of powers requirements).

V. Monitoring the processCsubstantive challenges

• Civil rights protections. Cutbacks that result in coverage patterns that affect some groups disproportionately may violate civil rights protections.

E.g. Title VI of the Civil Rights Act (enforceable through an OCR Complaint); Americans with Disabilities Act (issued involving the extent of private enforcement is currently before the U.S. Supreme Court, see Tennessee v. Lane, 123 S.Ct, 2622 (2003)

• Medicaid protections. Challenges to cutbacks in Medicaid-covered services focus on whether coverage remaining after the cuts meets the legally required coverage standards.

• Early and Periodic Screening Diagnosis and Treatment.

Requires broad screening and treatment listed in § 1396d(a) (mandatory and optional services listing) to "correct or ameliorate" conditions, whether or not the services are covered for adults. See 42 U.S.C. §§ 1396a(a)(10)(A), 1396a(a)(43), 1396d(a)(4)(b), 1396d7). For recent discussion of cases, see Jane Perkins, Fact Sheet: Medicaid Early and Periodic Screening, Diagnosis and Treatment: 2001-2003 Major Case Summary (Feb. 2004), available at http://www.healthlaw.org

• Prescription drugs.

If a state wants to receive federal matching for prescription drugs, the manufacturer must agree to pay a rebate. In exchange, states must cover all that manufacturer’s brands of "covered outpatient drugs" with some exceptions. The Medicaid Act lists drugs that can be omitted (e.g. fertility, cosmetic), sets requirements for prior authorization and formularies, and requires establishment of a drug use review program. See 42 U.S.C. § 1396r-8.

• Four important coverage rules.

(1) Unless the state has adopted utilization controls, treatment that is medically necessary and within the federally-defined scope of the covered service must be provided. Deference should be paid to the treating provider. (2) Services must be sufficient in amount, duration, and scope to reasonably achieve their purpose, subject to utilization limits. (3) A state may not arbitrarily deny or reduce the amount, duration or scope of a required service solely because of the diagnosis or type of illness. (4) Services must be comparable within and among groups. E.g. 42 U.S.C. § 1396a(a)(10)(A) and (B), 1396d(a); 42 C.F.R. § 440.210 et seq. (listing mandatory and optional services); 42 C.F.R. § 440.240(b) (amount, duration and scope); 42 C.F.R. § 440.2408) (discrimination based on medical condition); 42 C.F.R. 440.240(a) (comparability).

NOTE: These arguments are particularly important in individual cases, when the treatment is the only available and effective treatment.

• Cost sharing is limited.

For example, copayments must be "nominal." E.g. 42 U.S.C. § 1396o. For more information see, Jane Perkins, Q&A: Copayments (February 24, 2004), available at www.healthlaw.org.

• Waivers are limited.

Only certain Medicaid Act provisions can be waived. Those Medicaid Act provisions not specifically waived remain in full force and effect.

• A service cannot be eliminated if the redefined service is not consistent with state law.

E.g. Jackson v. Stockdale, 264 Cal. Rptr. 525 (Cal. App. 1 Dist. 1989) (state law definition that "restorative dental assistance" must be provided prohibited state Medicaid agency from providing only care meant to prevent significant illness or disability or severe pain); Alexander L. v. Cuomo, 588 N.Y.S.2d 85 (Misc. 1991) (state law mandate for a "comprehensive program of medical assistance for needy persons . . . to operate in a manner which will assure a uniform high standard of medical assistance throughout the state," in such a way "that the quality of medical care and services is in the best interests of recipients" means that necessary drugs must be covered). See also Thomas v. Dep’t of Human Resources, 478 S.E.2d 816 (N.C. Ct. App. 1996) (requiring court decision to be applied to similarly situated individuals, based on separation of powers doctrine).

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