SAN FRANCISCO (CN) - California's policy for reimbursing out-of-state hospitals that care for California Medicaid patients violates the Constitution, a federal judge ruled, siding with hospitals in neighboring states that seek millions of dollars.
Nineteen hospitals in Oregon, Nevada and Arizona sued the California Department of Health Care Services in June 2014, claiming the state underpaid them for services to Medi-Cal patients, in violation of the Constitution's Commerce Clause.
The Commerce Clause, Article 1, Section 8, Clause 3, gives Congress the power "to regulate commerce with foreign nations, and among the several states, and with the Indian Tribes."
The "dormant" Commerce Clause refers to a prohibition "implied in the Commerce Clause," that bars state legislation that "discriminates" or "burdens" interstate commerce.
The federal Medicaid Program is a joint federal-state program to defray hospitals' costs of providing care to the poor, elderly and disabled. It is administered by the Centers for Medicare and Medicaid Services (CMS) on behalf of the secretary of the U.S. Department of Health and Human Services.
Medi-Cal is California's state Medicaid healthcare program.
In September 2015, the state obtained CMS approval for its new state Medicaid plan amendment 15-020, which, among other things, sets criteria for reimbursement to "border hospitals" in neighboring states that provide care to California residents.
In some areas, border hospitals are the only choice for California residents. For example, one plaintiff, the University Medical Center of Southern Nevada, is the only Level I trauma center within a 200-mile radius of Las Vegas. And plaintiff Renown Regional Medical Center is the only Level II trauma center between Sacramento and Salt Lake City.
The plaintiffs claimed the changes in Medi-Cal's reimbursement policies would cost them dearly. Renown Regional's fiscal year 2013 uncompensated care report showed the hospital's inpatient out-of-state Medicaid cost of care was $11,444,335 and its outpatient cost was $1,385,992, for a total of $12,710,938.
California estimated that its policy amendment would increase Medi-Cal out-of-state expenditures by $1.4 million per year.
The plaintiffs sought partial summary judgment in August for "liability only," claiming California's methodologies "violate the Commerce Clause, federal law, and applicable Ninth Circuit precedent; and, plaintiffs are entitled to retroactive reimbursement because the state waived its Eleventh Amendment immunity by removing this case to federal court."
California argued that the dormant Commerce Clause does not apply because "Congress implicitly approved the practice of discrimination against out-of-state hospitals in respect to Medicaid payments."
U.S. District Judge Edward Chen rejected that in his Dec. 21 ruling. He found that Congress did not intend discrimination against hospitals, based on location.
"No such geographic targeting was contemplated by Congress in enacting the Medicaid Act; nor has the secretary promulgated regulations authorizing the discrimination challenged harmonious with Congress' intent," Chen wrote in a 44-page order. "Indeed, if anything, Congress was concerned with ensuring that cross-border medical services be available to all Medicare recipients."
He added: "There is no evidence that Congress expected or authorized states to discriminate in rate setting ... there is no unmistakably clear congressional intent to permit discrimination against out-of-state hospitals in respect to reimbursement under Medicaid."
Chen found that the California Department of Health Care Services' changes to its Medicaid reimbursement policy for out-of-state hospitals "are invalid under the dormant Commerce Clause."
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