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Ninth Circuit Chary of Clinics’ Medi-Cal Case

SAN FRANCISCO (CN) — A Ninth Circuit panel on Wednesday suspected gamesmanship in a fight between two federally funded health clinics and California over prescription drug payments.

La Clínica de la Raza and North East Medical Services challenged how California implemented a prescription drug benefit in 2006.

Some Medicaid patients are also eligible for Medicare beneficiaries, making them so-called "dual eligibles." Under the 2006 legislation, the burden for paying for dual eligibles' prescription drugs shifted from state Medicaid programs to the new federal Medicare Part D program.

The clinics claimed California should have subtracted the dual-eligibles' prescription drug costs from the fixed per-visit rate for Medi-Cal patients.

Calling that "administratively burdensome," the state gave the centers two options: They could subtract the cost of all pharmacy services, including for patients who are not dually eligible, and have California pay them for Medi-Cal-covered pharmacy services on a fee-for-service basis; or the clinics could keep their per-visit rate and pay the state what they received from the federal program at the end of each fiscal year.

North East Medical Services chose the first option for 2006 and 2007, made no payments in fiscal year 2008 and then switched to the second option.

La Clínica went with the second option. Both clinics then sued, claiming the second option constituted illegal "seizure" of their federal Medicare funds above what they would owe under the fixed, per-visit rate.

A federal judge dismissed the lawsuit as barred by the Eleventh Amendment, and the Ninth Circuit agreed that the centers cannot sue the state for past payments. But the Ninth Circuit panel ruled that the clinics "may seek genuine prospective relief" for any future payments California might try to collect under the second option. It remanded the case to the U.S. District Court.

On Wednesday, the clinics were back before the Ninth Circuit, appealing the District Court's summary judgment ruling, asking the three-judge panel for an injunction to block California's Department of Health Care Services from seizing its federal funding to make up for prescription drug overpayments.

The clinics' attorney James Leo Feldesman said the case boiled down to the state's refusal to make things simple.

"If you carve out the drug cost on the dual eligibles, we would not be here. The state refused to carve it out," Feldesman said.

Senior Circuit Judge Andrew Kleinfeld asked Feldesman why La Clínica de la Raza couldn't just choose option one.

"The state didn't reject option one, did it? You could have pulled out the pharmacy costs and bill the dual eligibles to the federal side and the single eligibles to the state side.

If option one works, why should there be an injunction?" Kleinfeld asked.

Feldesman said the clinic ran the numbers and found it would lose money under option one.

Judge Milan Smith interjected: "You agree that option one is lawful if it comes out the way you want, but that's a different issue. The question is, if it's lawful, there's nothing illegal about it even if you don't like that result as well as option one."

Kleinfeld seemed to agree. "As far as I can see, you get the same amount of money either way. Option one is you don't bill for the drugs. Option two is you bill for everything, then you reimburse for the drugs."

The judges also grilled Feldesman over North East Medical Services' strategic choice not to pay the state the Medicare Part D money it received in 2008.

Feldesman said the clinic's reasoning was: "If we disclose the money it's going to be taken from us."

"What you're saying to the state is, 'We're not going to tell you what we have,'" Smith said. "It basically frustrates the whole concept of option two. Where is the equity in that? This doesn't smell very good."

The judges did not indicate when they would rule.

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