State agrees to pay back health care providers, settling lawsuit over dubious Medicaid emergency

The bill for the state’s hasty Medicaid cuts continues to grow.

On Wednesday, the state announced it had reached a settlement with the Alaska State Hospital and Nursing Home Association over a lawsuit that challenged the emergency process the state used to slash Medicaid reimbursement rates this year. Under the settlement, the state will reimburse providers for the rate cuts for the past three months.

The state had slashed Medicaid reimbursement rates by up to 7 percent this year with little notice to providers, claiming that the vetoes handed down by Gov. Michael J. Dunleavy constituted an emergency. ASHNA filed suit in July, saying that the Department of Health and Social Services was unlawfully utilizing the emergency declaration to slash rates.

An August order by Judge Jennifer Henderson sided with the hospital association, saying that the suit “raised at the very least, serious and substantial questions regarding DHSS’ finding of emergency.”

The state claimed that it had to wait for the final budget before setting rates, requiring the emergency declaration when Dunleavy signed the budget on June 28, just days before the start of the fiscal year. Henderson was not convinced, writing that DHSS had known about the cuts and had been preparing for them for the past six months.

“Thus, the state budget and DHSS’ response to it have none of the hallmarks of an actual emergency,” wrote Henderson. “DHSS cannot argue that it had to wait for the final budget before issuing the emergency regulations because DHSS began preparing regulations months before the state finalized the budget, a process the state completes every year. … DHSS’ desire to skip the non-emergency process and realize cost savings in the first quarter of the fiscal year does not justify emergency regulations, only an actual emergency can justify emergency regulations.”

The state saw the writing on the wall and decided to settle the case, agreeing to pay providers back for the last three months of cut rates.

“A preliminary order from the court indicated the judge was inclined to agree with ASHNHA on its challenge to the emergency regulations but not on the permanent regulations. In light of where the court seemed to be headed and to avoid unnecessary litigation, the parties met and were able to reach agreement,” concedes a Department of Law press release.

The rate cuts are still set to go into effect. Henderson wrote that she believed it unlikely that ASHNHA would prevail in challenging the rate changes themselves.

ASHNA President and CEO Becky Hultberg called the settlement a win for public process.

“We appreciate the state’s good faith efforts to resolve this lawsuit,” she said in a prepared statement accompanying the state’s announcement of the settlement. “Because of the complexity of health care, it is important to ensure adequate public process when the state makes difficult decisions about health care coverage, access or reimbursement. This settlement recognizes the importance of that public process, while ultimately enacting the rate cut planned by the state.”

Why it matters

It’s not been a great year for the administration’s hopes to quickly cut Medicaid spending. Despite warnings that only a small fraction of the administration’s desired cuts to the social safety net program were achievable, Dunleavy has pushed ahead with an additional $50 million veto on top of a $70 million cut handed down by the Legislature.

The problem with pursuing larger cuts to Medicaid is that the program’s spending is driven by a usage and it’s difficult to quickly make changes to the program under federal laws. It has legislators bracing for a large supplemental budget request in the spring.

Legislators are also not likely keen to find out that some of the spending, like the three months of back payments under this settlement or the continuation of the adult dental program for the same period, are due to failures by the Department of Health and Social Services to follow the rules. The dental program stayed afloat for three months because DHSS failed to properly notify recipients that it would be ending.

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