C.D.Cal.: Medi-Cal cuts enjoined under Equal Access

A California federal district court held that reimbursement cuts violated the Equal Access and Quality of Care provisions of Medicaid, 42 U.S.C. § 1396a(a)(30)(A), by failing to even consider the cuts’ impact on access and quality of care.

The court preliminarily enjoined the cuts for pharmacists, physicians, dentists, clinics, and other fee-for-service providers. The court left in place cuts for hospitals and managed care plans, saying there was no evidence of irreparable harm. Ind. Liv. Ctr. of So. Cal. v. Shewry, No. 2:08-cv-03315 (C.D Cal. Aug. 18, 2008).

 

          The district court refused an injunction in June of this year, holding that § 30 (A) is not privately enforceable under Sanchez v. Johnson, 416 F.3d 1051 (9th Cir. 2005). The Ninth Circuit reversed, stating: “Under well-established law of the Supreme Court, this court, and our sister circuits, a plaintiff may bring suit under the Supremacy Clause to enjoin implementation of a state law allegedly preempted by federal statute, regardless of whether the federal statute at issue confers an express ‘right’ or cause of action on the plaintiff.” Ind. Liv. Ctr. of So. Cal. v. Shewry, Ninth Circuit Order of Jul. 11, 2008 (summary here). While the case has continued on remand, the State is petitioning the Ninth Circuit for rehearing, arguing that provisions unenforceable under 42 U.S.C. § 1983 should not be enforceable under the Supremacy Clause.

 

          The district court stated that pursuant to the Ninth Circuit’s mandate, AB 5 (the law enacting the cuts) may be preempted if it conflicts with federal law. The court noted that under Orthopaedic Hosp. v. Belshe, 103 F.3d 1491 (9th Cir. 1997), reimbursement rates must bear a “reasonable relationship” to providers’ actual costs, or be based on “responsible cost studies.” The court rejected the argument that Orthopaedic was overruled by Sanchez, saying that “[w]hatever else its effect may have been, it is clear that Sanchez left undisturbed the rule…that § 30(A) creates duties on behalf of the Department, i.e., the duty to consider efficiency, economy, and quality of care when establishing reimbursement rates.”

         

          On the merits, the court said that the state failed to provide “any evidence showing that the Department considered any of the ‘relevant factors,’ in making the ten percent rate reduction challenged here. AB 5 itself suggests that the only reason for imposing the cuts was California’s current fiscal emergency.” Although the State pointed to a legislative analyst’s report on the effects of the cuts, the State “has not shown that the Legislature ever reviewed or considered the concerns raised therein.” Accordingly, the plaintiffs were likely to succeed in establishing a violation of § 30(A).

 

          The court also found that the cuts would cause irreparable harm by endangering access to prescription drugs and the services of physicians, dentists, clinics and other fee-for-service providers. The plaintiffs showed that the rate cuts will “create a ten dollar loss on brand name drug ingredient costs,” and cause independent pharmacies to limit services to Medi-Cal beneficiaries. The State argued that this was unimportant because large chains would continue to offer drugs under Medi-Cal. But the court said there was no meaningful evidence for this either, let alone that the major chains would be sufficiently accessible to all recipients, particularly in rural areas. There was also evidence that physician participation in Medi-Cal, already low, would drop further; that the cuts have already increased the burden on emergency rooms and community clinics; and that adult day health care centers are being forced to close.

 

          However, the court said there was not a showing of irreparable harm from the cuts with regard to non-contract hospitals and managed care plans. Most hospitals are under contracts with the State and are unaffected by the rate cuts. While some non-contract hospitals may be forced to limit or stop services, other providers are available. The court found “too speculative” the concern that lack of access to physicians’ services would further increase the burden on hospitals and force them, in turn, to limit care. With regard to Medi-Cal managed care plans, the court stated that because plans are “contractually obligated to provide full and complete access to medical care” to all enrollees, any harm to enrollees is speculative.

                                    

          The court also found that the balance of hardships and the public interest favored an injunction, given California’s obligations under the Medicaid Act and the importance of ensuring access to health care.

 

The court noted that “the State may decide to implement a rate change upon making a properly reasoned and supported analysis.”  Notably, the court did not say to what extent Orthopaedic Hospital requires an analysis of the substantive effects of rates in addition to the process by which they are adopted. While the court’s decision here focuses on the State’s failure to engage in a proper deliberative process, the Ninth Circuit opinion in Orthopaedic Hospital also focused on whether rates were, in fact, reasonable.