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Feds finally weigh in on Medicaid lawsuit

The state did not violate federal rules when it reduced Medicaid payments to physicians in 2008 to balance the state budget, federal officials said this week in response to a pending lawsuit brought by several New Hampshire hospitals. Nor did the state err when it reduced the rates without first studying the actual cost of Medicaid-covered care, they said.

But federal officials also said they won’t object if the judge overseeing the case gives the hospitals some relief by finding the state still broke Medicaid rules by failing to give the public a chance to comment on the rate changes ahead of time.

That’s a victory, according to attorney Scott O’Connell of Nixon Peabody, who represents the hospitals. He intends to ask U.S. District Court Judge Steven McAuliffe to rule in the hospitals’ favor today at a hearing on the lawsuit.

“This is really great because the position of our (hospitals) has been completely or nearly completely vindicated,” said O’Connell. “This is helpful to the (hospitals) because it makes clear that this federal court can (issue) an injunction that would stop New Hampshire from administering illegal rates.”

Attorney Nancy Smith of the attorney general’s office, who is defending the state, said yesterday she disagrees with the hospitals’ interpretation but reserved further comment for today’s court hearing.

Ten of the state’s 13 biggest hospitals sued the state in July 2011 over millions of dollars in Medicaid cuts enacted in 2008. The cuts, prompted by state budget shortfalls, reduced outpatient Medicaid payments by 33 percent and inpatient payments by 10 percent.

The lawsuit also alleges that the 2010 Legislature further burdened the hospitals by eliminating returns on the Medicaid Enhancement Tax. That tax on hospitals generates about $115 million annually, and the state doubles that with a federal dollar-for-dollar match.

Until the Legislature changed the practice this year, the state had returned some of that tax money to hospitals to compensate them for unpaid Medicaid treatment.

McAuliffe has made some rulings in the case but said in September that he could not decide the case until he had heard from federal Medicaid officials on several matters. McAuliffe wanted to know whether federal officials approved of the state’s rate changes and whether they intended to bring any action against the state for failing to provide sufficient public notice ahead of the reductions.

McAuliffe got his answers this week, just ahead of the court hearing he scheduled for today.

Federal Medicaid officials concluded that despite the reduced payments to hospitals and doctors, Medicaid patients in New Hampshire still had access to care. They also said the state’s motives for reducing Medicaid payments — budget shortfalls in 2008 — are irrelevant as long as patients still have access to care.

And nothing in the Medicaid rules requires the state to consider the actual cost of care when deciding how much providers will receive in Medicaid, which is meant to be a “partial” federal payment toward care for the poor, according to the response from federal officials.

In the last few days, federal Medicaid officials also retroactively approved of six of the 12 Medicaid rate changes the state has enacted since 2008.

Two of those recently approved changes — those for inpatient and outpatient care — are central to the state’s lawsuit.

But while federal officials approved the changes, they dated their approval to November 19, 2010 — not to July 2008 when they actually took effect. That’s significant, said the hospitals’ attorney. By not dating the approval to 2008, O’Connell believes federal officials have given the hospitals a way to recoup the cuts they experienced from 2008 to 2010. O’Connell said the number would be in the tens of millions.

Federal Medicaid officials noted in their court filing that the hospitals may pursue such relief. The federal secretary of health and human services “takes no position” on that pursuit, the filing said.