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Should Kentucky Physicians Follow California Physicians’ Lead In Challenging Medicaid Rates?

In recent years, Kentucky physicians have dealt with the state’s prescription drug abuse problem head-on – by adding substance disorder recovery services to their practices or establishing separate addiction recovery clinics. This trend has undoubtedly played a role in the 2013 decline of Kentucky deaths from overdoses of controlled substances – the first in many years.

With the Affordable Care Act’s expansion of substance abuse coverage under Medicaid (declaring it as one of ten essential health benefits Medicaid recipients must receive) and Kentucky’s expansion of Medicaid, one would think that an unprecedented number of Kentuckians will now be able to seek help for their addictions. This conclusion, however, is flawed. While the number of patients eligible for recovery services has increased, the incentive that physicians have to provide treatment has simultaneously decreased.

The Kentucky Department of Medicaid has established an astoundingly low fee schedule payment of $21.53 for physicians’ substance disorder treatments. With a reimbursement rate that low, most physicians simply cannot afford to treat Medicaid patients who need these services. These rates are so low, in fact, that they are arguably in violation of 42 U.S.C. 1396a(a)(30)(A) (“Section 30(A)”), which establishes the requirements for state plans providing medical assistance pursuant to the Medicaid program. The relevant language of Section 30(a) provides that a state plan must “assure that payments are consistent with efficiency, economy, and quality of care… [and] are sufficient to enlist enough providers so that care and services are available [to beneficiaries] at least to the extent that such care and services are available to the general population in the geographic area.”

There is no question that Kentucky’s Medicaid rate is inconsistent with efficiency, economy, and quality of care.   Most, if not all, physicians would further agree that an established payment of $21.53 is insufficient to enlist enough providers to provide care and services to the Medicaid population to the same extent substance disorder services are provided to non-Medicaid patients. What are physicians to do? What are Medicaid beneficiaries to do? It is worth exploring what legal action could be taken to right this injustice –which is exactly what physicians in California did when faced with the same problem.

In the spring of 2011, the California legislature passed a ten percent budget cut to Medi-Cal (the state’s version of Medicaid). The California Medical Association (“CMA”) filed a lawsuit (titled as Douglas v. Independent Living Center of Southern California) seeking to stop the state from balancing its budget by cutting care to the state’s most vulnerable citizens. Plaintiffs alleged that the rate-setting process violated federal law because state officials enacted the cuts without considering how they would impact beneficiaries' access. Plaintiffs argued that with rates so low providers would flee the Medi-Cal program or refuse to accept new patients, further exacerbating the shortage of Medi-Cal providers. A district court subsequently blocked the cuts, holding that they would irreparably harm the millions of Medi-Cal patients.

In January 2013, a three judge panel of the Ninth Circuit Court of Appeals ruled that the state could move forward with the rate cuts. CMA requested a rehearing, which was denied, and then petitioned the U.S. Supreme Court to review the appeals court ruling. In January 2014, the Supreme Court denied the petition. Importantly, the Supreme Court’s denial did not leave Medicaid rate challenges by physicians moot, but rather hinged on a procedural issue. Now, new cases challenging Medicaid cuts have arisen in California since the Douglas case. So, despite the ruling, a coalition known as “We Care for California” (a statewide organization representing health care providers, as well as health plans) continues to push for full restoration of the cuts.

The Affordable Care Act promises substance disorder services, but this promise will be unfulfilled if Kentucky physicians remain financially unable to accept Medicaid patients. Medicaid must increase its rates for substance disorder services and engage in a reasonable rate setting function that has a basis in fact and is transparent. While our Medicaid Managed Care Organizations have the authority to pay higher rates to participating providers, why should they when the Department of Medicaid has set the bar so low? If rates are not increased to a reasonable level, then Kentucky may be facing and yes should be facing litigation that enforces the rights bestowed on Medicaid beneficiaries to have medical treatment for substance disorder services. In the long run, paying reasonable rates so that beneficiaries can access treatment will lessen Medicaid’s long term costs.

Lisa English Hinkle

Lisa English Hinkle is a Member of McBrayer, McGinnis, Leslie & Kirkland, PLLC.  Ms. Hinkle concentrates her practice area in health care law and is located in the firm’s Lexington office.  She can be reached at lhinkle@mmlk.com or at (859) 231-8780. 

This article is intended as a summary of federal and state law and does not constitute legal advice.

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