State could owe 58 hospitals ‘hundreds of millions of dollars’ if Ky. Supreme Court lets stand lower-court rulings on Medicaid rates photo

By Melissa Patrick
Kentucky Health News

For about nine years, the state Cabinet for Health and Family Services used a formula to reimburse hospitals for Medicaid that two Kentucky courts have said was not legal – and unless the state Supreme Court takes up the case and rules otherwise, the state could owe the 58 hospitals named in the case hundreds of millions of dollars, the cabinet said Friday.

“The hospitals claim they are entitled to hundreds of millions of dollars for the years between 2007 and 2015,” cabinet spokesman Jordan Rowe said in an e-mail.

Rowe said the cabinet filed a motion for discretionary review with the Supreme Court July 5, the last day to do so.

The state Court of Appeals said in its ruling, “Neither the correct amounts of reimbursements nor any award of interest or other damages have been determined, and the remaining rate appeals have been remanded for further administrative proceedings.” It adds that the court’s findings will have “real economic consequences.”

The possible need for extra cash comes as the administration of Gov Matt Bevin has bemoaned the cost of Medicaid, especially for for the nearly 450,000 Kentuckians who have it through its expansion  to people who earn up to 138% of the federal poverty line, under the Patient Protection and Affordable Care Act. States are responsible for 7 percent of the expansion cost in 2019, rising to the law’s cap of 10 percent in 2020.

The Court of Appeals upheld a 2016 ruling of Franklin Circuit Judge Phillip Shepherd. In its appeal, the cabinet had asked the three appeals judges to determine three things: if Shepherd had erred in his finding that the cabinet’s rate-setting method was “facially invalid and arbitrary;” whether he erred in his finding that hospitals are entitled to administrative process; and whether the hospitals’ underlying claims are moot because the offending regulation has since been repealed.

The Court of Appeals’ March 29 ruling said, “After careful review, we discern no error.” The cabinet filed a petition for a rehearing of the case on April 18, which the Court of Appeals denied on June 5.

What’s it all about? 

Under then-Gov. Steve Beshear, the cabinet applied a “budget neutrality adjustment” to its Medicaid payments that essentially reduced hospital Medicaid reimbursements to 70 percent of hospitals’ costs.

The hospitals said that did not comply with state or federal requirements that Medicaid payments be based on the actual cost of care, and that they be “reasonable and adequate.”

The hospitals tried to go through a regulatory process to resolve the dispute, but in 2013, the cabinet said the hospitals had no administrative appeal rights on the issue and dismissed their request “without administrative evidentiary hearings or further due process,” the appeals court said.

On the same day it sent its dismissal letters to the hospitals, the cabinet filed a lawsuit seeking a court declaration that its reimbursement methodology was legal. Judge Shepherd found that the rate-setting method was invalid and told the cabinet to hold hearings.

The cabinet appealed, but the Court of Appeals upheld Shepherd, saying “The hospitals may seek monetary damages for past underpayment from the cabinet,” including interest and other damages.

The Cabinet has asked for a discretionary review by the Supreme Court.

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