Health Reform WK-EDGE Top 5 Medicaid litigation actions of 2016 and a look at 2017
Wednesday, December 28, 2016

Top 5 Medicaid litigation actions of 2016 and a look at 2017

By Bryant Storm, J.D.

Medicaid served as the focal point for several key lawsuits in 2016. Among the most impactful were: (1) the U.S. Supreme Court’s decision in Universal Health Services v. Escobar, whichfurther defined the scope of the implied certification theory of liability under the False Claims Act (FCA) (31 U.S.C. §3729); (2) a lawsuit filed in Arizona, which alleges the state improperly reduced medical benefits for immigrants; (3) the Sixth Circuit’s ruling that states are responsible for processing Medicaid applications despite delays caused by Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) eligibility requirements; (4) the Seventh Circuit’s holding that Indiana’s waiver program, which reduced community-based services for disabled beneficiaries, may have violated the Americans with Disabilities Act (ADA); and (5) the Second Circuit’s holding that there is no private cause of action for the enforcement of the Medicaid Act’s "reasonable standards" provision. With 2017 on the way, this Strategic Perspective also offers some insight as to how the policies of the incoming Trump Administration could impact Medicaid.

1. Universal Health Services v. Escobar

The U.S. Supreme Court granted review in Universal Health Services v. Escobar, an FCA case, to address two issues: (1) whether an FCA defendant can be held liable for failing to disclose to the government the defendant’s noncompliance with statutes or regulations which are not expressly referenced on a claim form (implied certification liability); and, if so, (2) which types of statutory or regulatory noncompliance can give rise to implied certification liability.

Background. The case arose after a teenager was diagnosed with bipolar disorder and prescribed a medication that caused adverse reactions culminating in a fatal seizure. The medicine was prescribed by a nurse that did not have authority to prescribed medicine unsupervised, but who was held out as a psychiatrist. The teenager’s parents filed a qui tam suit alleging that Universal Health Services violated the FCA by submitting claims to the Massachusetts Medicaid program for mental health services that were performed in violation of Massachusetts Medicaid regulations governing staff qualification and licensure requirements (see Implied certification liability confirmed, limited to material compliance violations, June 16, 2016).

Implied certification. With respect to the first question, the Court concluded that "the implied false certification theory can, at least in some circumstances, provide a basis for liability." The Court reasoned that when a defendant submits a claim but omits violations of statutory, regulatory, or contractual requirements, those omissions can provide a basis for liability "if they render the defendant's representation misleading with respect to the goods or services provided."

Scope. Regarding the scope of the implied certification theory, the Court found that an implied claim is only false when the following two conditions are satisfied: (1) the claim "does not merely request payment, but also makes specific representations about the goods or services provided"; and (2) the provider’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements make those representations "misleading half-truths" (see Universal Health Services v. Escobar: What hospital reimbursement and finance leaders need to know, September 1, 2016).

2. Immigration

In Arizona thousands of immigrants are receiving emergency-only Medicaid coverage despite being eligible for full medical benefits, according to a complaint filed in July 2016 in a federal court in Arizona. The lawsuit, filed by the William E. Morris Institute for Justice in Phoenix, together with attorneys from the National Health Law Program in Los Angeles, alleges that the state’s Medicaid program—The Arizona Health Care Cost Containment System (AHCCCS)—improperly reduced medical benefits for immigrants, in many cases without providing beneficiaries with adequate notice of the change in eligibility. The complaint alleges that as a result of the improper eligibility transfers, "AHCCCS participants with significant medical conditions, including persons with diabetes, mental health conditions, asthma, and high blood pressure, have been left without needed medical care."

Class action. The lawsuit is a class action brought on behalf of a statewide class of immigrant Medicaid beneficiaries. The class includes immigrant residents of Arizona who were eligible for full-scope Medicaid benefits but whose eligibility was improperly reduced. The complaint asserts that, in response to an October 2015 letter, AHCCCS identified 3,500 immigrants who had been improperly transferred from full-scope to emergency-only benefits. Even though the benefits of those immigrants subsequently were reinstated, the complaint alleges that the improper reductions continued. The lawsuit seeks a declaratory judgment and a preliminary injunction to prevent Arizona from continuing to reduce immigrant Medicaid benefits (see Immigrants in America: Crossing the border to better health, August 23, 2016).

3. ACA and Medicaid Backlogs

In Wilson v. Gordon, the Sixth Circuit determined that states bear the ultimate responsibility for ensuring their Medicaid programs comply with federal law, despite the passage of the ACA. In a split decision (two to one), the Sixth Circuit affirmed the grant of a preliminary injunction ordering fair hearings to a class of Tennessee Medicaid applicants who had their applications delayed due to computer problems occasioned by the ACA requirement to use the modified adjusted gross income method to determine Medicaid eligibility for nondisabled beneficiaries. The dissenting judge felt the preliminary injunction action was moot because all of the Medicaid applicants received an eligibility determination before the district court certified the proposed class (see Tennessee responsible for timely determinations and hearings, May 24, 2016).

4. Waiver Programs

In Steimel v. Wernert, the Seventh Circuit concluded that changes to Indiana’s waiver program, which resulted in the reduction of community-based services for disabled beneficiaries, may have violated the Americans with Disabilities Act (ADA) (42 U.S.C. §12101 et seq). The Seventh Circuit reversed an Indiana district court’s grant of summary judgment for the Indiana Family and Social Services Administration (FSSA) and remanded the case for further proceedings. The disabled individuals showed, due to a cap on the amount of services under the waiver, they could not arrange for more than 10 to 12 hours of integrated services per week, and were effectively isolated in their homes. The court agreed that the changes to the waiver program may have caused the disabled individuals’ isolation from the community; however, the court found a dispute of material fact regarding the causation of the reduced services, rendering summary judgment inappropriate. Accordingly, the court remanded the case so that the individuals could argue their claims on the merits (see Integrated services mandate for disabled individuals applies to Medicaid waivers, May 11, 2016).

5. "Reasonable Standards Provision"

In Davis v. Shah, the Second Circuit found that New York Medicaid recipients do not have a private right of action to enforce the reasonable standards provision of the Medicaid Act. The court vacated the district court’s grant of summary judgment to the Medicaid recipients on the reasonable standards provision of the Medicaid Act because neither the Medicaid Act nor the Supremacy Clause of the U.S. Constitution confers a private cause of action on Medicaid recipients to enforce the provision (see Medicaid recipients lack private right to challenge ‘reasonable standards’ provision, March 25, 2016).

Medicaid in 2017

While 2016 Medicaid litigation did not drastically change the face of Medicaid, 2017 may be different. President-elect Donald J. Trump (R) supports repeal and replacement of the ACA as well as the use of a Medicaid block grant, two policies, which, if implemented, would substantially alter the state of Medicaid on a federal and state level.

ACA. A repeal of the ACA’s coverage expansion provision would significantly increase the number of uninsured individuals and reduce the amount of federal Medicaid funds that are made available to participating states. The repeal of expansion could reduce coverage by as much as 16 million individuals and remove billions of dollars in federal aid. A repeal of ACA provisions also could eliminate things like streamlined eligibility and enrollment processes for Medicaid.

Block grants. Medicaid block grants and per capita caps are designed to limit federal spending by "fixing" federal spending and rendering it more predictable. However, limits on funding could eliminate guaranteed coverage for eligible beneficiaries while shifting costs and risk onto beneficiaries, states, and providers. Although the specifics of how a block grant or per capita cap system would work under a Trump administration is not known, prior block grant proposals have determined a base year financing amount for each state and then specified a fixed federal spending growth rate. Under a Medicaid per capita cap, the federal government would place limits on how much reimbursement states would receive per enrollee.

Other changes. The Trump Administration may also make changes to the Medicaid program through guidance and waivers. While it may be difficult to make substantial changes on a regulatory level, a new administration could reinterpret existing regulations through guidance such as state Medicaid director letters. Other changes could be made through waivers under Section 1115 of the Social Security Act. Section 1115 waivers are designed to provide states the opportunity to test demonstrations that advance program objectives but do not meet federal program rules. Several states—including Indiana—are using Section 1115 to expand their Medicaid programs. Indiana’s waiver includes: premiums on most Medicaid beneficiaries, a coverage lockout period for individuals with incomes above the poverty level who fail to pay premiums, health savings accounts, and healthy behavior incentives. The Obama Administration has previously rejected proposals under Section 1115 to require work as a condition of Medicaid eligibility and impose premiums regardless of income. The Trump Administration will be able to renew existing waivers and approve a new set of waivers, likely on a new set of terms.

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