Why State Medicaid Agencies Shouldn’t Use “Temporary” Withholding Actions as a Substitute for Terminating a Provider Agreement (a Follow-Up).

By on November 20, 2013

Here’s a quick follow-up to the last post.  I wrote:

(Note:  I’m not saying that the agency intends to use temporary suspension or withholding as a weapon to close down providers, just that it’s the way it works out sometimes.  I’m also not saying that it would be a bad thing to give state agencies the ability to come in and shut down providers altogether when there is sufficient evidence of fraud, just that it’s not or shouldn’t be the purpose of temporary suspension.)

I probably should say a little more about this.  I’m sure some of you are probably thinking “but if there’s reliable evidence or a credible allegation that a provider is defrauding the state Medicaid agency, why shouldn’t the agency shut them down during the pendency of the investigation?”.

My answer may surprise you.  I agree!  There should be a mechanism to terminate or revoke a provider’s Medicaid participation agreement when we have solid evidence of fraud.  But there already is.  Federal law provides that regulators can exclude providers from Medicaid for (among many other things) fraud.  Turning to Colorado specifically, Section 8.076.5 of the Department of Health Care Policy and Financing’s regulations allow it to terminate a provider’s participation agreement for “good cause,” which includes (also among other things) false representation and/or fraud.  Section 8.076.5.D(3) even says that HCPF can terminate immediately without notice where “[t]he termination is imperatively necessary for the preservation of the public health, safety, or welfare and observance of the requirements of notice would be contrary to the public interest.”

But there’s a big difference between the provider exclusion sanction and a temporary suspension remedy.  Perhaps paradoxically, providers facing a fraud-related termination have significantly more protection, both from a procedural standpoint as well as a substantive one.  Section 8.050 of HCPF’s regulations sets forth a detailed procedural regime governing provider appeals of adverse agency actions, specifically including the termination of a provider agreement.  It also includes notice and hearing requirements before the Office of Administrative Courts, as well as a provision contemplating that the presiding ALJ can stay the adverse action (termination) pending the appeal.

Section 8.076.4, on the other hand, has none of these due process protections.  It merely contemplates that notice of withholding or suspension must advise the provider that it can submit written evidence to the department.  (Which, incidentally, is all that is required by 42 CFR § 455.23.)

To be sure, Section 8.076.4.A provides that providers will have appeal rights upon request, and at least as of a few years ago (when I was representing it), it was HCPF’s practice to refer withholding appeals to an ALJ – which is substantially more due process than required by federal law or provided by many states, I should add.  But what the agency has to prove in a suspension withholding action is entirely different than what it must prove in a termination proceeding.  Under the state APA (specifically C.R.S. § 24-4-105), HCPF has the burden of proof to show that its action (whether that’s withholding or termination) is warranted.  So in the termination context, it must show that the provider committed false representation or fraud.  In the temporary withholding context, though, it only needs to show that there is reliable evidence of fraud (or a credible allegation of fraud under the current version of 42 CFR § 455.23).

Do you see the distinction?  Let’s say that HCPF (or any other state Medicaid agency – virtually all of them have similar provisions, though some use the old “reliable evidence of fraud” language, whereas others have switched to the more expansive “credible allegation of fraud terminology)) comes in and investigates a provider and notices that half of the patient files are missing.  It’s hard to dispute that this meets the “reliable evidence” or “credible allegation” standards, regardless of which one applies in the particular state.  But what if the files are missing because the provider keeps the N through Z files in a different file cabinet, and the temporary receptionist who let the investigators in didn’t realize it at the time?  It seems clear in that case, when the ALJ actually makes a factual finding, he or she almost certainly will conclude that there is no fraud (at least based on the missing files).  So you have a case where there clearly is some reliable evidence or credible allegation of fraud, though ultimately, the evidence taken on the whole should end up exonerating the provider.

Obviously, that’s an extreme case, and if there really was a perfectly innocuous – and uncontroverted – explanation for the otherwise “reliable evidence” or “credible allegation” of fraud, any state Medicaid agency would immediately rescind the temporary suspension or withholding, or the ALJ would stay it.  But there certainly are a lot of hypotheticals where it’s a closer call, or where the provider might be able to convince an ALJ – but not Medicaid investigators and regulators – that it didn’t commit fraud, reliable evidence and/or credible allegation aside.  In those cases, the distinction between proving fraud and proving that you have reliable evidence (or credible allegation) of fraud can be enormous.

So that’s why – in my opinion – it’s problematic for state Medicaid agencies to use temporary suspension withholding actions as a substitute for provider termination.  They often afford the provider less procedural protection, and they always have a much lower effective burden of proof.  Stay tuned for a future post on what I’d suggest to correct this issue.

Filed under Medicaid

Medicaid Fraud Temporary Suspensions – Bringing a Thermonuclear Weapon to a Knife Fight

By on November 19, 2013

Turns out I missed this story when I was busy the last week or two.  Yes, this is a Colorado-based health law blog, and this story is from Texas, but (1) as someone who was born and raised and educated in Texas through college, I retain some interest in happenings in the state, and (2) I’m particularly interested in the goings-on at the Attorney General’s office there because my wildly more successful law school classmate is the Texas solicitor general.  So cut me some slack.

This brings up a topic that is central to a case I’ve been working on, and one that has really piqued my interest – the power of state Medicaid agencies to withhold pending claims and to “temporarily” suspend a provider’s participation in the Medicaid program in cases where they suspect fraud.  I should note that Knicole Emanuel has written a lot about this, particularly from aHC BLOG_bomb North Carolina perspective.

Here’s the scoop.  In 1987, the Department of Health and Human Services promulgated 42 CFR § 455.23, which permitted – but did not require – state Medicaid agencies to withhold payments “upon receipt of reliable evidence that the circumstances giving rise to the need for a withholding of payments involve fraud or willful misrepresentation under the Medicaid program.”  Every state has subsequently enacted laws or regulations adopting this fraud withholding power.  Colorado’s, for example, is here (click through to Section 8.076.4).

Furthermore, DHHS’s withholding authority was not just limited to the funds that could be associated with the suspected fraud.  To the contrary, commentary to the initial regulation expressly contemplated that if state Medicaid fraud investigators had reliable evidence that any of the funds owed to a provider were tainted by fraud, then all owed funds could be withheld.  (The federal printing office only makes the Federal Register available online through 1994, but for those with Westlaw or Lexis access, the cite is 52 Fed. Reg. 48814.)  The theory behind that decision is that it’s frequently difficult to determine which claims are fraudulent and which aren’t until after an investigation is complete, so states should have the ability to withhold all (or substantially all) funds until they can figure out what’s what.

That sounds onerous enough, right?  It gets worse.  In 2011, Section 455.23 was amended to drastically expand state Medicaid agencies’ withholding and suspension powers.  This isn’t just my characterization of the effects of the amendment; the official commentary makes clear that DHHS believes that the new burden of certainty or proof is significantly relaxed under the new language.  The amended regulation now requires (and not just permits) states to withhold payments to providers and suspend their Medicaid participation “after the agency determines there is a credible allegation of fraud for which an investigation is pending under the Medicaid program against an individual or entity unless the agency has good cause to not suspend payments or to suspend payment only in part.”  Subsection (f)(3)(i) goes on to say that good cause to partially withhold funds will only exist if the state determines that the suspected fraud is limited to a certain type of claim or certain business unit, meaning the overwhelming presumption is that if a “credible allegation of fraud” is asserted against a provider, that provider is essentially completely barred from receiving any Medicaid funds or participating in the Medicaid program until that allegation is resolved.

That’s not all.  Making this Medicaid withholding power potentially even more onerous, 42 CFR § 455.2 defines a “credible allegation of fraud” to be any allegations with an “indicia of reliability.”.  This includes allegations from seemingly unreliable sources like fraud hotline complaints or claims data mining.  To be sure, the Medicaid fraud suspension regulations caution that state Medicaid agencies should reviewed all allegations, facts, and evidence carefully and act judiciously on a case-by-case basis.  But this puts a lot of trust in those agencies to exercise their discretion appropriately.

That’s my main concern.  In theory, withholding is supposed to be a temporary action to avoid paying fraudulent claims while the provider in question is being investigated.  In practice, giving state Medicaid agencies the power to essentially withhold all of a provider’s claims for a year or two can often be a death knell for that provider.  That’s probably why withholding has been called “an aggressive and controversial penalty.”  (Note:  I’m not saying that the agency intends to use temporary suspension or withholding as a weapon to close down providers, just that it’s the way it works out sometimes.  I’m also not saying that it would be a bad thing to give state agencies the ability to come in and shut down providers altogether when there is sufficient evidence of fraud, just that it’s not or shouldn’t be the purpose of temporary suspension.)  This is especially true when the state is investigating a particularly problematic industry, where it can be tough to distinguish between legitimate providers and fraudsters.  The temptation to just shut everyone down can be hard to resist.

So that takes us to Texas.  Apparently, there has been a lot of fuss over the past several years about orthodontic and dental Medicaid fraud in that state. For example, Texas spent more Medicaid dollars on orthodontic services between 2008 and 2010 than all other 49 states combined.  State investigators ultimately determined that Texas had been bilked out of $550 million.  They initiated withholding actions against more than 40 providers.

Some of the providers didn’t think they did anything wrong, and they appealed the withholding.  Two of those cases made it up to an administrative law judge.  Guess what?  The state lost.  According to the article, both ALJs essentially held that although the claims at issue may have been technically deficient (for example, there seems to be substantial disagreement in at least one case between the state’s medical expert and the dentist who owned the provider in question about medical necessity), there was no evidence of intentional fraud or dishonesty.  Even after these decisions, Texas refused to release the money, and one of the cases went up to the courts.  The state lost again and it promises to appeal.  They’re really fighting these cases tooth-and-nail, which is par for the course, in my experience.

So what’s the takeaway from all of this?  I think there are two important lessons to be learned.  It can seem hopeless for a lot of providers caught up in a withholding action.  You lose time and time again – at the informal decision stage, at the informal reconsideration stage, and on and on.  But if you really are a legitimate Medicaid provider who just got lumped in with the fraudsters, and if you keep fighting for your reputation (and your withheld/suspended claims, though that’s usually a secondary concern for providers on the up-and-up), you have a good shot at ultimately prevailing, even if it requires going to the courts.

That said – and this is the second important point – it’s not going to be quick or easy.  Medicaid agencies tend to get their hackles up when providers fight back.  Positions harden, and the precautionary withholding becomes (in their eyes) a life or death fight to prevent crooks from operating in the state.  So if you can avoid contentious litigation (whether that’s at the administrative level or the judicial level) and negotiate a more amicable resolution with regulators, you should try to do so (says the lawyer who has fought this fight on both sides of the aisle).

Image courtesy of Flickr by Aaron Yendall

Filed under Medicare

Charitable Trusts, Standing and the Special Interest Doctrine – Will Colorado Follow It?

By on November 15, 2013

This decision came down on Nov. 7.  (Full disclosure: I was involved in the litigation in the district court.)  Obligatory summary:  In 2011, national health care giant HCA acquired full ownership of the HCA-HealthOne joint venture, which owns and operates a number of hospitals around Colorado.  That list includes Presbyterian/St. Luke’s, Rose and Swedish (to name three hospitals that my accident-prone family has given business to).  Prior to that acquisition, the nonprofit Colorado Health Foundation (CHF) had owned 40 percent of the venture.  My old boss (OK, my former boss), Attorney General John Suthers, determined that the Colorado Health Transfer Act, which generally governs transactions involving nonprofit hospitals, did not apply because there was no change of control.  But he did decide to exercise his common law authority as attorney general to review the transaction involving a charitable trust.  Suthers approved the $1.45 billion sale contingent on certain conditions.

Well, no good deed goes unpunished, and a group of former CHF officers and directors sued him seeking to overturn the transaction.  The AG first argued that these individuals – none of whom had any current connection to the CHF – lacked standing to bring their claims.  That didn’t work, much to my chagrin, since I was lead counsel up to this point.  In fact, the Rule 12(b)(1) oral argument was my last official act at the AG’s office.  However, a few months later, the trial judge dismissed the case as moot, essentially finding that the transaction couldn’t be unwound in any real sense.  The plaintiffs appealed; in addition to defending the mootness dismissal, the AG re-raised the standing argument.

As you can see from the Court of Appeals decision in Anderson, et al. v. Suthers, et al., I was right and the trial court was wrong.  Neener neener!  (Just kidding.)  In Colorado – as is the case in the federal court system – a plaintiff generally can only bring a lawsuit if he or she has suffered some discrete injury-in-fact.  (Yes, yes, there’s taxpayer standing – I’m aware of it.)  The Court of Appeals held that the former officers and directors weren’t able to show that they would be tangibly affected by the sale, and thus, that meant no injury, which meant no standing.

I think that’s the right result.  But this raises a good question, and one that is unsettled under Colorado law.  Who does have standing to challenge a transaction involving a charitable trust (either by attacking the deal directly or by trying to force the attorney general to intervene)?  In one sense, it seems like the beneficiaries to the trust might have standing:  They should be able to claim that their benefits flowing from the trust are threatened.  But while that may work for a trust intended to benefit a small class of people (such as a trust meant to provide housing to the clergy at a church), some charitable trusts are meant to broadly protect the public at large.  Would anybody off the street be able to sue?

Well, no.  It turns out that courts from other states generally have embraced Section 391 of the Restatement (Second) of Trusts, which states:  “A suit can be maintained for the enforcement of a charitable trust by the Attorney General or other public officer, or by a co-trustee, or by a person who has a special interest in the enforcement of the charitable trust.”  (There isn’t a good way to link to the Restatement (Second), but click here for a case demonstrating Section 391 in operation.)  This limits standing to individuals with a “special interest” in the charitable trust.

But what does that mean?  Unfortunately, there’s not an easy answer.  Courts tend to be all over the map in construing the special interest doctrine.  Some interpret it liberally and will let public interest groups challenge a charitable trust transaction (under the theory that they are “specially interested” in the subject matter; others are much more conservative.  The article by Alison Manolovici Cody in this issue of the NYU Annual Survey of American Law is particularly good, but the link seems to be broken, so you’ll have to access it yourself.  This article has a decent discussion of the issue as well.  In general, I think it’s safe to say that someone who is an actual (and not just potential) beneficiary of a charitable trust will have standing to sue.  So in the HealthOne context, a patient who is actually using hospital services and fears that those services may be reduced probably would have standing; someone who claims that he or she wants to use unnamed hospital services in the future would not.

Those courts are in other states, though.  Colorado courts are silent on this issue, or at least they were until the Anderson decision was handed down.  This Colorado Supreme Court decision cites Section 391 favorably for the proposition that the Attorney General can challenge a transaction involving a charitable trust, so that implies that Colorado courts would adopt a “special interest” doctrine, but the case certainly doesn’t address this issue.  That’s why the Court of Appeals decision in Anderson is so interesting.  It doesn’t go all the way in embracing Section 391’s “special interest” requirement, but it comes pretty close.  I think it’s enough that, if I was briefing the issue, I’d probably cite the decision for the proposition that only a member of the public with a special interest can challenge a charitable trust transaction.  I’m curious to see what the plaintiffs in the case do.  If they’re inclined to appeal, I think the Supreme Court just might take the case.

Filed under Charitable Trusts

One Price for Denver, Another Price for Colorado Springs, and So On…

By on November 8, 2013

Hat tip to the Denver Post Daily Dose blog for this chart comparing the cost of Affordable Care Act silver-level individual policies by insurer and market.

I have a few thoughts about this.  First, that seems awfully cheap.  Many years ago in Chicago, my wife had a year (or so) period where she was too old to be on her dad’s insurance, and I was still a year away from employer-provided insurance, so we shopped for an individual policy for her.  If I remember correctly, the cheapest policy without maternity coverage was roughly $170/month – about 20 percent less that the cheapest Denver 27-year-old policy (and about 50 percent less than the most expensive one.  HC BLOG_pill bottleKeep in mind that she was only 25, the coverage was almost certainly skimpier, and this was more than a decade ago when health care inflation was between 2 percent and 4 percent. (Assuming an average rate of 3 percent, that means her $170/month policy should now be about $230/month, which is more than a lot of these policies.)

Second, the transparency is awesome.  Say what you want about the ACA, but the ability to compare comparable policies is hugely convenient, and it eliminates a lot of confusion provided the policies really are relatively comparable (more on that in a second).

Third, I’m a bit surprised at the variability between policies and geographic markets.  Yes, I know that not all silver-level policies have the exact same benefits, but the difference in Denver between the high and low for a 27-year-old is more than 80 percent.  For Grand Junction it’s close to 100 percent.  Either the benefits are way different between these policies (in which case, it reduces the helpfulness of the ACA level groupings), actuarial pricing is a lot less of an exact science than I thought, or maybe a bit of both.

Similarly, I’m surprised at the price differences between markets.  For the policies that can be issued in every market, the difference between the high and low prices are 105 percent, 66 percent, 26 percent, 65 percent, and 74 percent, respectively (using the pricing for a 27-year-old).  Some companies can sell the same policy in different parts of Colorado for a modest 20-odd percent premium, but others need to more than double the price.  That’s strange.  While there seems to be some general trends – the metro areas are cheaper than the nonmetros – the pricing within those bands is a more variable.  Sometimes Denver is less expensive than Boulder; sometimes it’s not.  That would lend some credence to the theory that pricing is much more flexible than you’d think.

I don’t have a clever conclusion or takeaway from this.  It’s just cool to be able to see pricing laid out in a simple chart.

Image courtesy of Flickr by Images Money

 

Filed under Affordable Care Act

Houston, We Have a Problem

By on October 29, 2013

Short-term medical plans could be a bigger problem than people think.  Here’s the issue.  The Affordable Care Act (ACA) essentially sets a minimum threshold for health insurance policies (in terms of deductibles, anticipated coverage percentage, benefit levels, etc.).  This means a lot of people are seeing their current (noncompliant) policies canceled as it gets closer to the HC BLOG_rocketJan. 1, 2014, start ACA date.  But the ACA threshold only applies to policies that are a year or longer.  So some insurance companies are issuing 364-day policies with much lower benefit levels, or policies that won’t cover anyone with pre-existing conditions (which ACA-compliant policies must do).

Policyholders will still have to pay the ACA mandate penalty, but at the amounts we’re talking about, the hypothetical Little Rock resident mentioned in the linked article above would save a little more than $1,400 in premiums over the course of the year. That means he or she would need to make more than $140,000 before the penalty exceeds his or her savings.  In subsequent years the increasing penalty cap (from 1 percent of income in 2014 to 2.5 percent in 2016) drops that break-even point to a little more than $56,000, but a lot of people make less than that.

So what’s the problem with all of this?  The ACA insurance policy minimums are there for a reason.  These short-term policies skirt that.  More importantly, as one commentator says in the article, there is a concern that short-term policies with a pre-existing condition exclusion will siphon off the younger and healthier people from the exchange marketplaces, essentially increasing costs for those people.  Basically, that ol’ health insurance death spiral again.

I think it might be even worse than that.  What does the healthy 25-year-old making $40,000 a year do on Day 365 when his short-term policy expires?  Probably renews it, right?  Even at 2016 penalty levels, it makes financial sense for him to do so.  But what does the 25-year-old making $40,000 a year who was diagnosed with cancer a few months back do when his 364-day policy expires?  Or the 30-year-old woman who just found out she’s pregnant?  Even if they were permitted to renew their short-term policies, don’t you think they will be tempted to trade up to the more generous ACA-compliant policies?

So it’s not just a case of these non-ACA policies taking out young and healthy people from the pool.  They’re doing that, then returning them to the ACA pool when they get sick or injured.  Sort of like a death spiral on steroids.  Stay tuned: Something has to give here.

Image courtesy of Flickr by NASA Goddard Space Flight Center

Filed under Affordable Care Act

Why Do Colorado Insurance Exchange Applicants Need to Disclose Asset Information?

By on October 28, 2013

There have been a couple of recent articles about Colorado’s experience enrolling people in expanded Medicaid and qualifying them for subsidies on the state-run insurance exchange.  One problem is a lengthy application form asking for all sorts of personal and financial data, including the applicant’s assets. If there are errors entering the data, the computer system freezes the application, and approval can take weeks.

And why do people who want to access the exchange need to apply for Medicaid first?  There are two main reasons.  The first is that Section 1413 of the Affordable Care Act (ACA) requires there to be a single, streamlined application to allow people to access all health financing options (Medicaid, exchange subsidies, etc.) under the law, although it permits the federal Department of Health and Human Services or various states to do this).  For those who make less than the Medicaid expansion cutoff (138 percent of the poverty line, or about $15,900 per year), the ACA originally assumed they would be eligible for Medicaid and thus eliminated any insurance subsidies.  Since the U.S. Supreme Court’s opinion in National Federation of Independent Business v. Sebelius made Medicaid expansion optional for the states, people in opt-out states making less than that amount are in a really bad position – too wealthy for Medicaid, but not wealthy enough for exchange subsidies.  The point is that before people are deemed eligible for the exchanges, whoever considers their applications must conclude they are not eligible for Medicaid.

That brings us to the second reason why the Department of Health Care Policy and Financing wants to know about applicants’ assets, even though it’s not really pertinent for Medicaid eligibility (and it’s certainly not pertinent for exchange subsidy eligibility).  Colorado has long used a horizontally integrated public benefits admissions process to determine eligibility for public assistance programs.  When people apply for Medicaid, they are automatically considered for the Children’s Health Insurance Program, the Supplemental Nutrition Assistance Program and a number of other welfare programs.  Sound like a potential mess?  You could say that.

Mess or not, the system remains in place to this day.  Before a Colorado resident qualifies for exchange subsidies, he or she must submit an application that it used for Medicaid and all public assistance programs.  It’s called the Program Eligibility and Application Kit (PEAK).  One of the programs for which PEAK determines eligibility is the Medicaid Long-Term Care Program, which pays for nursing facility care for recipients over age 65.  Unlike traditional Medicaid, the eligibility test for that does include a maximum asset component – generally, an applicant won’t be eligible if he or she has more than a couple thousand dollars of qualifying assets (under the theory that those with valuable assets should sell them to pay for their own nursing care before making taxpayers do it).

And there you have it.  That’s why people applying for subsidies on the Colorado health insurance exchange need to disclose various assets, and (indirectly) why the applications of many people are frozen and sent to weeks-long limbo.  Funny thing is, the whole single application and horizontal integration was supposed to make it easier for public assistance applicants, not harder.

Filed under Affordable Care Act, Federal Exchange Subsidies, Medicaid

Pulling the Rug Out – Lawsuits Challenge the Legality of Federal Exchange Subsidies (Part II)

By on October 25, 2013

This post continues the discussion of the handful of lawsuits challenging the legality of the federal subsidies for people shopping on the federally run insurance exchange in states that elected not to run exchanges themselves.  See Part I here.

To recap:  There is a statutory hole in the ACA that – if the plaintiffs in the pending lawsuits are to be believed – makes federal subsidies provided to individuals shopping on the federally run insurance exchange illegal.  Needless to say, this would be a huge blow for the ACA in the states that elected not to operate their own exchanges.

I think there might be a way out of this for the federal government.  My first thought when reading about these lawsuits was “but who has standing?”  Here’s what I mean by that.  In general, you can’t go to federal court to challenge federal or state government HC BLOG_rugspending – there won’t be standing (yes, there is an exception for spending that violates the Establishment Clause, and yes, you can probably imagine a scenario where someone comes up with a creative theory on why they are injured by spending and thus have standing, but bear with me).  But this situation is different because the subsidy mechanism involves more than federal spending; there’s also a penalty component.  Basically, the shared employer responsibility payment statute says that if a large employer doesn’t offer insurance to its employees, and a single employee is eligible for subsidies on a government-run insurance exchange, the employer must pay a penalty equal to the size of that subsidy times the number of its full-time employees.  The Internal Revenue Service has interpreted that to apply in states that run their own exchanges, as well as in those letting the federal government do it.

And there’s the potential window of opportunity.  As long as the GOP controls the House of Representatives – and perhaps just enough senators to filibuster – there can’t be a legislative fix to the ACA.  But there’s nothing stopping the IRS from pulling the rug out from under the plaintiffs in these cases.  How can they do that?  By promulgating new regulations switching course and exempting employers in the federally run exchange states from penalties under this part of the ACA.  Do that, and the plaintiffs in various pending lawsuits would no longer face exposure.  Now, the standing ship has probably sailed – the general rule in federal court is that if standing exists at the start of a case, it will always exist.  But there’s another legal doctrine – mootness – that applies when post-filing events occur to render a lawsuit pointless.  Here, if the IRS removed the employer penalty, the government could then argue that the cases are moot because the impending injury justifying the lawsuits no longer exists.

I should add two caveats.  First, there is an exception to mootness – voluntary cessation – that applies when the event causing mootness is within the control of the party asserting the defense and could re-occur.  Second, there is a creative argument that even individuals receiving subsidies might be “injured” insofar as the subsidies effectively push the price of coverage low enough for the individual mandate to apply to them.  I’m not sure what I think about that, but at the very least, reversing the current IRS interpretation would kick the pending lawsuits out of the federal courts (setting aside the voluntary cessation defense).

Image courtesy of Flickr by Evil Erin

Filed under Affordable Care Act, Federal Exchange Subsidies

This Might Have Legs – Lawsuits Challenge Legality of Federal Exchange Subsidies (Part I)

By on October 25, 2013

Here’s the gist of a decision I read a few weeks ago: One of the main mechanisms in the Affordable Care Act (ACA) was to set up state insurance exchanges where everyone who wasn’t (1) insured through their employers or (2) eligible for Medicaid could purchase the health insurance that they’re now mandated to have.  But health insurance is expensive, so the ACA also provided federal subsidies to people purchasing insurance on the exchanges.

Here’s the thing, though.  Congress can’t just make states establish and run these exchanges – that would (probably) violate the anti-coercion doctrine, which generally says that the federal government can’t “commandeer” the states.  So, Congress set up an alternative to the state exchanges – a federal equivalent for those states that decide they don’t want to do it themselves.  Roughly thirty states have elected to let the federal government run the exchange (the link says 26, but more recent sources put it at 34).  But there’s a tiny problem.  The way the ACA is worded, it looks like only those people shopping on state exchanges are eligible for subsidies.

This has the potential to be a big problem.  Most people shopping on the exchanges won’t be able to afford insurance without the federal subsidies.  Also keep in mind that about half of the states have opted out of the Medicaid expansion.  So in those states, the nondisabled poor and near-poor can’t get Medicaid, and they can’t afford to purchase insurance on the exchanges.  That’s a huge hole in the ACA.  As long as the GOP controls the House, good luck passing a legislative fix.

What to do, what to do?  Well, I have an idea.  Read about it in Part II.

Filed under Affordable Care Act

The Future of Medicaid Secondary Payer Reporting Regimes (Part III) – Medicare Secondary Payer Reporting and Medicaid Liens

By on October 22, 2013

Let’s do a three-sentence recap of the first two posts on this subject.  Medicaid is a federal-state partnership that pays for health care for poor people with a combination of federal and state dollars.  The Affordable Care Act recently expanded the recipient population to any persons making 133 percent or less of the federal poverty line, and it changed the makeup of the federal-state funding for this group so that all of the dollars until 2016 – and at least 90 percent after that – are from the federal government.  Finally, to the extent that a third party caused an injury that requires medical care paid for by Medicaid, the state Medicaid agency will have a lien against any judgment or settlement against that third party – but it will have to pay the federal government back its share.

See the problem?  The state is the one that needs to spend the time and resources chasing judgments or settlements that it may have some claim against.  But if it has to repay all (or nearly all) of the federal portion of that amount, what incentive will it have to go after liens against the Medicaid expansion population?  It’s all pain and no gain!

If you can see that, and I can see that, you can be pretty sure CMS can see that as well.  That’s one of Mary Re Knack and David Farber’s main points – this dynamic whereby states have the obligation but not the incentive to recover Medicaid lien funds is unsustainable, and we should expect to see some efforts by the federal government to correct this flaw.

What might those be?

(1)  The federal government could take over the job of pursuing Medicaid lien funds.  I’m not going to talk about that, because it’s wildly unrealistic, but more importantly, because there’s just not much I can say about it.

(2) Remember how CMS pays state Medicaid agencies?  The state provides a quarterly estimate of how much it thinks it’s going to spend over the next three months, and the federal government fronts its share of that – but only after it adjusts for any overpayment (or underpayment) from the prior quarter.  CMS could just deduct an amount corresponding to the lien funds from the quarterly advance, and if the state wanted to make up that deficiency, it would have to take action itself.  But there are three problems with this.  First, it seems draconian for the federal government to deduct a lien amount up front, when the state Medicaid agency might be able to recover it at some undetermined point in the future.  Second, states currently forego pursuing reimbursement actions for the vast majority of settlements and judgments – they are just too small to make it worth the Medicaid agency’s time to pursue them.  That discretion would vanish if CMS started deducting all potential lien amounts from its quarterly payments.  Third, and perhaps most importantly, how would CMS even know about settlements or judgments potentially subject to a Medicaid lien?  More on this in a second.

(3) There is one final way that the federal government could incentivize states to pursue settlements and judgments.  It could reimburse state governments for any costs associated with an attempt to recover Medicaid liens, by paying directly for those costs or (more likely) by paying a percentage of the recovery.  This is more promising, but it begs an important question – would a reasonable fee in successful lien cases be adequate to reimburse the state for monitoring and enforcement costs, which typically are incurred in all cases?  In other words, a state must pay for some sort of monitoring system to flag settlements and judgments; this will (presumably) identify a subset of settlements or judgments potentially subject to a Medicaid lien; the state will go after some smaller percentage of those settlements and judgments that are sufficiently large (and have sufficiently high prospects of success) to justify the effort; and the state will succeed in some smaller percentage of those reimbursement actions.  Any contingency fee paid off of recoveries in that last, smallest group of cases must be large enough to pay for all monitoring and enforcement costs.

What should be apparent from the last couple of points is that monitoring costs are hugely important.  While the Section 111 program has been more or less successful, it’s probably impracticable for states – or at least many of them – to duplicate it.  But it’s not realistic to operate under a beneficiary self-reporting system, like most states (including Colorado) do today.  As I mentioned before, the incentive for plaintiffs to report settlements or judgments that they then would have to give back is just too great for that sort of system to function.

I have an idea of a different sort of reporting system.  I know I said three posts on this topic, but we’re going to have to make it four.

Filed under Medicaid, Medicare

Why Nonmutual Collateral Estoppel Rules Don’t Work in the Taxpayer Standing Context

By on October 21, 2013

This recent article notes litigation that claims Colorado illegally provides millions of dollars to Planned Parenthood.  I’m a bit familiar with this sort of lawsuit, which generally alleges that the state is violating the abortion funding ban in Article V, Section 50 of the Colorado Constitution.  The basic theory is that although the funds in question pay for cancer screening or checkups for pregnant women or some other non-abortion service, the state is nonetheless “indirectly” subsidizing abortion because money is fungible, and those expenditures “free up” funds to be used for abortion.  I’ll refrain from evaluating the merits of the claim, though if the theory is correct, all sorts of government-affiliated hospitals in Colorado (e.g., Denver Health, University of Colorado, etc.) could be barred from performing abortions – which is what opponents of the provision warned about back in 1984 when it passed, and what proponents specifically disclaimed.

Instead, I’m going to focus on a different issue – how completely unsuited traditional collateral estoppel rules are in this context.  First, a quick primer.  Collateral estoppel refers to the series of rules designed to prevent parties from relitigating an issue decided in a prior case.  There are generally two types – mutual and nonmutual.  Mutual collateral estoppel prevents the same parties from fighting over the same previously resolved issue.  That makes sense for obvious reasons.

Nonmutual collateral estoppel prevents a party from one case from using an issue resolved in that case to preclude the litigation of it in another case involving another party – for example, X and Y litigated an issue, it was resolved against Y, and then in a subsequent lawsuit, Z (an unrelated third party) argues that Y should be precluded from relitigating it.  This doctrine is far more controversial.  See here for a fuller academic discussion.  In general, when a party in a new case argues that nonmutual collateral estoppel bars the litigation of an issue, (1) the issue must be identical to one that was resolved in previous litigation; (2) the issue must have been necessary to resolve the earlier lawsuit; and (3) the party against whom collateral estoppel is being asserted must have had a fair opportunity to litigate the issue, or be in privity with one who did.  A party that prevailed in a prior case generally cannot use that victory against a new party in a subsequent lawsuit who did not have the opportunity to argue the issue in question.

Now on to taxpayer standing.  I’ve written a lot about this.  The long story short is that at the state (but generally not federal) level, taxpayers can contest government action with some connection to state taxpayer dollars.  (There are subtle variations among states, but the general theory holds.)  See the problem?  Even if the government wins in one taxpayer lawsuit, another taxpayer can bring the exact same claim under traditional collateral estoppel rules, then another, and another and another.  The same attorney can even represent each successive taxpayer-plaintiff (indeed, that’s what is happening in the linked lawsuit).  It’s basically a case of try, try again until you succeed.  And because the requested relief is usually “stop the government from doing what I don’t like,” only one taxpayer-plaintiff needs to win.

I may write more on this later.  For now, I’ll just say that I have a theory — this is what happens when you try to use rules designed to apply to private disputes between two adversarial parties to what is essentially a public action by an aggrieved citizen who doesn’t like what the government is doing.  It’s one of the reasons judicial systems should be very careful about authorizing these sorts of lawsuits – and perhaps one of the reasons federal courts generally close the door to taxpayer-plaintiffs.

Filed under Collateral Estoppel

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