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Rehearing Denied in Medi-Cal Provider Payment Cuts Dispute

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By William Peacock, Esq. on May 29, 2013 4:24 PM

Newsflash: California is in the midst of a budget crisis. Also, the sky is blue.

As part of Governor Jerry Brown’s plan to curb state spending and reduce the deficit, after consulting with Secretary Kathleen Sibelius, of the Department of Health and Human Services, the governor instituted 10 percent cuts in payments paid to Medi-Cal providers.

On Friday, the Ninth Circuit upheld those cuts for the second time, issuing a revision of their opinion from late last year and denying rehearing of the case. The court noted that none of the circuit’s judges requested a vote on an en banc hearing.

Orthopaedic Hosp. Does Not Control

Though prior case precedent in Orthopaedic Hosp. v. Belshe (holding that a state seeking to reduce Medicaid reimbursement rates must first consider the cost of providing the actual medical services) would seem to preclude the lawmakers' moves (which didn't include such a cost study), this case is differs from Orthopaedic Hosp. due to a wee bit of administrative deference.

Before instituting the cuts, Gov. Brown consulted with Secretary Sibelius, who in turn interpreted 42 U.S.C. § 1396a(a)(30)(A) differently than the Ninth Circuit's prior case. Her interpretation was that states need not follow any set procedures before reducing rates and that California's proposed cuts were perfectly permissible.

The head of an administrative agency making an administrative interpretation? Lets say it together: Chevron deference.

The court also quickly dismissed any takings claims because, as a voluntary program, Medicaid (and Medi-Cal) does not create property rights.

Budgetary Effect

The Metropolitan News-Enterprise notes that this a "major victory" for Gov. Brown's efforts to curb spending. Prior estimates, where were based on an assumption that the Ninth Circuit's final decision would come in August, estimated two-year savings of $508.9 million. The real number could be even higher, assuming the legislature doesn't reverse the cuts.

The News-Enterprise notes that two bills that sought to restore the cuts have made limited progress so far. One bill stalled in committee in the state Senate while the other, in the Assembly, was limited to skilled nursing facilities only.

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