Responding to Medicaid Cutbacks

Q. The State Medicaid agency is citing fiscal constraints and considering ways to cut Medicaid services. We are engaging in education and policy advocacy so that state officials will have a full understanding of how their decisions will affect low income people and people with disabilities. Are there laws we should be aware of as states are making changes?
A. States have a great deal of flexibility in their administration of the Medicaid program. However, the actions the state takes to eliminate or reduce services must be legal, whether the services are mandatory or optional under the Medicaid Act. 
Since the beginning of the economic recession in December 2008, a number of cases have been filed in state and federal courts alleging that Medicaid agencies are improperly implementing a Medicaid cutback. While most of these cases have been filed on behalf of individuals, about two dozen lawsuits have challenged across-the-board reductions that have resulted in confusion regarding continued coverage and/or due process rights.2 Some of these cases involve significant reductions in services after the state introduced special assessment tools and computer software to determine recipients? needs and services, while others involve utilization review technicians who are feeding their assessments into a software program. 
Regardless of the type of services affected or the methods used by the state to cut services, the state?s plans and actions must be consistent with what federal and state laws require, such as:
1. The branch of state government making the cutback must have authority to do so.
Otherwise, the action by one government entity may violate constitutional separation of powers requirements or a statute that places the authority to make the changes with another branch of government. See Whiley v. Scott, No. SC11-592, _ So.3d _, 2011 WL 3568804, at *1 (Fla. Aug. 16, 2011) (?Absent an amendment to the Administrative Procedure Act itself or other delegation of such authority to the Governor?s Office by the Florida Legislature, the Governor has overstepped his constitutional authority and violated the separation of powers.?). Compare McNeil-Terry v. Roling, 142 S.W.3d 628 (Mo. Ct. App. 2004) (holding that executive action to eliminate adult dental services violated a state statute that required the coverage) and Fisher v. Roling, 142 S.W.3d 836 (Mo. Ct. App. 2004) (same, regarding adult eyeglasses) with Hunter v. State, 865 A.2d 381 (Vt. S. Ct. 2004) (rejecting constitutional separation of powers argument and finding state legislature validly delegated authority to the Secretary of Administration to prepare and implement a plan to eliminate optional Medicaid services); id. at 392-93 (collecting cases).
2. A planned Medicaid cutback may need to be promulgated through the public notice and comment processes of the state Administrative Procedure Act (APA).
Most state Medicaid agencies are subject to the requirements of the state APA. State APAs generally define ?rules? to be regulations, standards or statements of policy issued by a state agency that are applied generally and that have the effect of law. In recent years and with mixed results, a number of cases have challenged policies cutting Medicaid services as violations of the state APA. 
Cholvin v. Wis. Dep?t of Health & Family Servs. reviewed a process whereby eligibility for the HCBS waiver was determined by certified screeners using a screening instrument to conduct a face-toface assessment of each applicant?s functional level. The assessment was then scored by a computer program to decide service needs. The court found that the screening instructions being used by the screeners were rules that needed to be promulgated pursuant to Wisconsin statute. See 758 N.W. 2d 118 (Wis. Ct. App. 2008); see also, e.g., Homestyle Direct, LLC v. Dep?t of Human Servs., No. 20091957, _ P.3d _, 2011 WL 4376186 (Or. App. Sept. 21, 2011) (holding agency unlawfully adopted nutritional and delivery standards for home meals for Medicaid beneficiaries and agency could not enforce the invalid rules, even though petitioner had agreed to them); Courts v. Agency for Health Care Admin., 965 So.2d 154 (Fla. Ct. App. 2007) (reversing state Medicaid agency?s new method for reducing claimant?s HCBS waiver services, finding that the reduction was in response to budget problems and explaining that if an agency changes a non-rule-based policy, ?it must either explain its reasons for its discretionary action based upon expert testimony, documentary opinions, or other appropriate evidence, ? or it must implement its changed policy or interpretation by formal rule making?); Radaszewski v. Garner, 805 N.E.2d 620 (Ill. Ct. App. 2003) (recognizing claim of ?sham? rulemaking, finding that Department?s elimination of private duty nursing from the state Medicaid plan in order to terminate litigation between the parties evinced an intent to enact the change regardless of what transpired during the rulemaking process). Compare Cal. Ass?n of Med. Prod. Suppliers v. Maxwell-Jolly, No. A126749, _ Cal. Rptr. 3d _, 2011 WL 4130078 (Cal. Ct. App. Sept. 16, 2011) (finding agency properly implemented policy); Rennich v. N.D. Dep?t of Human Servs., 756 N.W.2d 182, 188 (N.D. S. Ct. 2008) (holding that department?s computerized Progress Assessment Review tool was an "explanatory guideline" used "to aid the Department in exercising their professional judgment when applying the federally?mandated eligibility criteria? [W]hen the eligibility criteria are set out in federal statutes and regulations, it is unnecessary to adopt a state?s implementing guidelines and manual provisions as formal rules"). 
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