Missouri hospitals sue to block changes in Medicaid payments

Lawsuit argues losses could be $45 million or more unless courts step in

By: - June 17, 2021 11:52 am

SSM Health St. Mary’s Hospital in Jefferson City (Photo courtesy of the Missouri Governor’s Office).

After obtaining some relief from lawmakers for revenue cuts likely from a change in the way Medicaid pays for outpatient services, Missouri hospitals are asking the courts for relief from a coming change in payments for inpatient care.

The Missouri Hospital Association on Friday filed a lawsuit in Cole County alleging the Department of Social Services is not following state law in making the changes. Instead of establishing the new payment method by a rule, the association alleges that the department is improperly pushing the change through by altering its contracts with managed care providers.

The department has told the association the changes won’t reduce overall payments but the hospitals argue losses are likely to be $45 million a year or more.

Altering contracts rather than establishing the change by a rule avoids requirements for public comment period and legislative oversight, the lawsuit alleges.

“MHA isn’t contesting the Medicaid program’s authority to change provider payments, we are arguing that using managed care organization contracts to make the change circumvents the policy process specified in state law,” association spokesman Dave Dillon wrote in an email to The Independent.

Rebecca Woelfel, spokeswoman for the department, declined to comment on the lawsuit or the proposed changes in hospital payments.

The Department of Social Services does not respond to questions regarding litigation,” Woelfel wrote.

In communications earlier this year with the association, the department stated that it was implementing federal directives about how hospitals should be reimbursed for care. 

Hospital services are one of the biggest costs borne by Medicaid, and the association spends much of its lobbying efforts on preventing cuts to those payments.

In the budget for the year beginning July 1, lawmakers included $50 million that was not recommended by Gov. Mike Parson for hospitals that show revenue losses due to changes in outpatient payments. Instead of making payments that are a fixed percentage of an individual hospital’s charges for the outpatient service, payments will be about 90 percent of what Medicare would pay for the same service.

The offsetting payments were a compromise with the hospitals, which expect to see revenues fall about $60 million and wanted lawmakers to alter the percentage of Medicare payments that the state would pay to 93 percent instead.

Parson has not signed the budget bills for the coming year and could veto or withhold the funds.

The change to the amounts managed care organizations pay hospitals would shift away from a fixed fee for each day of hospital care that is unique to each hospital to a “directed payment” negotiated by each managed care company and the hospitals. 

The negotiated amounts are directed to be within a range of a fee schedule set for each class of hospital, such as teaching hospitals or children’s hospitals.

While the department contends the change has no effect on total hospital payments, the association disagrees, citing a study by Mercer, the state’s actuary for Medicaid.

“In the aggregate, hospitals are projected to lose approximately $45 million between inpatient and outpatient services with very limited notice,” association attorney Joe Bednar wrote in the lawsuit’s initial filing. “MHA and its members have reason to believe the fiscal impact will be greater.”

The lawsuit argues that changes in state policies governing Medicaid payments must be made by a rule change.

“Our filing asks for an opportunity to weigh in publicly during a rulemaking process that gives Missourians notice of what its government is doing and the effect of its changes,” Dillon wrote. “While the proposal may have some merit, it should not bypass the state’s long-standing review processes.  This will provide an opportunity for everyone to fully understand how it might improve the Medicaid system rather than just cut payments.”

To block the change, which would take effect July 1, the association is asking for a temporary restraining order while the lawsuit is pending.

The policy wasn’t finalized until the department released it June 4 and it hasn’t been approved by federal regulators at the Centers for Medicare and Medicaid Services, the motion for a restraining order states.

“There is clear harm that will result to MHA and its members unless temporary relief maintaining the status quo is issued now,” Bednar wrote in the motion asking for the order.

The state will not be harmed because it has not received federal approval for the change in payments and has stated that the changes should not affect the state budget, he wrote.

A hearing on the motion was scheduled for Monday but has been canceled because the department asked for a change of judge in the case. 

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Rudi Keller
Rudi Keller

Rudi Keller covers the state budget and the legislature. A graduate of the University of Missouri School of Journalism, he spent 22 of his 32 years in journalism covering Missouri government and politics for the Columbia Daily Tribune, where he won awards for spot news and investigative reporting.