Almost a decade ago, California submitted a State plan amendment (SPA) to the Centers for Medicare and Medicaid Services (CMS) that would retroactively implement a ten-percent rate reduction in outpatient services provided to Medi-Cal beneficiaries. CMS initially rejected the plan because California did not provide enough information regarding the impact the proposed rate reductions would have on beneficiary access to services. In 2011, CMS approved the SPA after California re-submitted the plan with additional information. A group of 57 California hospitals filed suit against HHS challenging the approval. The district court granted summary judgment to the Secretary, and the hospitals appealed. On August 7, 2017, in an opinion available here, the United States Court of Appeals for the Ninth Circuit reversed, agreeing with the hospitals that CMS erred in approving the SPA because CMS did not consider “any evidence regarding ‘the extent that such care and services are available to the general population in the geographic area.’”  Hoag Memorial Hospital Presbyterian v. Price.

Among the 83 requirements enumerated by Federal statute that a State plan must contain, the plan must “provide for rates ‘sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.’”Hoag Memorial (quoting 42 U.S.C. § 1396a(a)(30)(A)) (emphasis added by Hoag Memorial). The hospitals argued that CMS violated the statute by approving the SPA despite not having evidence to support that requirement. But the district court agreed with the Secretary that prior Ninth Circuit precedent reviewing the Secretary’s interpretation of § 30(A), Managed Pharmacy Care v. Sebelius, 716 F.3d 1235 (9th Cir. 2013), only required a substantive result, and did not require CMS to use any specific methodology to achieve that result. Moreover, Managed Pharmacy Care had found that the Secretary’s interpretation of § 30(A) was entitled to great deference.

The Ninth Circuit disagreed. While it reaffirmed Managed Pharmacy Care, it explained that the latitude granted to the Secretary was not limitless. Although CMS was not required to use a particular methodology, it is required to use some methodology, and that methodology “must be reasonably targeted to achieve the statute’s expressly required result. . . .”  Hoag Memorial. The issue challenged by the Hospitals was a specific requirement under the law – the access to care had to be at least as much as it was for the general public. Because the Secretary’s implicit interpretation of § 30(A) did not require consideration of Medi-Cal patients’ access to care compared to that of the general public, the interpretation was not entitled to deference.

The Ninth Circuit then found that “the Secretary’s approval of the SPAs in this case violated § 30(A), as it failed to include any consideration regarding Medi-Cal beneficiaries’ access to care relative to that of the general public.” Hoag Memorial. As the Court pointed out, one cannot compare two things with information about only one of the two things. The Court explained that “the Secretary could not have considered whether rates under the challenged SPA would ensure ‘that care and services are available under the plan at least to the extent that such care and services are available to the general population’ absent some consideration of the ‘care and services [] available to the general population.’”

This decision does not necessarily mean that the State cannot ultimately implement its rate reduction. But it does mean that the State must present evidence that would satisfy the requirement of the statute by allowing CMS to compare how the proposed rate would affect the care available to beneficiaries compared to that of the general public. This decision marks an important development in providers successfully challenging Medicaid rate reductions, and may mark the beginning of a new strategy to stave off such cuts.