Judge Hears Arguments in Suit To Delay End of Medicaid Loophole, Pushes Back Scheduled Closing Date

A federal judge in Little Rock on April 10 ruled that HHS cannot implement until May 14 a rule designed to lower of the Medicaid upper payment limit, commonly known as the Medicaid loophole, the Arkansas Democrat-Gazette reports. The new rule had been scheduled to take effect April 15 (Bleed, Arkansas Democrat- Gazette, 4/11). U.S. District Court Judge Thomas Eisele said that the delay was necessary because the Senate was not notified of the change until March 15, violating the Congressional Review Act, which requires 60 days notice to Congress before implementation of new rules (Associated Press, 4/10). During closing arguments in the suit, brought by a coalition of Arkansas hospitals and health care organizations hoping to block the new regulations altogether, Eisele said he will consider more information from both sides before taking further action (Arkansas Democrat- Gazette, 4/11). Under the loophole, some states reimburse hospitals for more than the actual cost of services, receive inflated Medicaid matching funds from the federal government and then have the facilities return the extra funds, which the states then use for any budgetary purpose. While some states primarily use the extra funds to pay for health care, others do not. The Clinton administration issued a rule in January 2001 that set the upper payment limit at which states may pay facilities at 150% of the Medicare rate for any one service. Stating that the rule did not go far enough in curbing abuse of the loophole, the Bush administration issued a rule last November to reduce the upper payment limit to 100% for some states this year and to phase out the loophole completely by 2010 (Kaiser Daily Health Policy Report, 11/21/01).

Closing Costs
The Arkansas providers' suit contends that they would lose millions of dollars if the upper payment limit is reduced to 100% (Arkansas Democrat-Gazette, 4/11). The suit was filed in Arkansas because hospitals there would be particularly hard hit if the loophole is closed. Nevertheless, the case is being closely watched nationwide, as the elimination of the loophole would cost states an estimated $27 billion in extra federal payments over 10 years (Kaiser Daily Health Policy Report, 3/8). Sen. Blanche Lincoln (D-Ark.), who has introduced legislation (S 1745) that would prevent implementation of the new rule and require HHS to present a plan to limit its impact, said the ruling "gives us more time to prove just why predominantly rural states like Arkansas depend on these dollars much more than larger states with greater budgets." But HHS attorney Peter Robbins said that a 100% upper payment limit was needed to prevent state abuses of the loophole (Arkansas Democrat-Gazette, 4/11).