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COURT HALTS MEDI-CAL CUTS; Skilled nursing facilities get a reprieve

Delaine Fragnoli
Managing Editor

Patients at skilled nursing facilities in Plumas County can rest a little easier. On Wednesday, Dec. 28, a federal judge granted a preliminary injunction to temporarily halt MediCal cuts that threatened to reduce services at or even close such facilities at Seneca Healthcare District and Eastern Plumas Health Care.

Doug Self, chief executive officer at Seneca, said he was “glad” about the decision. “I felt the MediCal reduction plan was a knee-jerk reaction to the state budget without a thought to the consequences.

“For our hospital, community and residents in long-term care it means we don’t have to react to an emergency.” Self said the reductions could have resulted in closure of Seneca’s long-term facility, which would have meant a loss in jobs.

The situation was worse at EPHC, where the cuts would have amounted to more than $1 million annually in lost revenue. The cuts were supposed to be retroactive to the beginning of the fiscal year, which meant cash-strapped EPHC would have had to come up with $500,000 in reimbursements. Officials there had little hope the state would offer any kind of payment plan.

Tom Hayes, chief executive officer at EPHC, called the injunction order “really excellent. I think the judge got it right.” The potential for closure and patient transfer “was really hard on our patients. Really tough. You have to understand: this is their home.”

In response to the news, Hayes said EPHC would not implement a previously announced 5 percent across-the-board pay cut. He said EPHC’s facilities would begin accepting some patients again, mostly local people who need rehabilitation following treatment in Reno or elsewhere.

The injunction, however, is not the end of the story. The California Hospital Association, which is litigating on behalf of its member hospitals, expects the state to appeal the injunction. It has vowed to continue to fight the cuts.

Meanwhile, Hayes said, the injunction buys EPHC some time. “We need to start managing our payer mix more deliberately. We’re too dependent on one payer, MediCal. That can really hurt us. If we can reduce that over time, it won’t be nearly as tough.”



CHA filed suit in early November challenging the legality of the MediCal cuts, announced in October. The trade group followed up on that suit with a motion for an injunction to halt the cuts until the larger case could be heard.

The legal moves followed an Oct. 27 decision by the federal Center for Medicare/Medicaid Services (CMS) to approve a request from the state to cut its MediCal reimbursement rates for “distinct part” skilled nursing care by 10 percent. MediCal is California’s Medicaid program. The 10 percent cut is based on 2008 rates and would be retroactive to June 1, 2011.

In court papers, CHA called the cuts “mega rate reductions” because they incorporate earlier cuts — deemed illegal by both district and appeals courts — and deduct another 10 percent, resulting in reductions of 20 percent or more.


The injunction

U.S. District Court Judge Christina A. Snyder ruled overwhelmingly in favor of CHA on the motion for an injunction. She found that the group had more than met its burden of proof for the legal standards.

CHA had taken CMS to task for its decision making process when it approved the cuts. According to CHA, the feds failed to properly apply legal standards to the rate-reduction decision, to consider relevant factors and to do so in a transparent manner. CHA says it and other interested parties were denied meaningful access to the information exchanged between CMS and the state Department of Health Services.

Snyder found that CMS’s process lacked “procedural safeguards” and “did not include the ‘hallmarks of fairness and deliberation.’” She wrote, “There was no hearing, no record, no opportunity for interested parties to present evidence, and no formal decision in which (CMS) set forth (its) reasoning.”

CMS failed to offer any reasons why provider costs should not be considered, she wrote, despite a “logical and empirical relationship between reimbursement rates and the willingness of providers to make services available.”

CMS argued that the law did not require cost studies. Snyder pointed out that the center had made exactly the opposite argument in a previous case.

The judge, likewise, found little merit in the center’s analysis of the effects the cuts would have on MediCal beneficiaries’ access to care.

She found fault, in particular, with the center’s geographic analysis, and cited Plumas County in her order: “Peer Group 3 includes both Plumas and Siskiyou Counties in northern and northeastern part of State and Ventura County in the south. It is unreasonable to expect that any capacity in Ventura County could offset … closures in Plumas and Siskiyou Counties.”

Snyder found the monitoring plan for quality of care equally lacking. “At best the monitoring plan creates a potential response after a quality deficiency has been identified.”

She also thought CHA’s “takings” argument had merit. CHA argued that the cuts are an illegal “taking” in violation of both the United States and California constitutions. “The rate reductions are going to effectively seize the private property of hospitals without adequate compensation,” CHA argued in its complaint.

Snyder acknowledged that while a hospital’s participation in MediCal was voluntary, its continued treatment of patients while trying to close or withdraw from MediCal is compulsory. In addition, the cuts postdate an institution’s decision to participate in MediCal and change the terms of that participation.

In her analysis of the “irreparable harm” standard, Snyder again found CHA had met its burden of proof and cited the declaration of EPHC’s chief executive officer, Tom Hayes, as evidence.

In assessing public interest, Snyder weighed the state’s concern with its budget against “preventable human suffering.” She concluded, “The State’s fiscal crisis does not outweigh the serious irreparable injury plaintiffs would suffer absent the issuance of an injunction.”

With that, she signed the order for the injunction.

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