A federal judge has refused to immediately block efforts by the state to further cut what it pays health care providers for treating Medicaid patients.
In two separate orders, Judge David Campbell completely dismissed several of the claims by the Arizona Hospital and Healthcare Association that Tom Betlach, director of the Arizona Health Care Cost Containment System acted improperly in imposing the 5 percent cut, and that Kathleen Sebelius, director of the U.S. Department of Health and Human Services, illegally approved those cuts.
Campbell did leave alive arguments by the hospitals that the state did not conduct a proper study of what it costs the hospitals to provide the services to AHCCCS patients and how rate cuts might affect their willingness to continue in the program. That is a necessary part of any cut in provider rates.
But the judge said he was not convinced that whatever harm the hospitals have suffered since the cost cuts were implemented in October -- and the actual amount remains in dispute -- merits an immediate order restoring the rates to where they were before.
More to the point, Campbell said there is evidence forcing AHCCCS to restore rates now to what they were before the cuts carries a price tag of $8.6 million.
The judge said Betlach has to live within the amount of money lawmakers gave his agency. And Campbell said if he has to pay the hospitals more, there is a real threat the result would be further cuts in services to AHCCCS patients.
Hospitals argued that was "speculative'' at best. But Campbell disagreed.
He pointed out that AHCCCS already has eliminated coverage for dental care, podiatrist services and orthodontics.
The agency also limited the number of inpatient hospital days to 25 a year. And AHCCCS is no longer enrolling childless adults in the program even if they meet the income criteria.
Campbell said the hospitals have not shown that having to accept the lower rates for the time being, while the case goes to trial, will hurt them more than it would hurt the public.
"We're disappointed with the decision,'' said Peter Wertheim, the association's vice president.
"We've been struggling under the cuts,'' he said. "Services has been eliminated, jobs have been cut.''
Wertheim could not say whether, given the scope of the defeat, the hospitals will pursue the case.
"It's too early yet to know what our next steps are,'' he said.
The Legislature voted last year to scale back AHCCCS, Arizona's Medicaid program, in an effort to save more than $500 million. That law gave Gov. Jan Brewer and Betlach discretion in how to meet that goal.
One element of that was a 5 percent cut in what AHCCCS reimburses hospitals for direct services to patients. That came on top of an identical reduction last April, and a three-year freeze.
In its lawsuit, the hospitals charged that the reimbursement "results in rate so low that they violate the mandate of federal law.'' That law, the lawyers said, requires that rates for Medicaid services "be consistent with quality and assure that Medicaid beneficiaries have equal access to services.''
Much of the hospitals' case is based on that question of costs.
Campbell said federal law requires states to provide procedures to assure that Medicaid payments are consistent with economy and quality of care and to assure they are "sufficient enough'' so that health care providers are willing to accept those rates and care for patients.
Betlach argued that there was no need for the Legislature to consider cost studies because ultimately lawmakers left that decision to him. Campbell said that misses the point.
"Even if the Legislature did not need to consider cost studies because it merely gave the (AHCCCS) director authority to set rates, the director has not given any reason that absolve him from considering cost studies before implementing the rates,'' the judge wrote.
The state has argued that, to the extent a cost study is necessary, it actually did one.
It stated that the lower rates "are expected to more than cover hospitals' variable costs.'' And it called it "unlikely'' that hospitals, unwilling to accept the lower payments, will stop working with AHCCCS managed care plans.
But Campbell noted that the hospitals are charging that study contained "substantive and methodological flaws.'' And the judge said the hospitals are entitled to make that case at a trial.
There are conflicting figures of how much the hospitals are losing because of this particular cut.
The hospital association submitted declarations from executives at several facilities with varying figures.
For example, the Carondelet network which operates two hospitals and a heart and vascular care center in Tucson and a hospital in Nogales, claimed losses of $6 million a year as a result in reduction in inpatient and outpatient rates.
Benson hospital estimated a $250,000 loss as did the Southeast Arizona Medical Center in Douglas. And the Yavapai Regional Medical Center predicted it would lose $1.2 million.
But Betlach said those figures also include what the hospitals are losing because of those other cuts in the AHCCCS program, like curtailing enrollment for childless adults. If the state no longer provides coverage for those people, either they will not get care or the burden falls on the hospitals.
He said that just the losses from the 5 percent cut for direct services at the nine hospitals cited in the lawsuit is closed to $775,000 a year, compared to $3.4 billion in combined 2010 revenues.