Florida appeals a federal judge's ruling in a Medicaid dispute

After a judge sided with federal health officials, Florida has gone to an appeals court in a dispute involving a program that has helped generate billions of dollars in Medicaid money for hospitals.

Lawyers for the Florida Agency for Health Care Administration last week filed a notice at the 11th U.S. Circuit Court of Appeals that is a first step in challenging a decision by U.S. District Judge William Dimitrouleas to dismiss a lawsuit against the federal Centers for Medicare & Medicaid Services.

Medicaid, which as of last month provided health care to about 4.8 million people, is jointly funded by the state and federal government. The federal government provides the larger chunk through a formula that matches money coming from Florida.

The dispute stems from a program that is designed to help pull down more federal money to go to hospitals. Under the program, known as the Directed Payment Program, counties and municipalities can levy special assessments on private hospitals and then send the money to ACHA, which runs most of Florida’s Medicaid system.

The agency then uses the levied money to draw down additional federal funds, which ultimately go to hospitals.

The state filed the lawsuit last year after CMS issued an “informational bulletin” to states about such arrangements and gave notice that it would review Florida’s program.

The federal agency was concerned states might be violating a longstanding prohibition on what are known as “hold harmless” arrangements. Such arrangements in the past included health care providers putting up funds with assurances that they would receive more money back after the federal matches.

“This scheme allowed states to effectively claim federal Medicaid funds without contributing any state funds, because no entity within the state ultimately bore the funding burden, violating a fundamental premise of the Medicaid program: federal matching funds are only available when states are spending their own money too,” attorneys for the federal health agency wrote in a December motion to dismiss the case.

In the lawsuit, ACHA sought a preliminary injunction seeking to bar federal health officials from carrying out the bulletin and the review of Florida’s program.

The motion for a preliminary injunction said the special assessments levied by cities and counties “specify that they are broad-based and uniform — i.e., they apply equally to all private hospitals within the locality — and that the locality does not hold any participating hospital harmless for the assessment.”

The state alleged that the federal agency overstepped its legal authority with the bulletin and the review. It raised arguments under a law known as the Administrative Procedure Act.

But in the motion to dismiss, federal attorneys said the bulletin and review were not final agency actions that would be subject to review under the Administrative Procedure Act. Also, they said the federal agency had not completed its review of the Florida program.

“CMS should be permitted to investigate the facts … and consider the state’s arguments before making a final determination about Florida’s compliance with the relevant law, rather than being forced to litigate these issues for the first time in federal court without full command of the relevant facts and before it has even made a decision to disallow funds,” the motion to dismiss said.

U.S. Magistrate Judge Panayotta Augustin-Birch in January issued a report and recommendation that agreed with the federal agency’s position. Dimitrouleas on March 6 issued a ruling adopting the magistrate’s recommendation, which included dismissing the case and rejecting a preliminary injunction.

In part, Augustin-Birch cited the “non-final, ongoing, and ostensibly soon-to-be-completed” review into Florida’s program “to determine whether it contains impermissible hold-harmless arrangements. Due to its non-final nature, the (review) cannot be enjoined or subjected to judicial review at this time, and the conclusion of the (review) could moot Florida’s concerns.”

The motion for a preliminary injunction said that as of August, 21 counties and municipalities had passed ordinances to levy assessments for the program. It said the program, which had been in existence for three years, generated $1.8 billion, $2.1 billion and $3.4 billion in “supplemental Medicaid funding, about 60 percent of which was federal funds.”

“The funding raised through the DPP (Directed Payment Program) has become integral to Florida’s ability to provide health care to Medicaid patients and compensate hospitals for doing so,” the motion for a preliminary injunction said.

As is common, last week’s notice of appeal does not detail arguments the state will make at the Atlanta-based appeals court.

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