States invoke emergency rules to cut Medicaid rates

February 7, 2005

State departments of health sometimes seek to circumvent their own procedural codes and avoid their legislatures by lowering Medicaid reimbursements and dispensing fees through emergency fiat. "They declare a state of budgetary emergency, then declare new rules and regulations," said Paul Baldwin, executive director of the Long Term Care Pharmacy Alliance (LTCPA) in Washington, D.C.

State departments of health sometimes seek to circumvent their own procedural codes and avoid their legislatures by lowering Medicaid reimbursements and dispensing fees through emergency fiat. "They declare a state of budgetary emergency, then declare new rules and regulations," said Paul Baldwin, executive director of the Long Term Care Pharmacy Alliance (LTCPA) in Washington, D.C.

Under state and federal laws, adjustments in Medicaid reimbursements generally require of state administrators a time-consuming process of public hearings and sometimes legislative approval. However, many states allow administrators to fast-track emergency rules, sometimes for budgetary reasons, said Donna Folkemer, a program manager at the National Conference of State Legislatures. "It's not as expensive for the states as regular procedures," and it's quicker. But it can be challenged.

Injunctive, or temporary, legal efforts to block emergency reimbursement rule changes are often supported by local courts. But state supreme courts and federal appeals courts have repeatedly ruled that states have the right to lower reimbursements as they see fit. In recent years, injunctive relief was overturned in Illinois, Indiana, and Massachusetts.

The circuit court refused to issue the injunction. Baldwin said LTCPA would likely continue to argue the issue in court on the merits, especially because in January the state imposed an "emergency" reduction in Medicaid reimbursements to pharmacists from average wholesale price minus 12% to AWP minus 16%. "That could pose significant harm to us," said Mike Mayes, KPA's executive director, "and it could harm Medicaid recipients by reducing the availability of pharmacists able to fill their prescriptions."

Under the January rule change, the governor can impose the lower Medicaid reimbursements at his discretion, and the change would be in effect for 170 days, whereupon the state legislature has to act to maintain the change. But if the governor does not soon lower the reimbursement-as many observers, including Mayes, believe is possible-the legislature will have adjourned before the 170 days are up and won't take the matter up until January 2006, when it reconvenes and when reimbursements are scheduled to fall to AWP minus 17% under the emergency rules. "It's an end run," said Mayes, "but we have to wait and see what the governor's going to do."

LTCPA, which represents the five major national long-term care pharmacies-Kindred Pharmacy Services, Omnicare, NeighborCare, NCS Healthcare, and PharMerica-has traveled this road before. It has been joined in recent years by other pharmacy organizations, including the National Association of Chain Drug Stores, in asking courts to invalidate the emergency measures. "It's not happening in every state," said John Coster, NACDS VP for policy and programs, "but many states totally abuse their regulatory authority. We see it happening too frequently."

NACDS, which has not joined in the Kentucky action, has generally succeeded in gaining injunctive relief, as has the LTCPA. In Massachusetts in 2002, the alliance received temporary relief from a significant drop in reimbursements and dispensing fees. But in March 2004, the U.S. Court of Appeals for the First Circuit ruled that long-term care pharmacies have no right to sue over a state's drug reimbursement rates under federal Medicaid law.

NACDS gained injunctive relief when the same thing happened in Indiana in 2001, but the state's supreme court ruled the next year that the state was within its rights to implement the emergency rules. The court did offer a ray of hope to the plaintiffs in requiring the state's Family & Social Services Administration to obtain a complete fiscal analysis before issuing future emergency rule changes, which could slow the process.