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Medicaid Block Grant Policy Could Face High Legal Hurdles

Jan. 28, 2020, 10:16 AM

A policy being weighed by Trump administration officials that would let the federal government give states a set amount to spend on Medicaid would face tough legal challenges.

Attorneys say a guidance for states on how to apply for block grants would struggle to survive challenges, especially if they focus on provisions in the Medicaid law that determine how the government finances the federal-state program for the poor.

“It’s very hard to square the Medicaid statute with a true block grant proposal,” Nicholas Bagley, a health law professor at the University of Michigan and former Justice Department attorney, said.

Block grants have become the latest flash point in an ideological battle being waged over Medicaid spending. Conservatives are pushing to reverse sizable increases in enrollment and spending in what they see as a “welfare” program. In contrast, their opponents view the increases, which flow from provisions in the Affordable Care Act allowing states to expand their Medicaid programs, as a success story that has allowed millions more Americans to have much-needed health coverage.

The block grant model would allow state Medicaid programs to receive a set amount of funding, which likely would come with fewer restrictions around determining who qualifies and what services are available. The states would need to seek permission from the Centers for Medicare & Medicaid Services in the form of a waiver. Medicaid currently provides unlimited federal funding that grows and shrinks depending on need.

Proponents say that giving states a set amount for Medicaid could better control costs for the program. Opponents, including patient advocates and some Democrats, worry it could lead to big cuts in the program and reduce the number of people able to get care.

The guidance recently found new life among officials at the CMS, according to three sources familiar with the matter.

Attorneys say a block grant guidance would face two main legal obstacles:

  • The part of the Medicaid Act that governs how much states get from the federal government isn’t listed as one of the provisions that can be altered though a Medicaid waiver.
  • The proposal wouldn’t square with the law’s requirement that waivers further the purpose of Medicaid to provide care for poor people.

There isn’t another way to allow states to receive a lump sum for their programs, attorneys said.

‘Pretty Quick Litigation Response’

Nicole Huberfeld, a health law professor at the Boston University School of Law and School of Public Health, said there would be a “pretty quick litigation response” if the guidance is released.

Potential plaintiffs could include the National Health Law Program, which has sued the administration over other proposals; individuals from any state that submits a waiver application; and hospitals or other medical providers who could face financial losses. A representative for the NHeLP declined to say whether it would sue.

Several states—Alaska, Oklahoma, and Tennessee—have already expressed interest in getting block grants for their state Medicaid programs. Tennessee has gone as far as seeking federal approval for its proposal.

In response, leading congressional Democrats have sent letters to the Department of Health and Human Services saying that providing a lump sum for Medicaid would be illegal. They have asked the HHS inspector general to look into the department’s handling of the Tennessee proposal.

Roger Klein, a physician and attorney who is a member of the conservative Federalist Society’s Regulatory Transparency Project FDA and Health Working Group, said the HHS has the authority to approve this sort of arrangement for states that request it.

Each proposal from states would need to be looked at on an individual basis, but HHS Secretary Alex Azar has “broad discretion” to test new ways of providing care in Medicaid through waivers, Klein said.

Funding Medicaid as a lump sum would appear to be a fundamental change to the interpretation of the Medicaid statute, Seth Chandler, a professor at the University of Houston Law Center, said.

‘Central Question’

The Medicaid Act says that the HHS secretary can waive compliance with any of the requirements of seven specific sections under the law, but the section that deals with federal funding isn’t one of them.

The HHS is “fundamentally trying to alter things that can’t be altered under” a Medicaid waiver, said Christen Linke Young, a fellow with USC-Brookings Schaeffer Initiative on Health Policy.

Tennessee’s proposal said nothing about how to deal with that section of the law.

States receive money from the federal government for Medicaid by reporting their quarterly costs and receiving a portion of those funds in a payment. The federal match rate varies based on per capita incomes, certain services, whether the state has expanded Medicaid, and certain hospitals that serve a large number of Medicaid patients.

Under a block grant system, if states spend less of their allotted lump sum, then the match rate that the federal government is giving to those states for Medicaid would be more than the law requires and vice versa if the states spend more, Bagley said.

The issues around the federal match are “not a technical, marginal defect in a block grant proposal. It’s a central question that HHS will have to address,” he said.

Klein disagreed. He said that provision of the law wouldn’t come into play because the federal government would still be providing matching funds based on a percentage of each state’s relative wealth.

Further Purposes of Medicaid

The administration and states interested in receiving a set amount for the Medicaid program face another barrier: the requirement that Medicaid waivers further the purposes of Medicaid, which is to “furnish medical assistance” for people who are eligible.

Block grants would force states to limit enrollment and access to care, and could limit payments to providers, which clearly doesn’t further those purposes, Huberfeld said.

That has been an issue in the lawsuits against states that want to require some Medicaid recipients to work to receive benefits. Judge James Boasberg of the U.S. District Court for the District of Columbia has ruled that Medicaid must pay for care, not just promote a generalized idea of health or decrease cost.

Implementing a global budget for Medicaid could further a movement toward obtaining greater value per expenditure, Klein said. “We want to provide the best care we can for the dollar,” not just provide care.

The HHS in its approval of any waivers would have to estimate the risks to beneficiaries, including loss of eligibility, coverage, and possible benefits.

Even if Azar went through the motions of providing the pros and cons of how block grants would affect enrollment and financial stability of Medicaid, it still can’t be done under a Medicaid waiver, Sara Rosenbaum, a professor of health law and policy at the George Washington University Milken Institute School of Public Health, said.

Medicaid waivers are intended to be a way to try new approaches to provide care, but block grants wouldn’t be a genuine effort to run an experiment, Bagley said.

To contact the reporter on this story: Shira Stein in Washington at sstein@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Brent Bierman at bbierman@bloomberglaw.com

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