Hospitals sue over MediCal cuts

Delaine Fragnoli
Managing Editor

The California Hospital Association filed suit in federal court last week challenging the legality of cuts to the state’s MediCal program. The trade group is expected to return to court this week to ask for a temporary restraining order to keep the cuts from going into effect until the case can be heard.

When it files for that restraining order, the plight of residents at Eastern Plumas Health Care’s two skilled nursing facilities will figure

Total population of Plumas and Sierra counties: 23,296
Plumas County: 2,553.69 square miles, 8.2 people per square mile
Sierra County: 953.38 square miles, 3.7 people per square mile
Plumas County: 19% population > 65 years old
Sierra County: 20% of population > 65 years old
National average: 12.6% of population > 65 years old
California average: 10.9% of population > 65 years old
Plumas/Sierra counties: 1 physician per 844 people
State of California: 1 physician per 417 people
Psychiatry coverage in Eastern Plumas County: one day per month (Plumas County Mental Health)
Number of endocrinologists in Plumas or Sierra counties: 0
Number of private practice MDs in Eastern Plumas or Sierra counties: 0
Number of acute care hospitals in Sierra County: 0

prominently. Two or three of EPHC’s patients will be among a handful from facilities across the state who will be plaintiffs in the case, sources at EPHC said late last week.

The legal moves follow an Oct. 27 decision by the federal Center for Medicare/Medicaid Services 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 is retroactive to June 1, 2011.

In court papers, CHA calls 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.

EPHC has said the cuts amount to a $1.1 million annual hit. Ninety-three percent of its 59 skilled nursing patients at facilities in Portola and Loyalton are on MediCal.

Despite the daunting task of having to fill that hole, Chief Executive Officer Tom Hayes said last week that he was confident that EPHC’s hospital would stay open. “We’re doing everything we can to make sure that we continue to operate as many of our services as possible.”

In addition to the two SNFs, EPHC runs an acute care hospital, four clinics, and emergency and outpatient services.

Still, EPHC proceeded with a state-required relocation plan for its skilled nursing residents. Asked where she thought she would go if she were relocated, patient Inez Fagliano said, “How about putting me on an iceberg like the Eskimos used to do?”



Following the CMS decision, EPHC administrators worked through the week on cost-cutting measures. Among those adopted:

—Immediately suspend executive deferred compensation.

—5 percent across-the-board cut to all staff.

—Increase outpatient charges 20 percent. The MediCal cuts “force us to adjust rates to partially compensate. We will continue to have low-cost specials for lab and imaging services. Our goal is to keep quality care here and accessible to all,” said Theresa Whitfield, director of quality and operations.

—Any expenditure over $500 requires Hayes’ approval.

—Immediate hiring freeze; empty positions will not be filled.

—SNFs will not take any new patients.

Other smaller but symbolic cuts include cancellation of the district’s Christmas party and employee gifts.

The district is also examining the possibility of privatizing the Loyalton SNF: bringing in a partner and making it a freestanding facility. Under this scenario, the SNF would qualify for reimbursement under a different part of Medicare.

Officials are also looking at whether fewer beds at each facility would allow EPHC to break even.

In addition, EPHC plans to ask the U.S. Department of Agriculture to temporarily defer loan payments the district owes. The payments are currently $53,000 a month. The loans were originally used, in part, to finance the purchase of the Loyalton facility.

“They need to work with us to waive payments for now — if not, I’ll recommend to the board that we default on these loans,” said Hayes. “The government started this — and this is another government agency.”


Irreparable harm

When the CHA asks for its restraining order it will have to show irreparable harm to plaintiffs. In the case of EPHC, that shouldn’t be hard to do. Of its 59 patients, 15 are considered too fragile to be transported, said Linda Satchwell, public relations coordinator.

Hayes met with staff at both campuses last week to talk about the cuts and possible options. “We’re working at this point to make sure they both stay open,” he said, “but they may look different.”

He plans to meet this week with families of SNF patients to discuss the cuts and explain that EPHC is filing a closure plan with the state as a last resort option. The process takes up to three and a half months so EPHC has to plan now. So far, Lorraine Noble, director of nursing at the Portola SNF, has found 10 beds in Susanville, 10 in Quincy and one in Truckee.

“We’re doing everything we can to make sure we don’t have to implement the closure plan,” vowed Hayes.

The child of one patient said, “I only hope that if this place closes that my mother dies before it happens.”

EPHC considers the potential harm to its patients so great that it is contemplating filing a claim against the state for elder abuse and abandonment, said Satchwell.

Meanwhile, Hayes acknowledged that rumors were flying around the community. He asked staff and community members to call him (832-6564) if they hear a rumor. “Ninety-nine percent of the rumors out there are false.”


Access to care

Key to the CHA’s case is the access-to-care standard. The Center for Medicare/Medicaid Services determined that the reductions pose no risk to access for MediCal beneficiaries.

The CHA argues otherwise: “This massive payment reduction will almost immediately threaten the ability of many hospitals to continue to operate skilled nursing units. When these units are forced to close, it will, at worst, create significant gaps in access to such services for Medi-Cal beneficiaries, particularly those residing in already medically underserved, rural areas and, at best, cause significant delay in patients obtaining needed services,” the group said in court papers. (See sidebar for access data for Sierra and Plumas counties.)

The CHA takes its argument one step further, declaring 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,” the CHA argues in its complaint.

The group also takes CMS to task for its decision making process. 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.


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