CMS 'arbitrarily' approved SNF Medicaid cuts in Pennsylvania, appeals court rules

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A group of nursing home operators has won a moral victory over the Centers for Medicare & Medicaid Services, with a federal appeals court saying the agency made Medicaid reimbursement cuts without considering the consequences, but without the court ordering financial relief. 

In 2008, CMS approved a state plan amendment (SPA) to Pennsylvania's Medicaid program, which would have reduced Medicaid reimbursements to nursing homes by 9% compared to what the payments would have been without the SPA. A group of nursing homes mounted a legal challenge, saying CMS violated the Administrative Procedure Act by approving the cuts without considering how they might erode quality of care.

The U.S. Appeals Court for the Third Circuit issued a ruling Thursday in favor of the nursing homes. The state's Department of Public Works did not offer any defense of the cuts except that they were in keeping with the legislature's appropriations, and this is not sufficient grounds for approval, the court stated.

Furthermore, CMS and the Pennsylvania DPW cannot defend the cuts by saying that similar cuts in previous years did not compromise quality of care.

“It is simply not reasonable to conclude that, because prior cuts did not seem too painful, a deeper cut would not hurt,” the court concluded.

The appeals court ordered declaratory judgment in favor of the nursing home plaintiffs' claim that the CMS approval was “arbitrary and capricious.”

The nursing home operators were unsuccessful in their attempt to win monetary relief from the state, as the appeals court said this matter could not be pursued in federal court.