Judge calls CMS cuts 'arbitrary, capricious'

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A group of nursing home operators recently won a moral victory over the Centers for Medicare & Medicaid Services when a federal appeals court ruled the agency made Medicaid reimbursement cuts without considering the consequences. 

However, the court did not grant the operators financial relief.

In 2008, CMS approved a state plan amendment to Pennsylvania's Medicaid program. This plan amendment would have reduced Medicaid reimbursements to nursing homes by 9%, compared to what the payments would have been without the amendment. 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 Sept. 19 in favor of the nursing homes. 

The state's Department of Public Works did not offer any defense of the cuts except to say that they were in keeping with the legislature's appropriations, which is not sufficient grounds for approval, the court stated.

Furthermore, CMS and the Pennsylvania DPW were not persuasive in arguing that similar cuts in previous years did not compromise quality of care, the court added.

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

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

The operators were unsuccessful in winning “prospective corrective payments” from the state for the period when the state plan amendment was in place. The appeals court noted several reasons why it does not have jurisdiction in this state matter, including that the SPA is no longer in effect, so there is no ongoing violation of federal law.