States fear that five words in Obama health law will open door to lawsuits

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The addition to existing law of five words, and a comma, may cause a world of hurt to state governments.

Tucked away on page 466 of President Obama’s 2,704-page health-care bill is a provision that changes the definition of “medical assistance,” the term describing what states are required to provide to Medicaid recipients.

States have in the past been required to provide payment for services to physicians. Now, under the new definition, states will be liable for ensuring provision of “the care and services themselves.”

In other words, states are legally on the hook not only to ensure that Medicaid recipients are paid for, but that they’re seen by a doctor.

Medicaid recipients have found it increasingly difficult to be seen by doctors, as states in extreme economic duress have cut payment rates.

The new law seeks to solve the problem, but may cost states even more money at a time when most are in some of the worst economic straits since the Great Depression.

“With the expanded definition, it leaves every state vulnerable to a new wave of lawsuits any time someone cannot access a service, even if that service is limited by virtue of the rates we pay,” said Alan Levine, Louisiana’s secretary of health and hospitals, in a recent memo prepared for fellow state government officials.

Levine wrote: “DHH cannot estimate the cost of this, but it is not even worth estimating. It will be substantial.”

Ann Kohler, director of health policy at the nonpartisan American Public Human Services Association, said she was aware of the concern and was “looking at the legislative language,” but had not yet reached a determination.

“I have my lawyers looking at it right now,” she said.

Republicans on the House Energy and Commerce Committee said they agreed that the provision could open the floodgates to lawsuits.

“Section 2304 changes the definition of Medical Assistance, and potentially, wipes clean years of court precedent that has kept states from losing very expensive lawsuits,” a GOP staffer said. “The states and the Medicaid directors are very worried about this provision.”

A spokeswoman for House Energy and Commerce Committee Chairman Henry Waxman, California Democrat, did not respond to a request for comment on the provision.

Victor Schwartz, a tort law expert at Shook, Hardy and Bacon in D.C., said that Waxman sees trial lawyers as positive agents of change.

“He sees tort law as a regulatory engine that’s needed just beyond legislation. He sees trial lawyers as heroic who are there to help the ordinary people,” Schwartz said.

“That may have been true 30 years ago when Mr. Waxman was a lawyer, but now it’s big business as much as Exxon,” Schwartz said. “The hero with a slingshot isn’t around too much any more.”

Not all state Medicaid directors said they were concerned about the change to the law.

“There’s been some chatter on this issue among state Medicaid directors. Some say the sky is falling, others say it makes little difference, still others say they are unaware of the ‘change,’” said Doug Porter, an assistant secretary of social and health services in Washington state.

“I’m in the ‘makes little difference’ camp,” Porter said by e-mail. “We here in the 9th Circuit are used to getting sued.”

Other states said they were still trying to determine the impact of the change.

Nicole Brossoie, a spokeswoman for New Jersey’s department of Human Services, said the health bill is “a complex statute that requires careful review in order for New Jersey to consider the various expansion options – and fiscal implications of those options – over the course of the next decade.”

“We’re unable to give you any additional information at this time,” she said.

The House Report on the legislative language described the change as merely clarifying the long-held understanding of state requirements.

Levine, however, said that the language “wipes the slate clean of years of litigation precedent that has protected states from Federal encroachment by federal judges.”

“In virtually any case where federal judges have imposed their discretion, it has cost states hundreds of billions of dollars,” he wrote in his memo.

Louisiana’s Medicaid director, Jerry Phillips, said that the most likely consequence – if a Medicaid recipient sues because he or she is unable to find a physician to see them and wins – would be to force states to increase payment rates.

Phillips said that Louisiana has spent $300 million over the last three years to increase payment rates for 30,000 elderly and disabled Medicaid recipients.

More than a quarter of Louisiana’s 4.5 million population is already on Medicaid, and around 400,000 more are expected to join the program due to expanded eligibility standards also in Obama’s new health law.

“If you have something that’s required of a broader population, the number could be staggering,” Phillips said.

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