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Hospitals want judge to grant them more time to pursue breach of contract claim

A federal judge declined yesterday to decide the fight between hospitals and the state over cuts to Medicaid payments, but he did narrow the dispute: If the state did cut Medicaid payments to hospitals illegally between 2008 and 2010, what remedy should the court offer?

U.S. District Court Judge Steven McAuliffe gave the hospitals until Jan. 18 to put their answer in writing and the state until Feb. 15 to respond. But both sides gave McAuliffe a preview of their likely response during a hearing in court yesterday.

The hospitals want McAuliffe to prevent the state from closing the books on those years long enough for them to file a second lawsuit in state court, where they can legally seek reimbursement from the state.

The state, meanwhile, will argue there’s no problem to fix. And, if there is, Nancy Smith of the state attorney general’s office told McAuliffe the federal court lacks the jurisdiction to resolve it.

Playing devil’s advocate, McAuliffe said to Smith, “What’s the state’s view then? We stole (the money) fair and square and we’re not giving it back?”

He challenged the hospitals’ attorneys similarly, wondering whether Smith had a point about jurisdiction.

McAullife’s hope, he told the parties yesterday, is to resolve the 2011 lawsuit brought by the hospitals without further court hearings.

Ten of the state’s 13 biggest hospitals brought the lawsuit in hopes of recouping millions of dollars in Medicaid cuts the state enacted in 2008. The rate cuts, prompted by state budget shortfalls, reduced outpatient Medicaid payments to the hospitals by 33 percent and inpatient payments by 10 percent.

As a result, hospital officials said they lost about $60 million from the state for the care they provided Medicaid patients. The shortfall not only jeopardized care to Medicaid patients but to all patients, they have said.

The lawsuit also alleges additional Medicaid cuts made in 2011 by the Legislature further harmed the hospitals and Medicaid patients. But McAuliffe focused yesterday’s hearing and instruction to the parties on the rate dispute from 2008 to 2010.

The dispute is largely a technical one. The hospitals argue the state was not legally allowed to cut the Medicaid payment rates in 2008 because it did not provide public notice they were doing so or give the public a chance to comment ahead of time. Earlier this year, McAuliffe agreed with that argument and ordered state Department of Health and Human Services officials to go through that public notice process.

The hospitals also argued that the state failed to get those rate reductions approved by Medicaid officials as required by law. Just last week, federal Medicaid officials did approve some of the Medicaid cuts, but they dated the approval to only November 2010 – not all the way back to 2008 when the cuts began.

The hospitals’ attorneys have interpreted that as meaning federal officials disapproved of the rate cuts before November 2010. They made that argument to McAuliffe yesterday – with some pushback from an attorney from the federal Department of Justice.

Attorney Benjamin Berwick told McAuliffe that federal Medicaid officials actually offered no opinion on the legality of the earlier rate cuts because they were never asked to. To suggest federal officials have “found the state out of compliance from 2008 to 2010 is not accurate,” Berwick said. Instead, federal officials made no finding regarding those years because they only evaluated cuts made in 2010.

But, Berwick told McAuliffe, if he finds the state failed to provide the required notice before the 2008 rate cut, federal officials would not object to him issuing a remedy from the bench. But federal officials offered no guidance on what remedy would be appropriate.

McAuliffe has previously required the state to go through the public comment process – after the fact – and he wondered yesterday if that is remedy enough. Smith, from the state attorney general’s office, argued it was.

Attorneys Gordon MacDonald and Scott O’Connell of Nixon Peabody, who represent the hospitals, disagreed. They want the chance to settle the shortfall with the state but fear they’ll lose the chance if the state forces hospital executives to sign off on the payments from 2008 to 2010.

If executives are forced to do so, they’ll be waiving their rights to dispute the payments in state court, where they can seek court-ordered restitution. O’Connell and MacDonald want McAuliffe to prevent the state from seeking the signatures to close out the books from 2008 to 2010.

Hospital officials said after the hearing yesterday they didn’t know what kind of ruling to expect from McAuliffe. And they expressed frustration with the state for refusing to settle the case without a legal fight.

“What seems to be the case here, is that the state intends . . . to force us to have to take more away from caring for patients,” said Henry Lipman, chief financial officer of Lakes Region General Healthcare. “In my view, it’s time for us to start addressing our problems, whether it be Medicaid Managed Care, the Medicaid program or mental health, in more constructive ways.”

Frank McDougall, a spokesman for Dartmouth-Hitchcock Medical Center, agreed. “The state’s position is ‘Yeah, we didn’t do things right and the rates are illegal, but there is no remedy in law,’ ” he said. “We are talking about people who are ill and in need of care and the state hiding behind that technicality. We find that offensive.”

(Annmarie Timmins can be reached at 369-3323, atimmins@cmonitor or on Twitter @annmarietimmins.)

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