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Last Chance? 10th Circuit Court could decide fate of defunded New Mexico agencies

August 1, 2013
by Dennis Grantham, Editor-in-Chief
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If agencies' appeal is heard, case could test limits of new Medicaid pay-halt provisions

Just one day after eight New Mexico agencies filed an emergency appeal of a July 25 ruling by federal Judge Christina Armijo that denied their request for suspension of a state-imposed halt in Medicaid payments due to "credible allegations of fraud," the US Tenth Circuit Court of Appeals ordered the State of New Mexico Human Services Department (HSD) to respond. And, in a possible signal of the case's urgency, the Court did away with the usual 10-day response period, requiring HSD to respond to the agencies' motion by Friday, August 2 at noon.  

If after reviewing the filings, the Tenth Circuit elects to hear the agencies' appeal, the case could test the limits of a provision of the Affordable Care Act that says states "must suspend all Medicaid payments to a provider after the agency determines there is a credible allegation of fraud for which an investigation is pending . . . unless the agency has good cause not to."

This provision and its interpretation are at the heart of the situation in New Mexico where 15 behavioral health agencies, including the eight involved in the current appeal, have been on a Medicaid pay hold since June 24. Given the agencies' narrow operating margins and slim cash reserves, none are expected to survive on their own much longer.

The agencies contend, in part, that the Medicaid payment hold imposed New Mexico HSD Secretary Sidonie Squier deny them due process - the chance to see and respond to the fraud allegations contained in the HSD audit conducted by the Public Consulting Group (PCG, Boston) - and threaten irreparable harm not only to each agency's finances, operation, and reputation, but to the mission they share with HSD to deliver behavioral health services to vulnerable people.

In public statements and court arguments, HSD has maintained that its handling of the Medicaid pay hold situation is strictly "by the book."

In a December 2012 article, "Payment Holds due to Credible Allegations of Fraud," published in The Health Lawyer, New Mexico HSD counsel Larry Heyeck analyzed the implications of the new ACA provision and its revised CMS regulations (42 C.F.R, Section 455.23). His analysis not only explains why and how states may halt Medicaid provider payments, but anticipates many of the problems and concerns that, in the aftermath of the HSD’s June 24 action, confront the state and the impacted providers today.

Under the new law and regulations, Heyeck notes that ”the threshold level of certainty” required to initiate a payment halt - a credible allegation of fraud” - is “signficantly lower than the 'reliable evidence' threshold of previous law.” Heyeck says this means “state Medicaid agencies will be forced to withhold payments … on more providers than ever before.” And, because the payment holds must be immediate, he predicts that “many providers will suffer cash-flow shortages and may ultimately be forced to close …”

He adds that following a payment halt, states are required to inform providers about “the general allegations” they face, though they “need not” disclose specific details of alleged wrongdoing if a state investigation is ongoing. Providers may appeal a payment halt based on a “good cause” exception, but without knowledge of specific charges, their ability to argue effectively is limited. 

Heyek’s analysis also foresees the need for states to set up transitional funding, management entities, or “receivers” as a means of ensuring service continuity should impacted provider agencies close or declare bankruptcy.  In the case of New Mexico, five Arizona-based agencies have been designated for that task, along with some $17 million.

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