Rural hospitals will get millions in settlement being negotiated with state, but range of possible amounts is wide; will feds help pay?

State Budget Director John Hicks
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Most of Kentucky’s rural hospitals are in line for millions of dollars of taxpayer money to settle an old lawsuit with the state, but just how many millions is uncertain. So is whether the federal government will foot part of the bill, reports John Cheves of the Lexington Herald-Leader.

The 58 hospitals “won a series of court rulings finding their Medicaid reimbursement rates unfairly low from 2007 to 2015,” Cheves writes. “Last year, a unanimous three-judge panel of the Kentucky Court of Appeals sided with the hospitals. The Cabinet for Health and Family Services erred during the administration of then-Gov. Steve Beshear, the current governor’s father, the appeals court found.”

The cabinet has appealed to the state Supreme Court, which hasn’t decided whether to take the case and has given the two sides extra time to negotiate a settlement.

After losing to now-Gov. Andy Beshear in November, then-Gov. Matt Bevin sent the legislature a budget memorandum that estimated the cost of the settlement at $426 million. But the budget the Democratic governor proposed to the Republican-controlled legislature estimates it at $61.9 million.

“The 420 was a number that never should have been revealed,” Budget Director John Hicks told the Senate budget committee Feb. 4. “It was some forecast of the prospect of the loss to the Commonwealth, and current events are proving that’s not likely to take place to any extent to 420 million.”

Cheves reports, “An attorney for the majority of the hospitals suing the state said the $420 million estimate depends on whether the federal government, through the U.S. Centers for Medicare and Medicaid Services, agrees to share in the damages alongside the state of Kentucky.” Medicaid paid 71 percent of Kentucky Medicaid costs from 2007 to 2015.

Politics could play a role. After Donald Trump was elected president, Bevin and CMS worked to make unrelated changes in the program, but their effort to require work from able-bodied Medicaid beneficiaries was blocked by the courts, and Beshear rescinded it.

Kentucky’s rural hospitals began objecting in 2007 to changes in their Medicaid reimbursements. In 2010, the cabinet began holding individual dispute-resolution meetings with them. “Rather than issuing dispute-resolution decisions, the cabinet waited until May 31, 2013, to write the hospitals letters (saying) that they did not have appeal rights and dismissing the same without administrative evidentiary hearings or further due process,” the Court of Appeals said in its decision. “The hospitals requested administrative hearings from the cabinet’s dismissal letters within 30 days pursuant to [state administrative regulations]. The cabinet responded to those requests with letters stating no administrative hearings would be conducted.”

The same day it dismissed the hospitals’ complaints, the cabinet sued them, seeking a ruling to uphold its Medicaid reimbursement formula. The hospitals counter-sued, leading to a Franklin Circuit Court ruling and the Court of Appeals decision. “In October 2015,” Cheves notes, “the cabinet replaced the Medicaid reimbursement rate methodology that led to the litigation with a new one.”