Downcoding may be done, but the work to undo its damage continues
Our update on the “Downcoding Provision” Litigation
Our thanks to VACEP Counsel Nathan Kottkamp of Williams Mullen for this synopsis.
VACEP continues to fight the impacts of the 2020 Virginia budget amendment that introduced the “Downcoding Provision” to the Medicaid program.
This Downcoding Provision was billed by the state as a cost-saving mechanism that automatically and retroactively reduced emergency providers’ reimbursement when Medicaid patients’ final discharge diagnoses fell on a list of approximately 800 conditions, which the Virginia Department of Medical Assistance Services (DMAS) deemed to be “preventable.” (You can get a full recap of the timeline on our dedicated Downcoding page)
DMAS’s own estimate of first-year savings from this scheme was $40 million.
Among other things, however, this scheme directly conflicted with the “prudent layperson” standard under the federal Emergency Medical Treatment & Active Labor Act (EMTALA) law, which requires all emergency providers to take patients as they present and to treat them as needed, not based on their anticipated diagnosis.
Predictably, litigation against DMAS ensued.
The Federal Lawsuit: 2020-2023
Shortly after the July 1, 2020 rule became effective, VACEP, along with the Virginia Hospital and Healthcare Association (VHHA) and the Medical Society of Virginia (MSV), sued both the Centers for Medicare and Medicaid Services (CMS) and DMAS in federal court. (DMAS required CMS approval to implement the provision).
VACEP, VHHA, and MSV — the plaintiffs — made two arguments. They said the Downcoding Provision:
Constituted an unconstitutional “taking” of compensation from emergency providers by the government; and,
Was improperly adopted as a matter of administrative law.
Nearly three years later, on April 27, 2023, the federal court rejected the takings argument but accepted the administrative argument. As a result, the judge ordered that CMS’ approval of the Downcoding Provision be “vacated” and “enjoined” CMS and DMAS from “implementing or enforcing it.”
Significantly, neither CMS nor DMAS appealed; thus, the federal decision is final and cannot be argued.
VACEP immediate past-president Todd Parker, MD is a party in the state lawsuit against DMAS.
Events Following the Successful Federal Lawsuit
In late June 2023, DMAS issued a Medicaid bulletin indicating that it and the various managed-care organizations would cease applying the Downcoding Provision, but only as of the Court’s decision date (April 27, 2023) rather than the original implementation date (July 1, 2020).
In response, VACEP, VHHA, and MSV reached out to DMAS and questioned its interpretation of the federal judge’s order.
Following a short exchange of letters and emails, but without any meetings or a hearing, DMAS sent a letter to VACEP, VHHA, and MSV, stating its opinion that “DMAS has no legal authority to pay the retroactive claims for the dates of service prior to the Court’s order.”
In response to this letter, which had the legal effect of starting a 30-day window for exercising appeal rights, VACEP, MSV, and VACEP immediate past-president Todd Parker, MD filed a Notice of Appeal to be sure that DMAS could not assert that appropriate administrative appeal options had been waived.
VHHA elected not to join the appeal, but it remains involved as a party based on the nature of administrative appeals.
State Lawsuit: 2023-Present
The current appeal is in the Virginia Circuit Court because it presents a question about how DMAS is required to implement the federal decision, which is a settled matter of law.
Specifically, the Virginia appeal presents a narrow question: What does “vacated” mean from the federal decision?
The answer will then, inherently, answer the ultimate question about whether DMAS complied with the federal decision. Simply, VACEP’s position is that, as a matter of law, “vacated” means the Downcoding Provision never existed. As such, the Downcoding Provision could never have been implemented, and DMAS must go back and reprocess all claims from the rule’s July 1, 2020 implementation through April 27, 2023, when the policy was vacated.
Importantly, the parties made it clear to the court that the request for compelling DMAS to fulfill its legal obligations was not a request for DMAS to pay any “damages.”
The DMAS Response
DMAS’ response to the lawsuit was to file a broad motion based on procedural issues, including a claim that its letter did not constitute an appealable “case decision.”
Further, DMAS claims that even if it had issued a case decision, VACEP and MSV lack legal standing because they are not the recipients of Medicaid payments. Significantly, DMAS made a passing comment about Dr. Parker’s standing, which likely means that it has waived its arguments regarding his standing.
Substantively, DMAS argued that the concept of “sovereign immunity” prohibits state agencies from being sued except in certain narrow circumstances. Of course, DMAS claims that the situation here does not fit any applicable exception.
Furthermore, DMAS argued that there is no mechanism for the award of retroactive damages.
The Plaintiff’s response
In response, VACEP, MSV, and Dr. Parker argued that standing was obvious since the state lawsuit was merely the next item in the continuous line of litigation that began in 2020.
VACEP counsel in the state lawsuit, Nathan Kottkamp of Williams Mullen.
On the issue of retroactive damages, the parties argue that DMAS mischaracterizes the nature of relief. Specifically, although the proper application of the law will require DMAS (and the MCOs) to pay money to providers to make up the difference between what was paid and what should have been paid, this is an exercise in applying the reimbursement requirements of Medicaid, not an order to pay damages.
Among other things, the parties pointed out that there is U.S. Supreme Court precedent that required Virginia to provide refunds of taxes that it collected under law that was later overturned; consistent with this, DMAS should not be allowed to withhold the payments it was required to make under the Medicaid law without the Downcoding Provision ever existing.
Oral argument on the appeal was held on May 3, but there is no specific deadline for the court to issue a decision.
Although it is always hard to predict the outcome of oral arguments, VACEP’s lead counsel, Nathan Kottkamp of Williams Mullen, is optimistic about the outcome.
