Medicaid Waiver Wars: CMS Strikes Back

Late last month, a federal District Court ruled that the approval of the Kentucky Medicaid work requirements waiver by the Secretary of Health and Human Services was “arbitrary and capricious” because, among other things, even though the record showed that 95,000 people would lose Medicaid coverage, “the Secretary paid no attention to that deprivation.”  The judge invalidated the approval of the waiver, which had been scheduled to start July 1, and remanded the matter to the Secretary.

More specifically, Judge Boasberg ruled that furnishing medical assistance – i.e., hospital, physician, and other health and long-term care services that Medicaid covers – is a “central objective of Medicaid.”  The judge then reviewed the administrative record for the Kentucky waiver and concluded that the Secretary “never adequately considered whether Kentucky HEALTH would in fact help the state furnish medical assistance to its citizens.”  That failure, under the Administrative Procedures Act (APA), meant that the Secretary’s approval of the waiver was “arbitrary and capricious” and therefore invalid.  This finding was specific to the Kentucky waiver, but the “central objective” of Medicaid is not.  As the court held, the Secretary “must adequately consider the effect of any demonstration project on the State’s ability to help provide medical coverage” (emphasis added).

Last week, the Centers for Medicare & Medicaid Services (CMS) announced that it was reopening the Kentucky waiver for 30 days of public comment.  It also announced a second 30-day public comment period for a work requirements waiver application by Mississippi.  Both comment periods close on August 18.

CMS had other options. It could have appealed the Court’s order to the D.C. Circuit Court of Appeals and requested a stay of the Court’s order pending the decision on appeal. It has, instead, elected to open the administrative record on both the Kentucky and Mississippi waivers for additional public comment. (A federal government agency has 60 days from the date of an order against it to file an appeal, so technically, the Secretary can still appeal the ruling in the Kentucky case, even after the comment period closes on August 18, but this seems unlikely).  As Joan Alker will explain in a forthcoming blog, this comment period will allow both supporters and opponents to put additional evidence into the record as to whether the waivers are likely to promote the purpose of the Medicaid program — furnishing health care coverage to eligible Americans.

Choices have consequences, and one consequence of CMS’s choice is that the Kentucky Medicaid program can’t begin to implement its waiver, which included numerous barriers to coverage  because, in the absence of a stay, the Court’s order invalidating the Secretary’s approval remains in effect. So long as that is the case, the 95,000 low-income Kentuckians that the state estimates will lose Medicaid coverage as a result of the waiver are protected. The question is, how long will the order remain in effect? The answer is, no one really knows.

Some things are knowable. The Secretary will approve the Kentucky waiver in some form after reviewing the public comments received over the next 30 days, regardless of what the commenters have to say.  (I would love to be proved wrong on this prediction).  The Department of Justice will have to explain Secretary Azar’s reapproval of the waiver to the District Court in order to persuade the judge to lift his order invalidating the Secretary’s previous approval.  And the 15 Kentucky Medicaid beneficiaries who challenged the previous approval will have an opportunity to oppose the lifting of the order and to raise additional issues about the legality of the Secretary’s action that the judge did not address in his June 29 opinion.

Less clear is the timing. Much depends on how soon after the close of the comment period the Secretary announces his approval. If this occurs in early September, one procedural path could, under an aggressive time line, lead to a decision by the District Court on whether or not to allow the waiver to proceed by late October.  Whenever the Court issues a decision, either side will have the option of filing an appeal and seeking a stay pending the outcome of the appeal.

But that is just one of several possible scenarios, and just for the Kentucky waiver.  The Secretary has also approved work requirements and other harmful policies such as “lockouts” for three other states – Arkansas, Indiana, and New Hampshire. Seven more states, including Mississippi, have applications pending.

The reopening of the Mississippi waiver application for additional public comment suggests that the Department of Justice lawyers believe that the current administrative record is inadequate to support an approval by the Secretary in the likely event of a court challenge.  In states like Mississippi, which have not expanded Medicaid, the only adults impacted by the work requirement are extremely poor parents – a mandatory coverage group. Of course, on both the policy and legal merits – not to mention humanitarian grounds—there there is absolutely no excuse for the Mississippi waiver, which by the state’s own estimates, will lead to the loss of Medicaid coverage for at least 5,000 of the state’s poorest parents.

Fortunately, as Judge Boasberg’s decision in the Kentucky waiver case illustrates, at least some federal court judges are willing to stop executive overreach by the Secretary and an overzealous CMS Administrator.  In his remarks to the Heritage Foundation this week, Secretary Azar underscored that the waiver wars have just begun: “We will continue to litigate, we will continue to approve plans….We’re moving forward.” Clearly, Judge Boasberg and his judicial colleagues will have other opportunities to hold the Secretary to the law as it is, not as Secretary Azar and Administrator Verma fervently wish it to be.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.