It turns out that unwinding illegal Medicaid policies is complicated.  There’s this thing called “litigation risk”.  Executive Branch agencies have to make reasoned decisions and stay within their statutory guardrails; if they don’t the federal courts may rein them in.  As it happens, litigation risk goes both ways.

The Unwinding began with the issuance of Executive Order on Strengthening Medicaid and the ACA on January 28.   It continued on March 17, when CMS rescinded the prior Administration’s approval of work requirements in the Arkansas (and New Hampshire) section 1115 demonstrations. And on April 16, CMS rescinded its January 15 approval of a 10-year extension of the Texas section 11115 demonstration, acknowledging that it had “materially erred” in granting the approval.

The Arkansas and New Hampshire approvals were already in litigation at the time CMS acted, with Arkansas and the previous Administration challenging the overturning of the approvals by the federal courts (the case is in suspended animation before the Supreme Court ).  As of this writing, no litigation has been initiated in the Texas rescission, which is based on a blatant process foul.  But late last week, litigation broke out on another front, in this instance initiated not by a state but by beneficiary advocates.

On April 22, the Tennessee Justice Center (TJC) and the National Health Law Program filed a lawsuit, McCutchen v. Becerra,  to unwind the TennCare III demonstration, a/k/a the Tennessee Medicaid “block grant.”   TennCare III was initially approved by former CMS Administrator Seema Verma on January 8, two days after the failed insurrection at the Capitol just across the street from her office.  The lawsuit was filed in the U.S. District Court for the District of Columbia, which, as it happens, was also the venue for the successful challenges to Administrator Verma’s work requirements waivers now before SCOTUS.

The plaintiffs are 13 Tennessee Medicaid beneficiaries with disabilities, most of them children, along with a pediatrician and TJC.  They are asking that the court vacate the approval of TennCare III on the grounds that “[i]n approving the project, CMS exceeded its authority under Section 1115, failed to engage in reasoned decision-making in considering whether the project met the criteria for approval under the statute, and violated the procedural requirements for the approval of such a project. “

The argument that CMS exceeded its authority under section 1115 should be sufficient.  By imposing an aggregate cap on federal Medicaid funds, TennCare III fundamentally alters the financing of Medicaid in Tennessee.  By its plain language, section 1115 simply does not give the Secretary the authority to allow a state to draw down federal matching funds without spending its own funds, which is precisely what the windfall provision of TennCare III—misleadingly labeled “shared savings”—would let Tennessee do.

But the plaintiffs offer an even more compelling argument.  They note that CMS never gave the public an opportunity to comment on the state’s request to extend—for 10 years—the requirement that Tennessee Medicaid beneficiaries enroll in managed care in order to receive covered services.  This matters because managed care is currently not working well for children and adults with the greatest medical needs and highest costs.  TennCare III is likely to make matters worse because the windfall provision creates an incentive for the state to reduce spending per beneficiary below projections.  To accomplish this, the state will have to reduce its payments to managed care organizations (MCOs), which in turn will either reduce reimbursements to their network providers, discouraging their participation, or tighten down further on service use by beneficiaries, or both.

The complaint describes the experiences that children with disabilities and their families have had with MCOs under the current, pre-TennCare III demonstration. Here’s just one example:

“Plaintiff M.A.C., who is 17 years old, lives in Clarksville, Tennessee, with her parents, M.C. and R.C. Her parents have cared for M.A.C. since she was 7 years old, when the Tennessee Department of Children’s Services (“DCS”) placed M.A.C. and her siblings with them as foster parents. Her parents formally adopted M.A.C. when she was around 10 years old.

M.A.C. is diagnosed with cerebral palsy, diabetes, and multiple chronic medical conditions as well as severe developmental delays. She is nonverbal, non-ambulatory, and requires constant nursing care and assistance with all activities of daily living. Her medical care is directed at preventing deterioration in her health.

 M.A.C. is enrolled in TennCare and is assigned to the Amerigroup MCO.

Approximately two years ago, when M.A.C. was 15 years old, her MCO cut coverage of her PDN services from 80 hours to 50 hours per week. The reduction in services occurred even though there had been no improvement in her medical conditions.

From August 2020 until early January 2021, the MCO did not provide any of the 50 hours per week of approved PDN services. M.A.C. is locked into her MCO’s provider network; however, her mother and care coordinators were unable to find skilled nurses to care for M.A.C. M.A.C.’s mother, who is not trained or licensed as a nurse, had to try to provide all of M.A.C.’s care for five months with help from other untrained family members.

Only after M.A.C.’s parents obtained the Tennessee Justice Center’s assistance in pursuing an appeal to an administrative hearing did Amerigroup restore her PDN services, and it has provided her 50 hours per week since January 4, 2021.

On March 22, 2021, the MCO again could not find staff for M.A.C.’s PDN services. Her mother, M.C., is again providing all of M.A.C.’s care.”

There are so many things wrong with this picture that it’s hard to know where to start.  But let’s start with the likelihood that under TennCare III, Amerigroup and the other MCOs will be under even more pressure from the state to cut costs because the state will be incentivized by the windfall provision to reduce spending below baseline projections.  This seems like something CMS would want to know more about before approving a 10-year extension of mandatory managed care for children and adults with disabilities.

The ball is now in Secretary Becerra’s court, so to speak.  As the former Attorney General of California, he is no stranger to litigation risk: on his watch, the state filed 110 lawsuits against the Trump Administration.  He won 23 of the 28 cases decided so far, a win rate of 82%, so he knows a strong case when he sees one.  TJC and NHeLP have brought a strong case.   The TennCare III waiver will be unwound.  The unwinding may be complicated—this is Medicaid, after all—but there is no doubt that it will happen.