Representing a complex intersection of law and medicine, Medicaid waivers are legal provisions that set aside certain rules of the Medicaid program so that states can manage specific services. Designed to support low-income, uninsured people, Medicaid waiver programs generally provide home and community-based care to those who would not be covered by Medicaid.
Although these programs and their eligibility requirements vary from state to state, they all must comply with certain federal laws and regulations, including the Medicaid Act, the Americans with Disabilities Act (ADA), and the Rehabilitation Act. As such, they all follow the same general framework—and they have all been impacted by a recent ruling handed down in a Michigan appellate court.
How Medicaid Waiver Programs Work
As a joint federal-state program, the Medicaid waiver program offers medical assistance to those who do not have and cannot afford to pay for private health insurance. States devise and administer their own plans and programs, and they must comply with specific federal guidelines in order to receive federal Medicaid funds.
Medicaid programs are typically administered by the Department of Health and Human Services (DHHS) in a state (or its equivalent), which contracts with regional managed care organizations to provide Medicaid services. These organizations may subcontract out to other providers and specialists, like mental health care professionals and developmental disability specialists.
Under this framework, there are agency-directed care programs and self-directed care programs. While agency programs are overseen by organizations, self-directed care programs allow participants to directly manage their services and care, with various supports available. Self-directed Medicaid services differ from agency-directed plans in the following ways:
Regional providers receive federal funds.
Some programs, including those for individuals with serious cognitive and developmental disabilities, get a fixed, per-person amount of funding. As such, funding does not account for the amount or type of services a participant requires. Instead, the provider has the discretion to allocate funding to a program’s participants. Depending on how providers allocate funds, they may make or lose money.
An individual care plan is developed.
Once an individual enters a Medicaid waiver program, they work with providers to create an individual plan of service (IPOS) for his or her care needs. The plan includes medically necessary services, as well as community living support services.
A participant budgets for care costs.
Not only do participants need to price out the cost of services, but they will also have to budget how many hours they need for each service or type of care. In theory, the budget should cover all of the care in the IPOS. The funds are held and paid out by a financial intermediary, who typically pays providers’ bills directly.
Budget Challenges of Medicaid Waiver Programs
With this setup, self-directed Medicaid waiver programs create unique challenges for both providers and participants from a budget standpoint. Providers who allocate funds to program participants face the considerable task of fairly distributing money among participants. Given the per-participant funding these programs receive, administrators have a limited budget within which to balance very complicated needs for an array of conditions.
For participants, budget challenges directly affect fund allocation across different essential services and care needs. To stretch their funds, they can be forced to cut pay for providers or the hours of care received from them. While that can severely limit provider options, it may create situations in which participants have to forego certain care or seek it from a family member. In some cases, participants may be compelled to enter institutionalized care because they have no other option for paying for the in-home care they need.
These challenges faced by participants can be compounded when providers change their methods of allocating funds, causing participants’ budgets to shrink.
A case recently ruled on by a Michigan judge shed important light on these budget challenges while also establishing new case law for Medicaid waiver programs.
Medicaid Waiver Lawsuit Raises Allegations of Illegal Budget Changes
In 2016, five plaintiffs filed a lawsuit against various Medicaid program providers in Michigan, alleging that changes to budgeting methodology prevented them from getting the services and care they needed, as specified in their IPOSs. The plaintiffs also alleged that:
- They could find qualified providers willing to work at the low rates they have to pay under the new budgeting methods.
- To pay providers more, they were compelled to pay for services themselves and hire family members at below-market rates.
- The reduction in support had precluded them from getting all of the services identified in their IPOSs and, as a result, their conditions deteriorated.
That is why, the plaintiffs allege, the budgetary methodology directly violates several state and federal laws and the contracts the defendants have with each other to provide care for program participants.
The case, Derek Waskul, et al. v. Washtenaw County Community Mental Health, et al. (Case No. 2:16-cv-10936), specifically asserted five allegations, “including violations of constitutional and statutory due process, the Medicaid Act, and the Michigan Mental Health Code.”
On March 20, 2019, the district court granted the defendants’ motion to dismiss the case and all of the plaintiffs’ claims, concluding that the plaintiffs did not have standing. Plaintiffs appealed the ruling, and the appellate case was argued on June 11, 2020, in the Eastern District of Michigan at Detroit before District Judge Arthur J. Tarnow.
Appellate Court Affirms Plaintiffs’ Standing, Elaborates on Key Points of Medicaid Waiver Programs
On October 29, 2020, Judge Tarnow published his decision in the case, ruling in favor of the plaintiffs on standing and remanding the case to the lower court for further proceedings. Judge Tarnow also ruled on the following central issues of the appeal.
The plaintiffs are not required to exhaust administrative remedies.
The defendants had argued that the plaintiffs were required, under the Medicaid Act, 42 U.S.C. § 1396a(a)(3), to exhaust the available administrative remedies before they can pursue legal action.
Citing “our sister circuit courts,” the appellate court ruled that, “the defendants are incorrect. Exhaustion of state administrative remedies is not a prerequisite to suit.”
The plaintiffs’ allegations do serve as “a plausible claim.”
The defendants argued that program participants “are obligated to rely on natural or community supports, including family care” and, therefore, “there is no problem with compelling individual plaintiffs to pay out of pocket for certain supports or to enlist family members to provide care.”
Again, the court disagreed. On this point, Judge Tarnow ruled that the “plaintiffs’ allegations suffice to state a plausible claim that they are being denied sufficient necessary medical services.”
A lack of access to in-home care violates the ADA & the Rehabilitation Act.
The plaintiffs alleged that, without access to the in-home care and community-based services they required (and as specified in their IPOS), they were left in “isolation,” violating the “integration mandate” set forth by the ADA, along with the mirroring provision of the Rehabilitation Act. Specifically, the plaintiffs alleged two violations of the law:
- The “implementation of the current budget methodology places all of the individual Plaintiffs at serious risk of institutionalization.”
- The budget methodology has caused two of the five plaintiffs to be effectively institutionalized in their own homes.
Again, the appellate court ruled in favor of the plaintiffs, stating that they have “a plausible claim for violation of the integration mandate under Title II of the ADA and § 504 of the Rehabilitation Act. Accordingly, we also reverse the district court’s dismissal of these claims.”
The plaintiffs’ resounding victory in the appellate case not only affirms standing for participants with similar claims, but it also allows the plaintiffs’ own lawsuit to proceed, with the lower court now having to rule on several questions regarding the legalities of the budget methodology. Even though the matter will take time to adjudicate, the court’s ultimate decision will have far-reaching impacts on budget methodologies for Medicaid waiver programs—and for countless Medicaid program participants—across the U.S.