The two Texas lawsuits that could impact access to healthcare

A pair of Texas lawsuits cuts to the heart of the debate over how the US covers and pays for healthcare services for millions of Americans.

The first lawsuit calls into question the necessity of certain preventive care services under the Affordable Care Act (ACA). While the second lawsuit, brought by the Texas Attorney General, seeks to sustain the state's mode of Medicaid financing and coverage in light of recent guidance by the Centers for Medicare & Medicaid Services (CMS). The lawsuits were reported out in quick succession and have the potential to significantly impact access to healthcare in Texas and around the nation.

Unconstitutional? Preventive care services under the Affordable Care Act

In Braidwood Management, Inc., et. al. v. Becerra, Judge Reed O'Connor, US District Judge for the Northern District of Texas, issued an opinion and order on March 30, 2023, that struck down, in part, provisions of the ACA that require coverage of preventive health services without cost sharing by most health plans.

These include certain preventive care items or services recommended by the appointed US Preventive Services Task Force (PSTF), the Advisory Committee on Immunization Practices (ACIP), and the Health Resources and Services Administration (HRSA).

Plaintiffs are challenging the legality of the agencies' preventive care recommendations under the Appointments Clause of the US Constitution and the Religious Freedom Restoration Act. The ruling invalidates all of the PSTF's preventive care recommendations, but left alone recommendations from HRSA and ACIP. The PSTF's recommendations include certain cancer screenings and prevention, screenings to support healthy pregnancies and infant-related care, HIV prevention, and screenings and behavioral counseling for sexually transmitted diseases and drug use.

Both the US Department of Health and Human Services and the Plaintiffs have appealed the decision to the US Court of Appeals for the Fifth Circuit. As such, the final say regarding no-cost coverage of the PSTF's preventive care recommendations will likely be determined by the US Supreme Court. The ruling could endanger the preventive care recommendations of the other two agencies, ACIP and HRSA, currently unaffected by Braidwood, on appeal. And while insurers have signaled that no immediate action is imminent, they will likely scrutinize the services recommended by PSTF versus those that come from ACIP and HRSA as they move forward in creating benefits coverage for future contract years. Finally, it's important to note that ERISA preempts the enforcement of state-enacted preventive care mandates against the majority of the commercial insurance market which also comprises the bulk of group plan enrollees in most states.

What's the impact?

Although effective immediately, the ruling is not anticipated to impact coverage of preventive services by most health plans until the following calendar year. So the repercussions may not be instantly felt. Additionally, the ability of Congress through legislation to authorize the appointment of scientific experts to recommend coverage of healthcare services and screenings is also at risk. At a minimum, this latest challenge to the ACA, coming 13 years following enactment, threatens to upend a widely accepted and popular healthcare benefit.

Hold harmless? Texas sues CMS over redistribution of Medicaid payments among providers

Texas filed an action in US District Court for the Eastern District of Texas against CMS concerning the agency's February 17, 2023, Informational Bulletin "announcing a retroactive change in CMS's definition of a hold harmless arrangement." In the State of Texas v. Brooks-LaSure [Case No. 6:23-cv-00161 (E.D. Tex)], Texas contends that the Informational Bulletin, if implemented, "will have an immediate impact on not just [the state's] ability to provide vitally needed healthcare services to Texans but also on Texas's sovereign interest in enforcing its laws." Most important, however, the Informational Bulletin is viewed as a re-litigation of prior efforts by CMS to prohibit the use of Local Provider Participation Funds (LPPFs) as part of the state's share to draw down federal funding for Medicaid program purposes. In 2019 CMS proposed to restrict the manner of financing Medicaid Supplemental payments and to require state reporting regarding the utilization of federal funds, via a rulemaking termed the "Medicaid Fiscal Accountability Regulations" (MFAR). Following much controversy, CMS ultimately withdrew its proposed policy. However, the Consolidated Appropriations Act of 2021 amended Section 1903 of the Social Security Act to require reporting similar to what was proposed in MFAR.

The Medicaid program in states, like Texas, is chronically underfunded and providers are routinely paid less than their cost to provide services to Medicaid program patients. The way states have augmented their ability to fully draw down their fair share of federal funding has utilized local taxing authorities and other means of appropriately taxing entities under the applicable Medicaid statute. The legality of these measures have recently come under scrutiny, especially in light of the ACA and the desire for all states to expand Medicaid programs and the funding that would accompany such expansion.

Citing violations of the Administrative Procedures Act, Texas argues that CMS failed to use the required notice and comment process prior to issuing guidance that materially impacts the state's current method for financing its Medicaid program and for providing services to a large number of program patients. Texas further argues the Informational Bulletin is but a mere rehash of arguments regarding the state's 1115 waiver program renewal, and the proposed MFAR.

What the case really is about, however, is the indirect manner in which the state funds its Medicaid program. CMS has been skeptical that the manner in which the state accesses its Federal Medical Assistance Percentage (FMAP) is prohibited under the statutory hold harmless provisions found in 42 U.S.C § 1396b(w). Long regarded as a controversial practice, despite adoption by a number of states, this financing method enhances the amount of state appropriations to the Medicaid program to draw down the federal share of state-federal partnership dollars under the law. The core issue involves the fact that the Medicaid statutes allow local governments to tax healthcare providers to provide a source of funding to draw down the federal share of the Medicaid financing pie. Those funds are deposited in the a fund, called the Local Provider Payment Fund (LPPF), which helps to augment and state's share of dollars used to draw down the FMAP. The Informational Bulletin threatens this form of funding.

The ultimate fate of the applicability of the CMS Information Bulletin and the Texas lawsuit are extremely important developments that could significantly reduce the amount of Medicaid funding in Texas and in every other state that uses the same or similar Local Provider Payment Fund (LPPF) funding measures to help pay for its Medicaid program. In those states that have had these arrangements formally approved by CMS, including Texas, the hospital system and physician groups rely heavily on the funding provided by these programs to help make such entities fiscally whole as they treat larger percentages of Medicaid program patients at a significant financial loss. The high rate of uninsured in Texas is also threatening the ability of healthcare providers to continue providing care to Medicaid patients.

What's the impact?

In the near term, state Medicaid programs continue to use these financing mechanisms to help fund patient access to care. However, if the Informational Bulletin is upheld under the APA challenge, its applicability could shutter important programs and funding mechanisms that states have come to rely upon in helping to spread the burden of state appropriations required to draw down federal matching amounts. Additionally, the legal issues could have a larger impact, nationally, as the arrangements often involve the applicability of private legal arrangements that exist outside the formal state-federal ones. Providers should monitor this carefully and determine how the potential loss of funding would impact their ability to provide care to the Medicaid populations, and ensure their voices are heard.

Special thanks to Kathleen P. Rubinstein, Senior Analyst, Healthcare at Norton Rose Fulbright, for her role in authoring this content.