ATLANTA - A group of Georgia hospitals is suing to block money-saving Medicaid cuts that state officials call a long-overdue attempt to recover years of overpayments.
At one point, the dispute became so heated that five of the hospitals accused the state of withholding indigent care grants to blackmail them into dropping the challenge.
In court papers, one hospital attorney called the practice "a despotic abuse of power."
The Department of Medical Assistance recently agreed to release $10.65 million of indigent care payments that had been frozen for a month. Attorneys for the state deny that the grants, which cover health care for the poor, were delayed to punish the hospitals for suing.
The group of 19 hospitals filed suit in U.S. District Court in November, seeking to overturn an Aug. 14 vote of the Medical Assistance board.
Area hospitals among the 19 include Columbia Augusta Medical Center and Burke County Hospital in Waynesboro.
The department decided to cut hospital reimbursements $35 million as part of a $65 million savings plan ordered by the legislature. The remaining savings are coming out of payments to nursing homes and doctors.
Medicaid pays hospitals based on annual reports of what it cost each hospital to deliver patient care. Those cost reports are used to calculate a per-patient reimbursement that varies with each hospital - an institution in a high-cost urban area, for instance, might get paid more per hospitalization than a small-town provider.
Because the Medicaid payment rates are based on past years' costs, hospitals that later reduce costs can keep the surplus as profit.
A recent department study found that, in 1994, 162 participating hospitals got paid $55.7 million more from Medicaid than they spent to serve those patients.
To save the $35 million, the DMA board rolled back payments to hospitals that reported turning a profit off Medicaid in 1992 and 1993, the latest years for which audits are complete.
In one example cited in court papers, Columbia Augusta Medical Center went from $5,499 to $3,182 per Medicaid hospitalization because of the reduced rates.
Attorneys claim the cut affects 40 hospitals statewide. The 19 that are suing contend they are missing out on $15.9 million this year because of the reductions.
Hospital lawyers say the department is unfairly penalizing them for saving money in 1992 and 1993. They argue that the only reason their hospitals profited off Medicaid is that they became more efficient - thus, their cost-based reimbursements were greater than their actual costs.
"DMA's new retroactive rate reduction policy completely eliminates a hospital's incentive to cut costs," attorney James Rawls wrote in a Dec. 17 court filing. "The message to a Georgia hospital from DMA now is that cost reduction will be of no advantage to the hospital, because it will injure the hospital doubly in the future."
But William C. Joy, the senior assistant attorney general who is representing Medicaid, said federal laws allow the department to adjust reimbursements to correct past errors.
"We think we have the authority to go back into prior years and realistically calculate what these hospitals should have been paid and what they were overpaid," Mr. Joy said.