A Chicago federal judge has stopped short, so far, of ordering the state of Illinois to place a premium on paying the health insurance organizations, hospitals and others the $2 billion it is estimated the state owes under unpaid Medicaid bills.  

However, on Wednesday, the judge said the position taken by the so-called managed care organizations is “reasonable” and indicated she did not similarly find it reasonable for the state to skimp on Medicaid payments while fully funding its monthly payroll and debt repayments.

“…Compliance with a state statute does not excuse failure to comply with a federal consent decree,” U.S. District Judge Joan Lefkow wrote in her June 7 order. “Although the court means no disrespect to the Comptroller, who faces an unenviable situation, it finds that minimally funding the obligations of the decrees while fully funding other obligations fails to comply not only with the consent decrees, but also with this court’s previous orders.”

For now, however, the judge ordered the state and the MCOs to continue negotiating over the next two weeks to reach a payment agreement.

Should they fail to strike an acceptable deal by June 20, however, she said either party could return to court for further proceedings.

Any action by the court could have large consequences for Illinois’ state government. Nearing its third year with no state budget, the state’s financial situation has continued to degrade amid a lingering impasse between Democrats in the Illinois General Assembly and Republican Gov. Bruce Rauner.

Democrats have pressed for the governor to increase income taxes and other taxes and fees to help boost revenue to help the state begin to dig out from a backlog of unpaid bills worth billions. Rauner, however, has resisted that call, unless the tax increases are accompanied by structural reforms and a property tax freeze, among other items he has said he believes are essential to prevent the tax increases from economically saddling Illinois households and employers.

Amid that uncertainty, however, a number of organizatons have gone to court to order the state to pay them. In recent weeks, a flurry of hearings and filings before Judge Lefkow has come as a group of so-called managed care organizations, or MCOs – health insurers, hospitals and others contracted by the state to either provide health care or process payments for millions of Illinois’ Medicaid recipients – asked the judge in late April to not only order the state to pay them, but force the state to move their invoices to the top of Illinois’ unpaid bills pile.

Specifically, the insurers and health care organizations asked the judge to enforce a consent decree entered in federal court in 2015, ordering the state to pay its Medicaid bills to ensure access to health care services does not dry up for those whose health care bills are paid by the state through Medicaid.

In the motion to enforce judgment, filed April 28, the MCOs and providers noted there are hospitals and other health care providers in Illinois who receive more than half of their funding through Medicaid – meaning, if the state does not pay them in a timely fashion, they could be forced to curtail services or even close their doors altogether, the filing said.

The state has responded by telling the judge its current dire financial condition doesn’t allow it to pay all the bills at once – even if they are accompanied by a court order. The plaintiffs conceded this point, but said they believe the state has not properly interpreted its responsibilities under the law in excluding the Medicaid MCOs from the core services it has chosen to fund, including state and public worker pensions.

While the Illinois state constitution does not allow the state to “diminish or impair” pension payments received by retired Illinois public workers, the MCOs argued the 1987 decision by the Chicago-based U.S. Seventh Circuit Court of Appeals in Wisconsin Hospital Association v. Reivitz gives federal judges the authority to order the state to place top billing to Medicaid MCO invoices – including over “pure state obligations such as payments into the state pension system.”

In response, Illinois Attorney General Lisa Madigan had argued in a June 6 filing that the MCOs had misread that decision. The Reivitz case, Madigan said, argued over whether the state could pay less than it had agreed to pay under a consent decree.

“Here, the issue is not and never has been whether the State will pay the amounts it has agreed to pay,” Madigan said. “The issue here … is whether the Court can order the State to pay agreed-upon amounts more quickly or ahead of other obligations on the grounds that more expeditious payment is needed to ensure compliance with a consent decree.

“Because Defendants continue to believe that Plaintiffs have not shown violations of the decrees as a result of the delay in payments, this Court lacks a basis under the decrees or the law to grant the requested relief.

However, should Lefkow still side with the plaintiffs, Madigan asked Lefkow to make any order effective July 1. Should the court order anything earlier than that date, Madigan said the state’s bond rating would be downgraded, producing “the immediate effect of triggering provisions in several credit swap agreements that could require an immediate payment of approximately $39-$107 million and an increase in the interest rate the State pays under the swap agreements, which would further reduce the cash available to the State to pay its obligations.”

Further, Madigan said an order effective July 1 would “send a message to the Illinois General Assembly and Governor that they have until June 30 to resolve the State’s budget impasse and avoid the consequences of the Court’s order.”

“Although Defendants (the state of Illinois) do not know how the Court might word an order granting relief, Defendants anticipate that they will need some time to figure out how in practical terms to comply with any such order, given that … the State’s cash flow crisis leaves Defendants with no obvious way to satisfy Plaintiffs’ request for relief,” Madigan wrote.  


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