A federal judge has rejected the Connecticut nursing home industry’s request for an injunction that would have shielded it from further budget cuts next year as state government grapples with a budget deficit of historic proportions.

U.S. District Court Judge Peter C. Dorsey also dismissed one of the two arguments raised by the Connecticut Association of Health Care Facilities, which contends Connecticut’s method of funding nursing home care violates basic principles mandated by the federal Medicaid program.

But Dorsey also refused to dismiss the industry’s claim that recent legislation freezing Medicaid rates has created a system of unequal access to nursing home care, ensuring the legal battle will continue.

“It is highly unlikely that, despite its silence on the issue, Congress intended the courts to assume a robust role in rate-setting,” Dorsey wrote in a decision filed earlier this month in U.S. District Court in New Haven.

The association, which represents 110 Connecticut nursing homes, argued that rate freezes and funding reductions built into the current state budget and the next, which begins July 1, coupled with a recent history of limited growth in state aid, leave Connecticut out of compliance with basic Medicaid principles.

Medicaid is a cooperative federal program organized under Title XIX of the Social Security Act. The federal government provides states with matching funds to assist with various health care programs for low- and moderate-income individuals, including nursing home care. States are not required to participate in Medicaid, but once they do file a plan with the U.S. Centers for Medicare & Medicaid Services, they must follow basic federal guidelines.

Facilities are compensated on a per patient basis in accordance with a basic rate set annually by the state Department of Social Services. Connecticut also has special provisions to provide supplemental aid when homes face emergency situations, such as a fire. The state also periodically adjusts its rate base to compensate for inflation and other general factors that drive up the cost of care.

Connecticut is expected to spend $1.3 billion out of an $18.64 billion total budget on nursing home care this fiscal year, for which it will be reimbursed for about 50 percent of the cost. The state has 238 licensed nursing homes with approximately 28,300 beds. About 17,300 of Connecticut’s nursing home patients, or roughly two-thirds, have the bulk of their long-term care paid for through the Medicaid program, according to DSS.

The federal Medicaid statute includes what is commonly referred to as the “equal access provision,” which requires state Medicaid payments to ensure that patients have the same access to care that is available to the general public.

In an action that the association called its “last resort,” nursing home officials sued the state in late January arguing the industry had been stretched beyond its fiscal ability to comply with Medicaid standards because of illegal state budgeting practices.

The association noted that a budget policy statute enacted last September by the legislature and Gov. M. Jodi Rell froze basic Medicaid rates for the 2009-10 and 2010-11 fiscal years.

The state also canceled a scheduled rate base adjustment for 2010 and hasn’t ordered one since 2006. In addition, it delayed one-half of its monthly rate payments for June 2011 into July, an accounting move designed to produce a one-time savings.

These two changes combined to reduce Medicaid payments to nursing homes by $115.3 million this fiscal year and $166.4 million in 2010-11, compared with 2009 levels, according to a fiscal note from the legislature’s nonpartisan Office of Fiscal Analysis.

The association argued that the cumulative effect of these changes, coupled with the basic rate freeze, ensures Connecticut’s payment methods for Medicaid care providers “bear little or no relationship to the cost of care” and “guarantees that the requirements of the federal law will not be met.”

But Dorsey rejected the claim that these measures contradict federally mandated procedures – since federal law provides few guidelines in this area but leaves the matter largely up to CMS and the states – and that an injunction was needed to prevent irreparable harm to the nursing home industry.

“When a statute mandates a result but its wording does not specify a process, federal courts do not have the expertise to determine what process is necessary to attain compliance,” the judge wrote. “Given that courts do not have the expertise to impose and evaluate procedural requirements, they should defer to the state legislatures and CMS.”

But Dorsey stopped short of dismissing the entire lawsuit, noting that the industry still can argue that inadequate funding has driven overall care below mandated levels of quality, even if it cannot prove specific procedural violations on the part of state government. “Whether the rate freeze is so drastic that it affords Medicaid patients unequal access to nursing home care is a fact intensive inquiry that is not appropriate for a motion to dismiss,” he wrote.

The association, which challenged Dorsey’s ruling last week in the U.S. Second Circuit Court of Appeals in New York City, “continues to be optimistic that our case is strong,” the group’s executive vice president Matthew V. Barrett, said Monday. “We don’t believe Connecticut can produce a rational, rate-setting system” under its current budgeting system.

DSS spokesman David Dearborn said in a brief written statement that the agency was pleased with Dorsey’s ruling, “and will continue to vigorously defend its position against any appeal by the association representing for-profit nursing facilities.”

State Rep. John Geragosian, D-New Britain, co-chairman of the legislature’s Appropriations Committee, said despite the industry’s assertions, long-term care for Connecticut’s elderly remains a top concern of the General Assembly.

“The problem is we have a model of long-term care that is unsustainable,” he said. “The industry is going to have to work with us as we try to move forward with alternative methods of care, because right now the budget projections don’t look like major increases (for nursing homes) are going to happen.”

The state budget for 2011-12, which the next governor and legislature must begin drafting early next year, faces a built-in $3.37 billion shortfall, according to a May report from nonpartisan legislative analysts. That deficit equals 18 percent of the current budget and more than half of the annual receipts from the income tax, the state’s single largest revenue source.

The industry’s lawsuit also came two years after the General Assembly proposed and then failed to deliver on a major staffing expansion initiative for nursing homes.

Top legislative leaders unveiled a plan in March 2008 to dramatically increase nursing home staffing standards, winning big praise both from industry officials and from the state’s largest health care workers union.

But when the Democrat-controlled legislature and Rell failed to agree on a plan to revise the next state budget before the regular 2008 session ended in early May, lawmakers adjourned without providing additional funding for nursing home staff.

Since then, as state finances have been driven into the red by the recession, the plan has not been revived.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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