Judge Orders Illinois to Start Paying Medicaid Backlog

(Bloomberg) -- With just hours remaining before a midnight deadline to pass a state budget, a federal judge in Chicago ordered Illinois to come up with hundreds of millions of dollars it owes in Medicaid payments that state officials say the government doesn’t have.

The ruling and the state’s continued budget impasse come as Illinois is on the brink of losing its investment-grade rating. Judge Joan Lefkow ordered the state to come up with $586 million per month and $2 billion toward a $3 billion backlog of payments the state owes to managed care organizations that process payments to providers.

Because Republican Governor Bruce Rauner and lawmakers haven’t been able to agree on a spending plan for the past two years, the state has accumulated about $15 billion in unpaid bills. Medicaid recipients went to court asking a judge to order the state to speed up its payments.

Friday’s ruling increases financial pressure on Illinois, where political gridlock has left it on the verge of becoming the first junk-rated U.S. state on record. Without a deal around July 1, S&P Global Ratings has warned that Illinois will likely get downgraded again, losing its investment-grade status.

The backlog of unpaid claims the state owes to managed-care companies directly, as well as to the doctors, hospitals, clinics and other organizations “is crippling these providers and thereby dramatically reducing the Medicaid recipients’ access to health care,” Lefkow said in a 10-page ruling.

‘Catastrophic’ Effect

“Friday’s ruling by the U.S. District Court takes the state’s finances from horrific to catastrophic,” Comptroller Susana Mendoza, a Democrat, said in an emailed statement after the ruling. “Payments to the state’s pension funds; state payroll including legislator pay; General State Aid to schools and payments to local governments -- in some combination -- will likely have to be cut.” She added that bond payments will continue “uninterrupted.”

Eleni Demertzis, a spokeswoman for the governor, had no comment.

On June 7, Lefkow ordered lawyers for the state to negotiate with Medicaid recipients to come up with more money, but she stopped short of dictating how much more the state should pay each month, or when. Earlier this week, the parties again went before the judge to say they were at an impasse –- with lawyers for Medicaid recipients asking for more than $1 billion a month to cover past and ongoing costs. 

Lawyers for the state countered that they could only come up with approximately $75 million more a month, which would translate to $150 million with federal matching dollars. Although the state is way behind, state officials said in court filings that they have been making more than $1 billion in Medicaid related payments each month in 2017, “including payments to safety net hospitals, MCOs, and other providers.”

Priority Payments

Tom Yates, one of the lawyers who represented the Medicaid recipients. said the judge’s ruling is a “fair result” that will help them have access to care. “Medicaid is an incredibly important program for 25 percent of the state’s population,” Yates said.

In her ruling, Lefkow said the state must pay the $2 billion toward its past obligations beginning July 1 and ending June 30, 2018. She ordered the state to file monthly reports showing that it’s making the payments consistent with the ruling.

Lefkow said she considered submissions by managed care organizations, including The Meridian MCO and Aetna Better Health Inc., in reaching her decision. Meridian is owed $540 million and Aetna is owed $700 million, the judge said. In addition, she considered submissions from doctors and clinics.

The judge ordered the state to file monthly reports showing that they are making the payments consistent with the ruling.

Without a budget, the state has continued to spend more than it brings in. That’s forced it to cover “core priority” payments first, including payroll, debt service and pensions that total about $1.85 billion a month. While those bills include some Medicaid-covered payments like health services for children and adults, the state has said there aren’t enough funds to include general payments to managed-care organizations as a top priority.

The political standoff shows no signs of ending. The Democrat-majority legislature and Republican governor failed to reach an agreement on a spending plan during the regular legislative session.

The case is Memisovski v. Wright, 92-cv-01982, U.S. District Court, Northern District of Illinois (Chicago).

To contact the reporters on this story: Janan Hanna in Chicago at jhanna31@bloomberg.net, Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net.

To contact the editors responsible for this story: Elizabeth Wollman at ewollman@bloomberg.net, Christopher Maloney at cmaloney16@bloomberg.net.