Are MCOs or MACs State Actors? Does It Matter?

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Original story posted on: November 13, 2019

EDITOR’S NOTE: Virginia Gov. Ralph Northam, along with six managed care organizations (MCOs), have been named as defendants in a federal lawsuit filed on Sept. 25, claiming that more than a dozen of the state’s Medicaid behavioral and mental healthcare providers had their agreements terminated by the MCOs without cause. The following is an update on this exclusive RACmonitor story.

Whether government contractors are state actors is not something you might think about every day. But whether a managed care organization (MCO) or a Medicare Administrative Contractor (MAC), on the federal side, the notion that such entities are state actors is one of the defenses being raised by the MCOs in a recent Virginia injunction case.

Our suit was filed asking the judge to stay the pending action, which included some effective Medicaid terminations made without cause against more than 30 named plaintiff providers, not counting an unknown number of terminations of other VA behavioral healthcare providers.

The latest news, in this case, is that we are scheduled to be heard in the Eastern District of Virginia, Alexandria, this Friday. This time I will fly into the right airport; the last trip I flew into whichever airport was the furthest away

The judge will hear our arguments in support of a temporary restraining order (TRO). But equally important is that the judge will also hear the defendants’ motions to dismiss. Each defendant filed a motion to dismiss (MTD). Most of the arguments were the same in each, so we filed a consolidated reply, which addressed the issues separately raised. We do not know whether the judge will hear MTD or the TRO first. It would make sense for the MTD to be heard first, because if we lose on the MTD, then there would be no reason to even argue the TRO.

Since the lawsuit was filed, MCOs have terminated even more behavioral healthcare providers. For example, we have more than 15 providers that want to join the lawsuit. Most of the named plaintiffs have received additional terminations. For example, if Aetna had terminated them, and Aetna had accounted for 20 percent of the provider’s referrals and consumer base, then they get terminated by Optum, which is another 20 percent. All of a sudden, we’re talking about losing almost half of a client base within a day. For some providers, that figure ranges from 50-100 percent.

We believe the MCOs’ actions – these new terminations – are retaliatory in nature. This is what the providers were scared of from the beginning. And who could blame them? This is David and Goliath.

The self-awarded, supreme hubris of the MCOs are not limited to Virginia, though. Across the country, the managed care entities, whatever their names or acronyms, are placed in charge of Medicaid tax dollars, and dictate what providers are chosen and what services are authorized. However, recently, more litigation against the MCOs has been filed, stating that the MCOs’ actions are state agency actions – and that the MCOs should be held accountable.

The MCOs or MACs inevitably argue that they are not considered a state agent. They argue that no state action means no claim.

Why does this argument – that the MCOs are not state actors – apply, for anyone reading? Because all MCOs or contracted vendors of the government, regardless of the name or acronym, will argue that they are not state actors.

If you provide services through a contracted vendor of the federal or state government, then you will run into this issue if you ever have to litigate.

The Aetnas or Optums or Uniteds of the world want to hide behind government immunity under the 10th Amendment, but then claim that they are not state actors when it comes to litigation. It is the classic sword-and-shield argument; you cannot have it both ways.

If you are terminated without cause by an MCO or a MAC, and you want to continue to stay in business, you will have to sue the MCO or MAC in order to protect your Medicare/Medicaid license. The MCO will argue that it is a private party – and that, inevitably, the plaintiffs have not alleged facts plausibly suggesting that it acted under state law when it terminated the provider’s contract.

This argument makes no sense – reasonably, legally, or logically. The MCOs and MACs are paid with tax dollars. Medicare and Medicaid are government programs. Federal law requires that one single state agency manage Medicaid.

The MCOs and MACs are acting in a governmental role, and therefore, they step into the shoes of the federal or state government. The state actor question should be really easy. If you want to provide Medicare/Medicaid, with what companies are you forced to contract? Who can audit you? The answer will always go up the pyramid of importance to either the state or federal government.

Programming Note:

Listen to healthcare attorney Knicole Emanuel every Monday on Monitor Monday, 10-10:30 a.m. EST.

Knicole C. Emanuel Esq.

Knicole C. Emanuel is a partner at the Potomac Law Group, PLLC.

For more than 16 years, Ms. Emanuel has maintained a litigation practice, concentrating on Medicare and Medicaid litigation, healthcare regulatory compliance, administrative law, and regulatory law. She understands the intricate Medicare and Medicaid payment system, the unique business of healthcare providers, the overlay of federal and state Medicare and Medicaid rules and regulations, and actions of state agencies that affect the way healthcare entities operate. She has tried over 1,000 administrative cases and has appeared before arbitration panels and in various appellate forums. Knicole is a member of the RACmonitor editorial board and a popular panelist on Monitor Monday.

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