The Department of Health learned last week that Louisiana won an appeal with federal health officials on a directive that would have cost the state more than $300 million.

The case stems from a 2001 disallowance, or demand for repayment, when the Federal Centers for Medicare and Medicaid Services (CMS) ruled a method used in Louisiana in the early 1990s to draw down more federal funds for nursing homes was not permissible under federal Medicaid law.

At that time, Louisiana imposed a provider fee on nursing homes through LDH and used that money to help fund the Medicaid program. At the same time, the Governor’s Office for Elderly Affairs provided grants to private-pay nursing home patients.

The federal government alleged that Louisiana was effectively using the grants as a rebate for private-pay nursing home residents, who were required to pay the provider fee when it was passed on to them by the nursing homes, and determined the practice was illegal under the “hold harmless” provision of Medicaid law.

CMS demanded Louisiana either repay approximately $340 million in inadmissible provider fees or have that money deducted from future federal Medicaid payments.

Louisiana joined four other states with similar previous practices – Illinois, Tennessee, Hawaii and Maine – to appeal the decision. All the states were represented by the Washington, D.C. law firm of Covington and Burling.

The federal Department of Health and Human Services Departmental Appeals Board ruled last week that the states’ actions were not illegal and the states do not have to return money to the federal government.

The Board felt that CMS had failed to provide sufficient information or guidance to the states in administering the fees and using grants, and that the states’ actions were reasonable according to the information provided. Furthermore, the Board felt the states acted in good faith and were not attempting to implement a financing scheme to gain more federal funding.

Since the Board’s decision represents a final decision by the federal health secretary, CMS is not able to appeal this decision.

“This has been hanging over our heads for many years,” said LDH Undersecretary Charles Castille. “It is a relief to finally have it resolved in our favor.”