An overview of Medicaid managed care litigation

Since the enactment of Medicaid in 1965, states have had the option of offering beneficiaries enrollment in managed care arrangements. With the advent of mandatory managed care reaching millions of beneficiaries (including a growing proportion of disabled recipients), the amount and scope of litigation involving Medicaid managed care plans can be expected to grow. A review of the current litigation regarding Medicaid managed care reveals two basic types of lawsuits: (1) those that challenge the practices of managed care companies under various federal and state laws that safeguard consumer rights, protect health care quality, and prohibit discrimination; and (2) suits that assert claims arising directly under the Medicaid statute and implementing regulations, as well as claims related to Constitutional safeguards that undergird the program. Lawsuits asserting claims arising under Medicaid tend to raise two basic questions: (1) the extent to which enrollment in a Medicaid managed care plan alters existing Medicaid beneficiary rights and state agency duties under federal or state Medicaid law; and (2) the extent to which managed care companies, as agents of the state, act under "color of law" (i.e., undertaking to perform official duties or acting with the imprimatur of state authority). Additionally, states might see an increase in litigation brought by prospective and current contractors who assert that they have been wrongfully denied contracts or improperly penalized for poor performance. These assertions may involve claims that are grounded in federal and state law, the Medicaid statute, and the Constitution. Moreover, in light of the consumer protection elements of the managed care reforms contained in the Balanced Budget Act, future managed care litigation may focus on the manner in which companies carry out states' obligations toward managed care enrollees. Resolution of Medicaid managed care cases involves the application of general principles of administrative and regulatory law. Thus, Medicaid managed care cases have implications for other public purchasers of managed care arrangements, including state mental health and alcohol and substance abuse agencies.