Medicare Compliance & Reimbursement

Payments for dual eligibles' drug coverage are an 'unconstitutional tax,' states allege. States are sharpening their claws in retaliation against so-called "clawback" provisions associated with the Medicare drug benefit.

Attorneys General from five states--Texas, Kentucky, Maine, Missouri and New Jersey--requested permission March 3 to file a U.S. Supreme Court lawsuit against the Department of Health and Human Services.

The clawback payments, which states pay the federal government to fund Part D drug coverage for dual eligibles in place of Medicaid, are "an unconstitutional tax against the States in their sovereign capacities," the suit alleges.

The official complaint also questions whether the clawbacks "impermissibly commandeer state legislatures to fund the federal Medicare program" and "violate the Constitution's Guarantee Clause by improperly usurping control of essential functions of state government."

The clawback formula will have some states wallowing in red ink for several years, charges Texas AG Greg Abbott in a recent statement. "Washington must be fair to the states while allowing the new program to succeed to the benefit of seniors."

States will eventually save money despite the clawbacks, the Centers for Medicare & Medicaid Services maintains. Many states are forking over up to 90 percent of what it would cost them to cover those same dual eligibles through Medicaid, but CMS estimates that over time that amount will reduce to 75 percent.

Ten additional states--Arizona, Alaska, Connecticut, Kansas, Mississippi, New Hampshire, Ohio, Oklahoma, South Carolina and Vermont--filed a friend-of-the-court brief supporting the five states leading the charge against HHS. California originally supported the lawsuit, but withdrew on Feb. 23 after the Bush Administration offered a new clawback calculation that Gov. Arnold Schwartzenegger (R-CA) claims will save the state $60 million.