Pseudoscience and the law: the case of the Oregon Medicaid rationing experiment.

• Author: Astrue, Michael J.

Certainly one of the most extraordinary experiences of my tenure as General Counsel of the United States Department of Health and Human Services (HHS) was my participation in the extended review of the Oregon Medicaid rationing experiment. I very much appreciate this opportunity to express freely my views concerning this experience.

I would like to begin, however, by giving some background about the Medicaid program, the Oregon proposal, and some of the statutes implicated by the Oregon experiment.

The Medicaid Statute and the Scope of the Secretary's Waiver Authority

The Medicaid program is a cooperative state-federal program authorized under Title XIX of the Social Security Act.(1) It is a program of almost unspeakable complexity.(2)

Upon approval of a state plan for the funding of medical services for the needy, the federal government then subsidizes a significant portion of the financial obligations the state has agreed to assume. As health care inflation has accelerated and Congress has increasingly mandated the provision of specific benefits, the cost of the Medicaid program to the states has increased dramatically.(3) States have responded to this pressure both by cutting benefits and by devising creative ways to shift costs back to the federal government.(4)

Financial pressures have provoked many states to submit proposals for experiments in their Aid to Families with Dependent Children (AFDC) and Medicaid programs. The Secretary of HHS has broad authority pursuant to 42 U.S.C. [sections] 1315 to waive the requirements of the act. HHS has historically taken the position, which is untested in the courts but consistent with the plain language of the statute, that the Secretary has virtually unbounded authority to deny a request for a waiver. When the Secretary approves a waiver, most courts have found that she may, consistent with section 1315, waive any requirements of the act whenever there is a rational basis for the waiver.(5) On the other hand, the Secretary only has authority under section 1315 to waive the requirements of the Medicaid statute(6) she has no authority to waive the requirements of the Americans with Disabilities Act (ADA),(7) the Employee Retirement Act of 1974 (ERISA),(8) or other independent statutes.(90

The ADA Applies to the Oregon Proposal

Section 202 of the ADA provides that "no qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs or activities of a public entity . . . ."(10) Although in certain circumstances the ADA creates a more liberal standard for determining discrimination against persons with disabilities than the standard created by section 504 of the Rehabilitation Act,(11) my view at the time of the Oregon decision was and continues to be that, by enacting the ADA, Congress essentially extended the protections of section 504 to the entire private sector.(12) Although perhaps we did not make it sufficiently clear at the time, we believed that the Oregon proposal violated section 504 as well.

There has not yet been a court decision applying the ADA to public benefit programs, and there have been very few cases applying section 504 to the Medicaid program. Fortunately, or perhaps unfortunately from Oregon's perspective, there is one Supreme Court case, Alexander v. Choate,(13) that deals in detail with the application of section 504 to the Medicaid program. Since this case was for me virtually dispositive with regard to Oregon's proposed waiver, I would like to discuss it in some detail.

Choate involved a class action in which the plaintiffs asserted that reducing state Medicaid coverage for hospital stays from twenty days to fourteen days a year would have a disproportionate impact on persons with disabilities. Therefore, the plaintiffs claimed, such a reduction in coverage was discriminatory and in violation of section 504. The District Court for the Middle District of Tennessee dismissed the claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.(14) Then a divided panel of the Court of Appeals for the Sixth Circuit reversed that ruling, holding that plaintiffs had established a prima facie case for a section 504 violation.(15)

In the Supreme Court, Justice Marshall delivered the unanimous opinion of the Court to reverse the Court of Appeals decision.(16) The Court held that the fourteen day rule is "neutral on its face, is not alleged to rest on a discriminatory motive, and does not deny the handicapped access to or exclude them from the particular package of Medicaid services Tennessee has chosen to provide."(17)

From Choate, then, I have drawn this lesson: a discretionary state or federal Medicaid policy must be driven by a legitimate state purpose that is neutral on its face. The policy must not distinguish, therefore, between those whose coverage will be reduced and those whose coverage will not be reduced on the basis of any test, judgment, or trait that persons with disabilities are less capable of meeting or less likely to have.18

Easy examples abound. A choice to exclude coverage for all drugs for everyone does not violate section 504 or the ADA. A decision not to pay for drugs for wheelchair users does violate section 504 and the ADA. However, given the ability of reimbursement experts to find indirect ways of achieving goals that they may not pursue directly, Choate may, in fact, be largely an empty protection for persons with disabilities.

The Oregon Proposal

I will not attempt to provide a detailed description of the Oregon experiment, but it is fair to note that it includes several appropriate, even admirable, elements. It would, for instance, extend Medicaid benefits to a substantial number of the working poor.(19)

Oregon revised its plan after then-HHS Secretary Louis Sullivan rejected Oregon's original waiver application on August 3, 1992.(20) On March 19, 1993, HHS approved the revised plan by waiving nine requirements of the Medicaid statute.(21) Specifically, HHS permitted Oregon to (1) limit services historically classified as "medically necessary" to persons who have specified diseases or conditions,(22) (2) eliminate recipient freedom-of-choice protections in...