Alabama sues CMS over alleged illegal administrative regulation

The state of Alabama on Nov. 3, 2008, sued CMS for what it called “illegal rulemaking” concerning a letter the agency sent to all states on October 28 setting guidelines for states to reimburse the federal government for amounts states gained from suits filed under a state Medicaid False Claims Act. In the suit, Alabama claims the requirements outlined in the letter (1) constitute illegal rulemaking in violation of the Administrative Procedure Act; (2) are in excess of CMS’ statutory authority; and (3) would violate state sovereignty.

In the letter, CMS noted that, by law, amounts recovered by a state through a state False Claims Act action relating to Medicaid must be refunded to the federal government at the Federal Medical Assistance Percentage rate. The state must return not only the federal amount attributable to fraud and abuse, but also an FMAP-rate proportionate share of any other recovery. Once the state has sent a final written notice to a provider concerning the state’s overpayment determination due to fraud and abuse, the state has 60 days to return the federal share to CMS.

In its complaint, Alabama said that the letter sent October 28 required states to make payments to the federal government regardless of whether the state had actually collected any money from providers. In a separate statement, Alabama Attorney General Troy King said that “the federal government’s grab for money . . . if successful, would leave  . . . Alabama’s Medicaid patients without health care and would bankrupt the State of Alabama’s budget."