CHICAGO – Lawyers for Medicaid recipients will ask a federal judge Wednesday to order Illinois to pay nearly $1.1 billion a month for at least four months, after negotiations with the state government failed.

They're seeking the extra payments to bring the state in compliance with existing consent decrees.

“Unfortunately, the negotiations have not resulted in meaningful progress,” says a court filing by lawyers for Medicaid recipients who are served by managed care organizations and provider networks. “The Illinois Medicaid program stands at the brink of a crisis regarding the access to health care owed to class members.”

If the court grants the order at Wednesday's status hearing it could rattle municipal investors.

Glen Ward, a fugitive who fled to Canada, pleaded guilty to three separate sets of charges in the Central and Northern District of California as a result of his operation. Image: ThinkStock
A federal judge in Chicago will be asked Wednesday to order Illinois to ramp up payments owed to Medicaid providers.

The finding earlier this month by Judge Joan Lefkow of the U.S. District Court for the Northern District of Illinois Eastern Division that the state had violated consent decrees by letting the bills pile up drove state general obligation spreads up 50 to 100 basis points in trades the following day. Yields settled down in subsequent trading days.

Lefkow stopped short of ordering Comptroller Susana Mendoza to move Medicaid payments into the core priority list, instead allowing the two sides to negotiate an agreement, giving the state some breathing room as its budget stalemate nears a third fiscal year come July 1.

After nearly two years without an enacted budget, the state government's tally of delinquent bills is approaching $15 billion.

The motion filed Monday seeks $586 million in monthly payments to cover Medicaid funded program vouchers after July 1 and until a state budget agreement is reached “to prevent the aging of the backlogged bills from increasing,” says the order plaintiffs proposed.

Another $500 million in monthly payments are being sought in four monthly installments beginning in July with the aim of “reducing the backlogs of unpaid bills” that totals about $2.8 billion and is jeopardizing Medicaid services for some recipients. That would bring payment delays down to fiscal 2015 levels of no more than three months; the delays now are two to three times longer.

Federal matching reimbursements would cover about half of both. The state currently is paying about $160 million monthly.

“The proposed order accomplishes substantial compliance with this court’s prior orders,” the court filing says. “It does not demand full and immediate payment of all back bills.

“Both types of payments are necessary in order to ensure ongoing access to healthcare for the members of the plaintiff classes,” it continued.

As it stands now, the comptroller can barely pay the state’s prioritized obligations with existing revenues.

Without a budget, about 90% of the state's scheduled spending continued under continuing appropriations, consent decrees, and court orders, at a pace well above state government revenue, sending the unpaid bill ledger up. It was only $5 billion on June 30, 2015, the last day of Illinois last budget. Priority obligations total about $1.85 billion monthly and include debt service, pension contributions, school district aid, and payroll.

The court’s decision Wednesday stands to influence investor sentiments about the state’s ability to meet its obligations, may prompt other stakeholders starved for payment to seek court help, and could trigger additional downgrades. It also amplifies the pressure on Gov. Bruce Rauner and lawmakers to resolve the budget crisis this week during a special session slated to end Friday.

Moody’s Investors Service and S&P Global Ratings downgraded Illinois to the lowest investment grade level of Baa3/BBB-minus after the regular session ended May 31 without a budget fix.

Moody’s cited court orders that add to the state’s list of priority payments as a factor that could lead to another hit. S&P made clear a drop to junk likely looms absent a budget agreement by the start of the fiscal year July 1.

Fitch Ratings has said it views the beginning of the new fiscal year as a key marker for a downgrade of the state’s BBB rating.

Medicaid recipients returned to court recently to enforce consent decrees reached years ago and reinforced in 2015. They require the state to pay Medicaid providers in a timely and expedited fashion to ensure that patients are not deprived of care regardless of whether there’s a budget appropriation in place.

The recipients successfully argued that the state’s prioritization of some obligations over Medicaid providers and managed care organizations, or MCOs, violated the prior orders and were jeopardizing medical services.

Lawyers from Attorney General Lisa Madigan’s office had argued there was no violation because the state continues to do its best to pay down Medicaid bills in a timely fashion despite the lack of revenue.

Lefkow in her ruling earlier this month questioned why “the comptroller is funding the state payroll as well as debt service at 100%, respectively $370 million and $226 million each month…yet Medicaid payments total just $160 million per month, not including any payment to the MCOs.

“The comptroller has failed so far to demonstrate a lawful basis to disregard this court’s orders … compliance with a state statute does not excuse failure to comply with a federal consent decree,” she wrote.

“We are effectively hemorrhaging money as the state’s spending obligations have exceeded receipts by an average of over $600 million per month over the past year,” Mendoza warned in a recent statement.

“My cause for alarm is rooted in the increasing deficit spending combined with new and ongoing cash management demands stemming from decisions from state and federal courts, the latest being the class action lawsuit filed by advocates representing the Medicaid service population served by the state’s Managed Care Organizations.”

In her statement, Mendoza pledged “that debt service payments will not be delayed or diminished going forward” and she would use “every statutory avenue or available resource to meet that commitment.”

The state sets aside in monthly allotments funds needed for debt service 12 months ahead of due dates. GOs enjoy far-reaching protections under the state's GO Bond Act which provides an irrevocable and continuing appropriation and extends beyond a reliance on general fund revenues.

All legally available revenue including special funds totaling more than $10 billion can be tapped. The state constitution also includes a non-impairment provision that prohibits General Assembly action that impairs the obligations of a contract between the state and its bondholders, and bondholders can bring suit to compel the state to meet its obligations.

The escalating pressure caused by the budget delay could eventually render those protections moot, some analysts have warned.

The comptroller and governor’s office declined to comment on the Medicaid motion. Mendoza has previously warned that if the court orders the office to pay another $300 million monthly to the MCOs it will have to come out of other core priorities such as pensions, payroll, schools or local government distributive funds.

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