New Court of Appeals Decision Provides Guidance on Medicaid Spenddown Requirements

The recent appellate decision in Multicare v. State of Washington Department of Social and Health Services (DSHS) sheds light on how hospitals should use a patient’s “spenddown” in the billing process for the Medicaid Medically Needy (MN) program.

The MN program assists low-income families with medical costs.  A family can qualify for the MN program if its income is less than a certain amount during a specific base period.  A family that exceeds the maximum income level can still qualify for the program if it pays medical expenses in an amount equal to or over the excess income.  For example, if a family’s income is $500 over the maximum level, it can still qualify for the MN program if it spends $500 on medical expenses.  This process of using excess income is called the “spenddown.”

In the Multicare case, DSHS alleged that the hospital billed the MN program without deducting the spenddown liability of patients.  According to DSHS, this billing practice resulted in overpayments to the hospital. The hospital argued that the spenddown requirements were an enrollment qualification, not a deduction from DSHS’s payments.  The Washington State Court of Appeals, however, sided with DSHS and found that hospitals must factor in a patient’s spenddown to determine DSHS’s payment obligations.

The Court provided examples of how to use a patient’s spenddown, including the following:  A patient has a spenddown liability of $500 and total hospital charges of $450.  The total charges would apply to the spenddown liability, resulting in a new spenddown of $50.  Since a spenddown remains, the patient is not enrolled in the MN program and DSHS has no payment obligations for the services provided by the hospital.  Instead, the patient would owe the Hospital the $450.

Hospitals should review their Medicaid billing policies to ensure compliance with the Multicare decision.  You can view the decision here.  If you have questions or would like to follow-up, please contact Don Black or Casey Moriarty.