Arizona hospitals filed suit Tuesday to void efforts by the state to further cut what it pays health care providers for care provided to Medicaid patients.

In legal papers filed in federal court here, attorneys for the hospitals contend the latest 5 percent cut, on top of an identical reduction in April and a three-year freeze in reimbursements "results in rates that are so low that they violate the mandate of federal law." That law, the lawyers said, requires that rates for Medicaid services "be consistent with quality and assure that Medicaid beneficiaries have equal access to services."

Peter Wertheim, the association's vice president, said the net effect of all those moves means that the Arizona Health Care Cost Containment System, the state's Medicaid program, would be paying hospitals just two-thirds of what it actually costs them to provide care.

The hospitals want a federal judge to void not only the state's actions but last week's approval of the cuts by Kathleen Sebelius, director of the U.S. Department of Health and Human Services.

There was no immediate response from the governor's office.

Laurie Liles, the organization's president, said this is more than a dispute between hospitals and the state.

She said the prior cuts have forced some hospitals to eliminate services, reduce staff and close off rooms. It also has meant cost shifting, Liles said, with the hospitals forced to increase what they are charging commercial health plans.

"That cost shift amounts to a hidden health care tax on all consumers, exactly the wrong prescription for our ailing economy," Liles said in a prepared statement.



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