Lessons for States in Inpatient Ratesetting Under the Boren Amendment

Encouraged by a 1990 Supreme Court decision, Medicaid providers have challenged State inpatient ratesetting methodologies under the Boren Amendment. Procedurally, State assurances to the U.S. Department of Health and Human Services (DHHS) that payment rates meet the Amendment's requirements must be supported by findings based on a reasonably principled analysis. Substantively, rates may fall within a zone of reasonableness, but courts have differed in interpreting and applying the Amendment's terms. Although some courts have found special studies and written findings unnecessary, States that undertake economic analyses to support their findings are more likely to withstand judicial scrutiny. Several applicable economic analyses are proposed.