By Kate Schuler, CQ Staff
CQ TODAY
June 19, 2006

The Supreme Court declined to hear a case Monday in which some states sought to prevent the federal government from collecting money from states to cover part of the costs of the Medicare prescription drug law (PL 108-173).

Under the 2003 law, Medicaid patients who had been receiving prescription drug coverage were transferred to a Medicare prescription drug plan on Jan. 1, 2006.

States, which pay about half the costs of Medicaid but had not been required to contribute to Medicare costs, are now required under the 2003 law to pay the federal government to help cover the costs of the approximately 6 million Medicaid patients who were switched to Medicare.

During negotiations on the law, states complained they should be able to keep the savings resulting from transferring the Medicaid patients to the federal Medicare program. Under the law, in 2006 states are expected to pay 90 percent of the cost they would have had to pay for those beneficiaries' drugs under Medicaid. Their share will decline gradually to 75 percent by 2015.

In the case rejected by the high court, States of Texas, Kentucky, Maine, Missouri, and New Jersey v. Michael O. Leavitt, Secretary of the Department of Health and Human Services, the states claimed the payments - known as the "clawback" - violate the law by imposing a tax that "infringes on state sovereignty" and "interferes with essential functions of state government." Ten other states filed friend-of-the-court briefs in support of the five states suing the federal government.

The group of states filed the complaint directly to the Supreme Court, invoking a constitutional provision giving the Supreme Court original jurisdiction over cases involving states.

In a statement Monday, Mark B. McClellan, administrator of the Centers for Medicaid and Medicare Services, said he was pleased with the court's decision.

"We continue to work to ensure that the millions of people with Medicare and Medicaid will continue to get the drugs they need, at a much lower cost than had been expected, while saving money for states," McClellan said.