EDITOR’S NOTE: Virginia Gov. Ralph Northam, along with six managed care organizations (MCOs), have been named as defendants in a federal lawsuit filed on Sept. 25, claiming that more than a dozen of the state’s Medicaid behavioral and mental healthcare providers had their agreements terminated by the MCOs without cause. The following is an update on this exclusive RACmonitor story.
Whether government contractors are state actors is not something you might think about every day. But whether a managed care organization (MCO) or a Medicare Administrative Contractor (MAC), on the federal side, the notion that such entities are state actors is one of the defenses being raised by the MCOs in a recent Virginia injunction case.
Our suit was filed asking the judge to stay the pending action, which included some effective Medicaid terminations made without cause against more than 30 named plaintiff providers, not counting an unknown number of terminations of other VA behavioral healthcare providers.
The latest news, in this case, is that we are scheduled to be heard in the Eastern District of Virginia, Alexandria, this Friday. This time I will fly into the right airport; the last trip I flew into whichever airport was the furthest away
The judge will hear our arguments in support of a temporary restraining order (TRO). But equally important is that the judge will also hear the defendants’ motions to dismiss. Each defendant filed a motion to dismiss (MTD). Most of the arguments were the same in each, so we filed a consolidated reply, which addressed the issues separately raised. We do not know whether the judge will hear MTD or the TRO first. It would make sense for the MTD to be heard first, because if we lose on the MTD, then there would be no reason to even argue the TRO.
Since the lawsuit was filed, MCOs have terminated even more behavioral healthcare providers. For example, we have more than 15 providers that want to join the lawsuit. Most of the named plaintiffs have received additional terminations. For example, if Aetna had terminated them, and Aetna had accounted for 20 percent of the provider’s referrals and consumer base, then they get terminated by Optum, which is another 20 percent. All of a sudden, we’re talking about losing almost half of a client base within a day. For some providers, that figure ranges from 50-100 percent.
We believe the MCOs’ actions – these new terminations – are retaliatory in nature. This is what the providers were scared of from the beginning. And who could blame them? This is David and Goliath.
The self-awarded, supreme hubris of the MCOs are not limited to Virginia, though. Across the country, the managed care entities, whatever their names or acronyms, are placed in charge of Medicaid tax dollars, and dictate what providers are chosen and what services are authorized. However, recently, more litigation against the MCOs has been filed, stating that the MCOs’ actions are state agency actions – and that the MCOs should be held accountable.
The MCOs or MACs inevitably argue that they are not considered a state agent. They argue that no state action means no claim.
Why does this argument – that the MCOs are not state actors – apply, for anyone reading? Because all MCOs or contracted vendors of the government, regardless of the name or acronym, will argue that they are not state actors.
If you provide services through a contracted vendor of the federal or state government, then you will run into this issue if you ever have to litigate.
The Aetnas or Optums or Uniteds of the world want to hide behind government immunity under the 10th Amendment, but then claim that they are not state actors when it comes to litigation. It is the classic sword-and-shield argument; you cannot have it both ways.
If you are terminated without cause by an MCO or a MAC, and you want to continue to stay in business, you will have to sue the MCO or MAC in order to protect your Medicare/Medicaid license. The MCO will argue that it is a private party – and that, inevitably, the plaintiffs have not alleged facts plausibly suggesting that it acted under state law when it terminated the provider’s contract.
This argument makes no sense – reasonably, legally, or logically. The MCOs and MACs are paid with tax dollars. Medicare and Medicaid are government programs. Federal law requires that one single state agency manage Medicaid.
The MCOs and MACs are acting in a governmental role, and therefore, they step into the shoes of the federal or state government. The state actor question should be really easy. If you want to provide Medicare/Medicaid, with what companies are you forced to contract? Who can audit you? The answer will always go up the pyramid of importance to either the state or federal government.
Programming Note:
Listen to healthcare attorney Knicole Emanuel every Monday on Monitor Monday, 10-10:30 a.m. EST.
EDITOR’S NOTE: Artificial intelligence was utilized for structural refinement and grammatical editing. All analyses, interpretations, and opinions expressed in this article are solely those of
EDITOR’S NOTE: The author of this article used artificial intelligence- (AI)-assisted tools in its composition, but all content, analysis, and conclusions were based on the
Please log in to your account to comment on this article.
Sepsis sequencing continues to challenge even experienced coding and CDI professionals, with evolving guidelines, documentation gaps, and payer scrutiny driving denials and data inconsistencies. In this webcast, Payal Sinha, MBA, RHIA, CCDS, CDIP, CCS, CCS-P, CCDS-O, CRC, CRCR, provides clear guideline-based strategies to accurately code sepsis, severe sepsis, and septic shock, assign POA indicators, clarify the relationship between infection and organ dysfunction, and align documentation across teams. Attendees will gain practical tools to strengthen audit defensibility, improve first-pass accuracy, support appeal success, reduce denials, and ensure accurate quality reporting, empowering organizations to achieve consistent, compliant sepsis coding outcomes.
Expert presenters Kathy Pride, RHIT, CPC, CCS-P, CPMA, and Brandi Russell, RHIA, CCS, COC, CPMA, break down complex fracture care coding rules, walk through correct modifier application (-25, -57, 54, 55), and clarify sequencing for initial and subsequent encounters. Attendees will gain the practical knowledge needed to submit clean claims, ensure compliance, and stay one step ahead of payer audits in 2026.
Accurately determining the principal diagnosis is critical for compliant billing, appropriate reimbursement, and valid quality reporting — yet it remains one of the most subjective and error-prone areas in inpatient coding. In this expert-led session, Cheryl Ericson, RN, MS, CCDS, CDIP, demystifies the complexities of principal diagnosis assignment, bridging the gap between coding rules and clinical reality. Learn how to strengthen your organization’s coding accuracy, reduce denials, and ensure your documentation supports true medical necessity.
Denials continue to delay reimbursement, increase administrative burden, and threaten financial stability across healthcare organizations. This essential webcast tackles the root causes—rising payer scrutiny, fragmented workflows, inconsistent documentation, and underused analytics—and offers proven, data-driven strategies to prevent and overturn denials. Attendees will gain practical tools to strengthen documentation and coding accuracy, engage clinicians effectively, and leverage predictive analytics and AI to identify risks before they impact revenue. Through real-world case examples and actionable guidance, this session empowers coding, CDI, and revenue cycle professionals to shift from reactive appeals to proactive denial prevention and revenue protection.
In this timely session, Stacey Shillito, CDIP, CPMA, CCS, CCS-P, CPEDC, COPC, breaks down the complexities of Medical Decision Making (MDM) documentation so providers can confidently capture the true complexity of their care. Attendees will learn practical, efficient strategies to ensure documentation aligns with current E/M guidelines, supports accurate coding, and reduces audit risk, all without adding to charting time.
Join Ronald Hirsch, MD, FACP, CHCQM for The PEPPER Returns – Risk and Opportunity at Your Fingertips, a practical webcast that demystifies the PEPPER and shows you how to turn complex claims data into actionable insights. Dr. Hirsch will explain how to interpret key measures, identify compliance risks, uncover missed revenue opportunities, and understand new updates in the PEPPER, all to help your organization stay ahead of audits and use this powerful data proactively.
Stay ahead of the 2026-2027 audit surge with “Top 10 Audit Targets for 2026-2027 for Hospitals & Physicians: Protect Your Revenue,” a high-impact webcast led by Michael Calahan, PA, MBA. This concise session gives hospitals and physicians clear insight into the most likely federal audit targets, such as E/M services, split/shared and critical care, observation and admissions, device credits, and Two-Midnight Rule changes, and shows how to tighten documentation, coding, and internal processes to reduce denials, recoupments, and penalties. Attendees walk away with practical best practices to protect revenue, strengthen compliance, and better prepare their teams for inevitable audits.
As AI reshapes healthcare compliance, the risk of biased outputs and opaque decision-making grows. This webcast, led by Frank Cohen, delivers a practical Four-Pillar Governance Framework—Transparency, Accountability, Fairness, and Explainability—to help you govern AI-driven claim auditing with confidence. Learn how to identify and mitigate bias, implement robust human oversight, and document defensible AI review processes that regulators and auditors will accept. Discover concrete remedies, from rotation protocols to uncertainty scoring, and actionable steps to evaluate vendors before contracts are signed. In a regulatory landscape that moves faster than ever, gain the tools to stay compliant, defend your processes, and reduce liability while maintaining operational effectiveness.
Happy National Doctor’s Day! Learn how to get a complimentary webcast on ‘Decoding Social Admissions’ as a token of our heartfelt appreciation! Click here to learn more →
CYBER WEEK IS HERE! Don’t miss your chance to get 20% off now until Dec. 1 with code CYBER25
CYBER WEEK IS HERE! Don’t miss your chance to get 20% off now until Dec. 2 with code CYBER24
