Plaintiffs in a lawsuit over Medicaid-funded services for children with autism dispute North Carolina health officials’ argument that the case is now moot. A hearing on a motion to dismiss the suit is scheduled Monday.
A Superior Court judge granted an injunction in November blocking the state from making cuts in reimbursements to service providers. Gov. Josh Stein later announced that those rate cuts had been reversed.
Yet the plaintiffs argued in a court filing Thursday that their legal dispute with the North Carolina Department of Health and Human Services and Secretary Devdutta Sangvai is not over.
“Last fall, Defendants placed North Carolinian children with autism spectrum disorder (ASD) in the middle of a political fight over the State’s biennial budget,” wrote lawyers led by former US Attorney Michael Easley Jr. “After the General Assembly did not enact a full budget by the beginning of the 2025-26 fiscal year, Defendants imposed rate cuts for N.C. Medicaid. These cuts affected some N.C. Medicaid recipients more than others, singling out certain services for an ‘enhanced’ rate reduction.”
“Among those services targeted for the highest cut 10% was Research-Based Behavioral Health Treatments (RB-BHT), including applied behavioral analysis (ABA) therapies, which children with ASD sorely need and rely on to improve their social, communication, and other life skills,” the court filing continued.
The plaintiffs argue that the planned rate cuts “constituted unlawful discrimination” and “placed them at increased risk of institutionalization.” A trial judge agreed, granting a temporary restraining order and preliminary injunction.
“A month later, Governor Stein directed Defendants to restore all reimbursement rates to their pre-reduction levels, stating that recent court orders — like this Court’s November 19 injunction — had made continuing the reductions ‘untenable,’” the plaintiffs’ lawyers wrote.
“Defendants now ask this Court to dismiss this action, arguing that their voluntary cessation of their unlawful and discriminatory conduct renders this suit moot,” the court filing continued. “This Court should deny Defendants’ request. As the Governor himself recognized, Defendants’ voluntary cessation of their unlawful conduct was a direct result of lawsuits like this one. Without the protection this Court put in place in November for North Carolinian children with autism, Defendants could once again seek to impose devastating reductions to autism services.”
The plaintiffs’ lawyers warn that the current funding status “may be only a temporary reprieve before Defendants again seek to discriminatorily target this life-changing service. Accordingly, the voluntary cessation exception to the mootness doctrine applies and this Court should deny Defendants’ motion to dismiss.”
State Justice Department lawyers representing DHHS and Sangvai painted a different picture Wednesday.
“This case is moot,” state government lawyers wrote. “Plaintiffs’ Complaint challenged reductions to Medicaid provider reimbursement rates that the Department announced last fall to address a budget shortfall in the State’s Medicaid program. But in December, the Department rescinded and reversed those cuts.”
“And the Department never submitted to the Centers for Medicaid and Medicare Services the paperwork necessary to reduce reimbursement rates,” the DHHS court filing continued. “The deadline to submit that paperwork for calendar year 2025 has passed.”
“There is no controversy between Plaintiffs and the Department, and there is no relief this Court could order Defendants to give Plaintiffs that they don’t already have,” the court filing continued. “Accordingly, this case is moot, and this Court should dismiss Plaintiffs’ Complaint for lack of subject matter jurisdiction.”
DHHS filed a motion to dismiss the case in January.
“The Department rescinded the rate reductions and will restore all providers to their original rates on January 5, 2025,” according to the motion. “Claims submitted between October 1, 2025, and January 5, 2025, will be reprocessed at the original rates. Additionally, Defendants are not submitting the State Plan Amendment (‘SPA’) that would have amended the Medicaid State Plan with the specific provider reimbursement rate reductions that were implemented on October 1, 2025. As such, Plaintiffs’ claims have been rendered moot.”
If the court does not dismiss the suit, DHHS asks for the case to be stayed. “[T]he challenged provider reimbursement rate reductions are no longer in existence and, because Plaintiffs’ entire complaint is based on those reductions, it is in the interest of judicial economy to stay these proceedings until the end of the current fiscal year,” according to the court filing.
Wake County Superior Court Judge Bryan Collins issued the initial order temporarily blocking a reimbursement rate cut. Superior Court Judge Clayton Somers followed up with an order granting a preliminary injunction.
Families of 21 children who use the services sued DHHS and Sangvai in October over the proposed rate cut.
DHHS announced plans to reduce provider reimbursement rates after the state House and Senate reached no deal to resolve a Medicaid budget shortfall.
“Plaintiffs in this avoidable and regrettable suit are North Carolinian children with autism spectrum disorder (ASD) who have been unfairly placed in the middle of a political impasse over the State’s biennial budget,” the families’ lawyers wrote on Oct. 31. “After the General Assembly did not enact a full budget by the beginning of the 2025-26 state fiscal year, Defendants imposed rate cuts for N.C. Medicaid. But these cuts did not affect all N.C. Medicaid recipients equally.”
“While most services received at least a 3% cut, some were singled out for different treatment,” the plaintiffs’ court filing continued. “Among those targeted for an ‘enhanced’ rate reduction were certain disabled North Carolinians those with ASD for the highest level of cuts. Defendants cut rates by 10% for Research-Based Behavioral Health Treatments (RB-BHT), including applied behavioral analysis (ABA) therapies, which children with ASD sorely need and rely on to improve their social, communication, and other life skills and dramatically improve their long-term outcomes.”
“By contrast, Defendants cut rates for other services by as little as 3% and did not cut some services, like pharmacy benefits, at all,” the plaintiffs’ lawyers argued.
“Singling out treatment needed by North Carolinians with ASD for harsher cuts than those imposed on other Medicaid recipients is unlawful,” the brief continued. “Even if Defendants were not acting with any animus toward individuals with ASD, by singling out individuals with ASD for a higher rate cut, Defendants have deprioritized the well-being of individuals with ASD. Such discrimination against these children because of their disability violates the North Carolina Persons With Disabilities Protection Act (NCPDPA) and denies them the due process and equal protection rights guaranteed by the North Carolina Constitution.”
“Absent speedy and decisive intervention from this Court, Plaintiffs face a substantial risk — indeed, for some, a near certainty — of significant, irreparable harm,” the plaintiffs’ lawyers argued. “Plaintiffs can access these treatments only if they are funded by N.C. Medicaid. Because of Defendants’ discriminatory rate cuts, Plaintiffs now may be unable to access necessary medical services and thus will suffer the irreparable consequences of such denial or delay — including significant harm to their ability to live normal, fulfilling lives.”
The department responded.
“The North Carolina Department of Health and Human Services is charged with administering the NC Medicaid Program as dictated in the General Statues and within the confines of the funds appropriated to the program by the General Assembly,” DHHS lawyers wrote. “For Fiscal Year 2025-26, the funds allocated by the General Assembly to NC Medicaid resulted in a $319 million shortfall of the amount needed to maintain the current services and provider payments.”
“As a result of the budget shortfall and the controlling authority for operation of the NC Medicaid program, the Department made reimbursement rate cuts across its array of covered services with the goal of ensuring that all Medicaid beneficiaries continue to have access to covered services,” the state’s court filing continued. “As part of these carefully considered provider reimbursement rate cuts, DHHS partially reversed a 2024 rate increase for Research-Based Behavioral Health Treatments (RB-BHT).”
“Even after DHHS’s decision, the reimbursement rate for RB-BHT services is still higher than it was just two years ago,” DHHS explained. “Indeed, if the rate cut remains in place, NC Medicaid will still spend $400 million more for RB-BHT services in Fiscal Year 2025-26 than it did in Fiscal Year 2022-23.”
“One consideration for the determination was that on January 1, 2024, RB-BHT received a reimbursement rate increase of 15%,” the court filing continued. “In 2022-23 Fiscal Year, prior to the rate increase, NC Medicaid reimbursed $199 million dollars for the RB-BHT services. After the 15% rate reimbursement increase there was a surge in the number of claims per beneficiary. Spending on RB-BHT service is projected to increase 425% by 2026.”
“The current estimate for reimbursement of RB-BHT in 2025-26 Fiscal Year with the 10% rate reduction is $639 million,” DHHS lawyers wrote. “NC Medicaid estimates to reimburse $440 million more dollars for RB-BHT services than it reimbursed just two years ago even with implementing a 10% cut. These and other factors were taken into consideration when determining rate cut percentages.”
“DHHS performed well-reasoned, mathematical financial assessments for all NC Medicaid services to determine rate reimbursement reductions to fit the certified budget,” the department explained. “DHHS made very difficult decision to ensure that necessary healthcare services continue to be available for North Carolinians throughout the entire fiscal year and did so as required by statute. There is no evidence that the provider reimbursement rate cut to the RB-BHT service was discriminatory.”