A federal court recently held that Pennsylvania could not pay Medicaid providers located outside the Commonwealth, but serving Pennsylvania Medicaid beneficiaries, less than it pays providers located within the state. In this case, Pennsylvania refused to make a Medicaid trauma disproportionate share payment to West Virginia University Hospital, even though the hospital was located a mere six miles from the Pennsylvania border, simply because the hospital was not located in Pennsylvania.

State laws discriminating against out-of-state residents and businesses or imposing more onerous taxes or other burdens on foreign corporations are viewed skeptically by the courts and generally will not be upheld unless the discrimination bears a rational relation to a legitimate state purpose. In the context of Medicaid payments, courts have struck down discriminatory payment schemes under the Equal Protection and Commerce Clauses.

In this case, Pennsylvania argued that Medicaid payments were not subject to the Commerce Clause because program payments constitute permissible subsidy payments to an in-state industry. The court held that Medicaid payments could not be considered subsidies because the payments were not funded purely by state revenue, rather they were jointly funded by Pennsylvania and the federal government. The court also found that the payments were not subsidies because they were not voluntary. Once the trauma disproportionate share payments were incorporated into the state's Medicaid state plan, they were required to be made.

Consequently, providers who have been paid less by Pennsylvania based upon their out-of-state status may wish to consider their options, whether the lower payment resulted from the trauma disproportionate share payment or other program features.