By Karen Pierog and Dave McKinney
CHICAGO (Reuters) - A U.S. judge on Friday dealt a major financial blow to Illinois by ordering the cash-strapped state to pay $586 million a month to Medicaid providers to ensure continued medical care for poor and disabled residents.
The order by Judge Joan Lefkow also stipulated that Illinois send $2 billion to Medicaid providers during the fiscal year that starts on Saturday to pay down the existing $3.1 billion backlog of unpaid bills.
Illinois Comptroller Susana Mendoza, whose office pays the state's bills, said the ruling "takes the state’s finances from horrific to catastrophic" and called on state lawmakers to immediately pass a budget.
"Payments to the state’s pension funds; state payroll including legislator pay; general state aid to schools and payments to local governments – in some combination – will likely have to be cut," she said in a statement. "Payments to the state’s bond-holders will continue uninterrupted."
The decision came as Illinois lawmakers failed to reach consensus on a budget on Friday, leaving a state with the worst credit rating in the nation poised to enter a third-straight fiscal year without a full operating budget.
Governor Bruce Rauner's office had no comment on the ruling.
Lefkow had issued an order on June 7 that concluded Illinois was not complying with federal consent decrees regarding Medicaid. That order allowed attorneys representing Illinois' 3 million Medicaid recipients to seek a subsequent order forcing the state to increase payments to managed-care organizations, which in turn pay doctors, hospitals and others.
In her latest order, the judge said the state failed to offer a payment plan that would result in substantial compliance with the consent decrees that stemmed from lawsuits filed against Illinois in 1992.
Attorneys representing Medicaid recipients said Illinois, which has been allocating only $160 million a month to the healthcare program, will be able to subsequently seek reimbursement for about half of the higher payment from the federal government.
“Without these payments, doctors, hospitals, clinics and other key healthcare providers would stop seeing Medicaid patients, or else simply go out of business altogether,” Tom Yates of the Legal Council for Health Justice said in a statement.
Illinois' unprecedented budget impasse between its Republican governor and Democrats who control the legislature has ballooned the state's unpaid bill pile to about $15 billion.
(Reporting by Dave McKinney; Editing by Bill Trott)