BOISE - A federal judge says the Idaho Department of Health and Welfare needs to increase Medicaid payments for some services for the developmentally disabled in a ruling that will cost the state at least $4 million more a year.

U.S. District Judge B. Lynn Winmill made the ruling Monday in a lawsuit first brought by five businesses against the state in 2009. The businesses contended that the state was wrong to keep providers at pay rates based on a 2006 study when two subsequent studies showed the cost of providing services had increased considerably.

According to the lawsuit, the 2006 daily rate for one type of service was about $268. That compares to a daily rate of $496 suggested by the Idaho Department of Health and Welfare's own study done in 2009. Lawmakers failed to give the department funding for the rate increase, however, so providers were kept at the lower 2006 rate.

Winmill said that the law on Medicaid rates is clear: They must incorporate the actual cost of providing a service.

There are currently 61 residential habilitation agencies in the state, providing supportive living services to 6,202 clients, Winmill noted. The agencies provide homes and round-the-clock supervision for developmentally disabled clients who cannot live alone, as well as support for clients who need help to safely live in their own homes.

There aren't any waiting lists of people waiting to receive the services, he said in the ruling, nor are there any documented instances of agencies turning clients away because they couldn't afford to provide them care.

The state's attorneys had argued that those facts showed the Medicaid rates as set in 2006 must have been adequate, otherwise there would be a dearth of providers. Still, said Winmill, actual provider costs - not just outcomes - must be taken into account.

Officials with the Idaho Department of Health and Welfare did not immediately return messages.

James Piotrowski, the attorney who represented the residential habilitation agencies, said the ruling means that providers for the most severely disabled clients will be able to provide better staffing numbers, hire better-qualified staffers and make an overall improvement to the quality of care.

Piotrowski said his clients were frustrated that they had to resort to a lawsuit to fix the issue. He said the department and the business used to have a good, cooperative relationship, but it has deteriorated over the years. Still, he said, they were pleased by the outcome.

"Winmill is telling the department to actually use the cost studies that they do, and implement the rates that their own analysis says is required," Piotrowski said.

The companies included Inclusion Inc., Exceptional Child Center Inc., Living Independently for Everyone Inc., Tomorrow's Hope Satellite Services Inc. and WDB Inc.