States likely to see little help with Medicaid funding

Washington -- At a time when states are struggling with Medicaid spending, the federal government is looking for ways to limit its share of the costs.

The Bush administration's budget proposal for fiscal year 2005 includes a $23.5 billion reduction in the federal contribution to Medicaid over the next 10 years. The nonbinding budget outline, which is meant to guide Congress, does not specify from where this money would come.

This squeeze would leave state legislatures with little choice but to continue paring back program spending to stay within ever-tightening state budgets, experts said.

Most states already have new Medicaid cuts in the works for this year and next.

Some experts warn that the result will be less access to care. Frozen and reduced payment rates have increasingly forced physicians out of the program, said Michael O. Fleming, MD, president of the American Academy of Family Physicians.

In many states, it costs physicians more to see Medicaid patients than the program pays them.

Those who still can afford to accept Medicaid patients are forced to carry a heavier load or limit the number of patients they see, often making waiting times prohibitive. The situation is even more difficult when trying to refer patients to specialists.

The tension is straining what have been generally good relations between the medical community and state governments. "They are doing the best they can with the revenue they have," Dr. Fleming said.

But physicians in many states are suing to stop planned rate cuts.

A federal crackdown

States have turned again to Congress, which last year passed a temporary increase in federal matching funds, for help with their Medicaid costs. Such legislation seems unlikely this year.

The budget outline proposed by the president, who has promised to curb the exploding federal budget deficit, calls for an increased crackdown on waste, fraud and abuse within programs run by the Dept. of Health and Human Services.

A Medicaid funding mechanism known as "intergovernmental transfers" that states sometimes use could fall prey to this effort.

"[The federal government is] throwing intergovernmental transfers in with fraud and abuse, and they're not the same thing," said Joy Wilson, director of health policy at the National Conference of State Legislatures.

Intergovernmental transfers allow states to share some of the cost of Medicaid with counties and other localities. But according to the General Accounting Office, some states have been abusing them. In several documented cases, states paid medical facilities inflated reimbursement rates, on which the federal Medicaid match was based, and then required the institutions to give back some or even all of the state's contribution.

"These financial mechanisms ... allow states to obtain federal dollars that were intended to provide health care coverage for poor seniors, mothers with children and disabled individuals and use them for other unrelated state budget expenditures," said Rep. Joe Barton (R, Texas), chair of the House Energy and Commerce Committee.

But some say such instances are old news because federal rule changes made in 2000 now prohibit them. Thus, further efforts to curb transfers would only limit legitimate uses.

The Centers for Medicare & Medicaid Services let states know that the agency would start supervising the transfers more closely but has not specified which types might be censored.

It's right to ensure that Medicaid dollars are spent on Medicaid services, said Walter W. Noce Jr., trustee of the National Assn. of Children's Hospitals. But he also warned that any changes in legitimate Medicaid financing will be felt directly by those on the front lines who treat these patients.

A National Governors Assn. statement also points out that such midstream federal policy changes would interfere with states' budget plans, which count on these funding mechanisms to support expansions in home- and community-based long-term care, increases in physician reimbursement, and steps to keep tier-one trauma centers and rural hospitals from closing their doors.