Medicaid's rule changes are drawing fire

Public hospitals, states and other stakeholders say the CMS proposals would renege on billions of dollars in established Medicaid commitments.

By Doug Trapp — Posted Nov. 19, 2007

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Six proposed administrative changes to federal Medicaid funding are overdue steps to halt inappropriate federal spending, according to one side of a developing debate. They're unwarranted cuts to much-needed care, the other side argues.

The Medicaid rules, issued by the Centers for Medicare & Medicaid Services, would reduce federal Medicaid spending by at least $11 billion (0.9%) over five years. They are CMS' attempt to ensure that it's paying for medically necessary services and that those services have a legally defined federal matching fund requirement, said Dennis Smith, director of the agency's Center for Medicaid and State Operations.

"If the answer is yes to all of those, we pay," Smith said Nov. 1 at a House Oversight and Government Reform Committee hearing on the issue.

Summarized broadly, the rules would end federal Medicaid matching dollars for graduate medical education, for juvenile justice and for administrative expenses in schools, such as certain program outreach efforts. They also would limit federal Medicaid matching funds for government-owned hospitals to the actual cost of services, among other changes.

Issue stakeholders -- such as hospitals, school nurses and state Medicaid officials -- said the changes would further strain an already fraying health care safety net, especially damaging the ability of medical centers to train new physicians and hospitals' ability to care for the indigent.

"It has the potential to devastate essential hospital and safety net health systems in many parts of the country," said Alan Aviles, president of the New York City Health and Hospitals Corp. Aviles testified for the National Assn. of Public Hospitals and Health Systems.

For example, the hospital cost-limit rule would eliminate $200 million from the New York City Health and Hospitals Corp., the largest municipal health system in the country, Aviles said. That means the network likely would cut emergency departments significantly in its 11 hospitals, which handle one-third of emergency visits in New York City.

The GME rule would hurt medical centers, said Sheldon Retchin, MD, MSPH, CEO of the VCU Health System, speaking on behalf of the Assn. of American Medical Colleges. For example, it would severely strain the only teaching hospital in central Virginia -- Virginia Commonwealth University Health System in Richmond. The federal government provided VCU with half of its GME funding in 2007, or $6.7 million, he said.

"With all due respect, I feel like we're walking up a down escalator," Dr. Retchin said. "These cuts will merely unravel the safety net yet further and make health reform and expanded coverage that much harder to accomplish in the horizon ahead."

Congress responded to this developing issue in late May by adopting a one-year delay of the GME and hospital cost-limit rules -- the only two policy changes CMS had proposed at that point. A new bill, the Public and Teaching Hospital Preservation Act, would delay both those rules by an additional year and the four newer rules by one year.

Rep. Eliot Engel (D, N.Y.) introduced the legislation in September. It has 147 co-sponsors, including 24 Republicans.

In June, a coalition of 68 medical organizations, including the American Medical Association, wrote a letter to CMS urging it to rescind the GME rule.

Smith said CMS plans to release at least two more Medicaid rules before the end of 2007.

Is CMS going too far?

Rep. Henry Waxman (D, Calif.), chair of the House Oversight and Government Reform Committee, called the Nov. 1 hearing in part because he thinks CMS might be overstepping its administrative authority by issuing some of these rules.

"They are reinterpreting laws, some of which have not changed in 40 years," Waxman said. He added later: "It looks to me like you just decided to take matters into your own hands."

Smith disagreed, saying that CMS has the authority to make sure states' plans meet statutory requirements and that states have pushed the legal envelope.

For example, states have discussed placing elderly prisoners in nursing homes to have Medicaid cover some of their care, he said.

CMS identified at least 29 states between 2003 and 2006 that received higher-than-deserved federal matching funds by illegally "recycling" local funds, according to a Nov. 1 Government Accountability Office report. This happens, for example, when states provide a supplemental payment of millions to public hospitals and other government health care facilities to draw a larger federal match, and the facilities then must return most of the combined funding to the state.

Smith said CMS under the Bush administration denied about $2.9 billion in what it viewed as inappropriate Medicaid funding between 2001 and Sept. 30 of this year -- about $600 million more than CMS did under the Clinton administration.

David Parrella, chair of the National Assn. of State Medicaid Directors, said CMS should monitor states -- especially during tight budget years -- to prevent them from drawing more federal Medicaid funding than they deserve. But overall Medicaid spending increased by only 2.9% in 2007, he said, and Medicaid payment rates for physicians, hospitals and nursing homes are "far from exorbitant."

While most Oversight Committee members criticized CMS' proposed rules as unnecessary, other members took the agency to task for not doing enough.

Rep. Christopher Shays (R, Conn.) said saving $11 billion over five years is nothing compared with the $1.2 trillion in federal Medicaid spending anticipated during the same period.

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Nonmedical spending targeted

CMS has issued six administrative rules in 2007 clarifying or restricting what qualifies as a Medicaid expense. The changes would cut federal spending by at least $11 billion over five years, or about 0.9%.

Public facilities. Limits Medicaid payments to documented costs for government-owned health care facilities, such as hospitals and nursing homes. Savings: $3.9 billion

School transportation, administration. Ends federal matching funds for certain nonmedical services, such as transporting children to and from school and Medicaid outreach by staff not employed by the state or a Medicaid agency. Savings: $2.8 billion

Rehabilitative services. Ends matching funds for "social or educational development" programs, such as foster care, juvenile justice and child welfare. Savings: $2.2 billion

Graduate medical education. Ends federal matching GME funds by ruling they are not inpatient or outpatient services. Savings: $1.78 billion

Health care taxes. Implements a 2006 federal law reducing state taxes on net patient revenues from 6% to 5.5% in some cases. Savings: $430 million

Outpatient hospital, clinic services. Reduces a few states' reimbursement rates by aligning the hospital outpatient services definition with that of Medicare. Savings: Unknown

Source: Centers for Medicare & Medicaid Services

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Medicaid's many roles

Medicaid is expected to cover nearly 50 million people in fiscal year 2008 at an estimated cost of $346.6 billion, including $196 billion from the federal government. Here's a breakdown by the program's four major roles:

Function State/federal spending Beneficiaries
Insurance for low-income children, parents and caretakers $104.0 billion 35.3 million
Insurance and long-term care for low-income seniors $69.3 billion 5.0 million
Acute and long-term care for people with disabilities $156.0 billion 8.6 million
Pay to hospitals with disproportionate share of Medicaid patients $17.3 billion N/A

Source: Centers for Medicare & Medicaid Services

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External links

House Committee on Oversight and Government Reform hearing, "The Administration's Regulatory Actions on Medicaid: The Effects on Patients, Doctors, Hospitals and States," Nov. 1 (link)

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