Medicaid funding cuts unresolved as new administration takes office

Washington -- Three Bush administration rules limiting federal Medicaid spending will go into effect on April 1 without action by Congress and the Obama administration, but three others could be rescinded by the new administration alone -- including a rule ending federal funding for graduate medical education.

The six rules are part of a Bush administration effort to scale back the federal government's Medicaid obligations so the program covers only what President Bush contends is required by law. The new policies would reduce federal spending by at least $12.4 billion over five years. Health care organizations affected by the reductions have argued that the White House and the Centers for Medicare & Medicaid Services are overstepping their authority.

Citing a need to review the changes further and maintain services, Congress in late June 2008 placed a moratorium on the six rules until April 1. A seventh Medicaid rule narrowing the scope of outpatient hospital services eligible for federal funds was published as a final rule in early November 2008. It is not covered by the moratorium.

Three of the six rules could be withdrawn by the Obama administration without action by Congress because they are only in proposed form, according to Charles Luband, an attorney for the National Assn. of Public Hospitals and Health Systems. One of those rules would end federal Medicaid GME funding, a move that would cut at least $1.3 billion worth of medical education funding over five years.

"Those can easily be blocked by the new administration just by either withdrawing the proposed rules or by not finalizing them," Luband said. The moratorium also prevents CMS from finalizing the three proposed rules before April, said CMS spokesman Peter Ashkenaz.

The three rules that already have become final but are not in effect can be reversed without action from Congress if the Obama White House goes through the entire rulemaking process all over again, Luband said. But the administration would need at least 90 days to do this and thus could not finish before the moratorium expires on April 1, he said. Those rules could be delayed further or reversed at any time if Congress is able to approve a new measure that receives the new president's signature.

Not a done deal

Opponents of the graduate medical education cuts and the other Medicaid restrictions are hopeful that one of those scenarios will play out in a way that results in the rules being blocked. President-elect Barack Obama has said he supports expanding Medicaid, not cutting it.

But the Assn. of American Medical Colleges is not assuming that the incoming president will rescind the GME rule, said Karen Fisher, the senior director of the AAMC's health care affairs division. "We certainly would hope that the new administration would see the value of making these [GME] payments and not finalizing the proposed rule," she said.

Former Sen. Tom Daschle, Obama's nominee for Health and Human Services secretary, has not indicated a position on the GME cuts or the other Medicaid rules. An Obama transition team spokeswoman did not respond to requests for comment.

Rep. Henry Waxman (D, Calif.), the new chair of the House Energy and Commerce Committee, said states can't afford to sustain the billions of dollars in funding cuts. "To allow these regulations to take effect in the midst of the worst recession since World War II would be economic suicide," he said.

The rules would devastate the Medicaid safety net, said Greg Morris, executive director of LEAnet, a network of local education agencies that supports school health programs. "We would lose the ability to provide health services for children and disabled Americans of all ages," Morris said.

LEAnet wants Congress and Obama to extend the moratorium on the Medicaid rules until Oct. 1, the beginning of fiscal year 2010, to review them and take more public comments. The network has been alerting Obama's transition team about the problems the regulations would cause. "All we're asking for is maintenance of the status quo," Morris said.

Luband, with the National Assn. of Public Hospitals and Health Systems, said Congress likely does have reservations about the policy changes because lawmakers already have adopted a moratorium on the rules. "I'm certainly hopeful that some combination of Congress and the [Obama] administration will deal with all of these rules appropriately."

Healthy workload

The Medicaid rules are only one of several health system reform issues facing Obama and the new Congress in their first months of work this year.

The State Children's Health Insurance Program will expire on March 31 without a reauthorization. In addition, Congress and Obama are in the midst of determining what should go into an economic stimulus measure that could cost hundreds of billions of dollars and include a temporary increase in federal Medicaid funding.

Lawmakers, most notably in the Senate, also have begun writing comprehensive health system reform legislation.

On top of all this, the Obama administration must decide what to do about an SCHIP directive that went into effect on Aug. 17, 2008, that largely restricts federal funding to enrollees in families earning less than 250% of the federal poverty level. Although CMS so far has not enforced the directive, it is still official program policy.

Obama could rescind that directive immediately on his own, said Dennis Smith, former director of CMS' Center for Medicaid and State Operations and a senior fellow at the Heritage Foundation in Washington, D.C.

In reauthorizing SCHIP, Democrats in Congress must decide whether to reintroduce the $35 billion SCHIP expansion that Congress passed and President Bush vetoed in 2007 and 2008, or to craft a new bill.

The American Academy of Pediatrics supports SCHIP but favors the MediKids Health Insurance Act, according to a Jan. 6 letter by AAP President David T. Tayloe Jr., MD. That bill, sponsored by Rep. Pete Stark (D, Calif.), would create a program similar to Medicare, with a prescription drug benefit for children.