The Senate Finance Committee may call for oversight hearings in September if HCFA doesn't act quickly to close a loophole that allows states to artificially increase how much Medicaid revenue they receive from the federal government.
Committee members are concerned that if HCFA doesn't make a regulatory proposal this week, the agency will be unable to publish a final regulation before the Clinton administration leaves office in January.
Committee sources last week repeated the threat of Senate Finance Committee Chairman William Roth (R-Del.) that if HCFA fails to act promptly, "it would be an excellent topic for an oversight hearing before my committee" (July 10, p. 4).
HCFA's proposed regulation in the Federal Register would be subject to a comment period of 30 days or longer before HCFA could make it final and clamp down on the use of the loophole.
Called the "intergovernmental transfer mechanism," the loophole allows states to increase their federal match by paying fees higher than the Medicaid rate to public hospitals or nursing homes. The higher payment triggers an eventual increase in the federal contribution to the state Medicaid pool. The public facilities, meanwhile, return the extra money to the state coffers. As a result, the state gets more federal Medicaid money without increasing its own expenditures.
HCFA estimates that use of the intergovernmental transfer mechanism has increased federal Medicaid expenditures by $1.9 billion over previous projections and could cost $12 billion over five years.
The Congressional Budget Office estimates that Medicaid will spend $115 billion on Medicaid in fiscal 2000. But it also cites Medicaid as the fastest-growing category of federal spending, expected to rise 7.9% in fiscal 2000 when compared with fiscal 1999.
In June, Roth wrote to HHS Secretary Donna Shalala asking for quick action on the proposed regulation.
"Medicaid is intended to provide healthcare to eligible vulnerable populations," Roth wrote. "It is not intended to serve as an accounting gimmick to funnel increased federal payments to the states."
The increased attention to the Medicaid loophole comes as hospital groups are lobbying for $3.2 billion more in spending for Medicaid disproportionate-share hospital payments in the next five years. Hospital lobbyists fear the growing scrutiny of Medicaid intergovernmental transfer spending could endanger the prospects for new disproportionate-share funding.
Hospitals want the loophole to stay open as long as the extra money is used to pay for care for the poor (Aug. 21, p. 4).
Meanwhile, the HHS inspector general's office issued a report last week saying that the extra money being derived from the use of the loophole in three states isn't being used to care for Medicaid beneficiaries, nor is it being used to improve the quality of care. Pennsylvania is one of the three states using the loophole, and the other two haven't been disclosed.
The inspector general's report agreed that reducing the maximum amount Medicaid can pay to public facilities, a possibility now being considered by HCFA, could limit use of the intergovernmental transfer schemes.