HCFA last week proposed a regulation that would crack down on abuse of a Medicaid loophole that has allowed numerous states to artificially inflate the federal government's contribution to their state Medicaid programs.
States object that closing the loophole will cut off a mechanism they use to fund hospital care for the uninsured.
The American Hospital Association has been working to keep the loophole open as long as the additional funds are being used for healthcare purposes.
The proposed regulation, to be published this week in the Federal Register, will allow state Medicaid to continue paying county-owned public hospitals more than private hospitals because they provide more care to the uninsured and a sicker patient population.
But HCFA said it will prevent excessively high payments to those institutions, which the agency says have resulted in abuses of the program. HCFA said some states are using the inflated federal match to help fund state programs unrelated to healthcare such as roads and bridges.
The proposed regulation also calls for a phaseout of extra payments.
The rule will be subject to an expedited 30-day comment period before becoming final. HCFA eschewed the typical 60- or 90-day comment period because the regulation has been subject to more stringent internal review.
One state responded quickly with a criticism of the HCFA action.
"I don't know how the federal government can drastically cut funding for healthcare services and at the same time continually talk about the need to expand healthcare services to poor children," Illinois Gov. George Ryan said in a written statement.
Meanwhile, Senate Finance Committee Chairman William Roth (R-Del.), who has criticized HCFA for not releasing the rule earlier, said HCFA's new proposal is inadequate.
"The regulation permits the scam to continue while only modestly attempting to contain its magnitude," Roth said in a written statement.
The proposal came after the release of Congressional Budget Office estimates that use of the loophole, called the "intergovernmental transfer" mechanism, will cost the federal government $3.7 billion in fiscal 2001--on estimated federal Medicaid expenditures of $124 billion--and $127.6 billion over the next 10 years.
"This is waste on an unconscionable scale," Roth said of the CBO's projections in a written statement. "I would say to the administration that the time for excuses has run out and the time for action has long since arrived."
The intergovernmental transfer mechanism allows states to pay more than the accepted Medicaid rates to county-owned public hospitals and nursing homes, thereby increasing the amount of federal funds that flow into the state because of the combined state-federal matching formula used to fund Medicaid.
The public institutions then return to state coffers the difference between what they were paid and the Medicaid rate, which avoids any increase in state expenditures.
The release of the CBO estimate came as Congress worked on legislation to increase Medicare and Medicaid provider payments to roll back provisions of the Balanced Budget Act of 1997 (See story, p. 6).
Included in the Senate Finance Committee's provider-payment package is a delay in cuts to disproportionate-share hospital payments, which are special Medicaid reimbursements to hospitals serving large numbers of poor people. HCFA also said it supports a $10 billion, 10-year increase in the payments.