The knot continued to tighten last week on a Medicaid payment loophole that has allowed some states to access billions of extra dollars from the federal government by having public hospitals and nursing homes inflate their charges.
Centers for Medicare and Medicaid Services Administrator Thomas Scully said last week that his agency would issue a regulation by the end of October that would reduce Medicaid's "upper payment limit" on services provided by public hospitals and nursing homes down to 100% of Medicare rates. The move is part of a yearlong effort by the federal government to close a loophole that most states have used to reap higher matching Medicaid payments from Washington.
In March, the CMS published a final regulation that for the first time capped Medicaid's upper payment limit at 150% of the Medicare rate. But Scully says it is still too high.
The higher payments raise states' overall Medicaid budgets and thus their federal matching funds; because of a loophole in the law, some states have been able to subsequently seek the return of a portion of the higher payments without reducing their federal matching funds. The CMS has said that some states have used the extra funding they receive via the loophole to fund state programs unrelated to healthcare such as roads and bridges.
The policy cost the federal government $2 billion in extra Medicaid payments in fiscal 2000, according to the CMS.
Hospitals have lobbied lawmakers in recent weeks to keep the 150% limit in place. In a letter to members of Congress dated Aug. 24, a coalition of nine hospital groups, including the American Hospital Association and the National Association of Public Hospitals and Health Systems, said eliminating the higher pay "will have disastrous consequences for all safety net hospitals."
The AHA said the 150% limit is not a loophole but is "sound policy" that enables public hospitals to serve as a safety net for vulnerable populations. "It is a way for the Medicaid programs to have some control over costs," said Molly Collins, the AHA's senior associate director for policy.
Matt Salo, chief health policy analyst for the National Governors Association, said the 150% limit is intended to ensure that there is money in state budgets to protect needed services such as Level I trauma centers and children's health programs.
But Scully, at a luncheon last week, called the rule "the single biggest public outrage I have ever seen in the history of government finance." He said the move to limit the upper payment limit to 100% of Medicare rates is one that most states know is coming.
Scully said he recently signed waivers for Arkansas and Mississippi to participate in the upper payment limit program but told the states that they may be able to access the extra funding for only about six months.
"I love the Medicaid program, I love helping poor people get healthcare, I hate the financing scam and that is what this is," Scully said.