The federal government said it would save $9 billion by imposing new limits on the use of a controversial Medicaid loophole that allows states to inflate the federal government's contribution to their programs.
The Centers for Medicare and Medicaid Services late last month released and published proposed regulations that would prevent public hospitals and nursing homes from receiving Medicaid reimbursement at higher than 100% of the Medicare rate. It is scheduled to take effect as a final rule in mid-February.
Until this year, no limit was set on the rates public hospitals and nursing homes could charge Medicaid programs. With states' permission, some facilities billed excessive amounts, elevating state Medicaid spending and therefore federal matching payments. Some facilities subsequently rebated excess payments to their state government, and in some cases, states allocated the rebated funds to their general budgets.
Under a final regulation promulgated by the Clinton administration, the federal government clamped down on the loophole in April, capping Medicaid rates at 150% of the Medicare rate.
At least 25 states have been taking advantage of the loophole, and 14 more states had applied just this year for a waiver to participate. "It's a virus that's spreading," said Thomas Scully, CMS administrator.
Under the proposed rule, all but six states will be given a one- to two-year transition period to the 100% upper-payment limit. Alabama, Michigan, New Mexico and North Carolina-whose use of the loophole was long established-will receive five-year transition periods. California and Illinois, which for many years have used the funds to support safety-net programs, will be given eight years.
Governors and public hospitals were quick to criticize the regulation, arguing that an economic slowdown will mean more uninsured people will be treated in public hospitals at the same time as the hospitals need to beef up their emergency-response capabilities to meet potential bioterrorism threats.
"I think it's awful; it's taking a very bad situation that's going on in the states and making it a lot worse," said Matt Salo, director of health legislation with the National Governors Association.
Scully's plan has been hotly contested all the way. Not only the NGA but also hospital organizations have lobbied for at least a delay in publication of a new regulation if not its abandonment.