First, the Centers for Medicare and Medicaid Services took aim at the upper-payment-limit loophole, which 28 states used to inflate their federal Medicaid payments in 2000. Now the CMS has another state scheme in its sights.
This time the CMS is grappling with Missouri's efforts to reimburse hospitals for a state provider tax with Medicaid disproportionate-share payments. After an initial audit, the CMS has threatened to withhold $1.6 billion in future payments to Missouri if the issue is not resolved. The state denies that the scheme is illegal.
The Missouri endeavor and its challenge by the CMS are noteworthy because a subsidiary of the state hospital association coordinates the transfer of Medicaid money to hospitals for what the CMS alleges is an illegal redistribution scheme.
The CMS position, outlined in a letter from Administrator Thomas Scully to Missouri Gov. Bob Holden and obtained by Modern Healthcare, echoes Scully's attempts to close the "upper payment limit" loophole, which allows Medicaid reimbursements to be up to 150% of the Medicare rate for the same service. A recent General Accounting Office report said the loophole boosted federal payments to 28 states by $5.8 billion in 2000. Scully wants to reduce the limit to 100%, but Congress has taken steps to prohibit or delay the change (Oct. 15, p. 10).
"(Scully) seems to want to get away from the gaming of the system by states, and I think that's a worthwhile discussion," said Dwight Fine, senior vice president of governmental relations at the Missouri Hospital Association. But Fine added that states need safeguards to ensure that their Medicaid programs aren't thrown into disarray by such changes.
In the Missouri program, acute-care hospitals pay a provider tax equal to about 5% of their revenue. The state uses these tax receipts to fund a variety of healthcare programs, including some of its share of Medicaid expenditures. Since 1991, a for-profit subsidiary of the Missouri Hospital Association, known as Management Services Corporation, has been authorized to receive Medicaid payments on behalf of hospitals. When the subsidiary receives disproportionate-share payments, it cuts checks to hospitals up to the amount the hospitals paid under the provider tax. Any excess amount goes to hospitals whose disproportionate-share payments are less than the amount of provider taxes that they paid. It's this "hold-harmless" mechanism that the CMS contends is illegal.
The arrangement with the MHA's subsidiary began as part of a way to boost Missouri's federal payments with provider "donations" used to cover the state's share of Medicaid. A 1991 federal law that Scully helped write when he served in the first Bush administration prohibits such schemes. The law allows provider taxes to fund a state's Medicaid program, but providers cannot be reimbursed for the taxes they paid.
In his letter, Scully notes that he negotiated the law "with the National Governors Association and its then chairman, the Governor of Missouri"-current U.S. Attorney General John Aschcroft.
Fine said the hospital association hired lawyers to review the federal law when it was approved, and the lawyers believed that the Missouri provider tax arrangement was legal. Those lawyers "are still of the very firm opinion that Mr. Scully's recollection of the law he wrote isn't (the same as what is) on the books, because they don't see anything in that law that prohibits what Missouri hospitals are doing," Fine said.
Missouri has 30 days from the date of Scully's letter, Nov. 29, to make comments on the draft audit report or work out a compromise with the CMS.