A year after the Bush administration failed to recast Medicaid as a block-grant program, the White House and congressional Republicans are once again trying to reform the health insurance program run jointly by the federal and state governments, this time by cracking down on what they see as state abuses of the program.
In his budget for fiscal 2005, President Bush proposed nearly $24 billion in cuts to Medicaid over 10 years by eliminating fraud and abuse within the program, while the House last month proposed cutting Medicaid funding by $2.2 billion over five years.
When Congress comes back from recess this week, members of the House and Senate will try to resolve differences in their budget proposals. Unlike the House, the Senate did not propose any cuts to Medicaid in its budget blueprint.
Much of the administration's current focus is on weeding out alleged abuse and fraud in the intergovernmental-transfer and upper-payment-level systems. While both are legal financing mechanisms, the administration says some states have used loopholes in the statutes to draw more federal funding than they otherwise would get.
An intergovernmental transfer, or IGT, is a book-keeping maneuver in which states and local governments can shift funds as needed. An upper payment level, or UPL, is the maximum rate that state Medicaid agencies can pay to individual providers. The rate in aggregate cannot exceed what Medicare would pay for the same service.
By combining both mechanisms, federal authorities say, states have devised complex schemes to draw additional federal funding. In one simple scenario, a state will overpay providers. The providers then return the excess money to the state. The federal government, meanwhile, matches the inflated state contribution. As a result, the federal share of the Medicaid budget is greater than it should be, according to the administration. Medicaid is funded by both the state and federal governments with the percentage of federal funding determined by the per-capita income of a state's population.
For example in Michigan, according to a report released last month by the General Accounting Office, the state deposits funds generated by its UPL arrangement in the state's general fund. The state, however, tracks the funds as a local fund source, earmarking them for future Medicaid purposes. They are also used as the state match to the Medicaid program. This effectively recycles "federal UPL matching funds to generate additional federal Medicaid matching funds," the report said.
According to the CMS, excess federal funds also are being used by states for purposes that aren't healthcare related.
"These recycling mechanisms have created tensions among states" and undermined the fiscal integrity of the Medicaid program, Dennis Smith, director of the CMS' Center for Medicaid and State Operations, told Congress earlier this month at a hearing on the topic.
The $24 billion Medicaid cut proposed by the administration is specifically aimed at making it more difficult for states to get federal funding through IGTs and UPLs. Details of the administration's plan, including how much each state would see in cuts to its program, are still being determined, a CMS spokesman said.
Although Mary Kennedy, director of Minnesota's Medicaid program, said she believed the state has played by the rules, her office received a call from the CMS recently warning it that the state had been put on a list of about 30 "bad states."
"Depending on what they're going to do, anything that would affect a state's ability to provide healthcare is a concern," she said.
Some state Medicaid directors say that limiting the IGT and UPL funding streams could have catastrophic consequences.
"Without the benefit of IGTs, large county-based states, such as New York, California, Wisconsin and North Carolina to name just a few, would literally be unable to finance their Medicaid programs, destroying the safety net in many parts of the country and drastically increasing the numbers of the uninsured," said Barbara Edwards, the deputy director of Ohio's Medicaid office, in written testimony to Congress earlier this month.
Providers similarly say that cutting Medicaid budgets will mean cuts in their reimbursements.
"Reform in the Medicaid program is a good thing ... what we're concerned about (is) whether this is truly reform or just an opportunity to cut the program," said Tom Nickels, senior vice president of federal relations at the American Hospital Association.
Last month the AHA, along with 19 other provider associations, sent letters to members of Congress asking them to spare the Medicaid program from cuts in light of the fiscal crunches states are already experiencing.
"One of the concerns is that (proposed cuts are) taking place during a state fiscal crisis that is severe and is not going away," said Victoria Wachino, associate director of the Kaiser Commission on Medicaid and the Uninsured.
Smith said the administration's cuts would not matter to those states that have played by the rules and not abused IGTs and UPLs.
But Nickels said, "I think it's just a pretext for cutting the program."
David Parrella, chairman of the National Association of State Medicaid Directors and Connecticut's Medicaid director, said there's also a sense that the administration is trying to change the rules midstream. Over the years, the CMS has tried to curb IGT and UPL abuse by allowing states that have been dependent on those funding mechanisms to transition out of them. Some states have been given as much as eight years to do so.
Bush's proposal would effectively shut down IGTs and UPLs immediately.
"To come in now and say we're going to get rid of (the IGTs and UPLs) seems a little bit of bad faith on the federal government's part," Parrella said.
All of this comes against the backdrop of an attempt last year by the administration to turn the program, which covers 53 million low-income adults and children, into what amounts to a block-grant approach in which the federal government would pay fixed amounts each year rather than paying states amounts as they need them.
That initiative died, however, amid outrage by state governors and advocates for the poor who said such a shift would place too much of a financial burden on states and could lead to millions of people losing Medicaid coverage.