HHS Secretary Tommy Thompson reluctantly approved a controversial plan by Louisiana to increase its federal Medicaid funding by raising the disproportionate-share cap for its public hospitals.
The plan constitutes just the sort of "recycling" of Medicaid funds to draw extra federal dollars that the Bush administration has been trying to quash (April 19, p. 8). Thompson signed off on it last week under intense pressure from Louisiana officials, including Democratic Sen. John Breaux and Gov. Kathleen Blanco.
The approval means an extra $774 million this year in additional federal funding for the state's $5.3 billion Medicaid budget.
Charles Miller, a lawyer at Covington & Burling who represents Louisiana and other states seeking federal approval of amendments to their Medicaid programs, said he thinks federal administrators didn't want to authorize the plan, but couldn't find a legal reason to reject it.
"If they accept that this is what Congress intended, then they do not have the legal authority to say, 'We don't like it,' " he said. "I believe they came to that conclusion in this case."
The Louisiana Legislature voted last year to implement a two-year federal program that allows states to increase the cap on disproportionate-share payments to 175% of uncompensated-care costs from 100%. Under the state's plan, Louisiana's public hospitals will return the extra funds to the state Medicaid program, which will use the money to draw federal matching funds.
The program was enacted in the Medicare, Medicaid and State Child Health Insurance Program Benefits Improvement and Protection Act of 2000. In order to compensate public hospitals for anticipated funding shortfalls after the CMS closed a loophole in the Medicaid upper payment limit regulations.
In March, the General Accounting Office reported that for more than a decade some states have used various funding schemes, including excessive disproportionate-share payments to hospitals, to "create the illusion of a valid state Medicaid expenditure" to a hospital. The report said such financing schemes undermine the integrity of the Medicaid program by increasing the federal matching rate set by law.
Louisiana's plan required the approval of the CMS, which questioned whether the state would be applying its fair share of dollars to the Medicaid program. Miller said some other states use the same mechanism to maximize their federal matches, but Louisiana drew unusual scrutiny because significant dollars were at stake due to its large unused allotment of disproportionate-share funds and huge public-hospital system. In addition, he said some states didn't require CMS approval to take advantage of the two-year program because they were covered by existing amendments to their Medicaid programs.
Nevertheless, the CMS was able to extract a concession from Louisiana, which will be required to change the program in its second fiscal year, starting July 1, said Bob Johannessen, a spokesman for the state Department of Health and Hospitals. As part of the change, public hospitals will be required to certify their reimbursements in order to provide the CMS with "stronger assurance that the money being used is put up by the state," Johannessen said.
Johannessen said that without the extra federal funds, Louisiana's Medicaid program would have been unable to pay providers as of April 30.