Administration bears down on states to expand Medicaid

Jim Nathan, CEO of Fort Myers, Fla.-based Lee Memorial Health System, is watching his state's ferocious political battle over Medicaid expansion with growing concern. The stakes are high for his system's three hospitals.

Under a federal Medicaid waiver that expires in June, Florida receives between $1 billion and $2 billion annually to help its safety net providers with uncompensated-care costs. The Obama administration recently made clear that it's tying possible renewal of the funding to the state expanding Medicaid coverage to nearly 800,000 adult residents with incomes up to 138% of the federal poverty level. Florida's Republican-led Senate supports the administration's position, while Gov. Rick Scott and the GOP-led House oppose it.

The CMS has delivered the same message to other non-expansion states that receive similar Medicaid supplemental funding, including Kansas, Tennessee and Texas, detailing criteria for receiving continued dollars. It also contacted five other states, including Arizona and California, that receive such funding and have already expanded Medicaid.

The moves signal a new, tougher stance by the administration in its ongoing campaign to persuade Republican-led states to expand Medicaid under the Affordable Care Act.

The latest actions by HHS Secretary Sylvia Mathews Burwell and acting CMS Administrator Andy Slavitt suggest the administration may go as far as withholding the extra funding—at the risk of causing disruption of safety net care—to get people covered through the expansion while President Barack Obama is still in office.

U.S. Sen. Bill Nelson (D-Fla.) said Burwell considers the low-income pool “paying two times for the same thing” because states can receive federal Medicaid expansion funds to provide coverage for the same population.

“CMS used to be a lot more accommodating and flexible with states as they tried to achieve the same goals,” said Philo Hall, an attorney at Epstein Becker & Green and former associate director for health on the White House Domestic Policy Council. “But in these final two years of the Obama administration, they have a more aggressive leadership team.”

The political stakes are high. It's unclear which party voters would blame in the 2016 elections if states that refuse to expand Medicaid lose their uncompensated-care funding, causing patients to lose access to coverage and possibly forcing hospitals to close. “I do not think that the House or the governor want this blood on their hands when this cart goes into the ditch because people will not come to the table … over healthcare funding,” Florida Senate Budget Committee chairman Tom Lee said last week during a Senate session.

In Florida, Nathan and other hospital leaders are torn because they strongly support a Senate bill that would expand Medicaid. But they don't want to risk losing the low-income pool (LIP) funding if Medicaid expansion dies. Nathan's system receives about $48 million a year in pool funding, which helps subsidize its regional trauma center, complex children's services, low-income clinics and medical-residency training clinic. “We are very dependent on LIP funding,” he said.

The fight has expanded to Republican-led Kansas, Tennessee and Texas, where GOP leaders adamantly oppose any Obamacare programs. Florida and Texas are the big enchiladas, because expanding Medicaid in those states would extend coverage to nearly 2 million uninsured people. “We told states that our letter to Florida articulates key principles CMS will use in considering proposals regarding uncompensated-care pool programs in their states, but that discussions with each state will also take into account state-specific circumstances,” CMS spokesman Aaron Albright said.

The administration's aggressive linkage of uncompensated-care funding to Medicaid expansion has drawn varied responses.

“It's blackmail,” said Robert Weiner, a Democratic strategist and former White House spokesman. “I don't think CMS needs to do this.”

“They are playing with fire in Florida (because) that state is so important during presidential elections,” said Bradley Blakeman, a Republican strategist and principal at the 1600 Group, a consulting firm.

But Cindy Mann, who recently stepped down as the CMS' Medicaid chief, said the administration's position represents well-established policy on Medicaid waivers. “One of the principles of the uncompensated-care pool waivers is that the funds are used to cover care for people … who don't qualify for Medicaid,” said Mann, now a law partner at Manatt, Phelps & Phillips. “So it is highly relevant to consider (Medicaid) expansion, as the Affordable Care Act provides an avenue of coverage.”

The Obama administration's new approach is likely to face legal attacks. Scott has promised to sue, arguing that the linkage violates a 2012 U.S. Supreme Court decision that the federal government cannot make a state's Medicaid funding contingent on expanding the program under the ACA. Texas Republican Gov. Greg Abbott said last week that he would support Scott's lawsuit. “The Supreme Court made it very clear that the Constitution does not allow the federal government to use these coercive tactics against the states,” Abbott said in a written statement. “Medicaid expansion is wrong for Texas.”

Legal experts differed on Scott's chances of prevailing in the courts. One issue is that the Supreme Court ruled based on the threat of withholding all federal Medicaid funding from a state, not the relatively small portion from a discretionary waiver program. “There is no precedent of where to draw the line,” said Jesse Witten, a partner at Drinker Biddle & Reath. “It's less than a full-blown shutdown of the Medicaid program, but (it's) significant.”

Some provider groups say they feel caught in the middle in the current showdown. They have tried everything over the past several years to get their Republican governors and legislative leaders to expand Medicaid. But they warned that the new federal pressure could prove counterproductive.

“The reality is, we're just not going to get there for a while, (though) maybe someday,” said Craig Becker, president of the Tennessee Hospital Association. His state's Republican governor, Bill Haslam, recently tried to pass a Medicaid expansion model to extend coverage to about 200,000 Tennesseans, but it was blocked by Senate Republicans. The state receives about $500 million a year in federal uncompensated-care funding. “If (the CMS) is going to do this, it's going to be terribly disruptive,” Becker said.

The National Rural Health Association plans to reach out to state hospital associations to pressure the administration into backing down, said Maggie Elehwany, the group's vice president for government affairs. “This draconian threat leaves rural patients as the ones who are going to suffer,” she said.

In Texas, hospital leaders were split on the administration's approach, given state GOP leaders' implacable opposition to Medicaid expansion. “To tie (uncompensated-care funding) to Medicaid expansion would hurt the vulnerable population (it) was created to help,” said John McWhorter, president of Baylor University Medical Center at Dallas.

But George Masi, CEO of Harris Health System, the major safety net provider in Houston, said he supports the administration's efforts to push Texas to expand Medicaid. “Nobody wins in a scenario where we aren't providing care to those who require it,” he said.

For now, Medicaid officials in Kansas, Tennessee and Texas say they aren't too worried because their waiver expirations are a year or more away. Kansas' program expires in January 2018, Tennessee's in June 2016 and Texas' in September 2016.

In Florida, however, the threat is dire. “We must stress the importance of maintaining LIP funding for the short term,” said Jim Burkhart, CEO of Tampa General Hospital. “The loss of $86 million in LIP funding would seriously impact our ability to maintain our mission.”