Intergovernmental transfers in practice and theory

Parkland Health & Hospital System in Dallas administers one of Texas’ 28 local provider participation funds that generate a portion of the state’s share of Medicaid matching payments.

Local governments impose an assessment up to 6% on the net patient revenue of private hospitals to use as an intergovernmental transfer to Texas Health and Human Services. “Texas as a whole has a lot of oversight from the Medicaid agency on waiver programs, requiring reporting and transparency in how the funding works and what it is used for,” said Katherine Yoder, vice president of government relations at Parkland. “There has been misinformation about the transparency side.”

Ken Janda, principal at Wild Blue Health Solutions, a consultancy in Houston, said he has been trying to untangle the complex Medicaid system for 12 years. A proposed Medicaid fiscal accountability regulation is encouraging, though, because intergovernmental transfers, local provider fees and other finance mechanisms are so opaque, he said, adding, “The most frustrating thing is the lack of transparency and lack of accountability of how much money there is, where it is going and what it is being used for.”

Texas’ Uniform Hospital Rate Increase Program, which is paid through managed-care plans, is intended to cover hospitals’ Medicaid shortfall. Hospitals can charge supplemental increases above the Medicaid base rate to pay for the shortfall, but the increases seem somewhat arbitrary, Janda said.

Managed-care plans add a percentage to the base rates, often ranging from 30% to 50%, and the hospitals reconcile those numbers at year-end, he said. “The concept isn’t a bad one, but we should understand how it works and it shouldn’t be as opaque as it is now,” Janda said. There is speculation that some of the UHRIP dollars go to consultants, not the hospitals, he said.

Suppose a state made a $100 million Medicaid disproportionate-share hospital payment to a county hospital, of which $50 million was reimbursed by the federal match, said Katherine Baicker, dean of the University of Chicago Harris School of Public Policy and healthcare economics professor who has studied Medicaid financing.

If the county then transferred $50 million back to the state in the form of an intergovernmental transfer, the state would have made no net contribution.

HHS’ Office of Inspector General found that supplemental Medicaid payments in six states were not based on the actual cost of care, nor were they used to improve care, according to a 2001 report. Hospitals would return the majority of Medicaid DSH funding to the state through intergovernmental transfer. That would maximize federal reimbursements without states committing their share of the required matching funds, regulators found.

“The federal government writes down a set of rules, then states figure out how to maximize access to those assets. The federal government closes that loophole and then states would find another,” Baicker said. “States would be able to reprogram resources in ways that are not the intention of the DSH provision while complying with the law.”

DSH dollars were stickier in some states, but it isn’t a consistently effective mechanism to ensure funding goes to the underserved, she said.

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